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Recently our organization, Expedited Environmental Services, conducted a market evaluation and reached out to our existing clients to determine the strength and weaknesses of the environmental consulting industry. Based on our evaluation, it was brought to our attention by multiple commercial real estate brokers and mortgage brokers that the Phase I Environmental Site Assessment is rarely being conducted becauseeitherthe buyers of the transactions are purchasing the property as a cash transaction,and/or the lending institution is only requiring a Transaction Screen that follows the American Society of Testing Materials (ASTM) E1528-06 – Standard Practice for Limited Environmental Due Diligence: Transaction Screen Process to fund the transaction. The utilization of a TS for this purpose shocked our company, not because the potential owner is bypassing the Phase I Environmental Site Assessment by paying cash, but because the lending institutions did not learn a valuable lesson from the economic turmoil that effected so many of us. Without the proper environmental due diligence, the lending institution is potentially lending to an owner of an environmentally impaired property in which the owner may not have the capital to remediate. This leaves the bank holding a bad note once again. What is also shocking is that …

Given the expected changes in capital gains rates, investors should consider potential taxes on a future sale before making a decision to buy or sell. For real estate investments, there are three tax scenarios that could apply to a sale: short-term gains at ordinary income tax rates (35 percent through 2010 and 39.6 percent thereafter); long-term capital gains tax rates (15 percent through 2010 and 20 percentthereafter); or deferral of state and federal taxes through a §1031 tax deferred exchange.To understand these tax classifications and the corresponding tax rate structures more thoroughly, review Ordinary Income vs. Capital Gain Taxation. Let’s look at a real estate buyer who purchases two distressed properties at a significant discount (either a short-sale seller or a lender who has already foreclosed on property that secured a non-performing loan). For this example, assume the properties are purchased for $140,000 each, a 30 percent discount from the fair market value of $200,000 each. Also assume the taxpayer is in the top federal tax bracket and pays state taxes at a rate of 10 percent. If the taxpayer sells both properties immediately after they are acquired, the taxpayer will realize a before-tax return of $92,000, assuming no repairs …

If your business has substantial noncancelable lease obligations, you already need to disclose those commitments in your financial statements – but only in the footnotes. If a new rule proposed by the Financial Accounting Standards Board and the International Accounting Standards Board goes into effect, you’ll need to reflect your commitments for future rent payments on your books as a liability as well as a corresponding asset. The impact could be significant. This joint project of the FASB and the IASB is intended to add more consistency to financial reporting across a variety of industries and economic sectors. The purpose is to provide more useful and transparent information about leasing transactions in financial statements. But the implications for the reporting companies may be considerable. No, financial standards can’t change how much rent you owe, so there won’t be an impact on your cash flow, but including this asset and liability on your balance sheet will definitely change the appearance of your company’s health; that could affect your performance against loan covenants, or the perceptions of a potential investor. Imagine you lease office space for 10 years, at $1 million per year. The net present value of that $10 million, using …

As the condominium market imploded in 2008, the Florida landscape was strewn with new, partially sold condominiums. Developers ensnared by the rapidly evaporating sales market were unable to support the operations of condominiums in which only a small portion of units were sold. Developer distress led to condominium association distress, and unlucky buyers purchasing at the top of the market saw both their equity and the anticipated level of condominium maintenance vanish. It was against this background that general agreement arose that something had to be done to encourage the absorption of an enormous amount of unsold condominium units. The anticipated acquisitions by vulture funds never materialized at the level expected. Opportunistic investors displayed a great reluctance to bulk purchase unsold units in light of the unsettled state of the law regarding potential successor-developer liability. The Florida legislature attempted to remedy this problem in 2009 with the enactment of a shield law from potential successor-developer liability for bulk purchasers. Although a bill passed the Florida House, it became entangled in the amendment process in the Florida Senate, and the session ended without enactment of a bill. Similar legislation was submitted in the 2010 legislative session and passed both houses. This …

As the national economy begins to work its way out of a significant recessionary cycle, commercial developers everywhere are coming to grips with some sobering new economic realities. While some industry analysts who have been tracking tenant sales numbers have begun to see a few tentative signs of a turnaround, in the short term, the prospect of a sustainable and robust recovery is still in doubt. While some regional and local markets have performed better than others, the overall state of the national leasing landscape has been relatively grim during the last year and half. In the face of these new challenges, commercial developers and shopping center managers who simply hold their breath and hope for a turnaround are unlikely to emerge in a position of strength when the marketplace does improve. On the other hand, savvy industry professionals who are willing to innovate, be creative and flexible, and adapt to the current circumstances, are finding that there are ways to operate more efficiently and effectively – even in a downturn. Especially in a downturn. Some of the most successful developers and managers are focusing more time, money and energy on effective tenant retention techniques, recognizing that there is enormous …

Under budget and ahead of deadline are words that bring music to any clients’ ears, especially with today’s increasingly tight financing and complex building needs. Particularly in the wake of the recent worldwide recession, more developers are looking for means to control costs and increase efficiency. So when a model emerges that promises to minimize waste and not exceed the target cost for the project, it’s no surprise that people are taking notice. Poised to revolutionize the design and construction industry, Target Value Costing (TVC) has literally turned the standard design practice upside down. The traditional approach is to design a project and then determine how much it will cost to build. TVC completely reverses this process, allowing the design to be developed within the framework of the overall budget cost to offer clients more control over the final price tag. In essence, the cost of design options are being evaluated simultaneously, which insures that the final design — and the cost — is in line with the original goals. At the heart of TVC is collaboration and communication among the architects, engineers and contractors. Right from the initial planning stages these teams come together to share their expertise and …

Commercial real estate landlords commonly face this scenario: one of your tenants sends you a letter indicating that it has sold its business to a third party and has assigned the lease to the third party. Your tenant’s letter requests that you countersign and return the letter acknowledging your consent to the assignment of the lease to the third party. What should you do in response to the tenant’s request? This is Part II of Jay Gitles' article. Part I (steps one through three) ran on Wednesday. Step Four: Evaluate the proposed form of Consent to Assignment and Assumption of Lease and modify, as necessary. The assignor’s and assignee’s form of Consent to Assignment and Assumption of Lease is routinely deficient in many respects, and landlords should expect to modify the consent provisions. Most landlords will want a Consent to Assignment and Assumption of Lease to include that the landlord consents to the assignment of the lease by the assignor to the assignee (and reflects that the same is made in consideration of the payments by the assignor to the landlord as described in the Assignment of Lease, as well as the assumptions, covenants, promises and agreements of the assignee …

Commercial real estate landlords commonly face this scenario: one of your tenants sends you a letter indicating that it has sold its business to a third party and has assigned the lease to the third party. Your tenant’s letter requests that you countersign and return the letter acknowledging your consent to the assignment of the lease to the third party. What should you do in response to the tenant’s request? Step One:Evaluate the lease to determine the landlord’s and tenant’s rights and obligations concerning an assignment of the lease by the tenant. Most landlord-oriented lease forms provide that the tenant shall not have the right to assign the lease (or sublet any part of the premises) without the prior written consent of the landlord. Such lease forms also usually provide that the landlord’s consent shall not be unreasonably withheld. Although reasonableness standards for consents are frequently subject to differences of opinion, most authorities would not consider a landlord to be acting unreasonably if there is any uncured default of tenant or the proposed assignee is either an entity with which the landlord is already in negotiation for other space. The landlord may also reasonably withhold if the lease would subject …

Big-box space — specifically the massive headaches caused by the proliferation of the large empty spaces — was a major topic of discussion at the recently concluded International Society of Shopping Centers ReCon Convention at the Las Vegas Convention Center. The annual ICSC gathering attracted more than 30,000 retailers, landlords, brokers, financial institutions and assorted product and service suppliers involved in the retail real estate industry. The emptying or continued vacancy of big box spaces, which are defined as a retail space containing 50,000 square feet or more, has been a national phenomenon during the past few years. Space-eating retailers such as Boscov’s, Circuit City and Linens ‘n' Things have gone dark, leaving gaping holes in neighborhood strip centers and regional malls. Because centers depend on these anchor stores to act as prime traffic generators, a domino-like effect from the vacancies has been felt down to the smallest “mom and pop” stores. With few big box replacements stepping up to fill the void, landlords, brokers and owners have been scrambling to fill the boxes, many of which are located in prime retail locations. Mez Birdie, director of retail services for NAI Realvest in Orlando, Florida, moderated a panel at ReCon …

As in every economic recovery period, there are both positive and negative indicators in the stabilization process. For each encouraging sign we see, there is another signal that reminds us that it will be a long time before the U.S. economy is self-sustaining. We are seeing signs of recovery in the commercial real estate market, but the market is bifurcated and the recovery will be very uneven. Demand for some institutional-level properties where capital is in ready supply and investors are eager to buy is increasing. But as reported by many CCIM members in response to Real Estate Research Corporation (RERC) surveys, there is also a lack of demand for second- and third-tier properties in most locations, and rents and pricing may remain flat or even erode further before recovery takes hold in some areas. Since the health of the commercial real estate market depends on the health of the economy, and the economy—despite all its improvements—remains fragile (although strengthening), commercial real estate is also fragile. Not only are the fundamentals for each of the major property types weak, and will remain so as long as unemployment remains high, the investment side of this asset class continues to struggle, except …