All Forum Posts by: John Cusick

Yes, that's correct. And I am not sure how this escrow company does business either. We signed the deed weeks in advance because one of the signors had to travel overseas. We still expected and requested to receive an estimated closing statement well in advance of closing, but nothing was provided to us until the closing date.

We (Seller) have just closed a deal with the most frustrating escrow experience. The escrow officer we retained had a serious health issue and was replaced with a new officer about a month before closing. The new officer has routinely ignored important emails, has provided wrong information on a number of occasions and, despite of our early requests for what else, if anything, was needed to close, she went into radio silence for days. On the closing date, after 11 am, she finally, for the first time and after our previous requests, sent us Seller's Estimated Closing Statement. We had a major issue with it and told her in an e-mail that the document needed to be corrected and the corrected Seller's Closing Statement must be approved by us (Seller) before she could close escrow. She ignored that request, closed escrow and sent everything to recording. Now, she insists that we sign/approve Seller's Estimated Closing Statement (after closing) before she distributes the funds. We do not want to sign/approve that document because we believe it's got errors. Since she's already closed this escrow, we'd like to have the funds distributed ASAP and, if it becomes necessary, deal with the defective closing statement later. Can an escrow officer hold the funds hostage after the closing and insist that we sign the Estimated Closing Statement, despite sending it to us so late and then ignoring our request that we approve that document before she could close? 

@ Joel Owens: Thanks for your input. We did get a non-binding LOI. My questions were meant to get some basic information to make sure we are on the same page on the key LOI terms before we bring in a RE attorney to negotiate a definitive ground-lease agreement. I was hoping any competent broker or RE attorney would take 5 min to respond to at least some questions. That would have been helpful and, perhaps, would have lead to an engagement when we need to bring an attorney to negotiate an agreement or a broker to sell the leased land, but it looks as though you are right - people are busy . . . Now worries and thanks again!

@Ronald Rohde:  Thank you, but I do not have a broker. The prospective tenants have contacted me directly. If you can share any insights on any of the questions in my initial message, I'd appreciate that.

@ Greg Dickerson -- Thanks, Greg! I already have a potential tenant and have started the negotiations. So, I don't need help locating "suitable tenants," but I was hoping I'd be able to connect with an experienced commercial broker here to get some help in structuring the lease in a way that will maximize the value of the land for a subsequent sale to a REIT or another investor.

I am looking at a potential commercial ground lease for a parcel I own in LA County. The parcel is under 2 acres. I am trying to understand what's customary and market on a number of points, and so I'd appreciate some quick advice on the following issues:

1. How do I calculate the annual NNN lease value of the property? I have read that the annual NNN lease payment should be about 6-7% of the property value. Is that consistent with typical practices in LA County? Is there another method I can use to estimate the current market lease value of the property?

2. What kind of lease payment escalation clause is market? Should the lease payment adjust annually or less frequently? Should the adjustment be based on any index or be a fixed number/percentage?

3. I've read that some ground leases provide for a periodic (e.g., every 5 or 10 years) appraisal of the site and resetting of the annual lease payment based on that appraisal. Is that common? Is that a good idea from Landlord's stand point?

4. The prospective tenant would like to have a right of first refusal. I don't see any benefit for me in granting that right? Am I mistaken? If I do grant that right, should I be asking for any additional consideration for it? Any issues to watch for regarding the right of first refusal?

5. How much free time should I allow the tenant before lease payments start?

6. What kinds and limits of insurance coverages should I require the tenant to procure?

7. Is there a good ground lease form for California that I can use as a starting point for my ground lease agreement?

Many thanks!

I am looking at a potential commercial ground lease for a parcel I own in LA County. The parcel is under 2 acres. I am trying to understand what's customary and market on a number of points, and so I'd appreciate some quick advice on the following issues:

1. How do I calculate the annual NNN lease value of the property? I have read that the annual NNN lease payment should be about 6-7% of the property value. Is that consistent with typical practices in LA County? Is there another method I can use to estimate the current market lease value of the property?

2. What kind of lease payment escalation clause is market? Should the lease payment adjust annually or less frequently? Should the adjustment be based on any index or be a fixed number/percentage?

3. I've read that some ground leases provide for a periodic (e.g., every 5 or 10 years) appraisal of the site and resetting of the annual lease payment based on that appraisal. Is that common? Is that a good idea from Landlord's stand point?

4. The prospective tenant would like to have a right of first refusal. I don't see any benefit for me in granting that right? Am I mistaken? If I do grant that right, should I be asking for any additional consideration for it? Any issues to watch for regarding the right of first refusal?

5. How much free time should I allow the tenant before lease payments start?

6. What kinds and limits of insurance coverages should I require the tenant to procure?

7. Is there a good ground lease form for California that I can use as a starting point for my ground lease agreement?

Many thanks!

@ Jared Smith: I am looking for a lender to get an LOC on my SoCal rental property too. Please share if you have been able to identify such lenders.

I am looking at a potential commercial ground lease for a parcel I own in Los Angeles County. The parcel is under 2 acres. I am trying to understand what's customary and market on a number of points, and so I'd appreciate some quick advice on the following issues:

1. How do I calculate the annual NNN lease payment I should be getting? I have read that the annual lease payment should be about 6-7% of the property value. Is that accurate? Is there another method I can use to estimate the current market lease value of the property?

2.  What kind of lease payment escalation clause is market? should the lease payment adjust annually or less frequently?  Should the adjustment be based on any index or be a fixed number/percentage? 

3.  I've read that some ground leases provide for a periodic (e.g., every 5 or 10 years) appraisal of the site and resetting of the annual lease payment based on that appraisal. Is that common? Is that a good idea from Landlord's stand point?

4.  The prospective tenant would like to have a right of first refusal. I don't see any benefit for me in granting that right? Am I mistaken? If I do grant that right, should be asking for any additional consideration for it? Any issues to watch for regarding the right of first refusal?

5.  How much time should I allow the tenant to close the deal and how much time should I allow the tenant before lease payments start?

6.  What kinds and limits of insurance coverages should I require the tenant to procure?

7.  Is there a good ground lease form for California that I can use as a starting point for my ground lease agreement?

Many thanks!
 

Maxwell,

Thank you for your input. I assume your response means that I should not worry about adversely affecting the value of my house by adding an ADU in a SFH gated community, where the sizes of most lots do not allow for an ADU construction.

Also, I appreciate your offer to connect me with a team that handles all ADU-related issues. However, I am in Orange County and will try to find someone to work with in OC . . .

One follow-up question . . . You write:  "One important factor will be how "out of sight / out of mind" theADU's location will be. Private entrance/exit (egress). Will it be gated or fenced off? Is that possible?" The ADU that I am envisioning would be built in a "side-yard" of my house, i.e. it would be located next to my house and, thus it would be visible from the street and have a separate entrance from the street. It would not be fenced off, but it would not have any access points into my backyard. So, in a way, it would be practically like a separate house, but it won't have its own backyard. Of course, I would make sure it fits in architecturally and looks like a natural continuation of my house. But, I guess, it would not be "out of sight/out of mind." Is that less desirable in your opinion?

Thank again!

John