TIC'S & UPREIT'S - Real Property Exchange Solutions

It is recommended every real estate investment have an exit strategy that meets the owner’s needs of the property. In a perfect world, the exit should provide for the sale of the project when the owners perceive its value to be the highest. However, issues do occur during the hold periods which sometimes railroad the best laid plans.

The primary reasons many owners keep their properties even when the properties have fully depreciated is because they (1) Do not want to pay capital gains taxes on the sale, (2) Happy with the property, (3) Can’t find a suitable exchange property, (4) IRS exchange rules are too stringent to find and complete an exchange in a timely manner, (5) Property has sentimental value, etc, etc.

The following two (2) exchange vehicles are an ideal, and with the right professionals assisting you, and easy way to exchange your current property for an investment that is newer and in many cases a prime “trophy” property.

UPREIT Solution

Since the mid to late 90’s only large project owners could take advantage of the UPREIT strategy but now those with a little equity as $300,000 can have all of the tax advantages of the large real estate investment trusts.

Generally an UPREIT will work one of two ways. One way is the UPREIT will be the buyer of a commercial property and the other way it will be an ‘Intermediary” between a buyer and a seller. Either way, as a seller you have the same out-come no matter if the UPREIT is buying or acting as an intermediary.

Through the Internal Revenue Service Guidelines, UPREITS have the tax structure to allow them to exchange stock in their respective company for equity in your property. So rather than a 1031 exchange where you exchange real estate for real estate, in the UPREIT transaction you can exchange your property for limited partnership units (convertible to stock) within the Real Estate Investment Trust. I.E. You swap your office building for units (shares convertible to publicly traded stock) within the REIT. THIS IS A TAX DEFERRED EVENT TO YOU AS A SELLER.

Tenant’s In Common Investments – “Tic’s”

An alternative to the UPREIT Solution is the Tenant’s in Common Investment, Otherwise known as “Tic investments”. This is simply the ownership of fractionalized interests in real estate by multiple investors. Tic investments are offered by many companies with many different structures, which is why it is important to do your homework before investing.

Advantages of UPREITS and TICS Are:

• Trade to better property
• No worry’s about maintenance
• Tenants are professionally managed
• Minimize burden on family
• Defer capital gains tax, etc, etc…

Whether you are interested in an UPREIT or Tenants in Common Investment, it is important you consult with a financial advisor familiar with these unique products. With the right people advising you, I’m confident you will be very pleased with your decision, especially when your first check arrives at your mail box.

For more information about this Topic

Please Contact

Dan Weil, CCIM

310- 792-9400

dan@weilcommercial.com

Tips on How To Avoid Conflict With Your Landlord or Tenant

The purpose of this report is to provide key tips that have proven to be effective over twenty seven (27) years representing Landlord’s and Tenant’s, which may minimize the probability of a lawsuit or costly repairs.

Dual Agency-Representing Both Parties.

The law permits a broker to work with both the Landlord and Tenant upon their mutual written consent. This arrangement requires the broker to act in good faith with honesty and loyalty to both parties. Working as a “Dual Agent” has its advantages with the easier transactions and problematic in instances where there are “sticky issues” to work out or when the Landlord and Tenant have different negotiation styles.

Physical Inspections

Prior to occupying the building have licensed experts inspect the property to make sure there are no issues with environmental contamination, zoning limitations, structural components, roof repairs, building size, un-permitted improvements, mechanical systems, or other physical aspects of the property. The inspection fees are minimal compared to discovering a problem after the fact.

The Fire Department

The Fire Department can be a tremendous help in determining the physical requirements needed to occupy the property, which includes whether or not the existing fire sprinkler system is suitable for the Tenant to fully utilize the building as intended. For the larger projects, a fire consultant is recommended. They will rate your inventory according to class and advise you on how to retrofit the building in order to meet code.

Working with Lawyer’s

Most Lawyer’s are brought into the transaction after the fact. Use a Lawyer effectively by bringing them in on the front end of the deal and by clearly defining their role in the transaction. This will save time and minimize the risk of a lawsuit with unnecessary legal fees. A good Lawyer can add value to your team of professionals.

Securing the Lease.

Typically stronger Tenant’s can secure a lease with a security deposit equivalent to one (1) month of base rent. In cases of weak credit history or start-ups companies, Landlords may ask for either the deposit to be as much as six (6) months of monthly base rent and or an equivalent irrevocable letter of credit. Also it is common practice to achieve credit enhancements with a personal guarantee from the principals of the company.

Tenant’s Vacancy of the Property


It is highly recommended the Landlord and Tenant conduct an inspection of the property about sixty (60) days prior to the expiration of the Lease. This will provide plenty of time to obtain accurate estimates of the repairs needed to be done and to work out an equitable cost sharing plan between the parties based upon the requirements of the Lease.

Gross Versus Net Lease

A Net Lease means the Tenant pays for the property taxes, property (fire) insurance for the building, and maintenance of the roof exterior walls and foundation. In addition to the base rent, a Tenant can figure to pay between .10 to 20 cents per square foot for these items. A Gross Lease means the Landlord is responsible for the property taxes, property insurance, and roof replacement. On the other hand, the Tenant maintains the roof, and pays property tax and insurance increases. In both leases the Tenant maintains the interior of the building, including doors, windows, air conditioning, and plumbing, plus is responsible for exterior maintenance. On the multi-tenant projects, Landlord’s prefer to maintain the exterior of the property themselves and charge the Tenant’s a pro rata monthly common area maintenance (CAM) fee. Some Landlord’s will include the HVAC and parking lot expense as part of the CAM charge. Despite the type of Lease, the Tenant will be required to carry a General Liability Policy. The aggregate amount for this insurance is usually 1 to 2 million dollars. Negotiate the contract to meet your needs.

Notices to the Landlord or Tenant

Important Notices to the Landlord or Tenant should always be in writing, and sent registered mail. Following this simply principle may reduce the risk of a costly lawsuit or unnecessary conflict. Make sure you create a file with the lease, letters, notes, conversation log, and any other documents, assuring a good “trail of paper work” for later reference.

For Assistance with your Commercial Real Estate

Please Contact

Dan Weil, CCIM

310-792-9400

dan@weilcommercial.com

www.weilcommercial.com

10 Reasons For Hiring an Exclusive Broker

The following are 10 reasons why you can financially benefit by retaining an experienced exclusive broker.

Market Knowledge
An exclusive broker with many years of experience can help you objectively evaluate all the alternatives without a "self-serving" point of view. A broker’s market knowledge is a critical factor in assuring you will be submitted all the available properties for your consideration. Maximize your broker’s knowledge base by having them focus on you.

Accountability
An exclusive broker is directly accountable to you. Simply, you will not receive the same amount of responsiveness, dedication and accountability from a non-exclusive broker.

Added Value at No Cost
Think of the real estate broker as your very own real estate department without paying for it. The owner of the property typically compensates the real estate broker. Most owners already have included in their budget a sale or leasing fee for the brokers.

Broker Selection
Using an exclusive broker allows you to select and retain the best professional available. Consider interviewing at least three (3) brokers with at least five (5) years experience. Your broker of choice may not be the broker that has been calling on you for years. Retain the real estate professional with the best track record with properties like yours, regardless of the length of time they have been calling on you.

Indicates a Serious Prospect
Hiring an exclusive broker will indicate to the owner’s and brokerage community that you are a serious prospect. This may place you at the head of the pack if you find yourself competing for a property.

Negotiating Experience
The experience of a broker in negotiating a lease or purchase will result in obtaining better terms and conditions for you. The broker’s “deal making experience” is vital to you achieving your relocation plans.

Efficiency/ Minimizes Legal Entanglements
An exclusive broker provides you with a single point of contact. Without an exclusive broker you are faced with wasting your valuable time screening a multitude of brokers, ownership calls and or proposals.

Extensive Industry Contacts
An experienced broker will have extensive contacts with the owners of properties, vendors/contractors, and the brokerage community. These long term contacts in the industry will save you time and money.

Lease Ownership Analysis
A knowledgeable broker has the financial analysis tools and access to information, which will help you evaluate the best real estate solution for your company.

Selection and Coordination of Space and Design Firms.
An exclusive broker can assist you in the selection and coordination of space planning and design firms.

The use of an exclusive broker will maximize the leverage you will need to stragetically plan and relocate your facility at the best economic terms and conditions possible. Your relocation will be fully documented and best of all, most of the time the property owner pays the commission. An experienced exclusive broker with a "deep bench of contacts" on your team could potentially save your company well above a hundred thousand dollars ( $100,000) against the bottom line. TRY USING AN EXCLUSIVE BROKER ON YOUR NEXT LEASE OR PURCHASE.

For more information on working
with an exclusive broker
Please Contact
Dan Weil
310) 792-9400

dweil.wcp@gmail.com
www.weilcommercial.com

10 Questions To Ask Before Hiring An Industrial Real Estate Broker

Since industrial real estate is a specialized field, not all real estate brokers have the level of experience necessary to finalize an industrial real lease or sale in a competent manner. The following suggested questions will help you pick an experienced industrial real estate broker with a track record in the type of industrial property you want to buy or lease.

How long have you been an industrial real estate broker?

Industrial real estate is a practice that requires special training. Just because a broker has a license doesn’t mean they know the complex issues that may come up during the transaction process. That is why hiring a broker that is a real estate specialist with a case load of industrial experience is vital in protecting your interest. Suggestion: Make sure your real estate professional has a minimum of five (5) years industrial real estate experience.

Do you have many long term clients?

This is a tell tale sign on whether or not the broker will be looking out for your interest. People will usually be loyal to one broker if the broker demonstrates they care about them, performs as expected, and stays in touch after the transaction closes. Industrial real estate is still very much a local relationship oriented business.

Do you have a referral list of clients?

Ask to see this list and ask for the approval to contact the client’s on the list. Do make the calls yourself and ask on a scale of 1-10 on how satisfied they were with the broker’s service in terms of market knowledge, negotiation skills, people skills, organization, and perceived weaknesses, if any. This information will help you winnow the group down to a very short list of potential candidates to consider.

Membership in professional organizations?

Industrial brokers that are involved in professional real estate organizations are associated with the best real estate practitioners in the industry and have to adhere to a code of ethics necessary to remain a member of the association. In order to be a member of the Society of Industrial Office Realtors (SIOR) and CCIM Institute, your broker is required to complete many hours of course study and complete millions of dollars in documented transactions. Membership in professional industrial real estate associations enhance the professionalism necessary to properly represent you in the lease or purchase of an industrial real estate property.

How can professional organizations help market the property?

One of the purposes of professional organizations is to share information about properties on the market. This is done through a multiple listing service, e-mail announcements, mailings, or direct phone contact. Membership in a professional association with a listing service is a vital tool to track market comps and promote your property at a realistic price. Membership listing services are mostly web based with easy access from most computers with an internet connection.

Have you recently sold an industrial property similar to mine?

Ask your broker for case studies of properties that are similar in size, quality, and price as your property. This will help you to narrow the field of choices between the brokers you are considering.

On average, how long will it take you to find a prospect?

This question should be answered in the brokers marketing plan.

How do you track market comps in the firm?

In addition to the answer given in questions above, make sure your broker is linked to a listing service that is networked with other commercial real estate firms in the area. The broker’s ability to receive timely market information is an essential ingredient to the successful marketing of your property.

Why should I list my property with you?

Make sure this question is answered to your satisfaction in the marketing plan.

What are your marketing plans for the building?

What unique marketing plans and programs does this broker have in place to make sure your property stands out versus the completion. Make sure the plan includes verifiable market data.


Dan Weil, CCIM, SIOR
Weil Commercial Properties, Inc.
310.792-9400
dan@weilcommercial.com
http://www.weilcommercial.com

Industrial Real Estate - Avoid These 8 Mistakes

Industrial real estate investments are easy to own and manage compared to other real estate properties. The following 8 helpful tips will go a long way in assuring your industrial real estate experience is a positive and profitable one.

1. Not putting you in the "next buyer's" shoes. Ask yourself, "based on the future of the location and condition of the property, will the next buyer find my property a good industrial real estate investment?" If you hesitate in saying "yes", definitely do more analysis before you commit to buying the property.

2. Not having the property inspected by licensed contractors prior to purchasing. Most seller's will allow a 30-45 days contingency period to inspect the property to determine environmental, zoning, flood zones, earthquake faults, roof, mechanical systems, or other costly issues that may affect the return on investment or intended hold period.

3. Work with an experienced industrial real estate lender. Save yourself time and money by working with a lender that has experience making loans on industrial real estate. Your industrial real estate broker should know the lenders that are active in the area of the property.

4. Do your homework on accuracy of information provided & market conditions. Do not buy on the assumptions of the seller’s opinion. Make sure you do your homework as to the accuracy of all claims, especially market conditions and trends. This is where an experienced industrial real estate broker can add tremendous value to your team of professionals advising you.

5. Work with an experienced industrial real estate broker. The broker that specializes in industrial real estate full time and is active in commercial real estate associations, such as; the CCIM Institute (CCIM) or Society of industrial Office (SIOR) has the experience and professional support to help you with the analysis of a property.

6. Examine operating expenses and other financial issues closely. Before you say YES to the project, ask to see the seller's last two years of tax returns and financial statements for the property.

7. Factor enough vacancy and reserves. During the ownership of your industrial real estate you will have empty space and have to perform repairs. Factor these potential costs in to your reserves to get an accurate estimate of the properties potential cash flow.

8. Use your lawyer effectively by bringing them in on the front end and by clearly defining their role in the transaction. This will minimize the risk of a law suit and save you thousands of dollars in unnecessary legal fees or judgments. A good industrial real estate lawyer can add value to your team of professionals.

Please Contact
Dan Weil
310 792 9400
dan@weilcommercial.com
weilcommercial.com