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The following is Part One of a two-part article. Check back Thursday for the second half. In the past decade, a wave of high-density mixed-use development has swept the country. The activity was fueled by a demand for more housing, historically low interest rates and escalating land prices. Developers took action by building mixed-use projects and converting old apartment buildings, office buildings and hotels into predominately residential condominium developments. During the process of converting a building into individual residential condos, the evolution of the street-level portion of the development into a retail condominium was born. The retail condominium has become a phenomenon that has now emerged as a popular and alternative real estate investment platform to sell and acquire real estate. Traditionally found predominately in major metropolitan cities, retail condominiums have now appeared in suburban markets throughout the country. In Scottsdale, Arizona, a former office building was recently converted to an adaptive re-use development known as The 4020 Building. The development incorporated 21 residential loft condominiums above a 7,080-square-foot ground-floor retail condominium. Developers have mainly sought to profit from the sale of a project's residential component, but selling the retail space can result in the developer obtaining a higher cost …

Last week, Geoff Faulkner listed some preventative measures to keep in mind when pursuing quick-service restaurant tenants. The tips included checking on the tenant's credit and examining sales records for the concept's comparable area stores and the concept's average store. Today, Geoff finishes his list of guidelines. During the downturn, property owners have been inquiring about what to do when either a tenant is looking for a rent reduction or a tenant has gone or is going out of business. As much as we have helped investors in these situations, what is more important are the preventative measures that can be taken when acquiring QSRs. By following the acquisition guidelines listed below, investors can protect themselves even in the worst situations. Lease Terms Base Term: The Base Term on these types of leases is generally 20 years with a 10 percent rental increase every 5 years. The exposure of a lease this long is that you may experience inflationary losses if inflation is greater than 2 percent per year (which it usually is). If you are negotiating a new lease in a sale-leaseback scenario, do your best to negotiate CPI increases. If there are not any increases in the rent …

In the real estate industry, properties that have Quick Service Restaurants (QSR) as tenants are commonly referred to as “coupon clippers.” These QSRs have NNN leases that require the tenant to pay for all taxes, insurance and necessary property maintenance. Essentially, the only job a landlord has after they acquire these properties is to watch the rent get wired into their checking account each month, or “clip the coupon.” Once acquired, these investments are quite simple to own. In contrast, the due diligence that is necessary before acquisition is not quite as simple. During the downturn, property owners have been inquiring about what to do when either a tenant is looking for a rent reduction or a tenant has gone or is going out of business. As much as we have helped investors in these situations, what is more important are the preventative measures that can be taken when acquiring QSRs. By following the acquisition guidelines listed below, investors can protect themselves even in the worst situations. Credit of the Tenant The first item to consider when purchasing a QSR is the credit of the tenant. The guarantee can range anywhere from a publicly traded company to a sole proprietor. …

Framed against a seasonal backdrop of busy New York City consumers getting a jump-start on their holiday shopping, approximately 5,800 (down from 6,200 in 2008) retail developers, brokers, representatives from retailers and assorted vendors converged at the International Council of Shopping Centers (ICSC) convention at The Hilton New York & Towers last week. While the mood in stores lining Broadway and the Avenue of the Americas was spirited, the attitude among ICSC participants was one of guarded optimism. During the 2-day New York National Conference and Dealmaking session is that retailers were everywhere except manning booths on the trade show floor. “Continuing a trend that we experienced at the annual Las Vegas convention, retailers by and large, are still on the sidelines, with the majority not expected to ramp up new store site selection efforts until sometime in 2010,” explained Tom Maddux, president of KLNB Retail, whose firm sent more than 35 brokers to the show. “It is still extremely valuable to network with retail real estate professionals and establish new contacts, but serious deal-making was not a significant part of this show,” he added. Maddux explained stores that did establish a strong presence at the show included Auto Zone, …

Since September, the New York City Department of Buildings has been strictly enforcing the New York State Energy Code for all commercial buildings. The existence of such a code, and the fact that it is generally updated every 3 to 5 years, is surprising news to many property owners and managers. What is even more unexpected is that notices of objection are being issued to violators with a mandate to resolve the cited issue(s) in a timely manner. This renewed focus on energy efficiency in New York City’s soaring skyscrapers can be attributed to several factors. Perhaps the most obvious is the fact that buildings account for 80 percent of New York City’s carbon emissions, a percentage that is substantially higher than that of other cities. In comparison to non-green commercial properties, green buildings consume 26 percent less energy and produce 33 percent fewer greenhouse gas emissions. While the most immediate effect of New York City’s energy code enforcement may be citations, of even greater impact is pending legislation that would rewrite commercial lighting standards. If passed as expected, the new lighting law would take effect in 2013 and require upgrades in all buildings in the 50,000-square-foot-or-more category by 2022. …

Condemnation of property – also known as eminent domain – has never been high on the list of real estate business priorities. However, in tough economic times, eminent domain cases should be carefully analyzed, especially when they involve distressed real estate. In good times, lenders and investors holding security on real estate typically step aside and let the property owner/borrower deal with eminent domain litigation — that is, unless the taking is so large in scope it wipes out the secured property interest, in which case the lender typically gets the first dollars recovered to pay off the loan. Usually, both the property owner and parties holding security in the property are formally named in the condemnation lawsuit, but the approach of many lenders, particularly for partial takings, is to let the property owner run the show. Condemnation and appraisal can be complex, especially regarding income-producing properties; typically, security holders focus on the loan's health rather than the opportunity for the property owner to receive additional just compensation for the taking. At most, mild negotiations are held about an equitable allocation of such recovery. When markets turn for the worse, the same bank or investor representatives who have passively monitored …

Ownership of real estate carries with it the threat of litigation from tenants, guests or even passers-by. In 2002, New York City increased property owner liability for injuries sustained on sidewalks. Moreover, property owners also face liability based upon lead paint, mold and other environmental risks. Now an additional threat exists based upon a newly strengthened New York State scaffold law. For years, property owners have known that Labor Law §240(1), more commonly known as the scaffold law, imposes liability on a property owner for elevation-related injuries to a worker on the property. These injuries include those involving the use of scaffolding, hoists, stays, ladders, slings, hangers, blocks, pulleys, braces and ropes. The most common injuries covered are falls from scaffolding or ladders or injuries that occur when a worker is hit by a falling object. This law has broad reach because most multifamily buildings must utilize scaffolding and ladders. Most important, this liability is absolute; the owner is liable even if he did nothing wrong. The duty created by this statute to provide safe working conditions is nondelegable, meaning a person may not transfer that obligation to another party to avoid responsibility. The property owner himself is held liable …

Although your leasing agent is an independent contractor, you really should think of him as an employee. When you are paying an employee, you want him to be as efficient with his time as possible. The same is true for your leasing agent. As a result of higher productivity, you increase the probability of getting more space leased more quickly to higher quality tenants at higher rents. Listed below are 10 steps that property owners can take that will make them better clients. Lease and Zoning Restrictions: Tell the leasing agent about any known restrictions that exist. It is a waste of the leasing agent’s time to be out courting and meeting with tenants that violate existing leases, covenant condition restriction documents or zoning restrictions. Too many times, a landlord will only tell the leasing agent that these restrictions exist after the leasing agent has spent way too much time working with a tenant. Be proactive, and help prevent this from happening. Keys: It is best if all locks in the center are on a master key. This saves the leasing agent a lot of grief from having to sort through a bunch of keys in order to figure out …

Did you ever play kick the can when you were a kid? If you didn’t, don’t worry; real estate bankers and commercial real estate owners have a chance to play it once again. However, if you are an investor in commercial real estate looking to make a killing in the $1.4 trillion of real estate debt coming due through 2012, this is going to be a very painful game to watch. The FDIC quietly issued a ruling recently that essentially enables banks to classify real estate loans that have spotty debt service coverage or whose property values have fallen below the loan balance as “performing.” With commercial real estate values down in some places as much as 40 percent, this is a true leap of faith on the part of the federal government. The government is hoping that by keeping these loans in the performing column, banks can “kick the can” farther down the road until private real estate values re-inflate. The FDIC is quietly trying to avoid a replay of the early 1990s, when the creation of the Resolution Trust Corporation resulted in deep-discount pricing of real estate loans and assets. As a result, banks are “pretending and extending,” …

The secondary impacts of a recession frequently create an entirely new set of difficulties beyond credit crunch and cash flow problems. These ripple effects move through the marketplace in sometimes unexpected ways. One of those secondary impacts is the issue of how to maintain adequate insurance for the sudden glut of vacant commercial properties. Faced with an overabundance of vacant or partially occupied commercial space, owners and insurers are wrestling with how to structure policies, where to go to secure a new policy if an existing traditional policy no longer applies, and how best to make the kind of operational and financial changes necessary to mitigate the liabilities that are inherent to these buildings. With vacancies in commercial properties escalating everyday, the need for sophisticated, flexible and effective commercial insurance policies is evolving. Understanding risk exposures in today’s changing commercial real estate environment is the first step toward crafting policies that meet the needs of both the insured and the insurer. Vacant or Partially Occupied Guidelines One of the core issues surrounding vacant or partially occupied commercial property insurance is a lack of available coverage options. There are not many companies that want to insure a partially occupied building. In …