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DUE DILIGENCE AND MULTIFAMILY PROPERTY PURCHASES

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Friday, July 27, 2018.

Buying a multifamily property can be a fantastic investment — but only if you make sure to perform your due diligence first. That’s the only way to make certain that your money is wisely managed.

Don’t get sidetracked by the excitement of the venture. Something that seems like a great deal may not be all that special once you dig deeper. Here’s where you need to start your due diligence on a multifamily property:

1. Interior unit inspections

You need a thorough inspection of each rental unit, including appliances, floors, bathroom fixtures and ceilings to check for needed repairs or replacements.

2. Environmental hazards

A detailed environmental inspection should include information on any asbestos or lead paint on the premises. Hidden hazards can make getting financing difficult and expose you to litigation.

3. Tenant information

What are the demographics of your tenants? Can you expect long-term leases to continue? You also need copies of all of the leases in order to understand exactly what agreements have been made. A schedule of rents is also important so that you know how much rent is due — and how good the tenants are at paying. That helps you avoid hidden issues that could lead to evictions and a lot of expense for you later on.

4. Market analysis

Look into what is happening with the economy in the area, the real estate taxes, the population growth and any big changes in demographics. Who are the major employers in the area? If one major company employs most of the tenants, your economic health is tied to the company’s health once you invest. Make sure that’s something you’re willing to do.

5. Litigation

The last thing you want to do is purchase someone else’s legal headache. Make sure that there’s no litigation pending regarding safety, structural problems or management issues. If there is, you need to protect yourself against liability before you agree to buy.

Remember, you can’t trust the seller to warn you about any risks you are taking with a commercial property acquisition. It’s always, “Buyer beware!”

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INVESTING IN AN EARTHQUAKE ZONE MEANS MONITORING INNOVATIONS

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, July 19, 2018.

California is trying to build up rather than out. It makes sense to make use of tall buildings in most California cities. It’s the only way to stop moving the suburbs out farther and making commutes longer.

However, is it a smart idea? Is it even safe, given the fact that future earthquakes are not just a possibility — but a certainty in some areas? If they aren’t already, investors need to be conscious of their risks.

Los Angeles and San Francisco offer some prime real estate investment opportunities. Both are inside Class Four seismic zones, where earthquake preparation is necessary. Historically, the cities have limited the height of their buildings. However, San Francisco recently allowed a building to go about 100 feet taller than is normally allowed due to its exceptional “seismic performance.”

Structural engineers who have studied the way that buildings perform in earthquakes have come up with some amazing innovations. In the case of San Francisco’s tallest skyscraper, computer modeling was used to help design the building and make sure that it met all required codes. It also helped determine the way the building would react to various seismic events in the region.

Engineers also drove the skyscraper’s foundation 200 feet underground, into the bedrock below. Its walls are also made with a type of specially-reinforced concrete and steel frames. The floors are also designed using a unique support system. These are the type of innovations investors should see before they decide to put their money into a California skyscraper.

So, are skyscrapers simply a bad risk in an earthquake zone? The experts say that the technology in use actually makes the newest skyscrapers — which are also the tallest — among the safest buildings in the city during an earthquake. Many older buildings were retrofitted to meet earthquake-readiness guidelines after a major quake hit back in 1994. New buildings are designed with the possibility in mind from the very start.

As always, it’s important to perform due diligence in all commercial real estate purchases before you decide to invest. That means taking into consideration the unique natural characteristics of the region as well.

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WHAT TO KEEP IN MIND FOR EXCLUSIVE USE PROVISIONS

On behalf of Michael Brooks of Law Offices of Michael A. Brooks on Tuesday, July 17, 2018.

Whether a business is looking to establish a name for itself or is a well-known brand, one important contract that owners look to make with the area’s landlord is an exclusive use provision. The point of this agreement is so landlords cannot lease any businesses that might be competition to the tenant.

As a small shop owner in a specific field, avoiding competitors is crucial towards your business’ survival. If you were to own a store that specializes in office supplies, the last thing you would want is an OfficeMax just a few doors down. Therefore, it is essential that you successfully negotiate with your landlord about a potential exclusive use provision that can benefit your location in the long run. Before you do that, there are a couple of aspects to keep in mind about the landlord’s role in the deal.

Convince the landlord the provision helps both of you.

Most landlords are understandably skeptical when it comes to exclusive use agreements because it can limit their potential tenants in the future. If you were to sell something widely popular that has several big-name competitors, then the landlord is more likely not to sign it. It may not be something that you are able to sign right away if you have a small or newer business.

If your business is profitable prior to or during your lease, then the landlord might be more open to the agreement. If they know that you are successful, they want you there to have guaranteed rent payment for a long time.

Be specific about your competitors.

If you have a small shop or are planning a new business type that is new to the landlord, you must give them the details about what your company does and what companies could hurt your business. You know the field better than they do, so you have to make sure they understand which companies pose a threat.

However, you do not want to be too strict with the request. For example, if your small business specializes in healthy smoothies, you do not want to restrict any restaurant that might have smoothies on their menu. You instead want to restrict places that specialize in smoothies, such as Jamba Juice. Having a wider range of places you consider competition can make the landlord turn down your provision.

What to do if they break the agreement.

Commercial real estate purchases are made to benefit both the tenant and the landlord. If your business slows down, the landlord might be tempted to violate the agreement. They could place a competitor near your location. Make sure your provision is specific in terms of competition and how long an exclusive provision will last. A possible workaround allows lease termination or lower rent if the landlord violates the agreement. This can potentially make the landlord more cautious in their decision to place competition near you.

If that workaround is not in there, you should consider pursuing legal action against the landlord to receive the proper compensation for lost business.

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THREE QUESTIONS TO ASK BEFORE ANY COMMERCIAL PROPERTY PURCHASE

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate acquisitions & dispositions on Wednesday, July 11, 2018.

Commercial property is one of the most solid investments you can make over time, but only if you invest wisely.

How can you make sure that you’re putting your money where it will do you the most good? Ask questions about the indicators of investment success before you buy any piece of property.

1. What is the neighborhood like?

Take care to evaluate both the current condition of the neighborhood and the things that are likely to change its shape in the near future. For example, a property that’s in an area that’s gradually being gentrified could bring about significant returns if you buy early.

Look at the changes in the area and try to determine the general direction that the neighborhood is moving. Plans around hospitals, public transportation, roads and zoning can all affect your investment’s value.

2. Is the seller motivated?

You want to get a deal for your money, which means you need a seller who is motivated to let go of his or her property at a price that gives you room for profit. There are plenty of them out there, especially as owners age and decide to move on to other places, but you need to be willing to walk away from any property where the seller isn’t ready to deal.

3. What will your net operating income be?

This is a critical question. You can’t tell how valuable (or affordable) a commercial property is going to be unless you have some idea of what your net operating income will be. Calculate the value of the property’s gross income and subtract the cost of your anticipated operating expenses. This will give you the net figure you need to determine if you can make a profit.

The more familiar you are with the language of commercial real estate investment, the better you’ll be at picking out a good deal when you see it. Take plenty of time to familiarize yourself with the process. Commercial real estate purchases are something that you never want to rush if you want the most reward for your money.

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USE THESE TIPS TO PREPARE A VARIANCE REQUEST TO ZONING

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in land use & zoning restrictions on Friday, July 6, 2018.

Zoning regulations rule everything about building. Whether you’re trying to build an addition onto your home or you want to build a whole new factory for your business, zoning can be either a blessing or a bane.

This is one of those times, however, where the old adage about how “it’s better to ask forgiveness than permission,” definitely doesn’t apply. When you run into a zoning problem, deal with the issue before you start to build. It’s far more expensive to do it the other way around.

In other words, ask the zoning board for a variance before you go through with any of your plans. It isn’t unusual for variance requests to be approved, but the right approach can still make the task a lot easier. Here is some advice on how to prepare your variance request:

1. Talk to the neighbors.

Whether your project is residential or commercial, the attitude of the community toward what you’re doing can directly affect the zoning board’s decision. The more support that you have from residents in the area, the easier it will be. If your project is residential, talk to your neighbors about how it will improve the looks or value of your property. If your project is commercial, stress the benefit a thriving business like yours will bring to the area.

2. Attend the meetings.

There’s no harm in attending a few zoning board meetings — and a lot to be gained. You can introduce yourself and let members know that you’re there to gain a better understanding of what they do and how to proceed before you put your application for a variance in. You’ll also gain a good sense of how the board is likely to respond — which can clue you in on whether or not you’re going to need legal assistance with your request.

3. Hire a local expert.

The odds are good that you’re going to hire a contractor for your project — so, make it one from the local area. Zoning is a highly local issue. That means that local builders are most familiar with what will and won’t get approved in any given district.

While dealing with zoning can be a hassle, the end result is worth it — especially once you see your dream project completed!

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