Proposition 15 v. Proposition 13 VOTE NO ON PROPOSITION 15

Proposition 15 on the voter ballot this November 3, “The California Schools and Local Communities Funding Act of 2020” is a proposition to increase taxes to current property values only on commercial and industrial properties.  This will undo a major component of the landmark 1978 Proposition 13 if it passes by creating a split tax roll.  A split tax roll which would separate the way taxes are assessed on residential properties versus commercial and industrial properties in California

Proposition 13 was passed by the voters in 1978 and currently protects all commercial and residential property owners from rising tax rates until they sell or remodel their residential or commercial property.

Proposition 13 currently requires a 2 percent annual increase in the real estate tax levied on a property. For instance, if property taxes in one year were $10,000, the taxes will increase to $10,200 the following year unless the property was remodeled or sold.

This new amendment on Proposition 13 will keep residential under t...

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Commercial Real Estate Scarcity of Warehouse Space Demands new negotiating skills

Seasoned agents in the commercial real estate brokerage community are now discovering what the residential real estate community has been experiencing for a decade; how to cope in a market with a shortage of warehouse properties available for sale or lease?

In some communities in Southern California inventory of vacant warehouse properties is almost nonexistent. No new construction has taken place in 10 years. The agent working in the suburbs where rents are less expensive are finding that the vacancy rates are sub 3%. This vacancy rate clearly indicates that there is no space for lease or sale.

If an agent is fortunate enough to find space for their client, there is a new way to approach the negotiations. The following steps should be considered prior to drawing up an offer:

  1. Verify with the agent representing the premises if the space is still available. In addition, request if they are anticipating accepting an offer for the space in the near future.
  2. Assume that the asking price is the rate that your client should be prepared to lease or buy the space.
  3. Act fast and make the first offer your best offer. It is certain that there will b...

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Maintenance Red Flags When Leasing an Industrial Building Lawyers, Tenants and Landlords Be Aware

As a commercial real estate broker your due diligence holds a great deal of responsibility when leasing a building to a prospective tenant.

The first item is to determine what type of lease is to be used. A widely accepted lease is the AIR CRE form which has been utilized for decades and revised annually. Also, certain industrial parks, shopping centers and office buildings may use their own custom lease. No matter what type of lease is used, it is typically in favor of the landlord.

The Lease agreement can be in many forms such as a Gross Form or Net/Triple Net Form. These leases place some or all of the property maintenance upon the tenant depending which rate the landlord offers.  The tenant must be aware of the red flags in each offer for industrial buildings.

Industrial property leases are either gross or net. Either one of these leases can place little or all of the responsibility for the maintenance on the tenant.

Net or Triple Net-either one of these leases place substantial amount of the liability of maintenance on the tenant. This liability may include the maintenance of the roof, walls, ele...

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El Segundo, CA – October 25, 2019 - Segal Commercial Properties, Inc. has closed a six-acre research & development sales transaction in El Segundo with Smoky Hollow Industries, LLC and LIMO Company, LP.  The Research & Development campus called Standard Works is located at 1301-1475 E. El Segundo Blvd. in the Smoky Hollow District.

The transaction consisted originally of six brick and concrete mid-century industrial properties developed by the LIMO Company starting in the 1950s’.  The Limo Company and Smoky Hollow Industries entered into a three-year lease in 2016 with an option to purchase; in addition, the lease allowed Smoky Hollow Industries to remodel the buildings.  

Smoky Hollow Industries refurbished and redeveloped a 20,000-square-foot single tenant Brick and concrete Industrial building into approximately 28.000 square feet of Research & Development space at 1301 E. El Segundo Blvd.  The new building is divided into fo...

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Commercial Real Estate Commissions are Negotiable

Commercial real estate commissions are negotiable between the agent and the principal. Commercial Real Estate negotiations have many aspects that need to be explored by both parties prior to the agreement of a contract.

Below is a list of important issues that should be discussed and investigated by the owner in a lease or sale negotiation:

  • Market Conditions
  • Custom and Practice regarding splitting fees with other agents
  • Sale, Lease or Sublease
  • Marketing Expenses
  • Principal’s needs
  • Complexity of the property
  • Continued relationship

Market Conditions

In the majority of commercial real estate transactions, commissions are dependent on what a real estate agent expects for his or her services subject to the size of the transaction.  In my experience, commissions range from 4-6% depending on the type of property and its size. For example, a 1,000 square foot unit for lease in a shopping center is usually a 6% fee, since it woul...

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NBA Clippers Inglewood Basketball & Entertainment Center partly in Opportunity Zone

The National Basketball Association (NBA) Clippers Owner Steve Ballmer is getting into the commercial real estate development business in Inglewood.  The multi-billionaire is planning to build a new basketball arena called the Inglewood Basketball and Entertainment Center.

Below is a list of what the Clippers owner plans to develop for $1.1 Billion:

  • State-of-the-art competition 18,500 seat venue and practice facility
  • Up to 75,000 square feet for the Clippers’ business and basketball office space
  • Up to 70,000 square feet for retail, restaurant, hotel and community space
  • Sports Medicine Clinic up to 30,000 square feet
  • Parking Structure

The former Governor Jerry Brown designated a portion of the development site as an Opportunity Zone in March 2018. Two of the 879 Qualified Opportunity Zones in California are locate...

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A Window of Opportunity for Commercial Real Estate

As we all know interest rates are low!   Commercial real estate loan rates have been on an average of 5% to 7% depending what the buyer is financing.  Now they are in the 3% range. Whether you are a seller, owner or buyer this may be the opportunity of a lifetime!  Never before in my 45 years in the commercial real estate business have I envisioned interest rates could be in the 3% range.

The Industrial real estate market vacancy rate in Los Angeles was at 1.9% in the 2nd quarter of 2019.  Ecommerce growth is creating a big demand for industrial space.   As a result, the low interest rates combined with shortages in industrial real estate inventory are pushing up values.  Sales and construction of industrial and logistics warehouses in many cities drove up the assessment value growth in Los Angeles County, according to an article in the LA Business Journal dated July 22 titled, “Value Add.”

Therefore, sellers in this marketplace have a chance to obtain prices for their properties at record levels. Buyers on the other hand will be able to lock in low interest rates for 10 years which will provide the buyer with the ability to purchase properties and amortiz...

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Tenant Beware when Signing a Commercial Lease - Good Tips

The tenant must perform his or her due diligence inspecting the premises in order to avoid expensive pitfalls that may occur prior to signing a lease for a commercial property.  The lessee should not delegate the due diligence to the agent/broker but take command to investigate the condition of the premises for its use themselves.

The following is a minimal list of what the future lessee should investigate:

1.    Visit the city Building and Safety Department plus the Planning Department which will inform the tenant if the building has the proper zoning for their use.

2.    At the Building and Safety Department, request permission to inspect the permit package.  The permit dates to repair and upgrade the building will determine if the building permits are recent (minimum age is 5 years for current upgrades).  Almost all buildings would obtain permits within the last 5 years for miscellaneous repairs.

3.    A licensed contractor should inspect the premises. An experienced contractor should be able to point out areas that should require further investigation in order to protect the new tenant from possible matters that may arise.

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Donald Trump's Tax Increase/Tariffs

The Tariffs war between the United States and China are already affecting the commercial real estate industry, and it could potentially cause vacancy rates to increase and drag leasing and sales prices down; in addition, dragging the economy down with it.

President Donald Trump increased Tariffs from 10% to 25% on $200 billion of Chinese products imported to the U.S. on May 10, 2019.  This may cause a downturn in the commercial real estate industry and the economy.

What effect has tariffs had on the commercial real estate industry since President Trump began charging tariffs?  The President put 25% and 10% tariffs on steel and aluminum imported from China, Canada, Mexico and the EU in March 2018.  As a result, construction raw material costs have increased forcing an increase in commercial real estate development costs.

The construction industry has felt the hit from the added costs to potential new contracts.  As a result, new commercial real estate prices will escalate.  What do we expect in the future from 25% increase on almost all products from China?
The cost of goods and services are going to increase; as a result, consumer sp...

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Standard of Care for Real Estate Agents in a Transaction

The Standard of Care for agents in a transaction is difficult to measure since each agent has a different background and experience in real estate.  Standard of Care is what the client’s reasonable expectation is of the agent’s service in a transaction. What we find in a dispute is whether an agent’s actions are reasonable and then determine if the measure of Standard of Care is correct.

In litigation with an agent, one side claims that the agent fell below the Standard of Care. The other side indicates that the Standard of Care was appropriate. The methodology for determining the Standard of Care is measured by the following:

  1. Agent’s time in the business
  2. Education both from transactions and continuing education as required by the Bureau of Real Estate (BRE)
  3. What another agent would do in a similar situation based upon the same amount of education and time in the business
  4. What assistance/investigation was recei...

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“Lee has a tremendous breadth of knowledge in the real estate field. He assisted me with a case which involved combing through a great deal of information, and he was very thorough in navigating his way through the sea of documents with a good understanding of the facts. He was always mindful of trying to be as efficient as possible by focusing on the most relevant information rather than delving into every single document. I would absolutely work with Lee again in the future.”  
Eugene Kim, Attorney, Stream Kim Hicks Wrage Alfaro, PC