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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 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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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.