Commercial Real Estate Blog by Madison
Tag Archives: landlord

CAM Negotiations – What You Need to Know before Signing, Part 2

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

It is news to no one that CAM charges can be a contentious issue for Landlords and Tenants alike. Generally, Landlords want the CAM clause to be broad and all-encompassing, covering the Landlord’s costs of ownership, management, maintenance, repair, replacement, inspection, improvement, operation, and insurance of the property together with any costs allocated to administration and overhead. The Landlord benefits from a highly expansive CAM definition to avoid the risk that any necessary costs of operation have no corresponding revenue to cover them.

Tenants, on the other hand, generally understand that they need to compensate the Landlord for operating and maintaining the center. But they view the Landlord’s ownership costs as part of the Landlord’s cost of doing business and not a recoverable operation cost. This “maintenance versus ownership” struggle shapes many of the issues relating to inclusion in and exclusion from CAM costs

Here are some questions Landlords should consider. Continue reading

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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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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.
Continue reading

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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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New Private Letter Ruling Suggests a Method for Handling Certain Construction Exchanges

By Lee David Medinets, Esq., CES®, Chief Counsel, Madison Exchange, LLC

A “Construction Exchange” is a special type of tax-deferred IRC § 1031 like-kind exchange that allows a taxpayer to defer recognizing income by sheltering proceeds from the sale of relinquished property into improvements made to replacement property, not just in the cost of buying the replacement property (as in an ordinary “forward exchange”). In order for a construction exchange to work, the taxpayer cannot own the property at the time the im-provements are made. In a typical safe-harbor construction exchange [Rev. Proc. 2000-37], the replacement property is purchased from a third-party seller on behalf of the tax-payer by an exchange accommodation titleholder (“EAT”). The EAT is essentially acting as the taxpayer’s agent under a contract that allows the taxpayer to use and improve the re-placement property during the taxpayer’s 180-day exchange period. By the end of the ex-change period, the EAT transfers legal ownership of the replacement property to the tax-payer, which completes the exchange.

One common problem is that a safe-harbor construction exchange will not work if the tax-payer owned the replacement property within 180 days of the start of the exchange. [Rev. Proc. 2004-51.] What if the replacement property is owned by a related party, such as a multi-member LLC that the taxpayer controls? There has been some concern that such an exchange might fail to qualify as a safe-harbor construction exchange because ownership of the replacement property by the related party would be viewed by the IRS as the equivalent of ownership by the taxpayer himself/herself. IRS Private Letter Ruling 201408019, issued February 21, 2014, addressed this precise issue. Continue reading

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Right on the Money: It's in the Landlord and Tenant's Best Interests for CAM Calculations to be 100% Accurate.

By David I. Tesler, Esq., CEO, LeaseProbe / Real Diligence

The landlord/tenant relationship can be fraught with difficulties. As in any business relationship, it is important for both the tenant and the landlord to set clear expectations and guidelines. While real estate leases are intended to establish the rights and obligations of each side, they are often lengthy and complex documents, with unique and individual provisions as well as numerous addendums which can override previous lease language. Such complexity can lead to mistakes and misunderstandings.

One area that is fraught with errors is Common Area Maintenance (CAM) charges. Errors and mistakes between the obligations spelled out in the lease agreements and the CAM amounts billed are typical. But ultimately it is in every both the landlord and tenant’s best interests to ensure that CAM bills are 100% accurate. Here’s why. 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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