Posted on

WHAT CAN YOU DO ABOUT THAT EMPTY COMMERCIAL SPACE YOU OWN?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, June 21, 2018.

An empty commercial space is a big problem for the owner. Aside from the obvious problems (losing money, having to pay a mortgage or overhead on an unused space), a space that stays empty too long can attract negative attention that ultimately makes it harder to rent again.

To keep that empty space from becoming a problem while you look for the right tenant, consider allowing a few short-term leases instead. It’s time to think about renting to a pop-up business.

What are they? You’ve seen them, even if you didn’t consciously realize that’s what you were seeing. Every year around tax time there’s a flood of temporary offices by companies like H&R Block or Jackson-Hewitt. Similarly, around the holidays, you’ll see pop-ups by Halloween USA and numerous Christmas supply stores and novelty gift shops.

However, these aren’t your only choices. The odds are good that right in your own community, right now, someone is looking for a short-term lease to stage an art sale by independent artists, introduce people to the wonderful world of bonsai trees, or maybe showcase their inventory of Celtic goods for the summer’s Irish Festival.

Even some local retailers and wholesale shops will look for temporary space to get rid of their excess merchandise when they’re overloaded. Some big-name companies, like Apple, may need space to handle the influx of customers when a new product is released simply because their regular stores can’t handle that much traffic at once. A lot of entrepreneurs with small budgets but big ideas can also use a short-term lease to introduce their latest product to the market. This gives them a chance to test the waters in a market without making a long-term commitment.

While rents for short-term leases tend to be lower, you can offset the lower rent by insisting that the pop-ups make do with the space “as-is” and not allowing any major modifications the way you would with a long-term lease. Plus, the foot traffic from an engaging pop-up helps make your property seem more attractive to potential long-term tenants and can keep the whole area from seeming economically depressed.

Since leases used in long-term rental agreements are so different, make sure that you get some solid advice on drafting a good short-term lease that won’t hamper your ability to find another tenant down the line.

Related Posts: What clauses should you have in your commercial lease?, How do you negotiate a commercial lease from a position of power?, How to negotiate a commercial lease that favors the tenant, Leases for mall kiosks and pop-ups

Posted on

BE SURE TO GAUGE RISK TOLERANCE AS PART OF ANY REAL ESTATE DEAL

On behalf of Michael Brooks of Law Offices of Michael A. Brooks on Saturday, June 16, 2018.

True story: there once was an editor for a major news wire who, in trying to meet the constant demand for fresh news, informed the boss he was feeling overwhelmed. The boss’s response was, “I have every confidence your threshold for dealing with it will rise.” The editor survived but left the industry. The risks outweighed the rewards.

Nearly every venture we undertake involves a risk-reward trade off. This is certainly true for transactions involving the purchase or sale of real property. Whether a deal delivers what all that parties hope for depends on a lot of factors, including structuring deals to balance risk and reward in line with personal risk thresholds.

Gauging risk tolerance

In the context of residential property buying, you need to be aware of the many elements that could throw a wrench into your dream works. Consulting with an attorney experienced in identifying and addressing variables can give you confidence that you can deal with whatever happens. Experts generally agree the process starts with knowing what you can afford. This is done by getting a handle on four factors:

  • Your current income: In California, property prices run high. How much do you make and how much of that income will go to paying the mortgage? If you are a high-income earner, you will have more leeway to be aggressive in your borrowing.
  • Your income stability: This involves looking at the nature of your income. If you are salaried and receive no other compensation, your risk tolerance would likely be low to moderate. Individuals who make bonuses, commissions or receive stock options, might be able to tolerate greater risk. If you’re self-employed, many advisers urge maintaining a low-risk attitude.
  • Saving habits: From lenders’ perspectives, the greater your saving history the more confidence they have in your ability to accept greater debt risk, making them willing to stretch normal debt percentages. The more important perspective is yours and whether you want to take on that risk.
  • Your age: Youth has its advantages. If you anticipate solid career growth for years, you might be able to handle more risk and be more aggressive on borrowing. If you’re nearing retirement, your debt capability depends on post-retirement income which is typically lower and growing only minimally. Planners suggest keeping risk low.

One way to sum it up might be to say, buyer, know thyself.

Posted on

LAWSUIT AGAINST ZILLOW QUASHED AGAIN: BUYER BEWARE

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Thursday, June 14, 2018.

A class-action lawsuit against Zillow was tossed out of federal court for the second time. The plaintiffs had alleged that Zillow’s home-valuation tool was misleading and the company’s practices were intentionally deceptive.

According to the complaint, which was filed by a group of property sellers near Chicago, Zillow has hidden relationships with realtors that put private owners who try to sell their properties on their own at a serious disadvantage. The online valuation tool provided by Zillow was the first to give property buyers and sellers access to the type of value comparisons that had traditionally been available only to realtors.

Since so many people look at Zillow when shopping for a property, an incorrect value on the site can damage the chance of a sale before it even gets started. Owners claim the company ignores challenges to inaccurate estimates and purposefully lowers the value on properties not listed with the company’s affiliated agents. They say the company has a financial incentive — 71 percent of its revenues — to manipulate the figures because the affiliated brokers pay for ads and leads on the site.

For its part, Zillow maintains that its estimates use millions of pieces of public data that are put through its private algorithms to produce an approximate value. It also claims that its values are fairly accurate — and that users are warned from the start that the figures they see are merely estimates.

The judge in the case stated that Zillow’s warning to consumers is sufficient. Its arrangements with realtors who pay for advertising on the site doesn’t create a conflict of interest.

Buyers who are looking for property — whether they plan to change residences or want to invest in rental property — should keep Zillow’s warnings in mind when they use the tool. Instead of relying on an estimate provided by the site, use it as just one piece of information as you seek to determine the true value of a property.

Source: The Real Deal, “What to make of the dismissed class-action lawsuit over Zestimates,” Kenneth Harney, May 27, 2018

Related Posts: Is it a good time for your business to buy commercial property?, How does the adverse possession of real estate work?, Bad real estate deal lands Taylor Swift in lawsuit, What’s the difference between mineral rights and surface rights?

Posted on

UNDERSTANDING ZONING’S GOALS CAN HELP YOU AVOID CONFLICT

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in land use & zoning restrictions on Thursday, June 7, 2018.

Zoning codes exist for a reason. So do the rules imposed by homeowners associations. Even if you don’t like them, or outright hate them, they are often designed for one major underlying purpose: to keep property values stable in the area.

Why are zoning regulations so important to a property’s value?

In essence, it comes down to that old real estate saying that “location is everything.” Owning a beautiful home is wonderful — and proximity to things like a school, a grocery store, a nice coffee shop and a couple of restaurants is great. However, if you happen to have a beautiful home that’s located downwind from something like a pig farm, for example, you could see the value of your real estate plummet.

Similarly, zoning laws often prevent things that could cause significant amounts of noise pollution around both businesses and homes. Airports and highways, for example, can cause major damage to a property’s overall value when they get too close. Similarly, power plants and facilities that use hazardous chemicals can also deeply damage the value of nearby properties.

You may also encounter zoning regulations that restrict everything from the color of paint you put on your building to the types of signs you use for a business. In certain towns and cities, for example, there are old sections of town that have a certain local color or allure based on their vintage appearance. Businesses that move into the area often have to comply with highly-detailed rules about what colors they can use on advertising, the size of their signs and more. Even new buildings may have to be designed to fit in with the vintage look of the place.

While you are considering buying any commercial or residential property, one of the first things you should look at carefully is the neighborhood. The more distinctive the “look” or feel of an area, the higher the odds that zoning regulations are strictly enforced. That can sometimes make it easier to decide if a property will work for your purposes. You can save a lot of aggravation if you’re willing to work within the rules, rather than fight them.

Related Posts: Watch those condemnation clauses in your commercial leases, California kills bill designed to relieve housing woes, Exercise caution when buying a farm for a marijuana business, California eyes major zoning law changes

Posted on

HOW DO YOU NEGOTIATE A COMMERCIAL LEASE FROM A POSITION OF POWER?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Tuesday, May 29, 2018.

If you’re about to enter your first commercial lease as a renter, you have every reason to be nervous. The law automatically presumes that you’re savvier than the average residential renter — so you’re on your own when it comes to negotiating a fair deal from the landlord.

How do you find a strong, powerful position from which to negotiate?

1. Know your options.

If you don’t look around and consider all your options, you may jump at a bad deal simply because you think that you have to have it.

Worse, the landlord may sense that you’re anxious and offer you a deal that definitely isn’t a bargain.

It’s okay to really want a particular building for your business. But temper your enthusiasm with the sure knowledge that you have other options if this deal falls through — and be willing to use them. That’s the only way to negotiate from a position of strength, not weakness.

Spend some time with your broker looking at all the available options, including building (if necessary), so that you don’t go into any negotiations giving out unconscious signals that you just have to have a particular piece of property.

2. Talk to other tenants.

Are you looking at an office building with multiple tenants? If not, does your landlord have other properties that he or she rents to other companies?

You need to visit some of those tenants and ask questions. How is the landlord about keeping up the property? What about when it comes time to renew the terms of a lease? What other information can they offer you?

The odds are good that you’ll get some honest reviews about what the landlord is like on a day-to-day basis. That sort of information can help you decide if it is really a wise decision to get into a contract with a particular landlord or not. Someone that has a troubled relationship with several other tenants is likely to have the same relationship with you.

Obviously, it’s always important to look carefully at everything in any lease you’re offered — but these two steps can help you exude more confidence when you’re at the negotiation table.

Source: LeaseRef, “6 Tips to Negotiating a Killer Commercial Lease,” accessed May 29, 2018

Related Posts: How to negotiate a commercial lease that favors the tenant, Leases for mall kiosks and pop-ups, How to save money on a commercial lease, Tips for negotiating a cell tower lease

Posted on

WHAT TO KNOW IF YOU’RE CONSIDERING LEASING YOUR LAND FOR SOLAR

On behalf of Michael Brooks of Law Offices of Michael A. Brooks on Friday, May 25, 2018.

Solar energy is becoming a more popular form of alternative energy. People are attracted to solar because it does not harm the environment. As the demand for solar energy increases, the need for solar energy companies to find places for their solar arrays also increases.

What is a solar array?

Each solar panel is made up of solar energy cells which convert sunlight into electricity. A series of solar panels is a solar array.

Benefits of leasing land for solar use

Many solar energy land leases generate more income than agricultural leases. The revenue stream is also usually more certain. Solar power does not impact the land like agriculture does, so there is no need to rest the soil or practice crop rotation like with agricultural use. Leasing your land also shifts maintenance to the solar company. Typically, overseeing solar arrays is low maintenance, so the solar company will likely only visit the land a few times a year. Solar arrays do not create pollution, make noise, provide much of a visual disturbance, and have very little impact on the land itself.

Readying the land for use can be a slow process

However, leasing your land to a solar energy company is not a particularly quick process. You need to sign a lease with the solar energy company, the land needs to be developed for use, and then the equipment must be constructed. The developers may need to obtain land use approval from local authorities. They also may need to conduct land surveys, environmental reviews, geotechnical investigations, and other types evaluations. These processes can take months or years. Along with the solar arrays, the company will likely need to install an equipment pad that contains things like transformers, inverters, and ways to disconnect the grid.

Signing a lease for solar land use

Before any of these operations move forward, you must first sign a lease with the solar power company. Solar companies need to get permission from utility companies to connect their power to the electrical grid. Before you sign a lease, you should find out whether the solar company already has permission. If they do not, you may consider adding a clause to lease that allows you to back out, if the utility company does not give permission.

Assuming the solar company has permission from the utility company, this agreement lasts for a set amount of time. This will guide the length of the lease. Financial backers may also request the possibility of lease extensions because solar equipment may last longer than intended. You will want to make sure you are aware of these stipulations.

The way the solar company offers payment can also vary. It could be based on dollars per acre of land, dollars per megawatt, or even a percentage of the solar output. These negotiations may be confusing to someone outside the solar industry. You may consider speaking to an attorney that can walk you through the solar lease process and help you determine the best option.

Posted on

IS IT A GOOD TIME FOR YOUR BUSINESS TO BUY COMMERCIAL PROPERTY?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Thursday, May 24, 2018.

Owning your own piece of commercial real estate sounds like a great idea — but is it really worth the trouble?

According to the experts, it’s actually a great time to make that kind of investment if you’re already in business for yourself.

Why? There are a host of reasons that a commercial real estate purchase could be right for you:

More control

You already know that it can be difficult to negotiate a good commercial lease that accounts for all the variables that can happen in business.

Owning your building negates that problem because you control your rent. Even better, it allows you to control the external factors that can affect your business — especially if you operate out of a multi-unit plaza or building. You can control the mix of tenants and the type of overall clientele coming in.

The tax benefits

It pays to get some advice when you decide how to organize your business holdings. Some companies choose to create a separate business entity to own and administer their buildings. The parent company then pays monthly rent back to the holding company — which works to secure some important tax benefits for both the owner and the business.

A growing asset

Commercial property usually goes up in value over time — which means that you have an asset that will appreciate in value. That’s always a wise business decision.

Secure wealth

One of the hardest parts of being a business owner is deciding what to do with the company’s money. You need to save some, but you also want to put it back into the business. Property acquisition gives you the opportunity to do both that the same time. Because the property can be used to secure loans in the future, it’s almost as good as money in the bank.

Only you can decide if buying commercial property is in your company’s best interest — but it’s definitely something that you should assess while interest rates are still favorable.

Source: business.com, “5 Reasons to Purchase Commercial Property in 2018,” Chris Hurn, accessed May 24, 2018

Related Posts: How does the adverse possession of real estate work?, Bad real estate deal lands Taylor Swift in lawsuit, What’s the difference between mineral rights and surface rights?, Short sales can make a good bargain

Posted on

HOW TO NEGOTIATE A COMMERCIAL LEASE THAT FAVORS THE TENANT

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Tuesday, May 15, 2018.

If you’re about to sign your first commercial lease as a tenant, there’s one big piece of advice you need to follow.

Negotiate.

Unlike residential leases, just about everything is up for negotiation in a commercial lease. How much power you really have is directly related to how badly the landlord wants a tenant (or wants you as a tenant). Most of the time, however, you can subtly shift negotiations in your favor simply by following these tips:

Research the market

You’ll have a much harder time negotiating from a position of strength if you don’t know what the commercial rents are like in your market. Talk to your network of business associates about what to expect. That’s the only way to know what’s fair and counter a bad offer with authority.

Don’t accept the initial offer

That first contract may be “standard” from the landlord’s point of view, but you can bet it favors only the landlord. Experienced business professionals know not to sign the “standard” contract. Take it with you for a careful review, whether you’re doing it alone or working with a broker or attorney.

Know your deal-breakers

Go into negotiations with a clear set of priorities. Know what you absolutely have to have and what you’re willing to give up. That way you can give up some ground that doesn’t really matter to you in order to gain what does. That can be an important psychological play when you’re negotiating because everyone wants to feel like they won some sort of concessions.

Be willing to start over

Ultimately, being ready to forget the whole deal and go somewhere else is important — both for your security and from a standpoint as a negotiator. The more you want a deal, the easier it is for the other party to take control.

As always, communicate clearly and concisely with your potential landlord — but insist on getting everything in writing. That’s the only way to really ensure that you know what you’re getting.

Source: REoptimizer, “10 Commercial Leasing Tips for Tenants,” Don Catalano, accessed May 15, 2018

Related Posts: Leases for mall kiosks and pop-ups, How to save money on a commercial lease, Tips for negotiating a cell tower lease, Frequently asked questions: Legal marijuana and renters

Posted on

WATCH THOSE CONDEMNATION CLAUSES IN YOUR COMMERCIAL LEASES

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in land use & zoning restrictions on Friday, May 11, 2018.

If you have a commercial lease and you’re asking, “What’s a condemnation clause?” it’s time to get your lease out and read it. There’s some important information in there you missed.

You wouldn’t be the first person to make that mistake. Condemnation clauses seem like they’re addressing such a remote possibility that both landlords and tenants often fail to carefully consider them — until a letter comes from the authorities somewhere saying that the building or land is about to be taken under an eminent domain provision for development.

Often these are “temporary takings” or only partial takings because construction is going on. A partial taking might scoop out a few feet of a property because the main road in front of it is being widened to accommodate increasing traffic. Temporary takings might mean giving up your parking to accommodate construction vehicles for a similar project even if you aren’t losing property in the long run. Sometimes the takings are total, however, such as when an economically depressed area is being razed for new development or a major highway is being built. In the end, all three can have a disastrous effect on a business.

If you’re a landlord, a permanent taking, whether total or partial, might be better for you than a temporary one. You’ll get at least as much (and probably more) for the property as if you had voluntarily sold it, which you can then turn into new property if you want.

A temporary or partial taking, however, can be a problem. Sure, the government will pay you rent while it’s using your space, but if your tenant closes up shop and relocates, you have to go looking for a new tenant once the government is done.

If you’re a tenant, your lease could put you in debt for a building or property you can’t really use for your operations — and make it impossible for you to afford to open up somewhere else. While you’re off the hook for the total taking, a temporary or partial taking could really damage you. That’s why it’s important to address all possibilities in the lease and not treat both situations the same.

Tenants and landlords need to negotiate condemnation clauses carefully and balance their interests. If you’re already in a lease, it’s an area that you need to address when the lease comes up for renewal.

Related Posts: California kills bill designed to relieve housing woes, Exercise caution when buying a farm for a marijuana business, California eyes major zoning law changes, How can you handle a zoning problem?

Posted on

CALIFORNIA KILLS BILL DESIGNED TO RELIEVE HOUSING WOES

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in land use & zoning restrictions on Wednesday, May 2, 2018.

Housing in California is priced much higher than it is in the rest of the country. That’s a fact that’s plagued residents for decades — so they were understandably excited at the idea that new legislation could alleviate the problem.

The legislation, known as SB 827, would have compelled cities to allow apartment housing anywhere within walking distance of major bus and rail routes. That would overturn many zoning regulations enforced by cities that wanted to keep areas from becoming too urban and too crowded for the comfort of those already there. It would also cut through local politics that often control zoning decisions and cater to the interests of a select few.

Unfortunately, it wasn’t to be. The bill faced strong opposition by single-family homeowners who felt that their property values would be hurt and by local governments who felt the state was usurping their power to restrict land use they way that they deemed fit. Others worried about preserving historic landmarks. Groups who advocate for low-income tenants also disliked the bill, preferring new low-income housing instead of less-affordable gentrification. Ultimately, the bill died on the floor of the state senate.

This is probably not the end of the dispute, however, because it certainly isn’t the end of California’s housing woes. Local governments have long exercised considerable control over how land can be used. Zoning regulations can effectively reshape an entire area according to a local government’s plans — and keep out anything that the current residents find repugnant to their sensibilities. A lot of zoning restrictions are enforced with the underlying intent of blocking lower-income residents from moving in.

Typically, state governments have stayed back and let zoning be a local decision. However, housing crises like those in California draw attention to the fact that the process may need to change. The desires of a few shouldn’t necessarily have more weight than the needs of the many when it comes to sharing available housing space.

As California’s population continues to grow, zoning-related legislation is likely to become a focus of more legislation — and perhaps increasing legal challenges from those who are ready to see the state expand.

Source: www.sacbee.com, “As California’s housing crunch worsens, who will control land use?,” Dan Walters, April 29, 2018

Related Posts: Watch those condemnation clauses in your commercial leases, Exercise caution when buying a farm for a marijuana business, California eyes major zoning law changes, How can you handle a zoning problem?