All Forum Posts by: Christopher Telles

I've never owned a co-occ building, but I've rented office space in two.

One of the early trend setters in this category was Scott Blum founder and CEO of buy.com He created and co-occ space for primarily tech companies next door to his  buy.com office in Aliso Viejo, CA. The company was then enfrastructure and they leased the building from its institutional ownership on a longer term lease basis (if memory serves correct it was a 10 year lease with several five year options to renew.

They created awesome space with many really cool features such as common commissary, an in building bar (with Thursday night free domestic beers) and other typically common executive suite amenities.

I first leased space in the Aliso Viejo building for my real estate development company in 2002 during the tech industry implosion at the time. Great space at super cheap office rents. They essentially were pricing space at below cost recovery to stop the bleeding.

This model must have worked since the reformatted company "Tech Space" has locations thought the country. I leased space at their Costa Mesa, CA location when it first opened three years ago.

@Account Closed I've owned CRE properties having been encumbered with HOA's and others with covenants and restrictions vis a vie easements. My experience has been HOA protected properties have a clearly defined maintenance and operating arrangements that all equity holders know of in advance and benefit from the maintenance.

The encumbered properties without HOA were a nightmare. Consistent abuse of land use and virtually no maintenance.

Regularly scheduled maintenance is critical to maintaining property values. Streets, if private, and or parking lots need to be maintained every 7-10 years. Exteriors and roofs, if applicable, need regular maintenance. One of the primary reasons for an HOA is accounting for and managing maintenance. It would be a rarity that an HOA isn't beneficial to a property.

I prefer free standing properties for various reasons, but maintenance cost control is among them.

There is no benefit to you in signing and or agreeing to an HOA termination outside of a desire to save on the HOA fees.

The HOA, or at the very least the covenants and restrictions, is designed to protect each beneficiary owner per their agreement (the CC&R's or the covenant and restrictions) on the use of their individual parcel and the use of any common property that benefits the property owners. Often covenants and restriction agreements executed outside of a formally created HOA DO NOT have maintenance language embedded into the documents. HOA CC&R's almost always do address maintenance, management, and operational use rules.

My advice would be to gain much more information on why some of the other owners might want to eliminate this agreement. Are they not paying their HOA fees? Did a manager get fired a while back and no other hired to replace them and as a result no one is paying fees, and likewise no one is managing maintenance?

Once you fully understand others motivations then you can intelligently speak with your attorney and reach a conclusion that solely is the best decision for your property.

Sounds like the seller is an idiot, but we run into them in transactions every now and again. 

Please be aware that the only insurance you have relating to confirming rentals, leases, and occupancies in a property is to obtain written confirmation most commonly in the form of estoppel certificates.

That said, the lake of an estoppel would present a problem if the seller hadn't offered to provide you a copy of the previous lease which I gather converted to a month the month lease. Under the same occupancy an expiring lease converting to a month to month occupancy would convert under the same lease terms.  

As for the lease saying one thing and the practice of the owner another (water in your explanation) if you've discovered this and want to proceed with the transaction then in addition to your credit request, or if its denied, you have two other ways to address the issue: 1) put your demands in writing and submit it to the seller via your escrow or 2) know how you will deal with the issues prior to closing and proceed to close (let the tenants know you are/aren't paying for water and will require an addendum to the lease after closing).

Yes, you can also post it to commercialsearch.com which is owned by Xeligent whose platform powers nearly all the CRE MLS services nationwide. Its fairly new listing service having only been around a couple of years, but its growing because of the number of properties on the site and the preponderance of CRE professionals who use the site.

CoStar.com also used to allow individual properties to be submitted for inclusion into their subscription database even if you didn't subscribe to their SaaS service. This may have changed after they bought loopnet, but check their website for information or reach out and call them to learn more.

@Joe SplitrockOn my recommendation we would request a personal guarantee so the tenant felt their feet where to the fire so to speak, but never was there an intention to execute on enforcing the guarantee. The tenant never knew this was the case, but it was clearly an instruction to me that alternative actions would be required should the tenant(s) begin to display problematic behavior.

On more than one occasion those particular subtenants asked "what happens if I just walk away" and my response was always "remember, you signed a personal guarantee" never adding anything more and then changing the subject.

Thankfully, I never had to engage a significant default with those that evolved into problem tenants (other than really late rents) and was able to resolve any issues through continuous communication with the tenant. In a couple of instances a new tenant was found to replace the original sublease tenant, and I structured a full release from the sublease providing the sublessee met the conditions for a full release. I only cared about getting the space back on time for the new tenant and in a condition where the new tenant could move in and begin operating immediately.

This required a lot of additional work on my part, and I executed these re-lease subleases for no fee, but it solved a business problem for the client and he was always glad to hear the course of action led resolving a business problem he wouldn't have to spend time addressing.

In return for my efforts, I got to spend a tremendous amount of time around a brilliant business mind.

First, I would say that unless you reported the pot to the police, and then they advised how to destroy or they confiscate I would image your lease drug paragraph would have no legal merit in a court of law and or may be cause to find you guilty of a crime had you not notified the police.

Second, as many others have said, you should base the deposit return on the condition of the apartment unit.

Third, just because you can, doesn't mean you should.

I liken the security deposit return to that of a 'personal guarantee'. A security deposit assures, to some degree, the rented premises can be returned to their former condition before the tenants occupancy. Likewise, having a personal guarantee will make tenants think twice before skipping out and abandoning a premises, but they're only good if the holder is willing to pursue legal means of recourse to enforce the guarantee.

I was very fortunate to have worked with a client when I was very young in my CRE career who built a multi billion dollar company (and net worth) as he was building his company. I began representing them when the company was doing just over $10MM in annual revenue, meaning they were a teeny weenie company in the overall scope of things. And they leased and then out grew facilities like every six months back then, seriously. So a big part of my work was subleasing their old facilities.

There were literally dozens of these subleases we completed. Because the majority of the properties where in the urban core, and the time was the early 90's when there were literally hundreds and hundreds of competing properties on the market because of the S & L crises, we sometimes had a hard time finding tenants.

When a tenant was found, they often didn't have the financial resources to secure a lease. Many were start up companies in that specific industry, since the property was specialized, and they didn't even have revenues. My solution was to recommend personal guarantees to secure the lease if the tenant defaulted. I learned a very valuable lesson with the clients response.

He simply said 

"If I accept a personal guarantee as security of payment then I must be willing to use such guarantee to collect. The question I must then ask myself is, am I willing to sue to enforce payment, and then use a judgement to evict this man's family from their family home simply because his business cold not pay rent? I could not live with myself if I place that much importance on money. 

Just because you can, doesn't mean you should".

Guarantees, deposits, and pinky swears aren't designed as profit centers.

The story is a hack. The author is somehow justifying "Bandit Sign" observations to a collapsing real estate market, that's ******** no matter how twisted you crank the numbers.

There are some items in his commentary that have some merit. HML do seem to be tightening their underwriting on commercial (I haven't spoken with one for residential in over a year). There does seem to be discontent with the flow of loans making their way to closing, this is from comments and conjectures not from hard statistical data.

History is the best guide to reading the fundamental signs in any market. History tells us we're do for an economic reset, more than likely a recession led my a market adjustment. Was the '16 stock market decline that adjustment? I don't know, but if could be that indicator. 

If you really want to learn more about how our real estate markets work, what signs they throw off, and how to read those signs then read Robert Shiller's book Irrational Exhuberance (most recent edition).

Here's his take on this very topic taken from an interview several weeks ago:

We think that we are headed toward another 2008-like crisis. What are your views?

Robert Shiller: First of all, the 2008 crisis was bad. So, it would be foolish to predict something that bad again. We do see some improvements. For example, banks have higher capital now. On the other hand, it does have a risk of becoming a crisis. But it is hard to predict these things. One thing was different in 2008.

I am looking at it from the US perspective but it also applies to other countries. We had just been through the biggest real estate boom in history. There was a sense that home prices were going up so fast that you did not need to have a loan-to-value ratio below 100% because in six months the loan-to-value ratio will be changed by the appreciation. So that view was kind of uncritically adopted. I do not see that kind of thing playing now. Maybe, it is happening somewhat. We are seeing a correction in the stock market and it could develop into something bigger. 

As in so many areas of real estate typical doesn't typically apply. CRE lease commissions tend to vary depending on where the property is located across the nation. As you've mentioned they do tend to run the rates you quoted of 3-6% for the aggregate lease value of the lease for the first five year tiering downward for the next five, and then so on a so forth for extended lease terms.

You mention you're working on a lease renewal so immediately the question that comes into play is does the originating brokerage have claim to a renewal commission? 

The next question is why are you being represented by a brokerage on a lease renewal? If its because you're unfamiliar with CRE leases, I get it. However, the pure essence of having a broker involved means you're opening up a commitment to pay when you could have eliminated the need to pay any commission by representing yourself with an existing tenant.

Brokers typically earn their commission for the heavy lifting work of finding tenants or buyers and then getting them interested in certain property's, not necessarily for "transacting", assuming they are knowledgeable about the marketplace. 

Assuming the originating brokerage doesn't have a claim to a commission then my suggestion would be to use the mere fact you brought the two most important aspects of the transaction to the table, the tenant and the landlord, and you're willing to pay a commission (the tenant rep side and or landlord side) which is roughly half of a full commission typical for your marketplace. Then, try negotiate terms based on the premise you've made it easy for the broker to "transact", by bringing the parties to the negotiating table, and you want to pay the commission on terms amenable to both them and you.

If you get the 1/2 a commission part accepted I wouldn't push for terms. Pay the fee and move on. Here's why, the tenant already exists at the property which means the property owner has already accepted the tenants credit worthiness to lease the property (if you're a subsequent new owner you had a chance to review credit during your due diligence, if you didn't then that is on you). However, you can use the renegotiation process to get updated financial statements and then if financial condition has deteriorated since the originally lease use that information as a negotiating chip to throw on the table when the time is appropriate, assuming their financial condition is still acceptable.

Note: if you question whether a former brokerage has a claim to commissions (they do not necessarily have to be actively involved in a subsequent transaction to have such a claim) my suggestion would be to stop moving forward with lease extension negotiations until you're able to clarify who is owed what by whom and when. 

I have development experience in various forms of industrial and commercial business parks. My knowledge of San Jose is somewhat limited, but I did have an old armory building in downtown under contract sometime in early 2001 that I worked through the City departments, but did not end up closing on the deal.

Anyway, some additional particulars would allow me to provide you some guidance. Let me know via reply or PM me should you want to discuss this privately