NEW DEVELOPMENTS & GUIDANCE FOR KEY DEAL-MAKING DOCUMENTS 

New! A "Lunch and Learn" Seminar  

Wednesday, April 18 -- 11:30 a.m. - 1:00 p.m.
Speaker: Robert McCormick, Esquire 

 
Come join us for a lively discussion that will keep you out of trouble at SAR Commercial's first "Lunch and Learn." Mr. McCormick will highlight current developments regarding Letters of Intent, Options and Purchase and Sale Agreements. 

Recent and significant legal decisions have affected deal-closing documentation for commercial real estate practitioners. These provisions will influence the remedies of your buyers and sellers and will impact your decisions and duties as you work towards closing your deal. Don't miss this very special one-time only presentation and the opportunity to learn more about:   

• "Free look"
• "As is" provisions
• Non-refundable deposits
• Liquidated damages
• Time is of the essence
• Duties to disclose
• Fatal flaws in documentation
• Use this registration form or call Brian at (916)437-1210 to register

Fascinating case studies which highlight errors in judgment will be reviewed. A Q & A session will follow the presentation. Keep yourself on the right track to success and register today! Pre-register to ensure that we have enough food and let us know in advance if you are a vegetarian. 
 

THE POWER OF 1031 EXCHANGES FOR THE COMMERCIAL BROKER

Thursday, May 2 -- 9:00 - 11:00 a.m.

Speaker: Bill Angove

Cost: $10 REALTORS® and SAR Members/$15 All Others 

Real estate investment has many tax advantages. Completing a 1031 tax-deferred exchange may be one of the best options to improve your or your clients' financial package.  1031 tax-deferred exchanges can be both a powerful wealth building tool and a way of adjusting investment portfolios to more accurately reflect lifestyle choices and circumstances.

Get the edge you derserve when it comes to understanding the power of wealth building tax deferral and tax exclusion strategies. Topics of this seminar include:

• 1031 Exchange Strategies
• How to Use Reverse Exchanges to Get Listings
• The Exchange Equation
• Identification Rule Strategies
• Exchange Entities issues
• Reverse Exchanges
• Use this registration form or call Brian at (916)437-1210 to register 

REGIONAL EVENTS

Recently, NAR signed onto two coalition letters, urging Senate Majority Leader Reid and Republican Leader McConnell to expand the Senate jobs legislation to include provisions aimed to enhance the flow of credit to the small business and commercial real estate sectors.   

Sacramento's economy may be recovering, but it's still far harder to buy or sell a business here than before the recession began, according to a company that tracks transactions.

BizBuySell.com, a San Francisco-based online marketplace for businesses, said it carried 114 listings for companies in the four-county region during the first quarter -- down sharply from a height of 214 for the same period in 2008. Asking prices have also dropped -- from a peak of $299,000 in the first quarter of 2007 to an average of $227,000 this year.

The ratio of price to cash flow also dropped, to 2.64 this year from 2.72 for the same period in 2007. Average cash flow for listed businesses declined to $84,500 from $122,579 five years earlier.
BizBuySell.com General Manager Mike Handelsman said he sees signs of a rebound in the number of transactions completed nationally. The number of businesses sold in the first quarter -- as reported to BizBuySell.com by brokers -- rose 3.9 percent to 1,729 -- the highest total since the fourth quarter of 2008.

But nationally, as well as in Sacramento, the number of listings and asking prices are down or stagnant as a result of lingering uncertainty and the difficulty that buyers have getting financing, Handelsman said. Sale prices have declined as owners make concessions to close deals. Nationally, the median sale price was $150,000 in the first quarter, down 3.2 percent from the same period last year, he said.

Though the economy is recovering, "buyers are not extremely optimistic," Handelsman said. As a result, "demand for small businesses has declined ... and owners have had to adjust their prices downward." (Sacramento Business Journal)   

by Kelly Johnsona

Remember the downtown mall? That shopping complex that in recent years hasn't gotten much love from consumers -- or, from some perspectives, its owners?

Sacramento Mayor Kevin Johnson chastised mall owner Westfield Group three years ago for what he considered was a lack of investment in the mall, and called for Westfield to invest in the mall or sell. Well, now the Westfield Downtown Plaza suddenly looks more enticing, at least to potential investors.

Ever since the Sacramento City Council decided a month ago to proceed with efforts for a downtown arena to house the Sacramento Kings, more potential investors are giving the mall some consideration, local real estate brokers said. And it's not just the mall.

"There is renewed interest in all businesses downtown" since the arena deal, said Leslie Fritzsche, the city's Downtown Development Manager. What isn't clear is if Starwood Capital Group is one of the investment groups looking to buy Westfield Downtown Plaza. Westfield Group representatives won't talk about it, and city officials haven't been able to find out.

The Wall Street Journal  reported last week that Starwood is working on buying majority stakes in seven of Westfield's malls in the United States for about $1 billion. The newspaper didn't know which seven malls they are, but reported that five of those were among the 17 U.S. malls that Westfield put up for sale last year. Last year, the Journal also reported that Westfield Downtown Plaza was one of the 17 that Westfield put on the market. Westfield has never commented on that report. (Sacramento Business Journal)  

Preliminary first quarter office market reports issued this week by Cassisdy & Turley and Jones Lang LaSalle report that leasing and sales activity across the U.S. office sector is proceeding at a substantially slower pace than what occurred in the latter part of 2010 and throughout 2011. 

"We are at a point where there is healthy job creation, but over 50 percent of the jobs created in recent months using office space were temp jobs," said Kevin Thorpe, Cassidy Turley's Chief Economist. "These jobs don't move the needle immediately for the office sector, but they do set the stage for much stronger demand numbers down the road." 

"U.S. office rents hit bottom at the end of 2010. But given that there are still high vacancy levels, there will not be a jump in rents anytime soon in most markets. Overall, asking rents will increase by approximately 1 percent this year," Thorpe said. 

"Overall, the first quarter presented a mixed bag of results and expectations for the rest of the year," said John Sikaitis, Senior Vice President of Research at Jones Lang LaSalle. "While the recovery slowed during the quarter, it remains intact." 

"Looking ahead to the remainder of 2012, markets will continue to recover, and in some cases contract, at different rates of speed," Sikaitis said. "Overall rents across most markets will grow, but at slow and measured paces unless some significant cushion of technology or energy pockets exist." Nearly two-thirds of the 45 markets tracked by Jones Lang LaSalle demonstrated stable or declining leasing volumes. (CoStar) Deal Activity Decelerating 

by Bruce Wirt

The Sacramento region's office market, excluding the central business district, has a vacancy rate of 25.5 percent. This has been great news for tenants -- and bad news for building owners and commercial building contractors. Without an increase in our rate of job creation, the office market will remain out of balance for another three to five years.

Tenants are watching their lease rates reset 20 percent to 40 percent below what they had been paying under previous lease terms. For a tenant occupying 10,000 square feet, that can mean a savings of as much as $6,000 per month or $360,000 over a typical five-year lease term. That savings goes right to the tenant's bottom line.

Building owners, assuming they have weathered the assault by some lending institutions, are taking a big hit to their net operating income. In the example above, the building owner would experience a decrease in net income of $6,000 per month and a devaluation on that 10,000 square feet of $900,000. Additionally, for the luxury of devaluing the building and retaining a valued tenant, the owner probably paid for some minor tenant improvements and a broker fee totaling $150,000. The only other option for the building owner is to lose the tenant and hold on to a costly empty building until rents improve enough to justify the investment in a new tenant. This alternative requires patience and deep pockets.

Commercial building contractors are suffering due to the skewed balance between the leasing fortunes of tenants and building owners. Rents have dropped so low that we will not see any new speculative construction for five years. This also means a reset of building values, which could reduce city and county property-tax revenue by $40 million per year. It will take five years for rents and vacancies to catch up with the required investment return, tenant demand and financing to support new construction. (Sacramento Business Journal)  Office Vacancy Problem 

Sacramento ranks 12th on a federal Environmental Protection Agency list of U.S. metropolitan areas with the largest number of energy-efficient buildings.

The agency said the Sacramento area had 151 buildings with the EPA's Energy Star designation in 2011 and ranked ahead of numerous large metro areas including Phoenix, Philadelphia, Miami and San Diego. 

Sacramento slipped from its No. 8 national ranking in 2010. The area was ranked 16th in 2009. 

Launched in 1992 by the EPA, Energy Star is a market-based partnership designed to reduce greenhouse gas emissions through energy efficiency. This year marks Energy Star's 20th anniversary.  (Sacramento Bee)

by Elaine Misonzhnik

The 30+ days delinquency rate for U.S. CMBS loans climbed a whopping 31 basis points in March to 9.68 percent, according to research firm Trepp LLC.

The jump marked the second largest monthly delinquency increase since July 2011 and contrasted drastically with February, when CMBS delinquencies posted a monthly decrease of 15 basis points.

The 9.68 percent figure was 26 basis points higher than the 9.42 percent CMBS delinquency rate recorded during the same period last year. The percentage of loans considered seriously delinquent, which includes those that have been in delinquency for 60+ days, those in foreclosure, REO or non-performing balloons, was also up in March, by 16 basis points to 9.10 percent.

Yet Fitch Ratings, a global rating agency, estimates that new CMBS defaults in 2012 should be lower than the defaults reported in 2011, when they totaled $13.7 billion in 950 loans. The relatively low new default rate last year (it was more than $9 billion lower than the default rate reported in 2010) might be partly attributed to the fact that special servicers have been modifying many loans before they officially reach default status. Improving property fundamentals also played a role. "Commercial real estate performance improved during the year, as the general economy saw some level of stabilization," Fitch researchers write. "As a result, the rate of new defaults slowed to its lowest amount since 2008."

The office and multifamily sectors drove most of the increases in March, with the multifamily delinquency rate rising 74 basis points, to 15.39 percent, and the office delinquency rate rising 37 basis points, to an all-time high of 9.41 percent. (NREIOnline) CMBS Delinquencies Spike  

by Mike Janssen

The medical office sector has historically performed well -- even during the recession -- and this year should be no exception, according to analysts who say indicators point to a year of increasing activity.

 
Such predictions come even as providers of healthcare face some daunting headwinds, including uncertainty about the impact of President Barack Obama's proposed healthcare package and the status of Medicare and Medicaid in a time when cuts to government spending are likely. But these concerns are not likely to discourage investors who recognize the many upsides of medical office space.

"We're just seeing more and more investors being attracted to the space because of the stability of the product type," says Chris Bodnar, Head of the Denver-based healthcare capital markets group for CB Richard Ellis. "Physicians usually invest a lot of money into their spaces, and patients are location-sensitive," he says. Plus, sites with multiple tenants often benefit from a synergy of foot traffic and referrals within the building, as doctors feed each other business.

Investors have focused much of their attention to date on properties on hospital campuses. But demand is growing for outpatient services provided at off-campus sites, a trend that may expand the playing field for the REITs, institutions and privately held firms that traffic in medical office space. In some cases, retail landlords are also entering the picture, as hospitals looking to expand their patient base move into retail spaces in neighborhoods where the demographics and income levels are promising.

The undeniable demographic shifts afoot across the country are fueling much of the attention paid to medical office in recent years. Over the next decade, the segment of the U.S. population age 65 and older will grow by 36 percent and account for 54 million people. "It's an industry that can't be ignored," says Ray Braun, Managing Principal of EnTrust Healthcare Properties. (NREIOnline) Medical Office Outlook

By Randyl Drummer 

One of the hot topics in IT over the last year has been the growth and management of big data and the rise of cloud computing, fueled by an explosion in consumer smart phones and tablets, GPS navigation, social media, online gaming and e-commerce, among many other data-hungry sources.

But while the "cloud" term seems somewhat celestial and ethereal, the impact has been immediate and forceful on the wholesale and colocation data center industry as it strives to keep pace with the rapid spike in corporate demand, with the growth in total data usage and storage rising to nearly incomprehensible numbers.

In fact, the technological capacity to store information has roughly doubled about every three years since the 1980s, to the point that 90% of the data that exists on Earth has been created in the last two years alone, according to IBM.

According to Gartner Research, the global market for cloud services is expected to grow from just under $89.5 billion last year to nearly $129 billion in 2013. The vast storage requirements of the cloud combined with the move by many companies to move their IT functions offsite has caused a boom in data center demand over the last two years. Less than 20% of enterprises outsource their data center requirements today, a source of considerable growth potential for the wholesale data center industry, said Hossein Fateh, Co-founder and CEO of DuPont Fabros Technology, one of the sector's largest players.

"We believe that cloud computing, gaming, data retention and processing will continue to grow significantly year over year," Fateh told investors in a recent call. "This growth will also increase the need for data center space." (CoStar) Data Center Space

California redevelopment agencies may be gone, thanks to last year's budget and a State Supreme Court ruling. But at least $1 billion still sits in their bank accounts. Top Democrats want to use that money for affordable housing projects -- but it could be rolled into the state budget instead.

Redevelopment supporters hope lawmakers will create a new program -- though that debate might take a year or two. In the short term, they're backing a measure that recently passed the Assembly. Jim Kennedy with the California Redevelopment Association says it would direct some unspent, leftover money to affordable housing projects.

"Here you're talking about a very discreet and defined amount of money, sort of a one-time opportunity to retain it and use it for the purpose that it was actually received in the first place," Kennedy says.

Democratic Senate President Darrell Steinberg supports that idea too -- but says the state's budget needs may trump it. And legislative Republicans have already proposed using that money in their budget instead of raising taxes or cutting education. (Sacramento Business Journal)

The Sacramento Business Journal asked several local investment specialists what they think is the biggest pitfall in buying an existing small business. The following are the responses:

"Not properly doing your due diligence. This is where the buyer is able to look at all supporting documents to verify the representations made by the seller. The list of documents varies with each business for sale but usually includes tax returns, profit and loss statements, and the balance sheet. If a buyer does not have an accounting background they should bring a professional to review these documents and the supporting documents, such as bank statements, credit card receipts and payroll schedules. Other documents to review could include a lease, franchise agreement and any other documents the buyer feels are relevant." -- Andrew Rogerson, Owner, Rogerson Business Services

"The biggest pitfall in buying a small business is the baggage of culture. Since employees are the small business, if their culture is misread or not compatible with the new owner's, and new owners fail to see this or are incapable of artfully transitioning, it can be devastating to bottom lines, customer service, employee retention and maybe even survival." -- Tracy Saville, Small-Business Strategist and Publisher, Possibility Publishing & Entertainment

"The biggest pitfall is making sure that you have access to a correct set of financial records for the business, especially if it is a sole proprietorship. There are often somewhat 'murky' financial transactions in order to minimize tax payments, and it can be difficult to track these."-- Jeff Hendy, Outreach Director, SCORE Sacramento 

"Over the past few months, we have been seeing an increase in Chapter 11 bankruptcy reorganizations as a tool utilized by commercial real estate borrowers in their negotiations with lenders," stated Kevin M. Levine, Executive Vice President of Peak Asset Solutions. "More and more loans financed on a short-term basis of 5 to 7 years are maturing, but lowered property values are a barrier to refinancing," he said. "So if the borrower and lender cannot come to agreement and the lender is threatening foreclosure, the borrower may have no alternative but to seek bankruptcy court protection. The automatic stay resulting from the bankruptcy petition filing will buy time for the borrower to seek alternative investor financing."

Levine explained that if the lender's loan documents are legally sound, it may file a motion to lift the stay allowing it to proceed with the foreclosure. However, if the borrower can submit a feasible plan to pay the lender in a reasonable time, the bankruptcy court may give it that opportunity. The speedy non-judicial foreclosure that the lender was contemplating will be delayed for at least some period of time, and the lender now is faced with additional legal expense. Those negative prospects may persuade the lender to become more reasonable with regard to negotiating a restructure and extension of the loan.

Levine points out that there are a number of negative aspects to any commercial real estate bankruptcy reorganization. "A Chapter 11 proceeding is a relatively expensive additional burden for a borrower already strapped for cash, and the filing and attorney fees must be paid up front," he said. "If there is a strong guarantor who has unconditionally agreed to repay the loan, the lender still will be free to go after that guarantor. And the borrower may not be able to submit a feasible reorganization plan or find alternative financing during the period in which the stay is in place, so the time and money spent will not have achieved any permanent advantage," Levine added. (Peak Asset Solutions)