All Forum Posts by: Paul Falbo

Hire a local attorney/firm experience in commercial landlord/tenant issues.  I've seen 4 page leases and 80 page leases; leases favoring the landlord, and leases favoring the tenant.   A great lease can save everyone a lot of time, money and energy.  They should be able to provide you with a broad perspective of issues that may befall you and your tenants.

I wouldn't do condos.  I'd rent.

Condominiums have a way of creating legal problems, including foreclosures on a unit, or both; therefore, you get a condo member you might not want.  Costs for setting up a condo probably aren't too punitive, but, you would have to incorporate all of your desires, as well as the historical districts desires, into the Articles of Incorporation, CC&R.s and bylaws. 

You could be the president of the board, and handle all of the business of the association, file taxes, handle common area expenses, etc.

You'd get your money now; but, you'd pay for it later...you no longer control those units.

I'd rent.

Are you negotiating directly with the decision maker, or through a broker?  And, are you the decision maker for the property?

I would ask for 4-5 percent.  Maybe even more if you're making more than that with your money.  In a few situations like this, once you ask for interest on the loan, the tenant finds an alternative source of financing.  The reason I would suggest 4-5 percent is banks are probably charging that, or a little more.

The reason I ask for who is negotiating on both sides is that if it's principal to principal, then negotiations and techniques become more critical.  If broker to broker, then you have some wiggle room to adjust your proposal.

The key issues are how long they've been a tenant, is the location a prime location, comparative rents, and availability of other spaces in the market.

"I don't need them knowing...I'm green.."

I wouldn't hire you.  You are lacking both integrity and honesty.  

Having said that, if I were you, I'd bring in an experience industrial partner to help you navigate the intricacies of industrial space, industrial leases, and negotiating the best deal for your client.

You will learn from the process and you will provide your client with the best possible representation.  You will earn less money, since you will have to share the commission; but will earn more respect and show you are worthy of the trust that a client places on you and your skills.

Respect is worth more than money.

Paul

At the end of the initial lease term, the lease terminates. Depending on your state laws, if the tenant stays past the original term, then he becomes a tenant at sufferance, subject to any provisions in the lease, including increased rent. If the tenant refuses to leave, then the Landlord might have to go to court to regain possession.

No party can be forced to enter into a contract.

Most landlords should contact their tenants 6 months prior to the expiration of the lease to see what the tenant's intent is. Most landlords would love tenants to stay, as they don't want to pay for new tenant improvements and commissions.

Happens all the time.

If a tenant moves out (goes dark), ceases operations, etc., most landlords, and leases, consider that an event of default and must follow procedures to recapture the space.

Joel is correct. Look to the lease for landlord's options.

Basically, some tenants continue to pay rent, some don't. Some "buy-out" the remainder of the lease and turn over the space to landlord so that he can re-let. Some tenants find sub-tenants.

In some states, like Arizona, Landlords have to mitigate damages (try to lease out the space) and they have to sue for lost rents, costs to return the space to its original condition, and commissions to re-lease. Arizona is a self help state where the Landlord can "lock-out" a tenant after written notification of default. The other option is to go to court through a forcible detainer action, where the court is supposed to consider only the non-payment of rent in determining whether the Landlord can regain control of the space and its non-personal contents.

If a bankruptcy is filed, then Landlord's rights are severely cut as federal courts trump local statutes, and leases. Federal laws were changed a few years back because some closed retailers held onto the leaseholds for long periods of time through extensions granted by the bankruptcy courts. Now, I believe they have just 6 months to either accept or reject the lease. If the tenant does file BK, then they must pay rent from that time on, as long as they occupy the space.

It pays to monitor how your tenants are doing. Usually, late payment of rents is the first sign that the tenants sales are down and that the tenant is headed for default.

Anything legal can be put into a purchase contract. You just need the other party to agree to it.

I would expect that the large vacancy has been that way for a while; and, the owner may not be motivated to put the center under contract unless you are willing to "pay" for the privilege of finding a tenant. Having the center under contract would not give you the right to market it, fix it up, or enter into leases, unless the seller agrees to it.

I've seen options to purchase, at some later date, or under certain conditions; but they are accompanied by non-refundable monies, usually in the 5-10% of purchase price range.

What do the leases say? It could be that your cousing is able to recoup management and administrative fees.

In general, 5% of gross receipts on a NNN lease seems high to me, specially if accounting is done by an outside CPA firm. If the relative is inspecting the property regularly to assure compliance to lease provisions, then I would support a fee of 3% at most.

Triple net leases, in general are thought to be relatively safe investments; however, I've inspected NNN buildings after the tenant has moved out and the owners faced high five figure costs to repair damages done by "good tenants."

As the owner of an Accredited Management Organization (AMO), I instruct my clients to monitor all aspects of the lease, specifically tenant responsibilities to maintain mechanical systems, repair of roofing and parking areas, etc. This requires knowledge of the lease and frequent inspections.

Rich:

I agree wholeheartedly.

I have many friends that are retired and living comfortably off of less than $3,000/month.

Thanks for passing on your viewpoint.

Paul

If you are considering a marshal arts studio, you might want to understand that this type of "retail" tenant creates noise, and will disturb other adjoining tenants.. My experience has also been, unless the operator is well known in the area and have other stores, they go out of business quite often, unless well capitalized.

Cash Check businesses often do well, assuming municipalities don't enact stringent usury laws limiiting interest rates.

Barber shops have been historically strong; although, the recent downturn weeded out the average operators and a lot of "consolidation" took place. People are looking for "value" shops, where they can save some money.

A "private academy" isn't a bad use, assuming they have other locations and are successful at those locations.

The best advice I could give is to know what the market needs are in the area. Is there competition from similar users? How strong are their financials? Can they fund operations during their start-up? What is their business plan? How long have they been in business, or is this a start-up.

What does this area need? Is there a sandwich shop to feed nearby office areas. Insurance company? Water Store? Cell phone store? Nail salon? Drop off Laundry? Game store? Dentist? Pawn shop?

You can also go online to ICSC.org and purchase their marketing and tenant mix books for small centers, among others. The information is invaluable and has been developed over 50 years.

You are on the right track though in your questioning "mix." Just make sure you vet the prospects well.

Good luck.