Historically Low Interest Rates Make Now Prime Time for Sales-Leasebacks

Posted on June 24, 2020

Despite all the uncertainty created by the COVID-19 pandemic, one thing is sure: businesses are looking for ways to improve cash flow and strengthen their capital reserves to maintain their ongoing operations. While asset sales are one way to generate immediate cash, sales leasebacks are another option.

In a sales-leaseback arrangement, a business sells the commercial property it owns and occupies to a third-party real estate investor(s) and enters into a long-term contract to lease back all or a portion of that property. Essentially, the owner/occupant divests itself of its real estate holdings and becomes the tenant of that property. This allows the business to unlock the underlying value of its real estate assets and provide it with immediate capital to deploy as needed, including investing those dollars to support future financial growth, enhance shareholder value and modify their operations in today’s socially distanced business environment.

For real estate investors, sales-leasebacks can place provide a steady stream of income and return on investment via long-term lease arrangements. Even if tenants do not survive the current period of economic uncertainty, well-located properties will continue to be in demand and potentially command higher rents than the previous 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.

The Truth about Force Majeure Notices as a Basis of Withholding Rent

Posted on June 17, 2020

The COVID-19 pandemic has created a tidal wave of commercial real estate tenants seeking rent forbearance and abatement. While much news has been made over tenants issuing force majeure notices with the hope that the coronavirus will qualify as an act of God that will relieve them of their obligation to pay rent, the reality is that most force majeure clauses expressly state that these unforeseeable events do not excuse tenants from their contractual payment duties. It all depends on the language of the lease contract and whether it specifies pandemics or government-mandated business closings as a reason for tenants to modify their rental payment obligations.

This is not to say that tenants cannot negotiate with their landlords for rent relief. Rather, savvy property owners recognize that being flexible and making concessions to help tenants now will solidify their tenant relationships and provide them with leverage to clean up and improve their lease agreements and reduce their exposure to future risks. Some options may include temporary rent reductions, payment deferrals and use of tenants’ security deposits to cover their lease rent payments.

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.

CRE Investors Find Safety in Triple Net Lease Properties

Posted on June 09, 2020

Government-mandated business closings and quarantine orders resulting from the COVID-19 pandemic emptied many multi-tenant commercial properties and put at risk the rental income investors rely on for cash flow. This may not necessarily be the case for investors in triple net lease (NNN) properties, especially those with single tenants considered essential businesses.

In general, NNN properties are less risky for investors because they typically involve longer lease terms with built-in rent increases. In this sense, triple net leases tend to be more permanent arrangements than apartment or office-space rentals. High credit-quality, investment-grade tenants bear the responsibility of paying for and managing the properties’ operating expenses, taxes, repairs and maintenance, relieving landlords/investors of the time and expense required to handle these obligations. Property owners/investors also have the leverage to work with tenants who are facing difficulties meeting rent payments, allowing them temporary forbearance, as needed, in return for extended lease terms or other value-added concessions.

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.

CARES Act Provides Economic Relief to Commercial Property Investors

Posted on June 04, 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27 provides individuals and businesses with much-needed economic relief from the financial challenges created by the COVID-19 pandemic. While much attention has been focused on government hand-outs to individuals and certain businesses, the law includes several provisions that provide specific relief to commercial real estate investors.

For example, the CARES Act amends existing law by repealing the 80 percent taxable income limit on net operating losses for tax years beginning before 2021 and allowing businesses to amend previously filed tax returns and carry back net operating losses (NOLs) from tax years 2018, 2019 and 2020 for up to five previous years. The law also allows partnership to deduct more business interest expense than was previously allowed. Partnerships, in particular, may deduct as business interest expense in 2020 up to 50 percent of adjusted taxable income (ATI), up from 30 percent. Any limited interest expense may be carried forward to future tax years. And, finally, the CARES Act provides a 15-year recovery period for qualified improvement property (QIP), allowing property owners to claim 100 percent bonus depreciation and immediately write-off costs incurred to improve the interior of nonresidential property.

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.

IRS Extends 1031 Exchange Deadlines

Posted on May 26, 2020

Investors who could not complete Section 1031 tax-deferred exchanges of commercial property due to the economic disruption caused by the COVID-19 pandemic may breathe a sigh of relief. The IRS extended the statutory periods of time to identify and/or close on replacement property without losing the preferential tax treatment.

Under guidance issued by the IRS, investors whose 45-day deadline to identify 1031 replacement property and/or their 180-day deadline to complete an exchange fall between April 1 and July 15 may delay these time limits to July 15, 2020. While these extensions provide investors with more time to select the right replacement property that aligns with their unique investment needs and goals, professional real estate and tax organizations have been active lobbying congress to ask for an additional period of time to complete these transactions.

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.

Important Considerations for Investors in Community Bank Branches

Posted on April 14, 2020

According to the results of Future Branches’ 2019 survey of banking customer, the rise in mobile and online banking has not diminished consumers’ preferences to visit physical branch locations. More than half of the customers surveyed reported visiting a local branch and meeting face-to-face with bankers to conduct common transactions, such as accessing cash, applying for loans or discussing other financial products on a monthly basis. However, as banks continue to adopt to omni-channel strategies, it is likely they will continue to close branches and reduce their physical footprints.

What does this mean for investors whose real estate portfolios include bank branches? As always, location and strong property fundamentals are key to maintaining positive investor returns. Properties in highly visible locations with ample parking and a diverse tenant mix that are close to established or growing neighborhoods will either survive under their current brands, or property owners may have an opportunity to reposition those locations for alternative use, including restaurant dining and/or delivery services, delivery of medical services or in demand experiential retail concepts.

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 is a Net Absorption and How Does it Measure CRE Performance?

Posted on April 09, 2020

Absorption, or the total square feet of rentable space that is leased and physically occupied during a specific time period, can help investors assess the supply and demand for a particular commercial property, asset class or geographic market.

Net absorption tells investors whether demand is increasing (positive absorption) or decreasing (negative absorption) based on the change in occupied space from one period to the, based on the difference between the total square feet of space tenants moved into, less the total square feet of space that tenants moved out of and vacated during a specific time period. Positive net absorption refers to a situation in which more space is leased than is vacant, whereas negative net absorption occurs when more space is vacant than occupied.

Understanding how to use net absorption to select income-producing investment property requires careful consideration on a wide variety of factors for which investors should seek the assistance of professional real estate advisors.

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.

 

U.S. Shopping Centers Continue to Focus on Services

Posted on April 01, 2020

According to the International Council of Shopping Center (ICSC), there are currently more service-related establishments than retail stores in the U.S. Since 2002, the number of service- establishments at U.S. shopping centers increased by more than 20 percent, while retail locations declined by 4.5 percent.

The most significant growth has come from restaurants and drinking places, which have emerged as shopping center anchors. Location and convenience have also fueled the expansion of personal-service providers, including hair and nail salons, fitness-focused gyms and health clubs, and suppliers of repair and maintenance products and services. Essentially, today’s shopping centers have been the hub of convenience-oriented community activity. Property owners who are nimble enough to alter their strategies and tenant mix along with changes in consumer shopping habits will be better prepared to reap the rewards.

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.