Tag Archives: wcre


Philadelphia’s Proposed One Percent Tax on New Construction

One Percent Tax on New ConstructionIs Philadelphia’s proposed one percent tax on new construction a good compromise or a fools bargain? The Philadelphia City Council announced new legislation on April 11, 2018, that includes a new one percent tax on new construction that would raise revenue for the Housing Trust Fund, the city’s dedicated source for developing new affordable housing, preserving existing housing and preventing homelessness.

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WHAT IS THE TAX/IMPACT FEE?

Proposed Bill No. 180351 would impose a new Construction Impact Tax/Impact Fee on all projects that are eligible for the city’s 10-year tax abatement. The funds raised from the tax are intended to help the Housing Trust Fund provide funding for more affordable and workforce housing development, which would be available to both nonprofit and for profit developers.

HOW MUCH IS THE TAX?

The tax/impact fee is 1 percent of the stated cost of construction, including repairs, construction, additions and alterations of the building and is paid when the applying for a building permit. (Note that there is some discussion to change the time when payment would be due from the building permit application to the time a zoning permit is filed.) While a one percent tax on new construction may not sound like a lot, consider the tax on a $1 billion new technology center, a $300 million new multifamily high rise or a new $800 million stadium. In each instance, the tax for these projects would be $10 million, $3
million and $8 million, respectively.

ARE CERTAIN TYPES OF BUILDING EXEMPT?

As currently drafted, all buildings that are “for human occupancy” and that are eligible for the 10-year tax abatement would be subject to the tax/impact fee. These buildings would include not only residential structures, but commercial and industrial structures as well. Rather than single out one particular kind of developer (i.e., multifamily developers), the proposed tax would apply to any project that qualifies for a 10-year tax abatement in Philadelphia.

COALITION BUILDING

There appears to have been more compromise than usual between the trades, the Building Industry Association, City Council members, members of the development community and other civic-minded individuals as the merits and concerns over the 10-year tax abatement were debated, as was the Mixed Income Housing Bill, both being offered as potential solutions for addressing Philadelphia’s affordable and workforce housing needs.

NOVEL APPROACH

Drexel University’s Lindy Institute for Urban Innovation Senior Research Fellow Kevin Gillen told the Philadelphia Business Journal, “The impact fee being considered here is a truly unique hybrid. It is tied to the abatement rather than to inclusionary zoning. And it is the type of program that is traditionally used by low-cost, low-tax Sun Belt suburbs that have experienced decades of rapid population growth, but the bill’s sponsors want to apply it to a relatively high-cost, high-tax Northeastern city that until recently has experienced decades of depopulation.”

Impact on the Mixed-Income Housing Bill

If the new bill is passed, the Mixed-Income Housing Bill will become completely optional and will be amended to include numerous beneficial bonuses such as extra height (7 feet) and density (25 to 50 percent bonus) in RM-1, CMZ-1/2/2.5, amongst other potentially attractive zoning bonuses. These bonuses will continue to have a mixed-income housing requirement or payments in lieu of an additional 1 to 2 percent of construction costs depending on the amount of the
bonus.

EFFECTIVE DATE

As proposed, the effective date would be July 1, 2018, although some are already pushing for a later effective date of January 1, 2019. Duane Morris attorneys will continue to monitor and report on any development in this issue.

FOR MORE INFORMATION

If you have any questions about this Alert, please contact Brad A. Molotsky, any of the attorneys in the Real Estate Practice Group, attorneys in the Project Development/Infrastructure/P3 Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.

FOR MORE INFORMATION CONTACT:


The Impact of Energy Efficient Building Upgrades on NOI and Asset Value

Energy Conservation Measures (ECM) or efficient building upgrades which include LED Lighting, Plumbing and Mechanical and HVAC upgrades, are proven to reduce energy and operating costs. Mechanical and HVAC upgrades could include Building Management Systems, Variable Frequency Drives on fans, pumps and motors, Free Cooling, installation of Condensing Boilers and Demand Based Domestic Water Boosters to name a few opportunities to reduce costs.
Investing in energy efficiency can yield a Return on Investment (ROI) of 30 to 40%, and an improvement in Net Operating Income (NOI) and significant Valuation Enhancement. By reducing energy and operating expenses NOI can be quickly improved giving the owner increased profits and/or a competitive advantage in the market.

NOI improvements from ECMs can be achieved in Hospitality, High and Low Rise, single and multi-tenant Office buildings, Manufacturing and Distribution Centers as well as High and Low rise multi-family buildings. Today the value of energy efficient upgrades are further increased because of favorable tax treatment – 100% expensing and generous Utility Company Cash Incentives.

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Efficient building upgrades to a property 10 years of age or older to deliver:

• Energy Cost Reductions up to 40%
• Overall OpEx Reduction of 5 to 10%
• Value Enhancement of 5 to 15%
• Increased unlevered ROR by ½ to 2%
• Competitive Market Advantage

Energy efficient building upgrades are good for buyers and sellers!

A completed Energy Efficiency project in a 25 Story Office building located in center city Philadelphia reduced annual operating costs by $208,000. The Energy Efficient Measures (ECM) included LED lighting, free-cooling, premium efficiency motors for the condenser and hot water heating pumps with variable frequency drives and Retro-commissioning of the HVAC systems.

In the two tables below observe the actual energy efficiency upgrade costs and the energy cost savings generated by the above mentioned upgrades (Project Matrix) and in the NOI Improvement table the effect these real savings would have on NOI and the “Cap” rate against typical market Rents, OpEx Costs and a hypothetical property value of $33,600,000.

Energy efficient building upgrades offer VALUE ENHANCEMENT

An Owner of a $33,600,000 property making these improvements at a Cap rate of 8.57 would see the value of the
property increased to $36,008,000 due to the improved NOI. This is a 7.2% valuation enhancement or an ≈ $3,000,000 value growth with an ≈ $500,000 investment in CapEx!

Energy efficient building upgrades offer INVESTMENT ENHANCEMENT

A buyer of a $33,600,000 property would realize an increase in their unlevered Rate of Return of .60% in net dollars by installing similar Energy Efficient building upgrades.

Energy efficient building upgrades offer ADDITIONAL BENEFITS

Reduced Maintenance Costs – Another typical benefit of installing ECMs is the reduction in maintenance expense that comes from replacing aging equipment that is in need of repair or replacement. Quite often energy savings derived from certain high ROI ECMs can help offset the cost of equipment replacement.

“Green” Building Tenants Pay Higher Rent – That’s right, a CBRE Global Research and Consulting Review reported that the overall vacancy rate for green buildings was 4 percent lower than for non-green properties—11.7 percent, compared to 15.7 percent—and that LEED-certified buildings routinely commanded the highest rents.

• Higher productivity and better occupant health
• Promotion of a culture of sustainability among all building users
• Reduced environmental impacts
• Improved public image and marketing tools for both landlord and tenant

ABOUT US

Rich Energy Solutions’ experience runs from small to large HVAC efficiency upgrades, wireless Building Management Systems and energy saving LED lighting system upgrades to displacing city steam and chilled water loops, in-house thermal and co-generation plants.

For qualified customers Rich Energy Solutions will conduct free, no obligation on-site building assessments to develop cost savings analyses and system design and provide turn-key installation of all energy conservation measures. The Rich Family has provided construction management, mechanical construction and energy saving solutions in 38 states for public and private businesses since 1918. www.richenergysolutions.com

To learn how Energy Efficiency can impact your NOI contact:

Tony Lepre
Rich Energy Solutions
www.richenergysolutions.com
tlepre@richenergysolutions.com
609.214.5520
(888) 718-RICH

WCRE Opens Center City Philadelphia Office

New Exclusive Assignments and High Volume of Transactions Lead Growing Commercial Real Estate Firm to Expand into Philadelphia’s Central Business District

June 5, 2018 -Marlton, NJ – Wolf Commercial Real Estate (WCRE) is pleased to announce that it will be opening a new office at 1601 Market Street in Philadelphia. This will be the firm’s third office, in addition to its headquarters in Marlton, NJ and an office in King of Prussia that opened in 2014.

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“We’ve been serving numerous clients in and around Center City for a while now, so it makes sense to strengthen those relationships by opening an office here,” said Anthony Mannino, chief operating officer of WCRE. “This move will help create more opportunities for our professionals to network and collaborate with clients and partners, and to expand our commitment to community initiatives.”

Since its founding in 2012, WCRE has grown into a market leader in Southern New Jersey and southeastern Pennsylvania. The team has set a new standard in serving the needs of owners, tenants, and investors. The firm currently has more than 175 properties comprising 4.2 million square feet of office, retail, medical, industrial, flex and investment property in the region under exclusive watch.

Along with Mannino, WCRE’s Philadelphia team includes several well-known business leaders with deep roots in the city. Among them are Brian Propp, director of strategic relationships, Andrew Maristch, vice president corporate services & portfolios, Tony Banks, vice president, and Joseph Nassib, sales associate. Each brings a unique skill set, along with energy, passion, and the signature WCRE commitment to the community. Founding principal Jason Wolf, and Lee Fein, a senior vice president and industrial space specialist, will assist the Center City team from their respective bases in Southern NJ and King of Prussia.

Last year WCRE became affiliated with CORFAC International, a network of independently-owned, entrepreneurial commercial real estate firms with 78 offices worldwide. The move has helped elevate the firm and contributed to its latest expansion.

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long term growth and success.

Learn more about WCRE online at www.wolfcre.com, on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.

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Is the AIA Contract Set In Stone?

Is the AIA Contract Set In StoneIf you’re in the business of commercial real estate, you are bound to have come across the sometimes dreaded American Institute of Architects (AIA contract), the most commonly used contract for construction projects in the United States. We say that its sometimes dreaded because the form is lengthy and somewhat dense. There is also a misconception that because the contract is a pre-set form, it cannot be negotiated or amended. But as you know, everything can be negotiated.

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Below is a summary of some provisions in the AIA contract that you should pay particular attention to and if needed, should be negotiated in a way that helps your clients. While we are lawyers, the list below should not be taken as legal advice for you or your clients. Each deal and client is different and may require a different review of the contract. Should you need a legal review of a contract, please contact us.

PERIOD OF PERFORMANCE

Make sure that the commencement date and the substantial completion date of the project is a timeframe that makes sense and works for you. Not completing a project on time can lead to delay costs including liquidated damages and other ancillary costs of additional project construction.

PROGRESS PAYMENTS

Contractors want most of their payment at the beginning stages of the project while the other party always wants to hold money for substantial completion. You can negotiate the amounts and trigger dates for payment so that you can protect your client against delays in the project.

INDEMNIFICATION

Indemnification means that one contractual party agrees to assume responsibility for certain judgments resulting from third-party claims against the other party. This clause deserves special attention in every contract and should at the very least be made mutual so that each party gets its costs covered if it is sued because of something caused by the other party.

DELAYS

Delays are inevitable in many different kinds of projects. But the risk of dealing with the fallout from project delays can be managed through contract negotiation. You don’t want your client to bear the brunt of delay costs caused by the other party. Liquidated damages or other compensable damages can be negotiated here.

CONCLUSIONS:

Although the AIA contract is seen as a boilerplate static document, there are important provisions that should be on your radar and amended if necessary so that your client is protected. We suggest that any amendments be drafted by an attorney with experience in construction and ancillary industries.

For more information contact:

Marc Snyderman, Esq.
Snyderman Law Group
923 Haddonfield Road, Suite 300
Cherry Hill, NJ 08002
856.324.8267
E-mail: marc@snydermanlawgroup.com
Website: snydermanlawgroup.com

 

Antonella Colella, Esq.
Snyderman Law Group
923 Haddonfield Road, Suite 300
Cherry Hill, NJ 08002
856.324.8267
E-mail: antonella@snydermanlawgroup.com
Website: snydermanlawgroup.com

WCRE Foundation Celebrity Charity Golf Tournament

WCRE Celebrity Charity Golf TournamentWhen?

  • July 27th 2018
  • Registration Begins @ 12:00 pm
  • Shotgun Start: 1:00 pm

Costs?

  • Celebrity Sponsorship: $200
    (Beer, Lunch & Dinner Included)
  • Golf, Lunch & Dinner: $125
  • Dinner Only: $35

Where?

Ramblewood Country Club
200 Country Club Parkway
Mount Laurel, NJ 08054

Download Golf and Sponsorship Packet (PDF)

For more information contact:
brian.propp@wolfcre.com (609.502.1440) or
chris.henderson@wolfcre.com (856.905.9245)

Why Commercial Property Investors are Overpaying on Income Taxes

Commercial Property Investors are Overpaying on Income Taxes

Commercial Property Investors are Overpaying on Income Taxes

Did you know that 9 out of 10 property investors are overpaying on income taxes? Year after year, the Federal Government has continued to incentivize those who invest in Commercial Property.
The IRS has established guidelines that, if ignored, cause commercial real estate investors to pay more in taxes
than they should.

What guidelines are being ignored by Commercial Property Investors? Those revolving around Accelerated
Depreciation; known in the taxation world as Property Cost Segregation.

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RAMIFICATIONS OF IMPROPER DEPRECIATION ALLOCATION
Most commercial property investors do not truly understand the substantial benefits of accelerated depreciation.
This is evidenced by our analysis of thousands of depreciation schedules over the years. We have found less
than 10% of investors are properly depreciating their properties. The most common misconception is, “I am
going to get this money anyway”. Is this a true or false statement?

Reasons Commercial Property Investors are Overpaying on Income Taxes

1. Capital Gains vs Ordinary Income Rates
Although the mechanics of these calculations are not always as simplistic as we will be making it for this
example, the short response is – increased depreciation leads to paying taxes at the capital gains rate as
opposed to the ordinary income rate. Since capital gains rates are likely much lower than the Investor’s income
tax rate, they would benefit from accelerated depreciation.

2. Time Value of Money
Simply put, your dollar is worth more today than it will be in the future. A tax dollar saved today therefore is
worth more than a tax dollar saved in the future. Why lock up a tax savings in your property for 27-39 years
when you can receive it today?

3. Catch-Up Depreciation
If you have not completed a Cost Segregation study on your property that you have held for a period of time,
did you know that you can capture your entire missed benefit immediately? The IRS allows you to complete a
481 adjustment thus enabling you to catch up all the missed accelerated depreciation into the current tax year.
This provision alone could save you hundreds of thousands immediately!

4. The Power of Cash in hand
You are a real estate “investor”. This means you understand the investing power of having funds in your hand
today. Cash today [in the form of tax savings] enables you to invest in additional properties. The benefits of this are exponential and allow continued growth of your investment portfolio. Correct allocation of real estate
depreciation is essential for Commercial Property Investors to effectively manage their tax situation. Are you
one of the 90% who are missing out on opportunities that 10% of your competitors are capturing?

WCRE Instrumental in Bringing Kingsway Learning Center & Services to Voorhees, New Jersey Via Multi-Phase Project

Kingsway Lerning CenterMay 17, 2018 – Marlton, NJ – WCRE is proud to have played a key role in helping the Kingsway Learning Center & Services consolidate its Moorestown and Haddonfield campuses into a new site in Voorhees. The school leased the 73,000 square foot building at 1000 Voorhees Drive with plans to relocate its pre-school, elementary, and secondary programs for its 175 students to a single site starting with the 2018-2019 school year.

Previously WCRE exclusively represented the buyer of 1000 Voorhees Drive during its acquisition of the property. Then the firm’s educational and institutional client services group secured Kingsway as the tenant. Both phases of this transaction add to WCRE’s growing number of assignments of educational and institutional properties in the Philadelphia and Southern New Jersey region. This highly specialized sector is an area of strength and growth for WCRE.

“The Kingsway team is very pleased with the way WCRE handled this project, and we’re grateful for their help in establishing our new home, “said Phil Rodriguez, Chief Operating Officer at Kingsway.

WCRE’s Vice President & Principal, Chris Henderson noted the complexity involved in matching the parties according to their needs. “This showcases our ability to work with multiple parties to structure a long-term investment and development transaction that will provide excellent outcomes for everyone involved,” Henderson said.

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About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long-term growth and success.

Learn more about WCRE online at www.wolfcre.com, on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com , www.phillymedicalspace.com and www.phillyretailspace.com.

 

Protecting Goodwill and Intellectual Property

Protecting Goodwill and Intellectual PropertyImagine building a company that took years to gain momentum, thousands of hours of labor, sleepless nights, hundreds of thousands of dollars in costs, and second mortgages on houses to obtain bank financing. Through your hard work and risk, the company is now financially successful and has established itself as a prominent provider/seller of [insert good or service here].

Unfortunately, your business did not a) adequately protect its intellectual property or b) conduct due diligence to ensure that the intellectual property it used was its own.

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Now, a competitor’s product/service has a distinctly similar name, a different competitor is using a markedly similar logo, and yet another competitor poached your employee who did not have a non-disclosure agreement/non-competition agreement and is now utilizing your company’s trade secrets against you. To top it all off, your company just received a cease-and-desist letter from a corporation on the other side of the country alleging that the company’s slogan infringes on their trademark.

These are but a few of the many scenarios that could occur when a company does not take proactive legal measures to protect its goodwill and intellectual property, and was likewise using intellectual property haphazardly and without ensuring that there was no other owner of that intellectual property or that appropriate licensing was obtained.

In an era of global business and competition, the names, logos, and slogans of products and services, trade secrets, and other intellectual property often start off with little commercial value, but upon establishing goodwill for the business and/or creating a popular product or service, the value of a trademark can exponentially increase. For instance, Forbes estimated the value of the trademark for Google® at over $40 billion dollars, or more than one-quarter of the company’s overall value (at the time o f the Forbes publication).

However, the value of trademarks and other intellectual property is not limited only to the technology industry. The same is true for real estate entities, developers, and affiliated businesses. Think of notable brands in real estate and development and it is trademarked – i.e. PREIT®, Vornado®, Toll Brothers®, Ryan Homes®, Chicago Title Insurance Company® – and the list goes on.

As such, this blog provides a basic overview of the three most common types of intellectual property encountered by small and medium-sized businesses.

Intellectual Property – TRADEMARKS

Most basically, a trademark is a brand name. A trademark or service mark includes any word, name, symbol, device, or any combination, used or intended to be used, to identify and distinguish the goods/services of one seller/provider from those of others, and to indicate the source of the goods/services. For instance, the words Facebook® and Microsoft® are both trademarked, as is Apple Computers’ partially bitten apple logo, and both McDonalds’s golden arches and its slogan “I’m loving’ it.”

Because trademarks serve as an indicator of the mark owner’s goodwill, federal trademark law was established to protect the unsuspecting public from confusing products/services and to prevent against attempts by unscrupulous competitors to deceive the public.

Federal trademark rights may be established by either being the first to use a mark in interstate commerce (a Section 1(a) filing), or a pr ospective mark may be reserved prior to use by filing an in tent-to-use application (a Section 1(b) filing). Although the law generally provides that the first user of the mark is entitled to legal protection, with or without a federal trademark registration, federal registration provides significant additional value as it allows for the ability to recover profits, damages, and costs against infringers, national notice of ownership of the mark, the presumption of the validity of the mark, access to federal courts, as well as incontestability status for the mark after five years of federal registration.

State registrations are also available, but do not offer the national, comprehensive protection of a federal trademark registration. In light of the significant benefits of federally registering trademarks (names, logos, and slogans), the ever-increasing value of intellectual property and goodwill to all businesses, the need to protect and distinguish a mark from that of a competitor, and to avoid claims of infringement, businesses must look closely at protecting their brand through trademark protection and likewise ensure their marks are not infringing on those of another business.

Intellectual Property – COPYRIGHTS

Similarly, copyrights protect literary, musical, artistic, and dramatic works such as novels, photographs, movies, songs, etc. Copyrights can also protect creative works outside of the entertainment industry, including articles, blog postings, course materials, advertising materials, designs, graphs, charts, etc.

Unlike a trademark which requires federal filing, a work is copyrighted as soon as it is created. However, benefits are gained by registering a work with the United States Copyright Office. Promptly filing the copyright notice allows the holder to file a copyright infringement lawsuit, provides prima facie evidence of the validity of the copyright, and also provides the holder with the ability to obtain certain damages and attorney’s fees upon prevailing in a copyright infringement lawsuit.

Conversely, while not all businesses produce copyrightable works, businesses must remain cognizant of utilizing the works of others without appropriate rights or licensing. The most common scenario for a business being sued for inadvertently infringing copyrights are entertainment/restaurant establishments showing professional sports games without an appropriate commercial license or playing music without an ASCAP license. However, businesses can also face infringement actions for using copyrighted images on their website, reproducing a chart, or other seemingly innocuous activities.

In short, creators benefit from copyright protection and should register the works they have created, and business (or anyone else) using copyrighted material should be aware of the licensing requirements prior to using such works in a commercial environment.

Intellectual Property – TRADE SECRETS

Trade secrets, confidential information, proprietary information, and the like, encompass a wide variety of information that a business intends to keep secret and which those outside of the business are not afforded access. Most famously, McDonalds’s Big Mac sauce and the recipe for Coca-Cola are such types of information. However, more mundane information that almost all businesses utilize may qualify as a trade secret or otherwise necessitate protection from general release to the public. This includes customer/client lists, vendor/supplier lists, processes, know-how, business plans, marketing plans, information on prospects, customer/vendor habits and preferences, financial/financing information, creations, inventions, intellectual property (even if unregistered), etc.

Trade secrets are protected at both the state and federal levels, and many states utilize the Uniform Trade Secrets Act as a basis for defining a trade secret and cause of action thereunder. While not all proprietary or confidential information constitutes a trade secret under statute, a substantial amount will. A trade secret is often defined as information with economic value that is not generally known to other persons or is easily ascertainable, and the owner of the information has taken reasonable efforts to maintain its secrecy.

Given the immense value of intellectual property, businesses must take appropriate efforts to safeguard their trade secrets, both ensuring internally that employees do not take such information with them to another employer or otherwise use the information for their own benefit, and externally, so that such information is not otherwise obtained by a competitor.

Conversely, in hiring an employee or engaging a contractor, a business must ensure that the potential employee/contractor is not disclosing protected trade secrets of a prior employer which could drag the business into a lawsuit for trade secret misappropriation.

As such, businesses should identify all of their trade secrets and employ appropriate electronic and physical safeguards to protect such information. Likewise, businesses should actively utilize confidentiality agreements with anyone privy to the business’s trade secrets to further protect against disclosure.

CONCLUSION

As intellectual property is a key asset to many businesses in the information economy, and is nevertheless important for protection of any business’s goodwill, it is essential to proactively protect intellectual property through means of trademark, copyright, or trade secrets protections, and to likewise remain cognizant of the intellectual property of others’ so as not to be subject to an infringement action.

Is It Time to Refresh or Expand Your Space?

Refresh or Expand Your SpaceYour business is growing and you like your current location, so you’ve decided to renew your lease and either refresh or expand your space. GREAT!

Ready to expand your space? Did you call the movers yet?

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That’s right. Movers. And contractors. And space planners. And IT specialists. And a host of other vendors that you haven’t even thought of yet. When you’re staying in the same location, the reality is that the To Do list can seem almost as overwhelming as if you were pulling up stakes and starting all over in a new venue. Because you ARE starting in a new venue. The address may be the same, but how you utilize the space to maximize productivity is a rare opportunity you need to take full advantage of. You have two options: refresh or expand. To capitalize on either one of these options, you need a detailed staging and logistical plan to minimize downtime and keep your employees as close to 100% productivity while you update or expand.

So where do you start? You hire a professional logistics management team to shoulder the responsibility of planning and executing the project. No matter how big or small your space, here’s what an experienced logistics management team brings to the table for each option…

OPTION #1: Refresh Your Space

Also called an office restacking, you need to look at this type of project as an employee retention tool. No doubt your business has markedly changed over the last 10 years, so your office environment needs to evolve to best support that shift in culture. Restacking changes and improves the look and feel of the work environment, and by redefining the space to include collaboration rooms/workspaces, you can change the corporate culture in the  link of an eye to catch up with the times. A refresh re-energizes your employees, and shows you value their presence. New paint, carpeting, furniture, lighting, bathrooms, and more will make employees happier when they are at work, and warmly welcome new clients into your space when they visit. It’s a win-win.

OPTION #2: Expand Your Space

Here the biggest opportunity is to redefine the space. Are you adding new employees? Consolidating employees
from another location? Expanding the space for client interaction? A space planner will help you understand how much new space you really need (square footage/head count), and how much you should allot to common areas, workstation areas, private office areas, client showrooms, product production space, etc. An experienced logistics management team knows exactly what questions to ask to make sure you have the most comprehensive staging and logistics plan possible, so no detail is overlooked and no opportunity is missed:

(1) Where are you going to temporarily move active files and personal contents during your office refresh or expansion?

(2) Does the furniture have to be removed (new carpet installation) or just lifted in place (carpet tile installation)?

(3) Should you upgrade the furniture, or re-use what you have?

(4) How can you maintain productivity when computers or data centers need to be disconnected, moved, and reconnected?

The bottom line is refreshing and/or expanding your office requires careful thought and planning to keep your business thriving. The right logistics management team will help you hit the ground running as you launch your business into its next growth stage!

About Argosy Management Group, LLC

Argosy Management Group (AMG) is a leader in office relocation and logistics project/move management. AMG services companies throughout the U.S. and worldwide. AMG delivers a wide range of comprehensive services:  move management and transition planning, space planning and furniture needs, office and industrial relocation and liquidation, storage solutions and asset management, furniture disassembly and installation, IT/ data center relocation, and rigging.

For more information, contact: Shawn O’Neil at 609-744-4112 or Paul Sipera at 609-760-8312, or visit
www.argosymg.com

The Dangers of Asbestos Inhalation

Let’s look at the dangers of asbestos inhalation. Even though most uses of asbestos have been banned, it can still be found in a variety of products, such as building materials. Employees can be exposed to this hazardous material in residential and nonresidential buildings, and during renovations and demolitions of properties. The inhalation of asbestos fibers can cause serious damage to the lungs and other organs that may not appear until years after exposure. Asbestos fibers associated with these health risks are too small to be seen with the naked eye, and smokers are at a higher risk for developing asbestos-related diseases if exposed.

The Occupational Safety and Health Administration (OSHA) has standards to protect employees from exposure to asbestos in the workplace, as well as permissible exposure limits and exposure monitoring. OSHA regulations also exist for controlled zones and regulated areas that are designed to protect employees where certain work with asbestos is performed.

Avoid Asbestos Inhalation

The following tips are safety reminders for those who work near or with asbestos-containing materials:

• Never enter a controlled zone that the company has designated as a regulated area where asbestos work is being performed.
• If you are not wearing appropriate respiratory protection, do not enter an asbestos regulated area.
• Do not eat, smoke, drink, chew gum or apply cosmetics in an asbestos regulated area.
• Read and obey all warning signs displayed in asbestos regulated areas.
• When working with asbestos, keep the material wet and vacuum the dust using a HEPA vacuum. Immediately collect and close all waste in bags designed to hold asbestos.

Protect Yourself from Asbestos Inhalation

• Always wear required protective clothing such as coveralls or similar full-body clothing, head coverings, gloves and foot coverings when working with asbestos. Face shields, goggles and other protective equipment are also necessary.
• Make sure you receive proper training and medical clearance if your work requires use of a respirator for asbestos protection. Use the correct type of respirator for the level of exposure. If you are present during the removal of asbestos, you must wear at least a half-face respirator with N-, R- or P-100 (HEPA) cartridges. OSHA also requires the use of a respirator in some cases when performing roofing and flooring work. Talk to your supervisor regarding whether you have sufficient protection.
• Follow all required hygiene and decontamination practices after working with asbestos.
• Leave your work clothes and shoes at work and wash them at work if they are not disposable. Family members of employees exposed to asbestos can get sick from asbestos taken home on an employee’s clothing or shoes. If required, shower at work after working with asbestos.

For More information on Protecting Yourself from Asbestos Inhalation

Brian Blaston, Partner
Hardenbergh Insurance Group

phone: 856.489.9100 x 139
fax: 856.673.5955

email: brianb@hig.net

When Your Tenant is a Franchisee

Commercial landlords often view franchisees in well-known franchise systems as attractive retail tenants. Leasing space to a franchisee, however, raises a number of unique issues and may require you, as a commercial landlord, to negotiate not only with the franchisee/tenant, but also the franchisor.

This article addresses the peculiar issues that may arise when your retail tenant operates a franchise. Site selection and continuity of operations are critical components for successful franchise systems. A franchisor, therefore, will often seek to maintain a level of control over the space occupied by its franchisee. In order to protect its interests in the “locational goodwill” that develops at a successful franchisee site, a franchisor will often insert itself into the landlord/tenant relationship. A franchisor does this in two common ways. First, the franchise agreement may require a franchisee to negotiate certain provisions into its lease. Second, a franchisor may seek to have a landlord execute a separate “lease rider”, which provides the franchisor with additional rights upon the franchisee’s default of its lease.

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FRANCHISE SPECIFIC LEASE PROVISIONS

When Your Tenant is a Franchisee

A standard franchise agreement will include a description of lease provisions that the franchisee is required to include in its lease in order for franchisor to approve its form. As a landlord, therefore, you should not be surprised to see a prospective franchisee tenant provide you with a list of franchise specific revisions to your proposed lease. Franchisor-mandated provisions for the lease commonly include:

1. A use clause limiting the permitted uses to the type of business permitted by the franchise agreement (i.e. the franchised concept only). The franchisor wants to know that the franchisee will not be selling items the franchisor has not specifically approved, nor assigning the lease, in bankruptcy or otherwise, to a party other than the franchisor or an approved franchisee.

2. A requirement that the lease term must be tied to the franchise agreement term. The franchisor wants to know that the franchisee will have a location to operate its franchised business during the term of the franchise agreement, and conversely it does not want its franchisee to have leased property without franchised rights to operate. Thus, the lease term and the franchise agreement term are to be co-terminous.

3. A clause confirming the franchisee’s right to use the franchisor’s marks and required signage package at the property, in order to maintain system uniformity. This provisions makes it clear that the landlord’s signage and other design restrictions will not preclude the franchisee from utilizing the franchisor’s mandated branding scheme.

4. A strict no subletting or assignment provision, except to the franchisor or its designee. This provision prevents an unauthorized sale of the franchisee’s business or the franchisee trying to avoid the franchise agreement’s non-compete provision.

5. A clause entitling the franchisor to take an assignment of the lease, at its option, upon franchisee’s default.

6. Language providing that the franchisor shall receive all notices of default, prior to eviction, and shall have right to cure. When a franchisor receives a copy of a notice of default sent to the tenant/franchisee, it can decide whether it will declare an event of default (a cross-default) under the franchise agreement – which is often an option for the franchisor.

7. A provision allowing the franchisor to enter the leased property upon termination of the franchise agreement in order to de-image the location so as to properly distinguish it from the franchise system. Upon termination of the franchise agreement, the franchisee is required to take down its signs and otherwise de-image from the franchised concept. If it fails to do so, franchisor needs to be able to cause the required de-imaging, without being guilty of trespass.

Despite the importance of the provisions to the franchisor, a franchisee will derive little benefit from these provisions, and in fact runs the risk of angering its new landlord (you) with the additional burden of negotiating these points. Therefore, the franchisee does not have a strong desire to push hard for these points. In practice, a franchisee will often negotiate its lease with you, present it to its franchisor for approval, and only then learn (be reminded) of the importance of the franchisorrequired provisions. Going back to the landlord at that point is an uphill battle for the franchisee. Like the franchisee, the landlord will often be disinterested in the franchisor’s requests. You will not want to further negotiate your “standard” form and specifically, will not want the administrative burden of sending notices and lease amendments to both the franchisee and the franchisor. Nor will you want to add time to cure periods. As a landlord, you need to weigh these burdens against the value of having a recognized franchise system and brand, likely with a strong track record marketing its locations.

LEASE RIDERS

Franchisors can live without many of the provisions listed above, but the collateral assignment (also known as a lease option agreement) is the one that really counts. Ideally, for a franchisor, the franchisee’s lease will be collaterally assigned to the franchisor. The collateral assignment acts as a promise by the franchisee to assign the lease to the franchisor in the event of default. This document, often known as a “Lease Rider” is a tri-party agreement; signed by each the franchisee, franchisor and landlord. Having the landlord and franchisor as signatories to the Lease Rider will confirm that the franchisor has a clear right to enforce the provisions against you, regardless of franchisee’s position, including as a debtor under a bankruptcy proceeding.

There are five main components of a well-drafted collateral assignment of lease for a franchisee:

• A clear expression that the agreement is for collateral purposes only and that the franchisor will not incur any liability, unless and until it takes possession and assumes the tenant/franchisee’s obligations.

• Upon a default under the lease (prior to eviction) or the franchise agreement, the franchisor has the option to take possession or assign the lease to another franchisee.

• The franchisor will receive copies of notices of default.

• The lease will not be modified without franchisor’s consent.

Upon expiration or termination of the lease, and in the event franchisor elects not to assume the lease, franchisor is granted the right to cause a de-imaging of the premises, without being guilty of trespass. Again, the only party who will push hard for these rights will be the franchisor. Other than for the purpose of “getting the deal done”, the franchisee will have little incentive to cause you, as landlord, to comply. The franchisee will usually want to save its negotiation chips for points directly in its favor. Similarly, the landlord will typically want flexibility with the space if the tenant is having problems. Accordingly, many landlords are unwilling to grant collateral assignments of leases. As in most cases, the respective leverage of the parties drives the issue.

Landlords counter these franchisor-required provisions by requiring that the franchisor guaranty the lease. A landlord will insist upon an agreement by the franchisor to cure all arrearages in full, prior to assumption. In response, a franchisor will argue that the arrearages for which it is responsible should be capped based on a time period (e.g., 45 days moving backwards from the date franchisor receives notice of default). Thus, the landlord, who may view additional notice parties as an administrative headache, will be motivated to send default notices to the franchisor before its tenant becomes too far behind in rent.

Landlords generally want to limit the transferability of the lease. For example, a landlord will permit assignment, without its consent, only to the franchisor, and not to another franchisee or other designee. No landlord wants a revolving door of failed franchisees. Often, a compromise is a franchisor guaranty for a limited period of time following an assignment.

CONCLUSION

Successful franchisors work hard to maintain a level of control over their valuable locations. Although it may seem like the franchisor is merely trying to exert its influence over the landlord/tenant relationship during lease negotiations, the franchisor has a vested interest in securing these protections. You, as landlord, will weigh the value of having a tenant offering recognized and popular goods and services in its center, together with a franchisor standing behind its operator, at one level or another, against the burden of these additional negotiations. The next time you are involved in a lease negotiation for a franchised unit, hopefully you will have a deeper appreciation for the franchisor’s motivation and be able to more effectively negotiate these franchise-specific issues.

Installment Sale of Commercial Real Estate Properties

Installment Sale of Commercial Real EstateLet’s explore using an installment sale to evenly distribute tax liabilities stemming from a commercial real estate transaction. Do you own a property that has appreciated considerably and that you want to sell? Are you concerned about incurring a large capital gains tax liability or worse – ordinary income recapture? One option is to structure the sale as an installment sale. Here the buyer pays the cost of the property plus interest in regular installments, perhaps for 5 years, enabling the seller to reflect the gain for tax purposes over the entire payment period. Alas, the installment sales method can’t be used for the following:

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• Sale of inventory. The regular sale of inventory of personal property doesn’t qualify as an installment sale even if you receive a payment after the year of sale.

• Dealer sales. Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan aren’t installment sales. This rule also applies to real property held for sale to customers in the ordinary course of a trade or business.

• Stock or securities. You can’t use the installment method to report gain from the sale of stock or securities traded on an established securities market. You must report the entire gain on the sale in the year in which the trade date falls.

Items to note about installment sale transactions:

• Installment obligation. The buyer’s obligation to make future payments to you can be in the form of a deed
of trust, note, land contract, mortgage, or other evidence of the buyer’s debt to you.

• If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you
elect out of using the installment method.

• Sale at a loss. If your sale results in a loss, you can’t use the installment method. If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale.

• Unstated interest. If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have to figure unstated interest, even if you have a loss.

Sellers who decide on this strategy are cautioned, however, that an installment sale carries more risk than an outright sale of the property. Here are some areas of concern this CPA believes the seller must review in depth with his/her seasoned attorney (and if you need one you can call us at Abo and Company or my buds at WCRE): Carefully assess the creditworthiness of the buyer and possibly obtain personal guarantees if the purchaser is a business; Evaluate the future income producing capability of the property to make sure it provides sufficient
cashflow to enable the buyer to make the payments; Use an interest rate competitive with current market rates so as not to squash the deal; and Obtain a significant enough down payment, perhaps at least 20%, to have a cushion if buyer default occurs, and to cover the expenses if foreclosure becomes necessary. Business property transactions are often complex, and the services of knowledgeable professionals can be vital in developing strategies that make it possible to bring a contemplated transaction to a successful conclusion.

FOR MORE INFORMATION:

Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, LLC and its affiliate, Abo Cipolla Financial Forensics, LLC, Certified Public Accountants – Litigation and Forensic Accountants. With offices in Mount Laurel, NJ and Morrisville, PA, tips like the above can also be accessed by going to the firm’s website at www.aboandcompany.com.