The Mind of a CRE Broker

For owners/developers out there, I’ve meant to recommend a site by the name of Marketwi.se (correct spelling) which is run by an SVN broker by the name of John Reeder. You can learn more about John here and here. John is based in California and concentrates in the land development and investment market. Practice areas include land sales to residential and commercial developers, REO land sales, and the emerging solar land development market.

However, what I enjoy most is some of the commentaries from John, who provides candid opinions on the CRE market and investment issues from a broker’s perspective with a dash of humour. Here are some recent examples:

Here is a post about the anguish and frustration in bidding against oneself in a deal. I share John’s absolute disdain for bidding against oneself, and counsel client’s never to do it. However, I do not agree that no good can come of it if the deal warrants it. Sometimes, the seller wants to cut to the chase and a buyer’s “last/best” can win the day. That said, any “last/best” in the scenario described by John has to be justified by the deal and should come with a deadline, so it doesn’t become the stalking horse for the seller.
Here’s another good one about how the illiquid nature of commercial real estate offers pricing inefficiencies that favour the experienced investors.
I found the topic of this post — what makes a great CRE investor — to be of interest and agree with the comments: know your niche; stay in that niche, and recognize/manage risk.
I especially love the “broker-speak” examples.
Brokers play a role in just about every CRE deal. If you are buying or selling the commercial real estate, it won’t hurt to know what brokers are thinking. Marketwi.se is a great place to start.

Plans to Revamp Shore Mall: A Road (Improvement) Too Far?

Anybody familiar with the Shore Mall knows that something has to be done to revitalize it before its too late. I, for one, am not sure if the local market can support more “open-air” shopping — there’s already a bunch of it in the areas surrounding Shore Mall –Something has to be done with the Mall, and the plan — including a “boulevard-style road network” — sounds intriguing and like it could fit the vast space available. (The Mall appears to be on a large parcel of land.)

As noted by Sonny McCullough, Mayor of Egg Harbor Township, where the Shore Mall is located, the key to the plan is off-site road work to improve access to the Mall. I agree 100%. Anybody familiar with the area knows that access to/from the Mall is a tangled mess which undoubtedly discourages potential visitors. (Hand raised.) The plan seeks to improve access from the Garden State Parkway and to create a dedicated, full-service intersection into the Mall, among other things. All good stuff.

That’s the good news. Here’s the bad: CSC is seeking grant money for the off-site road improvements. Good luck w/ that. Mayor McCullough acknowledges in the article that there is no grant money available — no surprise — and it is hard to see when any might become available in today’s economic climate. In other words, don’t look for changes to the Shore Mall any time soon. No grant money = no off-site road improvements = no redevelopment of the Shore Mall.

What’s behind the timing of the article? There was no new development or change in the plan, and there is an admission that the money to get started is not available. So why leak the application for grant money? Who benefits from the timing and how? Frankly, I can’t see it.
Who’s behind the article. It seems pretty clear that EHT is behind it. After all, CSC refused comment whereas the Mayor and Township Administrator is quoted throughout. The question is why? To put some pressure on state/federal politicians to find the grant money? To put pressure on CSC? Should we be readying ourselves for an argument from EHT that the Shore Mall is “too big to fail”?
FINAL THOUGHT: I can’t help but contrast CSC’s wait for grant money w/ the decision of the developer of Gravelly Run Square in nearby Hamilton Township to spend $1M of its own money to extend a dead-end street to improve traffic access. Granted, the scale of off-site improvements is significantly higher ($23M) at the Shore Mall, but the investment by Benderson Development and the fact that they’re off the sidelines shows to my confidence, or belief, in the project. Meanwhile, I’m not sure at this point how much CSC believes in the success of the Shore Mall. Here’s hoping that they prove me wrong.

CRE Lenders Loosening Purse Strings?

Here’s a post from Retail Traffic about some increase in liquidity for retail assets despite some concern about lagging fundamentals. There’s an excellent overview about the factors contributing to the increased cash. Take away: asset quality is still king.
According to Speaking of Real Estate, NAR Chief Economist Lawrence Yun is slightly less enthusiastic about the credit market but still sees good things for CRE in 2011. Take away: according to Yun, lenders, at some point, “…must get back into the business for which they were created, and that’s making loans.”
Finally, here’s an article from the Wall Street Journal Real Estate section about how the recent election results should prove to be a boon for commercial real estate investment. Take away: politics matters.
I hope somebody lets the lenders of South Jersey know that things are looking up.

Let’s make some deals!

Google Can See Through Walls

The Source about Google is ramping up efforts to provide interior shots of commercial properties in specific markets. (As noted by Lani Rosales at Agent Genius, Google put this idea out to the market several months ago, but Google floats a lot of ideas; now, it seems like Google is making it happen.)

Google describes the interior shots as “Business Photos” which will appear in a business’ Place Page. According to the FAQ for Business Photos, Google is currently looking for interior shots of “restaurants, hotels, retail shops, and other storefront businesses” and businesses can upload their photos if they’re not in a market where Google is currently taking photos. (Sorry, lawyers, doctors and “chain” restaurants, Google is currently not interested.)

I think this is a beautiful development, and the key for me is that any business can upload interior photo shots to its Place Page. Some may argue that you could lose some visits from prospective tenants, but I look at it the other way: quality photos could be the hook that convinces a “fence-sitter” in your target market to visit the property; plus, if interior photos drive them away from the space, they probably weren’t a “keeper” anyway.

I look forward to seeing some interior shots from some properties in South Jersey.

Don’t Let Chapter 91 Stop Your NJ Property Tax Appeal

With property values still too low and most assessments still too high, many NJ property owners are justifiably weighing the merits of a property tax appeal. For owners of the commercial real estate, one crucial question to ask is whether you are compliant with “Chapter 91” of the New Jersey Statutes concerning the assessment of real estate. You may not be familiar with “Chapter 91,” but trust me when I tell you that non-compliance can stop an NJ property tax appeal dead in its tracks. I’ll explain how and what to do below, but first a brief overview:

Chapter 91, codified at N.J.S.A 54:4-34, is the section of the statutes that allows assessors to serve owners of income-producing property with a request for a report on income from the property (an “I/E Report”). The purpose of Chapter 91 is to afford assessors access to financial information that can theoretically help them get the assessment of the property right the first time and thereby avoid litigation. The assessor must comply with specific statutory requirements when sending the request to the property owner, which will be discussed below. A request for an I/E Report is sent as an assessor’s discretion but must be timely, so that the assessor can use the information by January 10th in setting the assessment for the upcoming tax year. (The requests are typically sent out during the summer or early fall of the pre-tax year.) Once served with a request for an I/E Report, an owner has 45 days in which to file a response.

Here’s the kicker: IF A PROPERTY OWNER FAILS OR REFUSES TO RESPOND TO A REQUEST FOR AN I/E REPORT WITHIN 45 DAYS, THE OWNER IS PROHIBITED FROM PURSUING AN APPEAL OF THE PROPERTY’S ASSESSMENT. In other words, an appeal filed by an owner who is non-compliant with Chapter 91 will be subject to dismissal w/o any hearing on the merits. The draconian nature of this sanction and its strict enforcement cannot be overstated. Even if the owner’s response is only a couple of days late, the property is not currently producing income, the income is minimal and ancillary, the request is believed to be illegal, the owner only recently purchased the property, or a timely but incomplete response is filed, the appeal is barred, no ifs, ands or buts, if a response is not filed w/in 45 days. An owner cannot “cure” non-compliance with Chapter 91 and municipalities usually move quickly to file a motion to dismiss.

Given the harsh impact, one would think that property owners would never fail to respond to a request for an I/E Report w/in 45 days, but it happens more than you might think. Some owners refuse to reply or ignore it b/c a property tax appeal is not being considered at the time. Sometimes the request is filed away for later attention and just forgotten, or it takes too long to get in front of the “right” person. Some owners don’t think that the property qualifies as “income-producing” or otherwise objects to the request. (Even if you object to the application, a timely response setting forth the objection and, if appropriate, providing non-objectionable information, should be filed.)

So, what should a property owner do if faced with a motion to dismiss for non-compliance w/ Chapter 91? Well, for one thing, don’t concede the action until the following potential defences are thoroughly investigated:

Was the request for an I/E Report sent in writing via certified mail, as Chapter 91 requires explicitly an assessor to do? [Warning: if an assessor sends the request via certified and regular mail, the certified goes unclaimed, but the daily mail is not returned, notice to the owner is presumed if the daily mail was handled adequately including postage and addresses, so a “lack of notice” defense, in that case, won’t fly.]
Did the request include a copy of Chapter 91? This is also mandatory w/ the burden of proof on the assessor. Failure to add a text of the statute makes it inapplicable — i.e., non-compliance cannot defeat an appeal — b/c an owner must be duly notified of the consequences of failing to respond.
Does the request explain in clear and unequivocal language what information is being sought and the consequences for failing to respond? [See above.]
Was the application time so that the owner has a full 45 days to meet and the assessor can use the information for the upcoming tax year, i.e., by January 10th?
Was the property never income-producing? If the property was income-producing at one time, a response should be filed even if to notify the assessor that it is no longer income-producing. Also if the property was never income-producing, to be safe, a response indicating as much should be filed.
If a response indicating that the owner is unable to answer the request was filed promptly, is there “good cause” to justify why the owner cannot supply the information w/in 45 days? {There is a limited “good cause” defence to non-compliance, but it is limited and tough to meet.]
If none of the above defenses is available, a non-compliant owner can always hope that the municipality fails to file a timely motion to dismiss or, it can pursue a “reasonableness” hearing which is a limited, an unattractive option (no ability to challenge the assessment) and something to be discussed some other time.

MORAL: if you own commercial real estate and receive a request for an I/E Report from the assessor, don’t ignore it or forget it. File a timely response — even if the property is owner-occupied or not currently income-producing – If the information is available, provide it; it can’t hurt. If the data is not available, explain why.

2011 New Jersey Property Tax Appeals: Things to Know

February 1st has passed. By now, if you own or manage the commercial real estate in New Jersey, you should have received a Notice of Assessment (green card) for each property from your municipality’s tax assessor. How do you feel about the assessment? My guess: not good.

The deadline for filing a property tax appeal is April 1, 2011 (unless a revaluation is taking place, in which case it is May 1, 2011). Hopefully, you have already decided whether to pursue a property tax appeal for one or more properties.

Did you know that it is the amount of the assessment, not the amount of taxes, which is the subject of the appeal?
Did you know that the 2011 assessment is supposed to reflect the fair market value of the property as of October 1, 2010?
Are taxes paid in full on the property through Q1 of 2011? Failure to pay fees through Q1 of 2011 will result in dismissal of an appeal.
If you received a request for I/E information on the property from the municipality, did you complete it in full and return it within 45 days of receipt? If not, any tax appeal will likely be subject to a motion to dismiss which is difficult to overcome. (Please see my related post on Chapter 91.)
Do any of the following circumstances apply to your property assessment by the assessor; a partial taking of the property by way of eminent domain; denial of an application to the planning board or board of adjustment; partial destruction of the property; a flaw in the structure, materials, or design that diminishes the function, utility, and value of the property, e.g., inefficient floor plan, inadequate parking (functional obsolescence).
Did you know that the threshold assessment amount for direct appeal to the Tax Court was raised to $1M from $750,000.00? If your assessment is below $1M, make sure that it is headed to the County Tax Board, not the Tax Court, with notice to the municipality and the assessor.
Do you know the “Equalized Value” of your property? Hint: it may not be the assessment amount on the Notice of Assessment. (Please see my related post on the importance of Equalized Value when weighing a property tax appeal.)
Did you know that New Jersey’s real property tax laws provide assessors with a margin for error when establishing assessments? Generally speaking, estimates are deemed valid when the property’s fair market value (FMV) falls within a corridor which ranges between 85% of the property’s Equalized Value and 115% of the property’s Equalized Value. This corridor is also known as the Common Level Range.
For example, in Linwood, NJ, a 2011 assessment on a property that had a FMV of $1M as of 10/1/10 will generally be sustained if the assessment is between $752,675.00 [$1M x (65.45% x 115%)] and $556,325.00 (1M x [65.45% x 85%)]. An assessment above $752,675.00 would be reduced to $654,500.00 (1M x 65.45%). Likewise, an assessment below $556,325.00 would be increased to $654,500.00 (not what we’re looking for).

Here’s another way to look at Common Level Range: Linwood’s Average Ratio for 2011 is 65.45%, making its Common Level Range 55.63% (Lower) to 75.27% (Upper). If the ratio of the property’s assessment to FMV(Assessment/FMV) results in a percentage above 75.27%, then the estimate should be reduced; if the rate falls between 55.63% and 75.27%, it will not be changed; and, if it drops below 55.63%, it will be increased.

WARNING: apparently, an appeal would not be recommended where the assessment is currently below the Lower Level of the town’s Common Level Range. You would just be inviting a cross-appeal from the city and an increase in your taxes.

BOTTOM LINE: with vacancies and rents showing little improvement in 2010, the time may still be right to appeal the current assessment on the property. A reduced assessment will result in reduced taxes, thereby decreasing expenses, and making the property more attractive if on the market for sale. However, as highlighted above, NJ’s real property tax appeal laws are complicated. Moreover, given NJ’s current budget fiasco and ongoing cuts in aid to municipalities, it is fair to assume that many local tax rates are going to go up further and that the cities are going to fight tooth and nail for every penny of tax revenue. If you are going to challenge the assessment on a property, make sure that you do it with an experienced appraiser and attorney by your side.

New Jersey Landlord-Tenant 101: Eviction Issues — Grounds

I’d like to jump back into a series of blog posts touching on some of the residential “tenancy” questions that often come from New Jersey landlord clients. We’ll probably revisit this “New Jersey Landlord-Tenant 101” series periodically moving forward but, for right now, I want to finish up with some issues/questions related to the following topics: “pre-tenancy” concerns; how should a tenant’s security deposit be handled; how and when can a tenant be evicted, and what should be done with a tenant’s property after eviction.

So far, we’ve covered some fundamental questions concerning “pre-tenancy” issues and how to handle a residential security deposit. Now, I’d like to touch on some very fundamental residential eviction issues in a 2-parter.

New Jersey Landlord-Tenant 101: Evictions — Notices

EVICTION ISSUES — NOTICES

As discussed in the last post to this series, to answer that question we must first determine which eviction statute applies and whether the circumstances at hand qualify as grounds for eviction under that statute. Once we know if there is a statutory basis for removal, we then have to determine if the tenant was entitled to any notice under the applicable statute before filing for replacement, if notice was required it sent in a proper and timely manner and if the tenant has any viable defences to deportation. In today’s post, we’ll pick up with the various notice requirements before a landlord can file for eviction.

As discussed earlier, in New Jersey there are two statutes under which a landlord can file to evict a tenant. To figure out which law is applicable and, by extension, which notice requirements apply, we first have to determine where the owner of the property lives and the number of units available for rent.

Generally, the Summary Dispossess Act (“SDA”), N.J.S.A. 2A:18-53, et seq., applies to commercial tenancies, hotels/motels/guest houses renting to a transient guest or seasonal tenant and residential rentals where the owner lives on the property, and there are 2 or fewer units available for rent (think duplex or triplex with the owner living in a group or an owner-occupied house with the garage lawfully converted to 1-2 rental units).

The Anti-Eviction Act (AEA), N.J.S.A. 2A:18-61.1, et seq., applies to all other residential tenancies in New Jersey. It covers single-family homes to 500-unit apartment complexes and everything in between. It is fair to say that the AEA covers over 90% of the residential tenancies in New Jersey.

There are generally three different types of notice, but not all apply to each of the grounds for eviction:

A Notice to Cease is a warning to the tenant to change his/her evil ways and fly straight. It is required only under specific grounds for eviction found in the Anti-Eviction Act. The AEA does not specify how a Notice to Cease should be served but, as a general rule, I recommend service of all notices personally or by certified/RRR and regular mail.
A Notice to Quit informs the tenant that the tenancy will be terminated under the eviction grounds at issue and, practically speaking, is required under all grounds for eviction except non-payment of rent. Under the SDA, a Notice to Quit technically must be served personally upon the tenant or a family member above the age of 14; in other words, service by mail is technically not an option. However, sending the Notice by certified mail might suffice if signed for by the tenant or a family member older than 14. Under the AEA, service of Notice to Quit may be done personally or by certified/regular mail.
A Demand for Possession is the final type of notice required and must provide the actual date by which the tenant must return possession of the unit to the landlord. Like the Notice to Quit, as a practical matter, a Demand for Possession should be served in all cases except non-payment of rent. For purposes of service, a Demand for Possession is often combined with the Notice to Quit but, make no mistake; they are not the same. If you plan to connect a Notice to Quit and a Demand for Possession into one notice, you best make sure the requirements of both are satisfied.
As a general rule, all notices to tenants should be in writing and provide sufficient detail, primarily as to the offending behaviour and grounds for eviction. Most statutory provisions require it, and it is just smart business in any event. The court prefers things in writing and the more detail, the better.

The type and timing of the required notice to the tenant will depend on the particular grounds for eviction being prosecuted. Here is a summary of the notice requirements under the Summary Dispossess Act (“SDA”), N.J.S.A. 2A:18-53, et seq.:

Here is a review of the notice requirements under the Anti-Eviction Act (AEA), N.J.S.A. 2A:18-61.1, et seq.: (Sorry if this Table is blurry, as this is my first time working w/ images of this size in a post. Please contact my office if you would like a more explicit copy.)

Why is the issue of “notice” important: because failure to comply with the applicable notice requirements will deprive the court of jurisdiction. In other words, failure to provide timely/adequate notice to the tenant will likely result in dismissal of the eviction suit.

New Jersey Landlord-Tenant 101: Evictions — Defenses

One last post concerning the issue of residential evictions in New Jersey. So far, we’ve covered the grounds for eviction of a residential tenant and the various notices that are required in connection with same. Those posts turned out to be lengthier than originally anticipated, which just go to show that there are numerous “moving parts” to the landlord-tenant relationship, especially when it comes to evictions. In this post, we’ll touch on some of the standard defences to an eviction action and in the next, and last, post in this series, we’ll highlight some post-eviction issues.

Here’s the question I get a lot from residential landlords when I tell them that eviction might not be possible: “The tenant did or did not do “X.” What do you mean I can’t evict them?” This question usually comes after we’ve walked through the entire case. Unfortunately, sometimes, even when a tenant is “behaving badly” under the lease, there may be one or more things the tenant can point to which enables them to avoid eviction. Here are some of the defences available to residential tenants:

Bankruptcy: the filing of a bankruptcy petition stays an eviction case unless the judgment for possession was already awarded or the eviction filing is based on recent “endangerment” or “illegal use of controlled substances” in or about the premises. Even if those circumstances apply, a landlord still has to seek permission from the bankruptcy court to move forward.
Non-compliance with the Landlord Registration Act: if the landlord has not complied with this Act, the Court has no jurisdiction and no judgment for possession can be entered against the tenant.
Non-compliance with the Security Deposit Act: failure to comply with the notice requirements of this Act could allow a tenant to apply the security deposit to rent owed and thereby defeat a “non-payment” case.
Habitability: the issue of habitability can be raised as a defence to a “non-payment” case by showing that the tenant is entitled to an abatement or offset of rent for landlord’s breach of the warranty of habitability. All leases of residential premises in New Jersey include an implied warranty of habitability. The landlord warrants in part that there are no latent defects to the premises’ “vital facilities” and that the vital facilities will remain in usable condition during the entire lease term. To advance this defence, the tenant must have provided the landlord with a timely and adequate notice with an opportunity to repair and the item of disrepair must directly affect the habitability of the premises. If the repairs are not done after notice to the landlord, the tenant may make the repairs and deduct expenses from future rents. If the landlord then pursues eviction based on non-payment of rent, the tenant in response can argue that s/he is entitled to offset, abatement or rebate. (This is generally referred to as a “Marini defence” based on the 1970 case from which it originated.)
Waiver: allowing a lease to renew and/or acceptance of rent by a landlord with knowledge of a breach of the lease may constitute a waiver of all past breaches.
Retaliation: generally, N.J.S.A. 2A: 42-10.10 prohibits a landlord subject to the Anti-Eviction Act from filing for eviction or substantially altering a tenant’s lease in retaliation for any of the following tenant activity: seeking to enforce rights under the lease or the laws of New Jersey or the U.S.; seeking to remedy a landlord’s alleged violation of any health or safety law or regulation; or seeking to organize a lawful organization, e.g., a tenant organization. If any such actions are taken w/in 90 days of tenant activity, a rebuttable presumption that the landlord’s action is retaliatory is established.
Unconscionability: this defence usually comes up in connection w/ a rent increase. If the premises are subject to a rent control ordinance make sure any rent increase is done in compliance with the same.
Failure to provide relocation assistance under N.J.S.A. 2A:18-61.1(g): if the landlord is forced to permanently board up or demolish the premises due to housing code violations which are economically unfeasible to correct, relocation assistance under N.J.S.A. 52:31B-1 must be provided before any Warrant for Possession will be issued.
The absence of timely or adequate notice to the tenant: as discussed at length in an earlier post, virtually all but one grounds for eviction (non-payment of rent) require some form of advance notice to the tenant before filing for eviction. If a landlord fails to comply with the applicable notice requirements, then the court has no jurisdiction and eviction will not be granted.
Payment of Rent: last, but certainly not least, payment of rent due and owing is a “defence” to an eviction case which is oftentimes welcome by a landlord. Payment of rent will result in dismissal of the case.
The next post and last post in this current series will discuss certain post-eviction issues faced by landlords.

New Jersey Landlord-Tenant 101: Post-Judgment Issues

So far, we’ve touched on pre-tenancy issues, how to handle a security deposit and problems surrounding the eviction process (grounds, notices, and defences). We’ll finish with questions about we buy homes bc what happens after judgment for possession is entered for the landlord.

Once a Complaint seeking possession is filed by a landlord, there can only be one of two possible results: ownership of the premises stays with the tenant; or, the property is awarded to the landlord. (An award of money damages is not permitted and must be maintained separately.) The first step for a landlord in gaining possession is to secure a “judgment for possession.” A judgment for property can be entered as follows: upon tenant default; by consent of the parties; following a trial; or, upon tenant breach of a settlement agreement.

Upon tenant default (failure to appear), and with limited exceptions (landlord acquired title from tenant or gave tenant an option to purchase) which first require adequate proofs in open court, judgment for possession may be entered directly by the clerk of the court upon submission of appropriate affidavits from the landlord and landlord’s attorney. A conviction for possession by consent must be written, signed by the parties, presented to the judge for approval and may require judicial review in open court. It also requires appropriate affidavits from the landlord and attorney. A judgment for possession after trial will have addressed all issues covered by the oaths to the satisfaction of the judge. In a report for the property upon tenant breach of a settlement agreement affidavits are also used, and the landlord must apply to the court for enforcement.