Successfully Negotiating the Commercial Real Estate Lease

This is my fourth and final article in a series where I give insight into the world of a California commercial real estate broker. A commercial real estate broker leases/buys/sells commercial real estate (CRE) for the client (tenant/buyer/seller). Commercial real estate is defined for this article as office, retail and industrial spaces.

As reminder from last time, there are four main things a good CRE broker does. They: find suitable locations, negotiate the offer, negotiate the lease itself (the many clauses) and are there when the client needs help thereafter. The first article I wrote was about finding locations; the second about negotiating the major deal points, the third one about negotiating the lease and this one will focus on how I as a broker help my clients after they sign the lease.

What happens if you have a dispute with your landlord after you sign the lease?  Common disputes with landlords that I get involved with quite a bit are a tenant needing to terminate a lease early, HVAC too hot or cold, tenant being overcharged for its share of common area expenses, and many other similar disputes like these.  Shouldn’t you just hire an attorney to help you?  My answer is not right away. If I can settle the dispute, it will save you a lot of money by not having to hire an attorney.

Why can I handle these types of dispute when other brokers can’t and why can I resolve them without usually using an attorney?  Because my experience is mainly from the landlord side of the tenant/landlord equation.  After negotiating over 1,000 leases, handling the property management and legal disputes for large landlords – I’m truly equipped to know how to deal with landlords with disputes like those aforementioned.  It is one of my largest value ads as your broker.  And if you are a landlord, I can even help you also to negotiate these matters with a tenant or the tenant’s attorney because it works both ways with my experience.   I am an expert witness on these matters in court and am used frequently and successfully by real estate attorneys for these types of disputes.

Don’t get me wrong; I value good real estate attorneys highly and use and recommend them often, but only when needed.  I have clout with a landlord because I bring tenants to their property; an attorney does not have this clout.  If a landlord upsets or is unfair to one of my clients, and I share this information with a new potential client, there is a good chance my new client won’t want to lease at this landlord’s project.  I don’t know of any other brokers that offer this service to their clients like I do and have such a high track record of negotiating acceptable settlements between the parties for these types of disputes.

Pick a broker that can help you properly in all areas including these types of landlord/tenant disputes and you will sleep much better at night while saving money and time. When searching, you will find that the list of brokers with this type of expertise is very narrow. Picking the right broker is the key to getting your best deal. You can never do as well, or even come close, if you try and negotiate the deal without a good broker.

If you have questions about any of the above topics or have any CRE needs, please contact David Massie at david@djmcre.com or 805-217-0791.

Want to Lease a Prime Location? It Might Be Best to Buy The Business First

Many of my retail clients, especially restaurants and other food types of users, want to lease a great location with lots of visibility and quality foot traffic.  The main problem is that most of these prime locations are already leased.

So, what if your broker found you a prime location where the business owner might be willing to sell at a very inexpensive price?  Many businesses will accept an unsolicited offer to buy them out inexpensively because they simply aren’t doing that well, are tired of the hours, want to retire, are ready to try something else and for many other reasons.   If you bought the business, you would then have the option to either assume the existing lease or, at times, the landlord will agree on entering a new lease with you instead if he likes your business and/or financial strength better than the existing tenant.

As both a business and commercial real estate broker, I have been successful in doing the above for my clients.  For as little as $20,000, I have been able to secure many prime locations for my clients to lease.  (The price varies for many reasons, such as the worth of the existing improvements in the space, inventory, existing lease terms, perceived value by seller, etc.)

There aren’t many brokers that successfully perform both business sales/buying and commercial real estate leasing/buying/selling like I do, and the combination serves my clients well.  Unless they are very experienced at both, you should never let your leasing broker also represent you on your business sale or your business broker represent you for your lease. They might be good at their main expertise, but won’t be good at the part they don’t do much of; and it won’t end well for you if you do.

If you want to find out more about how to lease a prime location, buy/sell a business or commercial real estate, please contact me at 805-217-0791 or david@djmcre.com or visit our business brokering page.

Retail Spaces Offer a Fix to the Medical Space Shortage in Southern California

Recently, I wrote about the shortage of medical space and an increase in retail vacancies in Southern California right now. My suggestion was to have medical tenants lease space in retail centers as compared to an office or medical building that they traditionally leased space in. This may seem like an unusual suggestion to solve the problem, but recent news suggests that this issue is beginning to grow.

According to CoStar Group, the gaining US population is expected to drive demand for medical space with more than 200 million square feet of medical office space needed in the next decade:

Driven by an aging U.S. population, within 10 years the amount of medical office space needed is projected to be 16 percent more than today, based on current trends. That’s greater than the combined medical office space in New York, Los Angeles, Chicago, and Dallas–Fort Worth, the nation’s four largest medical office markets. This undeniable demographic trend in the U.S. is both a headwind for traditional office demand and an incredible tailwind for medical office demand in the coming years.

So, what are medical tenants to do with this shortage? Lease space in retail centers.  When you lease in a quality retail center, your business has good parking, signage, and retail visibility from shoppers at the retail center.  The main criteria for any business is usually the bottom line so, if being in a retail center increases your net income, wouldn’t you want to be there?  This is rule #1.

Retail space in southern California is undergoing a change.  The smaller to medium sized retail centers in particular are starting to become more restaurant/food and service focused as opposed to other types of retail uses.  Customers at retail centers want to enjoy their experience and be able to do as much as they can at one location.  So, with the foregoing in mind, wouldn’t many medical tenants fit in with this new retail trend of a retail landlord leasing to service providers like doctors and providing a better experience for the retail customer?  I think so.

Read more on this fix for Medical Space Shortage & Retail Vacancies in Southern California.

David Massie specializes in buying, selling and leasing office, medical/dental, retail and industrial buildings -especially off market ones that are hard to find in Southern California that only his clients are made aware of first.  Contact David now if you have interest in finding one for you:  david@djmcre.com or 805-217-0791.

DJMCRE Closes Escrow in 30 Days on a Medical/Dental Property in Oxnard at Premium Price

David Massie of DJM Commercial Real Estate recently closed escrow on a medical/dental property in Oxnard, CA at 1600 W Gonzales Rd. This was a building in need of work that David was able to sell at a premium price for the seller he represented. In addition, the escrow was only 30 days compared to the normal 4 months or more. This is a prime example of why a seller or buyer should hire an experienced broker like David to successfully sell or buy a commercial building.

Remember, because of David’s experience directing some of the largest real estate companies in the US, he can help both tenants and landlords with any of their commercial real estate needs for any type of commercial real estate for leasing, buying, selling and acting as a legal expert witness.

So, why should a seller hire a broker and pay him a commission when a seller can do it on their own?

  • Simply put, the seller will not be able to get the maximum price that a good broker can. Many brokers have clients waiting in the wings to buy a property and these clients will pay top dollar if they are allowed to make the offer first.  Also, the price a broker is able to sell a property for more than pays for their commission.
  • Sellers don’t have the same marketing ability as a broker. The world has become international and your reach has to be international.  The dollars are flowing into the US from other countries right now and international buyers are willing to pay more many times.  Brokers also know what is needed in terms of a marketing package to interest buyers. It’s complicated, expensive, and time consuming to put this package together properly.
  • The timing of when to put the property up for sale is critical. When is the market peaking?  Is there a lot of competition on the market for sale now?  Good brokers will usually know what is for sale on the market as well as off market, but sellers won’t.
  • The repairs that you need to make to the property before you put it on the market are also important. Some are worth making and some aren’t.  A good broker usually knows what to recommend.
  • What should the asking price of the property for sale be? What if there are no comparable prices for the sales price because the sales price is higher and the property won’t appraise for the sales price and therefore might not sell for this price and waste everyone’s time?
  • There are many other factors in selling a commercial real estate property; but, in our opinion, it starts first and foremost with the right broker. Doing it on your own is always a mistake.  If you don’t hire the right broker or if you do it yourself, it will cost you.  We have seen it many times.

If you want to learn more about leasing, buying and/or selling any and all types of commercial spaces in California or if you have questions about any subject related to commercial real estate, please contact David Massie of DJM Commercial Real Estate at david@djmcre.com or 805-217-0791.

Most Important Factors to Consider When Buying Commercial Real Estate

If you’re like most commercial real estate (CRE) investors, you probably receive deal packages from brokers with CRE properties (defined here generally as multi-family, office, retail and industrial) for sale. Often, these packages contain executive summaries that position the deals as excellent investment opportunities. This should come as no surprise, as the job of the real estate broker is to present their property in the best light.

In many cases, sellers exaggerate the potential opportunity and don’t usually reveal the bad stuff. Instead, they’re just giving you the good points of their property. The due diligence is up to you, the investor, to determine whether what they’re telling you is accurate. The key, of course, is to know how to perform the due diligence so you have a true and accurate reading on what’s being offered. It’s important to understand the key metrics to always look for in any real estate investment and I am always surprised at the most obvious metrics that I see the majority of investors miss.

When you look at the potential of a CRE property, you’re really looking at how much income or profit it is generating for its owners. What should you be evaluating to determine that? Start with all the basic purchase information. This includes the price and any additional costs involved in renovating or repairs that need to be done.

You should also look at factors that might make you pass on the deal like: the condition of the area in general, crime, surrounding job market, property and other governmental taxes (Example:  High business tax is a big one in the City of Los Angeles that can cause a tenant not want to lease in this city) and the age of the property. These are often deal-breakers if they reveal too much potential risk.

The loan is another key metric: What type of loan will you have to finance the property? This will spell out the loan totals, down payment, interest rate, closing costs and other fees. Make sure you are comfortable with the loan structure (fixed versus floating rate, long-term versus short-term, etc.). You should also receive a detailed expense report on the property including: property taxes, insurance, maintenance costs, property management costs and others.

To buy a property correctly, I always recommend you have proper representation.  This first and foremost means using an experienced CRE broker and a good CRE attorney.  Most CRE brokers can refer you to a good CRE attorney because they have to use them all the time.  But a good CRE broker can also usually find better properties that are better values. They can also negotiate better than you can and your broker is paid by the seller. So really, it’s a no brainer to use a good CRE broker.

If you have any further questions about buying CRE or just want to make sure you do it right, contact David Massie at david@djmcre.com or 805-217-0791 or look us up at www.djmcre.com.

How a Broker Successfully Negotiates the Commercial Real Estate Lease

This is my third article in a series where I give insight into the world of a California commercial real estate broker. A commercial real estate broker leases/buys/sells commercial real estate (CRE) for the client (tenant/buyer/seller). Commercial real estate is defined for this article as office, retail and industrial spaces.

As reminder from last time, there are four main things a good CRE broker does. They: find suitable locations, negotiate the offer, negotiate the lease itself (the many clauses) and are there when the client needs help thereafter. The first article I wrote was about finding locations; the second about negotiating the major deal points and this third one will discuss negotiating the lease.

Most brokers and even many attorneys don’t negotiate the lease properly.  Why?  For brokers, many of them simply don’t know what most of the clauses mean and/or simply don’t have the experience to negotiate them properly.  For attorneys, it usually has to do with them not specializing in lease contracts and, again, not having enough experience and knowledge to do it properly.   Both brokers and attorneys many times specialize in only one area, like office or retail or industrial leases, but not all of them so it’s best to get one that specializes in the lease you are negotiating.

The main problem with using a broker or attorney that isn’t experienced and knowledgeable enough at negotiating a lease is that it will usually cost the tenant money and/or problems later on.  There are many clauses in leases that can bankrupt a tenant even when their rent is low like only $1,000 per month. These include insurance clauses, indemnification clauses, operating expense share clauses, maintenance provisions and more.  Therefore, it’s not the size of the deal that matters, it’s what was agreed to in the lease that matters.  A tenant should tread carefully here. I recommend using both an experienced broker and a specific commercial real estate attorney for a lease. In cases like this, two sets of experienced eyes are better than one.  I have saved my clients a lot of money by doing the lease review first and then sending it to their attorney to review thereafter.

After negotiating over 1,000 leases, and over 100 leases per year for many years, I have the experience to really help a tenant in this area.  It’s not something most brokers can do.  Pick a broker that can help you  properly in this area and you will sleep much better at night. When searching, you will find that the list of brokers with this type of expertise is very narrow.  Landlords  usually have a good real estate attorney create their lease and the bigger ones have their attorneys negotiate the lease clauses. Because of this, you really need to even the odds and have someone that specializes in lease negotiating on your side.

Picking the right broker is the key to getting your best deal. You can never do as well, or even come close, if you try and negotiate the deal without a good broker.

Next time, in the final article in this series, we will discuss how a broker can help their client after a lease is signed for items like construction, moving, landlord disputes, terminating a lease early, etc.  Most brokers, unfortunately, cannot do much here as they simply lack the experience and/or knowledge to do so.

If you have questions about any of the above topics or have any CRE needs, please contact David Massie at david@djmcre.com or 805-217-0791.

Why Use a Commercial Real Estate Broker (and what they actually do for you…)

In this series, I will be giving insight into the world of a California commercial real estate broker that leases, buys or sells commercial real estate (CRE) for you, the client. The client is the tenant, buyer or seller of CRE space generally defined as office, retail and industrial.

There are four main things a good CRE broker does: They find suitable locations, negotiate the offer, negotiate the lease clauses, and are there when the client needs help thereafter with matters like construction, moving, future landlord disputes, terminating a lease early, etc.

The first thing a CRE broker does that might seem obvious and easy is finding you locations that fit your criteria.  We normally go on a proprietary website like CoStar that the client doesn’t have access to (a subscription to Costar is expensive and you have to learn how to use the software) and run a search for what you are looking for.  This isn’t as easy as it sounds.  If a broker doesn’t know how to use the software correctly and set up the searches correctly (including keeping a search active so that if a new listing appears that fits your criteria the broker is alerted right away), you won’t find all the possible locations.  Also, consider that many listing brokers for landlords/sellers don’t input the information correctly into the software or even keep the information updated. This makes it difficult to then find applicable properties for a client correctly.  It takes quite a bit of time to do a search correctly.

Seems easy enough; why can’t a client simply find a website like CoStar and do this search themselves?  After all, there are CRE oriented websites like Loopnet or City Feet or Office.com and others that state they have the CRE listings available at no cost, right?  The main problem with these sites is that they don’t have anywhere near all of the listings that CoStar does.  Loopnet, for example, is now owned by CoStar and Loopnet makes brokers and landlords pay to have their properties listed on this site so this site doesn’t list the properties available for those that aren’t willing to pay to do so.  Also, for whatever reason, sites other than CoStar simply aren’t used by CRE brokers because CoStar pretty much has a monopoly on most all listings and other kinds of data like comps.  So, if the client wants to do it themselves they won’t be able to find all of the available properties but only a small fraction thereof.

Then there are the off market non listed properties that you can’t find even on CoStar or other websites.  A good broker has connections to landlords/sellers and other brokers that don’t use listing services or that simply haven’t listed the location yet.  Staying in touch with the aforementioned people pays high dividends to my clients, but again it takes quite a bit of time and good record keeping to do so.

A good broker truly does use their expertise, experience and connections to get you the very best outcome. Next time, our topic will focus on successfully negotiating the deal and what goes into that.  Negotiating correctly is an art unto itself.

If you have questions about any of the above topics or have any CRE needs please contact David Massie at david@djmcre.com or 805-217-0791.

West Coast Real Estate, Will it Continue to Boom or Will it Bust?

History would say that West Coast commercial real estate market success should be ending very soon. Kevin Shannon, co-head of U.S. Capital Markets for Newmark Knight Frank, has a different opinion:

If there is a downturn, Shannon does not expect it to be as “dramatic” as it was a decade ago. “When the game ends, it will be a short spring training, and we’ll be back playing ball again,” Shannon added. […] “If you look at the engines of real estate on the West Coast: If you build it, they will come,” he said. As long as things continue to go well, Shannon said he thinks next June would mark the longest recovery in history. […] The West Coast commercial real estate market is faring well, and the good news does not appear to be ending very soon, according to some of Los Angeles’ top commercial real estate experts.

I wholeheartedly disagree with the view posed here. This broker from CBRE thinks that the buying and selling market for commercial real estate (CRE) is in the 7th inning, but I think it’s in the 12th inning.  If you want to learn more about buying or selling CRE at the right time and why brokers like this think it’s always a good time to buy or sell CRE (why not, they make a commission whether you the buyer or seller lose money or not) contact David Massie at david@djmcre.com for more details.  I have successfully bought and sold properties ranging in size from about 1,000 sf to millions of square feet and ranging in price from about $100,000 to $100 million.

Negotiating Your Lease: Why You Need a Good Broker

We read an article recently on what tenants should not be missing in their leases. This brought us back to one of our previous blogs, “Commercial Leasing: Hidden Tenant Costs That Tenants Shouldn’t Pay” that stresses the importance of having a good broker who understands these items and can negotiate them on the tenant’s behalf. This new article, from Retail Real Estate Law, talks about why landlords should be “elephants” in the lease drafting process.

The article is encouraging landlords to save money and headaches by creating versions of the lease provisions in a more favorable way by facing reality and starting with a complete lease form. It’s another example though of why tenants have to be careful of what they could be missing in their leases. It’s also another example of the importance of having a good broker to negotiate these lease terms for you.

From our previous blog on the topic:

“When leasing commercial real estate space of any type, there are many ways for landlords to hide extra costs from tenants that tenants are usually not aware of. […] If tenants aren’t careful to use a broker that understands the operating expense share, this cost to the tenant can be quite large during the lease term.  Many times this costs starts out low and then later on in the lease gets quite high.  It is best, in my opinion, to negotiate an overall annual cap and also have a list of expense exclusions that aren’t reasonable for a landlord to include as part of the tenant’s share. […]Measuring the building is another area where landlords can pad the numbers that will result in a higher rent to the tenant without a tenant even knowing it’s happening and this happens most commonly in office buildings.”

Retail Real Estate Law’s article adds to these thoughts:

“We suggest the following. These items are going to be added to any decent, important lease. Why not pay once to have them included in the lease instead of paying, each and every time a lease is negotiated? And, deny it as people may, the person whose lease form is used controls the outcome. When a provision is not in the form lease and everyone knows that it will wind up there before execution, why should the landlord (who invested) in a lease form in the first place, cede control over the “missing” provisions to the tenant. After all, if the lease is missing something that’s going to be in there at the end of the day, the tenant will supply the initial draft and thereby control the negotiation.”

If you want to learn more about your specific situation and why a good broker will be the difference for you, contact David Massie at DJM Commercial at 805-217-0791 or david@djmcre.com – we can help! For more details from Retail Real Estate law, read the full article here.

Landlord Rents are Falling: National Office Vacancy Climbs 

We recently read an article in Connect Commercial Real Estate highlighting how national office vacancy continues to climb. Rent growth, on the other hand, has headed into an incline in the last two quarters. This means that there is potential for tenants to lease office space for less than before.

From Connect Commercial Real Estate:

“The national office vacancy rate climbed 0.1% to 16.6% in the second quarter, according to research by Reis. Vacancy increased in 39 of 79 metros in the quarter, with just two metros posting a decline in effective rent, as the gap between the “better” office markets and lagging ones widens and gets more pronounced. […] Rent growth, in contrast, was healthier in the last two quarters than in the previous seven, as a number of metros had rent growth of 1% or more in the quarter and 4% for the year. The stronger metros helped buoy the national average more so than in previous quarters.”

This article is a great example of how a landlord rents are falling. If you want to learn how to lease space for less as a tenant, contact David Massie at DJM Commercial at 805-217-0791 or david@djmcre.com – we can help! For more details, read the full article here.