Lerman Law PartnersReal Estate Investor Law Firm in California | San Rafael Real Estate Investment Attorney | CA Estate Planning Lawyer2024-01-09T10:21:00Zhttps://www.realestateinvestorlaw.com/feed/atom/WordPress/wp-content/uploads/sites/1102721/2023/05/cropped-icon-32x32.pngOn Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=531982024-01-04T10:21:44Z2024-01-09T10:21:00ZLocation is still king
As with buying any type of real estate, location is paramount when it comes to selecting an apartment building. Look for areas with strong economic growth, employment opportunities and a low crime rate. Proximity to amenities such as schools, public transportation and shopping centers can also enhance the property's appeal to potential tenants. Make sure the property is somewhere that people will want to live.
Condition is important
Consider the condition of the apartment building and the maintenance history. A well-maintained property not only attracts tenants but also reduces the likelihood of unexpected repair costs. Engage in a thorough inspection of the building's structure, plumbing, electrical systems and overall condition.
The local market is revealing
Evaluate the potential for rental income by researching the local rental market. Compare rental rates in the area and assess the demand for rental properties. Ideally, there should be a high demand to live in the area and a history of high occupancy rates in the building.
Choosing an apartment building for investment involves a comprehensive evaluation. By conducting thorough research and analysis, investors can make informed decisions that lead to a successful and rewarding real estate investment.]]>On Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=531932023-10-05T10:47:03Z2023-10-10T10:46:46ZConsistent demand
A primary reason the self-storage industry is an attractive investment is that there is significant demand for storage space across the nation. People use storage units for various reasons, including downsizing, moving, renovating their homes or simply decluttering.
Recession resilience
Self-storage investments have proven to be recession-resistant. During economic downturns, when individuals may need to downsize their homes or relocate for employment, the need for storage space tends to increase. This means self-storage properties can provide stable cash flow even in challenging economic times.
Low operating costs
Compared to many other commercial real estate investments, self-storage facilities have relatively low operating costs. They also require minimal maintenance, as there are often no heating or cooling systems to manage. This cost-efficiency can lead to higher profit margins for investors.
Short leases and long rental terms
Self-storage facilities typically offer shorter lease terms than residential or commercial real estate. This flexibility allows investors to adjust rental rates more frequently, keeping up with market trends and maximizing rental income. Additionally, self-storage rental rates tend to be higher per square foot than other types of real estate, offering the potential for attractive returns.
Per REJournals, the future looks bright for those who invest in the self-storage sector, with the industry expecting to see a compound annual growth rate of 5.45% between 2021 and 2026.]]>On Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=531902023-06-30T18:37:21Z2023-07-05T18:36:54ZEstablishing boundaries between partners
One of the main purposes of a partnership agreement is to outline the rights and responsibilities of each partner. By doing so, there will be clear boundaries that each individual must respect. If one partner does overstep these boundaries and attempt to make decisions outside their authority, the agreement can serve as powerful evidence in a dispute case.
Providing a dispute resolution process
If a dispute does arise that you cannot resolve through simple conversation, then you should look to your partnership agreement for a mutually-agreeable resolution process. An ideal agreement will include terms for resolving a dispute which all parties involved will agree upon when signing the document. This might entail undergoing mediation or arbitration rather than resorting to a contentious courtroom battle.
The most promising results are only possible when two or more investors pool their resources, knowledge and skills together. Partnering up for business opens the door for disputes and abuses of authority, though, so it is essential to have a comprehensive partnership agreement in place.]]>by Philip Diamondhttps://www.realestateinvestorlaw.com/?p=531762023-06-27T16:52:47Z2023-06-26T05:06:26ZEarlier strategies for commercial tenants faced with Covid-19 rent problems
In December 2020, we wrote about a legal strategy that might be used by commercial tenants whose businesses were shut down by governmental Covid-19 Orders, in their efforts to obtain some rent relief. In general, the strategy was based on the concept referred to by California courts as “commercial frustration.” Simply put, it means that when the purpose of a contract becomes nearly or totally impossible to achieve due to an event that was neither contemplated nor foreseeable by the parties, the injured party’s performance under the contract will be excused and that party’s obligations under the contract will be considered “discharged” (i.e., no longer required). (Dorn v. Goetz (1948) 85 Cal.App.2d 407, 412.) As mentioned in our earlier article, the doctrine is not new and has been applied in a number of different contexts over the years. Here are some examples:
In 1922, a lease for commercial space that was to be used for a wine and liquor business was held by the court to have been discharged when the passage of Prohibition made the object of the lease impossible to perform (Industrial Development & Land Co. v. Goldschmidt(1922) 56 Cal.App. 507, 509);
In 1944, a lease for neon advertising lights to be placed upon the tenant’s business was permanently discharged due to a wartime government order banning nighttime illumination, even though the order was only temporary (20th Century Lites, Inc. v. Goodman(1944) 64 Cal.App.2d Supp. 938, 945); and
In 1978, a lease for an electric burglar alarm system was discharged when it became unlawful to use the radio waves required for the system because they interfered with secret government radio frequencies (Federal Leasing Consultants, Inc. v. Mitchell Lipsett Co.(1978) 85 Cal.App.3d Supp. 44, 47).
The common thread in all these cases is that, whereas the lessee was still able to lease the commercial space, the advertising lights, and the burglar alarm system, the value of the lease was destroyed because the lessee could not use those things for their intended purpose.
Another strategy mentioned in our earlier article was based on Civil Code Sec. 1511(1), which provides that performance under a contract is excused “[w]hen such performance…is prevented…by…operation of law, even though there may have been a stipulation that this shall not be an excuse.” From this, commercial tenants might argue that performance under the contract (the operation of its business) has been “prevented…by the operation of law” (COVID-19 orders preventing the business from operating), thereby excusing the rent obligation under the case law we cited in the earlier article. The tenant might also argue that even if the lease provides that its inability to operate its business does not excuse the payment of rent, that provision is unenforceable under Civil Code Sec. 1511(1) if the inability to operate results from a governmental order.
An update on the law on Covid-19 and commercial property rent obligations
When we wrote the earlier article there were no published California appellate decisions on the subject dealing specifically with Covid-19. That has now changed. Earlier this year, the California Court of Appeal (4th District; San Diego) weighed in on the subject in favor of the commercial landlord. In SVAP III Poway Crossings, LLC v. Fitness International, LLC (2023) 87 Cal.App.5th 882, a fitness center tenant had 5 ½ years remaining on its lease when, in March 2020, it stopped doing business due to Governor Newsome’s Covid-19 lockdown Order. It remained intermittently unable to operate its business through March 2021 due to government closure orders. The fitness center withheld more than 8 months of rent but continued to occupy the space. The landlord sued for unpaid rent, late fees, interest, attorney’s fees, and costs. In response, the tenant claimed among other things that it was excused from paying rent by Civil Code Sec. 1511(1), and under the doctrine of frustration of purpose.
In affirming the trial court’s dismissal of the action, the Court of Appeal held that Civil Code Sec. 1511(1) did not provide an excuse for paying rent, because “the pandemic and resulting performance did not prevent Fitness from performing its contractual obligation to pay rent.” (Id., 87 Cal.App.5th at 873.) It also held that the doctrine of frustration of purpose didn’t apply because the lease spanned more than 23 years, the government closure was only temporary, and the closure therefore “does not amount to the kind of complete frustration required for the doctrine to apply.” (Id., 87 Cal.App.5th at 874.) The court also noted that the doctrine requires that the purpose of the contract that was frustrated be contemplated by both parties in entering into the contract, whereas the lease required only that the tenant operate a fitness facility for one day and permitted other uses thereafter. (Id., fn. 5.)
What this means for commercial landlords and tenants with Covid-19 issues going forward
On its face, the SVAP III Poway case stands for the proposition that Covid-19 shut-down orders don’t excuse commercial tenants from paying rent. However, different factual circumstances (such as a longer shut-down period and shorter total lease term), and different lease provisions (such as one that allows for only one specific use of the premises throughout the term of the lease) might lead to a different result. Further, some of the court’s legal conclusions were arguably in conflict with those reached by the courts in the earlier cases mentioned above, which means that it’s possible that another appellate court, from a different appellate district, might reach a different result at some point in the future.
Nevertheless, the SVAP III Poway case has given strong ammunition to commercial landlords who are looking to recover unpaid rent and other damages resulting from Covid-19 shut-downs. Commercial landlords and tenants with unresolved Covid-19 rent issues should consult with experienced counsel to review their leases and the circumstances of their particular situation to see how closely they align with those in the SVAP III Poway case. The more closely they align, the more likely that a court would reach the same result, and the stronger the landlord’s position in resolution efforts.
If you need any assistance with a commercial real estate dispute, we’re here to help. Just contact us on line or call us at (415) 448-7778 to schedule an appointment.
We look forward to working with you!
Best,
Phil
Philip R. Diamond, Esq.
Of Counsel, CunninghamLegal
* Phil Diamond is a real estate attorney, Of Counsel to CunninghamLegal, where he handles a wide range of real estate-related disputes and transactions, including commercial lease disputes. He is also a mediator and arbitrator through his independent practice, DIAMOND DISPUTE RESOLUTION. Phil is also a licensed real estate broker, and former commercial landlord and developer. You can reach him at pdiamond@cunninghamlegal.com, or (415) 883-7915.]]>On Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=529062023-05-02T16:27:56Z2023-05-02T07:48:49Z
Investing in commercial real estate can be a daunting task. You must take care of seemingly endless tasks and countless factors to remember. Therefore, getting into it isn't for the faint of heart. But, despite all of this, some tackle the investment process with surprising fun and confidence. Such individuals are effective in finding decent investment opportunities. And they don't get sidetracked or even bothered by all the small hiccups that are bound to pop up. So, are you one of them?
Signs you are ready to start investing in commercial real estate
To be able to invest in commercial real estate, you must check out certain factors. There are plenty of individuals that want to make some sort of investment. But they are simply not in the position to do so successfully. So, the following are the must-have aspects that all successful commercial real estate investors have.
Financial stability
While you don't have to be a millionaire to invest in commercial real estate, you need some sort of financial stability. There are plenty of ways to finance your investment, even if you don't have much money. But you will need to have a decent sum for the down payment. And you will need to have a good financial record to get a good deal on your loan. It is possible to get loans, even if you don't have stable financial backing. But know that such loans are far less cost-effective. That is why, as a rule, we consider financial stability a necessity.
Clear investment goals
Commercial real estate investment is a broad term. Firstly, there are various types of real estate that you can invest in, like office spaces and retail, industrial, and multifamily rentals. All of these can be viable options. Secondly, there are different reasons why you are investing in commercial real estate. Do you plan on flipping the property to yield some money? Or do you plan to be the permanent owner? If so, do you plan to lease the property? Or do you wish to run a business from it? All these are unique investment goals that require different approaches. So, the sooner you can outline yours, the better.
Readiness to do the research
Every real estate investment starts with doing research. Therefore, to know what you are getting into, you must read up on how people approach this process. You also need to educate yourself on viable financial plans and possible aids you can get. The area in which you plan to invest will be a big factor in whether or not your investment will be fruitful. Therefore, you need to research it carefully and outline potential factors that will determine the quality of your investment. And you need to understand the legal aspects of buying and owning commercial real estate. All this to say, you will need to do a lot of research. Those unwilling to do their homework should stay away from commercial real estate.
Having a good team by your side
Luckily, you won't have to do everything alone. It is by no means expected that a single person should keep all the information in mind and be able to take care of every task that comes up. Therefore, a big part of whether you can see success from your commercial real estate investment is whether or not you have capable professionals working with you. An accountant to help you with the financial aspect. A real estate agent to outline potential investment opportunities. And a lawyer to help deal with various contracts and proceedings. If needed, let a moving team help you with storage and relocation, especially when moving long-distance in California. And you can hire maintenance contractors to renovate. Depending on the type of investment, you will need different aid. But, in all instances, you must know how to find them and determine whether they are good.
A good idea of what being a landlord entails
Many people go into commercial real estate to rent out their property. While this is a viable investment option, you must know what it entails. Namely, you will become a landlord if you plan to rent your property. And as such, you must know what that job entails. Remember that being a landlord doesn't mean sitting idly and waiting for rent money to come by. It is a duty that you need to have a full grasp of before you get into it.
Understanding of potential risks and benefits
While there are many ways in which your commercial real estate investment can pay off, there are equally as many ways in which it can fall flat. Regardless of how good you are, this is simply a matter of fact. Therefore, you must come to terms with the potential risks and benefits of commercial real estate investment before you face them. That way, you won't stress as much about all the possible outcomes. And you'll be able to correctly prepare for various scenarios ahead of time. The safest course of action is to carefully study what people went through and how they dealt with different circumstances. That is why having experienced professionals by your side is essential, as they can share their experiences with you.
A genuine sense of excitement about investing
Finally, it is essential to note that investing in commercial real estate should bring a sense of excitement. Yes, it is an arduous and often stressful endeavor. You will likely run into unforeseen circumstances that are neither fun nor easy to deal with. But you need to feel excited about what you are getting yourself into. This excitement will be a key motivator once things get rough and the outcome seems bleak. But, if you manage to weather the storm and keep at it, you are bound to find success with your investment.]]>On Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=526332023-04-17T13:35:28Z2023-03-29T10:46:05ZThe New York Times, these specific banks were big players in the market as banks typically “package loans they into complex financial products and sell them to investors, allowing the banks to raise more money to make new loans.”
When these banks pull back on their lending, it influences how investors and commercial developers proceed with projects. Altering this pattern has major ramifications as $2.3 trillion in the American economy comes from commercial real estate ventures. Borrowers may become more conservative when they loan their money while commercial projects will become a standstill – halting profits and jobs in the construction industry.
Why The Pullback Matters
This pullback isn’t only impacting First Republic or Signature, smaller banks across the U.S. will have to constrain their loans – potentially limiting economic growth overall for Americans. This is especially devastating as the commercial real estate sector is tackling other hurdles such as inflation.
This pullback isn’t only impacting First Republic or Signature, smaller banks across the U.S. will have to constrain their loans – potentially limiting economic growth overall for Americans. This is especially devastating as the commercial real estate sector is tackling other hurdles such as inflation, the growth of remote workers, raising interest rates, and lingering effects from the pandemic.
Unfortunately, this isn’t a new pattern. Loan officers started to report tightened of lending at the end of 2022 as regular consumers and tech startups were in greater need of cash, as reported by AXIOS. The recent failure of Silicon Valley Bank will only expedite the process of real estate loans. As lending restricts, it will have an impact on regular consumers and the real estate market as a whole, so commercial real estate developers will have to wait with bated breath to measure the response from these consumers and how we can adapt to their needs and still create our projects.]]>On Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=525642023-03-16T21:05:26Z2023-03-16T21:05:26Z
All savvy real estate professionals are aware of commercial real estate investment potential. Additional cash flow, higher returns, immense asset appreciation, beneficial economies of scale, relatively open playing field – the reasons why CRE is a better deal than residential real estate are plenty. However, with such a lucrative endeavor come more responsibilities. As most would expect, CRE investing is a bit different from purchasing single-family properties. There are a lot more numbers to crunch and a lot more capital to raise. And that requires proper dedication. For this reason, investors must exercise due diligence, take time to ferret out the process, and know what to expect. Here are some essential steps to achieve a profitable commercial real estate deal.
1 Know why you’re investing
Why do you want to invest in the first place? What are you hoping to gain? Before you start browsing for that perfect piece of property to purchase, ask yourself these crucial questions. You need to know your “why” before choosing the “what”. In other words, you need your starting point to keep you on the right track. That’s the first and crucial part of getting the best CRE deal possible. Otherwise, your investment’s pretty much pointless.
2 Weigh all your options
CRE encompasses a wide variety of property types. In general, any land, large residential rental, or other building used for business purposes to generate income is called commercial property. Typical examples are shopping centers and storefronts, industrial properties, condominium buildings, residential housing, medical buildings, etc. For this reason, it’s essential that investors pick the type of property that they are comfortable managing – especially if this is their first time investing in commercial real estate.
3 Learn what the insiders know
To be a player in the commercial real estate business and find a profitable real estate deal, you must learn to think like a pro. Commercial deals differ in many ways from their residential counterparts. They’re a lot more complex, require more research and money, take more time to evaluate, and have higher stakes. However, unlike residential leases, commercial real estate leases last much longer, the cash flow and return rates are higher, the tenants are more qualified, and the property value is more easily increased. Finally, the tighter your credit environment, the more experienced your commercial mortgage broker should be. Thanks to their expansive network of banks, credit unions, hard money lenders, and debt fund lenders, you will be able to get the best terms and rates for your commercial project – which brings us to our next point.
4 Make sure to partner up with the right people
To get the most bang for your buck, you need a team by your side, not a one-man army. This means you will need some outside help. For starters, you need someone to show you all the properties with the best potential. Mind that some of these properties may not even be on the market. Besides a reputable realtor, you should consult an experienced attorney and accountant who will ensure that you’re prepared for your taxes and that your transactions are legal. Thirdly, consider partnering with established contractors who have a good reputation, know your industry, and are responsive to your needs. Finally, find at least one commercial mortgage broker to help you with financing.
5 Map out a plan of action
Now that you’ve built a sprawling network and have all the right people in your corner, it’s time to set parameters. For instance, do the math for how much you’ll be able to afford to pay and then get rate quotes from multiple mortgage lenders to get a sense of the amount you’ll pay over the life of the mortgage. Mortgage calculators are great tools for developing reasonable estimates of the total cost of your commercial property. But there are more key questions you need to ask yourself. For instance, how much you expect to make on the deal, how much rental space you need to fill, how many tenants are in the picture, and such.
6 Learn how to recognize a good deal
By this time, you should already have clear investment goals and the type of property in mind. Now, what’s left is to learn how to recognize a good and profitable commercial real estate deal. The top real estate pros have that figured out. But what’s their secret? Above all, it’s essential to have an exit strategy. In case of a significant change in market conditions, a non-performing investment, an unprofitable business, et cetera, it’s good to know you can walk away from that deal. If you have a sharp landowner’s eye, that can significantly help you. It would mean that you know how to assess risks and property damage that requires repairs and determine whether or not the property meets your financial goals.
7 Find the perfect property
While searching for the best deals, make sure to be adaptable. Use the internet, read the classified ads, and enlist real estate bird dogs to help you find valuable investment leads. Also, don’t limit your search to that one city. For example, if you want to invest in CA, research the best cities in CA to invest in real estate, and list all great areas in the state that you might want to consider. Then, go there, and do some neighborhood “farming”: study the neighborhood, go to open houses, talk to the neighbors, look for vacancies, et cetera.
8 Estimate a property’s performance
Got it? Don’t move on to the next stage without making sure that the property benefits your portfolio. At this point, it helps to know the key CRE metrics when assessing real estate, including Net Operating Income (NOI), Cap Rate, and the Cash-on-Cash formula. Does the property fit your plan, goals, and needs? What are the risks? Does the risk outweigh your rewards?
9 Look for motivated sellers
Just like with any other business, the customer is the one who drives real estate. And it is your task to find them – especially those ready and willing to sell below market value. The thing is – nothing can happen, and nothing will matter until you’ve found a deal, which is usually accompanied by a motivated seller. If your seller is not motivated, meaning they don’t have a pressing reason to sell below market value, they won’t be as willing to negotiate.
Everything looking good? Close the deal
Commercial real estate can be incredibly valuable, especially if you want to diversify your portfolio quickly. Indeed, the process will, no doubt, be daunting, but that’s why you’re doing your research. In the end, getting the most profitable commercial real estate deal isn’t just about farming neighborhoods, negotiating a fantastic price, or sending out smoke signals to lead sellers to your doorstep. Rather, it’s about basic human communication, building a strong and sprawling network, and good rapport with property owners. This way, they’ll be much more comfortable and eager to do business with you.]]>On Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=525572022-12-30T01:59:22Z2023-01-04T01:58:28Zplanning and selection to get the right property.
There are a few important considerations to help you get the commercial real estate that fits your needs.
Prioritize the potential
If you look at each property with a focus on the initial expense, you might overlook a potential investment that could be valuable in the long run. Consider the long-term earnings possibility with a property and weigh those potential earnings in comparison to that initial cost.
Assess the risk factors
Each commercial property has its own risk factors. For some, the property is too far away from the main roads to draw foot traffic. For others, the location may struggle with heavy traffic. Evaluate each property’s risk factors objectively and consider any available mitigation efforts so that you get a property that you can work with.
Evaluate the neighborhood
When you finally find the building and land that are within your requirements with the zoning that suits your operation, it is tempting to jump into an offer. Take time to evaluate the property first to ensure that the neighborhood is safe, growing and stable for an incoming business.
Commercial investments, whether for your company or as a rental, need careful vetting. Make sure to assess the key factors when you evaluate each potential purchase. The right property will fit the logistic and financial constraints.]]>On Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=525532022-10-03T10:32:40Z2022-10-06T10:32:21ZSearch for opportunities, not emotional reactions
One of the biggest mistakes investors make is buying based on emotion. Also, avoid just acquiring property for the sake of owning it. Instead, search for properties with strong potential returns on your investment. Research the neighborhood, comps, and expected future progress in the area. Look at demographics and population growth statistics. Also, do your due diligence and learn about passive income and appreciation potential.
Build a team, not a one-man army
You likely will not get the most out of your investment money if you do not build a team. You need an experienced, reputable realtor to show you great properties, some of which may not even be on the market. You should consult with an attorney and accountant to ensure you prepare for your property taxes and keep your transactions legal. Consider working with established contractors who provide high-quality work at a reasonable price and can start on your projects immediately. Also, find at least one mortgage broker who can help you with financing.
To get the most out of your investment, consider building relationships with your local title company and financial institutions. With your team, your business plan and strong investment strategies, you are ready to join the ranks of commercial real estate investors.]]>On Behalf of Lerman Law Partners, LLPhttps://www.realestateinvestorlaw.com/?p=525422022-08-24T09:55:26Z2022-08-24T09:55:26Z