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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.

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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.

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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.

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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.

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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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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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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.