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Commercial Landlords and How Their Reputations Affect Leasing

Most commercial landlords that I deal with don’t seem to understand the relationship between leasing their office, retail or industrial buildings, and their reputation in the community.  It’s pretty simple really.  If a landlord has a poor reputation, it will make it harder for them to lease their building spaces.

Here is a prime example.  Before I was a full time commercial real estate broker, I worked directly as the Director of Leasing and Property Management for a large landlord who owned more than 50 commercial buildings. There were many different types of commercial buildings -usually office, retail or industrial spaces.  Before I accepted this job position, I found out that the local brokers whom I knew well and worked with closely did not like working with this landlord -my new employer.  So, I convinced the landlord to let me leverage my relationships with the brokerage community for 6 months to see if it made a difference in our leasing.  Guess what?  In my first year, I negotiated and completed over 125 commercial leases!  This was more than double the number of commercial leases than anyone else that had the job before me.

Another example is when I had just finished acting as an expert witness where I had to go into court and testify that the landlord had ripped off a tenant for over 15 years.  This included millions of dollars related to the tenant’s share of NNN/operating expenses.  Our side won the case.  But the landlord didn’t just lose this case and have to pay my client back for millions of dollars, he also lost the trust of my client going forward and the trust of the other tenants, brokers, attorneys, other people in the community, and so many more.

Think about it Mr. Landlord.  If you treat your tenants poorly, and try to cheat them on their share of their operating expenses or add expenses that aren’t reasonable (even though maybe legally allowed), you are going to have poor relationships moving forward. If you don’t care about their business and working with them in ways to help them do better, have an unfair lease, or don’t check in with them regularly on how they like being a tenant and how they are doing, etc. -then your landlord reputation will hurt your leasing.  People talk.  And they will talk about you not being a good landlord.

My clients ask me all of the time for intelligence on a landlord.  I tell them what I know and when I tell them that a particular landlord is difficult to deal with, doesn’t have a good reputation or has a lease form that is unfair, etc. then many times this client will simply opt to not even consider the property owned by the landlord with a poor reputation.

My advice to landlords:  Treat your tenants like clients and not tenants.  Treat them like you would like to be treated.  You as the landlord many times have the upper hand in so many ways and if you use this leverage incorrectly you are making a mistake.  Tenants are your life blood and you need them as clients not just tenants.

If you are a landlord and want more information on how you can change your reputation, please contact me as I have many ideas on how to do this.  Some of these include calculating NNN and operating expense increases correctly and fairly, fair lease documents, correct property maintenance, and general things that will make your clients (tenants) want to stay in your building and new ones want to lease there.

Contact David Massie for more help: 805-217-0791 or david@djmcre.com

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DJMCRE Recent Commercial Real Estate Transactions Update

David Massie of DJM Commercial has been busy lately successfully negotiating commercial real estate deals on behalf of his clients.  Here is a list of just some of the recent commercial real estate transactions completed by David:

Sales:

  • Sale of a 26,000 sf industrial building in Oxnard, CA.

Office/Medical Leases:

  • 11,700 sf medical lease for National Research Institute in an office/medical building in Los Angeles.
  • 5,900 sf office lease for Liden, Nestle and Soden in an office building in Westlake Village, CA.
  • 3,254 sf office for Bill Barry/Mike Anton of Ameriprise Financial in an office building in Woodland Hills, CA.
  • 2,455 sf office lease for the Bensamochan Law Firm, Inc. in an office building in Agoura Hills, CA.
  • 1,200 sf office lease for Griff entertainment in an office building in Encino, CA.
  • 988 sf office lease for Westlake Investment Advisors in an office building in Westlake Village, CA.

Retail Leases:

  • 6,000 sf retail lease for The Open Book in a retail shopping center in Santa Clarita, CA and 5,000 sf lease renewal at The Oaks Mall in Thousand Oaks, CA.
  • 4,775 sf restaurant lease for Amri Cafe in a retail shopping center in Oxnard, CA.
  • 2,940 sf retail lease for Express Employment Professionals in a retail shopping center in Oxnard, CA.
  • 1,600 sf retail lease for a second location for PrideStaff in a retail shopping center in Oxnard, CA.
  • 1,200 sf retail lease for Overall Brazilian Jiu Jitsu & fitness Academy in a retail shopping center in Agoura Hills, CA.
  • 900 sf restaurant purchase and lease for Origin Cafe in a retail space in Los Angeles.

Legal Expert Witness:

  • Acted as an expert witness appearing in court on behalf of a retail tenant regarding a landlord/tenant legal dispute regarding a landlord overbilling the tenant for about $1.5 million dollars where my client prevailed primarily due to my testimony.
  • Acted as an expert witness to successfully settle a landlord/tenant dispute regarding percentage rent for a retail tenant where the landlord was trying to charge the tenant too much.

I want to thank all of my clients for putting their trust in me to represent them.

Remember, because of my past experience directing some of the largest real estate companies in the US, I can really help both tenants and landlords with any of their commercial real estate needs for any type of commercial real estate including office, retail, restaurants, gyms and industrial especially in the area of leasing, buying, selling and acting as a legal expert witness.

Please contact me if you have any type of commercial real estate needs.

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Tenants Need to Hire a Specialist to Audit Their Lease / Operating Expenses

You are a busy tenant running your business.  You receive your annual reconciliation of your share of expenses from your landlord about April each year.  These expenses go by different names, but are usually called NNN in retail and larger industrial spaces and operating expense increases for office and smaller industrial spaces.

The landlord reconciliation usually just shows the breakdown of each expense category, what your percentage share is, and how much you owed for the year.  You usually have been paying estimates all year so you might owe some or actually might receive a credit if you have overpaid.

Can you tell if this reconciliation is correct on your own?  I doubt it.  Most tenants that even think they can really can’t and don’t know what they are missing.  Landlords usually don’t send you enough information on the reconciliation to tell if it’s correct.  You need someone that specializes in understanding your lease and also that knows how to properly audit this reconciliation.  It’s kind of a combination between a real estate attorney and a CPA, but even having both of these on your side will probably not cover all of your bases in this area and it would be costly to use both.  There is a better way to do, it in my opinion.

I just finished acting as an expert witness in a legal matter related to a tenant vs. a landlord where the landlord overbilled the tenant for over a million dollars for their share of NNN expenses.  The tenant who I represented won the case and this has happened many times where I have been involved as an expert witness.  In my experience, I have found that landlords commonly overbill tenants and have many profit centers in their expenses that should not be there.  There are also other things in a lease beyond these types of expenses that give you financial exposure that you probably don’t even know are there.  These need to be understood and you need to be ready for them if and when they happen.

My background preparing these types of reconciliations for landlords spans over 25 years, thousands of tenant reconciliations, and hundreds of negotiations and lease audits for this type of expense reconciliation.  I also was in a position for the last 6 years of my landlord side career to negotiate over 100 leases per year. I am considered by many real estate attorneys to be an expert with a lease form whether retail, office or industrial.  Put the two types of aforementioned experiences together and you have a specialist in this expense share area like me that can really help a tenant like you.

You can hire me on a contingency or hourly basis, but it depends on your situation as to which is best.  I will be able to advise you on this in less than an hour usually and can usually tell if there is problem with your reconciliation.  Not getting it checked every year is a costly mistake.  So, if you want my help to make sure your share has been calculated correctly or you need an expert witness in this area for a legal matter or a full lease audit, please call me.

805-217-0791

david@djmcre.com

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Auditing a Landlord’s Operating Expense/NNN

In my last three articles on operating expense and NNN pass throughs in a lease, we looked at how expensive it can be for a tenant to pay its share of unreasonable insurance deductibles, property management fees, and landlord employee salaries.  This month we dive into how to do a landlord audit of these types of expenses.

First of all, a landlord should be sending you an annual operating expense or NNN reconciliation each year that compares the actual expenses incurred versus the estimated ones that they budgeted and based your estimated payment on.

Second, you should always make the landlord provide reasonable records for each of the expense categories on this reconciliation as I have found that landlords typically don’t give a tenant enough information to determine if the numbers are correct or not.  These back up records usually require the landlord to, at a minimum, send you a general ledger showing the payments for each of the expense accounts that make up the total expenses.  Many times landlords will also send you supplemental spreadsheets that give more information about how and why they billed the expenses in a certain manner so you understand it better and can make sure that it matches what the landlord is allowed to bill you for in the lease or even to just make sure the expense is reasonable.

I have successfully negotiated many landlord expense audits where, in almost all cases, my client receives a refund and sometimes for many years in the past so the refund can be quite sizable.  The ones that go the best for my clients are the ones that have someone like me that understands this area to negotiate their lease before they sign.  Having a fair lease, especially in this area of a tenant’s share of expenses, is critical.  Deleting unfair expenses, capping other expenses, and much more are necessary to make the lease fair for a tenant.

Again, every tenant and landlord should have their operating expenses audited annually by someone that understands them fully to make sure they are correct.  If you don’t, it will cost you much more than hiring someone like me to make sure it’s done correctly.  And doing it before you sign the lease is much better than thereafter but it still makes sense to do annually.  Landlords simply have too many unreasonable profit centers in their operating expenses/NNN such as management fees, salaries, property tax increases from a sale, high insurance deductibles, and so much more that can really cripple a tenant in an unfair manner.

If you are a tenant or landlord and want to find out how to avoid pitfalls related to leasing, buying, or selling commercial real estate of any kind (retail, office, industrial, etc.), please contact me as I have in depth experience and knowledge in these areas including operating expense/NNN.

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Conejo Valley Retail Real Estate Updates

Agoura Hills: Valley Bakery at 5879 Kanan (in the retail center called Agoura Hills City Mall where Agoura’s Famous Deli is also located) is set to open very soon sometime in September, 2016. It is a bakery/dessert/coffee and tea type of cafe. Café Bizou opened up another location at 30315 Canwood St., #14, by replacing the previously existing Café 14 in the Reyes Adobe Center. Café Bizou has two other locations in Sherman Oaks and Pasadena and their website is http://www.cafebizou.com/. David Massie of DJM Commercial Real Estate represented Café Bizou in both the purchase of Café 14 and the lease for this new location.

Westlake Village: Cici’s Café, a family-friendly breakfast and lunch café known for its massive breakfast selection, including decadent pancakes, should be opening its doors in late 2016 at 30990 Russell Ranch Road near Lure in between Barone’s Pizza and Aroha New Zealand Restaurants. Cici’s has another location in Tarzana and a large following.

Oxnard: Bottle & Pint, currently located in Newbury Park, is opening up their second location at The Collection where Whole Foods and many other retailers are located in the Riverpark area. David Massie represented Bottle & Pint this lease transaction.

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Round 3: What Tenants & Landlords Should Know About Operating Expense/NNN

In my last article on operating expense and NNN pass throughs in a lease, we looked at how expensive it can be for a tenant to pay their share of unreasonable property management fees.

This month, we look at another expense passed through to tenants where landlords commonly pad the number in their favor: Salaries.

You are probably already paying your share of property management fees.  Now, in addition, you have to pay for salaries for everyone that works at the property from janitorial to maintenance to property managers and maybe even more.

I am currently involved in an operating expense audit where the landlord has decided that from one year to the next it is reasonable to increase these salaries by more than 50%.  In addition, the actual hours worked at the property didn’t substantially increase.  How is this possible?  Because the landlord sold off some his properties and he allocated his employees’ salaries over the properties he owns.  So, the less property the landlord owns the more you as a tenant pay for your share of this category.  Needless to say, I think my client is going to prevail in the matter –especially since I negotiated the lease before it was signed so that this kind of thing won’t happen.

What is a tenant to do?  How can a tenant get the landlord to be reasonable here?  That’s where I come in.  Having directed some very large landlord companies for over 25 years has given me great insight into how to help a tenant in this area.  But you have to have a broker and/or real estate attorney savvy in this area who can set the lease up correctly or you might be stuck paying these kinds of unreasonable expenses.

This is just one of many examples of operating expenses/NNN a tenant is exposed to in most leases.  Most tenants and even landlords don’t really understand this particular issue until it happens and it’s too late.  Stay tuned for my next blog with more examples and even some savvy advice for landlords on my recommendation for how to negotiate the lease in this area and calculate these expenses correctly so you don’t end up losing the tenant at renewal time and/or get into expensive litigation over this matter.

If you are a tenant or landlord and want to find out how to avoid pitfalls related to leasing, buying, or selling, please contact me as I have in depth experience and knowledge in these areas including operating expense/NNN audits related to commercial properties.

Every tenant and landlord should have their operating expenses audited by someone that understands them fully to make sure they are correct.  If you don’t, it will cost you.

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Round 2: What Tenants & Landlords Should Know About Operating Expenses/NNN

In my last article on operating expense and NNN pass throughs in a lease, we looked at how expensive and unreasonable it is to require a tenant to pay its share of an insurance policy with a large deductible such as with an earthquake policy.

This month, we look at another expense that is commonly passed through to tenants where landlords pad the numbers in their favor:  Property Management Fees.

Why should a tenant pay a landlord, or the landlord’s property manager, to manage their property as part of operating expenses?  And, even if a tenant does have to pay their share of this fee, shouldn’t the fee be based upon the amount of hours actually spent managing the property?

The short answers are that the tenant really should not have to pay a landlord to manage the landlord’s property.  This should be included in the rent.  But it is almost always added.  And the amount of the property management fee should be reasonable and bear a relationship to the hours actually spent working on the property.  Unfortunately, it usually doesn’t reflect that as most management fees are instead based on a % of the total revenue collected at the project.  This fee is usually much higher than it should be, especially compared to the actual hours spent managing the property.

What is a tenant to do?  How can a tenant get the landlord to be reasonable here?  That’s where I come in.  Having directed some very large landlord companies for over 25 years has given me great insight into how to help a tenant in this area.

This is just one of many examples of operating expenses/NNN a tenant is exposed to in most leases.  Most tenants, and even landlords, don’t really understand this particular issue until it happens and it’s too late.  Stay tuned for my next blog with more examples and even some savvy advice for landlords on my recommendation on how to negotiate the leases in this area.  I also have advice on how to calculate these expenses correctly so you don’t end up losing the tenant at renewal time and/or get into expensive litigation over this matter.

If you are a tenant or landlord and want to find out how to avoid pitfalls related to leasing, buying, or selling, please contact me.  I have in depth experience and knowledge in these areas including operating expense/NNN audits related to commercial properties.

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What Every Tenant & Landlord Should Know About Operating Expense/NNN

So, you are a tenant that just signed an office, retail or industrial lease.  And, as part of that lease, you agreed to pay your share of operating expenses/NNN.  This may be a direct share or just increases over the base year when the lease term began.  This is normal and happens in most commercial leases.

However, what varies is what expenses each landlord includes in their operating expenses/NNN and how they calculate them.  If you don’t negotiate this part of the lease correctly, your financial exposure can be way more than all of the rent you pay over your entire lease term and could even potentially bankrupt you.

One such example has to do with insurance policy deductibles.  Most leases require you as the tenant to pay your share of such a deductible if there ever is a claim.  Sounds reasonable and normal, right?  But what if it’s for an earthquake policy where the deductible is 20% of the entire project value?  This is the normal deductible carried by landlords for this type of insurance policy.  This could cost you tens to hundreds of thousands of dollars because you have to pay your share of this expense.

Here’s an example.  Let’s suppose you lease just 5% of a building.  If the entire project is worth 10 million dollars then the deductible on most earthquake insurance policies will be 20% of that or, in this example, 2 million dollars.  Your share of this is 5% x $2,000,000 = $100,000.  How would you, as the tenant, like to have to pay this amount in a lump sum suddenly after an applicable insurance claim was made by the landlord?  Especially when your rent is only $5,000 per month to begin with?

This is just one of many examples of operating expenses/NNN a tenant is exposed to in most leases.  And most tenants and even landlords don’t really understand this particular issue until it happens and it’s too late.  Stay tuned for my next blog with more examples and even some savvy advice for landlords on my recommendation for how to negotiate the lease in this area and calculate these expenses correctly so you don’t end up losing the tenant at renewal time and/or get into expensive litigation over this matter.

If you are a tenant or landlord and want to find out how to avoid pitfalls related to leasing, buying, or selling, please contact me as I have in depth experience and knowledge in these areas including operating expense/NNN audits related to commercial properties.

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DJM CRE Announces Sale of $2.3 Million Building in Oxnard

DJMCRE is announcing the sale of a 2.3 million dollar building in Oxnard located at 1031 Factory Lane.  The property sold on April 1, 2016.  It’s a 25,810 square foot building and, with the selling price of $2,322,900, it comes out to about $90 per square foot.

DJMCRE also completed the following leases and sales so far in 2016:

Bensamochan Law Firm: 2,455 square foot 62 month new office lease in Agoura Hills

Ameriprise Financial: 3,254 square foot 60 month office lease renewal and expansion in Woodland Hills

National Research Institute (NRI): Completed a medical lease renewal and expansion of a 11,628 square foot property in Los Angeles

Completed a medical lease renewal and expansion in Huntington Park of a property at about 9,000 square feet

Express Employment Professionals: new retail lease for 63 months in Oxnard DJMCRE bought the following restaurant location for a client who we represented as the buyer: Aaronius Food Company at 8532 W Pico Blvd. in Los Angeles

Interested in leasing, buying, or selling a property?  Contact us!

DJM CRE services cost tenants nothing, because landlords pay the fee. All it takes to get started is a conversation. Contact David Massie now: 805-217-0791 or .

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Property Tax Increases Caused by a Sale: Should Commercial Tenants Have to Pay?

It’s pretty common for a commercial lease to require a tenant to pay for a property tax increase due to the sale of the property.  But is this fair?

What benefit does a tenant derive from the sale of the property?  None or minimal.  But the landlord/seller and the buyer benefit greatly at the tenant’s expense.

This property tax increase can be expensive and quite a surprise to a tenant who doesn’t understand this issue.  Example:  Suppose a 100,000 square foot office property was bought or even built over 20 years ago when market prices were low for about  20 million dollars and market prices are now high. This is very much like the current market is now.  The property could now be worth 2-4 times or more compared to when it was originally bought or built. Let’s figure on an increase of just 2 times so let’s say it’s worth 40 million now for our example.  This will cause the property taxes to go up in the same amount, so 2 times using our example.  Now the tenant has to pay their share of property taxes at this increased rate even though there is no real benefit to the tenant.

In California, the tax rate for increases is usually about 1.1% of the property value.  So, if the tenant has just 5% of the project which would equate to about 5,000 square feet and the property taxes increase as per our example above, you are going to pay the following amount now annually over and above what you were paying before:  $20,000,000 (value increase) x 1.1% (property tax rate) x 5% (your share of property tax increase) = about $11,000 per year for the remainder of your lease term.

This expense is usually quite a surprise to a tenant.  There are ways to negotiate this type of increase away but you usually have to have a very good broker to make that happen.

And this is just one example of where tenants aren’t aware of the true costs of leasing space as there are many more.  Don’t lease office space without a broker who can show you the true cost or you will be sorry.

Have more questions about: property tax or other operating expense/NNN increases, leasing, buying or selling of commercial real estate, and more?  Please feel free to get in touch!  You can contact me for help on these matters at 805-217-0791 or david@djmcre.com.