Northridge Commercial Real Estate In Review 2014

Reflecting on 2014, Northridge commercial real estate was interesting as movement of property was healthy as compared to previous years.  To note, in October, the well known Black Angus Steak House on Corbin Avenue traded hands. The property was sold as an investment property to an individual for $3.9 million. The passive investment with leases through 2018 is situated on 1.66 acres with 106 parking spaces allowing for a variety of uses down the line. Corbin Avenue from Nordhoff north to Plummer Street has some real intrinsic value as real development possibilities within the vicinity will dramatically change the atmosphere.

Retail and Fast Food center such as on Corbin Avenue and Nordhoff across from Lowe’s have been getting a lot of attention and achieving high sales prices for the Sellers. Local passive single tenant NNN leased properties are in demand. Also to note the redevelopment of the Nordhoff and Reseda eating establishment corridor with the newly opened Starbucks.

With entertainment, the Northridge bowling alley on Balboa, Matador Bowl comes to mind. It only makes sense for a business operator to own the property. Financing for SBA and special Owner-User lending programs are supporting the higher values in real estate that typical passive investors are finding it hard to financially pencil out. Interest rates such as the 10yr treasury will continue to remain low with a possibility of slight increases over the next 2 years.

Health Care properties in Northridge, more particular assisted and senior living facilities has been active with REITS and equity partnerships in 2014.  Northridge Senior Living on Lindley Ave is one of two properties to note. However the newly built property located at 9222 Corbin – The Village at Northridge will be one to watch. I speculate, interesting additions to the property are to come in the next couple years.

The Northridge Post Office was traded under the radar.  Eyes on this property for future planning has not been overlooked. This property should be interesting to follow in the next 5 years as plans will be in the works to transform the property.

In mid October of 2014, the Northridge Businesses Center sold for almost $46.5 million. This property although located in an area that is transforming will be the catalysts for other similar outdated office and R&D parks to repurposing and reinvest. This property known as The Campus will be interesting to follow as revitalization takes place in this area of Northridge.

What is a 1031 Exchange?

1031 tax deferred exchange is a way to postpone capital gains or loss from a sale of property through purchasing another like-kind property within a certain time frame. Although there are several kinds of 1031 exchanges, the Delayed Exchange is the most common.  

“Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.” http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

1031 tax deferred exchange is a way to postpone capital gains or loss from a sale of property through purchasing another like-kind property within a certain time frame. Although there are several kinds of 1031 exchanges, the Delayed Exchange is the most common.  

“Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.” http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

Through the 1031 tax deferred exchange program, property investors are able to reinvest the sale proceeds into another property of equal or larger value.  This has been a common platform property investors have been using over time to create great wealth.

Before the property is sold, escrow will make the necessary arrangements for the 1031 exchange.  At the close of escrow, the proceeds from the sale will be transferred to an Accommodator also known as a Qualified Intermediary.  (A Qualified Intermediary is an independent party who facilitates tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code. The QI cannot be the taxpayer or a disqualified person.) http://www.1031.org/about1031/faq.htm

The investor will have 45 days from the date the downleg(relinquished property) is transferred to identify potential exchange properties. There are several different rules on property identification but the 3-property rule seems to be most popular. Within 180 days from the close of escrow of the downleg, one of the three identified properties must be purchased.

Most investors selling their investment property will begin looking for an exchange property from the moment they put their own property up for sale. So in general, if the sale property takes approximately 90 days to close escrow(30 days of marketing & 60 day escrow), they would have additional time to identify several replacement properties and close escrow on the upleg(replacement property).   

Here is a great place and resource to learn more http://www.ipx1031.com/reexchanges.aspx

Eric Nishimoto Commerical Real Estate - San Fernando Valley and Conejo Valley

Looking for space for you business operations or for investment properties? Whatever your current or future needs, Lee & Associates has the local market insight, the relationship, and the deal-making expertiese to help. By leveraging our expertise in matching your objectives with the best options, we will find the perfect solution for your real estate needs.

Regardless of whether you are a tenant, landlord, investor or business owner, real estate is one of the most important assets your business must manage.

Marketing campaign to the community of commerical real estate and business owners in the San Fernando Valley and Conejo Valley.

Product types include Office Properties, Industrial Properties, Retail Services, Multifamily Properties and Investments Sales.

Services also include Renewals, Expansions, Relocations, Valuation Analysis, Exercise of Options, Leases and Subleases, Lease Audits, Acquisitions, Dispositions.

Woodland Hills Office Duplex For Sale - 21051 Costanso St, Woodland Hills

What Type of Commerical Lease Are They Asking?

There are a variety of lease types in Commercial Real Estate.  Having a basic understanding of the most commonly used lease types will help you make a better decision when looking for a space to rent.  For example, you are interested in comparing 3 commercial spaces and all identical sizes.  Space 1 is offering $2.35 (FSG) Full Service Gross per sq. ft.  Space 2 is offering $2.25 (MG) Modified Gross per sq. ft.  And Space 3 is offering $1.55 (NNN) Net Net Net per sq. ft.  From the surface the $1.55 NNN sure looks attractive, but beware, that’s not always the case.  Also, lease terms may have slightly different meanings depending on who you ask.

Full Service Gross (FSG): Monthly rent included utilities, janitorial services, taxes, insurance and common area maintenance. In simple terms, the rent includes everything except for you phone and internet.  Also, parking might have an additional cost depending on location. This type of lease is very typical for office buildings. The Landlord is however able to pass on your pro rata share of any annual increases in operating expenses for the following year.  Office buildings also have typical office hours of operation. This means that your Heating, Ventilation, and Air Conditioning (HVAC) will be limited to only those hours.  Most buildings charge for after hour usage should you request access to the HVAC during those times.

Gross Lease: Monthly rent includes maintenance, taxes and insurance. You are responsible for the cost of your own utilities, janitorial, phone and internet.  This is commonly used in multi-tenant commercial buildings.  This type of lease when referred to an Industrial building is sometimes known as an Industrial Gross lease.  If your work hours are early morning, late nights and weekends, this type of lease might be better for you.

Modified Gross Lease (MG): Monthly rent includes a separate charge (e.g. common area maintenance (CAM), janitorial, proportionate share of water) TBD by Landlord. This is typically a hybrid of a Gross Lease.  In this case, you would need to find out from the Ownership exactly what additionally you would be responsible for.  This type of lease is commonly used in multi-tenant commercial buildings. 

Triple Net Lease (NNN): In addition to monthly rent, the tenant is responsible for paying their estimated pro rata share of taxes, insurance, utilities, janitorial service and all common area maintenance.  Any expense to the property can be passed on to the Tenant. This is typically billed to the tenant on a monthly basis in addition to their monthly base rent.  At the end of the year, semi-yearly or quarterly year, if the actual total NNN’s are different, either the Landlord or Tenant will be responsible for the difference in credit or payment.  NNN charges on average can be as low as $.15 per sq. ft. to as large as $1.20 per sq. ft. or higher.  Now depending on the person you ask, the roof and structure of a building may or may not be the Tenants responsibility.  On a lease called an Absolute NNN Lease, the Tenant is responsible for Roof and Structure, however on a NN Lease the Tenant is not responsible.   The monthly base rent might be look appealing, however be careful and know what the NNN charges are so you can budget accordingly. This type of lease is typical on Retail Storefront, Shopping Centers, and Single Tenant Commercial Buildings and favors the Landlord.

San Fernando Valley & Conejo Valley 1st Quarter Office and Industrial Market Report

The San Fernando Valley and Conejo Valley leasing market continues to slowly move forward. Landlords are trying to keep LEASE RATES as high as possible. In turn giving tenants free rent to mitigate the difference in asking rates verses actual lease rate. Short term deals in AS-IS condition is very common to smaller types of tenants. Tenants are still shopping the market to use as a negoiating tool as their lease comes closer to it's end.  The renewal lease market is still very strong but at discounted rates and a lot of free rent.    

Click on the Full Report Link below to see the entire 1st quarter report.

San Fernando Valley Office Asking Rates 

Full Report

San Fernando Valley Industrial Asking Rates

Full Report

Ventura Office Asking Rates

Full Report

 Ventura Industrial Asking Rates

Full Report

San Fernando Valley Commerical Real Estate Brokerage Firms 2010 Ranking - Top of List Ranks Lee & Associates LA North/Ventura, Inc.

The San Fernando Valley Business Journal rankes top Real Estate Brokerage Firms for 2010. Lee & Associates - LA North/Ventura, Inc. rises in the rankings to the #2 spot in Total Value of Deals and ranks #1 in Value of Sales in 2010. Our offices are located in Sherman Oaks, Calabasas and Oxnard.

San Fernando Valley & Conejo Valley Landlords vs Tenants

 

2011 still has its challenges ahead for our economy.  I don't expect things to ease up a bit, but I do think our economy is slowly getting better. Still there is a lot of uncertainty with new and exisiting businesses. This uncertainty with businesses are very appearent in the San Fernando Valley and Conejo Valley and the leasing market reveals this truth.  Long term leases are challenging for majority of new and growing businesses and negotiating lease terms has been no easy ride.

Landlords need some incentives in this market to get their vacancies leased up.  1 month rent abatement per year, 6 month teaser rates, free parking, tenant improvement allowance and an active broker willing to work are some successful elements in this market. In the San Fernando Valley and Conjeo Valley market, there are still too many vacancies to raise rents much further. Creative rent structures is another creative element is consummating a new lease. Its not unusual to see a flat lease for the next few years either. 

Tenants getting closer to lease end have been beginning to tour the market place about a year to six month in advance to see where they can strike a deal. I convey to each tenant that every landlord has a different business model. Whether their model is occupancy percentage, credit tenancy, price per square foot for rent, etc. makes its difficult for some tenants to understand that even though there is vacancy in their local market place, landlords may not necessarily budge where tenants would like. I let each tenant I represent know that the only way to find out where the landlord is will to make a deal is by requesting a lease proposal and negotiating.

Majority of the time, unless specific reasons other than rental price, most tenants will continue to renew their lease. $.10 per square foot isn't really going to make much of a justification to move unless they are a small tenant.  It's typical for tenants to tour the marketplace and to have found themselves back at thier exisiting space renewing their lease for another few more years with some incentives like free rent, new carpet and paint.

For Landlords, it can be very advantagous to consider early lease renewals for tenants. Why? The known is better than the unknown and diminishes the risk of losing a credit worthy tenant. It's easier to control costs like improvements to space, commissions, loss of income for vacancy, and overall real estate costs associated with time. 

But the only really way to know if you had a good lease is only after the lease is over.   

San Fernando Valley Lee & Associates - LA North/Ventura News

Here we are on Bisnow.

http://www.bisnow.com/

Commercial Real Estate Deals Getting Done!

Compared to last year, Buyers are getting off the sidelines and refocusing on acquiring deals.  It just makes sense to buy a property as an Owner User if your intension is to hold on to it for the next 5 to 10 years.  The market has come down significantly since the peak of 2007 and many potential Buyers that were once on the fence to purchase now see more opportunity than ever.  As a stable or growing businesses, it looks like you're in luck as rents have come down significantly and the opportunity to buy as an owner user is tremendous.  The SBA financing market is a driving force to the amount of sales transactions we are seeing today.  

Sellers that have to dispose of their assets will find a challenging market ahead of them.  Until traditional financing comes back to the marketplace, creative financing is the only option.   Unfortunately as a Seller trying to unload a property that has signs of becoming distressed will certainly face competition against some of the toxic bank assets that are now being forced to sell on to the open market with realistic prices. 

I've been tracking some of the banked owned properties for the past year now and those that went into distress about a year ago are now being sold. For some of the Banks that tried the "Pretend and Extend", the reality is that some of the distressed assets have no other option than to be sold at a loss.

See what Lee & Associates LA/North has recently sold and leased on the link below. 



Still On The Fence

Commerical Real Estate Capital Gain Taxes Going UP

This coming January 1, 2011 the capital gains tax reduction signed under President Bush will revert back to the former 20 percent capital gain tax rate prior to 2003.

Thinking about Selling and cashing out. Take advantage now and close before the year-end.