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Tag Archives: Real Estate


Who Owns the Fixtures at Lease Expiration

Who Owns the Fixtures at Lease ExpirationLet’s examine who owns the fixtures at lease expiration. In order to facilitate a smooth transition between commercial tenants, it is important for landlords to understand their rights regarding items attached to their property. Generally, a lease will govern these rights. However, if the lease is silent on the issue, articles annexed to the property deemed “fixtures” must stay with the property, while articles deemed “trade fixtures” may be removed by a vacating tenant.

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In New Jersey, a fixture is an object that “become[s] so related to particular real estate that an interest… arises under real estate law.” N.J.S.A. 12A:2A-309(1)(a). In contrast, an article may be considered to be a trade fixture if: (1) the article is annexed to the property for the purpose of aiding in the conduct of a trade or business exercised on the premises; and (2) the article is capable of removal from the premises without material injury thereto. Handler v. Horns, 2 N.J. 18, 24-25 (1949). As such, an important distinction between fixtures and trade fixtures is whether removal of the item will cause material injury to the premises. See e.g.
GMC v. City of Linden, 150 N.J. 522, 534 (1997). In applying this test, courts infer that if removal of an article would cause material injury to the premises, the parties must have intended for the article to remain beyond the lease term. Id.

A typical conflict involving this nuanced distinction may involve a vacating tenant removing an item from the leased premises under the assumption that it was (1) attached to the premises for the purpose of conducting a trade or business; and (2) capable of removal without material injury to the premises. A landlord may dispute one or more of these assumptions, arguing that the article was not used in the conduct of business (that it was in fact attached to improve the structure) or is not capable of removal without material injury to the premises.Over the years, vacating tenants have attempted to remove countless items from leased premises, including air conditioning systems, irrigation systems, bolted down light fixtures and even circuit breaker panels, by arguing these items were trade fixtures. See e.g. In re Jackson Tanker Corp., 69 B.R. 850 (Bankr. S.D.N.Y. 1987).

However, it isn’t difficult to imagine a hypothetical where the traditional landlord and tenant arguments are reversed – that is, where the tenant argues that the article must remain with the property and the landlord argues that the tenant is responsible for its removal. This unusual fact pattern may especially arise where the tenant’s business is specialized in nature, and where equipment is not easily removed from the premises.

For example, Landlord rents out space to Tenant, who plans on operating a restaurant. The lease does not specifically address what does and does not constitute a trade fixture. Tenant plans on installing a walk-in freezer and other specialized, complex systems. After several years of operating, Tenant declines to renew the
lease, closes, and vacates the premises. Tenant removes the furniture, appliances not fixed to the premises and other items it deems to be trade fixtures and leaves the walk-in freezer infrastructure. Tenant refuses to remove the walk-in freezer, arguing its removal will cause substantial damage to the premises. Unable to re-let the premises to a restaurant tenant, Landlord is left with a walk-in freezer occupying a substantial portion of the premises. It is important that during the lease negotiation, landlords think carefully about the business their prospective tenant is in, the kinds of equipment the tenant will install and what will happen to that equipment upon termination of the lease. This same thought process applies when landlords receive requests for alterations. In the above hypothetical, Landlord could have avoided being left with a walk-in freezer and a less than desirable space if it addressed the issue during negotiation of the lease. A discussion with prospective tenants concerning the specific kinds equipment the tenant will install is always a good idea, followed by specifications and drawings for approval. Landlords are wise to reduce these conversations to writing, and specifically address each party’s expectations regarding the disposition of specific equipment when the lease inevitably comes to an end. As always, an ounce of prevention is worth a pound of cure.

The contents of this article are for informational purposes only and none of these materials is offered, nor should be construed, as legal advice or a legal opinion based on any specific facts or circumstances.

William F. Hanna, Esquire
Hyland Levin Shapiro LLP
hanna@hylandlevin.com
Hyland Levin Shapiro LLP
6000 Sagemore Drive, Suite 6301
Marlton, NJ 08053-3900
(p) 856.355.2900

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NJEDA COVID-19 Economic Relief Package

NJEDA initiatives aimed at stabilizing and revitalizing local small businesses, midsize businesses, and other early-stage companies.

NJEDA has developed an economic stability approach around three core principles

1. Get funding into the market as soon as possible
► Where possible, adjust existing NJEDA programs to address crisis needs
► Utilize multiple channels / partners to maximize marketing of programs and minimize processing capacity constraints

2. Leverage private, federal, and philanthropic capital where possible to scale impact

3. Provide a suite of compatible offerings to help address varied marketplace needs (e.g., grants, no-cost loans, low-cost loans, loans through intermediaries, technical assistance)

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The CARES Act and Commercial Real Estate

The CARES Act and Commercial Real EstateSigned into law by President Trump last Friday, the CARES Act is designed to provide assistance to American workers, families, businesses, municipalities and health care systems through an over $2 trillion stimulus package. Given the enormous reach of the bill, its impact on commercial real estate, and in particular landlords and creditors, is extensive. Here are some important highlights of the Coronavirus Economic Stabilization Act of 2020 as it pertains to commercial real estate:

What support does the CARES Act provide?

The Act provides direct support to multifamily properties in the form of forbearance relief for those with federally backed loans. Section 4023 of the Act specifies that multifamily borrowers with federally backed multifamily mortgage loans experiencing financial hardship due to COVID-19 may submit a request for forbearance to the borrower’s servicer affirming that the multifamily borrower is experiencing financial hardship as a result of the COVID-19 crisis. Servicers should provide the forbearance for up to 30 days to those multifamily borrowers showing such financial hardship, which forbearance may be extended for two additional 30 day periods. By availing itself of the forbearance under Section 4023 of the Act, a multifamily borrower may not, during the forbearance term, evict or initiate eviction proceedings against a tenant solely for nonpayment of rent or other charges and may not charge any late fees, penalties or other charges to such tenant for late payment of rent. Likewise, multifamily borrowers receiving forbearance may not issue a notice to vacate to a tenant during the forbearance, nor require a tenant to vacate a dwelling unit earlier than 30 days after the date such tenant is provided with notice to vacate. Federally backed multifamily mortgage loans include those purchased or securitized by Freddie Mac and Fannie Mae, making this form of relief available to more than 27,000 properties nationally. The FDIC has also encouraged banks to consider short-term mortgage forbearance for multifamily borrowers facing reduced revenue streams as a result of the COVID-19 crisis.

More generally, the CARES Act supports the commercial real estate industry by providing income assistance to residential tenants and consumers and liquidity, in the form of loans and other relief, to commercial tenants. Making direct payments and providing enhanced unemployment benefits to citizens will help stabilize employment and strengthen residents’ ability to make rental payments during the COVID-19 crisis. Smaller commercial tenants may be able to secure funds for essentials like paying rent, mortgages, utilities and payroll through expanded SBA loan programs.

What actions are restricted by the CARES Act?

The legislation places temporary moratoriums on the ability to foreclose on federally backed mortgage loans and evict residential tenants from covered properties, which include properties that have a federally backed mortgage loan or federally backed multifamily mortgage loan, in addition to those participating in other federal housing programs. Section 4022 of the Act allows a borrower with a federally backed mortgage loan experiencing financial hardship due to the COVID-19 crisis to request forbearance for 180 days, which relief may be extended an additional 180 days. Servicers are to provide the forbearance to requesting borrowers with no documentation required beyond the borrower’s attestation to the financial hardship caused by the COVID-19 emergency, and with no fees, penalties or interest charges beyond the amounts scheduled or calculated as if all contractual payments had been made on time and in full. Servicers of federally backed mortgage loans are also barred from initiating foreclosure, moving for a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or sale for at least 60 days beginning March 18, 2020. Under Section 4024, a 120 day moratorium effective from enactment of the Act was placed on actions to recover possession of a covered dwelling from a tenant for nonpayment of rent or other charges. Residential landlords may not require a tenant to vacate a covered dwelling unit earlier than 30 days after providing the tenant with such notice to vacate, nor issue a notice to vacate during the 120 day period.

What is the latest from New Jersey and Pennsylvania?

Although ever-changing, like everything involving the COVID-19 crisis, landlords and creditors must also be aware of new legislation and current executive and judicial orders issued at the State level. As of this writing, below is the latest information on eviction and foreclosure related limitations in Pennsylvania and New Jersey:

Pennsylvania – On March 16, 2020, the Pennsylvania Supreme Court declared a statewide judicial emergency effective until April 14, 2020. On March 18, 2020, the court made clear that during the judicial emergency, no eviction, ejectment or other displacement from a residence based on failure to make payment is permitted. This appears to only apply to residential/consumer matters and not commercial matters (though arguably a personal guaranty of a commercial mortgage may fall into this category). Pennsylvania state courts are currently closed to the public for non-essential functions through at least April 3, 2020. All time calculations and deadlines relevant to court cases or other business are suspended through April 3, 2020.

New Jersey – On March 19, 2020, New Jersey Governor Phil Murphy signed Executive Order No. 106, which imposes a moratorium on removing individuals from their homes via eviction or foreclosure proceedings. The Governor has asked that financial institutions holding residential or commercial mortgages, equity loans, lines of credit or business loans implement a process to work with the borrowers to avoid foreclosure or default arising out of the financial hardships caused by the COVID-19 pandemic, or any government response thereto. On March 28, 2020, Governor Murphy announced a mortgage payment relief initiative for New Jersey homeowners approved by Citigroup, JP Morgan Chase, U.S. Bank, Wells Fargo, Bank of America and over 40 other federal and state-chartered banks, credit unions and servicers offering (i) mortgage payment forbearance of up to 90 days to borrowers economically impacted by COVID-19, (ii) a moratorium on foreclosure sales or evictions of at least 60 days, (iii) relief from mortgage-related late fees and other charges for at least 90 days for borrowers requesting COVID-19 related assistance and (iv) restricting financial institutions from negative credit reporting for borrowers requesting COVID-19 related relief. He has also instructed residential landlords in the State to work with renters so they can remain in their homes, and warned that those who seek to evict tenants during this time will face stern consequences for violating the eviction moratorium.

What are the implications for residential and commercial landlords?

Given the eviction moratoriums presently in place and the importance placed by the CARES Act on allowing owners and renters to remain in their homes, multifamily owners who experience significant revenue declines may need to make use of the forbearance options or negotiate loan modifications or extensions with creditors. Commercial landlords will likely need to negotiate with both their tenants who are facing significant economic stress in keeping up with rent obligations and their lenders. In the current COVID-19 crisis, being proactive and initiating conversations is definitely preferred over the “wait and see” approach.Borrowers should review their loan covenants now, particularly for any material adverse change, force majeure and similar clauses; test any cash flow or financial covenants; and review any limitations on their ability to modify, cancel or amend leases, property management agreements or other key contracts. Commercial leases must be reviewed to confirm whether the COVID-19 crisis qualifies as a force majeure event or triggers common law doctrines of impossibility, impracticability and/or frustration of purpose which may be applicable depending on the jurisdiction. Co-tenancy, continuous operations, access, exclusive and other use restrictions may also be impacted as a result of State or local restrictions and orders being in effect, for example allowing dine-in restaurant tenants to convert to take-out only service.

Landlords should also take the following actions to strengthen their tenant and lender relationships and in anticipation of heightened lender diligence:

  • Consider imposing new or additional health, safety and maintenance regulations and performing increased cleaning activities at the subject property, and develop an employee or critical staff contingency plan that can be shared with lenders
  • Document all communications with tenants regarding the COVID-19 emergency and any rental payment obligations, but make clear no modifications, forbearance or waivers of any lease terms are approved until documented in a formal amendment or agreement
    Eliminate unnecessary expenses and consider creative solutions to reduce marginal costs
  • Develop a cash flow forecast that projects anticipated liquidity for 30, 60, 90 days based on stated assumptions and update the cash flow forecast with data as information becomes available
    Review all business interruption, rent loss and similar insurance policies to determine whether insurance benefits are available
  • In addition to the above steps, landlords and borrowers would be well served to educate themselves about the relief programs available to their tenants. Encouraging residential tenants to secure direct cash payments under the CARES Act and commercial tenants to consider these new loan programs providing funding for rent payments, should increase the probability that tenants will satisfy their rental obligations.

If you have any questions or to further discuss the impact of the CARES Act on landlords and creditors, please contact Lauren Beetle at 856.355.2913 or beetle@hylandlevin.com or Julie Murphy at 856.355.2992 or murphy@hylandlevin.com.

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Are Letters of Intent a Good Idea?

letters of intentCommercial real estate players use letters of intent (LOIs) or term sheets all the time. Buyers and tenants present offers this way, often to see if a deal can be reached before incurring the costs of negotiating an agreement of sale or a lease (the Definitive Agreement). The key question is whether these agreements are binding or not. The legal principles are fairly easy to state: If the parties intend not to be bound to each other prior to the execution of a Definitive Agreement, the courts will give effect to that intent and the parties will not be bound until the agreement has been fully executed and delivered. This is true even if all issues in the negotiations have been resolved. Conversely, if the parties intend to be bound prior to the execution of a Definitive Agreement, the court will give effect to that intent, and the parties will be bound even though they contemplate replacing their earlier understanding with a later written agreement. Courts have consistently stated that the most important factor in determining whether or which provisions in an LOI are binding is the language used by the parties in the letters of intent themselves.

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Typically, parties draft letters of intent to be partially binding. The letters of intent will contain provisions not intended to be binding and provisions expressly intended to be binding on the parties. The non-binding provisions consist primarily of the “deal points”, such as a description of the key components of a proposed transaction and any important conditions. For an agreement of sale, these include the purchase price, deposit, due diligence period, deal contingencies (e.g. financing, licensing and land use approvals), time for closing and broker payment obligations. For a lease agreement, these include the rental rate, security deposit, tenant allowance, responsibility for repairs and replacements, use and exclusivity terms, brokers and any unique arrangements. The binding provisions focus on the negotiation time period, including access to information, confidentiality, a “no-shop” or exclusivity provision in which the seller or landlord agrees not to sell or lease the subject property to another for a specified period of time, broker representations and protection and non-disclosure (to third parties) obligations. There should be a termination provision and natural end date for the life of the LOI.

The main purpose of typical letters of intent is for the parties to formulate deal points without committing to the actual transaction. Letters of intent provide counsel a blueprint for preparation of the Definitive Agreement, saving time and money. Letters of intent can keep the deal momentum moving forward while negotiating the details of a Definitive Agreement, especially when they contain milestones for delivering a draft and executing a final version. Moreover, an LOI may be necessary for a lender or investor to move to the next step of its process.
However, there are also potential risks in using LOIs. If inartfully drafted, or if the parties act as though they have reached a deal, the LOI may be deemed a binding contract, obligating the parties prematurely.

Further, many courts have found that execution of a letters of intent  creates an obligation for the parties to negotiate, in good faith, a reasonable agreement, which may be an unintended consequence of signing. Another
possible disadvantage of using an LOI is that a party may share the letter with a competing bidder to shop the deal to see if they can get a better offer. Even worse, deal momentum may die while negotiating a trivial LOI provision for a simple transaction that could have gone straight to the Definitive Agreement.

Indeed it is often the case that conceptual agreement on the basic deal points will allow a buyer to prepare
an agreement of sale, without the need to incur the time and expense of negotiating letters of intent. But, for
the complex commercial transaction, an LOI can provide a necessary level of comfort prior to expending significant resources on investigations, inspections, analysis and negotiation of a Definitive Agreement.

If you use letters of intent, be clear and specifically describe the binding provisions, carefully distinguishing them
from the non-binding provisions. If there are no special conditions or complicating factors, go straight to the Definitive Agreement instead of preparing an LOI to avoid unintended consequences, such as a forming a contract or creating an obligation to negotiate in good faith.

The contents of this article are for informational purposes only and none of these materials is offered,
nor should be construed, as legal advice or a legal opinion based on any specific facts or circumstances.

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WCRE APPOINTED EXCLUSIVE AGENT TO MARKET KINGSWAY LEARNING CENTER’S MOORESTOWN AND HADDONFIELD CAMPUS PROPERTIES

Wolf Commercial Real Estate (WCRE) is pleased to announce that it has been retained by Kingsway Learning Center as exclusive agent for the sale and marketing of 144 Kings Highway West, Haddonfield, New Jersey and 244 West Route 38 Moorestown, New Jersey. This high-profile institutional disposition assignment also includes advisory duties for the properties, which are located in the affluent towns of Haddonfield and Moorestown.

The Haddonfield location consists of approximately 50,000 square feet and is situated on 2+ acres. The property is positioned in the downtown business district along Kings Highway. Surrounded by residential homes and an exuberant amount of retail, restaurants and amenities, this property is ideally positioned to be utilized as another school, office headquarter or redeveloped into alternative uses within a prestigious town within Camden County.

The Moorestown location is positioned on Route 38 and consists of 33,000 square feet and is situated on 4 acres of property. This single-story office building offers tremendous visibility with convenient proximity to The New Jersey Turnpike, Route I-295 and front along Route 38 providing for outstanding curb appeal and visibility.

Kingsway Learning Center will be working closely with WCRE to make sure they are considering all options. “For us, this is about community. We will work to ensure that the entity that lands on this site will be a great addition to these high-profile neighborhoods,” said Jason Wolf, founding principal of WCRE.

This assignment adds to WCRE’s growing number of partnerships with institutional and healthcare clients in Philadelphia and Southern New Jersey. It is the firm’s second engagement with Kingsway Learning Center. Earlier this year, WCRE helped facilitate their consolidation of Kingsway’s Moorestown and Haddonfield campuses into a new site in Voorhees, New Jersey. The school leased a 73,000 square foot building at 1000 Voorhees Drive with plans to relocate its pre-school, elementary, and secondary programs for its 175 students to a single site starting with the 2018-2019 school year.

“We look forward to working with an organization whose values align so closely with ours,” said Phil Rodriguez, COO of Kingsway Learning Center.

WCRE’s Chris Henderson, vice president and principal said, “WCRE is proud to partner with Kingsway as our latest institutional relationship in Southern New Jersey. We look forward to applying our WCRE 360 marketing approach to find the right users for these highly-desirable properties.”

WCRE’s institutional specialist team of Chris Henderson and Jason Wolf will be working closely together with Kingsway Learning Center on this disposition initiative.

A marketing brochure is available upon request.

Learn more about Wolf Commercial Real Estate at www.wolfcre.com and Kingsway Learning Center at www.kingswaylearningcenter.org.

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 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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Why Business Owners Should Own Real Estate Personally

Let’s explore why business owners should own real estate personally rather than in a separate corporation. A frequent mistake made by small business owners is to have the operating corporation own the real estate, or to have a separate C corporation own the property and lease it to the business. The reason is that when the company eventually disposes of the property, usually after it has significantly appreciated and been substantially depreciated for tax purposes, a double tax bill will result. First, the corporation will be taxed on the appreciation upon the disposition of the real estate, and then, the shareholder(s) will be taxed on the proceeds of the disposition when they are distributed to them as a dividend or through liquidation. The tax traps are not limited to C corporations. Holding real estate in an S corporation has its own pitfalls. Mortgage debt does not constitute “basis” for tax losses when the accompanying real estate is owned in an S corporation. As most real estate investments yield potentially deductible losses after factoring depreciation on the structure, this could eliminate the tax benefits for a great deal of investors.

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Why business owners should own real estate personally rather than in a separate corporation.

A better approach is for the business owners to own the real estate personally in a limited liability company or
even in a partnership with other investors, and then lease it to the operating business. Among the advantages;

  • The business owner can sell the real estate interest for his or her own account, avoiding tax at the corporate level.
  • The owner can refinance the property for his or her own benefit.
  • Lease payments received by the property owner are not subject to employment taxes and are deductible
    by the company as a business expense.

If the property owner dies while still owning the property, heirs will get it at its stepped-up basis, eliminating tax on all of the gain resulting from appreciation. It’s particularly important for small business owners to engage in careful tax planning with respect to real estate being acquired for use by their business, and I’m sure our buds at WCRE and attorneys they deal with receive frequent requests for assistance with appropriate business and tax strategies as do we at Abo and Company.

While we’re talking real estate and hopefully that which is not titled in corporate form, do you own a property
that has appreciated considerably and that you want to sell? Are you concerned about incurring a large capital
gains tax liability? We reminded WCRE readers in a previous suggestion but one option is to structure the sale as an installment sale. Here the buyer pays the cost of the property plus interest in regular installments, frequently for a period of 5 years, enabling the seller to reflect the capital gain for tax purposes over the entire payment period. Sellers who decide on this strategy are cautioned, however, that an installment sale carries more risk than an outright sale of the property. Thus, the seller needs to:

  • Carefully assess the creditworthiness of the buyer and possibly obtain personal guarantees if the purchaser is a business.
  • Evaluate the future income producing capability of the property to make sure it provides sufficient 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.

Business property transactions are often complex, and the services of knowledgeable professional advisors can be vital in developing strategies that make it possible to bring a contemplated transaction to a successful conclusion.

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

 

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WCRE Foundation Celebrity Charity Golf Tournament

WCRE Celebrity Charity Golf TournamentWhen?

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

Costs?

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

Where?

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

Download Golf and Sponsorship Packet (PDF)

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

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WCRE 2018 FIRST QUARTER REPORT

SOUTHERN NEW JERSEY & PHILLY CRE MARKETS SEE MODERATE GAINS AMID TAX REFORM OPTIMISM AND FINANCIAL MARKET SHAKINESS

April 10, 2018 – Marlton, NJ – Commercial real estate brokerage WCRE reported in its latest quarterly analysis that the Southern New Jersey market is in largely good shape, with moderate gains in leasing activity and strong fundamentals. The firm believes the market may be poised to take off as benefits of the new tax law begin to reverberate in personal and corporate checkbooks.

Download Printable Report (PDF)

“Our market appears to have picked up steam, with a healthy pace of business growth and continuing new investment,” said Jason Wolf, founder and managing principal of WCRE. “Despite corrections ending a long winning streak in the financial markets, the benefits of the new tax law should shore up commercial real estate, especially industrial and office demand.”

There were approximately 272,550 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which was a gain of 23 percent over the previous quarter. Leasing picked up, and the sales market stayed active, with about 1.63 million square feet on the market or under agreement and an additional 320,691 square feet trading hands. The sales figure is a 36 percent increase over the previous quarter.

New leasing activity accounted for approximately 77.2% percent of all deals. Overall, net absorption for the quarter was in the range of approximately 105,250 square feet. Both of these figures represent large increases over the fourth quarter.

Other office market highlights from the report:

  • Overall vacancy in the market is now approximately 11.2 percent, which is more than a full point higher than the previous quarter. This may be attributed to large blocks of space returning to the market.
  • Average rents for Class A & B product continue to show strong support in the range of $10.00-$14.50/sf NNN or $20.00-$24.50/sf gross for the deals completed during the quarter. These averages have stayed within this range for most of this year.
  • Vacancy in Camden County improved steadily last year, but jumped nearly a point to 12.5 percent for the quarter.
    Burlington County vacancy was at 9.9 percent, which was also higher than the fourth quarter.

WCRE has expanded into southeastern Pennsylvania, and the firm’s quarterly reports now include a section on transactions, rates, and news from Philadelphia and the suburbs.

Highlights from the first quarter in Pennsylvania include:

  • Philadelphia’s office market saw a decrease in vacancy in the Central Business District during 2017 and Q1 2018, as demand for office space continues to be strong. Still, we see increasing employment and new construction, both of which bode well for continued strength.
  • Comcast’s second office tower, the Comcast Innovation and Technology Center, is a 59-story (1,121 feet), LEED Platinum certified skyscraper developed by Liberty Property Trust. The development, positioned in the heart of the CBD, will also include a Four Seasons Hotel. The project is estimated to cost $1.2 billion, is expected to be the tallest building in the United States outside of New York and Chicago, and will be the largest private development project in the history of Pennsylvania. Net of the hotel, the property is planned for 1,336,682 SF of office space. Comcast has signed a 20-year lease for 98% of the building, with the remainder available for lease. However, Comcast may fill the remaining space themselves.
  • The project is estimated to cost $1.2 billion, is expected to be the tallest building in the United States outside of New York and Chicago and will be the largest private development project in the history of Pennsylvania. Net of the hotel, the property is planned for 1,336,682 SF of office space. Comcast has signed a 20-year lease for 98% of the building, with the remaining available for lease. However, like with the Comcast Center original headquarters, they potentially may fill the remaining space themselves.
  • At 2400 Market Street, the new Aramark Headquarters is utilizing the former Philadelphia Market Design Center and will comprise the entirety of floors 5-9 on a long-term lease. Thus, the expansion (new inventory) is effectively 100% pre-leased. Estimated delivery is early 2018.
  • The Philadelphia Planning Commission has approved zoning changes to an area west of 30th Street Station, where Brandywine Realty Trust and Drexel University plan their Schuylkill Yards redevelopment project, a 14-acre district of labs, offices, residences and shopping. There is not a definitive timeline for the project. According to Brandywine, the master plan will comprise a total buildout of 2.8 million square feet of office, 1.6 million SF of residential, 247,000 SF hotel, 1 million SF of lab, and 132,000 SF of retail space. This reflects the bulk of proposed inventory in the Center City submarket.
  • Developer Oliver Tyrone Pulver Corp. is proposing a 38-story office tower on a long-empty lot east of City Hall at 1301 Market Street. It will comprise 841,750 SF upon completion if developed once a lead tenant is secured. The tower would tentatively open in 2020.
  • Demand for multi-family product is demonstrating significant growth, with nearly 2,800 units recently completed, 1,250 units under construction, and 3,200 units proposed in the PA suburbs. Within the Center City market, there are 2,200 units under construction with an additional 6,300 units proposed. Market participants are questioning whether these units will continue to be absorbed. Many high-end apartment complexes are facing concessions and compression in rental rates.
  • Quarter-over-quarter, industrial vacancy in Southeastern Pennsylvania was flat at 6.8%. The market’s largest yearly occupancy gains were recorded in Bucks County, where positive absorption totaled 709,530 square feet, and Delaware County, where 233,633 square feet was absorbed. The year’s largest moves were Almo and Amazon occupying 300,000 and 104,000 square feet of warehouse space along Cabot Boulevard in Bucks County in the second quarter.
  • Philadelphia County recorded 169,134 square feet in negative yearly absorption. The increased demand for warehouse and distribution space from e-commerce firms has focused on larger scale properties and newer buildings, both of which are in low supply. E-commerce and logistics warehouses may require anywhere between a few hundred thousand square feet to over 1 million square feet, but the tightness of Philadelphia’s industrial market means that many companies are starting to look outside the city to fulfill their space needs.

WCRE also reports on the Southern New Jersey and Philadelphia retail market.

The first quarter saw a continuation of the unfortunate trend of legacy brands such as Toys R Us and Sears closing stores and/or filing for bankruptcy protection. However, there was good development news in the region, with several healthcare, entertainment, and retail projects receiving approval. Other highlights from the retail section of the report include:

  • Retail vacancy in Camden County stood at 8.4 percent, with average rents in the range of $13.75/sf NNN.
  • Retail vacancy in Burlington County stood at 10.4 percent, with average rents in the range of $14.24/sf NNN.
  • Retail vacancy in Gloucester County stood at 7.0 percent, with average rents in the range of $14.83/sf NNN.

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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What Port Development Means for Industrial Real Estate

Gateway Port Development

There was a special focus on how port-related issues are driving real estate development at last week’s Bisnow National Industrial and Logistics Summit Northeast held in New York. Bisnow’s Miriam Hall did a great report on the experts’ view of commercial real estate market trends. Beyond the supply and demand of the current market, there were a few longer-term trends and issues that recurred throughout the day.

It’s all about the trucks

Trucking is the key mode of transport for moving goods in and out of ports, and it is increasingly the link in the supply chain driving the nature of industrial real estate development. Depending on who you ask, there’s either a shortage or truckers or a terribly inefficient allocation of existing resources. Either way, it’s creating a growing burden on logistics: the average age of truck drivers is now is 57, costs are up as much as 35%, and the American Trucking Association ATA estimates there is a shortage of nearly 69,000 truckers.

ELDs

Another hot topic of discussion throughout the day was the state of the trucking industry and the effect of mandated Electronic Logging Devices (ELDs). ELDs bring the traditional DOT-required driver logs into the 21st century by automatically tracking hours of service. While the system could lead to greater safety, there are significant costs for initial investment, especially for smaller owner/operators. The new system also means that a few minutes delay here and there cannot be fudged as many acknowledge has been done in the past, making efficiency even more important.

Gateway Ports

Going forward, experts see the maritime industry coalescing around a limited number of “gateway” ports capable of providing the infrastructure and service needed to compete for container traffic. With an expanded Panama Canal and larger ships, channel depth and air draft are two of the most obvious attributes that will define gateway ports.

Equally important is what you do with cargo once it’s offloaded. Larger ships and fewer steamship lines create the risk that gateway ports will become choke points unless they can achieve the velocity needed to move goods quickly through the port. Many ports have established truck appointment systems, and ELD requirements are only putting greater pressure on scheduling. Facilities need to be configured to handle this volume, and having a sufficient number of Customs agents on hand when cargo is moving through is vital.

Site Selection

Low supply and high demand means that warehousing properties situated near ports are commanding a premium right now. Long-term, experts expect distribution points to move closer to markets as land become more scare at ports.

That need in part prompted the Port of Virginia to create inland intermodal facilities to which containers are transported by rail and barge for distribution. Not only does this solve the landside storage problem, it avoids the need for added truck traffic at the port. The future will likely bring strategic alliances between private developers and public ports (especially landlord ports) to solve these warehousing and transportation issues.

Site Design

The changing nature of logistics activity is driving changes in the physical configurations and attributes of warehousing as well:

  • E-commerce fulfillment centers require more parking (and more land) than traditional distribution facilities.
  • The configuration of dropyards will need to be more efficient to minimize ingating and outgating times.
  • Next-day delivery will drive more multistory warehouse/industrial uses in urban areas. These are expensive build, and older building stock may not have required clearances and engineering.
  • Expect to see vacant big box start to fill last-mile needs.

Technology

As with many industries, technology is affecting logistics in the present and not-too-distant-future:

  • Electric trucks: Can save 25 cents/mile, helping to offset ELD compliance costs and dampen effect of low supply.
  • Load-Matching Apps: Sometimes called Uber for trucks, linking truckers with loads to improve utilization of trucking resources. Two of the most prominent are Convoy and Transfix.
  • Blockchain: Encrypted transactions of products more attractive.
  • Drone delivery: FAA clearance could one day be a factor in site selection.

 

Anthony V. Mannino

Chief Operating Officer, Wolf Commercial Real Estate (WCRE)

Sr. Consultant, Triad Strategies
Board Member, PhilaPort

Greater Philadelphia Area Commercial Real Estate

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New Jersey Marijuana Reform Presents Commercial Real Estate Opportunities

New Jersey Marijuana Reform

New Jersey Marijuana Reform

Let’s look at New Jersey Marijuana Reform and Commercial Real Estate. Governor Phil Murphy campaigned on a pledge to fully legalize marijuana in New Jersey. On January 23, 2018 he signed an Executive Order directing a complete review of New Jersey’s existing medical marijuana program within 60 days, which sets the stage for legalizing recreational marijuana. Presently, only medical marijuana is legal under a New Jersey law enacted in January 2010. Likely marijuana reform presents unique real estate investment opportunities and will probably increase the demand for commercial and industrial real estate. However, there are significant risks that must be carefully considered before making any investment decisions, including criminal and civil liability (including property seizure) if federal laws are enforced, and a limited number of potential lenders and buyers.

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Opportunities Associated with New Jersey Marijuana Reform

New Jersey Marijuana Reform presents a unique opportunity to be capitalized upon by risk tolerant investors willing to invest in real estate and benefit from the cannabis trend. Vacancy rates may decline based on the experience in other states following marijuana legalization and expansion, where cannabis suitable commercial real estate became hot commodities.

For example, in four states with legalized recreational cannabis (i.e. California, Colorado, Oregon and Washington), industrial real estate prices surged. In some Denver neighborhoods, the average asking lease price for warehouse space reportedly jumped by more than 50 percent from 2010 to 2015. Industrial space has been in high demand due to both marijuana growers and manufacturers seeking industrial warehouses to cultivate and process their product. Commercial real estate prices have also experienced double digit annual increases in some markets.

Risks Associated with New Jersey Marijuana Reform

The federal government does not recognize a legitimate medical use of cannabis and can impose criminal or civil liability under the Controlled Substances Act. Marijuana is currently classified as a Schedule I drug, which puts it
under the same category as heroin, cocaine, peyote, meth and fentanyl. It is currently illegal under federal law
to lease or rent real estate for the purpose of manufacturing or distributing any controlled substance. However,
the Department of Justice can direct the enforcement of these laws differently between administrations, as the
Obama Administration issued guidance discouraging the enforcement of federal marijuana laws in states where it had been legalized. United States Attorney General Jeff Sessions has long been strongly opposed to the legalization of marijuana and there is a fear of federal enforcement among owners, developers and lenders as long as the federal and state positions remain at odds. It is tough to make long term real estate investments without clarity predicated on the assumption that the federal government will not enforce its own laws.

Banks traditionally answer to federal regulators and risk losing their licenses by dealing with marijuana businesses. Federal banking laws also prevent banks from lending to or accepting deposits from illegal businesses. The federal government is also allowed to seize property. Thus, obtaining financing from traditional sources and collecting rents is difficult. Borrowing costs will therefore likely be higher than a typical real estate transaction, and tenants may be limited to properties that are owned free and clear of traditional financing.

Therefore, many companies that get into the marijuana business try to buy and control their own real estate. If the state approves expansion, it will probably issue licenses allowing business to legally sell recreational marijuana in designated places, and businesses must find a local jurisdiction that will allow them to operate.

Towns will need to change their zoning ordinances to allow for such uses.

What Does This Means for Commercial Real Estate Investors?

Higher risks will likely translate into higher rents for commercial and industrial landlords based on anecdotal evidence seen in California, Colorado, Oregon, Washington and other states that have permissible marijuana laws. Developers, landlords and investors with a suitable risk tolerance should closely follow the state’s progress in introducing and passing legislation to accomplish Governor Murphy’s goals and evaluate potential opportunities and risks. They should also monitor subsequent municipal efforts to accommodate such uses by amending their zoning ordinances, and work to identify potential opportunities in suitable locations.

The contents of this article are for informational purposes only and none of these materials offered are, nor should be construed as, investment advice, legal advice or a legal opinion based on any specific facts or circumstances.

kenneth-morgan

 

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WCRE 2017 FOURTH QUARTER REPORT

SOUTHERN NEW JERSEY & PHILLY CRE MARKETS FINISH A STRONG 2017 WITH STRONG FUNDAMENTALS BUT MIXED RESULTS

January 8, 2018 – Marlton, NJ – Commercial real estate brokerage WCRE reported in its latest quarterly analysis that the Southern New Jersey market is in largely good shape, despite a seasonal drop in leasing activity.

 

“Aside from an expected leasing slow-down in the fourth quarter, 2017 was a strong year for our market,” said Jason Wolf, founder and managing principal of WCRE. “All the elements for success are in place, including a labor market that is heating up, record gains in the financial markets, and continued deal and prospecting activity and enthusiasm.”

There were approximately 210,525 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which was about half the total compared with the previous quarter. While leasing slowed considerably, the sales market stayed active, with more than 1.88 million square feet on the market or under agreement and an additional 205,364 square feet trading hands.

New leasing activity accounted for approximately 25.7 percent of all deals. Overall, net absorption for the quarter was in the range of approximately 65,250 square feet.

Download The Report (PDF) >>>

Other office market highlights from the report:

  • Overall vacancy in the market is now approximately 10.1 percent, which is an uptick of a third of a point from the previous quarter.
  • Average rents for Class A & B product continue to show strong support in the range of $10.00-$14.50/sf NNN or $20.00-$24.50/sf gross for the deals completed during the quarter. These averages have stayed within this range for most of this year.
  • Vacancy in Camden County improved throughout the year, standing at 11.7 percent for the quarter, up a bit from the third quarter, but down from 13.3 percent at the beginning of the year.
  • Burlington County vacancy was at 8.5 percent, a slight increase in a year that saw marked improvement overall.

 

WCRE has expanded into southeastern Pennsylvania, and the firm’s quarterly reports now include a section on transactions, rates, and news from Philadelphia and the suburbs. Highlights from the first quarter in Pennsylvania include:

  • Philadelphia’s office market saw increasing vacancy in the Central Business District during 2017, as several large tenants emphasized efficiency and returned large blocks to the market. Still, we see increasing employment and new construction, both of which bode well for continued strength.
  • The Philadelphia retail sector continues to struggle. It has been affected by the same challenges facing retail businesses everywhere. Namely, the shift to online retailing. Still, there were some positive signs amid the announced store closings and bankruptcies. Community shopping centers remain an area of strength in the market, with vacancy rates nearly half the national average.
  • The Philadelphia industrial market continues its hot streak, and the outlook is positive. Vacancy rates for flex and industrial properties in Philadelphia are well below the regional and national averages, and this is expected to continue. Industrial vacancy in Philadelphia is currently at 7 percent, and net absorption was in the range of 1.7 million square feet.

WCRE also reports on the Southern New Jersey and Philadelphia retail market, noting that holiday spending reached the highest levels since 2011, with both online and brick-and-mortar retailers reaping gains. Overall holiday retail sales posted gains of 4.9 percent over last year, with online retailers gaining 18.1 percent. Other highlights from the retail section of the report include:

  • Retail vacancy in Camden County stood at 8.5 percent, with average rents in the range of $12.75/sf NNN.
  • Retail vacancy in Burlington County stood at 9.9 percent, with average rents in the range of $13.83/sf NNN.
  • Retail vacancy in Gloucester County stood at 7.2 percent, with average rents in the range of $14.64/sf NNN.

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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WCRE Third Quarter Report: Fundamentals Remain Strong

SOUTHERN NEW JERSEY & PHILLY CRE MARKETS PERFORMING STEADILY

October 6, 2017 – Marlton, NJ – Commercial real estate brokerage WCRE reported in its latest quarterly analysis that the Southern New Jersey market is in good shape, but remains in somewhat of a holding pattern.

“For most of 2017 we have seen an overall positive tone and conditions that usually indicate a period of strength,” said Jason Wolf, founder and managing principal of WCRE. “The national economy has been adding jobs, the financial markets are on a hot streak, and our market continues to attract outside investors – yet increased activity and enthusiasm are tempered by trouble in the retail sector and uncertainty related to current events.”

There were approximately 421,113 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which represents an increase of approximately 6.6 percent compared with the previous quarter, and a 15 percent increase over the same period last year. While leasing showed moderate gains, the sales market was quite active during the third quarter, with more than 1.76 million square feet worth more than $105 million of completed sales transactions trading hands.

New leasing activity accounted for approximately 43.3 percent of all deals. Overall, net absorption for the quarter was in the range of approximately 91,600 square feet.

Download The Report (PDF) >>>

Other office market highlights from the report:

  • Overall vacancy in the market is now approximately 9.75 percent, which is a solid improvement over the previous quarter.
  • Average rents for Class A & B product continue to show strong support in the range of $10.00-$14.50/sf NNN or $20.00-$24.50/sf gross for the deals completed during the quarter. These averages have stayed within this range for most of this year.
  • Vacancy in Camden County maintained its dramatic improvement, standing at 10.8 percent for the quarter, down from 13.3 percent at the beginning of the year.

WCRE has expanded into southeastern Pennsylvania, and the firm’s quarterly reports now include a section on transactions, rates, and news from Philadelphia and the suburbs. Highlights from the first quarter in Pennsylvania include:

  • The Philadelphia industrial market continues its hot streak, and the outlook is positive. Vacancy rates for flex and industrial properties in Philadelphia are well below the regional and national averages, and this is expected to continue.
  • Philadelphia’s office market continues to gain strength across the board, with far lower vacancy rates than regional and national averages for both Class A and Class B properties in the Central Business District and the suburbs. We see increasing employment and new construction, both of which bode well for continued strength.
  • The Philadelphia retail sector is the one area that is not performing well. It has been affected by the same challenges facing retail businesses everywhere. Namely, the massive shift to online retailing and away from brick-and-mortar. Still, there were some positive signs amid the announced store closings and bankruptcies. Community shopping centers remain an area of strength in the market, with vacancy rates nearly half the national average.

WCRE also reports on the Southern New Jersey and Philadelphia retail market, noting slight declines in consumer confidence and related metrics as the third quarter wound down. Overall retail sales were 3.2 percent higher this year compared to 2016, and were likely impacted by the major hurricanes affecting Texas and Florida in late August and early September. Highlights from the retail section of the report include:

  • Retail vacancy in Camden County stood at 9.5 percent, with average rents in the range of $12.47/sf NNN.
  • Retail vacancy in Burlington County stood at 10.7 percent, with average rents in the range of $13.38/sf NNN.
  • Retail vacancy in Gloucester County stood at 7.9 percent, with average rents in the range of $14.10/sf NNN.

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 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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