What Are Co-Tenancy Clauses in Commercial Real Estate Leases? by Kevin Sanz, CCIM, MSIRE

Posted on June 15, 2021

The way in which many commercial real estate properties are set up, there is often an anchor tenant(s), such as a grocery store or gym, that generates a steady stream of daily foot traffic, which then helps to support the business of their neighboring tenants. Based on this model, it is not uncommon for commercial leases to include co-tenancy clauses that allow these smaller tenants to receive rent reductions and other lease concessions in the event one or more anchor tenants close.

While beneficial to tenants, these co-tenancy clauses can obviously have negative implications for property owners and their net income, making it imperative for prospective investors to carefully review the finer details of each tenant’s existing lease agreement. Under certain circumstances, these provisions may offer landlords some flexibility especially when they have deep relationships with their tenants. As we’ve seen during the COVID-19 crisis, tenants and landlords can work together to negotiate mutually beneficial terms of co-tenancy triggering defaults, the time period the landlord has to cure the default and the rental relief remedies available to tenants.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

What You Need to Know about Estoppel Certificates in Commercial Real Estate? by Christopher Sanz, JD, LLM

Posted on June 09, 2021

In the world of commercial real estate investing, an estoppel letter is one of the many documents investors may request as part of their acquisition due diligence to verify the economics of tenant leases and proof of cash flow. They essentially help investors determine whether the price paid for real estate is reasonable, given the property’s capacity to generate income. In addition to confirming that a seller’s claims of a property’s financial performance are accurate, they also provide reassurance that tenants cannot make claims at a later date that are contrary to the information contained in the estoppel letter.

While not all leases require tenants to provide landlords with estoppel certificates, they can be a helpful tool for prospective buyers to consider within the scope of their own investment goals while also helping to reduce the risk of future litigation with tenants.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

Migration Patterns Drive CRE Growth, Investments by Kevin Sanz, CCIM, MISRE

Posted on June 03, 2021

The past year of pandemic life has accelerated residential home sales, especially in warm-weather, secondary markets where buyers can find more room to roam – both indoors and out. As more people get vaccinated and re-enter society, we are seeing the impact of these demographic shifts on commercial property, where there has been an increased demand for grocery-anchored retail, restaurants and other tenants on which consumer rely for leisure and lifestyle activities. Unsurprisingly, businesses now operating with a remote workforce have also taken notice, relocating their corporate headquarters or expanded their footprint with new offices these rising markets.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

How Does Commercial Real Estate Help Investors Hedge Against Inflation? by Christopher Sanz, JD, LLM

Posted on May 26, 2021

As consumer prices surged in April, so did the rate of inflation, which reached its highest level in more than a decade and signaled a potential warning to stock and bond investors. As inflation rises, consumers spend less, driving down corporate revenue and profits while increasing market volatility. This rule of thumb does not apply to investments in commercial real estate, which have historically realized higher property values and rental income during inflationary periods. With commercial property’s demonstrated resilience during the past year’s COVID crisis, investors have the ability to stay ahead of inflation with rental income outpacing pricing.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

What’s Ahead for 1031 Exchanges? by Kevin Sanz, CCIM, MSIRE

Posted on May 18, 2021

The Biden Administration’s recently unveiled tax plans propose to limit the benefits of Section 1031 like-kind exchanges, which real estate investors have used as a powerful tax-planning tool for nearly a century. Under Biden’s plan, the tax-deferral benefits of like-kind exchanges would no longer apply to property sales that result in a gain of more than $500,000. Furthermore, the president calls for eliminating the practice of stepping-up the tax basis of inherited property at the time of the owner’s death, which has allowed property owners to make tax deferral permanent. Instead,

While both of these proposals would diminish the viability of 1031 exchanges, it remains to be seen whether they will pass congressional approval and be enacted into law. In either case, real estate will continue to be an attractive investment for its ability to diversify portfolios, hedge against inflation and yield long-term appreciation and passive income for generations to come.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

Commercial Real Estate Appraisal Methods by Christopher Sanz, JD, LLM

Posted on May 05, 2021

There are three appraisal methods commonly used to determine the market value of a commercial property involved in a sale or acquisition. While each approach relies on different data and facts, the final valuation may employ a combination of all four appraisal methods.

  • Income Capitalization (Cap) Rates are used to calculate the annual rate of return a commercial property can generate for its owner(s) by dividing net operating income (NOI) by the purchase price. It gives investors an idea of the income or cash flow they can expect to receive from a property, based on gross income, less operating expenses and in consideration of other factors, such as a property’s locations, vacancies and lease terms.
  • Sales Comparisons (Comps) estimate a property’s market value based on recent sales of similar properties by location, size, use, features and physical characteristics. Using this method of appraisal involves adjustments in price per square foot or a percentage of overall value based on similarities and differences between the subject property and the comparable properties.
  • The Cost Approach to commercial real estate appraisals compares the cost of buying an existing structure versus the amount an investor would need to spend to rebuild and re-tenant a similar property on a similar plot of land at current market rates. It helps investors determine whether a property for sale is overvalued based on a comparison of the asking price to the costs required to reconstruct it from scratch.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

 

Do Rising Interest Rates Affect Commercial Real Estate? by Kevin Sanz, CCIM, MSIRE

Posted on April 29, 2021

With current interest rates at historic lows due, in part, to the impact of the COVID-19 pandemic, the reality is that rates can only go higher from here.

In broad economic terms, rising rates make borrowing more expensive and have the potential to reduce investors’ returns on their investments. Within the realm of commercial real estate, there is a correlation between interest rates and cap rates. However, any fears that higher rates could cause property values to decline are unfounded. Rather, rising rates signal a strengthening economy and increased demand for commercial space, which, in turn, can command higher rents to bolster operating income and counterbalance any potential decrease in property value that may occur due to interest rate hikes.

The one area of CRE for which this rule does not apply is real estate investment trusts (REITs), which not only rely on a lot of debt to operate but also require 90 percent of taxable income to be paid back to investors in the form of regular dividends.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

 

Why Invest in Commercial Real Estate in Times of Uncertainty by Christopher Sanz, JD, LLM

Posted on April 21, 2021

Asset diversification is a critical component of a sound investing strategy. To counterbalance the volatility of stocks, bonds, and mutual funds traded on the public equity markets, astute investors often turn to commercial real estate and its proven track record for retaining value, preserving capital, and generating passive income.

Commercial property generally involves long-term leases, including triple-net leases for which tenants bear the responsibilities of maintaining the property and covering operating expenses, including utilities, property taxes and insurance. This allows investors to generate rental income without getting their hands dirty or reaching into their pockets to pay for building upkeep and repairs. Moreover, these long lease terms tend to protect commercial real estate investors from pricing instability that can occur during recessions and other times of economic stress.

Historically speaking, commercial property with a good mix of tenants in a growing market can withstand unexpected economic challenges and continue to generate passive income while delivering longer-time appreciation.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.