What You Don’t Know Can Hurt You

Many business decision-makers staying abreast of current market trends are in the process of negotiating lease restructures. This approach is now commonplace.  The end result is often in the form of increased savings.  Nonetheless, to protect your company and avoid risky and costly errors, it is crucial to understand the financial position of your landlord, and how your company might affect that position.  When considering a lease restructure or any such significant commitment, acquiring this understanding is a very important part of your decision making process. .

Future Real Estate Market

In an already unstable market, several factors are pointing to a continuation of struggles and hampered growth. Continued reductions in cash flow, investors shying from commercial real estate, continued unemployment and strong uncertainty for a forthcoming economic recovery, has forced commercial property owners to absorb more and more empty space.   Just as all real estate, commercial property values has also taken a big hit in the last 12 to 24 months.  Unless there is substantial job growth encouraging absorption of empty commercial space, the market may continue to suffer.

Current Trends

Careful landlords have refinanced real estate debt thus reducing monthly debt service costs. The rewards of refinancing are twofold: 1) protecting themselves against future financial downside events and 2) to increase current profits. Although many say the economy is beginning to show signs of gains, commercial real estate, being a lagging indicator of economic change, has not yet seen a marked increase.  The essentials of real estate recovery are a substantial increase in demand and substantial absorption of available space for lease, neither of which seems to be happening.

Meanwhile, the delinquency rate of commercial mortgages continues to rise. “Commercial mortgage-backed securities (CMBS) originating in 2005 drove an increase in delinquencies to 6.29% at the end of February, according to the Fitch Ratings delinquency index of 2,505 loans totaling $28.5bn. Behind the overall increase were office properties, which grew 45bps to 3.5% delinquent.”

According to Real Capital Analytics, Inc. in a report in February, 2010, the default rate for loans on office, retail, hotel, and industrial rose to 3.8 percent up from 1.6 percent a year earlier. A prediction of a 5.4 percent by year end seems a good potential.

Should Corporate Tenants Care?

When a corporate tenant restructures its lease based on better business or financial terms, must the landlord honor the terms? Many are surprised to find the answer is maybe! Precise terms contained in the lease documents will dictate which portions of the lease agreement are honored.

Occupying space in a building where a landlord defaults and then loses the building can place tenants in a precarious position.   Things such as dealing with transitions between owners, trustees, and others can place tenants in an uncertain position for extended time periods.

Unless a precise and well-constructed “non-disturbance agreement” was a component to the lease restructure, the new landlord might not have an obligation to honor the tenant’s lease. Termination is a possibility.  Obviously this causes difficult operating scenarios, forcing management to concentrate on the unexpected issue.  Employee productivity, operations, and corporate profitability are all at risk under such conditions.

What You CAN Do

There are things you can do to protect your company from such stressful issues. Make sure you know who you’re doing business with. What has your landlord been doing over the last couple of years? Answers to the following questions will give you the knowledge you need to make an informed decision regarding lease restructures.

• Has the landlord restructured leases and retained tenants in his portfolio, including your building?

• Have tenants relocated from your building, significantly reduced space, or gone out of business?

• Has the occupancy levels of your building been affected by those events?
• Is your building going to experience large amounts of simultaneous lease expirations that could negatively affect the financial strength of your landlord?

• Has the level of service or landlord / property management responsiveness dropped?

• Does it appear that the landlord may be cutting back to reduce operating costs?

• How does what your landlord has accomplished compare to what’s going on in the local market?

Don’t just review statistics and the numbers.  Instead collect and review data in a manner that will provide a valuable understanding of your landlord’s position.  Consider carefully how issues could come into play and how you can make more intelligent decisions to protect your company from potential harm.

Even with a good understanding of your landlord’s current status, it may still be difficult to understand financial implications your company’s transactions can have on your landlord.

When you’re considering a lease restructure, consult your real estate advisor for guidance to help you achieve terms creating flexibility along with greater profitability for your company…all without placing unnecessary burden on your landlord. Helping to keep your landlord in business can yield positive benefits for your company.

Industrial Tenant’s- How to Choose the Best Commercial Real Estate Broker Advise

If your company is in the process of buying or leasing industrial real estate, it is important to choose a real estate professional that is well qualified to represent your best interests. A real estate broker has the market knowledge and negotiating expertise to help you make a well informed decision. Without the right real estate professional, the process can become cumbersome and expensive. To achieve optimal results in the buying process, follow these key points in choosing the real estate broker that is right for you.

Avoid Using the Same Broker

Just as the prospective landlords or sellers have a broker working for them with their best interests in mind, you need a broker that will protect your interests. Don’t fall into the trap of using the same broker who will most definitely have a conflict of interest. While the broker might say that they can save you time and money by negotiating for both parties, remember that their fiduciary responsibility is to the landlord. Additionally, dual agency laws require proper disclosure upfront and may limit a broker’s ability to advise either client in certain states. Choosing your own representation insures that your interests are fully represented by eliminating a possible dual agency scenario and gives you confidence that you have the same expertise on your side as the landlord or seller.

Choose a Tenant/Buyer Specialist

With expertise in tenant/buyer representation, a specialist has in depth information, experience, and knowledge of the buying process. Because of their specialty they also have tools and resources to manage your best interests. A tenant/buyer broker can devote more time and energy to your needs than one who is juggling many transactions and is more likely to be there for you throughout your lease.

Choose a Broker Who Knows Your Demographics

With knowledge of the demographics of a particular area, a broker who knows the area can provide you with a complete list of the available options in that area. They also are the first to know what is becoming available in your area, are familiar with the landlord’s strategies, and are familiar with your particular market. A broker that is familiar with a particular demographic can drive the hardest bargain based on their knowledge of the history of the property.

Choose a Broker Who Knows Your Product

Because there are differences between industrial, office, and retail properties, it is best to choose a broker who specializes in industrial properties only. The physical aspects of these types of properties differ greatly. Make sure that the broker you choose has a history of handling the type of property you are seeking.

Choose a Broker Who Knows Your Type of Business

If your representative has a full understanding of how your business operates, he can narrow down and pinpoint a property that will suit your specific needs. If your broker has represented businesses like yours in the past, he can find you the right type of property in a shorter period of time. And since time is money, a broker who knows your business can save you money by helping you choose a location that works for you.

Choose a Broker with a Defined Time Table and Accountability

Your broker should be able to provide you with a step-by-step process and general time table of the mechanical aspects of your transaction. By finishing one step before proceeding to the next, unexpected surprises are minimized. From start to finish, your broker should hold himself accountable to you as the transaction progresses. The real estate broker should keep your best interests in mind and assure you that nothing will be overlooked.

Choose a Broker with Support and a High Level of Service

Knowing is half the battle! A good real estate broker will provide you with a list of resources, tools, and market information. Ask how this information is relevant to the real estate transaction. Having access to the best information is crucial to a successful decision.

Choose a Broker You Trust

Trust your Gut! Choose a real estate broker that is personable and easy to talk with. We are naturally drawn to people who are like us, people we have something in common with. If you create an emotional connection with your real estate broker they will be more apt to aim to please and will work hard to gain your trust. With a connection, they will work harder for you and will strive to represent your needs in the best way possible.

(Secaucus, New Jersey) – Pink, Inc., a provider of tensioned fabric solutions to the exhibit, event and retail interiors industries, was recently acquired by Moss Inc. and is opening a new rental depot warehouse in the Meadowlands submarket of New Jersey.  This facility combines both product lines and regionalizes both event and rental products for Pink and Moss.  This new venture will allow Moss to have a presence in New York City, New York.

The multi-tenant warehouse was built in 2001 and is situated in the heart of the Meadowlands Industrial submarket.  More importantly, the warehouse has ingress to the NJ turnpike and is located strategically near the Lincoln Tunnel for quick access to the Jacob K. Javits Convention Center.  The building consists of a total of 39,000 square feet and features 26’ ceiling heights, exterior loading docks, abundant car parking and mezzanine office space.

This project required a careful market survey and detailed location analysis due to the specific requirement of the type of facility.  “We were able to meet Moss’ expectations while uncovering a hidden opportunity with favorable terms to Moss’ image and footprint,” commented Safir.  “The challenge was to find an optimal location with accessibility to major thoroughfares into New Jersey and New York City.”

The landlord was a private ownership group in New Jersey that was represented by Greg Sholom of Team Resources SBWE.  Pink, Inc. was represented by Marat Safir, President of Taurus Realty Partners, in the lease transaction.

For further information Mr. Safir may be contacted at 224.406.8877.

About Taurus Realty Partners: Taurus Realty Partners is a privately-owned commercial real estate services firm that delivers conflict-free tenant representation services to industrial end-users. Headquartered in Chicago, Taurus Realty Partners’ integrated suite of real estate services includes acquisitions and dispositions, lease negotiation, build-to-suits, strategic advisory services, construction management, and tax and municipal incentives consulting.   With national capabilities, Taurus Realty Partners’ objective, transparent approach aligns real estate with overall business goals to create space solutions that generate competitive advantage for its clients.  For more information, visit www.taurusrealtypartners.com.

(Niles, Illinois) – Taurus Realty Partners represented American Science & Surplus, a seller & retailer of surplus and educational goods, in their extension of their 69,056 square foot corporate headquarters and warehouse facility located at 7410 N. Lehigh Avenue, Niles.

Marat Safir, President, and Eddie Logvinsky, Senior Associate, of Taurus Realty Partners represented American Science & Surplus in on-going negotiations with Richard LeBrun of NAI Hiffman, Senior Portfolio Manager on behalf of Mirvac Industrial Trust, owner of the property.

“American Science & Surplus wanted to verify whether its current facility represented the most optimal situation,” explained Safir. “After evaluating various alternative locations in the competitive nearby submarkets, we determined the existing facility offered the most desirable economics as well as avoiding the relocation of a major distribution facility” according to Logvinsky..”

The multi-tenant warehouse is situated in the North Cook Industrial submarket. The space features 18’ ceiling heights, 4 interior loading docks, 3,500 square feet of finished office space, upgraded T-5 lighting and is fully sprinklered.

BLOOMINGDALE, IL-DataMart Direct has leased 40,000 square feet at 279 Madsen Dr. The company signed a five-year lease for its space in the 138,160-square-foot Building 3 in ProLogis Park Bloomingdale.

DataMart was represented by Marat Safir, president of Taurus Realty Partners, while building owner ProLogis was represented by Cushman & Wakefield in the deal.

“They want to retain most of their employees, and this was close to their previous location,” Safir tells GlobeSt.com. “They wanted to be close to the US Post Office that’s in Carol Stream, which they utilize a lot for their business. The building also had the right ceiling heights, a great amount of loading, and the right amount of office space, and there’s not many places that have the amount of existing office they’re requiring.”
Built in 2001, the building sits on a little more than eight acres, and features 12,000 square feet of office, 30- foot clear ceilings, an ESFR sprinkler system, seven docks, one drive-in door and 180 parking spaces. The property offers proximity to Interstate 355 and the Elgin-O’Hare expressway, as well as high visibility with frontage along Army Trail Road.

This new lease brings 279 Madsen Dr. to 100% leased. Asking lease rates at the building were around $5.75 per square foot, but Safir says ProLogis gave DataMart a more attractive rate because the company was able to use the space as-is and didn’t require much modification. “The building was great space in great condition, and both parties were able to capitalize on that,” Safir says.
ProLogis began developing the business park in 1999, and it now houses four buildings with a total of 510,000 square feet. The park is in the North DuPage submarket, where occupancy rates are around 91%, according to Grubb & Ellis’ mid-year industrial market report. Average asking lease rates in the submarket are near $5.50 per square foot, Grubb’s research shows.

“For this type of product in this square foot range, it’s highly competitive in this submarket,” Safir says. “There’s quite a number of deals in that 30,000 to 50,000 square foot range. It’s probably a more active part of that submarket, so I think both parties were fairly lucky to get this done in an expeditious manner.”

ELK GROVE VILLAGE, IL-Moss Inc. has signed a 10-year lease for the 105,000-square-foot 2600 Elmhurst Rd. Built in 1995, the property is owned by Mirvac Industrial Trust and located in the O’Hare submarket. Marat Safir, president of Taurus Realty Partners, represented Moss in the deal, while Mirvac was represented by Chris Nelson of Lee & Associates.

“We focused on the O’Hare market because, with a lot of shipments and personnel coming in and out, being located close to the airport was an obvious choice,” Safir tells GlobeSt.com. “We also wanted to find a location close enough to their existing facility so they could retain personnel. This is a good central location.”

Moss’ new lease represents a consolidation of two facilities it previously occupied in Lincolnwood, IL, as well as a relocation of some operations from its headquarters in Belfast, ME. “They make displays for all the big trade shows and a large number of corporate clients,” Safir says. “Chicago is a big city for trade shows, and this is one of the primary facilities for the company where they make and assemble these before they go out to the trade shows and corporate functions.”

The move is also an expansion for the firm, which provides tensioned fabric for trade shows and previously occupied a total of about 40,000 square feet. The Elk Grove Village building offers 11,500 square feet of office, and the remainder of warehouse and light manufacturing space. Mirvac has owned the property for about three years, since it was acquired from CenterPoint Properties for nearly $9 million, sources say.

“The facility itself worked for a lot of reasons – namely that it has a large office component that fits our needs almost perfectly and we didn’t have to change much of the configuration,” Safir says. “The warehouse space had the right ceiling heights – 28-foot clear – and before their ceiling heights were much lower and they were in functionally obsolete space. This building allows their work flow and process to be a lot more efficient and offered more open space to work with and the right amount of loading.”

Safir declined to disclose the asking lease rate on the deal. “The landlord did a good job of marketing the building very aggressively in a market with quite a few options to choose from,” he says. “They did a good job of finding the right tenant to take this space.”

Overall occupancy in the O’Hare submarket is around 88%, according to Transwestern’s mid-year industrial market report. “It has its troubles as every other market is having, but I think being in the middle of Chicago and one of the busiest airports dominated by freight and air cargo industries, O’Hare will survive,” Safir says. “There are definitely higher vacancies than normal, but there’s still a pulse and some activity with a flurry of renewals going on. Hopefully in six to twelve months, we’ll see the air clear in that market.”

WEST CHICAGO, IL-Evolution Sorbent Products has renewed its lease for a 60,000-square-foot manufacturing facility at 1270 Nuclear Dr. The meltdown sorbents producer has signed a new seven-year lease for the building, which it has occupied for about five years. ESP was represented in the deal by Marat Safir, president of Northbrook, IL-based Taurus Realty Partners, while building owner Batavia Land Co. was represented in-house.

“They have a lot of infrastructure already in place in this building, and it works for them for a number of reasons,” Safir tells GlobeSt.com. “They can tap into the good labor market that’s out there and the utilize rail, which goes to the building, so that’s a plus. They’ve made a pretty large investment in this building.”

Built in 1972, the building is located in the Fox Valley submarket, where Safir says asking lease rates are around $4 per square foot net. He declined to disclose the lease rate on ESP’s deal, which now extends through 2016.
“They did a look at the market and some of the facilities available were competitive, but at the end of the day, this turned out to be the best option for them,” Safir says. “It became a self-fulfilling prophecy. The landlord was aggressive and gave them a good concession package, which made it favorable for them to save long term.”

Overall occupancy in the Fox Valley submarket is around 93%, according to Cushman & Wakefield’s Q1 industrial market report. “Over the long haul, the submarket has been resilient to the effects of the economy,” Safir says. “It’s not a destination market, but there’s not a lot of interchange and a lot of the companies that are there don’t relocate to another market. Vacancies have risen a bit, like anywhere else, but not as drastically as other submarkets.”

(Crystal Lake, Illinois) – Glashaus, Inc., a privately owned company with offices in Germany as well, is the North American distributor of WECK glass blocks and other glass construction materials. J. Weck GmBH & Co., under the Glashaus local name, recently restructured and signed a renewal for 15,073 square feet of warehouse and office space in Crystal Lake, Illinois at 450 E. Congress Parkway.

The multi-tenant warehouse was built in 1995 and is situated in the heart of the McHenry County Industrial submarket. The building consists of a total of 118,400 square feet and features 24’ ceiling heights, 24 exterior loading docks, 5 drive-in doors and 170 car parking. It also has excellent access to local US Highway 14, IL Routes 176 and 31, as well as low McHenry County taxes.

Marat Safir, President of Taurus Realty Partners, represented Glashaus in the lease transaction. The building ownership consists of a partnership of Cobalt Industrial REIT and USAA Real Estate Company, both based out of Texas. Ownership was represented by Tyler Hardy of CB Richard Ellis.

“Upon review of the market and nearby options, the existing facility presented the most viable alternative. We were able to avoid business disruptions and negotiate competitive economic terms during a challenging time within our client’s industry,” commented Safir.