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Monthly Archives: October 2015


Philadelphia Retail Space Could See Spike in Retail Chain Stores

new Jason stats graphic - June 2015Retail chains in the United States, including those in the market for Philadelphia retail space, will open 42,506 stores in the next year and 79,650 stores in the next two years, an increase of 4% and 4.2%, respectively, year to date in 2015, a new report says.

The spike in planned store openings has a direct correlation to recent improvements in both employment rates and retail sales growth, as well as higher consumer confidence, according to the latest National Retailer Demand Monthly report from RBC Capital Markets.

Sales forecasts for the 2015 holiday season also have bolstered confidence among retailers, with sales expected to come it at about 3.6%, which is close to 2014’s robust 4.1%, according to the consensus estimate of the National Retailer Federation, Deloitte and four other retail forecasters.

RBC Capital Markets also said lower prices at the gas pump may be slowly having an impact on consumer budgets, potentially encouraging more nondiscretionary spending.  As a result, retailer are looking to capture those extra consumer dollars with more new store openings.

While 2015 has seen a steady increase in new store openings so far, new construction for shopping center redevelopment and ground-up construction has slowed as the year progressed, RBC said.

The combination of increased consumer sales, retailers’ higher demand for space, and inadequate growth in new supply indicates rents and occupancy likely will experience healthy increased in the near term,  RBC said.

The latest retail real estate market data from the CoStar Group endorses RBC’s forecast for  greater demand for retail space, including Philly retail space.  Preliminary third-quarter data indicates the national retail vacancy rate now stands at roughly 5.9%, the lowest point since CoStar began tracking the market.

The CoStar Portfolio Strategy shows absorption outpacing new construction by almost a 2-to-1 margin over the past year.  Retail space now under construction is about 38.5% below the average amount that was under way between 2006 and 2008, according to CoStar.

Bucking the trend, Wal-Mart Stores, Inc., the world’s largest retailer, has predicted a 12% decrease in net profits in 2016 and said it would reduce the number of new store openings in the U.S., dropping to between 135 and 155 new stores in the next fiscal year, from the 354 Wal-Mart stores that opened in the last fiscal year.

While net absorption is robust, rents for retail space have not performed as well as other commercial property types. Retail rents are still 7% below their pre-recession peak — the only major property segment where asking rents have not yet returned to their highs in the last cycle.  Analysts point to struggling shopping centers, particularly those in the outer fringe suburbs, that have been forced to lease space at lower rates to discounters, fitness centers and non-retail users, a practice that has offset the exceptionally strong recovery in urban retail properties.

For more information about Philly retail space or any Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) or Leor Hemo (leor.hemo@wolfcre.com) at Wolf Commercial Real Estate, a premier Philadelphia commercial real estate broker that specializes in Philadelphia retail 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 that specializes in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philly 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 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.

Please visit our websites for a full listing of South Jersey and Philly retail space for lease or sale through our Philadelphia commercial real estate brokerage firm.

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AVOIDING PREMISE SECURITY LIABILITY

Avoiding Premise Security Liability (PDF)

By Brian Blaston, Hardenbergh Insurance Group – October 30, 2015

Security can be a scary prospect for property managers. While you want to provide your tenants with a safe location to live or work, the level of security you need to provide is not always clear cut, and if it is lacking could potentially make you liable for damages in the event of a crime. Whether you deal in commercial or residential rentals, premise security claims are on the rise and you need to do what you can now to avoid costly litigation in the future.

Increasingly, tenants are looking to receive compensation from their property managers after they fall victim to a crime on leased property, and more and more often courts are ruling in favor of the tenants. While property managers are not responsible for the damages caused by every criminal act, they do have a duty to provide tenants and their guests or customers with reasonable measures of security. When managers fail to do this, they can potentially be held liable for some or all of the damages.

PROVIDING SECURITY
Providing reasonable security measures does not mean that you have to guarantee your tenants 100 percent protection from criminal activity. Even the most elaborate security systems can be beaten by criminals who are properly motivated. The simplest way to avoid liability is to reduce opportunity by eliminating conditions that attracted criminals. Some of the best security features are those that deter criminals from ever attempting to commit a crime. In the event of a premise security claim, it is important to be able to show the court that you have taken the proper steps to eliminate any security concerns that could encourage criminal activity around your property.

DETER CRIMINAL ACTIVITY
Consider the following measures as you try to increase security

• Lighting: It may seem simple, but lighting can have a big impact on site security, as criminals prefer to target places where their actions can be easily concealed by darkness. Make sure entrance ways, walking paths and parking lots are adequately lit.

• Locks: Both commercial and residential tenants need a way to properly secure their own spaces. In residential properties, keyed entry should be in place for common areas as well as individual units. Laundry rooms, exercise facilities and lobbies or entrance ways should have automatic locks that prevent unauthorized access.

After locks are installed, they must be checked regularly to make sure they stay in working order. Also, keep an eye on the condition of doors. If they fall into disrepair, their effectiveness as a method of protection will be weakened.

• Landscaping: A well landscaped property can be an attractive selling point, and if done properly can also improve security. A well-maintained property gives the impression that the premise is under the supervision of attentive management, so show your presence by keeping the grounds well groomed. Additionally, an overgrowth of bushes or trees can create blind spots that can be used to conceal criminal activity. When choosing plants to be placed around windows and doors, pick ones that will remain relatively short, and trim them regularly.

• Security cameras or on-site security personnel: The decision to employ security guards or install security cameras depends on each individual situation. Often times, such measures are not needed to provide the reasonable amount of security required of property managers, but they can be beneficial in situations where a specific security concern may need extra attention. If the property is located in a high-crime area, security cameras or on-site personnel may be necessary.

SET EXPECTATIONS

Security can be a big concern for prospective tenants, and the security features of a property can be the incentive needed to close a deal. It should be noted that you should never promise more security than you can actually provide. If you make an exaggerated claim about the security features of a premise, you raise the standard of security a tenant can reasonably expect, even though you are not actually making the property any safer. If a crime were to occur, you would be at an increased risk for legal action.

Consult with the experts at Hardenbergh Insurance Group for more security strategies.

brian-blaston-hardenbergBrian Blaston
Commercial Lines – Manager
Hardenbergh Insurance Group
Phone: 856.489.9100 x 139
Fax: 856.673.5955
www.hig.net

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Commercial Property Pricing Heats Up

new Jason stats graphic - June 2015Despite an increase in construction activity in multiple markets, aggregate demand continues to outstrip supply across all major property types, a new report from the CoStar Group says.  The result is lower vacancy rates and rent growth that continues to attract strong investor interest in commercial real estate, including Philly office space and Philly retail space, according to the newest CoStar Commercial Repeat Sale Indices (CCRSI).

The value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index rose by 1.3% and 1%, respectively, in August 2015, and by 12.6% and 11.4%, respectively, for the year ended August 2015, the report said.  The indices are the two broadest measures of aggregate pricing for commercial properties within the CCRSI.

The General Commercial segment, which is affected by smaller, lower-value properties, experienced recent more robust growth, corroborating a broad-based pricing recovery, CoStar reported.  Within the equal-weighted U.S. Composite Index, the General Commercial segment saw a monthly increase of 1% for August 2015 and 11.9% for the year ended August 2015, driving the index to within 7% of its pre-recession high.

Net absorption across the office, retail and industrial segments — the three major property types — reached 611.4 million square feet for the year ended in the third quarter 2015.  That level was 20% more than in the prior year ending in the third quarter 2014 and stood as the second-highest annualized absorption total since 2008, according to CoStar.

Especially strong showings were seen in the office and industrial segments during the four quarters ending in the third quarter 2015, with net absorption averages at of 0.3% of inventory for the office sector and 0.4% for the industrial sector.  Gains in the retail sector were more modest at 0.2% over the same time period, the report noted.

The CCRSI’s U.S. composite pair volume of $79.5 billion year-to-date through August 2015 saw a 32% jump in comparison with the same time period a year earlier, CoStar said.

With volume up by almost 32% in the Investment-Grade and General Commercial sectors,  increased capital flows are being seen in both the high and low ends of the market, according to the report.

For more information about Philadelphia office space, Philadelphia retail space or other Philadelphia commercial properties, please call 215-799-6900 to speak to Jason Wolf (215-588-8800-cell; jason.wolf@wolfcre.com), Leor Hemo (215-514-1750-cell; leor.hemo@wolfcre.com) or Lee Fein (215-206-5580-cell; lee.fein@wolfcre.com) at Wolf Commercial Real Estate, a premier Philadelphia commercial real estate brokerage firm that specializes in Philly office space and Philly retail space.

Wolf Commercial Real Estate is a Philadelphia commercial real estate broker 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 expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philadelphia office space or Philadelphia retail space with the Philadelphia commercial properties that best meets their needs.  As experts in Philadelphia commercial real estate listings, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia office space, Philadelphia retail space and other Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly office space or Philly 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.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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SUPPORTING GENERATION Y AT WORK

Supporting “Generation Y” at Work: Implications for Business (PDF)

By Knoll, Inc – October 23, 2015
This report presents insights from studies on Gen Y conducted by Knoll as well as our ongoing learning from customers. We have found that this generation (born between 1979 and 1997) has different attitudes, work styles and expectations of the physical work environment than do other generations. In this paper we discuss: the values and characteristics of this generation, implications for business, and aspects of the workspace that are important to Gen Y.

THE VALUES OF GENERATION Y
This generation holds clear values about their work experience that emphasize:

Meritocracy. Only the talented survive and anyone with talent should be able to succeed.

Camaraderie. Working with others, in teams or just collaboratively; group accomplishment is even
sweeter than solo success. A sense of mentoring, or mentors, in the workplace.

Non-traditionalism. Doing things differently than in the past while making the point, “this is different.”

Integration of work and personal life in a number of ways: co-workers are “family,” work and social life are blended together, and personal and social activities are blended into the work day (or night).

Fierce independence: in choice of company to work for, when to leave, how you get your work done,
how your work should be done are all individual decisions, (with input from social/professional networks) resulting in little loyalty to employers.

HOW GENERATION Y SEES THEMSELVES
Our research and experience shows that Gen Y workers characterize themselves as:

Unique. They see themselves as a breed apart, talented, skilled and in demand. They strongly believe in the value of their work and expect “the rest of the world” to appreciate it as well.

Proud. They are confident in their skills and they enjoy being looked to for advice and guidance and
admired for their special talents.

Confident. They show little fear of the future, believing that their skills will always be in demand and they have a strong support net in place through family and friends.

Realistic. They are, however, realistic about financial compensation due to ups and downs in the
economy.

IMPLICATIONS FOR BUSINESS
Taken together, these trends suggest a number of implications for business:

Financial compensation. Young knowledge workers may be realistic about variations in compensation because of economic fluctuations, but the underlying expectation of high compensation remains.

Caring. The sense of being nurtured and indulged by the organization is central.

Career opportunities. Gen Y workers have the expectation that their organization will offer learning and growth opportunities: the chance to do creative, challenging work, and the prospect to grow.

Collaboration. Young workers seek a work culture that is organized around teamwork and collaboration.

Social Responsibility. The business should espouse a social cause that goes beyond traditional profit and loss.

WHAT GENERATION Y VALUES IN THEIR PHYSICAL SURROUNDINGS
Gen Y knowledge workers are acutely aware of their physical work surroundings, from their neighborhood to immediate building to work space. They value the look, feel, design and functionality of their work space. They want a relaxed space that is attractive to be in – one that supports casual collaboration, mentoring and learning. Among desired attributes:

“Quality of life” location. Neighborhoods nearby that offer lots of amenities and things to do during breaks and after work such as restaurants, bars, shops and other places where other young, talented people are likely to be.

Easy access to work. Like the rest of us, young workers hate difficult commutes, especially by car. They would prefer to live very near work, ideally walking or biking to the office or with easy access to mass transit. Those who drive may desire a ride share program and easy parking for either a car or bike.

Facilities that provide personality. The physical work space should be visually attractive. Quality furniture is desirable; young workers judge companies by the “look” of their workspace and by the respect shown to employees via the physical elements and the equipment provided.

Amenities. The availability of food, dry cleaning, workout areas, bike storage and other amenities within the facility are important to this generation.

Safety. Gen Y workers are sensitive to security issues at work, from theft of equipment to personal harm; the actively value such security devices as video cameras at entrances and key cards.

WORKSPACE CHARACTERISTICS

• Personal workspace that is ergonomic and comfortable, with good storage.

• Access to windows and natural light.

• State of the art personal work technology (iPhone, Blackberry, etc) and video conferencing.

• Sophisticated, stylish design of workspace and furnishings.

• The ability to personalize their space by being able to display personal items (photographs, souvenirs, etc) and to adjust work tools (seating, monitor arm, keyboard support, etc).

• Individual and group work. They value a balance between privacy to conduct individual work and the desire to have spaces that encourage and facilitate learning, mentoring and knowledge sharing with coworkers.

Knoll researches links between workspace design and human behavior, health and performance, and the quality of the users’ experience. We share and apply what we learn to inform product development and help our customers shape their work environments.

To learn more about this topic or other research resources Knoll can provide, visit www.knoll.com/research/index.jsp

Boomerang is a sister company of CFI, the areas sole Knoll dealership. Boomerang is a nationwide leader of refurbished Knoll products saving clients’ money while maintaining aesthetic and quality standards.

FOR MORE INFORMATION CONTACT:

josh-smargiassiJosh Smargiassi, Principal
Boomerang, Inc.
9155 River Road
Pennsauken, NJ 08110 USA
D 609.304.2760
P 856.369.7753
F 856.582.0104
www.boomerangofficefurniture.com

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Installment Sale Reporting Can Work for You Tax Wise

Installment Sale Reporting Can Work for You (PDF)

By Martin H. Abo, CPA/AB/CVA/CFF October 16, 2015
Do you own a property that has appreciated considerably and that you want to sell, perhaps to free up some capital, perhaps to downsize your operation, perhaps to expand but now rent rather than own? Are you concerned about incurring a large capital gains tax liability? One option is to structure the sale as an installment sale.

Of course, selling commercial real estate in a slow or problematic market, you will often be requested anyway to provide financing to ensure the deal gets consummated. Where at least one payment is received after the tax year in which the sale occurs, the installment sale method is used to defer a portion of the income tax due on a gain. In fact, unless you specifically elect out, the installment sale method is mandated by the Internal Revenue Service.

Under the installment sale method, the seller recognizes a portion of each payment as gain when received. Typically, each payment the seller receives consists of three parts:

(1) a return of basis (investment) in the property sold,

(2) gain (profit)on the sale, and

(3) interest on the installment note. Only the gain and interest portions of each payment are taxable to
the seller.

Reporting gain from the disposition of property under the installment sale method allows the seller to spread the tax liability over several years rather than all in the year of sale. Thus, the seller’s payment of tax corresponds with the actual cash flow generated from the sale.

Of course, a number of limitations and restrictions come with the use of the installment sale method. In general, persons who regularly sell or otherwise dispose of personal property on the installment plan or who hold real property for sale to customers in the ordinary course of business (“dealers”) generally cannot use the installment sale method except for sales of timeshares, residential lots or farm property. However, in the case of timeshares and residential lots, interest must be computed and paid each year on the deferred tax liability. Also, any item that must be included in ending inventory is ineligible for such installment sale reporting.

We are CPAs and business advisors and NOT attorneys but sellers who decide on this strategy are cautioned that an installment sale carries more risk than an outright sale of the property. Rather obvious suggestions to keep such risk manageable include:

  • Carefully assessing the buyer’s creditworthiness. Consider getting personal guarantees.
  •  Evaluate the future income producing capability of the property to make sure it provides sufficient cash flow to enable the buyer to make the payments.
  •  Use an interest rate that is competitive with current market rates in the area so as not to squash the deal.
  •  Obtain a down payment of at least 20% to have a cushion in the event of buyer default, and to cover the expenses if foreclosure becomes necessary.

In certain circumstances, it may be beneficial to elect out of the installment sale method and report the entire gain in the year of sale. When you or your business has expiring carryovers such as net operating losses, tax credits, or perhaps charitable contributions, opting OUT OF reporting the entire gain in the year of sale could allow use of those carryovers and minimize any tax liability. In addition, if you are concerned that applicable tax rates will increase in the future, it may be advantageous to elect out of installment sale treatment and avoid higher taxes down the road.

Business property transactions are often complex, and surrounding yourself with a credible “team” made up of your CPA, attorney and real estate professional can be vital in developing strategies that make it possible to bring a contemplated transaction to a successful conclusion.

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. The below article was retrieved from the “E-mail alerts” disseminated to clients and friends of the firm. With offices in Mount Laurel, NJ, Morrisville, PA and Franklin Lakes, NJ, tips like the above can also be accessed by going to the firm’s website at www.aboandcompany.com or by calling 856-222-4723.

martion-abo
Martin H. Abo, CPA/ABV/CVA/CFF

307 Fellowship Road, Suite 202
Mount Laurel, NJ 08054
(856) 222-4723 phone
(856) 222-4760 fax
www.aboandcompany.com

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WCRE ADDS VP OF CORPORATE STRATEGIES

Anthony Mannino to Aid Steadily Growing South Jersey Firm’s Efforts in Pennsylvania (PDF)

Anthony_Mannino_web2October 14, 2015 – Marlton, NJ – Wolf Commercial Real Estate (WCRE) is pleased to announce the hiring of Anthony V. Mannino, Esq., who will serve as Vice President of Corporate Strategies. In this newly created position Mannino will work closely with WCRE’s sales professionals to spearhead the growth of the WCRE brand in southeastern Pennsylvania. He brings more than twenty years of experience in the legal and political arenas, as well as a unique, multidisciplinary perspective that will help WCRE clients identify potential obstacles and capture new opportunities.

Mannino comes to WCRE after nearly ten years serving as chief of staff to two members of Pennsylvania’s General Assembly. Prior to his years of public service, he was a litigation attorney in the private sector for more than a decade, practicing in Pennsylvania and New Jersey.

“Tony Mannino has a deep understanding of the issues and key players that influence the real estate landscape in the region, having built numerous trust-based relationships with government and private sector leaders in both Harrisburg and Philadelphia,” said Jason Wolf, founder and managing principal of WCRE. “He will be instrumental in forging new relationships on behalf of our clients and our sales force.”

Mannino is WCRE’s third hire in its effort to grow in Pennsylvania. One year ago the company hired senior vice president Lee Fein to open a King of Prussia office and establish an industrial practice. In the spring former Philadelphia Flyers star Brian Propp joined the firm as director of strategic relationships, with a special focus on supporting the office and retail practice areas.

Like his new colleagues at WCRE, Mannino has been an active supporter of many civic institutions in Philadelphia, from community associations to advocacy non-profits. He is currently a board member of the Philadelphia Regional Port Authority, and has served several other area boards.

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 ww.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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Local Market Remains Steady despite National Economic Volatility

new Jason stats graphic - June 2015While the national economy was affected by turmoil in the global markets, the regional commercial real estate market continued its progress for another quarter, according to the latest quarterly analysis from Wolf Commercial Real Estate, a premier Philadelphia commercial real estate broker that specializes in Philly commercial real estate listings and services, including Philly office space, Philly retail space and other Philadelphia commercial properties.

An expected summer slow-down did slow the pace of transactions, but overall growth, expansion, and positive absorption stayed on track said the report from this Philly commercial real estate brokerage firm. Healthcare, insurance, financial services, defense contracting, and technology companies led the way.

“As in the past several quarters, we saw a healthy volume of transactions due to business expansion and improving job growth during the third quarter,” said Jason Wolf, founder and managing principal of Wolf Commercial Real Estate, a leading Philly commercial real estate brokerage firm.. “We also saw an uptick in deal activity among small and mid-size businesses, which is welcome good news that the market had been waiting for.”

The report from this Philly commercial real estate broker details many factors contributing to continued strength in the market, including large and small lease deals, the beginning of new construction activity, several investment acquisitions of office properties, and continued repositioning among the area’s REITs.

According to the report issued by Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm with expertise in Philadelphia commercial real estate listings and services, including Philadelphia office space and other Philly commercial properties, this repositioning also covers the latest coup for the GROW NJ program, a recently announced 1.7 million square-foot mixed use development along the waterfront in Camden, NJ.

According to Wolf Commercial Real Estate, the third quarter posted approximately 477,983 of new leases and renewals executed in the Philly commercial real estate market. This is a nearly 20 percent improvement over the third quarter a year ago. New tenant leases consisted of approximately 280,360 square feet, and renewals and expansions made up approximately 197,623 square feet. New leasing activity represented approximately 58.7% of all deals for the quarter.

Overall, gross absorption for Q3 is in the range of approximately 233,610 square feet. In addition to the consummated deals, this section of the report from the Philadelphia commercial real estate broker that specializes in Philadelphia commercial real estate listings indicated a pipeline of approximately 350,000 square feet of significant pending lease deals expected to close in the near term.

Other office market highlights in the analysis from Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm that specializes in Philly commercial real estate listings and services, including Philly office space, Philly retail space and other Philadelphia commercial properties:

  • Overall vacancy in the market continues to drop, and is now down to approximately 12.15 percent, an improvement of three quarters of a point over the previous quarter. Vacancy in Burlington County is now down to 8 percent, while in Camden County it stands at 16.3 percent.
  • The majority of leasing activity for the third quarter was comprised of deals ranging in size from 3,000-80,000 square feet.
  • Average rents for Class A & B product continue to show strong support in the range of $10.00-$13.00/sf NNN or $21.00-$23.00/sf gross, with an overall market average showing strong support in the $10.00-$13.00/sf NNN or $20.00-$23.00/sf gross for the deals completed during the quarter. Rents have remained stable.

The full report is available upon request from Wolf Commercial Real Estate, a Philly commercial real estate brokerage firm with expertise in Philly commercial real estate listings and services, including Philadelphia office space and other Philadelphia commercial properties.

For more information about Philly office space, Philly retail space or any Philly commercial properties, please contact Jason Wolf (856-857-6301; jason.wolf@wolfcre.com) or Leor Hemo (856-857-6302; leor.hemo@wolfcre.com) at Wolf Commercial Real Estate, a Philadelphia commercial real estate broker.

Wolf Commercial Real Estate is a premier Philly commercial real estate broker that provides a full range of Philadelphia commercial real estate listings and services that include Philadelphia office space and other Philadelphia commercial properties.  Wolf Commercial Real Estate markets commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philly commercial properties for buyers, tenants, investors and sellers.  Please visit our websites for a full listing of Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

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WHY HAVE ELECTRICITY AND GAS HAVE BECOME SO EXPENSIVE?

EVER WONDER WHY ELECTRICITY AND GAS HAVE BECOME SO EXPENSIVE? (PDF)

By Joseph S. Simone, Jr., President, Regional Resources Energy Group, LLC October 9, 2015

IT SEEMS TO BE EVER INCREASING!
When it comes to operational costs associated with electric and gas service, regardless of whether it is for your office, production facility, store, or home… It appears that it is costing more and more to keep the lights on…. so to speak!

This leads to the existence of only two scenarios that become the ‘contributors’ to this ongoing battle to reduce the cost of your monthly energy bill.

The First Scenario – you have NOT considered taking advantage of the Energy Choice Program: meaning that you are complacent and still paying the BGS(basic generation service) offered by the local utility company serving you energy needs.

The Second Scenario – you HAVE in fact taken advantage of the Energy Choice Program, but, have failed to realize the benefits. Perhaps you have been misinformed or were provided with a poor market strategy. Leaving you frustrated and suspicious of the program, as well as, the benefits of a third party provider. To fully understand this, you must first come to terms… with the terms! Have you ever wondered or questioned what makes up the price you pay for your electricity? All energy bills (whether gas or electric) are composed of two sections or components:

Delivery Charges – These charges are regulated by the state’s Public Utility Commission , Department of Public Utilities, etc. Which are essentially the distribution charges for the service provided to your home or business. Distribution refers to the transportation of electricity and gas from the receiving station to your business via wires and pipelines. Distribution is also regulated by government agencies. There is ‘no option’ to alter or change these service charges.

Supply Charges – These charges are composed of many energy related components and are regulated and vary by state and utility. Supply refers to the generation of electricity. This element of your energy service is deregulated to create competitive pricing based on the economic principle of supply and demand. Companies that generate electricity make their supply available through the competitive, wholesale market. These rates will fluctuate based on a number of factors, such as weather and market conditions for other commodities. However, these are de-regulated… which means that approx 70% of you total energy bill can be shopped to find the best or lowest rate, term and product available to reduce your costs, provide budget certainty and energy strategy. If your business is located in a deregulated market, you have the option to choose a retail energy supplier (or provider) to secure supply from the wholesale market on your behalf at the most favorable rates available.

UNDERSTANDING ENERGY CHOICE
It used to be that you had only one choice when it came to your energy supplier. However, recent laws have introduced deregulation, which means you now have options other than the utility company when choosing your electricity and natural gas supply. Energy choice gives you the option to compare the rates, services, and contract terms offered by retail energy suppliers so you can choose a contract that’s best for your business. Your regional utility continues to service the transmission and distribution portion of your electricity and natural gas bill. Your retail energy provider will process your invoicing and payments, and your bill should clearly describe the costs associated with each component of your energy costs.

Though the word ‘deregulation’ may suggest that retail energy suppliers operate without rules or standards. This is untrue. Retail energy suppliers must be licensed by a government agency to operate within each service area. Deregulation is the process of replacing a monopoly system of electric utilities with competing sellers, allowing individual retail customers to choose their electricity supplier but to still receive delivery over the power lines of the local utility. In the case of the electric industry, this involved the unbundling of the generation portion of electricity supply from the transmission and distribution portion provided by utilities to allow suppliers to compete to provide electricity generation to consumers.

HERE IS WHY…
It begs the questions: So what is driving the costs of energy(specifically electricity) to increase? If gas is cheaper at the pump, why is it costing so much more to run my house and business? To answer these questions one must first understand the field of play… in this case, the PJM Marketplace! Let us assume that most of you reading this live in one of the following states… Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.

This composes what is known as the PJM Interconnection, which is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity throughout the above mentioned state.
In addition, PJM is the regulatory commission that provides everything from Market Settlements to Market Implementation of various tools and resources that essentially keep the PJM (GRID) operational.

Please note that pricing is about to escalate in the PJM Interconnection, specifically in the New Jersey, Delaware and Pennsylvania marketplace.

Energy costs are currently stable and analysts predict that it will remain in good shape. However, It’s the ‘non energy’ related components that keep going up.

Recent market movement and incremental increases are driving the price of supply for both gas and electric supply up. This is a result of many moving parts within the industry, however, recent demand increases and incremental projections scheduled to initiate in June of 2016 have markets running in a unfavorable direction.

Markets recently became increasingly volatile ‘in and around’ September 10th, 2015, upon which it was released that the results of the capacity performance auctions were reacting unfavorably from settlements/losses experienced during the Polar Vortex.

As you may recall, temperatures sank to colder than seasonal freezing markers towards the end of 2013 calendar year. For the first time in recorded history, the freezing temps remained there for a extended period of time. This unusual stretch of time, resulted in historical numbers relative to energy consumption. In fact, they are recorded as the largest ever to date!

BUT, THAT’S JUST SCRATCHING THE SURFACE…
This, complemented by other changes in the energy market, such as increasing reserves requirements during predicted and actual periods of grid-related stress, will lead to higher capacity and energy prices in the short term. PJM believes that by not allowing longer lead time generators to qualify for capacity performance will reduce up-lift, or costs related to out-of-merit generation that reached the hundreds of millions of energy consumers during the Polar Vortex.

Equipped with knowledge from the system performance during the Polar Vortex in January 2014, compounded by concerns regarding coal plant generation retirement in 2015-16 as a result of the EPA’s Mercury & Air Toxic Standard (MATS) rules coming into play, PJM proposes to radically overhaul its existing resource adequacy construct, now the Reliability Pricing Model (RPM), and replace it with a “Capacity Performance” structure. The ultimate goal is to provide PJM with sufficient megawatts (MW) throughout the winter, and more “flexible” MWs that do not require long start-up notice time.

A LITTLE BACKGROUND AND ENERGY RELATED FACTS:
The electricity industry retired nearly 9,800 megawatts (MW) of conventional steam coal-fired generating capacity during the first six months of this year. These retirements represent 3.3% of the amount of operating steam coal capacity existing at the end of 2014. The states with the largest amount of retired coal capacity include Ohio (2,659 MW), Georgia (1,861 MW), and Kentucky (1,409 MW). The
industry plans to retire an additional 3,133 MW of coal capacity this year and nearly 6,000 MW during 2016.

Electricity Consumption: Retail sales of electricity to the residential sector during the first six months of 2015 were 1.7% lower than residential sales during the first half of 2014, as winter and spring temperatures this year were milder than last year. EIA expects residential sales during the second half of 2015 will be 2.1% higher than the same period in 2014 because of comparatively warmer summer temperatures. Forecast residential sales of electricity decline by 0.6% in 2016. Projected retail sales of electricity to the commercial sector grow by 0.7% in 2015, while industrial sector electricity sales fall by 0.2%. EIA expects commercial and industrial sales in 2016 to grow by 1.3% and 1.2%, respectively.
Electricity Generation: While the retirement of some coal-fired capacity has contributed to the decline in coal-fired electricity generation over the past year, the relatively low cost of natural gas has been a more significant driver in coal’s declining generation fuel share and the increase in the share generated by natural gas. During the first half of 2015, coal accounted for 34% of total generation compared with 40% during the same period last year, while natural gas accounted for 30%, up from 25% during the first half of 2014. For all of 2015, EIA expects the annual amount of coal generation will be 8.2% lower than in 2014, and the annual level of natural gas generation will rise by 14.5%. The forecast for coal generation increases slightly (1.4%) in 2016, and natural gas generation falls (3.0%) in response to projected higher natural gas fuel costs.

Electricity Retail Prices: The U.S. retail price of electricity to the (ie) residential sector is projected to average 12.7 cents per kilowatthour in 2015, which is 1.3% higher than the average price last year. The largest price increases are projected to be in New England, where residential electricity prices are forecast to increase by 10.8% in 2015, as electricity distribution companies recover higher generation
and power purchase costs incurred during 2014. Wholesale power prices in New England have been relatively low this year, and EIA expects retail New England prices during the second half of 2015 will be lower than during the first half.

WITH THIS IN MIND…
Recently, it has been noted that PJM’s transmission costs have gone up exponentially. Some resources have implied this is due to generation retirements, such as coal plant retirement, when actually, there are a number of causes of increased transmission costs, particularly over the last few years due to the need to upgrade aging infrastructure.

A major component of these transmission costs are known as Network Integration Transmission Service rates or NITs. The charges under NITs may be offset in the transmission owner’s tariff rates by “Transmission Enhancement Credits”, or transmission upgrades charged to neighboring zones. The customer only sees the netting of the charges and credits. How do these charges increase, you ask? Keep reading!

As an energy consumer, you pay both distribution (local wires) and transmission (higher voltage wires that support long transport from generation to load areas) rates. Transmission rates are filed by each individual transmission owner to reflect its investment (past, present, and potentially future to reliably transport electricity), and permit a return.

Focusing on and understanding how this is going to affect New Jersey residents and businesses is more complex. Structural changes, enhancements, and upgrades to this system have become a necessity and were considered to be eminent when first addressed several years back.

For example, PSEG is currently undergoing an massive investment into building new towers for transmission system upgrade to enhance capacity and service in the northern part of New Jersey, to comply with requirements of operator of that regional grid.

This $975 million Northeast Grid Reliability project is designed to upgrade power service in the northern part of the state, mostly on existing overhead transmission lines, in order to comply with PJM Interconnection’s requirements. This is just one phase of the estimated 3 billion dollar upgrade, multi-year project that is directly responsible for the boost in cost of electricity.

Utility officials believe the project will ensure reliable electric power for nearly 1 million residents and business that require increased electric capacity, provide better quality of service, and reduce congestion on the transmission system.

HOWEVER, THIS IS JUST ONE PAGE OUT OF THIS BOOK OF INCREASED COSTS…
In July, natural gas-fired plants supplied 35 percent of the country’s electricity, just above coal’s 34.88 percent share, the Energy Information Administration said in its Electric Power Monthly report on Thursday. Gas surpassed coal for the first time in April, when it made up 31.5 percent of U.S. generation.
The market battle between gas and coal is escalating as environmental regulations force coal-fired plants into retirement and cheap gas supplies flow out of U.S. shale formations. Gas prices have fallen 10 percent this year to the lowest levels seasonally in at least a decade.

U.S. coal-fired power generation is down 13 percent so far this year, while gas consumption is up 20 percent. A decade ago coal was used to generate half of all U.S. power supplies. The government estimates that the fuel’s share of electricity consumption will be 35 percent this year, while gas will supply 31 percent. It is worth noting that for the second time in U.S. records, natural gas has eclipsed coal as the primary fuel for U.S.

CREATING A MIXED MESSAGE
PJM suggests that the higher energy costs will reduce capacity costs long-term, as a component of the capacity payment nets out energy revenues. They also claim that their Capacity Performance program will attract more efficient generation, with more MWs available, ultimately reducing energy costs.
The jury is out as to actual net cost benefits (there are likely to be reliability benefits), but it’s clear that over the next few years, customers will see significantly higher capacity costs.

IN A NUTSHELL
PJM is trying to force out of the capacity market non-base load generation unless it has firm fuel supply. In other words, it wants nuclear generation in and long lead-time generation out. It wants its gas generators to have access to firm gas supply regardless of weather conditions. It wants its generation to perform as well in winter as in summer, as some generators claimed they weren’t able to run in
cold weather.

PJM plans to accomplish this force out of the capacity market eliminating any excuse for failure to perform, unless due to transmission or distribution outages, and imposing a fairly harsh penalty for failure to perform during critical peak days. In return, generators will be allowed to bid up to the Net CONE amount, or the cost of new entry less revenues received over the past three years based on a
hypothetical gas peaking unit, and may even bid above it if they can demonstrate that their costs, including performance risks, exceed Net CONE. PJM also plans to eliminate the use of renewable resources, unless coupled with firmer supply such as storage, and demand response in the capacity market and instead allow customers to net their peak obligations against the amount of MWs they would be willing to curtail on any day of the year.

With the exception of nuclear plant owners and some gas generators, PJM stakeholders have voiced considerable concerns about the plan for three reasons:

1. PJM plans to transition to its new Capacity Performance structure by introducing an additional procurement of up to 10,000 MWs in 2015-16 and then continue to procure a percentage of additional MWs that would meet the “Capacity Performance” MWs for 2016-17 and 2017-18 for incremental auctions for those delivery years. Yet customers have already paid for capacity during these delivery years because the base residual auction has already cleared. In essence, a nuclear plant owner that cleared the 2016-17 auction will be able to re-offer in the same exact MWs, but at the higher Net CONE cost. Additionally, as part of the transition, PJM would eliminate capacity provided by demand response providers relieving them of their obligations, unless specific obligations can be matched directly to a load eliminating the aggregation benefit many demand response providers rely on, and procure the “vanished” demand response MWs. Many stakeholders question the need to transition to the new structure, particularly because the transition is likely to impose costs of up to $4B.

2. Stakeholders are concerned that the new construct throws too much money at generators that won’t have to make any additional investment to receive that money (nuclear plants), or to generators that may or may not firm up their fuel supplies. The problem PJM appears not to appreciate is that a gas generator may have a firm fuel contract, but if it doesn’t nominate in a timely manner, it may not be able to access the fuel anyway.

3. Furthermore, stakeholders are concerned that the penalties are so high that justifiable risk premiums will increase costs exponentially. The end state of Capacity Performance may increase costs to consumers up to $14B over what they paid in 2014-15.

WILL PJM’S PROPOSAL FIX THESE PROBLEMS AT AN EFFICIENT COST TO CONSUMERS?
Fundamental changes need to be made to PJM’s capacity market. It was structured on the assumption that peak generation was only needed in the summer, not the winter. PJM needs to incent newer, more flexible MWs.

Unfortunately, it’s extremely difficult to predict what PJM will do. Stakeholders met with the PJM Board on November 4, 2014 to plead for more time to discuss the new structure and implore them not to run the incremental auctions under the new construct but to continue to use the existing RPM model.

Demand response providers noted that there’s significant legal uncertainty around the role of
demand response and PJM shouldn’t take actions prematurely until the courts provide more clarity on jurisdictional issues.

Terry Boston, CEO of PJM, announced that the Board has listened to stakeholder input and will be directing staff on what to file with FERC. Stakeholders will not have input on the filing. Additionally, Boston stated that for now, PJM will leave demand response rules in place until receipt of further direction from the courts or FERC.

THE FUTURE OF ENERGY: COULD IT BE GREEN?

RENEWABLES AND CARBON DIOXIDE EMISSIONS
Electricity and Heat Generation from Renewables. EIA expects total renewables used in the electric power sector will decrease by 3.5% in 2015. Conventional hydropower generation is U.S. Energy Information Administration | Short-Term Energy Outlook September 2015 Forecast to decrease by 10.4%, and non hydropower renewable power generation is forecast to increase by 3.2%. The 2015 decrease in hydropower generation reflects the effects of the California drought. Forecast generation from hydropower in the electric power sector increases by 9.2% in 2016.

EIA expects continued growth in utility-scale solar power generation, which is projected to average 89 giga watt hours per day (GWh/d) in 2016. Because the growth is from a small base, utility-scale solar power averages 0.8% of total U.S. electricity generation in 2016.

Although solar growth has historically been concentrated in customer-sited distributed generation installations (rooftop panels), EIA expects utility-scale solar capacity will increase by more than 100% (11 GW) between the end of 2014 and the end of 2016, with 4.1 GW of new capacity being built in California. Other leading states in utility-scale solar capacity include North Carolina and Nevada, which,
combined with California, account for almost 70% of the projected utility-scale capacity additions for 2015 and 2016.

Power plant developers have notified EIA of plans to construct 13 solar projects in Georgia (totaling 607 MW) with expected 2015 or 2016 in-service dates. Five of these new projects (166 MW) will be built on U.S. military bases. Georgia currently has 66 MW of utilityscale solar capacity. According to current law, projects coming online after the end of 2016 will see a federal investment tax credit of 10%, lower than the 30% investment tax credit available for projects that come online before the end of 2016. This impending decline in the tax credit provides a strong incentive for projects to enter service before the end of 2016.

Wind capacity, which grew by 8% in 2014, is forecast to increase by 12% in 2015 and by 13% in 2016. Because wind is starting from a much larger base than solar, even though the growth rate is lower, the absolute increase in wind capacity is twice that of solar: 18 GW of wind compared with 11 GW of utility-scale solar between 2014 and 2016.

REGIONAL RESOURCES CAN ELIMINATE THE POTENTIAL FOR FAILURE
At Regional Resources Energy Group, we offer our clients a strategic approach that will simplify the route to navigate and understand the complexities of energy markets. RREG will identify and provide multiple applications to reduce and capture savings with regard to energy related expenses.

As ‘energy procurement specialists’, we embrace the opportunity to provide a consultative directive relative to the current and future consumption needs and usage for both gas and electric supply at NO COST to you. We work with each client/group to identify and explore their individual energy needs, usage, and current market position relative to third party supply.

Our expertise in advocating for our clients, coupled with our indepth experience in energy procurement, cost reduction strategies, cost recovery, and energy solutions, are all utilized to benefit each client as we approach the market on their behalf.

RREG provides our clients with efficiency in billing and invoicing, budget savings and budget certainty… all while simultaneously reducing the expenses and costs associated with energy. Not to mention, providing ‘fixed’ forecast monthly related expenses… regardless of weather anomalies or changing market conditions.

Essentially, we perform the task of creating an RFP, soliciting for said RFP, and define the best values and procurement routes relative to gas and electric. With NO cost or obligation to the you.

Contact a Regional Resources representative or me directly to discuss how we may assist you with reducing your energy costs today…and in the future!

joseph-simoneJoseph S. Simone, Jr., President
RRMI Regional Resources Energy Group, LLC
Direct: 609.313.3333
Office: 856.528.2399
Fax: 856.528.2904
www.regionalresources.com

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WCRE THIRD QUARTER REPORT: LOCAL MARKET REMAINS STEADY DESPITE NATIONAL ECONOMIC VOLATILITY

Strong Employment Figures, Healthcare and Insurance Expansions Keep the Southern New Jersey CRE Market Moving

LOCAL MARKET REMAINS STEADY DESPITE  NATIONAL ECONOMIC VOLATILITY (PDF)

October 6, 2015 – Marlton, NJ – While the national economy was affected by turmoil in the global markets, the Southern New Jersey commercial real estate market continued its progress for another quarter, according to the latest quarterly analysis from commercial real estate brokerage WCRE. An expected summer slow-down did slow the pace of transactions, but overall growth, expansion, and positive absorption stayed on track. Healthcare, insurance, financial services, defense contracting, and technology companies led the way.

“As in the past several quarters, we saw a healthy volume of transactions due to business expansion and improving job growth during the third quarter,” said Jason Wolf, founder and managing principal of WCRE. “We also saw an uptick in deal activity among small and mid-size businesses, which is welcome good news that the market had been waiting for.”

The report details many factors contributing to continued strength in the market, including large and small lease deals, the beginning of new construction activity, several investment acquisitions of office properties, and continued repositioning among the area’s REITs. It also covers the latest coup for the GROW NJ program, a recently announced 1.7 million square-foot mixed use development along the waterfront in Camden, NJ.

According to WCRE, the third quarter posted approximately 477,983 of new leases and renewals executed. This is a nearly 20 percent improvement over the third quarter a year ago. New tenant leases consisted of approximately 280,360 square feet, and renewals and expansions made up approximately 197,623 square feet. New leasing activity represented approximately 58.7% of all deals for the quarter. Overall, gross absorption for Q3 is in the range of approximately 233,610 square feet. In addition to the consummated deals, there is a pipeline of approximately 350,000 square feet of significant pending lease deals expected to close in the near term.

Other office market highlights from the report:

Overall vacancy in the market continues to drop, and is now down to approximately 12.15 percent, an improvement of three quarters of a point over the previous quarter. Vacancy in Burlington County is now down to 8 percent, while in Camden County it stands at 16.3 percent.
The majority of leasing activity for the third quarter was comprised of deals ranging in size from 3,000-80,000 square feet.

Average rents for Class A & B product continue to show strong support in the range of $10.00-$13.00/sf NNN or $21.00-$23.00/sf gross, with an overall market average showing strong support in the $10.00-$13.00/sf NNN or $20.00-$23.00/sf gross for the deals completed during the quarter. Rents have remained stable.

All of the major private owners and REITS showed moderate leasing and prospect activity for the quarter – with Burlington County vacancies tightening up, many larger vacancy opportunities are also shifting towards Camden County, which is not controlled by these ownership entities.

WCRE also reported on the local retail market, finding moderate growth amid repositioning by major retailers and a few big events in our region. The biggest news was the opening of the Gloucester Premium Outlets in Blackwood, NJ in August, which features 90 retailers. The report also covers major moves involving PNC, Cheesecake Factory, Walgreens, and A&P Supermarkets.

“Even with major retailers like Macy’s and Walgreens shuttering under-performing locations nationwide, malls and outlets report steady consumer traffic and moderate growth, which is likely fueled by the rebound in the labor market,” said Leor Hemo, executive vice president of WCRE.

Highlights from the retail section of the report include:

Overall retail vacancy in the tri-county area is hovering around 10.4%, which is virtually unchanged from the previous two quarters, but is still encouraging compared to recent years.

Class A retail product rental rates continue to show strong support in the range of $30.00-$40.00/sf NNN, as rents have remained stable throughout the year to date.

The full report is available upon request.

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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Can I Recover Legal Fees From a Defaulting Tenant?

Can I Recover Legal Fees From a Defaulting Tenant? (PDF)

By David G. Gunther, Esquire, Hyland Levin LLP October 2, 2015

Lawyers can be expensive, or so clients claim! Unfortunately, a landlord facing a difficult tenant who is not paying rent or who is otherwise breaching the lease will often be forced into legal proceedings. This is particularly true in New Jersey, a notoriously tenant-friendly state where eviction and collection actions must be filed separately and a non-individual landlord (i.e. an LLC or corporation) must be represented by a lawyer. Landlords, therefore, typically work hard to ensure that they can recover their legal fees from their tenants.

THE AMERICAN RULE
In order to preserve the right to recover legal fees from a defaulting tenant, a landlord must include an “attorneys’ fee” provision in the lease. This is because in America, unlike England, litigants are responsible for their own legal fees – regardless of who prevails in court. Thus, a landlord must negotiate the contractual right to recover attorneys’ fees from its tenant.

THE LEASE PROVISIONS
A typical “attorneys’ fee” clause in a lease will allow a landlord to recover its “actual attorneys’ fees” resulting from any “action” or “other proceeding” against the tenant in connection with the lease or leased premises, including evictions and collections. In most cases, the Landlord will only be able to recover its fees if it “prevails” against the Tenant. There is extensive case law regarding what it means to “prevail” in a legal proceeding that settles or is otherwise resolved without a judgment, although sometimes landlords and tenants negotiate their own definition.

Some attorneys’ fee provisions will allow the landlord to seek reimbursement for legal fees incurred before or outside of litigation. This allows the landlord to recover the money it spends on a lawyer to write a default letter demanding a cure, usually prompt payment of rent. Additionally, landlords are sometimes able to negotiate a broader right to be indemnified from any legal fees resulting from the tenant’s conduct. This broader right would protect the landlord if it is dragged into an environmental or personal injury dispute as a result of the tenant’s conduct, for example.

THE IMPORTANCE OF “ADDITIONAL RENT”
Regardless of the scope of an attorneys’ fee clause, it is important that attorneys’ fees be defined
as “additional rent” under the lease. This will allow the landlord to evict a tenant who fails to reimburse it for its legal fees – even if the tenant has otherwise cured all of the defaults under the lease. Defining attorneys’ fees as “additional rent”, therefore, increases the landlords’ chance of recovery while the tenant is in possession of the premises and reduces the likelihood that the tenant will play “legal” games with the landlord.

RECIPROCAL PROVISIONS
In most cases, a tenant will not object to the inclusion of a reasonably drafted attorneys’ fee clause in the lease. The tenant, however, may demand that the provision be mutual. In other words, the tenant will also seek the right to recover attorneys’ fees if it prevails in an action or other proceeding against the landlord. (Notably, as of February 1, 2014, all attorneys’ fee clauses in residential leases must give tenants the same right of recovery that the landlord has.)

CONCLUSION
Including well-drafted attorneys’ fees clauses in leases is essential for protecting the rights of landlords. Without such provisions, a landlord cannot recover its legal costs from a defaulting tenant. Moreover, the very presence of an attorneys’ fee clause may make a tenant think twice before pushing the landlord into court.

David GuntherDavid G. Gunther, Esquire
Hyland Levin LLP
www.hylandlevin.com

Practice Areas:

  • Real Estate
  • Corporate Transactions, Mergers and Acquisitions
  • Food Manufacturing and Legal Compliance
  • Franchise, Distribution and Licensing
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