Monthly Archives: July 2015
By Scott Bannett, President, CEO – The Bannett Group, LTD
Having grown up in this business and discussed projects with literally thousands of clients and potential clients, I can confidently say there are few things in life that elicit the breadth of emotions that construction projects generate for their owners. Especially for small and mid-sized business owners who are not in the business of real estate development. The process can be an emotional roller-coaster, the intensity of which can be more or less depending on the construction method used to bring a project to fruition. Design-Bid-Build or Design-Build? The method that is right for you may depend on your situation. Most people define the design-build method as having “single-source responsibility”. But what does that mean, exactly? Non-developers often find it helpful to consider the impact of design-build’s single-source responsibility in three ways…
Both methods begin with the design process and it can be a very emotional journey. Owners experience the fun of joining in a creative process, the excitement of taking the next big step in the company’s future, the disappointment in realizing that some things are unaffordable, and the stress of taking on loans.
The process starts innocuously. The needs of the company, staff and customers are assessed along with the needs of the building itself. Designers ask questions like:
“How can we incorporate your company brand?”
“What should our entrance and lobby look like?”
“How can we ‘wow’ our visitors?”
“What special things can we do for employees?”
“What do you want the executive offices to look like?”
Eyes grow wide. Ideas are offered. Interior colors and finishes are selected. Floor plans, elevations and renderings are created. And before long the building, and in many ways the physical manifestation of the owner’s vision for his/her company, is suddenly on paper in front of their eyes. It’s easy to see how both the client and architect are not only excited to build it, but emotionally invested. The owner, especially, is eager to make it a reality.
In the design-bid-build method, the owner engages an architect well before they reach out to any builders. The risk here is that without the simultaneous engagement of the project management and construction staff, owners and designers often get caught up in the creative process and lose sight of their budgetary limitations. When they do finally present the plans to general contractors for bid, they find the dreams they spent so much time planning on paper are out of reach. Simple value engineering can sometimes help bring the project back into an acceptable budget. But not always. Either way, owners find themselves faced with design delays which translate to more time and expense.
In contrast, the design-build process places all stakeholders — architectural, project management and construction— under one roof and seeks to engage them as early on as possible. The goal is to have all parties fully understand and embrace the visual, functional and budgetary objectives. With all stakeholders engaged early on, they are better able to to meet these objectives and avoid designing something that is not affordable. Often, the team is able to value-engineer a look and feel that meets the desired aesthetic at a fraction of the cost. As a result, there are fewer revisions and change orders. The emotional peaks and valleys are less severe. And momentum is constantly forward.
Control and Responsibility
Now let’s consider how the amount of control and responsibility differs for each method as the project transitions from design to construction.
In traditional design-bid-build, the risk of adequacy of design is on the owner. The specifications and drawings provided by the owner to the contractor are “design specifications.” Under construction law, the owner warrants their adequacy, meaning the contractor is responsible only for building to the design and does not guarantee that any particular outcome will be achieved.
In design-build, on the other hand, the design-build entity is responsible for achieving the objectives in the statement of work. Design and construction are performed by a single team, under one contract. This reduces the owner’s risk from diffused responsibility and finger-pointing.
This is really where the rubber meets the road. Non-developers have their own businesses to run. The fact that they are expanding means they have momentum and the last thing they need is to have a construction process slow them down. They just want it done — quickly, professionally, on budget and (if at all possible) yesterday.
The traditional design-bid-build method is inherently less efficient. Any number of things can cause delays. The lack of a dedicated project manager. Poor cash-flow by the GC. Sub-contractors mysteriously vanishing in the middle of a project. Owners acting as their own project manager who have experienced these challenges find themselves wondering if this project will consume them for the remainder of their natural lives.
In contrast, the Design-Build process by its very nature is better suited to keeping the project moving forward on a reasonable budget. When executed correctly, it ensures that the enthusiasm for what is being designed does not inadvertently push the project out of budget. The reasoning is simple… the design, estimating, and project management teams are sitting under one roof (in our case, 10 feet from one another). That proximity fosters stronger, faster communication and ensures that the client’s needs, wants and budget are all being carefully balanced and considered every step along the way. So it’s no wonder why these projects progress more efficiently.
Quantitatively, the Construction Industry Institute (CII)/Penn State Research compared 351 projects of various types and industries that ranged from 5K to 2.5M square feet. The data gathered showed that design-build projects were:
• 6% less costly
• 12% faster to build
• 33% faster to complete (end-to-end)
• Higher quality in all measured categories
So if Design-Build is so great, so efficient, why isn’t every project design-build? Well, as I said at the beginning, not all projects lend themselves to design build. Franchises that are all exact copies of one another for example or developers that have on-staff architects are good examples. There are plenty of other scenarios. In fact, our company produces just as much work operating as a GC as we do a design-builder. But we find that having all of the necessary resources under one roof provides value to our clients. And, more often than not, they are leveraged in some way to help us avoid potential pitfalls and move the project forward.
On the GC side of our business we spend a great deal of time helping our clients back out of situations where the construction estimate is far beyond what their architect forecasted or their budget affords. In some cases, we can find savings for owners through value engineering strategies like selecting less expensive finishes that still meet the look and feel that the design team had envisioned. Another strategy might be recommending small changes to the floor plan that might help reduce the costs of more expensive trades. Such cost-conscious modifications are suggestions that are made on a case-by-case basis depending on the purpose of the workspace. The downside is that owners end up selecting all of the finishes a second time (as if it wasn’t stressful enough the first). In the end, hopefully, the project falls in line with their original budget. Whatever the case, it’s easy to see how days are sacrificed here and there during this back and forth. And time, for both ourselves and the owners, means money.
I often look back at these slower projects and wonder how much time we would have gained if the client chose the design-build method from the outset. What do you think?
For more information contact:
The Bannett Group, LTD
856.751.8800 (main office)
Joining many consumer goods retailers who are downsizing their brick and mortar locations, some of the nation’s biggest banks are now touting their bank branch closure plans. The primary driver behind both decisions is the same: more banking activity is occurring online and less in the physical world.
But banks have an additional driver: regulators are issuing stricter capital regulations are driving up accounting and personnel expenses in order to manage compliance.
Given the higher cost environment, banks – which make up a significant portion of Philadelphia commercial properties – no longer are quietly downsizing their branch networks. Instead, bank executives are making plans for further consolidation loud and clear, pointing out steps how they plan to rectify what many top bankers refer to as “core banking inefficiencies.”
Over the last five years, banks that are a component of retail space in South Jersey have trimmed their branch networks by 13,406 bank branches, while opening just 8,011 new ones, according to FDIC statistics. Their footprint in now 4.6% smaller than five years ago, with slightly more than 95,000 U.S. offices opened today.
In discussions with investors, banks are now talking about cutting another 4% to 5% of their branch networks this year alone.
At its peak, Bank of America had as many as 6,100 bank branches, including a number of them in Philadelphia retail space. That has fallen to about 5,000 branches today as competitive conditions and customer behaviors have changed.
Bank of America said it has about 31 million banking customers, and of those, about 17.6 million of them use mobile banking. In addition, the bank said about 60% of its transactions are now all digital, made through phones, online or ATMs at branches, according to Brian T. Moynihan, chairman and CEO of Bank of America.
Jamie Dimon, chairman and CEO of JPMorgan Chase, underscored the accelerating move to online banking, saying the recipe for failure is for a bank to never change locations, never change size, or never change the way they operate.
JPMorgan closed about 100 branches in the past year – with some of them in South Jersey retail space – and now operates about 5,600 in its network, with further branch closings planned.
In addition to responding to consumer trends, bankers also noted the added costs associated with complying with new regulations.
After several rounds of branch closures, Donna Townsell, vice president of corporate efficiencies at Home Bancshares, said, “The savings and efficiencies gained from these closures will help to tee us up for the upcoming expenses that we expect to incur as we begin the planning for Dodd-Frank stress testing requirements.”
The long lead time before branches both in and out of retail space in Philadelphia close is also important in the rightsizing process, other bankers noted. Banks now find themselves in a transitional phase of serving two distinct customer basis: the old-school, in-branch customers, and all-digital customers.
For more information about Philadelphia retail space or any South Jersey commercial properties, please call 215-799-6900 to speak with Jason Wolf (email@example.com) or Leor Hemo (firstname.lastname@example.org) at Wolf Commercial Real Estate, a premier Philadelphia commercial real estate broker that also specializes in retail space in South Jersey.
Wolf Commercial Real Estate is a Philadelphia commercial real estate brokerage firm that additionally provides a full range of South Jersey commercial real estate listings and services, marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties and South Jersey commercial properties for buyers, tenants, investors and sellers.
Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with expertise as well in South Jersey commercial real estate listings and services, provides unparalleled expertise in matching companies and individuals seeking new Philadelphia retail space or the South Jersey commercial properties that best meets their needs. As experts in Philadelphia commercial real estate listings and services, the team at our South Jersey commercial real estate brokerage firm provides ongoing detailed information about Philadelphia and South Jersey commercial properties to our clients and prospects to help them achieve their real estate goals. If you are looking for retail space Philadelphia for sale or lease, Wolf Commercial Real Estate is the South Jersey and Philadelphia commercial real estate broker you need — a strategic partner who is fully invested in your long-term growth and success.
Rutgers is Leasing 22,159 Square Feet in Premier Cherry Hill Location
July 23, 2015 – Marlton, NJ – Wolf Commercial Real Estate (WCRE) is pleased to announce that it has completed another significant lease transaction at the Colwick Business Center, a Cherry Hill complex featuring three single-story office buildings owned and managed by an affiliate entity of Endurance Real Estate Group, LLC. WCRE has leased 22,159 square feet of ofﬁce space to Rutgers University Behavioral Health Care. This new major tenant will join The Philadelphia Inquirer, QMA, Inc., MorphoTrust USA, Inc., South Jersey Behavioral Health Resources, and others.
WCRE’s team of Jason Wolf and Leor Hemo exclusively represented Endurance in the marketing and leasing of the Colwick properties, working collaboratively with ownership and the brokerage community. Markeim Chalmers represented the tenant. WCRE has now leased 45,357 square feet of space to new tenants at this well located corporate office park.
Endurance acquired Colwick Business Center in the summer of 2013 and has made a major investment in capital improvements, recently completing exterior upgrades and securing NJ Transit bus service through the office park. Among many desirable attributes, this premier office complex features highly efficient suite layouts, private 24/7 access to each tenant suite, no loss factor, and ample parking. Ownership has committed to making substantial base building improvements and restored Colwick to its Class “A” prestige.
“In the competitive Camden County leasing environment, we are thrilled that Rutgers chose our available office space. WCRE has been an ideal partner, delivering a high level of deal momentum and pending lease activity,” said Benjamin Cohen, president of Endurance Real Estate Group.
Colwick Business Center is located just west of the Cherry Hill Mall on a stretch of Haddonfield Road that has recently undergone a substantial redevelopment renaissance. The area features affluent residential communities, retail centers, hotels, and other amenities attractive to office tenants. The mall has undergone a complete overhaul in the last few years with the opening of Nordstrom and many other high end retail stores and restaurants. The retail corridor in the vicinity continue to expand, and the Garden State Towne Center, home to Wegman’s, Best Buy, Home Depot, Dick’s Sporting Goods, and other high-end retailers, is conveniently located a short distance away.
Available remaining suites at Colwick Business Center range from 2,850 to 61,694 square feet (divisible), and include one of a very few premier vacancies over 60,000 SF in the area. A marketing brochure and tenant information package is available upon request.
WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, medical, retail, 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, 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 @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.cherryhillofficespace.com, www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyland.com, and www.southjerseyretailspace.com.
About Endurance Real Estate Group
Endurance Real Estate Group is a diversified regional real estate company that focuses upon the creation, development and management of quality real estate projects in the Mid-Atlantic States for both our tenants and investors.
Endurance’s mission is to provide its investors with the maximum, risk-adjusted returns available and our tenants with the best customer service and property management in the industry.
Endurance Real Estate Group, LLC was co-founded by Benjamin Cohen and William White in 2002. The company is located in Bala Cynwyd, Pennsylvania (near Philadelphia) and concentrates its investment and development activities in Philadelphia and the Mid-Atlantic area.
To learn more about Endurance Real Estate Group, LLC, please visit www.endurance-re.com
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Supported by record levels of absorption and strong leasing, U.S. commercial real estate prices, which locally includes Philadelphia commercial real estate prices, rebounded in May, with continued strong recovery in both higher-end U.S commercial property and accelerating investor interest in smaller, lower-priced assets, according to the latest CoStar Commercial Repeat Sale Indices.
The value-weighted U.S. Composite Index – which includes Philadelphia office space, Philadelphia retail space and Philadelphia industrial space – along with the equal-weighted U.S. Composite Index gained 1.4% and 1.7%, respectively, in May, according to the data based on 1,258 repeat sales in May and more than 140,000 repeat sales since 1996.
The value-weighted index of both U.S. and Philadelphia commercial real estate listings advanced 12.2% in the trailing 12 months through May and now stands 12% above its prior peak, reflecting the strong recovery of larger, higher-value properties. The equal-weighted index began its recovery later in the cycle but has increased at a faster rate of 14.1% in the trailing 12 months through May 2015 as smaller properties, such as Philadelphia commercial properties, continued to gain favor with investors.
The momentum shift to lower-quality and smaller tracts of U.S. commercial property – which encompasses Philadelphia office space, Philadelphia retail space and Philadelphia industrial space – also is mirrored by the recent growth of the general commercial segment within CCRSI’s equal-weighted index. The General Commercial Index rose by the fastest rate among the four major CRE price indices, 14.6%, for the 12 months through May, while the Investment Grade Index increased 11.9%.
Robust leasing activity in both nationwide and Philadelphia commercial real estate listings is driving price appreciation across more markets and property types. For the 12 months ended at mid-year 2015, net absorption in office, retail, and industrial properties – as well as both U.S. and Philadelphia commercial properties – totaled 575.5 million square feet — a 39.3% increase over the same period in 2014 and the highest annual total since 2008.
Net absorption in the general U.S. commercial property segment rose 37% over the 12-month period through second-quarter 2015. Meanwhile, net absorption in the investment grade segment remained just as strong, increasing by nearly 40% over the 12 months as commercial tenants continued their flight to higher quality space.
For more information about Philadelphia office space, Philadelphia Industrial Space, Philadelphia retail space or other Philadelphia commercial or investment properties, please call 215-799-6900 to speak with Jason Wolf (email@example.com) or Leor Hemo(firstname.lastname@example.org) or Lee Fein (email@example.com) at Wolf Commercial Real Estate, a premier Philadelphia commercial real estate broker that specializes in Philadelphia office space.
Wolf Commercial Real Estate is a Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.
Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with extensive expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philadelphia office space or new Philadelphia retail space with the Philadelphia commercial properties that best meets their needs. As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals. If you are looking for Philadelphia office space or Philadelphia retail space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need — a strategic partner who is fully invested in your long-term growth and success.
By Michael A. Makofsky, President, CEO Tech Reps, Inc. July 17, 2015
Adding 3-5% to a commercial building’s bottom line is easier than ever ! Over the last several years, technological advances have enabled commercial office, industrial and mixed use buildings to take advantage of many easy and affordable approaches to save energy, conserve precious resources and increase your sustainable footprint. And, the reality is that paybacks/ROI can be as low as 2-3 years in many cases. Utility companies are offering incentive & rebates encouraging such achievable solutions versus building multi-million dollar power plants. There are many ways to accomplish this and below are several very effective & popular approaches you may want to consider.
Advanced Window Film
Window film technology has been helping to cool, beautify and protect buildings for generations, it is popular for protecting interior furnishings and floor and wall coverings from fading as well as reduce heat load in the summer. Now revolutionary advancements in window film technologies will not only prevent heat gain and sun damage, it contains properties that serve as an effective thermal insulator.
Commercial building operators have been using various varieties of window tinting to prevent suns damage and heat but are largely unaware of these additional benefits. This process is also not as dark and reflective of previous generations, and is capable of transforming the appearance of a building with a more uniform appearance.
There are many brands and varieties of window solar barriers on the marketplace today. Each boast of their ability to block or render harmless various solar wavelengths that have proven harmful and increase internal temperatures. The most common solar band that window manufacturers seek to disrupt is infrared. This harmful bandwidth is most effectively reduced with a coating called Low-E. The Low-E treatment has been a staple of the industry for over a decade. Low-E coatings have improved in effectiveness over the years and the problem of visible iridescence from first generation applications has been eliminated. A quality Low-E treatment will effectively slow the fading and sun bleaching of interior assets. Buildings without infra-red protection can be as much as 20 to 25 degrees warmer that one protected with traditional treatments.
Savings of 5-15% in total building electricity costs, kilowatt-hour consumption, and kilowatt peak demand can often be achieved, with the savings amount dependent upon several factors, such as: glass type, window to wall ratio, presence of overhangs, climate, performance level of film used, and the efficiency of the building’s cooling equipment.
Energy Conservation is on the minds of building owners and operators for all of the right reasons. Of all of the efficiency options for commercial building owners, it is lighting that has received the most incentive request by far. Lighting can be very personal, proper light quality and quantity is important for productivity and security, yet it is often only responsible for 20% of total facility power. Lighting savings however seemed to be favored by all, savings can be calculated precisely, and 2 to 3 year ROI’s bolstered by incentives, can be assured. For the last several years corporate planners have had a difficult decision regarding lighting conservation and exactly what to do with the thousands of inefficient tube light bulbs in their ceilings. Most realize that incentives and savings opportunities exist but that doesn’t make the decision any easier. The first instinct is an upgrade to a more efficient florescent or a higher quality, more expensive LED bulb. Until now, due to the dramatically lower price point of LED lamps, most building owners are converting their T12 fluorescent tubes at 40 – 55 watt to LED. This decision is supported by issues such as the longer lifespan of LED, decreased fixture replacement, light quality and amount as well as lighting automation and dimmer controls. And now, LED lamps use as much as 75% less energy than its competition. For example, a 400W Metal Halide (HID) lamp can be replaced with a 100w LED – and offer longer life with increased savings over time.
Fortunately, manufacturing advancements have led to a pricing revolution in LED making many applications affordable. These advancements have resulted in the recent release of new LED High Bay and Tube designs that are both affordable and effective. LED retrofit products have a special advantage in that all of the chips and their Lumens are directed downward where needed. LED products offer a long list of advantages to commercial properties, and most retrofit LED products will show an ROI under 2.5 years. And, LED lighting is frequently eligible for incentives by power companies – just be sure DLC (Design Lights Consortium) APPROVED LED lamps are used. They come in different light temperatures or hues (known as Kelvin) and amount of light output (known as Lumens) for a fully customizable effect. These LED lamps offer dimmable options and work well with all automation controls to maximize savings and deliver desired results. The extraordinary news is that LED technology is making florescent bulbs a thing of the past. Studies also have shown that LED lighting provides less eye strain and increases productivity, as well. Fortunately, LED tubes have become affordable enough to change forever the technology used for this badly needed class of bulb.
Aside from the watt to watt energy savings LED products allow for additional savings that should not be ignored. In fact LED tube lighting produces so much light that often it is not necessary to have a ‘one-for-one’ replacement. It is called de-lamping and often 30 to 40% less product is used for significant savings. LED tubes will come in different output in wattage for maximum flexibility. LED also produces much less heat which will decrease air conditioning energy costs. If a business is replacing 24 hour indoor and/or outdoor lighting or using the strategies listed above, the ROI will likely be less than 24 months – even before or without incentives.
Refrigerant Oil Enhancement has proven to be a highly effective conservation strategy; it’s affordable and increases efficiency in any air conditioning or refrigeration unit with a refrigerant line. This conservation product is a specifically blended refrigerant oil supplement that has a fast ROI and multiple beneficial attributes when added to the refrigerant line of existing HVAC and refrigeration compressors along with the existing refrigerant oil. When applied this technology has proven to reduce amps, noise and increase cold air output.
Daytime energy has become the bulls-eye on the target to reduce pollutants from aging coal power plants. These plants are still relied on heavily during daytime hours, particularly warm days. It is said that HVAC and refrigeration is responsible for up to 50% of this nation’s energy usage. It is this reason; that inspired the installation of millions of new electric company “smart meters” installed on buildings to allow for the accurate timed metering of energy usage as well as other informational services. Business can expect consistently higher daytime rates as this process evolves across the country. Simply ask a building owner from California, where daytime rates in certain areas were reported to be 4 to 5 times more than those at night. For this reason enormous focus is on air cooling and all available efficiencies. The time to act is now if you will be ready for what could be another hot summer.
This efficiency technology is called Refrigerant Oil Enhancement; it requires no new equipment and will normally show a payback within a year. This product is a specifically blended refrigerant oil supplement that has multiple beneficial attributes when added to the refrigerant line along with the existing manufacturer installed oil.
Research presented by ASHRAE (America Society for Heating Refrigeration and Air Conditioning Engineers) in 1994, showed conclusively that cooling system performance is degraded by as much as 30% due build-up of lubricants on internal surfaces throughout the heat exchange system. This build-up causes heat transfer degradation, increases pressure drops, elevates boiling points and reduces the latent heat capacity of the equipment. The end results of these problems are a substantial loss of cooling capacity, loss of lubricity, significantly increase operating cost and shorten equipment life. It is a process called oil fouling, and it is a natural result of standard, inexpensive manufacturer installed lubricant.
ASHRAE states that insulating oil build up will reduce system efficiency by 7% in the first year, 5% in the second, and 2% or more in subsequent years. Normally by the 24th month of operation, system degradation is evident in the reduction of cooling capacity and increase noise and running amps due to the loss of lubricity. This inferior oil oxidizes and insulates the inner surfaces of the heat exchanger thereby impeding heat transfer.
Fortunately an oil lubricant additive exists that serves as an antioxidant and is designed to improve the functionality of the existing oil. As this oil vaporizes and travels throughout the system along with the refrigerant it lubricates and protects all system moving parts and seals. It has a Polarizing Compound which enables the formula to bond to metal on a molecular level. This property enables it to displace the insulating build-up of compressor lubricating oil inside the refrigerant circuit and bond directly to metal surface to form a coat with single molecule thin layer. Furthermore, the supplemental oil additive molecule does not allow oil build-up to re-form. Consequently, heat transfer is no longer impeded in the heat exchanger coils since the displaced compressor lubricating oil must return back to the reservoir. This will improve the Delta-T and satisfy the thermostat faster. A superior Oil Additive will also increase the lubricity of compressor installed oil and reduce wearing on compressor moving parts. This oil supplement was proven to be over 1500 times more effective than standard refrigerant oils and will protect seals, lubricate moving parts and reduce oxidation. This will reduce maintenance and extend system life. This patented supplement will be specifically blended to match the refrigerant type and will work in all reciprocating, rotary, scroll, screw, centrifugal compressors, and walk in refrigeration.
So… exactly how DOES solar work… and is it right for my building?
1. Solar panels capture sunlight and convert it to DC (Direct Current) electricity.
2. Your solar system converts that energy to an AC (Alternating Current) that powers your business.
3. Energy you generate & don’t use goes back to the utility grid and creates an electricity “credit” for your business.
Solar panels convert sunlight into clean, efficient energy that can power your building year round. When the sun shines, the electricity travels from the panels through wires into a piece of equipment called an inverter. An inverter converts the type of electricity produced by the panels (called Direct Current, or DC) into the type of power your business uses (called Alternating Current, or AC). Once the electricity goes through the inverter, it travels into your building’s electrical panel. At night, when your panels are not generating electricity, you continue to get electricity from the local utility. However, during the day, your solar panels may produce more power than you consume, feeding power into the utility grid, supplying clean electricity to your community and spinning your meter backward.
Many commercial building owners are looking for alternative energy solutions to expand sustainability initiatives while making a solid financial investment. Solar developers work with them from the initial project feasibility stage through financing and construction to state of the art solar facility. Significant achievements are being realized. For example: a recently published case study showed a commercial building using a 4,000-panel installation offsetting approximately 50% of a 300,000 sq. ft. building’s annual usage.
The vast majority, nearly 90%, of solar panels sold today are crystalline silicon panels. To make these panels, raw silicon (sand) is melted at very high temperatures and impurities in the silicon are removed. In their place, new specific impurities (called dopants) that allow the movement of electrons within the silicon are introduced. The special semiconductor properties of silicon, combined with these specific impurities, allow electricity to be generated when light hits the silicon. The melted silicon is cooled and forms crystals as it solidifies into an ingot of pure silicon. The ingot is then sliced into thin wafers which will sit out in the sun and generate electricity. The thin wafers are soldered together to a metal backing, covered with incredibly durable glass that resists hail strikes, and mounted in the roof of a building.
Over the past 4-5 years, with dramatic technological advances in Photovoltaic panels, pricing has dropped significantly while energy efficiency, reliability and longevity have increased markedly. What does that mean for a commercial property? Previous ROI’s of 7-10 years are now in the 3-5 year range making Solar a more attractive & renewable power option.
Other Energy Savings/Efficiency Resources:
CARBON WAR ROOM – REAL ESTATE/SUSTAINABILITY RELEVANCE CASE STUDY
Carbon War Room recently released a study that shows the clear connection between the sustainability of buildings, real estate investment returns and stock market performance. Investments in energy efficiency retrofits increase cash flow at the building level but also generate gains to building owners from higher levels of market performance due to increased sustainability of their building portfolio. Building owners should strongly consider utilizing third-party financing solutions for facility improvements as a way to both preserve their existing capital reserves and to implement value-producing energy retrofits.
This study on real estate investment trusts (REITs) by the University of Cambridge on the association between sustainability indicators and key financial indicators is additional evidence that investing in sustainability makes good business sense. REITs with higher GRESB scores have higher returns on equity, higher returns on assets, and stronger risk-adjusted stock performance. This outperformance is largely driven by performance in the Implementation & Measurement dimensions. This study complements the numerous other studies that reach similar conclusions, listed for convenience below. The message has never been clearer: in real estate, smart business managers are investing in sustainability.
Direct- Install – Welcome to South Jersey Gas
Direct Install . The Direct Install program assists small to medium sized facilities looking to upgrade to high efficiency equipment. The program pays up to 70%.
Direct Install | NJ OCE Web Site – NJ Clean Energy
Increasing Commercial Real Estate Value
FOR MORE INFORMATION:
Michael A. Makofsky, President, CEO
Tech Reps, Inc.
383 Kings Highway North
Suite 203 Cherry Hill, NJ 08034
By Mark D. Shapiro, Hyland Levin LLP APRIL 18, 2014
What do these terms mean and how do they work in practice? We often hear the terms net lease and triple net lease, which mean different things to different people. Typically, a net lease is where the tenant pays some of the operating costs of the property, and a triple net lease is where the tenant pays all of the operating costs of the property or its proportionate share of those costs. A net lease is designed to place risk of ownership, including the risk of increased operating costs, on the tenant. Operating costs include taxes, insurance and maintenance. Careful consideration should be given to defining operating costs in the lease. There are usually a laundry list of including and excluded categories of costs. Under a net lease, the tenant pays a base rent amount, plus the stated operating expenses incurred by the
In contrast, a gross lease is where the rent payable by the tenant is inclusive of all expenses and services provided by the landlord. This form of lease places the risk of increased operating expenses on the landlord. Tenants under gross leases are not incentivized to assist in controlling operating expenses, like electricity costs.
There are all sorts of variations on net leases and gross leases. Some are called modified gross leases or modified net leases. These modified forms of leases include either a designated base year, or an expense stop concept. In multi-tenanted properties, a landlord may designate a base year, which is typically the year prior to the first year of the lease term. The tenant will be required to pay its proportionate share of all operating expenses, but only to the extent that the annual operating expenses for the subject lease year exceed the annual operating expenses of the base year. The portion of the operating costs of the base year that are passed-through to the tenant are sometimes referred to as recaptured expenses. A careful tenant will confirm that the operating base year expenses represented by the landlord are in
fact the customary and standard operating expenses for the building. Another variation is a “full service” lease, which usually covers expenses, including utilities and janitorial costs, with a base year concept.
A less common modification to a net lease is an expense stop where the tenant is responsible for its proportionate share of the operating expenses, but only to the extent that the operating expenses for the subject lease year exceed the stated expense stop amounts. The expense stop method is useful where the leased premises is located in a new building, without prior operating cost history. For example, an expense stop lease might state that the rent is $20/square foot with all expenses to be absorbed by the landlord up to $7/square foot. Tenant, under that scenario, would be responsible for its proportionate share of all operating expenses above the expense stop of $7/square foot.
The key for operating expenses in leases is to carefully review the specific language of the lease and to not assume the terms based on a letter of intent or offer sheet that simply reads “triple net” lease.
Mark D. Shapiro
Hyland Levin LLP
– Real Estate Leasing
– Real Estate Development and Finance
– Real Property Taxation
By Brian Blaston, Hardenbergh Insurance Group MAY 9, 2014
Businesses regularly assume risk. This can be from a new venture, a new investment, or more often by signing a contract. At the most fundamental level any time risk is assumed it is important that it is properly managed.
A very common contract where a business assumes risk is though a lease. Some of the liabilities that arise from this risk may be transferred to an insurance company; however there are many liabilities assumed that are much broader than those covered in a typical insurance policy.
Lease agreements and Insurance policies are two very different contracts with two very different purposes. Simply put, a lease is an agreement between two parties where an owner of property gives permission to another person to occupy or use premises for a period of time. An insurance policy is an agreement between two parties where an insurer agrees to pay on behalf of an insured when they are legally required to do so.
Although both are legal contracts that define two parties’ expectations, they generally do not clearly communicate with one another. This lack of harmonization leads to the potential for unexpected out of pocket expenses and poor risk management, two things no business wishes to endure.
Some leases require the tenant to accept responsibility for any damage that occurs to their space and potentially to that of the building. Rarely will a standard insurance policy going to provide terms that are as broad as a lease. As an example, a standard general liability insurance policy will provide coverage for fire caused by the tenant’s negligence, and for the policy to respond the insured must be held legally liable under common law. The standard general liability policy will not provide coverage for things like sprinkler damage to the building, vandalism to the building or many other types of damage….even if your lease agreement holds you responsible for that damage!
Fortunately there are ways to address many of the risks and liabilities that are created because of a lease agreement. However in order to do so, the best practice is to thoroughly review your lease with an attorney and involve your insurance professional. The insurance and indemnification sections may place a broad spectrum of responsibility upon you as the tenant. A combined strategy of insurance coverage and risk management can properly protect your business from many types of risk.
For more information, contact:
Commercial Lines – Manager
Hardenbergh Insurance Group
The Grow New Jersey Assistance Program (Grow NJ) and the Economic Redevelopment and Growth Program (ERG)
By: New Jersey Economic Develoment Authority MAY 23, 2014
• The New Jersey Economic Opportunity Act of 2013 merges the State’s economic development incentive programs with the goal of enhancing business attraction, retention and job creation efforts and strengthening New Jersey’s competitive edge in the global economy.
• The Grow New Jersey Assistance Program (Grow NJ) is now the main job creation incentive program and the Economic Redevelopment and Growth Program (ERG) is the State’s key developer incentive program. Both programs have been expanded and will sunset July 1, 2019.
The Act also extends application deadlines for support through the Public-Private Partnership (P3) Program and Offshore Wind Economic Development Program.
GROW NJ – AREAS OF ELIGILIBILITY
• Logistics, manufacturing, energy, defense, or maritime businesses in a port district or businesses in the aviation industry located in an aviation district with: 1) cap. investment of $20 million+ and 250 jobs created or retained; or, 2) 1,000 jobs created or retained.
• Businesses located in an Urban Transit Hub with cap. investment of $50 million+ and 250 jobs created or retained.
GARDEN STATE GROWTH ZONES (GSGZ)
• Camden, Trenton, Paterson and Passaic – the New Jersey cities with the lowest median family income based on the 2009 American Community Survey from the US Census
• A municipality that is qualified to receive assistance under the Municipal Urban Aid Program; is under the supervision of the Local Finance Board; identified by DCA to be facing serious fiscal distress; a SDA municipality; or a municipality boasting a major rail station.
• Planning Area 1 (Metropolitan), Planning Area 2 (Suburban), a designated center under the State Development and Redevelopment Plan or a designated growth center in an endorsed plan’
• Areas that intersect with portions of: a deep poverty pocket, a port district, or federally owned land approved for closure under a federal Base Realignment Closing Commission action;
• Proposed site of a disaster recovery project, a qualified incubator facility, a highlands development credit receiving area or redevelopment area, a tourism destination project, or transit oriented development;
• Areas that contain a vacant commercial building having over 400,000 s.f. of office, lab, or industrial space available for occupancy for a period of over one year; or a site that has been negatively impacted by the approval of a Hub-supported project.
OTHER ELIGIBLE AREAS
• Areas not located within a distressed municipality or priority area, including an Aviation District; Planning Area 3; certain portions of Meadowlands, Pinelands and Highlands; and certain portions of Planning Areas
GROW NJ FINAL TOTAL TAX CREDIT AMOUNT
Each new full-time job = 100% tax credit
Each retained full-time job = 50% tax credit*
• All projects are subject to a comprehensive net benefit analysis to verify that the revenues the State receives will be greater than the incentive being provided.
• For projects approved for $40 million or more over the term ($4 million annually), the EDA will award only funds necessary to complete a project or the amount permitted under the statute, whichever is less.
ERG INCENTIVE AMOUNTS
State and Local Incentive Grants
• The Act authorizes a bonus of 10% in certain cases, up to a maximum of 30% of total project costs; 40% for projects in a GSGZ.
• For Local Incentive Grants, up to a maximum of 100% if the developer is a municipal government or redevelopment agency
• All projects are subject to a comprehensive net benefit analysis to verify that the revenues the State receives will be greater than the incentive being provided.
ERG BONUS AWARDS
Bonus of up to 10% if project is:
• Located in a distressed municipality:
• lacking access to nutritious food, and will include a supermarket or grocery store (min. of 15,000 sq ft of space) selling fresh products or a prepared food establishment selling nutritious, ready to serve meals; or,
• lacking access to health care and health services, and will include a health center (min. of 10,000 sq ft of space) devoted to providing these services
• Transit project
• Qualified residential project with at least 10% of units constructed as and reserved for moderate income housing
• Located in a highlands development credit receiving area or redevelopment area
• Located in a GSGZ
• Disaster recovery project
• Aviation project
• Tourism destination project
• Substantial rehabilitation or renovation of an existing structure(s)
ERG QUALIFIED RESIDENTIAL PROJECTS
Of the $600 million authorized for qualified residential projects*:
• $250 million for projects within Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Ocean and Salem counties, of which:
• $175 million for projects in Camden
• $75 million for projects in municipalities with a 2007 MRI Index of 400 or higher
• $250 million for qualified residential projects located in:
• Urban Transit Hubs that are commuter rail in nature
• ?A Garden State Growth Zone
• Disaster recovery projects
• SDA municipalities located in Hudson County that were awarded State Aid in FY 2013 through the
Transitional Aid to Localities Program
• $75 million for projects in distressed municipalities, deep poverty pockets, highlands development credit receiving areas or redevelopment areas.
• $25 million for projects located within a qualifying ERG incentive area.
*The Act does not change the existing requirement that residential projects receiving an ERG must dedicate 20% of a project to low and moderate income housing
BEIP, BRRAG & UTHTC
EDA is no longer accepting applications for assistance under the
• Business Employment Incentive Program (BEIP), Business Retention and Relocation Assistance Grant
Program (BRRAG), and Urban Transit Hub Tax Credit Program (UTHTC).
• All pending BEIP and BRRAG applications will be acted on by December 31, 2013.
All non-residential, pending UTHTC applications will be acted on by December 31, 2013. Residential
applications submitted under the December 2012 competitive solicitation will be acted on within 120 days of the Act’s September 18, 2013 effective date.
• Businesses that had submitted an application under Grow NJ or ERG before enactment can amend the application to receive more favorable terms under the provisions of the revised programs.
GROW NJ AND ERG NEW APPLICATION DEADLINES
• Grow NJ applications must be filed by July 1, 2019.
• Businesses must submit documentation indicating it has met agreed upon capital investment and
employment requirements within three years of EDA approval.
• EDA can grant two, 6-month extensions.
• ERG applications must be filed by July 1, 2019.
• Applications for a qualified residential project must be filed by July 1, 2015, and the developer must
obtain a temporary certificate of occupancy for the project no later than July 28, 2015.
• EDA anticipates launching the new programs in November 2013.
• The New Jersey Economic Opportunity Act of 2013 merges the State’s economic development incentive programs with the goal of enhancing business attraction, retention and job creation efforts and strengthening New Jersey’s competitive edge in the global economy.
• The Grow New Jersey A it ss s ance Program (Grow NJ) is now the main job creation incentive program and the Economic Redevelopment and Growth Program (ERG) is the State’s key developer incentive program. Both programs have been expanded and will sunset July 1, 2019.
By Lloyd C. Birnbaum, Lauletta Birnbaum, LLC MAY 30, 2014
Typically, commercial leases run anywhere from 3 to 10 years and the term is usually negotiable with
the landlord. Not very long ago, the reality of increasing costs of operating a building was made up by
increasing the rent every time a new tenant moved in or when a lease was renewed. Now, however, the
costs of operating real estate are so unpredictable, most landlords feel they need protection in the form of escalation clauses. It has become customary in commercial real estate leases to have rental rates increase over the term of the lease. Increases take the form of fixed rent steps (i.e., $.50/sf annual increases) or percentage increases (i.e., 3% annual increases). These increases may seem nominal but over a 10 year term they can add up. This is especially true with annual percentage increases due to the compounding effect. Assuming a lease has 3% annual increases, by the 10th year of the term, rent would be more than 130% of the first year’s rent. This can be significant in a flat or down market.
An alternative might be to negotiate a shorter initial term of 3 or 5 years with options to renew at fixed
rental rate increases for a total term of 10 years. If the market has experienced increasing rents during the initial term then the tenant can lock in with the 3% annual bumps for the renewal term. However, if market rents have stayed relatively flat or decreased then the opportunity exists to renegotiate the rental rates when the lease comes up for renewal. The pitfall of this approach is that if the initial term isn’t long enough, the landlord might not be willing to offer a meaningful tenant improvement allowance. This is an extremely important factor that cannot be overlooked.
There are two reasons landlords typically cite for annual rent increases. First, they are justified as hedges
against inflation. They are intended to preserve the net effective rents on an inflation adjusted basis. The
second reason is to create asset appreciation. As commercial properties are valued based on cap rates
applied to net operating income, by growing rent over time, the asset will theoretically appreciate. The
problem with these two rationales is that they don’t always prove to be true.
Increases to adjust for inflation make sense assuming that the true value (in this case, as measured by
market demand) is increasing over time. However, the fact is that rental rates in our market have not kept up with inflation over time because demand for space has not outstripped supply enough to drive up rents. Consequently, leases with annual rent escalations often reflect economics which are higher than the current “market” for that building at some point in the lease term. This helps make the case for shorter initial terms with several renewal options. However, in shorter term leases, landlords usually won’t be willing to offer concessions such as free rent and large enough fit-out allowances.
The rationale of creating building appreciation also has its faults. If leases have rental rates that are higher than the current market rent warranted by a particular building, lenders and purchasers for that building will probably “mark the rents to market” when underwriting a loan or purchase. They might very well value the building based on current market rents rather than the rents stated in the leases. At a minimum, they would discount the rents stated in the leases if they are over market. So, while increasing rents will increase the landlord’s bottom line profits in the short term, the rising rental rates in leases might not necessarily create future appreciation for the building if the market hasn’t kept pace with the contracted rental rate.
What does all of this mean for tenants?
Tenants coming off of long term leases with rent escalation clauses might find opportunities to reduce rental costs when it comes time to renew and, in some cases, may even be able to upgrade to a better building with a fit-out allowance without increasing their net rent expense. Though the analysis will ultimately depend on the strength of the particular building and the tenant’s alternatives, tenants should carefully evaluate how their rent expense compares to current market opportunities and conditions. Maybe they can do better with a shorter term and renewal options. Maybe a more significant fit-out allowance better suits their needs than being concerned about being locked into long term rent escalations. At a minimum, tenants should take a long, hard look at proposed rent escalations
before agreeing to them and always consult with a real estate service provider.
Lloyd C. Birnbaum
Lauletta Birnbaum, LLC
By Title America, Agents For First American Title June 13, 2014
Every transaction is unique and has its own set of circumstances. However, there are three common title
endorsements we regularly experience in our commercial transactions. These endorsements, Contiguity and Survey, Comprehensive and Access provide the foundational protections needed to secure your ownership rights and investment in commercial property transactions. Below you will find a summary of these endorsements.
CONTIGUITY AND SURVEY ENDORSEMENTS
Provides coverage to the insured that two or more parcels are contiguous when the land to be insured consists or might consist of an assemblage of two or more parcels. Although contiguity endorsements are often requested, a better solution for this situation is a request for a new perimeter description of the assembled properties. The policy will insure title to all of the land inside the new perimeter description. Since the goal is to insure title to all of the property within the perimeter without any gaps or gores, the direct approach may be best.
There are two contiguity endorsements available. The ALTA 19.06 is used when there are multiple parcels being insured and the insured want the assurance that the parcels are contiguous to each other. The second contiguity endorsement is the ALTA 19.1-06. This endorsement is used when the insured wants assurance that the parcel being insured is contiguous to another parcel that is not being insured.
The ALTA 25-06 Survey Endorsement insures the policyholder that the land described in the policy is the same land as shown on the survey identified in the endorsement.
The ALTA 25.1-06 Same as Portion of Survey Endorsement insures the policyholder that the land described in the policy is the same as that specified portion of land shown on the survey identified in the endorsement.
The comprehensive endorsement (ALTA 9.0-06) Restrictions, Encroachments, Minerals Endorsement) is one of the most commonly requested endorsements to a loan policy and provides protection against loss or damage sustained by reason of any inaccuracies in the assurances that:
a. There are no covenants, conditions, or restrictions under which the lien of the mortgage could be
divested, subordinated or extinguished, or its validity, priority or enforceability impaired; and
b. Unless expressly excepted in Schedule B of the Title Commitment
i.) Present violations on the Land of any enforceable covenants, conditions, or restrictions, or
existing improvements on the land described in Schedule A that violate any building setback lines
shown on a plat of subdivision recorded or filed in the Public Records.
ii.) Any instrument referred to in Schedule B as containing covenants, conditions, or restrictions
on the Land that, in addition, (A) establishes an easement on the Land, (B) provides a lien for
liquidated damages, (C) provides for a private charge or assessment, (D) provides for an option to
purchase, a right of first refusal, or the prior approval of a future purchaser or occupant.
iii.) Any encroachment of existing improvements located on the Land onto adjoining land, or any
encroachment onto the Land of existing improvements located on adjoining land.
iv.) Any encroachment of existing improvements located on the Land onto that portion of the Land
subject to any easement excepted in Schedule B.
v.) Any notices of violation of covenants, conditions, or restrictions relating to environmental
protection recorded or filed in the Public Records.
Any future violation on the Land of any existing covenants, conditions, or restrictions occurring prior to the acquisition of title to the estate or interest in the Land by the Insured, provided the violation results in:
a. The invalidity, loss of priority, or unenforceability of the lien of the Insured Mortgage; or
b. The loss of Title if the Insured shall acquire Title in satisfaction of the Indebtedness secured by the Insured Mortgage.
Damage to existing improvements, including lawns, shrubbery, or trees:
a. That are located on or encroach upon that portion of the Land subject to any easement excepted
in Schedule B, which damage results from the exercise of the right to maintain the easement for the
purpose for which it was granted or reserved;
b. Resulting from the future exercise of any right to use the surface of the Land for the extraction or
development of minerals excepted from the description of the Land or excepted in Schedule B.
Any final court order or judgment requiring the removal from any land adjoining the Land of any
encroachment excepted in Schedule B. Any final court order or judgment denying the right to maintain any existing improvements on the Land because of any violation of covenants, conditions, or restrictions, or building setback lines shown on a plat of subdivision recorded or filed in the Public Records. A comprehensive endorsement is also available for an Owner’s Policy. ALTA has adopted ALTA Form 9.1-06, for unimproved land and ALTA Form 9.2-06 for improved land.
The ALTA 9.3-06 endorsement, in addition to the coverage provided in ALTA 9.0-06 endorsement, insures the lender against damage to existing and future improvements by reason of mineral development. Similar to the ALTA 9.3-06 Endorsement, the ALTA 9.4-06 and 9.5-06 provide owners with coverage against existing and/or future improvements by reason of mineral development on unimproved or improved land respectively.
ACCESS AND ENTRY ENDORSEMENTS
Insuring provision number 4 insures against no right of access to and from the Land. However, this basic coverage assures only some type of legal access and issues still exist as to the quality, character and location of the access.
The ALTA 17-06 Endorsement is designed to be issued where there is direct access to a publicly dedicated roadway. It provides coverage in the event (i) the Land does not abut and have both actual vehicular and pedestrian access to and from a named Street, (ii) the Street is not physically open and publicly maintained, or (iii) the Insured has no right to use existing curb cuts or entries along that portion of the Street abutting the Land.
Not all property physically abuts a dedicated street and the owner must rely on an easement to obtain access to a publicly dedicated roadway. In this situation it would be wise for the insured to have the easement which provides access insured as well as the fee interest in the property being purchased or financed. In this situation the ALTA 17.1-06 would be the proper endorsement. This endorsement insures the in insured in the event that; (i) the easement identified in Schedule A (the “Easement”) does not provide the other land described in Schedule A (the fee parcel), both actual vehicular and pedestrian access to and from a named street (the “Street”), (ii) the Street is not physically open and publicly maintained, or (iii) the Insured has no right to use existing curb cuts or entries along that portion of the Street abutting the Easement.
For more information on Title America’s innovative products and services, contact:
Joseph Maressa Jr., Esq
New Jersey Offices: Berlin – Freehold – Totowa
Pennsylvania Office: Wayne
BY MARTIN H. ABO, CPA/AB/CVA/CFF JUNE 20, 2014
There are many inequities in the tax law, and one of these pertains to the write-off of leasehold improvements a tenant makes to a landlord’s property. Under the tax law, the owner is required to depreciate residential property over a 27.5 year life and commercial property over a 39 year
life. Usually a tenant’s lease is 10 years or less, a considerably shorter period than the property’s depreciable life. Nevertheless, if a tenant makes leasehold improvements, for tax purposes the cost is required to be written off over the same period as the property life, starting with the year in
which the improvements are first placed in service, regardless of the fact that the term of the lease is much shorter. Thus, even though a commercial property may have already been depreciated by the landlord or the lease is for a short duration, the tenant improvements are required to be written off over 39 years. Of course, if the tenant’s lease expires and is not renewed, and the tenant leaves the leasehold improvements, a loss deduction can be taken for the undepreciated portion of the cost of the improvements. If the tenant reimburses the landlord for improvements, the cost is considered advance rent, which is at least deductible over the remaining lease term. If the remaining lease term is shorter than the regular depreciation recovery period (i.e. 39 years), it may be advantageous for the tenant to reimburse the landlord for the cost of the improvements, rather than making the improvements directly. One further consideration is a business’ ability to preserve vital capital by having the landlord pay for the actual fit out and merely increase the rent to the tenant proportionately, including an interest factor. This will not only preserve cash and resulting working capital but will effectively accelerate tax deductions (i.e. as increased and currently deductible rent expense) versus writing off the fit out over a 39 year period.
These and other tax issues come up regularly with clients with regard to real estate matters. Besides
clarifying the tax rules, it’s suggested conferring with your CPA who can often recommend tax
reducing strategies that enhance cash flow.
FOR MORE INFORMATION:
Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, 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.
By Stacy L. Asbell, Esq., Hyland Levin LLP AUGUST 15, 2014
The bulk sale notification requirements initially applied to entities required to collect and remit sales tax. It was implemented to provide the New Jersey Division of Taxation (the “Division”) with notice of asset sales thereby enabling the Division to collect any outstanding tax liabilities owed by the seller entity. Changes to these requirements in 2007 significantly expanded the application of the law. The Bulk Sales Act (the “Act”), codified by N.J.S.A. §54:50-38, became effective in June 2007, and now applies to all transactions in which the seller of business assets makes a sale, transfer or assignment in bulk of any part or the whole of its business assets, other than in the ordinary course of business. See N.J.S.A. 54:50-38. The Buyer’s failure to comply with the Act results in the Buyer being deemed by statute to be liable for the payment of all of the seller’s outstanding tax obligations to the State of New Jersey.
COMMERCIAL REAL PROPERTY:
For purposes of the Act, a business means “any endeavor for which revenue or consideration is realized for the purpose of generating a profit or loss.” A “business asset” consists of tangible or intangible assets and includes “realty if a use of the realty is to support a business on its premises, which includes, but is not limited to, renting space to another.” See N.J. Div. of Tax. Technical Bulletin, TB-60R (October 21, 2010). As a consequence, the Act now applies to the sale of any real property where the purpose of the real property is to support a business of any type. In other words, the Act applies to the sale of most commercial properties. By way of example, the Act can also apply to: (i) the sale of real property by a single purpose entity whose sole asset is real property and the sole business of the single purpose entity is the leasing, operation and management of the real property; (ii) the sale of vacant land; (iii) short
sale transactions even where there is no equity or proceeds from the sale; (iv) deeds in lieu of foreclosure if the real property has been used as income producing property; and (v) the sale of a “simple dwelling house” if owned by a business entity. See N.J. Div. of Tax., Frequently Asked Questions.
COMPLIANCE WITH THE ACT:
To satisfy the Act:
• The Buyer must submit to the Division a fully completed Form C-9600 including: (i) valid tax ID numbers for both the seller and the buyer; (ii) a specific closing date; (iii) mailing address for both parties; and (iv) a copy of the executed agreement of sale showing the sales price and the terms and conditions of the sale. The Form C-9600 can be found on the Division’s website and is free to file. It is only valid if submitted to the Division by the buyer (it is ineffective if submitted by the seller) and must be signed by the buyer or the buyer’s authorized representative (the seller is not required to countersign the Form). Practically, buyers should obtain the seller’s tax ID number in the contract of sale to avoid
any time delay in obtaining it before closing and otherwise obtain the seller’s agreement to cooperate in this process.
• The Form C-9600 should be submitted to the Division by registered, certified mail or by overnight mail, Fed-Ex or UPS. The Form C-9600 cannot be submitted by facsimile or hand delivery.
• The Form C-9600 must be received by the Division at least 10 business days before the scheduled date of closing. The Division is not obligated to expedite the process and therefore, timely filing is necessary for full compliance.
WITHIN TEN DAYS OF RECEIVING THE FORM C-9600, THE DIVISION WILL ISSUE ONE OF THE FOLLOWING NOTICES:
• Escrow Letter: Setting forth the amount of money to be withheld from the purchase proceeds in escrow at the time of the closing. The buyer or its agent (not the seller) must hold the escrow or risk being liable for the seller’s tax obligations.
• Returns Required Letter: Setting forth which returns must be filed and paid to obtain a Clearance Letter
• Insufficient Notice: Identifying the items missing from the C-9600
• Clearance Letter: Stating that the bulk sales case is closed, no money is to be held or remain in escrow and absolving the buyer of liability; or
• Unreported Bulk Sales Letter: Notifying the buyer of the assets of the assumption of the seller’s liability. See N.J. Div. of Tax., Frequently Asked Questions.
REDUCING THE ESCROW:
A seller can try to reduce the amount of the escrow by providing the Division with additional information regarding the seller’s tax liability. In addition to the filing and payment of delinquent returns or deficiencies, a seller can submit an Asset Transfer Tax Declaration Form (“TTD Form”) providing the Division with information on the gain of the sale of the business asset. The Division will use the information submitted on the TTD Form to calculate a more exact amount of the tax due and will often adjust the amount of the tax escrow. Although the Division does not recommend filing the TTD Form until after a caseworker has been assigned, there are no formal time requirements for filing the TTD Form. As the TTD Form usually results in a reduction of the escrow, it is in the seller’s best interest to file the TTD Form as soon as the buyer has submitted the Form C-9600 or even simultaneous with the buyer’s submission of the Form C-9600. Sellers should note that all shareholders, partners or members of a selling entity must each complete a separate TTD Form.
With the 2007 expansion, the Act applies broadly to many transactions and the Division is aggressive in its enforcement. While compliance with the Act is relatively easy and inexpensive, failure to comply can have severe financial consequences to the buyer, burdening the buyer with the seller’s tax liabilities. If there is any question as to applicability, the buyer should file the Form C-9600.
Stacy L. Asbell, Esq. is of counsel with Hyland Levin LLP. She regularly represents buyers and sellers in the acquisition and sale of real property.
Stacy L. Asbell, Esq.
Hyland Levin LLP
– Real Estate Leasing
– Real Estate Development and Finance
– Real Property Taxation
6000 Sagemore Drive, Suite 6301, Marlton, NJ 08053-3900