I received a telephone call yesterday from a business owner 2 years in to a 5 year lease.  This is not an unusual occurance.  It happens frequently.  What made this unusual is the business owner (let’s call him Bob) had spoken with me over 2 years ago, inquiring about using our services to help them relocate their business in Tampa, Fl.

For whatever reason, Bob had decided to go it alone and not use our services.  Now, here he was 2 years later asking me what could be done to rework his lease.  Bob had negotiated a $22/sq ft lease, which would have been on the high side of his submarket as a modified gross lease, but not an unreasonable rate at all.

The problem was, he had negotiated a triple net lease and he was responsible for Common Area Maintenance (CAM) on top of the negotiated rate.  The CAM being charged was close to $6/sq foot and upon reading the CAM definition in the written lease, it was packed full of JUNK FEES!  In other words, CAM (which is supposed to be a pass through cost from landlord to tenant) was nothing more than a profit center for the landlord.   As a result, Bob was paying roughly 30% higher than the market rate and having a difficult time covering his rent.

The fact that we lose business to other brokers is no surprise.  It happens every day, but I am always perplexed when a buyer/tenant decides they can handle locating a property and negotiating a lease on their own.   Commercial real estate is not rocket science, but there are HUGE pot holes that tenants can hit, if they are not careful.  Most services of tenant/buyer brokers are usually paid by the landlord/seller, so it is always hard for me to understand why someone would decide to go it alone in an arena in which they (tenant or buyer) have limited experience, the stakes are high, the amount of market information available on commercial real estate to the general public is limited and the lease structures are complicated.

Here are some reasons why you should consider hiring a commercial property agent to help secure property:

1. Expertise. Good commercial property brokers scour the market on a daily basis.  They know the owner of many of the properties in the area and know how willing which landlords are to negotiate and which ones are difficult.

2.  Cost of Service. Typically, landlords have built in commissions for buyers and landlord representation.  If you elect to not have representation, the budgeted commission goes to the broker negotiating against you, not on your behalf.

3.  Time Savings. A good agent knows the market and does not have to start from scratch learning the good areas and good deals.

4.  Negotiation. Structuring leases or purchases can be complex.  It should help to have someone on your side of the table armed with knowledge on sound structure and market conditions.

5. Space efficiency. Some buildings are more efficient than others.  Common areas can consume enormous amounts of space and increase your rent dramatically.  A good agent can guide you away from buildings that have huge common area charges (or at least provide an apples to apples comparison) and provide additional insight on to how best to design office layout after you have decided on a location.

6. Data and Tools. Most commercial property agents spend hundreds if not thousands of dollars a month for reports and market data on sales and leasing trends in their markets.  This can be invaluable when making site selection decisions, discovering where your customers are and how best to logistically position your business.

7.  Integrated Services. Legal, interior design, office layout, architectural services.  Would you know where to go and who to trust to help you properly set up your business or practice?  Leverage the commercial broker’s network to help you accomplish your goals.

One final note: Please seek legal advice when buying and leasing.  It is not unusual for a 2000 square foot lease to run as much as $100,000 over the entire term. Relatively speaking, a quick review by an attorney can be well worth the investment.

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Trump Sued in Tampa

Trump Tower Tampa Buyers Say They Were Bilked by The Donald in Suit Filed by Clark & Martino PA and Williams Schifino Mangione & Steady PA

TAMPA, Fla.–(BUSINESS WIRE)–Donald Trump is in hot water again – this time in Tampa where Trump Tower Tampa buyers allege that the real estate mogul misrepresented his stake in the ill-fated condominium development in Downtown Tampa and committed fraud to line his pockets with their hard-earned dollars. In a suit filed jointly on Nov. 12, 2009 by Daniel Clark of Clark & Martino PA and Kenneth Turkel of Williams Schifino Mangione & Steady PA, the 30 plaintiffs in the complaint are seeking damages on several different counts including an Interstate Land Sales Full Disclosure Act (ILSA) violation, negligent misrepresentation and fraudulent misrepresentation. Similar, but not identical, suits against Trump were recently filed in Miami, Florida and Baja California. (click here for the entire release)

Comments:  It should come as no surprise to anyone that a lawsuit became official.  We reported the news of the  foreclosure on the property earlier this year. For months there have been rumblings from investors that they had been misled by Trump and SimDag, the developer.  Earlier this month, James Thorner of the St Pete Times wrote an article about the posturing on the project.  To quote Mr. Thorner, ” Considering how many rich people lost money on Trump Tower Tampa, it’s almost surprising it didn’t happen sooner.”  Yup…that pretty much sums it up.

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We do not control the listing on this property. This was shot for a client in which we represent as a potential tenant.

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Excerpt from the TB Business Journal:  Existing single-family home sales were up 33 percent statewide and almost that high in Sarasota-Bradenton as real estate practitioners look back at the third quarter.

Home sales jumped 32 percent in Sarasota-Bradenton, the best increase in the Tampa Bay region, according to Florida Realtors. More than 2,300 homes were sold in the quarter, compared with 1,758 the year before.

Strong sales numbers also were experienced in Tampa-St. Petersburg-Clearwater as well as Lakeland-Winter Haven with both areas rising 20 percent. Nearly 7,800 homes were sold in the Greater Tampa area, compared with 6,502 the year before, while Lakeland’s numbers were up from 2,633 to 3,377. (….rest of housing in Tampa story from TB Business Journal)

Comments:  With Unemployment in the Tampa Area pushing 12% and personal income continuing to drop, its hard to believe that housing sales are sustainable.   Anecdotally, most residential brokers are telling me the sales are in the lower priced homes, taking advantage of the government programs.  Meaningful housing numbers will follow a rise in employment.

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….Well, I did say “it isn’t so” and still do say that the predictions of impending crash of the commercial real estate market are greatly exaggerated.  I was recently quoted by James Thorner, of the St Petersburg Times about my feelings on the market.  I believe I was the only Tampa commercial real estate broker or professional in the article that felt the gloom and doom is over done.  Is there stress in the market?  You bet there is.  Vacancy rates are at their highest in years.  Values have fallen in the area on average between 30-40%.  The loans on all of these deals that were made at the peak of the market will have to be renewed in the next 3 years.  Under normal times, these loans would be challenging if not impossible to renew.  BUT….these are not normal times.

The banking system has been rocked from the collapse of the residential and derivatives markets.  The sytem has been leaking water like an old wooden skiff.  The regulators and elected officials have decided that it would not be a good idea to kick the teetering financial system over the cliff.  As was mentioned in previous posts in this blog, the IRS and FDIC have provided new guidance in regards to easing renewals of loans that are performing, but failing to meeting current underwriting standards (called performing/non-performing assets).

I don’t think these measures can be taken lightly.  The government has the ability to stamp out a commercial real estate fire or at least keep the burn a controlled one.  Certainly, the bankers I have spoken to have felt some of the pressure taken off, particularly from the FDIC guidance (although, you can trust me that they are not sleeping soundly these days, regardless).  And, I don’t believe these will be the last actions government bodies will take to make sure the “problem can” will be kicked down the road.  The general call to action is “A rolling loan gathers no loss” and this will be the recipe du jour for some time to come.  Are we facing tough times?  Yes, the commercial market will be a tough slog over the next few years?  But, what about Armageddon?  Nope.  I don’t see it happening, not this time anyway.

For those interested, here is Mr. Thorner’s article from the Sunday paper:

Commercial Real Estate Crash Coming, Many Say

By James Thorner, Times Staff Writer

In Print: Sunday, November 8, 2009

We all know why home foreclosures are bad. Nose-diving home values and neighborhood blight are just two of the ugly offshoots of mortgage defaults.

But should we care if the neighborhood shopping center, office park or condo project go bust?

We should. A lot.

Experts fear that a commercial real estate meltdown, following hard upon the housing collapse, could prolong economic turmoil in a Tampa Bay region (…..for the complete article)

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This is significant news out of Washington, but not unexpected, at least by this blogger. I have long maintained that the regulators, Congress and other government bodies will do what is necessary to mitigate a commercial real estate collapse. Information of upside-down loan values and the huge number of performing/non-performing loans* is well known to the industry and regulators. The banks are in no condition right now to take massive hits to their balance sheets so close on the heels of the credit freeze and residential meltdown that we just experienced.

In their guidance, the FDIC is opening the door for banks to rework, negotiate through and prudently modify loans that are essentially deemed salvageable, even if they are considered high risk, according to current underwriting standards.

Separately, it should be noted that the IRS also recently provided guidance regarding CMBS loans to allow for an improved tax environment for lenders  renewing ballooning notes  that have excessive loan to value ratios.

For more information, here is the press release from the FDIC and an article from the Miami Herald.

*Performing/non-performing loans are those loans that do not meet current credit underwriting standards, but the borrowers continue to pay scheduled payments. This is a term that we will hear a lot in coming months. As bleak a picture has been painted about the CRE market, most of the issues with commercial real estate debt revolve around performing/non-performing loans.

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