Friday, July 8, 2016

If Commercial Real Estate was EASY - Everyone Would do it!

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Today, I want to discuss a collection of deal challenges that currently clog my consciousness.

If your commercial real estate professional makes the transaction process look easy - rest assured, it's not!

By the way, I am grateful to all of our clients we have the honor of representing - challenges or otherwise.

Beating the foreclosure deadline. A lender Notice of Default (N.O.D.) is the kiss of death. The drum beat of foreclosure echoes, the offering is tainted, and we must disclose the status. In general terms, a lender files an N.O.D. when the borrower is delinquent on mortgage payments. The borrower has 90 days to cure the default by paying the past due amounts. If the borrower fails to bring the loan current, the lender can file a Notice of Trustee Sale and sell the building. We are racing to get the building sold. As you can appreciate, the market smells blood, which makes our task more difficult.

An occupant driving too hard a bargain. Currently, we represent an occupant in their quest for space. The occupant has benefited marvelously from past down markets. We have moved them twice in the previous six years. In both instances, owner concessions abounded and our folks got a great deal. Now the landscape is different. The market is heavily tilted in the owner's favor. Concessions such as free rent, reductions in the asking rates, abundant improvement work rolled into the lease, and bonus broker fees are a distant memory - except to our client - who is stuck in 2012.

Renewing a lease early - with a rent above market. Our client signed a lease before the market correction of 2009. Renewal time is approaching but our client is stuck with above market rent for a period of time. Our client wants the certainty of knowing he can remain in the building at the conclusion of his lease. He realizes he is paying (and has paid) an above market rent for several years. Our client is willing to renew early but wants some reset of his rent. The owner is unwilling to reduce the rent today in return for a longer term. The owner believes the market is trending higher and is willing to wait.

An ownership squabble. We represent an ownership entity with two owners. One wants to lease, the other wants to sell. Each has very compelling reasons why their deal structure benefits their objectives. Marketing an availability with warring factions in the wings causes confusion. Fortunately, we have the benefit of time and no lender with an out-stretched palm.

So what is the takeaway, here? A rising tide lifts all boats. With time, any problem can be solved, ownership issue resolved, and "right deal" located. Just make sure you manage the expectations.

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