All Forum Posts by: William Jenkins

@Marty Boardman.  

"Finally, there's a lot of irrational fear out there about the due on
sale clause and the lender calling the note. I've never seen this
happen. Banks are in the business of collecting loan payments, not
calling mortgages. If you're paying on time they don't care if Santa
Claus owns the house."

Certainly true in the past, but I'm not so sure going forward.  Banks really didn't have an incentive in the past as rates were generally going down.  A subject too loan generally had a higher interest rate than the prevailing rate (not all, but that was the general direction of the market). 

Now banks have plenty of incentive to seek out and call these loans due.  There are a lot of 30 year loans out there at 2-4% and banks would absolutely love to call those loans due and reissue at 7-8% (or simply own treasuries at 5%).  

T-Bill and chill?

I'm as anxious as anyone to pull the trigger on a deal, but I'm not really seeing anything that's worth getting into.  

I consult on and broker wireless deals.  I can help your friend.

The monthly rate is one thing, but the other terms of the agreement are JUST as important.  The template lease has a lot of pitfalls that will devalue the underlying ground and lease value if your friend ever wants to sell it.  DM me if you would like to talk. 

In 2007 I was involved in a deal where we built ~500k SF of tilt up flex warehouse in FL.  Product was great, timing was hideous.

I think there is a great future for this type of space on a smaller scale and I think your friend is correct.  If you have no real estate experience I would highly suggest buying a residential unit first to get your feet wet.  Residential investment is MUCH more forgiving of an asset class than commercial.  They are completely different businesses but at the end of the day they are still both real estate and you will learn a lot. 

After getting your feet wet, I would start looking at the small bay stuff.  Your typical users will be mom/pop service type businesses. They will need a small office with attached warehouse, and plenty of parking for service vehicles.  Good luck with it.

If it's in your lease then it is a black and white issue.  Tenant pays period.

Now take a step back.... If the lease is below market and the space is easily rentable (i.e. you want and/or would profit from them leaving) then simply state the facts and take a hard line on it. 

If you are in a more fragile center with vacancy, small town, hard to rent etc, then maybe this is an opportunity for you to help your tenant and at the same time secure a longer and/or more profitable lease.  Maybe you could offer some tenant improvement money for a longer lease and higher lease rate. 

I think the fact that they are responsible is probably the easy question.  How you want to handle it is more nuanced.  

There isn't exactly a simple answer to this question..... 

If you are renting an A property with a ton of demand and credit tenants then why settle for below market rents, even if its just $100-$200 less.

If you have a C class property that needs a lot of repairs with a generally needy tenant pool then it could easily make sense to accept a $100-200 discount to keep a renter.

Unless you are trying to value add and sell, there is no hard and fast rule in my book.  
 

@Aaron Mazzrillo - Markets always go in cycles and there absolutely will be a correction at some point.  I'm not calling for a correction here or saying the sky is the limit, but to say it is "NOT GOING TO HAPPEN" is just outright naive.

@Robbie Young - Yes, you kind of correct, but I don't think it is "a state law."  Bottom line is that if they don't perform they are in default.  With a default you then have to get a judgement for damages.  When going after damages you need to prove that you tried to mitigate damages (i.e. relisting it with the intent to rent to another party).  That does not mean that they can just terminate or that you have to take the first potential renter that walks through the front door.  

Not legal advice........I'm not sure what you mean by "its silent on the issue."  If there isn't language allowing them to terminate the lease for a specific reason, then it doesn't exist, and they must perform for the length of the lease.  I can't comment on every states laws, but I would be shocked if there was a law that unilaterally allowed tenants to terminate a lease for the reason you gave.  (Please don't tell me this is the case somewhere out there.... Please!) 

If it were me, I would work with them and try to find a "well qualified" replacement tenant.  I would only let them out of their lease obligations until that new tenant was placed.

I'm not sure if this is an A-D property, but you also need to weigh the likelihood of your tenant intentionally causing damage as retaliation.  Use your judgement.... If this is a lower end rental with that potential it may make more sense to let them walk then to go down that path.  

@Peter Goran - Well yes technically correct.  That reduced risk however is going to show up in the form of a lower cap rate.  There is no free lunch.