All Forum Posts by: Ryan Seib

So if I understand correctly, your buyers do not want to back out even though they know about the tenants having a 3 year lease. Just sell it to them then. It is their decision. If they want the EMD that is usually as far as it ever goes normally in Wisconsin, or even just part (ie half) the EMD is usually enough. That said, look at your contract. Unless it says the is not supposed to be under lease I dont see how you are in breach. If you are not legally in the wrong they would be acting foolishly to sue. Of course people do act foolishly. But perhaps you can point that out and negotiate something advantageous to all. Best wishes on this.

Agreed. From what I know the IRS would accept a lump sum offer in compromise for perhaps around market/assessed value of the house. That could be a good deal if the equity and funding works out. But there are a lot of assumptions I am making. You really ought to talk to a tax attorney since it might be a worthwhile conversation. You can talk to a low income taxpayer clinic perhaps, whether you have low income or not. TICs usually have a lot of law school interns. While they have plenty to do perhaps they would see talking with you as valuable experience for the law students.

I hope it works out!

Quote from @Steve Hungerford:

Quote from @Ryan Seib:

I would possibly start by contacting the municipal zoning administrator or staff. Ask them about the re-zoning process. You can find out from them the process, the fees, and whether what you want to do is feasible. Another possible starting point is talking to your real estate attorney. An attorney should be able to help you know what to say and what to ask before you talk to the zoning people.

For valuation, you are talking about value based on a development. So that highly depends on who the intended buyer/user is. For example if you are aiming for multifamily, it might be helpful to get some drawings. Then you can quote costs for drawings. You can present that to lenders for the financing piece. Another approach that works is comparing nearby properties. An appraiser should be able to give you a current appraisal. They should also be able to give a valuation estimate using the new zoning classification. They would carry out the same appraisal procedure, except they would use the new zoning for comparable property and so forth. You could also ask the city tax assessor how they would assess value with new zoning classification. In any case all you can do is estimate I believe. I hope this works out for you.

 Thanks for the response! I did find out the process and costs, I believe its a 15K application fee. You lose that money even if they don't approve the zoning. Its crazy to me. The counties have too much power. I did talk to an attorney, basically he told me the same thing as the county did, sounded very un interested. I talked to another attorney, they told me they can't help as they do work for the county, therefore a conflict of interest.

The problem with getting drawings up front is that is very expensive. If a person can determine it brings enough value, then investing in the drawings makes sense. As far as comparables, there are too few to go by. You would have to go really far back in time. This is a unique area of the county and vacant lots of this size or close to it are rare and then add the unique zoning of Residential multifamily.

I am hesitant to spend the 15K rezoning fee because it may not get approved and I don't know the increase or not in value. The better zoning couldn't hurt. The thing again is the county needs more housing and residential multifamily is intended to accomplish that. However the county has zoning that is not fully utilizing the lot and actually makes the ability to add housing harder under RM than if it was residential zoning (because of SB-9). Its crazy as they would make more in revenue and accomplish the goals of more housing by changing the RM-6 to say a RM-3. They stubbornly say no and I guess want to collect their 15K in rezoning fees to even consider it. There should be a law that says Residential Multifamily can't be more restrictive regarding density than Residential zoning. I know that as far as ADU's that is the case. Maybe there is a law like this, not sure.

That sounds like an excessive zoning fee. Often those fees are statutory. I would want to inquire what that fee is made up of, who it is paid to and so on. Wow, though.

I would possibly start by contacting the municipal zoning administrator or staff. Ask them about the re-zoning process. You can find out from them the process, the fees, and whether what you want to do is feasible. Another possible starting point is talking to your real estate attorney. An attorney should be able to help you know what to say and what to ask before you talk to the zoning people.

For valuation, you are talking about value based on a development. So that highly depends on who the intended buyer/user is. For example if you are aiming for multifamily, it might be helpful to get some drawings. Then you can quote costs for drawings. You can present that to lenders for the financing piece. Another approach that works is comparing nearby properties. An appraiser should be able to give you a current appraisal. They should also be able to give a valuation estimate using the new zoning classification. They would carry out the same appraisal procedure, except they would use the new zoning for comparable property and so forth. You could also ask the city tax assessor how they would assess value with new zoning classification. In any case all you can do is estimate I believe. I hope this works out for you.

Good morning, the regulations can be stressful to operate under. That said, doing so from the beginning is by far better. The compliance philosophy of many agencies today works to your benefit if you make a mistake. It allows the agency to ask for compliance as the outcome of an infraction. It means you have to have a good faith effort to comply from the beginning. And that should I hope be built into your pricing model when buying into that market. I have clients who are not in compliance and it is a major issue. Be careful as well to check the HOA regulations. HOAs may not disallow STRs, but in some cases they pick the property manager and add other rules. Be aware of how that HOA is structured as well. Compositin of the HOA board changes after all. Some turnover can give the HOA legal rights to further restrict STR operations. Best wishes with this. I hope you got some of the help you were seeking so far Abigail.

Quote from @Nikolas Engel:

@Ryan Seib and @Ronald Rohde

Thank you Ryan and Ronald. We come from the MFH side of business and I appreciate you both sharing your knowledge to help me get this retail project off the ground. With all you both said, what is real added value for a landlord to write options into the initial lease contract? It seems like a gesture to the tenant that there is willingness to stay together for a longer time - which I find is good - but at the same time it can be so limiting for the landlord. 

In my example, in order to establish base rent for the option, I propably suggest to include the clause "2.5% or FMV whichever is greater". That should give the underwriting a floor of at least 2.5% increase from rent amount in last year of initial lease. My hope would be that this is attractive enough for a new investor in case we decide to sell within the initial 10-year term. If we decide to hold, the FMV should give enough room for market rate growth.

Of course Nicolas. That is what BP is for too. In retail especially, the lease is the law. If you write it in there, courts should hold the tenant to it if the time comes. So, I suggest building in the marketability and value as opportunity makes it fair to do so. It helps to know the tenant's exit plan(s) as well.

Quote from @Nikolas Engel:

@John McKee and @Joel Owens

Thank you both for highlighting the importance of a valid exit strategy. Although we are just acquiring those retail spaces I already think about the exit. That's why the only part that is not agreed upon is the length of the lease guarantee. Everything else looks good, long term, high $/SF, decent TI. 

@Ronald Rohde and @Ryan Seib

Thank you for sharing - good points and food for thoughts!

But here is another question: How would you structure the options? Right now, we agreed to an initial 10-year term with two 5-year options. Should we run the annual rent increase of 2,5% through the entire length of both options, basically defining the annual increase for the next 20 years? Or should we say we go with FMR when it comes to the option? I understand that FMR can go both ways. What makes most sense, also with regard of planning the exit already at this point. Any experience and/or thoughts on this?

For what it is worth it is a lot easier to underwrite a known quantity. So you are more likely to get credit based on a defined amount. I have seen landlord term options as well. You can also use prime plus increases. An option is an option. So it is often negotiation time anyhow. That said bargaining power tends to be in the hands of the landlord at that point unless the tenant has been planning or is ready to go. So I view options as an opportunity rather than a guaranty. I consider that a 10 year lease. The options are bonuses. Whether landlord has a choice in the option just means landlord is limiting themselves to re-rent after 10 years. But it does not change the fact that the tenant gets to decide whether they want 10, 15 or 20 if it is their option. I hope that is what you were asking. Best wishes Nikolas.

If it helps any further, a guarantee also becomes more important the more skin you want the guarantor to have in the game. They may need incentive not to fold up the leasing entity and move on. Things can happen to companies differently than to individuals.

I would go suggest starting with your current lawyer. That attorney would let you know when local counsel is needed. They should be able to arrange it themselves as well. I hope that helps.

Good day. It is probably best to have a trusted and competent person you know be your trustee. That trustee can hire experts as needed. The comparison of professionals is difficult. It depends on amount of assets under management. In either case they should have very clear state directions so the fees do not get too high or the administration take too long. Flat fee might be better for a longer term trust. I hope that helps Lee.