Investments
Investments in Commercial Real Estate
Is Commercial Real Estate heading for a bubble? Near term predictors say”no”. However, it is important to look at a 3-5 year supply and demand forecast before investing. Industrial as an asset is up over 22% during the pandemic. Revenues for industrial properties are up +11% and vacancy rates are as low as 4%. It is a similar situation for apartments. Near term forecasts for apartments is for high asking prices. Predictions for apartments are record low cap rates near term.
Apartment investments
The average price per unit for apartments is up 12% since 2019. Revenues are up approximately 1.5% for multi-family with vacancies at record lows around 2.2%. This runs in alignment with housing shortages. Demand for apartments should continue near term.
Self storage investments
Self storage pricing is seeing increases as well. Millennials are driving approximately 39% of self storage demand. The demand is due to the inability to enter the home buying market.
- Sales pricing up 15.5%
- Revenues up 17%
- Vacancy at record lows
Office prices
Offices prices are down nationwide approximately 2.2%. Revenues are down almost 10% with Austin vacancy hovering at 21%.
- Pricing for Austin Offices and properties is still high.
- More construction will potentially lower pricing if the demand starts to wane.
- However, forecasts are for more population growth and with that comes more demand, only the future can tell.
Shire Commercial has helped clients find suitable ivestment solutions since 2004. The near term message for Austin for 2022 is, do not plan on getting sub market deals. They are few and far between and tend to be lower class properties. Contact Shire Commercial!
Property Disclosure- PID
New property disclosure | PID
There is a new property disclosure that is required by sellers of properties that are in a PID.
What is a PID?
The definition of a PID is a property that is located within a public improvement district. It allows for the city or county to apply a special assessment against properties to pay for improvements for properties within the district. This new property disclosure is for all real estate sales. This includes condos, commercial , new construction and improved property. A PID notice has to include detailed information regarding the name of the PID and its location. The name of the municipality or county is also required on the notice. Buyers are required to sign the notice to show receipt.
Sellers supplying a PID property disclosure
Sellers providing a PID
- Provide the PID before a Sales contract is executed
- The disclosure can be sent as an addendum or as a separate notification
- A separate copy must be signed by both buyer and seller upon closing
- Each time a PID updates its service plan, the Seller may use this notice to satisfy the requirements of the statute.
Not providing the property disclosure?
A Buyer can terminate the sales contract at anytime if a PID is not available prior to closing
- If a Buyer closes on a property without the PID notice, they can sue for damages after the closing.
- Buyers can file a suit for damages requiring the Seller to return all purchasing costs back to the Buyer and re-conveying the property back to the Seller.
- Buyers can file a suit against the Seller for damages not to exceed $5,000.00.
Shire Commercial has helped clients find suitable lease solutions since 2004. Shire Commercial does not provide legal advice regarding PID Property disclosure notifications. All Sellers and Buyers should consult a qualified commercial real estate attorney for more information. Contact Shire Commercial!
Co Tenancy Clause Retail Center
Co-Tenancy Clause | Retail Center
in Retail center, a typical developer will look for anchor tenants. One or more anchor tenants that have a retail lease in place create “traffic”. A Co-tenancy clause helps tenants with potentially losing foot traffic. Traffic is obviously enticing for a smaller retail establishment. In a mall, we will see Macys , Nordstrom etc, think of the Domain in Austin. In the Domain example, the rest of the area is filled in with a multitude of different tenants. This type of environment builds a coherent system of retailers.
What is Co-tenancy Clause?
A Co-tenancy clause provides rent relief if the collaborative system breaks down in a retail center. For existing tenants, if multiple tenants leave the property there may be remedies. An Example would be a nail salon and package store rely on an anchor tenant for foot traffic. If the anchor tenant such as HEB goes away, the nail salon and the package store can suffer immensely. A Co-tenancy clause is negotiated during their lease. The clause states that should the HEB leave, there will be a reduction in their rent.
Co-tenancy Clause example
There are 3 areas to look at within a co-tenancy clause provision.
- Co-tenancy threshold – should always include a threshold where the co-tenancy is executed. Example: at 65% , meaning if less than 65% of the tenants are occupying the property then the rent reduction activates. This could be 65% of the tenants or 65% of the square footage occupying the retail center.
- Cure period- is some cases the landlord may have a cure period to scale up the retail center with new tenants
- Relief of rent- defines what the rent relief is. Example : Rent reduction is 6% of the tenant’s gross sales, not to exceed the minimum rent due under the lease.
Property owner’s perspective
There may be stipulations in place for a co-tenancy provision for the landlord. They can be
- Default language- co tenancy is not allowed if the tenant is in default due to lack of rent payments.
- Evidence- The tenant asking for the rent relief is to provide documentation they have been harmed by vacancies.
- Multiple remedies- there may be limitations imposing on remedies. Example: a tenant may have rent relief and the ability to terminate their lease. A landlord will limit the remedy options available to tenants.
Shire Commercial has helped clients find suitable lease solutions since 2004. We also provide recommendations for space planners, although most of the time the landlord’s team has planners they like to use. Contact Shire Commercial!
Commercial Real Estate Construction
Commercial Real Estate Construction
A commercial real estate construction project is just like other projects. You will have a start date, benchmarks to hit, and an end date. The end date is the property being complete and a certificate of occupancy is issued. Commercial Real Estate Construction loans differ from other loans. A draw schedule is set up to disburse funds which translates to the loan being funded. These loans are also called interim construction, temp construction to permanent loans.
Draw Schedule
Draw schedule defines as the dates funds distribute. Let’s review a few key points on construction lending. Construction Loans do not fund at closing. This way the lender can oversee the process while minimizing the amount if interest paid by the borrower. To be more accurate, the construction loan is pre-fund an interest reserve account. Money from this account makes monthly interest payments. Funds deposited are figured by the lender using loan amount, interest rate and time of estimated construction. The benchmarks that exist are the catalysts so money disburses. Larger deals have more benchmarks and are more complicated. This also allows the lender to monitor progress of the commercial real estate construction loan. An inspector will come and inspect the work making sure the borrower is using the funds for the construction specified.
Budget 
A lender will set up a budget that the borrower sends the lender for construction. These are limits set to each line item the borrower submits in a budget. When the inspection is complete, a report is submitted to the lender. The report is in review with a construction loan administration department. If approved, a draw request is processes. Draw funds deduct from each line item which releases to the borrower. This way the budget will update in the computer systems to reflect a current balance of each line item. This process will take 2-10 days. It is always important for borrowers to know when they need to pay the contractors. You should submit a draw request ahead of the time.
Construction Schedule Changes
Typically a construction of commercial real estate does not occur on plan. Delays from municipalities, weather etc always effect construction completion. A Loan’s interest rate is pre-determined on the estimated time to completion. When delays happen, the builder will may their own interest payment. Or, they can ask the lender to move funds from one line item to another. A lender can deny a change request. Usually, denying a change request is not in the best interest of the lender. A project must be complete before a borrower can covert to a permanent loan.