UNETHICAL LANDLORDS AND WHAT TO DO ABOUT THEM

Recently I was referred to a local retail business in Huntington Beach, CA. The owner of the small, home-decor, store front was frustrated with her landlord just 6 months into a 5 year contract, and she wanted to find a new space. Uh-oh...these scenarios present a myriad of problems for CRE professionals.

The problem arose from delivery trucks for neighboring tenants which park directly in front of her store front, blocking her well dressed windows and preventing clients from finding her retail street frontage. It was also a nuisance to parking; sometimes her clients wouldn't be able to leave their parking spot until after the delivery truck had completed its drop off. You may be asking yourself, "Why on earth would some one lease a space in front of a drop off zone?". Well the answer is, she was never informed of the problem. Evidently this landlord is fully aware of the dilemma with this particular problem spot in his center, but his unethical nature prevented him being....well....ethical about it. When my new client found this space, she was not represented by a CRE professional - which was probably her biggest mistake. According to my client, during the negotiation (which took place over dinner...yes, that's right - he wined and dined her) the landlord:

• never said anything about the drop off zone, which isn't adequately marked, and which prohibits visibility of the units 50% of the time.
• promised her the lease would be M2M, but that he needed her to sign a 5 year lease so he could obtain financing from the bank for building improvements
• pushed her into spending $5k on deferred maintenance to the unit; not tenant improvements...deferred maintenance....

Needless to say, my client began having problems on day 1 of her occupancy when she noticed the consistency with which delivery trucks would park outside of her store. By the time she was referred to me, she had already spoken to the landlord about the problem and had begun talking with her neighbors about her dilemma. To her surprise, she discovered that the landlord has a reputation with his tenants for being a shyster. She also learned that he has a team of lawyers he leans on to get him through his legal shenanigans; the guy's a professional schmuck. Even the attorney that I referred my client to had heard of this guy and his unethical standards. Unfortunately for my client however, the schmuck and his band of merry attorneys do a great job dancing on the line of legality.

Because my client had already begun negotiating a resolution to these problems with the landlord, and because the landlord had been playing chicken with her during the negotiation, I advised my client to make the landlord an offer he would have to refuse. I advised her to:

• keep track of every truck that parks in front of her store,
• to back track and keep a log of as many conversations she could remember wherein the landlord made a promise that hadn't been kept
• I also advised her to write a letter giving the landlord notice that in order for her to stay her rent would need to be cut in half. The letter also gave credit for the $5k she had spent in deferred maintenance on her unit, putting her monthly rent at a quarter of her contract rent for an entire year.

The fact of the matter is: he is renting a retail store front with street frontage and visibility. By blocking access and visibility, he is not performing to the terms of the lease, and therefore the landlord is in default of the lease.

To make an already long story a bit shorter: the landlord has acquiesced. He has asked her to get out by the end of April (this month), and the unit is already up for lease. In fact, according to my research the listing was never taken down. A sign that the landlord is fully aware of the parking dilemma he has with this particular unit. In fact, the landlord showed the unit the other day, and during the tour the landlord asked the delivery trucks to park elsewhere, but only for the tour. Once the tour was over, the trucks were back in front of the unit, according to my client. One of the truck drivers even asked my client if the tour was over so he could move his truck back to that spot. According to my client, she has been told by other neighbors in the center that the landlord has threatened legal entanglement unless they're quiet to new tenants about this problem or any other issue he's had with other tenants. Wow. The balls of this guy.

The moral of the story here folks: HIRE A COMMERCIAL REAL ESTATE PROFESSIONAL TO NEGOTIATE YOUR LEASE. In this particular case, I would have never agreed to have my client pay $5k in deferred maintenance on the unit, nor would I have agreed to a 5 year lease that was really M2M. To be honest, there's a really strong chance I wouldn't have even taken her to this center; and if I had, it would've been one of near 20 that we would've seen and the chances of her leasing that space would've been much less. If we did end up negotiating on this space, the truck issue might have snuck by me because the landlord was hiding the issue, but once it began to be a nuisance, I would've had my client out of there within a month, as opposed to the 6 or 7 months that she has spent in that unit.

And one last thing: never go to dinner with a prospective landlord. That's just weird.

BARBELLS FOR BOOBS

In December 2012, Barbazza Commercial Real Estate's client, Mammograms In Action, executed their first lease.  Mammograms In Action, operating under the DBA Barbells For Boobs, is a non-profit organization which provides nationwide funding for mammograms for individuals who do not qualify for government funding or other charitable resources in the detection of breast cancer.

Their Vision: To raise awareness of the incidence of breast cancer under the age of 40, and provide resources to those that typically would not have access to screening and diagnostic procedures for detection purposes.

Barbells For Boobs was founded, and is operated, by experienced CrossFit trainers and gym owners. Over the past 6 years, BCRE has executed several CrossFit leases and in that time I've learned a few things about CrossFit trainers and gym owners: they're highly motivated, well organized, and mentally strong.  Once a CrossFit professional gets their eyes on an idea; WATCH OUT! Cuz that idea is gonna grow like the 6 pack on a CrossFit trainee; and that's exactly what's happening with Barbells For Boobs.

Mammograms In Action (MIA) was founded by Zionna Munoz in 2010, but she put together her first fundraiser in late 2009 in honor of her best friend who had been diagnosed with breast cancer. The chosen fundraising event was a CrossFit competition with proceeds benefiting Ms Munoz's pal. The event went extremely well and they raised a respectable $4,000. Upon seeing 1) how appreciative the participants were to be involved in such an effort while doing something they love to do, and 2) that there was a void in pre-cancer screening for women under 40, Zionna put together the Mammograms In Action Breast Health Care Grant Program to fill a much needed void for a great cause: saving boobs!!!

In 2010, their first full year in operation, Barbells For Boobs raised a respectable $300,000 for mammogram funding. The following year they hit $650,000, and in 2012 MIA raised $1,400,000!! Needless to say they are on a roll; more than doubling their fundraising efforts every year. During their rapid growth the company has grown from 3 full time workers, to 5 full time workers with 3 part-time independent contractors. Their funding has provided 628 procedures to 435 individuals and has detected 9 cases of breast cancer.

The grand opening is slated for May 3rd at 7pm. Please feel free to stop by the grand opening and check out their new location at 2777 Bristol St, Ste E, Costa Mesa. If you are feeling like saving a pair, you can visit their website, www.BarbellsForBoobs.org, to give a donation or to schedule a screening. Their website is currently being revamped however and should be fully operational within the next 45 days. You can also email info@barbellsforboobs.org, or you can visit their Facebook page at www.facebook.com/BarbellsforBoobs.

Save A Pair. Save A Life.

 

NOW HIRING: COMMERCIAL RE PROFESSIONALS

Barbazza Commercial RE is looking for 2-3 agents who are team oriented and want to earn high commission splits.

We recently announced our plans to hire experienced professionals to form a CRE team. In the past 6 years, BCRE has worked hard to create brand recognition in the Orange County CRE market. We now have our signs on a couple of buildings and a steady pipeline of repeat and referral clients for both leasing and purchase transactions.

The accepted candidate's qualifications will include:

• 2+ Years Commercial Real Estate Experience
• Current CA DRE Sales or Brokers License
• Strong Landlord and/or Seller Representation Background
• Knowledge of Retail, Industrial, Office, and Medical Requirements
• Networking Mindset
• Positive Attitude
• Self Starter

If you are interested in applying for the job, please email Lora@BarbazzaRealEstate.com for more information.

NEW RETAIL LISTING: EL TORO PLAZA, LAKE FOREST

Barbazza Commercial RE Services is proud to announce our newest listing: El Toro Plaza located at 21991 El Toro Rd, Lake Forest. El Toro Plaza is a small, but fantastic community center. Several larger CRE shops have tried to lease this property up, but their size didn't allow them to serve this small, community center with the type of diligence that it requires. Barbazza Commercial is proud to take on this task, and we are confident that we will again conquer that which the larger shops failed to do.

We have a few vacancies at this time and we're looking for experienced retailers who have a use thatwill serve the surrounding community well. Here's a break down of our current availability:

• Ste 4; Former Nail Salon: There are plenty of women in this suburban neighborhood (professional, teens, and house moms) who need some mani-pedis. Lease at El Toro Plaza and you can satisfy their indulgences.
• Ste 5; Former Hair Salon: It's still stubbed for wash basins. A barber or a full on hair stylist would be great in this space. Lots of solid demographics in the surrounding area who need a quality barber or stylist to help "the Jones'" looking their best.
• Ste 8; Former Gift Shop: This unit is in shell condition. It's small, but it would be great as an ice cream parlor, a flower store, a custom framing shop, a PO Box (Mail Boxes Etc), or several other uses that would serve the local community.
• Ste 9; Dry Cleaning Pick Up: Personally I'm amazed that this unit is still available. The unit is ready to go as a dry cleaning pick up station. Any dry cleaning operator could expand their business dramatically with this location added to their pick up route. Racks installed, counter installed, drop off slot installed, signage existing!! Wow!
• Ste 10; Drive Thru Stand Alone: This is my favorite unit in the center, and there's nothing like it around for miles! This drive thru building which sits at the Eastern most corner of the property has wonderful visibility and accessibility to the passing traffic. With 36,000 CPD (according to the 2004 survey; my guess is that number is over 40k now) the right business owner with the right menu can generate real income from this simple drive thru building. The center has a dedicated turn lane for the East bound traffic which makes the potential even larger for this drive thru pad which also boasts a dedicated exit lane. Lastly, there's no quality coffee shops around either. Yes there's a Starbucks nearby; like I said, "...there's no quality coffee shops around...".  If you have a knack for quality coffee, then this is your ideal spot.

 

LEASES COMPLETED FOR MARCH 2013

To date, Barbazza Commercial RE has completed two industrial leases in March: one for Foster & Son Plumbing in South Santa Ana/West Fountain Valley (the south eastern portion of the "South Coast Metro" corridor), and the other for Electric Screen Printing & Design in Costa Mesa. Both are multi year leases with below market rents and solid landlord concessions including free rent and tenant improvements. Both of these clients are headed in the right direction as shown by their expansions. Electric Screen Printing & Design has tripled its industrial size, and Foster & Son Plumbing moved their operation out of their home and into their first industrial unit on the heels of hiring their first full time employee. Congratulations to both of these clients is in order!!!

We had been working on securing retail leases for two clients that have decided to put their files on hold for a couple of months. Seventh Chakra Yoga Studios and V&T Spa:

• Seventh Chakra Yoga Studios is currently located in Huntington Beach. They are doing very well at their current location and are strongly considering expanding into the south Orange County market. The search has been put on hold for a couple of months, but if you're in the mood, Seventh Chakra is a great place to get your yoga on.
• V&T Spa is looking to open their first retail location. We had been working tirelessly to secure a lease in Costa Mesa, but the landlord's terms weren't quite sufficient for our client's needs. Upon re-examining the market, our client decided to put this search on hold for 2-3 months while they reconsider their commercial RE need.

We have some more deals in the works that may close this month. Keep your eye out for more updates.

5 REASONS TO HIRE A COMMERCIAL REAL ESTATE PROFESSIONAL

For the past 6 years I have been forging a career as a commercial real estate agent.  In that time I have learned that my services are invaluable to business owners and commercial property owners.  Here’s a list I’ve compiled of reasons to work with a competent agent in your market, whether you’re looking to move your business, invest in commercial real estate, or list your property for sale or lease:

SAVE TIME:  This reason is especially true for the business owner who invariably wears too many hats already.  My business clients have enough to do in their day to day to take the time to compile and review listings, call listing agents, schedule and arrange property tours, write LOIs (offers), review city zoning, and stay on top of a lengthy negotiation, among other things.  Of course the property owner saves a bundle of time as well.  By hiring a commercial real estate agent to handle their sale and lease listings, the property owner is freeing himself of the time it takes to create and update listings on the various commercial real estate listing services, field phone calls and emails from prospective tenants or their agents, show the property, handle a negotiation, and facilitate a closing whether that be preparing and executing a lease document or managing an escrow through its process.

SAVE MONEY:  For starters, commercial real estate agents who represent a buyer or a tenant are paid a commission.  Generally speaking we do not charge our buyers/tenants a fee; instead we are paid a commission from the landlord/owner.

More importantly, though, commercial real estate agents save our clients money because we have the skills to negotiate the best deal on all parts of the transaction.  For instance, recently I negotiated an industrial lease for a client who runs an MMA gym.  The asking price on the property was $2/SF/mo.  My client wasn’t sure if that was a fair market rent or not, but I knew the landlord was shopping for a sucker.  After showing my client some comps, I explained that we should be able to get the lease rate down to at least $1.65/SF.  He ended up executing that lease at a $1.50/SF, with 3 months of free rent, and 3 months of early occupancy prior to the lease start date, free of rent, in order to obtain his necessary city permits, which we had already received a verbal approval for.  My client was ecstatic with these terms and confided in me that he probably wouldn’t have thought to negotiate those terms on his own.

In regards to a property owner: yes - they would have to pay a commission on the deal, but many commercial property owners do not own property as their sole source of income.  As such they are often unaware of market trends and negotiating tactics that an experienced listing agent will be able to recognize during the negotiation process.  Commercial real estate agents are also knowledgeable of the smaller nuances in a lease that can save a landlord thousands of dollars over the life of lease.  As an example, a property owner who I recently acquired as a client was unaware that tenants can be made responsible for the repair and maintenance of many utility systems which already exist on the property, ie plumbing, electrical, and HVAC.  We are currently working on including this new verbiage in all of his lease renewals and new leases.  Over the next 10 years this could save my client an estimated $50,000 (on the conservative side).

LISTING ACCESS:  Most of my clients are not aware that commercial real estate listings are not as centralized as they are in residential real estate.  Because there are so many different property and transactions types, commercial real estate has several different listing platforms, and only a couple of them are open to the public.  This is not the case with residential real estate.  In residential transactions, buyers and sellers have access to all of the data stored in the MLS.  You don’t need a residential agent to do the searching for you because you can find all of the same information on your own.  This forces commercial real estate agents to pay a lot of money to gain access to the most up to date and relevant information available.  As such, if you don’t hire a commercial real estate agent you will not have access to a majority of the market’s available properties that fit your requirement.

MARKET KNOWLEDGE & SPECIALIZATION:  Commercial real estate agents have a market knowledge that our clients, both tenants/buyers and landlords/sellers, don’t have.  After all - its our job and like any profession we need to stay on top of the trends in our field.  Commercial agents perform much market analysis both on paper and in the field.  It is this constant barrage of analysis which we carry with us that allows us to keep up with supply and demand cycles in our geographic regions.  Because of this market knowledge we are able to quickly and inherently know if a listing is priced fairly or if a prospective tenant/buyer is worthwhile or not.  We are well read and discussed on the latest market trends which allows our clients the peace of mind to know that we are pricing them as intelligently and as up to date as possible.  What was fair market 6 months ago has the potentiality of not being fair market today.  

Regarding specialization, when you’re shopping for a commercial real estate agent, its important to look for an agent who is experienced in the nuances of the specific geographic market and property type you are looking for.  Most commercial agents specialize in a certain sector of commercial real estate, i.e. retail, industrial, or office.  If you choose a commercial real estate agent who specializes in Los Angeles office space when you are looking for an industrial unit in Orange County, then you may not be getting the best “cluck for your buck” as my high school economics teacher would say.  The agent will undoubtedly do a good job locating the property, negotiating the deal, and facilitating the close, but it may not be the absolute best you could find.

CONTACTS:  Commercial real estate agents are well connected individuals.  We are constantly in touch with our market’s movers and shakers:  business owners, investors, property owners, our colleagues, politicians, etc.  We are always networking and this wealth of contacts is a huge benefit to our clients.  One of the tools a commercial real estate agent will use on a transaction is to email his/her contacts to let the industry know about a deal we are working on.  In doing so, we are able to 1) gain access to listings that may not be available yet, or may not be listed, 2) let our former buyers/tenants know of a sale or lease listing that we have just acquired, 3) contact local politicians regarding zoning regulations for a specific property, and 4) help our clients locate the funding they need to finalize a deal.  These connections close deals every day in commercial real estate; they are an incredible marketing tool that every good agent utilizes to their fullest.

So there you have it.  5 great reasons to hire an experienced commercial real estate agent in your region.  Let us take care of our business while you tend to yours.  After all, there are only so many hours in a day, and we take our business as seriously as you take yours.

And BTW - I’m an Orange County, CA commercial real estate agent who specializes in the sale and leasing of retail, industrial, office, and medical requirements.

I look forward to your comments.

ECONOMIC INDICATORS BATTLE WHILE INVESTORS CASH IN

Trying to decipher economic real estate indicators these days is like watching the fifth set of a grand slam tennis final.  On one side of the court we have Positive-Indicator, a once popular star who in recent years past was applauded for high rents and exploding property values.  On the other side of the court we are faced with Negative-Indicator, a raw up-and-comer who’s shabby appearance over the past 4 years has crippled governments and eviscerated cash-flows.  The two fierce competitors have battled tirelessly to this point in the match.  Positive-Indicator easily waltzed through the first two sets as if Negative-Indicator wasn't even there.  Then Negative-Indicator woke up and pounded his way to resounding victories in sets 3 and 4.  Now, here we are in the 5th set of a grueling match and its either indicator's game; even the seasoned spectator has difficulty deciphering the momentum.  Each time an argument is seemingly won, the debate gets served again for another edge-of-your-seat rally.  What does this all mean? And what do we do with such conflicting information?

As an example of the confusion, I point to the office sector of commercial real estate.  On January 25th, CoStar published two articles: "Landlords Poised To Regain Upper Hand in Recovering Office Market" and "Renew Or Relocate? Incumbent Landlords Willing To Sweeten The Pot".  Just on their faces, these articles wreak of opposing theories.  Midway through the former article Positive-Indicator serves a powerful, arching argument destined for an easy ace:

"'Coupled with low interest rates, companies are in a position to invest aggressively in new facilities and equipment. From a CRE perspective, Corporate America is well positioned to invest in their businesses, plant facilities and equipment,' (CoStar CEO Andrew) Florance added.

But Negative-Indicator miraculously returns the shot with a backhand down the line, in the next paragraph:

"Challenges remain, including relatively weak consumer confidence, continued high unemployment, a record federal budget deficit and economic upheaval in Europe. Occupancy recovery varies widely between metros, with "have" markets such as supply-constrained New York City showing 7.4% vacancy and housing bust "have-nots" like Phoenix lingering at a stubbornly high 20.7%"

Point goes to Negative-Indicator on this serve.  However, Positive-Indicator is still serving and in the next paragraph he delivers another whopper:

"In the fourth quarter, CoStar recorded 18 million feet of net absorption, which drives occupancy rates and other leasing fundamentals, and a total of 49 million square feet for the year, doubling 2010’s absorption."

Negative-Indicator weakly returns the serve:

"'Despite rising concerns about the darkening economic picture that started last spring and continued through the year,...

But before the sentence is finished, Positive-Indicator slams a volley past his opponent for the point:

"...absorption rose sharply in the second half of 2011, and smaller tenants, the lifeblood of the office sector, are back.' said (Walter) Page (director of research for Property and Portfolio Research, CoStar’s analytics and forecasting divisionPage), noting that companies are leasing space."

Phew!  What a couple of points that was, and that was just a few paragraphs of one article.  In the latter article published the same day, Negative-Indicator takes the offensive and its clear he has the lion’s share of momentum in his corner.  From the get-go Negative-Indicator serves up:

"...typical of.... lease renewal decisions in the current market, landlords have a vested interest in holding onto quality paying tenants, or risk loss of income, more scrutiny from current and potential lenders, and face higher marketing costs to re-fill the space"

Playing from his heals, Positive-Indicator attempts to return the serve:

"Tenants, too, have a vested interested in staying put. Tenants face a disruption in their business and significant relocation and operational costs if they leave a good location."

But Negative-Indicator is too much for him on this point as he scores with:

"But the market reality is that there are good deals to be had out there as vacancies remain stubbornly high and money for refinancing commercial properties remains hard to come by. As a result, tenants are clearly making the decision to at least shop around."

Sensing his opponent is weakened, Negative-Indicator adds insult to injury by serving a powerful ace in the next paragraph:

"'To compete with the market, landlords are offering up free rent to keep tenants, somewhere around one month per year of the lease, depending on the situation and other terms.  Also, improvement money is being spent to upgrade finishes and make spaces more functional on extensions. Usually $10 to $20/square foot for 3- to 5-year deals and some additional credits or rent reductions if the space can be used as is.' (principal of RadatzWalsh Inc, Ryan) Walsh, said."

The article continues on in Negative-Indicators favor as market analysts and experienced brokers drudge on about the gloom and doom for office landlords.  Here's yet another unchallenged ace later in the same article from Negative-Indicator:

"'The smart landlords are offering concessions to maintain occupancy, so the tenant may renew but typically on much better terms than they originally thought. It's case by case. Some clients are reducing their rent by 20% and combined with space give back sometimes 40%+ reduction.' said Michael McKeever, senior vice president, UGL Services Los Angeles."

So which is it?  Is it a good time for the office market, or is it a bad time for the office market.  Well the truth is, its a little of both; it just depends on which side of the fence you're on and how you play your cards.  For instance, office landlords have seemingly stopped experiencing rising vacancies, however they're taking it in the shorts on income, cash-expenditures, and property value.  On the other hand, tenants are seeing an ability to keep their businesses afloat with lower overhead offered through decreased rents and landlord concessions.  The real benefactors, however, are the investors who are lining up like wolves at the fire exit of a sheep convention that just caught fire.

A bit further down in the former article, we reach a header that reads, "Concessions Starting to Disappear"It starts as such:

"With improving occupancy and little new supply, concessions like free rent and tenant improvements are burning off in some markets and overall, the long downward slide in average office rents has likely bottomed.

CoStar sees significant upside in office rents, which are currently 11% below their long-term trend, Page said. With office construction at an all-time low, rents will rise and are expected to reach their long-term average between 2015 and 2017.

Did you catch that?  "With little new supply" and "With office construction at an all-time low".  That means that builders aren't building.  Which means that the reason we're seeing positive net absorption is because there's no new space coming on the market.  So although the numbers are accurate and the positive indicators are there, the big reason for their existence isn't necessarily because companies are opening up all over the place, its primarily because the market has boiled down to its core.  And that's a good thing really.  This will allow the market to solidify as it cools off, and in doing so cash-rich investors will have a huge opportunity over the next few years to gobble up properties on the cheap before rents and values begin to rise.  So for the intelligent acquisition team, this is the time to strike while the market’s hot.  This is the time they've been waiting for.  The sharks smell blood and they're all swimming after distressed landlords who got in over their heads.

“Office sales increased steadily through 2011 over the previous year as investors sought to get ahead of the curve, with investor interest spreading beyond the safer well-leased investment-grade buildings in top-tier markets and into smaller properties and second-tier markets...”

Perhaps my favorite example though of the conflicting indicators is this article on DSNews.com: Housing Crisis To End In 2012 As Banks Loosen Credit Standards.  Let me know if you find it as hilarious as I do.

Cheers!!