Commercial Real Estate Blog by Madison

Category Archives:
Lease Abstracting and Administration

CAM Negotiations – What You Need to Know before Signing, Part 1

By: Arnon Wiener, Esq., CEO, Real Diligence and LeaseProbe

Common Area Maintenance (CAM) charges can be a contentious issue for Landlords and Tenants alike. CAM charges are one of the net charges billed to Tenants in a commercial lease, and may be charged in addition to base rent. On one hand, Landlords may feel that their expenses are high, and this is the chance to be refunded for the outlay. On the other hand, Tenants may feel squeezed by the rent, and are resentful of any additional charges. CAM becomes the rope in a tug-of-war.

When entering CAM negotiations, there are considerations for both Tenants and Lenders. Continue reading

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Maximize Your Pre Due Diligence Success – Three Questions to Ask when Assessing a Potential Commercial Real Estate Acquisition

By: Arnon Wiener, Esq., CEO, Real Diligence and LeaseProbe

Is there a method for CRE investors to better utilize the time spent on the preliminary assessment? How can a CRE investor prioritize the process to focus resources on the most worthwhile properties?

Deal assessment includes many steps and areas of responsibility. During the beginning stages of investigation, a potential buyer is probably not interested in reviewing every single detail. He would not want to incur the expense of a comprehensive due diligence analysis and review simply to weed out the properties that do not appear to be successful.

An excellent solution is to conduct Pre Due Diligence. With a pre due diligence review, the buyer can cover key areas of consideration while incurring a limited expense. Here are three key questions to ask. Continue reading

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Confirming the Facts with Tenant Estoppel Certificates

By Elliot Zaks, Principal, Madison Commercial Real Estate Services

Each tenant estoppel certificate constitutes one or two pages within the hundreds of pages of closing documents of any commercial real estate transaction. Estoppel Certificates can easily be overlooked in the flurry of paperwork preceding a transaction. However, the tenant estoppel certificates are a valuable source of information which should be reviewed carefully by potential buyers or lenders.

Each estoppel certificate is a representation by a party signing the certificate to the addressee of the certificate. Signing the estoppel certificate establishes certain facts which the signing party may not later contradict, dispute or recant. In the landlord- tenant relationship, the tenant estoppel certificate is used to confirm the current status of the tenant and landlord’s rights and obligations under an existing lease.

A tenant estoppel certificate is generally used when a commercial property owner is seeking to sell or refinance the property. Tenant estoppel certificates are commonly used to clarify the tenant’s understanding of the lease agreement to potential lenders or buyers.

Here is why Estoppel Certificates are of value to both the buyer and the lender.
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Creative Lease Agreements: Original Ways Property Owners Deal with Vacancies

By: Danny Wechsler, Regional Business Director, Madison Commercial Real Estate Services

Despite signs of a recovering economy, employers are hesitant to increase office space in this job market. The current vacancy rate in commercial office space is reflecting this reality. According to a recent report released by real estate data firm Reis, Inc., the office vacancy rate for the second quarter of 2014 was at 16.8%, just a slight decrease from the post recession rate of 17.6% in 2010.

As a result, landlords and managers of commercial office space are seeking and finding creative avenues to fill vacancies. For example, current market conditions are allowing start-ups and small businesses to rent space in commercial office buildings, where they previously would not have gotten a lease. While landlords may prefer an established tenant with long-term stability, in today’s market, they often don’t have a choice and are forced to be less choosy.

But there are other steps a landlord can take to preserve his investment while filling vacancies. Continue reading

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Two Most Common Mistakes to Avoid When Using Argus Models

By: Arnon Wiener, Esq., Chief Executive Officer, Real Diligence and LeaseProbe

In a financial due diligence review for a real estate acquisition, facts are king. The more detailed information the buyer can gather and analyze, the more he can be confident that he is making a value added acquisition. Argus models are powerful tools used for cash flow projection, transaction analysis and asset valuation. When used correctly, Argus models can optimize the value of your commercial real estate acquisition.

Aside from their standard use in financial due diligence, Argus models can also potentially be utilized as a business tool. A well-structured and comprehensive Argus model can be invaluable to investors considering a potential transaction. There are some potential uses for Argus models which are commonly overlooked by real estate investors. If modeled properly, these uses can provide deep insight into the potential NOI of a commercial property.

In this regard, there are two common mistakes made in using Argus models which should be avoided. Continue reading

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The Effect of Mineral Rights on Title, Part 2

By: Eliezer Shaffren, Esq., Counsel, Madison Title Agency

Oil and gas leases can help to increase property value as well as the value of the surrounding area properties. The landowners receive an initial signing bonus, along with royalties from extracted gas. The lease also has the ability to generate revenue for the state, which benefits the local economy. The last post’s discussion on mineral rights outlined the various ways in which drilling companies can obtain access to mineral rights.

Landowners should be aware, however, that granting mineral rights can adversely affect title to the property.
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Madison CRES Experts Scheduled To Attend ICSC RECON 2012

The leadership at Madison Commercial Real Estate Services (MCRES) will be attending and exhibiting at RECON 2012, the largest retail commercial real estate convention in the world. Hosted by the International Council of Shopping Centers, the RECON Show will be held in Las Vegas, NV from May 20-23, 2011. This is a rare opportunity for commercial real estate property owners and their advisors to meet privately with all of Madison’s top brass – in Madison’s private conference rooms at Booth S541, at the corner of W Street and 54th Avenue in the South Hall — to review and gain insight of how best to improve the ROI of one or multiple properties. To schedule an appointment with Madison’s Leadership Team at RECON 2012, contact Keren Peters at 732-333-2471 or to coordinate a meeting date and time. Continue reading

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How to Insure Title on Leasehold Creations and Assignments?

Most of the transactions that Madison insures for title involve fee estates (properties that are being purchased). From time to time, however, we are asked to insure a commercial or industrial leasehold transaction, whether it is a creation of a brand new lease or assignment of an existing lease. A prospective tenant of a property may have similar concerns as a prospective fee purchaser (buyer) of a real property. Likewise, a prospective lender of a leasehold mortgage also wants to make sure that it has a valid mortgage on the leasehold estate. That is where title insurance comes in…. Continue reading

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Hidden in Plain Sight – Tax Benefits in your Commercial Property Leases

The value of any commercial real estate asset is typically found in its retail, office or industrial leases. A thorough understanding of these leases is essential for a profitable acquisition and successful property management. That’s why real estate investors need and should accept nothing less than having meticulous and up-to-date lease abstracts before making any acquisition of a shopping center, office building, warehouse, industrial facility, etc.

In addition to the investor’s standard focus on cash flow and revenue generating potential, a savvy investor will also analyze the leases for the tenant improvement clauses to determine whether any of the improvements are legally owned by the landlord. The question of TI ownership is crucial as the owner of the improvements may be able to benefit from a cost segregation study, where eligible assets can be identified and reclassified for accelerated depreciation. Continue reading

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Up, Down and All Around: Where Creative Developers are Looking to Build

Recently, I’ve observed a growing number of real estate transactions involving seemingly fully developed parcels. Instead of the traditional development options of (i) demolishing and rebuilding or (ii) building extensions of the existing structures into the air space above or (iii) simply “repositioning” the use of the existing structures, owners of the real property are choosing or being forced to go in new, creative directions.

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