Choosing the right location for your business can be a major factor in its success or failure. Commercial real estate brokers are fond of saying that the three most important factors in establishing a business are location, location, and location. While that may be true for some businesses, for others, locating in a popular, high-cost area may be a mistake. To make sure your space will suit the financial and physical needs of your business, ask yourself these questions:
Is location important for the success of your business? You should determine if your business is dependant on visibility or can you service your clientele from a less visible and usually less costly location. Would a location in a high growth area or an area with certain demographic characteristics important or will your business succeed regardless of this criteria?
How much rent can you afford? Determine a budget for your business is a must. You need to determine how much rent you can afford to pay even in the leanest of times. Overburdening your business with too much overhead can have major implication for your business. In fact, being under capitalized or overextended in your obligations are two of the major reasons that most businesses fail.
Is your proposed location appropriate for what you plan to do there? Zoning ordinances and regulations are laws that define and restrict how you can use your property. Cities, counties, townships, and other local governments adopt zoning plans in order to set development standards to assure that land is used for the common good. Zoning laws come into play on every single real estate development, regardless of how big or small, so if you are thinking about buying property or making improvements to property you already own, you’d better be sure you understand the zoning restrictions before you commit to anything. One zoning use is typically not compatible with another. For example, a commercial building usually cannot be constructed on property that’s zoned for residential uses.
In addition to zoning issues, you need to determine if the size, construction and general attributes of the building you are considering are suitable for you business. For example, do you need truck doors for deliveries? Is the configuration of the office space contusive to your business?
If you try to determine the answers to these question before you begin your search, not only will the search process be less lengthy and more enjoyable but it is more likely that your choice will be the right choice for your business to succeed.
Tuesday, April 14, 2009
The Mortgage Reform and Anti-Predatory Lending Act of 2007
The Mortgage Reform and Anti-Predatory Lending Act of 2007, introduced by Barney Frank, is designed to provide basic protection to consumers and investors and to provide comprehensive legislation to combat abuses in mortgage lending practices. This legislation seeks to reform the consumer lending practices, provide licensing and accountability for mortgage lenders and to provide certain minimum standards for consumer mortgages. This legislation has been referred from the House Banking Committee and should pass the House this year.
First, the bill will establish a system of licensing and registration of individual mortgage originators, brokers and bank loan officers as well as the establishment of the Nationwide Mortgage Licensing System and Registry.
Second, the legislation, under section 105, will set a minimum residential mortgage origination standards for all mortgages by requiring originators to provide a Federal duty of care, net tangible benefits to the consumer, strict anti-steering practices and requires remedies if these standards are not upheld. The Federal Duty of Care will require mortgage originators to diligently work to expose the consumer to a wide range of products, requires that the originator disclose both the cost and benefits of each financial product and disclose the cost of the mortgage origination services so that the consumer can make informed choice pertaining to their mortgage. Creditors must determine through good faith efforts based on verification and documentation that the consumer will receive net tangible benefits and has the ability to repay the loan before any residential loan is considered. It further states that no mortgage originator can receive incentive compensation, directly or indirectly, that is based on or varies with the term of any residential loan and prevents mortgage originators from steering consumers to any products that are not in their best interest. This legislation will require that every mortgage originator be licensed and an identifying number be recorded on every loan document thereby ensuring that a permanent record of who originated the loan will exist. The last part of Section 105 will set up remedies for the consumer if these practices are not upheld by the mortgage originator at three times the amount of direct or indirect compensation that accrued to the mortgage originator in connection with the residential mortgage plus the cost of reasonable attorney’s fees.
Third, the legislation attaches limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. For loans that violate the minimum standard for the consumer’s ability to pay or net tangible benefits allows that the consumer has an individual cause of action against the assignees and securitizers of a loan. However, individual investors and pools of investors in these securities would not be liable.
Finally, the bill disallows prepayment penalties for subprime loan and requires that all prepayment penalties expire at least 90 days before a loan resets. Additionally the legislation includes important protections for rents of foreclosed homes.
Lisa Safford has been involved in the commercial real estate and development industry for over 20 years.
For more information on this and other real estate topics please contact Lisa Safford at (843) 884-7773 or via e-mail at lbsafford@comcast.net
First, the bill will establish a system of licensing and registration of individual mortgage originators, brokers and bank loan officers as well as the establishment of the Nationwide Mortgage Licensing System and Registry.
Second, the legislation, under section 105, will set a minimum residential mortgage origination standards for all mortgages by requiring originators to provide a Federal duty of care, net tangible benefits to the consumer, strict anti-steering practices and requires remedies if these standards are not upheld. The Federal Duty of Care will require mortgage originators to diligently work to expose the consumer to a wide range of products, requires that the originator disclose both the cost and benefits of each financial product and disclose the cost of the mortgage origination services so that the consumer can make informed choice pertaining to their mortgage. Creditors must determine through good faith efforts based on verification and documentation that the consumer will receive net tangible benefits and has the ability to repay the loan before any residential loan is considered. It further states that no mortgage originator can receive incentive compensation, directly or indirectly, that is based on or varies with the term of any residential loan and prevents mortgage originators from steering consumers to any products that are not in their best interest. This legislation will require that every mortgage originator be licensed and an identifying number be recorded on every loan document thereby ensuring that a permanent record of who originated the loan will exist. The last part of Section 105 will set up remedies for the consumer if these practices are not upheld by the mortgage originator at three times the amount of direct or indirect compensation that accrued to the mortgage originator in connection with the residential mortgage plus the cost of reasonable attorney’s fees.
Third, the legislation attaches limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. For loans that violate the minimum standard for the consumer’s ability to pay or net tangible benefits allows that the consumer has an individual cause of action against the assignees and securitizers of a loan. However, individual investors and pools of investors in these securities would not be liable.
Finally, the bill disallows prepayment penalties for subprime loan and requires that all prepayment penalties expire at least 90 days before a loan resets. Additionally the legislation includes important protections for rents of foreclosed homes.
Lisa Safford has been involved in the commercial real estate and development industry for over 20 years.
For more information on this and other real estate topics please contact Lisa Safford at (843) 884-7773 or via e-mail at lbsafford@comcast.net
Thursday, April 9, 2009
The Importance of Property Management in Uncertain Times
In today’s economic times, good property management is more important than ever. With falling rents, higher vacancy rates and fewer tenants looking for space, building owners must take every opportunity to makes their properties memorable in the eyes of prospective tenants. From the grounds to the lobby, no detail should escape attention.
With less capital to operate, property owners need to keep a close watch on expenses. Every expense need to be scrutinized to determine if cost saving measures need to be employed or which capital improvements will return the biggest bang for the buck. All expenses need to be analyzed to insure that can be legally passed through to tenant is billed. Maximum revenue can only be achieved if these steps are taken.
In addition, a strong rapport with existing tenants will become extremely important. Landlords will need to stay informed of the needs of its tenants and should be willing to work with tenants in these volatile times.
If you are interested in learning more about this or other commercial real estate topics, please contact Summit Commercial Properties, Inc. at (843) 884-7773 or via e-mail to LBSafford@comast.net
With less capital to operate, property owners need to keep a close watch on expenses. Every expense need to be scrutinized to determine if cost saving measures need to be employed or which capital improvements will return the biggest bang for the buck. All expenses need to be analyzed to insure that can be legally passed through to tenant is billed. Maximum revenue can only be achieved if these steps are taken.
In addition, a strong rapport with existing tenants will become extremely important. Landlords will need to stay informed of the needs of its tenants and should be willing to work with tenants in these volatile times.
If you are interested in learning more about this or other commercial real estate topics, please contact Summit Commercial Properties, Inc. at (843) 884-7773 or via e-mail to LBSafford@comast.net
Tuesday, April 7, 2009
COMMERCIAL REAL ESTATE- A TICKING TIME BOMB ?
During the recent commercial boom that took off in 2005 and lasted through early 2007, Wall Street called the shots on lending. Investment banks pooled commercial mortgages, bundled them into loans and sold them to investors as bonds, called Commercial Mortgage Backed Securities. The cheap, ample debt fueled a real-estate boom that sent prices soaring to record levels and allowed investors to enjoy phenomenal returns not found in other investment vehicles.
According to The Real Estate Roundtable, a real estate trade group, investment in commercial real estate in the United States is valued at more than $6.5 trillion dollars. Over the past ten years, mortgage debt associated with investment in commercial real estate has nearly tripled, growing to nearly 3.4 trillion. In addition, investment in Commercial Mortgage Backed Securities (CMBS), packages of pooled loans backed by mortgages on office buildings, industrial properties, malls and other retail centers, and apartment buildings grew over 60% in the past decade. Yet, as the frenzy reached its peak in early 2007, underwriting became increasingly lax and investors started to balk at buying the bonds. Sales of commercial mortgage-backed securities have been ravaged by market conditions since last fall.
What is even more bothersome is that unlike their residential counterparts, most commercial real estate loans are underwritten for five, seven or ten years with a balloon payment due at the end. Normally, the property owner will refinance the loan with a new loan of longer maturity at that time. But with more stringent underwriting rules, declining values and declining cash flows, many loans may not qualify for refinancing. A borrower’s inability to refinance may force a borrower into default. The Real Estate Roundtable, a key trade group for the industry, late last year predicted that more than $400 billion of commercial mortgages will come due through the end of 2009. Foresight Analytics estimates that $160 billion of commercial mortgages will mature next year even as credit for refinancing remains non-existent, and cash flows from rents and leases are way down due to the recession.
According to Deutsche Bank of all of loans maturing through 2012, over two thirds (370 Billion) will not qualify for refinancing under the more stringent underwriting guidelines. So how can we keep the commercial real estate sector from becoming the “tipping point” that keeps the US economy in its current recession? Will there be widespread maturity extensions or widespread foreclosures and liquidations? Many real estate expects argue that commercial real estate markets will likely recover within six months as the general economy begins to recover, which will resolve the refinancing problem. Others feel the only answer is government programs that will prevent hundreds of billions of dollars in commercial real estate loans from default which in turn will call further damage to bank portfolios, damage to insurance companies and other investors in commercial properties.
I believe the answer involves three important principals. First, repairing the credit markets and restoring liquidly to the commercial real estate market should be a top priority. The Federal Reserve and the Treasury, under the TALF or Term Asset Backed Securities Loan Facility, should adapt a funding program to make it attractive for investors to buy debt backed by office buildings, hotels, stores and other income-producing property. TALF is not a bailout or loan but the issuance of asset backed securities collateralized by student loans, auto loans, credit card debt, small business loans and potentially commercial loans.
Secondly, FASB 157 should be revised to temporarily suspend the Mark to Market provision. Since 2007, publically traded companies are required to values assets and liabilities at its current market value rather than its book value. Problems can arise during volatile times when there may not be any market for the particular asset. Until this month, FASB 157 required backs and other financial intuitions to price these assets at fair market value in a distressed market, therefore decreasing capital. Many believe the use of mark-to-market accounting lead to the subprime meltdown. Mark to Market caused volatility for the company's shareholders. That's because the fair value of its subprime mortgages became increasingly difficult to calculate when the mortgage market began to dry up in 2007. As financial institutions clung to the high valuations to which they were accustomed, the bottom fell out of the subprime arena, and companies with billions of dollars of subprime on their books were forced to write those assets down to almost nothing. For investors, this meant that a company's assets could be wiped out overnight - and share prices reflected this. In April 2009, the Financial Accounting Standards Board voted to approve new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation, starting in the first quarter of 2009.
Lastly, the government needs to reject tax treatments that are unfavorable to real estate investment. Recently changes have been proposed that would increase the capital gains rate, chance the 1031 or tax deferral exchange rules and increase taxes on partnership “carried interest”. All of these changes will further depress investment in commercial real estate.
The Charleston Real Estate Voice
Lisa Safford
Summit Commercial Properties
www.summitcommercialproperties.com
According to The Real Estate Roundtable, a real estate trade group, investment in commercial real estate in the United States is valued at more than $6.5 trillion dollars. Over the past ten years, mortgage debt associated with investment in commercial real estate has nearly tripled, growing to nearly 3.4 trillion. In addition, investment in Commercial Mortgage Backed Securities (CMBS), packages of pooled loans backed by mortgages on office buildings, industrial properties, malls and other retail centers, and apartment buildings grew over 60% in the past decade. Yet, as the frenzy reached its peak in early 2007, underwriting became increasingly lax and investors started to balk at buying the bonds. Sales of commercial mortgage-backed securities have been ravaged by market conditions since last fall.
What is even more bothersome is that unlike their residential counterparts, most commercial real estate loans are underwritten for five, seven or ten years with a balloon payment due at the end. Normally, the property owner will refinance the loan with a new loan of longer maturity at that time. But with more stringent underwriting rules, declining values and declining cash flows, many loans may not qualify for refinancing. A borrower’s inability to refinance may force a borrower into default. The Real Estate Roundtable, a key trade group for the industry, late last year predicted that more than $400 billion of commercial mortgages will come due through the end of 2009. Foresight Analytics estimates that $160 billion of commercial mortgages will mature next year even as credit for refinancing remains non-existent, and cash flows from rents and leases are way down due to the recession.
According to Deutsche Bank of all of loans maturing through 2012, over two thirds (370 Billion) will not qualify for refinancing under the more stringent underwriting guidelines. So how can we keep the commercial real estate sector from becoming the “tipping point” that keeps the US economy in its current recession? Will there be widespread maturity extensions or widespread foreclosures and liquidations? Many real estate expects argue that commercial real estate markets will likely recover within six months as the general economy begins to recover, which will resolve the refinancing problem. Others feel the only answer is government programs that will prevent hundreds of billions of dollars in commercial real estate loans from default which in turn will call further damage to bank portfolios, damage to insurance companies and other investors in commercial properties.
I believe the answer involves three important principals. First, repairing the credit markets and restoring liquidly to the commercial real estate market should be a top priority. The Federal Reserve and the Treasury, under the TALF or Term Asset Backed Securities Loan Facility, should adapt a funding program to make it attractive for investors to buy debt backed by office buildings, hotels, stores and other income-producing property. TALF is not a bailout or loan but the issuance of asset backed securities collateralized by student loans, auto loans, credit card debt, small business loans and potentially commercial loans.
Secondly, FASB 157 should be revised to temporarily suspend the Mark to Market provision. Since 2007, publically traded companies are required to values assets and liabilities at its current market value rather than its book value. Problems can arise during volatile times when there may not be any market for the particular asset. Until this month, FASB 157 required backs and other financial intuitions to price these assets at fair market value in a distressed market, therefore decreasing capital. Many believe the use of mark-to-market accounting lead to the subprime meltdown. Mark to Market caused volatility for the company's shareholders. That's because the fair value of its subprime mortgages became increasingly difficult to calculate when the mortgage market began to dry up in 2007. As financial institutions clung to the high valuations to which they were accustomed, the bottom fell out of the subprime arena, and companies with billions of dollars of subprime on their books were forced to write those assets down to almost nothing. For investors, this meant that a company's assets could be wiped out overnight - and share prices reflected this. In April 2009, the Financial Accounting Standards Board voted to approve new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation, starting in the first quarter of 2009.
Lastly, the government needs to reject tax treatments that are unfavorable to real estate investment. Recently changes have been proposed that would increase the capital gains rate, chance the 1031 or tax deferral exchange rules and increase taxes on partnership “carried interest”. All of these changes will further depress investment in commercial real estate.
The Charleston Real Estate Voice
Lisa Safford
Summit Commercial Properties
www.summitcommercialproperties.com
Thinking of Buying or Leasing For Your New Business...Thoughts to Consider
Thinking of Buying or Leasing For Your New Business...Thoughts to Consider
To Lease or Buy- That is the Question
Given the current economic climate many small business owners are wrestling with the decision to buy property and take advantage of historically low interest rates and lower property values or to continue to lease. If you ask a real estate professional most will tell you the decision to lease or buy depends on many factors. There is no really no definitive rule but decisions based on an individual’s particular situation. Below are some of the plusses and minuses to both a purchase decision and a lease decision.
The advantages to leasing your business property are:
- Less Upfront Cost. Most leases require one to two month rent up front verses 20- 25% down on a typical commercial mortgage, a blessing to a new or cash strapped business. In addition, in today’s economic climate, commercial mortgages may be difficult for new or unproven businesses to procure.
- Flexibility. Leasing allows a business owner the flexibility to easily relocate or sublet if their business plan calls for it. Additionally there is no need to sell property if your business needs a new location.
- Tax Deductible. Monthly rent payments are tax deductible as a business expense. No Mortgage.No mortgage payment allows a business to invest its capital in its core business, not in property.
- Power to Negotiate. In this current market Tenants may have more negotiating power with Landlord eager to fill vacancies. Tenants may be able to negotiate better lease rates, terms, dollars for tenant upfit or remodeling costs and in some markets they can even negotiate free rent.
- Focus on Core Business. Property owner are exposed to legal and regulatory issues not experienced by Tenants. In addition, owners are required to invest time and energy in managing the property. As a tenant, legal, regulatory and other management issues are the responsibility of the owner, thereby allowing the tenant to focus on their core business.
The Advantages to Buying a Property are:
- Tax Deductions. Annual Mortgage interest istax deductible and the property can be depreciated, thereby lowering annual business operating expenses.
- Flexibility. Owning your property gives you the flexibility to customize the property for your business needs. You can purchase a property with excess space to allow for future growth, preventing costly moves.
- No need to Negotiate. Under a lease, you may be subject to annual increases in the rental rate. Additionally property owners may pass though increases in the cost of services over which you as a tenant have no control over. As a property owner you can control or at least carefully monitor the cost of services for the property. Term is also left up to your discretion, not to the discretion of your landlord. The decision to move to another location will be your decision and not the decision of a landlord.
- Property Appreciation. Owners can participate in upside Potential or appreciation in a property. From 2001 – 2007, commercial property in the United States appreciated over 60%.
The decision to Lease or Buy a property can be a complicated decision. The first step should always be to consult a qualified commercial real estate expert in your area. With their help and expertise, you can find the perfect property in the right location at the right price.
Lisa Safford
Summit Commercial Properties, Inc.
http://www.summitcommercialproperties.com/
(843) 884-7773
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