Green Building and Surety Bonds

I am a regular reader of the Best Practices Construction Law blog by Matt DeVries. If you work for a small business in the construction industry, I highly recommend that you check it out.  Matt has an excellent sense of the issues -- legal and otherwise -- of interest to professionals in construction. 

Recently, Matt provided an informative "guest post" from Kevin Kaiser of about how green building is becoming increasingly more problematic for the surety industry.  As noted in the post, many surety companies will not bond a contractor where any type of "green" or "energy efficiency" benchmarks must be met under the contract.  The primary reason for the surety industry's reluctance to embrace green building: issues of risk management and liability.

If the contract calls for third-party certification -- e.g., by the U.S. Green Building Council -- who is liable if the building fails to meet the third-party's requirements?  Your initial answer may be the bonded contractor, but what if the contractor does not have control over LEED certification? Interesting stuff. 

The impact on contractors should be obvious: if unable to get bonded or if the bond cost is too high, then a contractor's ability to get the job and profit from it is dramatically diminished. My take: green building is here to stay in both the public and private sectors, the "friction" discussed in the post will be around for a while and it will be left to contractors to press the issues.

The key for contractors will be to have well-crafted construction documents clearly defining the following with respect to "green building" benchmarks: how will compliance be measured; who is responsible for meeting the benchmark; and the extent of liability -- e.g., monetary cap? Rebuild the entire building? -- if the benchmark is not met. This seems to be an area where contract ambiguity is not the contractor's friend.

Tenants and Landlords Working Together; Cats and Dogs Next

A nice piece from the tenant side of the fence by Andrew Zezas at the Corporate Advisor.  Mr. Zezas, who is a tenant advisor, recognizes the perilous state of many landlords and talks about the merits of a "win-win" relationship between landlord and tenant, particularly in today's economy. Amen!  Here's a sample: 

Interestingly, landlords are not perceived as a group that deserves anyone’s pity. However, given current global economic conditions, and those of credit and real estate markets, with many landlords holding on white-knuckled trying not to lose their buildings to lenders, if there ever was a time when landlords were entitled to anyone’s sympathy, now would be that time. The government and business communities must recognize the challenges commercial landlords currently experience, along with the on-going struggles that most of them will endure over the next few years. If not, the tenants we advisors and brokers represent may have fewer stable leasing opportunities, and therefore, they may have much bigger problems!

I could not have said it better myself.  Here's some more well-reasoned insight from Mr. Zezas:

Landlords and tenants would do well to consider their relationship with tenants as one of interdependent partners, instead of transactional opponents. The true recognition of interdependence between landlords and tenants is that without mutual benefit, the relationship simply won’t work. A landlord with no paying tenants achieves nothing. A tenant without a building to rent would have no place to conduct its business, and would likely be forced to divert capital from investment in its own profit generating ventures to real estate ownership.

In short, finding a "win-win" solution to leasing issues is more important than ever as the CRE industry rises slowly from its knees. Amongst landlord clients, this has resulted in a fair amount of soul searching in order distinguish between "wants" and "needs" and get a fair lease signed.  For example, they may "want" a more aggressive calculation or a broader definition of Additional Rent, but do they "need" it, right now?  (Rent rolls are built one tenant at at time, after all.) Hopefully, as suggested by Mr. Zezas, the same thing is taking place on the tenant side and we can start filling some more space.

Smart Phones and Commercial Real Estate

Check out this article by Elaine Misonzhnik of Retail Traffic about how consumers can leverage smart phones while out shopping. Very interesting. Personally, I do a terrible job of using my smart phone but I am smart enough to know that this kind of leveraging is the wave of the future and will only increase. So sayeth Steve Jobs.

Initially, I thought the news was going to be all bad for retailers, with examples of consumers standing in store aisles but ordering merchandise on-line. However, while on-line sales are undoubtedly a clear and present danger to store sales, I soon realized that the news is not all bad for a couple of reasons: 

First, for the most part, in order to leverage the applications discussed in the article, the consumer has to already be at or near the store, which is half the battle for retailers.  (I bet most successful retailers like their chances once people come through the door.)

Second, at least so far, it looks like consumers are using the smart phone applications primarily to help with comparison shopping on "big ticket" items.

Third, and perhaps most important, savvy retailers can embrace the technology and leverage it themselves. For example, as noted in the article, a retailer who provides data for use in the ShopSavvy application by Big in Japan gets an opportunity to lure shoppers with sales and can purchase different add-on services to provide it with a competitive advantage.

I agree with the sentiment expressed by Alexander Muse of Big in Japan: smart phones and the Internet are here to stay and have changed the rules of engagement for retailers.  The sooner that retailers take advantage of the new rules, the better.

Commercial Real Estate: Value Is In the Eye of the Beholder

I started this Blog to talk about the various issues -- legal and otherwise, new and old, tangible and intangible -- that collectively have an impact on the value of commercial real estate (CRE).  There should be a lot to talk about, as it goes without saying that the concept of "value" in commercial real estate can mean different things to different people at different times. Just ask the fine people of Pontiac, Michigan.

The fact that there are so many "moving parts" to the value of commercial real estate, no matter the size of the property, is both fascinating and challenging to me. The goal here is to start a conversation about value that goes beyond formulas and numbers and touches on the following areas:

  • How the definition of value can vary so much.  In other words, exploring how, when and why one's "belief" in the value of a piece or type of CRE can change depending on one's seat in the worship hall and the time of the service.
  • The various "moving parts" affecting value in CRE and the small businesses that are taking best advantage of them.
  • The people that are talking about value in commercial real estate, whether they know it or not.
  • The “best practices” that are being developed and used by small businesses throughout the industry to create, increase or protect the value of commercial real estate.

So, welcome, one and all.  Allow me to start the conversation with the following question: how do you define "value" in commercial real estate? I look forward to discussing your answers. As for me, I'll try to give you my answer to that question through the posts that follow.