A Legal Perspective and Review of the California Association of REALTORS (C.A.R) Commercial Property Purchase Agreement

This class will review the C.A.R. approach to commercial purchase and sale transactions embodied in the C.A.R. Commercial Property Purchase Agreement (CPA). Bob will provide a practical guide for the use of the C.A.R.-CPA form plus identify the strengths and weaknesses of this form in comparison to the AIR form and custom attorney-prepared documents. 

Attendees will get a better understanding of the special aspects of commercial real estate purchase and sale transactions that should be considered when choosing a purchase and sale agreement form and be able to determine when it is appropriate to specifically utilize the C.A.R.-CPA. Call Brian DeLisi to register at (916)437-1210 or use this Registration form.

Options to Buy, Extend, Expand And More!

Wednesday, May 1 -- 10:00 - 11:30 a.m.

Speaker: Bill Hunter, Esquire

Cost: $15 SAR Members and REALTORS®/$20 Non-Members

This program is all about commercial real estate sale and lease options. Brokers and agents encounter them frequently.  Are they well understood?  Are they well written?  Do you know what to do with them?

There are options to purchase fee title; options to extend the term of a lease; options to expand a leased premises; options to match a competing offer; and options designed to disguise a loan transaction.  Mr. Hunter will lead a discussion ranging from the basic legal principles and brokerage practices to the sophisticated and creative use of options.  In his usual style, Mr. Hunter will take questions asked during the presentation.  In addition, he will address the following: 

• What makes option law unique?  And why?
• How does every option contemplate two contracts?
• Is payment by the optionee of a separate consideration required?
• Can the option price or rent be an amount "to be negotiated"?
• What are the common mistakes made when exercising an option?
• How should a right of first refusal or to first negotiate be written?
• How can a tenant's option to expand its premises be made workable?
• Can an optionee both exercise the option and propose new terms?  How?
• What services and products do title insurers offer for option transactions?
• How transferable are options and other pre-emptive rights?
• How should an option to extend a lease term be written?
• How should an option to purchase fee title be written?
• By what legally binding techniques may "fair value" be determined?
• When should exercise of an option require more than a mere "notice of exercise"?
• Can the bungled exercise of an option be promptly corrected?
• What is a hidden security device?  Why does it matter?
• What are the legal remedies for breach of an option agreement? 

Don't miss this one-time presentation with the always lively and effervescent Bill Hunter. You will make peace with options and be entertained as well! Registration form or call Brian DeLisa at (916)437-1210.

NAR'S COMMERCIAL REAL ESTATE MARKET OUTLOOK 

The Commercial Real Estate Outlook (CREO) is NAR's flagship commercial research publication. It is produced quarterly and includes the latest market information on five major commercial real estate sectors - industrial, office, multi-family, retail and hospitality real estate.

The publication includes national and metropolitan data from the respected research firms of CBRE Econometric Advisors and Real Capital Analytics, along with in-depth analysis from NAR Research. The full report is available only to NAR members, and the summary report is open to all visitors.
Read the press release with details here. See the forecast table here.

How many burgers can America eat? Although it seems like there is a fast food or fast casual restaurant on every outpad in America, restaurant chains are gearing up for an expansive year, according to Chainlinks' 2013 retail forecast.

Of the 41,000 planned retail openings in 2013, 42%  are restaurant-related. Five Guys Pizza alone hopes to open 500 new stores this year, with eight other food chains announcing plans to open 200 or more U.S. outlets and 17 more planning between 100 and 200 new units. Shopping center landlords don't mind; they are looking to food and entertainment tenant mixes to drive traffic to brick-and-mortar centers. After all, you can't eat a burger over the Internet -- at least not yet.
 
Hospitality - Do hotel loyalty programs work? Not according to Deloitte's October 2012 survey of 4,000 travelers. Nearly 50% of loyalty members' annual hotel dollars were spent somewhere other than their preferred hotel. In fact, only 7.8% of participants always stay at the same hotel brand. The majority of respondents selected value, free parking, comfort, and location as a hotel brand's most important attributes.
Industrial - A stronger housing market will boost industrial absorption this year, cutting the current vacancy rate by 70 bps by year-end, reports Cassidy Turley. In the last two years, industrial absorption has topped 205 msf, surpassing the 145 msf lost during the recession. While landlords have been reducing rental rates to lease space, rents are poised to grow 2% to 3% this year.
Multifamily - In the next 12 to 15 months, 30 U.S. cities will pass mandates requiring multifamily property owners with more than 10,000 sf to enter energy use data in the Environmental Protection Agency's Portfolio Manager, a data resource that will be used to develop Energy Star ratings for apartment buildings, said EPA officials at the National Multi Housing Council's fall tech conference.
Office - Despite -- or because of -- the fiscal cliff scenario, 4Q12 demand for office space nearly tripled over the previous quarter, with markets absorbing 20.1 msf, up from 7.1 msf in 3Q12, says Kevin Thorpe, chief economist for Cassidy Turley. It was the strongest demand for office space since 2007, with 65 of the 80 metros tracked showing occupancy gains.
Retail - Class B is back. "Class B (community, neighborhood, and strip shopping centers are) now generally back to reasonable vacancy levels and rental rate growth in at least the top 70% of major U.S. markets," says Chainlinks Retail Advisors 2013 retail forecast. Just two years ago class B shopping centers were performing in only the top third of U.S. metros. (CCIM) Market Trends 

Are You Experienced?

It stands to reason that any transaction you undertake without prior experience is likely to go against you in some way. Commercial property transactions, as complex as they can be, are no exception. Lenders, counter parties, managers, brokers, even counsel, all represent their interests to the maximum. When they're on the other side of the table, you can bet that those interests will be represented at your expense if you lack the ability to see the deal in the terms they do. You obtain that ability in depth in only one way: through direct experience. Experience in commercial property ownership and management is critical to success.

Everybody Prefers Experience, Starting With The Lender
A borrower's understanding of how to operate the property is high on the list of what a lender is looking for. Creditworthiness is king, then market conditions have their say, but no matter what, the lender is always looking for clues that the borrower has an understanding of what owning this property entails. If the borrower's answer boils down to a simple "I'll be hiring a property manager," a lender has every right to wonder about the management capability of the borrower.

This is not to say that hiring a property manager is a mistake, it's to say that the borrower's management acumen should be on display, not downplayed. Take the intent to hire a manager as an example: the borrower's management of that relationship between herself and her property manager is still seen by the lender as the lender's best defense against the borrower running into trouble down the line with the property. And trouble means endangered loan service.

Showing Experience
A borrower needs to demonstrate to the lender an acumen at commercial property ownership and management. One way to do this is through the development of a document of that acumen. Sometimes called an REO Schedule (Real Estate Owned), this list of real property, which can include single-family, is to make it clear to the borrower that the lender has experience commercial real estate purchase, ownership and operation.

This document has such an effect on lenders that if a borrower happens to be out of the market at the time of the deal, the Schedule should include a list of properties once-owned with dates of sale, descriptions including unit numbers, square footage and other vitals.

Bottom line: Commercial property is income property -- show your lender that you've got the experience and can handle the ins and outs of an income stream, and you're more likely to get the capital you need to make the deal. (CommercialSource) 

At long last, the case for "too big to fail" banks is falling apart.

In the wake of the residential mortgage crisis, our industry has for years now struggled with finding the sources of capital it needs to finance the commercial real estate transactions that drive the broader economy. The role of banks is to allocate that capital to our sector, to manage risk and to both set up and follow rules that promote stability and predictability as that capital circulates into and out of our transactions.

But risk management and rules have fallen by the wayside.

When US Attorney General Eric Holder last week testified to Congress that some banks are so big that DOJ is afraid to bring charges against megabanks, not even the most strident opponent of government regulation could fail to notice that the country's top law enforcement official was actually giving up on law enforcement, at least when it came to TBTF banks.

The reason given by Holder was the same reason given by the banks themselves when accepting the bailouts: what's bad for megabanks is bad for the entire economy. In other words, first, in 2007, the banks in crisis managed to call off the basic rules of the market. Now they have effectively called off the law itself.

You can't get much more unregulated than that.

If you're not a megabank, and you gamble and lose, then you leave the table. But if you're JPM Chase, you get a pat on the back and a pile of new chips on a silver platter. Plus a few handfuls for your own pinstriped pockets. (CommercialSource)
 

The office-using and retail sectors added 100,000 and 23,700 jobs respectively in February, according to Cassidy Turley's March 2013 Employment Tracker. Job growth in the office sector marked the greatest monthly increase since September 2011, and demand for both office and retail space is expected to remain positive through 2013.

 
Secondary markets saw notable year-over-year increases in office-using jobs in 4Q12, including Austin, Texas (7.5%), Cincinnati (4.8%), and San Jose, Calif. (4.4%).

The growth in the office and retail sectors coincides with the overall national jobs trend, as unemployment hit a four-year low of 7.7% in February.

However, impressive employment gains might not be enough to counteract the potential effects of federal sequestration and rising gas prices. Assuming Congress reaches an agreement on federal spending cuts by the end of March, gross domestic product is on track to increase by 2.5%, creating an additional 1.9 million net new jobs this year. (Cassidy Turley) Download the report
 

by Robert Carr

One of the main excuses for a lack of new seniors housing development, even in the face of massive impending need in the next decade, is tight financing  --the theory that lenders don't want to fork over cash for properties that may not fill up in a sector not as understood as other commercial properties.

However, the lack of bank support may be a myth, experts say, as established firms are more likely just building carefully and focusing on need-based uses rather than market-rate properties. According to fourth quarter data from NIC, construction starts for seniors housing is at about 1.4% of inventory, which is about one-third of the level the industry saw right before the recession. Much of the drop is from independent living, which took a hit from seniors not able to leave their homes, but even need-based housing is down by a third.

David Hegarty, president and COO of Newton, Mass.-based Seniors Housing Properties Trust Management, says he believes that lenders are being very choosy about which projects they are financing. "At some point, as the CMBS market becomes more fluid, banks will be able to offload the debt and they may be able to go out more on a risk curve," Hegarty said during the trust's presentation at the Citi Global Property CEO conference on March 6. "I think the developers are all waiting on the sidelines with a plan for development all over the country, so I can envision certain markets being overdeveloped in about five years."

Other experts in seniors housing lending, however, say that it's more likely that the pipeline will be built gradually, with the most needed housing of assisted living and memory care being snapped up quickly as it is opened. For example, Chicago-based Harrison Street Real Estate Capital recently partnered with Garden City, N.Y.-based Engel Berman Group to acquire seven former Bristal seniors housing properties for $380 million in New York, and the venture plans to build 1,000 more units together.

"With the aging population and increased life expectancy we believe there is going to be a need for assisted and memory care properties," says Chris Merrill, CEO of Harrison Street. "We see the opportunity in these smaller assets with private pay and based on a rental, not a buy-in, model. We think skilled nursing will have challenges given the reliance on public pay. Also market rate and independent can be more tied to swings in the economy." (NREOnline)

by Beth Mattson-Teig

Traditionally, extended-stay properties have not been high on the wish lists of institutional investors. Yet REITs, institutions and private equity players have made a big splash in the sector with major portfolio acquisitions in the past year. Those high-profile transactions coupled with strong fundamentals are piquing interest across a wide spectrum of investors.

So why the sudden interest? The simple answer is that extended-stay properties are attracting attention because they have performed well. They have strong operating margins. Financing is available, and buyers can acquire property at a more "rational" cap rate, says Dan Peek, a senior managing director at HFF in Tampa, Fla. "So, you can create short-term, pretty high returns on a levered basis out of a select service hotel, more so than you can out of a full-service hotel," he adds.

Although extended-stay properties have been rebounding along with the broader hotel industry, the niche has attracted more attention in the past year due to a strong increase in its average rate. Extended-stay hotels saw RevPAR rise to an all-time nominal high of $58.80 in 2012. The average rate for extended-stay properties rose 6.9% in 2012 compared to the 4.2% increase in the overall hotel industry, according to a recent report released by The Highland Group, an Atlanta-based consulting group.

That spike is due in part to the fact that extended-hotels have become more aggressive in boosting rates in the past year, notes Mark Skinner, ISHC, a partner at The Highland Group. In addition, extended-stay hotels were offering more discounted contracts for long-term stays to keep occupancies high during the recession. Now that the market is recovering, those discounts are disappearing. (NREIOnline) Hotel Buyers 

by Susan Piperato

Sustainable buildings result in lower operating costs, not to mention long-term savings as the cost of energy continues to rise. Many investors and real estate firms are starting to focus on amassing green portfolios. But when will sustainability become as standard a criterion as location and quality in U.S. investors' acquisitions? According to many within the industry, thanks to a growing awareness of green as well as several benchmarking programs, that day is almost here.

Many public pension funds and some private pension funds are interested in being environmentally responsible, says Real Capital Analytics Managing Director Dan Fasulo. But "the only real green buildings are brand new buildings built to the U.S. Green Buildings Council's (USGBC) Leadership in Energy and Environmental Design (LEED) standards. While these buildings are becoming more common, especially in the major markets, it's still very uncommon for them to be up for sale."

There are pressures to go green everywhere, which will increase the stock of sustainable buildings. "Whether it's economic or there is pressure from shareholders or a perception of green increasing productivity or the like, it seems there is still a consistent push to improve the efficiency of commercial buildings," says David Pogue, the New York-based Global Sustainability Director for CBRE Group Inc. "In certain markets, say, downtown Boston or Seattle, every high-quality building and virtually any new building is being built to the highest standards."

Globally speaking, says Meredith Despins, Vice President of investment Affairs and Investor Education at NAREIT in Washington, D.C., "The environment social and governance issues are all top of mind [for] many investors." However, she notes, in the U.S., only a few large public investors like the California State Teachers Retirement Systems are specifically targeting green investments at this point. (NREIOnlin) Green Real Estate Investing