All Forum Posts by: Alex Sarnoff

Here are some examples of misinterpretations I've encountered:

HVAC. Tenant response is that we don't own it.   Landlord Response: but your the one who wore it out!

Paving:  Tenant says this is a landlord responsibility.  Landlord Response:  It's your customers that are causing the wear and tear.  Resealing is an operating expense on you.

Glass:  Tenant thinks this is a part of the structure.  Landlord Response:  No it's not foundational and neither are the floors your tenants walk on.

County says you need to plant new grass in the water retention area on the property with new grass.  Tenant says this is not part of my business.  Landlord Response:  Not my problem, lease says you pay everything.

Roof leak:  Tenant says your responsible.   Landlord says I will do a full replacement, but not minor repairs.  Repairs are on you.

The point is you have to spell out EVERYTHING in your lease.  Unfortunately leases that were inherited do not do this very well.  

Here are some examples of misinterpretations I've encountered:

HVAC. Tenant response is that we don't own it.   Landlord Response: but your the one who wore it out!

Paving:  Tenant says this is a landlord responsibility.  Landlord Response:  It's your customers that are causing the wear and tear.  Resealing is an operating expense on you.

Glass:  Tenant thinks this is a part of the structure.  Landlord Response:  No it's not foundational and neither are the floors your tenants walk on.

County says you need to plant new grass in the water retention area on the property with new grass.  Tenant says this is not part of my business.  Landlord Response:  Not my problem, lease says you pay everything.

Roof leak:  Tenant says your responsible.   Landlord says I will do a full replacement, but not minor repairs.  Repairs are on you.

The point is you have to spell out EVERYTHING in your lease.  Unfortunately leases that were inherited do not do this very well.  

NNN leases are not absolute NNN leases. Yes absolute is a term in the industry. A lot of properties are advertised as NNN, but you have to read the lease to understand what is actually covered. So for example: NNN usually refers to taxes, insurance, and maintenance. How do you define maintenance in the lease? Does maintenance factor in replacement costs of the HVAC, Roof, Glass windows, structural piping, Parking lot repaving, sprinkler systems, etc. How much of the structural part of the space is covered by the tenant?

No one ever achieves the advertised NOI, unless it's an absolute NNN lease or what they call a ground lease. Read the lease carefully!

Your biggest risks are tenant defaults and rent collection issues. Take for example covid times, lots of defaults or people asking for rent abatement.

Also make sure you have a good inspection done. Hidden damages or poor construction can cause issues down the road.

And last but not least any environmental issues can be a big hassle. Check to see if any previous dry cleaners have operated there among many other things. 

1. Never trust anyone's NOI or Cap rate figures. I never use 100% occupancy, even if it currently exists.

2.  Never trust lease contracts.

3.  Never trust insurance coverage.

4.  Never trust zoning and permitting assumptions.

5.  Assess capex.  

6.  Any EPA issues?  Lead pipe, abestos, etc.

7.  Any subcontractor issues?

I'm sure their math works.  It would primarily be the due diligence items that would cause a snag.

HI Alex, 

I'm working a very similar transition on the West Coast for a client. They sold a property as part of a 1031X and are acquiring a Triple NNN occupied industrial property.

My advice for any 1031X transaction is to be over prepared. Begin your 'pre qualification' process for the acquisition now (most commercial lenders won't issue a PreQual but rather a LOI) In general, Commercial transactions can take longer due to extended due diligence, appraisal, environmental reports and financing (60+ days) so you'll want to initiate your search during the marketing of the down leg as it can cause a tighter timeline than a residential transaction. I try to have a plan A, B, and C in place with tight acceptance and contingency periods.

For a commercial broker, take a look at who has a majority of commercial listings on LoopNet/Crexi in the desired area...OR for the property type you're exploring definitely check in with a local CU or your current banker for both a RE recommendation and lending options. A good attorney or title company should be able to refer a quality broker. Beyond that I have a great Mixed Use and commercial reference for you nationwide. 

Good luck! 

1) Make sure you understand you don’t have 45 days and then 180 days, you have 45 days, and then 135 days, 180 TOTAL days, unless that’s a holiday/sunday, then you have less than 180 total days. 

2) Yes, you can do everything but close on any of the 3 replacement properties before you sell your existing property. You can also obviously do that anytime between the day you close on your existing property and day 45. I personally didn’t want to make any offers contingent on my current property closing (they would be ignored.) So I had 4-6 properties I’d been watching for 10-20 days before my closing. The day my property closed I made 3 offers with obviously strong down payments (from my exchange.) 2 countered and one accepted, so I went with the accepted offer. I then closed 38 days later. If that deal had fallen out I still had 7 days to list any 3 properties I was interested in. The 180 day limit was never a factor, even the 45 day limit didn’t come in to play. 

I don’t know why a seller would ever back out. Short of you asking for changes/repairs/a price change. Again, it won’t matter because you’ll have a signed contract before day 45. You can make offers on 2-3-4 whatever number of houses, but don’t put down deposits on homes you don’t plan to buy. 

Connect with someone like @Dave Foster. I used him for my 1031 last year. It was smooth as butter.