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Building 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.
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.
Let’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.
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
Hyland Levin Shapiro LLP
6000 Sagemore Drive, Suite 6301
Marlton, NJ 08053-3900
Let’s examine the typical insurance policies for small business. With so many different types of insurance to choose from, it can be overwhelming to determine what type is best for your small business. Hardenbergh Insurance Group is here to help explain the types of insurance policies available and how they can help protect you, your employees and your business’s bottom line.
Here are 7 Insurance Policies for Small Business to Consider
Commercial Property Insurance
In the case of a catastrophic event such as a fire, explosion, burst pipe, storm or theft, commercial property insurance compensates you for losses or damage to your building, leased or owned equipment, and other property on the premises. In fact, commercial property insurance can cover items such as furniture, inventory, computers and anything that would be considered necessary for performing normal business operations.
Commercial property insurance is typically purchased as a stand-alone policy or as part of a comprehensive business owner’s policy that includes property and general liability coverage. Commercial property insurance is offered on either a replacement cost or actual cash value basis.
• Replacement cost: Pays the cost to replace or repair the damaged property with materials of like kind and quality, without any deduction for depreciation.
• Actual cash value: Pays the cost to repair or replace the damaged property, minus depreciation.
General Liability Insurance
Out of all the insurance policies for small business, General liability insurance policies typically cover an organization for claims involving bodily injuries and property damage resulting from its products, services or operations. What’s more, this form of insurance can help cover medical expenses and attorney fees resulting from bodily injury or property damage claims for which your organization may be legally responsible.
GENERAL LIABILITY INSURANCE POLICIES TYPICALLY HAVE FOUR COVERAGE ELEMENTS:
Premises liability covers you in the event that a person who is not employed at your business becomes injured on your property. If someone sued your business because they tripped and fell on your property, liability insurance can help cover those expenses.
Products liability covers you if a product or service causes injury to someone’s body or inflicts damage on a consumer’s personal property. If you’re a tech company that broke a customer’s computer while performing a service on it, those damages could be covered.
A personal injury is when your business inflicts a physical, financial or mental injury to a third party. For instance, let’s say you take action in detaining someone who you had reason to believe was stealing from your store. If it turns out your accusations are false and the person decides to sue you, you’d be covered under your general liability policy.
Advertisement injuries are caused by alleged misinformation, copyright infringement or slander made by your company. If you were advertising a product that claimed it could help clear acne and it ended up making a consumer’s acne worse, that could be considered an advertisement injury.
Overall, a general liability policy is beneficial for covering any medical bills or legal costs that accrue if the injured third party decides to sue your business.
Employment Practices Liability
Employment practices liability insurance (EPLI) is a form of insurance that covers wrongful acts that occur during the employment process. The most frequent types of claims covered under an EPLI policy include claims of discrimination, wrongful termination, sexual harassment and retaliation.
These policies will reimburse your company against the costs of defending a lawsuit in court, and for judgments and settlements. EPLI covers legal costs, whether your company wins or loses the suit. However, these policies typically do not pay for punitive damages, or civil or criminal fines.
Workers’ compensation is important in the event that an employee suffers a work-related injury or illness. This type of insurance is required in most states and is used to cover medical bills or wage replacement for employees who experience a work-related injury.
For example, if a worker pulled a back muscle at work and was unable to perform their duties, workers’ compensation would help in covering any physical therapy costs as well as compensating the employee for any lost wages.
Having worker’s compensation insurance can also protect your business from civil suits made by employees against your company related to their injuries.
Cyber Liability Insurance
If any part of your business is on an online platform, it is crucial to obtain cyber liability insurance. This type of coverage can protect your business from a cyber attack or interruption that can cause a loss in data, revenue and the trust between you and your customers.
Cyber liability insurance is not only there to protect the internal information of your company, such as employees’ social security or financial information, but it also protects your customers’ personal and banking information.
Most cyber liability policies include both first- and third-party coverage:
• First-party coverage is for the business itself— helping the business recover from any losses after a cyber attack.
• Third-party coverage is to cover claims by people who have been injured because of your business being hacked.
Restoring compromised or lost data can be very costly, so cyber liability insurance is there to help cover financial losses to your business and the costs of claims made against your company by clients or other third parties who were affected.
Commercial Auto Insurance
Commercial auto insurance helps cover the costs of an auto accident if you or an employee is at fault. This coverage can help pay for damaged property and medical expenses.
• Your business should consider a commercial auto policy if any of the following are true:
• Your business owns, leases or rents vehicles such as cars, trucks or vans.
• Your business has employees who drive their own vehicles to conduct business.
• Your business has employees who operate leased, rented or owned company vehicles.
Professional Liability Insurance
Professional liability insurance, also known as errors and omissions (E&O) insurance, can protect your business against claims that a service you provided caused a client to suffer due to a mistake on your part or because you failed to perform a service.
Professional liability insurance can cover the cost of defending your business in a civil lawsuit for an alleged error or omission. What’s more, depending on your industry, professional liability insurance may be required by law.
While many types of businesses need professional liability insurance, you should especially consider this type of insurance if your business works directly with customers while providing services.
Contact Hardenbergh Insurance Group to help you analyze your needs and decide on the right Insurance Policies for Small Business.
Brian Blaston, Partner
Hardenbergh Insurance Group
phone: 856.489.9100 x 139
Let’s look at how cost segregation can increase cash flow for commercial properties. Have you recently built, purchased, expanded or renovated a commercial property? If so, there may be significant untapped tax savings in the property or facilities. A cost segregation study can unlock those savings through greater tax deductions, accelerated depreciation and increased cash flow. Here’s how it works: Portions of a new or existing building are reclassified as “personal property” or “land improvement.” This cost classification can be depreciated over a shorter five, seven or 15 year period as opposed to the standard 39-year depreciable life of a commercial building.
What if you built, renovated, expanded or purchased a building in prior years? Cost segregation is still an option. The IRS allows taxpayers to change prior accounting methods to take advantage of these previously understated depreciation deductions. This can be done without amending tax returns and can generate a relatively large tax deduction in the year of change.
Cost Segregation Can Increase Cash Flow Better than Ever (Thanks to Tax Reform)
Cost Segregation Can Increase Cash Flow Better than Ever thanks to tax reform’s enhancement of bonus depreciation. In general, bonus depreciation is applicable to depreciable business assets with a recovery period of 20 years or less. Tax reform doubled bonus depreciation from 50 to 100 percent for qualifying property with acquisition and in-service dates between September 27, 2017 and December 31, 2022. This means that 100 percent of qualifying costs would be fully depreciated and recognized in year one and only the remaining building cost would depreciate going forward over 39 years. After 2022, the bonus rate decreases by 20 percent annually, so the time to act is now.
REAL RESULTS FOR REAL PROPERTIES
RKL performs over 80 studies every year for companies in a variety of industries, including rental real estate, office buildings, hotels/motels, golf courses, auto dealerships, manufacturing facilities, warehouses and more.
Here are two recent examples to demonstrate the potential savings from a cost segregation study.
• Construction of a new hotel facility in 2018: Of the total project cost of $13.5 million, RKL identified $5 million as personal property and land improvements. This cost segregation combined with enhanced 100 percent bonus depreciation a present value of the tax savings of $958,000 (using a 37 percent federal tax rate and six percent discount rate), with projected additional depreciation deductions of $4 million for a tax savings of $1.5 million.
• Turn-key construction of a new medical office in 2017: Of the total project cost of $2.4 million, RKL identified $1 million as personal property and land improvements. This cost segregation combined with enhanced 50 percent bonus depreciation produced a present tax savings of $200,400 (using a 42.67 blended tax rate and six percent discount rate), with projected additional depreciation deductions of $695,000 over the next seven years. This will produce tax savings of $296,500 over that seven-year period with $233,200 in the first year alone.
• 2018 look-back study for a previously purchased office/distribution warehouse facility: RKL identified $326,200 of the original $1.375 million building cost as personal property and land improvements. This resulted in a one-time additional depreciation deduction in the current year’s tax return of $170,700. To obtain an analysis of potential cost segregation tax savings, contact RKL today.
FOR MORE INFORMATION CONTACT:
Let’s look at How to Get the Most Out of Your Office Space. There’s nothing worse than working in a cluttered cramped space from 9 to 5. The space you share with your team matters. The culture of your business depends on the comfort of your employees. However, before you evaluate how much square footage you need, look into the design of your floor plan. Make a list of what is most important in your office space in order drive the most business and keep employee morale high. Is your company heavy on meetings? Do you have a need for a fun and extensive lunch area, or do most people leave the office for lunch? Do you entertain in the office space? Do you need specific areas for storage of marketing goods or other products? You may be holding onto a layout you no longer need, when you can be maximizing the space for more important things. There are many ways to make the most of the space you’re in now, therefore take the time to properly evaluate your office space using the steps below.
How to Get the Most Out of Your Office Space
LET NATURAL LIGHT IN to Get the Most Out of Your Office Space
Natural light not only affects mood, but also the aesthetics of a space. Light can make rooms feel larger and better the mood of your employees. This comes down to color contrast. If you’re in a room that is dark, it will feel like you’re in a tight constricted space. Consider opening the blinds to let light in. If you have light colored walls and furniture, the light will bounce off and give the feeling that you’re in a larger space than you really are. If
you’re feeling adventurous, install a skylight in the office. You’ll be surprised how much light a skylight lets in. To avoid glare, add a filter so light is spread evenly throughout the office.
BECOME LESS RELIANT ON PAPER to Get the Most Out of Your Office Space
Not only is printing documents killing trees, it’s not as necessary as it was in the past. With the technology that we have today, you can share documents easily without having to print on a single piece of paper. This will also allow you to minimize the space needed for a printing station and using the space for something else. You will also save on ink, paper, and electricity costs by switching everything to digital.
UTILIZE COMMON AREAS to Get the Most Out of Your Office Space
You may not have as small a space as you think! Do you have dedicated areas specifically for meetings like conference rooms or a dining area? Those spaces can be used as extra work space.
It’s refreshing to have a change of scenery when you’re working. This is great, especially if your employees have their own laptops. Spread out and utilize the space you already have, but may not be using 80% of the time. Your employees will feel happier and their productivity will go up as a result.
CREATIVELY STORE to Get the Most Out of Your Office Space
You would be surprised on how many “dead spaces you actually have within your office layout. Underneath most desks and cubicles there exists an empty space where you can add either low bookcases or filing to hide items that require long term storage. By examining this storage option you will eliminate the need for storage in other areas, and gain back some of that wasted square footage. Cubicles and office desks now even have options for built in coat closets which allow employees to store their coats within their own space and allow you to eliminate the need for a central coat closet. Gaining the closet space back can allow you to rethink how that area can be designed.
MAKE SMART CHOICES ON FURNITURE to Get the Most Out of Your Office Space
Select furniture pieces that are easy to store and tuck away neatly when furnishing areas that are used less than 25% of the time. Plan your space with the overall design in mind. Whichever is your preference in color and style try and stay consistent throughout so that your message is as consistent as your sales process. Filing cabinets tend to take up a lot of space. Save your files digitally in a cloud instead of having physical pieces of paper, folders, binders, paper clips, etc, whenever allowable. You and your employees will be much more comfortable with the fresh open space!
FOR MORE INFORMATION CONTACT:
6950 Sherman Lane
Pennsauken, NJ 08110
WCRE | CORFAC International is pleased to announce that it has been appointed by Sky Management Services as the exclusive office leasing agent to market +/-155,000 square feet at Oxford Court located in Langhorne, Pennsylvania, directly adjacent to Sesame Place and Oxford Valley Mall.
This state of the art medical and office center was completely renovated in 2016 and is located directly off U.S. 1 & I-295. Along with being adjacent to the Oxford Valley Mall, the complex is very close to Jefferson Health, Bucks Campus and various other medical offices. The campus is situated in the heavily populated portion of Lower Bucks County that is currently one of the fastest growing communities in Pennsylvania and serves as the commercial hub for Lower Bucks County.
The complex’s retail visibility enables a variety of tenants from traditional retail use to office users. This campus is ideal for medical users along with laboratories, law firms, and other tenants that benefit from ground level visibility.
“We are thrilled to partner with Sky Management to market their first-class complex at Oxford Court on behalf of such a reputable owner across the East Coast” said Jason Wolf, managing principal of WCRE
WCRE’s Mitch Russell, Ty Martin, Kevin Coleman and Jason Wolf will be working will be working closely with Sky Management to facilitate the leasing of this well-trafficked property.
“We are very pleased to join forces with team WCRE as they take over the leasing at Oxford. While we have expanded our portfolio significantly throughout the east coast over the years, we have always had very strong ties to the area and Oxford Court remains one of the most valued assets in our portfolio,” said Alex Dembitzer, founder and CEO of Sky.
A marketing brochure is available upon request and additional information can be found at the links below.
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.
About SKY Management Services
Sky Management Services, LLC, with corporate offices in New York and Philadelphia, is a leading real estate investment and management company which owns and operates a large, diversified portfolio of properties in the United States. Sky, as a private real estate equity firm with currently over $500mm of assets owned, continues to seek quality investments at reasonable returns which we have proven an ability to quickly close. We improve our properties through focused management and targeted value-add initiatives. We remain focused with a tenant centric understanding- we put tenants first. We work with our tenants to enhance efficiency, reduce costs and plan for future growth.
Sky Management’s growth has been fueled by its long-standing philosophy of creating value by locating and actively repositioning, renovating and/or recapitalizing underperforming or underutilized assets – and executing this philosophy with a team of seasoned executives who function skillfully across multiple disciplines. We employ an opportunistic, value-driven, style and a flexible approach to acquire real estate assets, portfolios, and companies.
SOLID FUNDAMENTALS, STEADY GAINS IN SOUTHERN NEW JERSEY & PHILLY CRE MARKETS
Quarterly Performance a Continuation of Success
Commercial real estate brokerage WCRE reported in its analysis of the second quarter of 2019 that the Southern New Jersey and Southeastern Pennsylvania markets continued to show modest gains and overall solid fundamentals. Sales volume and prospecting activity were up over the first quarter totals, while leasing dipped for the overall region, but was up in Camden County, and Cherry Hill in particular. Gross leasing absorption was lower, but still positive.
“For several years in a row we have seen mostly slow, steady growth supported by strong fundamentals,” said Jason Wolf, founder and managing principal of WCRE. “Commercial real estate has performed very reliably, and although leasing volumes were down this quarter, there is a pipeline of approximately 450,000 square feet of pending deals expected to close in the near term.”
There were approximately 286,707 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which was a decrease of 23 percent over the previous quarter. The sales market stayed active, with about 1.18 million square feet on the market or under agreement. Sales were busy, with approximately 739,714 square feet trading hands. This is nearly four times the square footage sold during the first quarter.
New leasing activity accounted for approximately 75 percent of all deals for the three counties surveyed. Overall, gross leasing absorption for the first quarter was in the range 150,000 square feet, compared to 411,000 in the first quarter.
Other office market highlights from the report:
- The city of Camden welcomed TRIAD1828 Centre, a newly constructed 394,164 square foot office tower on the waterfront. The Michaels Organization, Conner Strong & Buckelew, and NFI are all relocating their headquarters to the tower.
- Overall vacancy in the market is now approximately 11.40 percent, which is 20 basis points better 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 hovered near this range for more than a year.
- Vacancy in Camden County ticked up slightly to 11.3 percent for the quarter. It stood at 11.1 percent in the first quarter.
- Burlington County’s vacancy dropped to 11.5 percent , improving 60 basis points. Burlington’s vacancy rate jumped earlier in the year due to several large blocks of space returning to the market.
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 ticked down to 8.8 percent, from 9 percent in the previous quarter. The office vacancy rate is still near a 20-year low, and below that of comparable major cities.
- The industrial sector in Philadelphia remains very strong. The second quarter saw a further decrease in vacancy rates, to 4.9 percent, while net absorption was constrained by a shrinking volume of available space. There are 25 industrial properties under construction which will bring an additional 5.27 million square feet to the market.
- Philadelphia retail is treading water to avoid a major spike in vacancy. The vacancy rate inched down to 4.2 percent, while net absorption was positive at 1.4 million square feet over the last twelve months. This includes two straight quarters in negative territory.
WCRE also reports on the Southern New Jersey retail market. Highlights from the retail section of the report include:
- Retail vacancy in Camden County dropped to 5.7 percent, with average rents in the range of $16.32/sf NNN.
- Retail vacancy in Burlington County dropped half a point, to 7.4 percent, with average rents in the range of $12.75/sf NNN.
- Retail vacancy in Gloucester County dropped to 7.9 percent, with average rents in the range of $15.95/sf NNN.
The full report is available upon request.
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 wolfcre.com, on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at southjerseyofficespace.com, southjerseyindustrialspace.com, southjerseymedicalspace.com, southjerseyretailspace.com, phillyofficespace.com, phillyindustrialspace.com, phillymedicalspace.com and phillyretailspace.com.
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An uncontrolled fire can be extremely damaging to your organization, and while a fire protection system may be able to protect against many threats, impairments are an inevitable part of a fire protection system’s life cycle.
For the safety of your organization and its employees, it is necessary to have a fire protection impairment program in place. An impairment is any time that a fire detection, alarm or suppression system is out of service or unable to operate to the full extent of its intended design. During an impairment, the chances of a fire developing and causing major damage is greatly increased. The goal of a fire protection impairment program is to minimize the risk of a fire developing and spreading during an impairment while maintenance, repairs and tests are performed to the system.
There are two types of impairments: planned and unplanned, which are grouped into two different levels of severity: major and minor.
• Planned—The system is purposely put out of service for maintenance.
• Unplanned—The system is unintentionally out of service, and may be so without anyone’s knowledge.
• Major—The impairment lasts more than ten hours and/or affects multiple systems.
• Minor—The impairment lasts for fewer than ten hours and is limited to a single system.
When an unplanned impairment is discovered, accurately determining its severity is crucial to understanding how to handle the impairment. When scheduling an impairment, such as for routine maintenance, it’s important to limit the extent of the impairment as much as possible, aiming to make it a minor impairment so that the threat of fire damage is lessoned.
ROLES AND RESPONSIBILITIES DURING FIRE PROTECTION IMPAIRMENTS
Ensuring safety and efficiency during an impairment requires a great deal of work, planning and coordination. To be prepared for an impairment, organizations should develop a written program, assign responsibilities to staff and train employees in the procedures to be followed during an impairment. The written program should outline exactly what to do before, during and after an impairment based on its type and severity, as well as assign and detail the role and responsibilities.
Commonly, there are two primary roles needed during an impairment: an impairment supervisor and a fire watcher. Responsibilities should only be assigned to supervisor-level staff, with impairment supervisor responsibilities going to a safety manager. There should be a primary and alternate impairment supervisor for each shift.
FIRE IMPAIRMENT SUPERVISOR—The impairment supervisor’s job is to implement and manage the fire protection impairment program. They take care of scheduling planned impairments and implementing the plan during unplanned impairments. The impairment supervisor must also minimize the impact of the impairment by considering the unique factors of the situation and keeping as many effective fire protection systems online during the impairment as possible. This person is also responsible for notifying all relevant personnel, departments and agencies of the impairment, including the fire watcher.
FIRE WATCHER — The fire watcher’s job is to work with the impairment supervisor to ensure that conditions during the impairment are as safe as possible, and to report any unsafe conditions to the impairment supervisor. As part of this, the fire watcher is in charge of and should be fully trained on using temporary fire protection, such as fire extinguishers and water hoses, which they should keep at the ready in the area with the impairment for the duration of the impairment. This person should be very familiar with the impairment program, the facility and the procedures related to sounding a fire alarm.
MANAGING THE IMPAIRMENT
Before an impairment period, or upon discovering an unplanned impairment, the impairment supervisor should obtain a copy of the organization’s fire protection impairment program form and fill it out. This form must be updated as progress is made to include further details of the impairment and repair process.
The following persons and organizations should be notified in the event of an impairment as soon as possible:
• Insurance company or companies
• Local fire department
• Safety manager, or relevant managers and supervisors
• Building owner or their designated representative
Prepare the area to reduce the risk of a fire as much as is possible. Cease all processes that may be hazardous, and relocate all combustibles from the impaired area. Ensure that fire protection systems are working in all but the smallest area necessary to carry out maintenance during the impairment, and have manual fire extinguishers and other fire protection alternatives at the ready.
Display a fire protection impairment permit during the duration of the impairment and issue a hot work permit if any operation involving open flames, sparks or excessive heat is necessary. Maintain a continuous fire watch throughout the impairment and work continuously until systems are restored, keeping the impairment time as short as necessary. In the event that an impairment lasts longer than a single shift, have a formal handover procedure in place to ensure an efficient transition and continued safety. Supervisors taking over should be made fully aware of the details of the situation and the precautions in place.
When repairs are complete, restore the fire protection systems and test to ensure that they are fully operational. Once operational status has been verified, notify the local fire department and insurance company that the impairment period has ended. Lastly, finalize the impairment form and keep it filed for at least one year, as it may need to be referenced at a later date.
For more information about protecting your organization from a fire, reach out to your friends at Hardenbergh Insurance Group.
Brian Blaston, Partner
Hardenbergh Insurance Group
phone: 856.489.9100 x 139
I’m buying a commercial or industrial property in New Jersey, and I’ve been told I need an ASTM Phase I Environmental Site Assessment (Phase I ESA). However, I’ve also been told I need a NJDEP Preliminary Assessment Report (PAR) as well? Do I really need both? Won’t the Phase I ESA provide me adequate innocent purchaser protection?
SHORT ANSWER: NO. HERE’S WHY:
Chances are, you’re conducting a Phase I ESA to satisfy one of the requirements to qualify for the innocent landowner, contiguous property owner, or bona fide prospective purchaser limitations on CERCLA liability (Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §9601)), and the Environmental Protection Agency (EPA) All Appropriate Inquiry (AAI) Rule, Subsection 312.10 of 40 Code of Federal Regulations 312 (40 CFR §312). However, CERCLA is a federal law, and provides landowner liability protections under that particular law. What a Phase I ESA does not necessarily do, however, and as is made clear in the Phase I standard itself (ASTM E 1527-13, section 1.1.4), is address requirements of state or local laws; users of a Phase I ESA are cautioned that federal, state, and local laws may impose environmental assessment obligations that are beyond the scope of [the Phase I standard itself].
Like many other states, New Jersey has enacted its own innocent purchaser defense that requires a property owner to demonstrate that, at the time they acquired the property, they did not know and had no reason to know that any hazardous substance had been discharged at the property, by performing an “all appropriate inquiry” prior to purchase of the property. As stated in the New Jersey Spill Compensation and Control Act (Spill Act), any person who owns real property acquired on or after September 14, 1993 on which there has been a discharge prior to the person’s acquisition of that property and who knew or should have known that a hazardous substance had been discharged at the real property, shall be strictly liable, jointly and severally,
without regard to fault, for all cleanup and removal costs no matter by whom incurred [N.J.S.A. 58:10-23.11g(c)(3)].
However, contrary to most states, New Jersey has not adopted the federal All Appropriate Inquiries rule (which can be satisfied by performing a Phase I ESA) but instead has its own unique definition for satisfying “all appropriate inquiry.” Under N.J.S.A. 58:10-23.11g(d)(2), an “all appropriate inquiry” is defined as the performance of a preliminary assessment, and site investigation, if the preliminary assessment indicated that a site investigation is necessary.
As was again made very clear during a January 14, 2016 court ruling, a party buying property in New Jersey after 1993 must obtain a PAR in accordance with NJDEP rules in order to have a chance of obtaining innocent purchaser protection in the state of New Jersey. The decision was affirmed regarding environmental contamination at the Accutherm mercury thermometer manufacturing property in Salem County, that later became a Kiddie Kollege daycare. DEP v. Navillus Group, App. Div. Dkt. No. A-4726-13T3. In this case, despite advice of counsel, the defendants merely relied on various environmental reports, instead of performing a PAR; thus, no innocent purchaser protection was afforded them under the Spill Act, and they were liable for the contamination identified at their property.
If you’re performing real estate due diligence in New Jersey and want to qualify for both federal and state innocent purchaser liability protections, you need to perform both an ASTM Phase I ESA, as well as a NJDEP PAR.
Here at Whitman, in addition to standalone Phase I and Preliminary Assessment reports, we also provide our clients a single, combined PA/Phase I report that concurrently satisfies both federal and state innocent purchaser protections.
If you have any questions regarding real estate due diligence in New Jersey, or would like a quote for any of Whitman’s wide selection of the due diligence services, please contact Chemmie Sokolic, Whitman’s Director of Due Diligence Services, at 732-390-5858 or email@example.com.
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Stamped asphalt crosswalks and entrances can instantly enhance the appearance of your commercial or residential property. The stamping process is achieved by re-heating new or existing asphalt with an infrared process and using a steel cable template to imprint a pattern in the asphalt. A plate compactor is then used to press the pattern into the asphalt. After stamping, a polymer modified color coating is applied to the surface. A variety of patterns and colors are available. Commonly seen in South Jersey are both traditional brick and diagonal herringbone patterns, which are typically painted in a vibrant red color. This feature is a cost-effective way to increase the curb appeal of any property.
The Benefits of Stamped Asphalt Include:
• Aesthetics – Choose a pattern and color that complement your space. With numerous patterns and colors available, stamped asphalt crosswalks or entrances can provide an immediate upgrade to your property.
• Fast Installation – A crosswalk can typically be installed in just a few hours, which means minimum disruption to tenants, clients and residents. The area can be re-opened to traffic in a relatively short amount of time.
• Lower Installation Costs – Initial installation is less expensive than traditional brick or stone pavers. While traditional pavers are installed individually, the stamping process happens much more quickly, making it less labor-intensive.
• Lower Overall Maintenance Costs – stamped asphalt can last for years and is easily re-coated. The surface also resists changes in temperature better than pavers, which are prone to shifting during freeze-thaw cycles. There is also no need to remove vegetation that typically grows through the cracks of traditional brick.
• Safer Alternative – The paint adds a skid-resistant texture to the surface of the asphalt, so it is not slick when wet.
• Extend Asphalt Life – When exposed to the elements, asphalt dries out and cracks. The color coating applied after stamping protects the asphalt from harmful UV rays.
Let’s explore the sale and leaseback of commercial real estate. Confer 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.
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.
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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
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Your business is growing and you like your current location, so you’ve decided to renew your lease and either refresh or expand your space. GREAT!
Ready to expand your space? Did you call the movers yet?
That’s right. Movers. And contractors. And space planners. And IT specialists. And a host of other vendors that you haven’t even thought of yet. When you’re staying in the same location, the reality is that the To Do list can seem almost as overwhelming as if you were pulling up stakes and starting all over in a new venue. Because you ARE starting in a new venue. The address may be the same, but how you utilize the space to maximize productivity is a rare opportunity you need to take full advantage of. You have two options: refresh or expand. To capitalize on either one of these options, you need a detailed staging and logistical plan to minimize downtime and keep your employees as close to 100% productivity while you update or expand.
So where do you start? You hire a professional logistics management team to shoulder the responsibility of planning and executing the project. No matter how big or small your space, here’s what an experienced logistics management team brings to the table for each option…
OPTION #1: Refresh Your Space
Also called an office restacking, you need to look at this type of project as an employee retention tool. No doubt your business has markedly changed over the last 10 years, so your office environment needs to evolve to best support that shift in culture. Restacking changes and improves the look and feel of the work environment, and by redefining the space to include collaboration rooms/workspaces, you can change the corporate culture in the link of an eye to catch up with the times. A refresh re-energizes your employees, and shows you value their presence. New paint, carpeting, furniture, lighting, bathrooms, and more will make employees happier when they are at work, and warmly welcome new clients into your space when they visit. It’s a win-win.
OPTION #2: Expand Your Space
Here the biggest opportunity is to redefine the space. Are you adding new employees? Consolidating employees
from another location? Expanding the space for client interaction? A space planner will help you understand how much new space you really need (square footage/head count), and how much you should allot to common areas, workstation areas, private office areas, client showrooms, product production space, etc. An experienced logistics management team knows exactly what questions to ask to make sure you have the most comprehensive staging and logistics plan possible, so no detail is overlooked and no opportunity is missed:
(1) Where are you going to temporarily move active files and personal contents during your office refresh or expansion?
(2) Does the furniture have to be removed (new carpet installation) or just lifted in place (carpet tile installation)?
(3) Should you upgrade the furniture, or re-use what you have?
(4) How can you maintain productivity when computers or data centers need to be disconnected, moved, and reconnected?
The bottom line is refreshing and/or expanding your office requires careful thought and planning to keep your business thriving. The right logistics management team will help you hit the ground running as you launch your business into its next growth stage!
About Argosy Management Group, LLC
Argosy Management Group (AMG) is a leader in office relocation and logistics project/move management. AMG services companies throughout the U.S. and worldwide. AMG delivers a wide range of comprehensive services: move management and transition planning, space planning and furniture needs, office and industrial relocation and liquidation, storage solutions and asset management, furniture disassembly and installation, IT/ data center relocation, and rigging.
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