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WCRE 2018 THIRD QUARTER REPORT

SUMMER SLOWDOWN SLIGHTLY COOLS SOUTHERN NEW JERSEY & PHILLY COMMERCIAL REAL ESTATE MARKETS

Activity and Prospecting Both Take a Dip

October 11, 2018 – Marlton, NJ – Commercial real estate brokerage WCRE reported in its latest quarterly analysis that the Southern New Jersey market took an expected pause in the third quarter of 2018. Leasing and sales dropped off somewhat from their earlier pace, but the market still shows overall solid fundamentals, continued new investments from outside of the region, and economic inflows to support local expansion.

“A lot of the positive trends we’ve been tracking for several quarters are still in place, so there are reasons to stay bullish,” said Jason Wolf, founder and managing principal of WCRE. “But activity did cool off noticeably, at least in part due to summer.”

There were approximately 274,931 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which was down about 10.5 percent compared to the previous quarter. The sales market stayed active, with about 1.43 million square feet on the market or under agreement. This metric was essentially unchanged.

New leasing activity accounted for approximately 32 percent of all deals. Overall, gross leasing absorption for the quarter was in the range of approximately 194,282 square feet.

Download Printable Report (PDF) >>>

Other office market highlights from the report:

  • Overall vacancy in the market is now approximately 11.3 percent, which is nearly one point higher than the previous quarter.
  • Average rents for Class A & B product continue to show strong support in the range of $10.00-$15.00/sf NNN or $20.00-$25.00/sf gross for the deals completed during the quarter. These averages have stayed near this range for most of 2018.
  • Vacancy in Camden County increased to 12.3 percent for the quarter.
  • Burlington County vacancy was up more than a full point to 10.4 percent, after falling during the first half 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 vacancy rate in Philadelphia’s office market inched up to 8.1 percent in the third quarter. It stood at 7.9 percent in Q2 2018. Demand for office space continues to be strong, and the office vacancy rate is a full point below the national average.
  • Net office space absorption in Philadelphia was down compared to Q2, but still positive, at 443,032 square feet for the quarter.
  • The industrial sector is as strong as ever in Philadelphia. The third quarter saw a further decrease in vacancy rates, to 5.4 percent, net absorption in the range of 6.1 million square feet, and average rents at $5.36 per square foot. All of these figures were improvements over the previous quarter.
  • Philadelphia retail was largely flat in Q3. The vacancy rate ticked up a tenth of a point, to 4.4 percent, while net absorption was negative after three consecutive quarters of very positive absorption. Net absorption was -273,875 square feet. This number was impacted by large stores such as Sears and Bon-Ton shuttering locations.

WCRE also reports on the Southern New Jersey retail market. The third quarter saw consumer confidence inch upward in September after dramatic improvement in August. It is in the range of 18-year highs. The job market is remarkably strong, supporting consumer spending and reverberating through other indicators.

Other highlights from the retail section of the report include:

  • Retail vacancy in Camden County stood at 7.4 percent, with average rents in the range of $15.38/sf NNN.
  • Retail vacancy in Burlington County stood at 8.2 percent, with average rents in the range of $13.84/sf NNN.
  • Retail vacancy in Gloucester County stood at 7.6 percent, with average rents in the range of $14.77/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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Preparing Commercial HVAC Systems for Winter

Preparing Commercial HVAC Systems for WinterWith the fall season in full swing, it’s time to start preparing commercial HVAC systems for winter, well before Ol’ Man Winter comes to town. Hutchinson, a leading energy services and mechanical services contractor serving the region’s commercial customers, offers tips to help add life to your systems, enhance comfort and improve your bottom line.

Download Printable PDF>>>

Seven Tips for Preparing Commercial HVAC Systems for Winter

1. Use Energy Star Portfolio Manager
Use Energy Star Portfolio Manager to see how your building rates with other similar buildings. If you rate low, there are many things you can do to improve the operation of your building.

2. Check HVAC settings
Check HVAC settings to get maximum efficiency. Set your thermostat at 68°during the day and at 60° at night. You can save approximately 3% on heating costs for every degree under 70.

3. Install a programmable thermostat.
A web and cloud based control system offers peace of mind by keeping settings maintained during and after office hours.

4. Establish a preventive maintenance program.
• Change or clean all air filters, preferably every month.
• Repair leaks in piping, air duct s, coils, fittings and at the unit(s).
• Replace defective equipment insulation, ducting and piping.
• Install/upgrade HVAC controls to include new energy management systems technologies.

5. Clean Heating Ducts
Heating ducts should be cleaned periodically to allow efficient heating and provide fresh, clean air. Also check to make sure the ducts are properly insulated.

6. Take Advantage of Energy Efficiency Programs
Hutchinson is a designated contractor of Direct Install, a program offered by New Jersey Office of Clean Energy. Upgrade to energy efficiency with Direct Install and 70% of the cost will be covered for energy upgrades, including lighting and HVAC equipment. Instead of pumping money into your outdated, inefficient units, why not upgrade to a new, state-of the-art energyefficient system?

7. Conduct daytime/nighttime audits.
Check to see if the lights are on. Is the building comfortable? Make adjustments as needed.

Contact Hutchinson at 888-777-4501 or dicoordinator@hutchbiz.com for help preparing commercial HVAC systems for winter

About Hutchinson
Hutchinson is a leading energy/mechanical service contractor performing energy services, mechanical construction and retrofit installation work in the Greater Philadelphia Tri-State Region. Hutchinson’s
technicians are factory trained, NATE certified and are on-call 24/7 365 days a year. Visit www.hutchbiz.com for more information.

ed-hutchinson

Third Annual WCRE Celebrity Charity Hockey Game Raises $60,000

The Third Annual WCRE Charity Hockey Game was another success, raising $60,000 to be shared by several charitable causes.

The game, which was played At the Flyers Skate Zone in Voorhees this past Saturday, is the brainchild of Philadelphia Flyer legend and WCRE director of strategic relationships Brian Propp. Blending community fun with sports fantasy camp, WCRE brought several Flyers Alumni fan favorites back to the ice for a game alongside thirty area business leaders. Over its three years, the WCRE Foundation has successfully raised $200,000 from its community fundraising efforts.

Joining The WCRE Foundation for this year’s event were former Flyers Brian Propp, Brad Marsh, Doug Crossman, Kjell Samuelsson, Andre Faust, Todd Fedoruk and Ray Allison. Philadelphia Sports Hall of Fame inductee Lou Nolan, public address announcer of the Philadelphia Flyers, served as emcee. This year Kerry Fraser served as referee. Fraser was a referee in the NHL for 30 seasons, including officiating 12 different Stanley Cup Finals series.

All proceeds from the event will be shared among the Alzheimer’s Association Delaware Valley Chapter, the American Cancer Society, CARES Institute at Rowan Medicine, the Jewish Federation of Southern New Jersey, Philadelphia Flyers Alumni Association supporting Ed Snider Youth Hockey, Samaritan Healthcare and Hospice and Susan G. Komen-Philadelphia.

Additionally, each of these organizations benefits from WCRE’s long-standing practice of donating a portion of its proceeds from transactions to an area charity. Learn more about this program at http://wolfcre.com/community-commitment/.

“This event gets better every year. We had more sponsors, more spectators, more raffle prizes, and most importantly, more money going to our charitable partners,” said Jason M. Wolf, managing principal of WCRE. “The WCRE team thanks our friends, neighbors, and business associates for their involvement in our efforts to improve the lives of others in the community.”

See a video recap of the game featuring comments from the participants, sponsors, and beneficiaries below:

Donations can still be made @ https://bit.ly/2zvGTXI

 

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 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.

Tenant Improvements and Betterments

Tenant Improvements and BettermentsLet’s explore how Tenant Improvements and Betterments impact insurance. Suppose that a landlord leases a storefront to a retailer that makes improvements to the facility by adding features to help sell its products. During the lease, a fire breaks out and damages the building, including the features added by the retailer to improve the space. When the insurance claims are made, the following questions arise:

• Who did the improvements belong to?
• Who is responsible for paying the damages?

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Defining Tenant Improvements and Betterments

While legal definitions vary, improvements and betterments are anything that a tenant attaches to the landlord’s real estate that becomes a permanent part of that real estate. Under most leases, such improvements become the property of the landlord and tenants are responsible for repairing or replacing the improvements in the event of loss. However, property policies can be customized to determine whether tenants’ improvements and betterments are covered under the building category or under the contents category.

A Landlord’s View of Tenant Improvements

When a tenant makes substantial improvements and betterments to a building, it adds to the building’s value. In order to realize this added value, the landlord needs to clearly establish who is responsible for damages to that property to avoid insurance complications. In doing so, the landlord typically has to make one of the following decisions:

1. Increase the limits of the property insurance policy to account for this extra value.

2. Add a clause to the rental contract stating that the tenant is responsible for damages to improvements and betterments.

In the absence of one of the aforementioned decisions, the landlord may face penalties in the event that he or she has to make an insurance claim. For example, if a tenant makes $100,000 worth of improvements and betterments to a property that was initially worth $500,000, and a fire destroys the entire building, the insurance adjuster will value the property at $600,000 when processing the claim. But, since most landlords’ property policies consider improvements and betterments as covered property, the landlord may be charged an underinsured penalty if the building’s policy hasn’t been increased to reflect the amount of the improvements
and betterments.

A landlord who does not wish to insure for the values of the improvements and betterments should specifically exclude them.

A Tenant’s View of Tenant Improvements

If the lease requires the landlord to repair or replace tenants’ improvements and betterments that become damaged, the tenant does not need to insure them. In contrast, if the lease does not require the landlord to repair or replace tenants’ improvements and betterments, tenants need to make sure they are covered under their own property policy.

 

Tenant Improvements – Considerations When Entering a Lease

When entering into a new lease or renewal, it is critical for both landlords and tenants to carefully review the terms of the lease to ensure that it adequately delegates the responsibility for insuring tenant improvements and betterments. It is also important to make sure that each party’s insurance policy is adequate enough to properly protect the scope of the tenant improvements agreed upon in the lease. When reviewing the lease, both the landlords and tenants should discuss the following questions:

• Who owns the improvements?
• Who is responsible to replace the improvements if damaged?
• Which insurance policy covers the improvements—the landlord’s or the tenant’s?
• Is the policy adequate?

Insuring Tenant Improvements and Betterments

Tenant Improvements and betterments are not difficult to insure, as a building’s insurance forms automatically cover them. However, many landlords expect their tenants to insure any improvements and betterments that are
made, and some landlords refuse to increase the value of their building policies to reflect the new value of such changes. Therefore, it is important to understand the insurance ramifications of tenants’ improvements and betterments. Hardenbergh Insurance Group can help you identify your exposures and make appropriate recommendations.

For more information on Tenant Improvements and Betterments

Brian Blaston, Partner
Hardenbergh Insurance Group
phone: 856.489.9100 x 139
fax: 856.673.5955
email: brianb@hig.net
www.hig.net

Is Open Floor Office Design Good for Business?

Open Floor Office DesignIt’s tempting to consider open floor office design for your new headquarters, but is open floor office design good for business? Open floor offices advertise their collaborative environment and cheap rent, but is this true? Most likely not. You’ll come to find that the privacy of cubicles will be sought after, once the thrill of an open floor office wears off. Productivity will suffer, and so will your company work ethic.

Cubicles may not be as visually appealing, but they serve their purpose in keeping your business running smoothly. Open floor offices may have negative effects on your business that you’ve never thought of but should consider. If you’re currently renting open floor offices, a few of these points may feel a bit familiar. If
you haven’t hit “PAY” yet, read this before you are making your final decision.

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Open Floor Office Design Problem #1 – HIGH PERFORMANCE EMPLOYEES NEED QUIET SPACES

It is no surprise that open floor spaces are loud. When there is chatter all around you, it’s hard to focus on your work at hand. There could be someone on a call, or a group of coworkers discussing their next business strategy, and maybe even a disagreement that’s within earshot. To you, this is just noise. You must reset your brain multiple times to zone back into your project in front of you.

Open Floor Office Design Problem #2 – JOB SATISFACTION OR NOT SO MUCH?

A study investigated the correlation between office type and employee job satisfaction. It revealed that those who worked alone in cellular offices and those who worked in a room shared with one other colleague experienced a positive work experience. However, as the number of co-workers increase in a room, job satisfaction decreased. Sure, you’ll save money on an open floor office, but you’ll pay for it in the long run with the costs associated with job satisfaction going down. It’s more cost effective to consider the impact an office type will have on employees rather than solely focusing on the short-term financial benefits.

Open Floor Office Design Problem #3 – LACK OF INTERACTION

Unfortunately, face-to-face interaction decreases in open floor offices, the opposite effect of what an open layout is going for. Communication through emailing and instant messaging increased and productivity declined. Because everyone is constantly surrounded by people, there was no longer the privacy that cubicles
provided. Online interactions increased as a result. Some may even go as far as to avoid more interaction with team members. Having so many people around you
can be overstimulating. You’ll see earbuds in and coworkers making the effort to avoid as much contact with others as possible.

Open Floor Office Design Problem #4 – VISUALLY DISTRACTING

When you’re in such close proximity to so many other team members, it’s visually distracting. In open floor offices, you’re surrounded by people that may not necessarily be in your department or even your company. Not only is their presence distracting, but their projects can also disrupt your work ethic. You could be bombarded with questions about what you do and how you do it, something you wouldn’t have to worry about if you were in a cubicle.

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WCRE EXPANDS REGIONAL TEAM WITH TRIO OF NEW HIRES

WCRE EXPANDS REGIONAL TEAM WITH TRIO OF NEW HIRES

Team Members to Serve Philadelphia and Southern New Jersey Markets; Support Company Marketing

September 5, 2018 – Marlton, NJ – Wolf Commercial Real Estate (WCRE) is pleased to announce the hiring of three new members of our firm serving our southeastern Pennsylvania and Southern New Jersey teams.

April Loomis has joined the WCRE team as a Senior Sales Associate focusing on the Southern New Jersey market.  Loomis brings over 25 years of professional experience with major corporations in the region, having recently served as a Contracts Manager at Lockheed Martin and Comcast Corporation.   She has been licensed as a New Jersey Salesperson since 2012.  April is also active in the local community and has numerous civic and professional affiliations.  She is a member of the National Contract Management Association, the Gloucester County Board of Realtors, and the Witches of East Greenwich Charity Organization.  She serves as Vice President of the Villages of Whiskey Mill Homeowners Association and is a New Jersey State Bar certified Paralegal.

Mitchell Russell has joined WCRE team as the firm’s newest sales associate in Pennsylvania.  Russell will generate and service new business in the office and industrial sectors for clients in Philadelphia and its suburbs.  Russell is a recent Duke University graduate, where he was a member of the Duke University lacrosse team and a proud four-time ACC honor roll member.  As a senior this past year, Mitch helped lead the 2018 Blue Devils to the national championship game.

Nora Farghaly has joined WCRE as a Marketing Coordinator and Administrative Assistant.  Farghaly will bring new ideas to WCRE’s best-in-class marketing team and enhance client service by providing additional broker support.  Nora brings more than five years of experience designing, creating and executing marketing campaigns across various industries through her independent marketing consultancy NF Design.  She has also served in marketing roles at Valley National Bank, Golf Performance Institute, ANCERO, and Compass Group at Rowan University.

“I’m excited to have such talented new team members servicing our clients in Philadelphia and South Jersey,” said WCRE Managing Principal, Jason Wolf.  “Our people have always been our biggest asset and our biggest advantage in the marketplace.”

FULL PDF VERSION OF PRESS RELEASE HERE

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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Commercial Building Life Expectancy Isn’t What It Once Was

Commercial Building Life ExpectancyBuilding life expectancy isn’t what it used to be. What to do with obsolete commercial buildings and how to prevent your portfolio from falling into the trap. Buyers, owners, investors and developers of real estate are facing questions regarding how properties are valued in the current market, especially where there are problems appraising a property’s highest and best use. More specifically, this question focuses on reversion value.

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Commercial Building Life Expectancy – Multiple Cases

Recent Class B or lower valuation projects (as well as some lower level Class A properties) have presented serious, widespread questions from a valuation standpoint. The main question is simple: What should be done with “obsolete” buildings?

Historically, such a question became pertinent only after 50-100 years. Buildings were “built to last,” and most were designed to be updated over time. Part of the reason for that long horizon was that ample land was available for expansion. Another was that zoning was very prescriptive and clearly defined in many ways. Lastly, fixed real estate was a capital-intensive asset class.

In the past five years alone, that question, however, is now being asked about buildings that are only 20 to 30 years old. Many buildings that have been constructed in the last 30 years or so, like suburban office buildings and parks, retail centers and malls, some well located industrial parks and even sports stadiums, now face the wrecking ball because they are, effectively, obsolete. Some investors report that many U.S. submarkets, for a variety of uses, are “under-demolished.”

What is driving Decreased Commercial Building Life Expectancy?

The short answer is technology. The longer answer is human interaction with technology.

Historically, most companies had fairly simple operations and spatial needs, so real estate decisions were driven by location and/or resources, with physical building changes limited by cost and location. The current digital revolution, however, is changing that—literally at the speed of light. Locations are not as “fixed” as they were previously, and businesses’ physical space needs tend to change quickly due to technological shifts. Flexibility will be the key to long-term survival in all industries, including real estate.

Traditionally, real estate has been a fixed asset acquired at high prices compared to most assets. Such requirements mandated long lead times, high fixed costs, significant capital resources, segregation of uses, long-term contracts (i.e., leases and mortgages) and zoning. The industry faces the challenge of adapting fixed physical space needs, and all that goes along with it, to meet the new reality of demand for change at the snap of a finger, and how to underwrite office or other spaces that will likely shift to “creative space” when re-financed (at lower rents, not higher).

Possible Solutions to Decreased Commercial Building Life Expectancy

From a valuation standpoint, there are two traditional factors: zoning/legal issues and physical utility. To maintain real estate flexibility, underwriters, analysts, municipalities and all industries will have to consider:

1. Revised zoning codes that stress density/form over use. The economic lives of buildings are getting shorter and it may be necessary to re-configure space more quickly. This change, however, often runs afoul of local zoning ordinances, minimally, as it relates to uses. If structures in the future are more generic in form, site-specific codes may have to be revised to reflect multiple future uses. By “pre-coding” such code requirements, one of the major impediments to re-development (generically, all permitting costs) can be streamlined for material cost savings and faster re-use. Urban areas already have an advantage in this regard due to greater densities and uses. Suburban areas will need to adapt this concept, or face an even stronger “back to the city” trend than currently in the market. Otherwise, suburban office parks and similar “obsolete concepts” could risk vacancy. All jurisdictions, in order to retain and attract industry—their tax base—will have to re-write zoning laws to allow rapid flexibility.

2. In terms of physical utility, architects and engineers will have to design buildings that can be quickly adapted to alternate uses at a reasonable cost. Aesthetics will still be important. Those who are able to successfully design and build the most flexible buildings first will fare the best. Prime locations will also continue to have great importance. These locations, however, will not be limited strictly to traditional site selection parameters. The key will be how flexible the site and/or building improvements are perceived to be for needed changes due to technological shifts that dramatically alter market demand for that space.

The combination of these elements will require a shorter-term view, and investors and municipalities should incorporate some level of alternate use analysis, even from the original construction date. Underwriters would then have the benefit of downside underwriting (to consider future conversion costs)—on a current basis.

For many years, zoning and functional utility have simply been boxes to check during the valuation process. Moving forward, and given the rapid clip of technological change, it is now time to remove it from a box and think about a real exit strategy beyond the end of a lease or mortgage term.

peter-cordua

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

Sale and Leaseback of Commercial Real Estate

Sale and Leaseback of Commercial Real EstateConfer with the professionals at WCRE or ask us for a seasoned real estate or tax attorney but here’s one technique Abo has seen work well with business clients. Although real estate is generally thought of as an illiquid asset, some liquidity can be achieved by taking out a loan backed by the property. Alternatively, a sale and leaseback may be used effectively if a company’s balance sheet is burdened with excessive debt or just having difficulty in obtaining new capital. Typically, the transaction involves the company owned property being sold to a third party and then leased back to the company under a long-term lease.

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Sale and leaseback transactions may be on the rise but clients need to be aware that the IRS often focuses on transactions between closely-held corporations and their controlling shareholder to make sure that these transactions benefit the company as well as the shareholder. In one common type of sale and leaseback transaction, the company sells the land with a building on it to the shareholder and, in turn, the shareholder leases it back to the company. Some of the financial and tax benefits we’ve seen have included:

The rental deductions the company could take might be significantly larger than the former depreciation deductions if the property had been in service for many years.

After the sale and the leaseback transaction, the shareholder’s basis in the property will be its fair market value which is usually greater than the price paid for the property by the corporation. Thus, the shareholder’s depreciation deduction would be much greater than what was previously available to the corporation (also still need to consider the tax consequences of the sale to the corporation).

The sale and leaseback may enable the shareholder to generate passive rental income that could be offset
against passive losses of the shareholder.

The IRS would obviously be concerned that these transactions have economic substance and that they are
based on reasonable market conditions, and not just designed to generate larger tax deductions. Thus, for
a sale to be valid, the controlling shareholder should have taken an equity interest in the property and also
assumed the risk of loss. For the leaseback to be valid, four tests come to mind that really should be met:

1. The useful life of the property should exceed the term of the lease.

2. Repurchase of the property by the corporation at the end of the lease term should be at fair market value and not at a discount.

3. If the leaseback allows for renewal, the rate should be at a fair rental value (speak to WCRE, not necessarily the accountant).

4. The shareholder should have a reasonable expectation that he or she will generate a profit from the sale and leaseback transaction based on the value of the property when it is eventually sold and the rental obtained during the lease term.

I suspect one of the biggest risks for the seller-lessee is the loss of a valuable asset that could have substantially appreciated over its useful life. Also, the rental market could drop, leaving the seller locked into a rental rate in excess of fair value. On the other side of the table, the seller could move or default, leaving the buyer with unattractive real estate in a soft market.

Even if there are no other problems, the benefits of the deal could be substantially reduced if the IRS deems that it is merely a “financial lease.” In that case, the IRS will treat the seller-lessee as the true owner of the real estate, with all the appropriate tax assessed, and the buyer-lessor will be treated as a lender-mortgagee.

Since sale and leaseback transactions can be quite complicated and also have to pass IRS muster, as I stated earlier, whether you are a buyer, seller or investor, you are well advised to consult with WCRE and seasoned real estate/tax counsel about your financial and tax consequences and the manner of structuring and implementing them to withstand possible IRS challenge.

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.

 

Martin H. Abo, CPA/ABV/CVA/CFF
307 Fellowship Road, Suite 202
Mt. Laurel, NJ 08054
(856) 222-4723
marty@aboandcompany.com
For more information, contact:

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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Understanding New Jersey Liquor Licenses

New Jersey Liquor Licenses

New Jersey Liquor Licenses

Let’s examine the changing landscape of New Jersey liquor licenses. There is no denying the restaurant industry and retail sectors of commercial real estate are undergoing major shifts brought on by changing consumer shopping patterns and tastes. With the rise of e-commerce, the need to visit physical locations has diminished and retailers increasingly need to offer a unique experience or destination in order to attract customers. This, combined with changing dining habits and palates that desire more convenient and varied food and alcohol options, has expanded the alcoholic beverage industry through the country, including in New Jersey.

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With this increased interest and its impact on retail spaces, it is important for landlords, property owners, brokers and other real estate professionals to have a basic understanding of New Jersey liquor licenses.

Restaurants, bars and liquor stores cannot sell, buy or serve alcoholic beverages in New Jersey without the applicable legally required license or permit. There are different categories of New Jersey liquor licenses, but the most relevant for retail purposes are (i) plenary retail consumption licenses, which are used at bars and restaurants to permit the sale of alcoholic beverages for on-site consumption, often referred to as “33” or “32” licenses; and (ii) plenary retail distribution licenses that allow for the sale of alcoholic beverages in original containers for off premises consumption, known generally as package good stores or “44” licenses. In New Jersey, licenses are generally issued and regulated at the municipal level, subject to further approval, oversight and enforcement by the State’s Division of Alcoholic Beverage Control.

The number of retail consumption and distribution licenses available in a municipality is dictated by the size of the population. New licenses can only be issued where updated Federal Census data warrants the creation of a new license, and the local issuing authority must follow specific methods established by New Jersey statute and regulations for awarding a new license. Consequentially, the pool of available licenses in a municipality is limited and the overwhelming majority of New Jersey liquor licenses must be purchased through private transactions. The price for a license is determined by supply and demand, with licenses in highly sought after municipalities being quite expensive. The limited supply and high price of liquor licenses in our State is somewhat unique, with many other jurisdictions having separate beer and wine only licenses widely available for restaurants or quick food concepts. Indeed, because of the way the liquor license industry works in New Jersey, some restaurant concepts that include wine and beer sales in their operating model in other jurisdictions find they are not able to similarly operate in New Jersey because either a license is not available or it is cost prohibitive. Landlords and brokers should be cognizant of this when considering attracting out of state restaurants or other alcoholic beverage businesses to a property.

Existing New Jersey liquor licenses are purchased through a transfer process by which the purchaser files a personto-person transfer application (and a place-to-place application when locating a license at a new premises) with the municipality or other local issuing authority. The local issuing authority then reviews the transfer application and performs due diligence on the purchaser, including investigations and criminal background checks on any individuals holding an interest in the license. Local issuing authorities must confirm that a purchaser is not disqualified from holding an interest in a liquor license, that the transfer does not violate applicable laws, and that the source of the funds used to purchase the license is legitimate. In addition to evaluating a purchaser, notice of the transfer must be published in local newspapers, and the transfer must be scheduled for public hearing and approved by the local issuing authority at the public hearing. A purchaser cannot utilize a liquor
license until its transfer is formally approved by the local issuing authority. Moreover, a transfer cannot be conditionally approved or approved subject to the satisfaction of certain contingencies.

Once a liquor license transfer is approved it cannot be undone except by accomplishing another transfer. Given this process, real estate owners and other professionals must be mindful of timing and should include adequate approval time periods and extension rights in contracts and leases involving liquor licenses. Closings on New Jersey liquor licenses are typically completed in escrow since (1) the purchaser cannot make use of the license until it is approved and thus does not want to pay the purchase price over to the seller until it has received formal approval, and (2) the seller cannot undo a transfer once approved and therefore usually requires that funds be deposited in escrow prior to the hearing to ensure that the purchaser pays for the license. As such, parties should carefully address specific escrow and closing instructions in their agreements. Where a landlord
holds the license and expects it to run with the shopping center, special attention must be paid to the arrangement between landlord and tenant concerning the license at lease expiration or termination.

Besides the more traditional New Jersey liquor licenses discussed above, property owners are increasingly encountering local winery and craft brewery establishments as tenants. These licenses are issued by the State directly and are subject to their own separate regulations. Similar to plenary retail licenses, property owners and others need to be aware of the unique issues present in the alcoholic beverage industry.

WCRE 3rd Annual Celebrity Charity Hockey Event-Coming Soon!!!

WCRE and The Philadelphia Flyers Alumni have teamed up to raise money for local charities that support OUR LOCAL COMMUNITY EVERY SINGLE DAY!

Come out and cheer your friends and co-workers on as they hit the ice to raise money and support the charities below! After watching the game, join the teams for fun, food, raffle, silent auction and autograph/photo opportunities at Victory Bar & Grill in Berlin, New Jersey!

 

Wolf Commercial Real Estate (WCRE) announces its third annual Celebrity Charity Hockey Event, in which several former Philadelphia Flyers will play alongside area business leaders to raise money for a variety of local causes. All proceeds from the event will be shared among seven area charities: The Rowan Medicine CARES Institute, the Alzheimer’s Association of the Delaware Valley, the American Cancer Society, the Susan G. Komen Foundation-Philadelphia, the Jewish Federation of Southern New Jersey, Samaritan Healthcare & Hospice and The Philadelphia Flyers Alumni Association-Snider Youth Hockey.

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WHO: Philadelphia Hockey Legends Todd Fedoruk, Doug Crossman, Kjell Samuelsson, Andre Faust, Brad Marsh, and Brian Propp (who is also Director of Strategic Relationships at WCRE). Lou Nolan, the legendary public address announcer of the Philadelphia Flyers, Kerry Fraser, Retired NHL Referree, more than 30 local business leaders, and 85 sponsors.

WHAT: See six former Flyers back on the ice, playing alongside our friends and sponsors. The game will be followed by dinner and an auction to raise even more money for these great organizations.

WHEN: Saturday, September 22, 2018

  • Celebrity Charity Hockey Game begins at 5:00 P.M.
  • Dinner and auction at 7:30-10:00 P.M.

WHERE: The game will be at the Flyers Voorhees Skate Zone, 601 Laurel Oak Road, Voorhees, New Jersey

Dinner and auction will be at Victory Bar & Grill, 795 Route 73, Berlin, New Jersey

WHY: WCRE is passionately committed to the health, well-being, and success of the people of this region. We work closely with all of the charitable organizations who will benefit from this game as part of our Community Commitment initiative, and encourage our associates and clients to do the same. The firm donates a portion of the proceeds from each transaction to a charity of our client’s choice. Learn more about our Community Commitment at http://wolfcre.com/community-commitment/.

MORE: Visit our ticket link for more information. https://bit.ly/2Kelynv

(Members of the media covering the event do not need a ticket.)

Video From 2017 Event

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.