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Commercial Real Estate

Home» Commercial Real Estate

Central PA’s Top Commercial Real Estate Leases in 2020

Posted on February 22, 2021 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Local Market, Office Leasing, Trends No Comments

 

In spite of 2020’s black swan event (COVID-19), leasing activity in Central Pennsylvania continued with mixed results. Normally insulated from strong economic downturns, the coronavirus tested the Central Pennsylvania Region and there are reasons for both concern and optimism.

On the negative side: massive job losses in retail and a significant manufacturing base could cause serious disruption. Roughly 30,000 people were employed in the retail sector in March, and close to that number were also employed in manufacturing. Though manufacturing’s future remains less clear and the market could be buoyed by the region’s deep presence of food production, retail has been hard hit by the shutdown.

While being the state’s capital will provide some shelter in the coming months, Pennsylvania’s fiscal situation is a mess. Financial troubles could portend future government layoffs and by the third quarter, the state had already cut 2,500 government jobs.

There’s little chance the economy doesn’t cool in Central Pennsylvania but the market does have some factors working in its favor. BLS data shows the market has lost about 5% of its total non-farm employment levels since March. While this is obviously a significant reduction, it does compare well with nearby Lehigh Valley and Pittsburgh. While Harrisburg’s demographic gains won’t raise any eyebrows, the region does stand out in Pennsylvania. Cumberland County is one of the fastest-growing counties in the state, likely aided by the growing logistics and warehouse presence along the Carlisle Corridor.

The logistics sector is expected to hold up well and perhaps even grow as e-commerce continues its acceleration. An Adobe report from June showed that online spending was up 77% year over year, representing growth in e-commerce that experts were not forecasting the country to reach until 2026. Central Pennsylvania’s location is prime for shipping, and such a scenario could lead to more jobs and perhaps fuel additional growth in population.

Additionally, Central Pennsylvania is also trying to evolve into a knowledge-based economy and has adopted business-friendly incentives that have helped create nearly two dozen tech startups, which have generated 1,000 jobs. Education and health services jobs, which now track evenly with government jobs in the state’s capital, grew by more than 4% annually.

How does the ever-shifting economy impact the commercial real estate market, particularly as it pertains to commercial leases?

It comes as no surprise that industrial real estate leases in 2020 carried the largest square footage, with the top lease coming in at more than 1.1M SF to Lowes Distribution Center in Shippensburg. Additionally, Bob’s Discount Furniture will be moving into the former Best Buy in Lancaster, and Hershey will be getting a new Big Lots in the Hershey Square Shopping Center. The top five flex leases also provided businesses with hundreds of thousands of Class B Flex Space. Keep reading to view the top 5 leases from 2020 for office, retail, industrial, and flex space.

Top 5 Office Leases

#1 – 1929 Lasalle Ave – Bldg 134, Lancaster, PA 17601

High Associates Ltd. leased out the 29,000 SF Class C Office Building built in 1974 to Equipment Depot beginning in January of 2020 for a 1-year term. It had previously been vacant for 164 months.

#2 – 1803 Mt Rose Ave – Bldg B, York, PA 17403

Kinsley Properties leased out the 23,704 SF Class C Office Building built in 1988 to IDS, LLC beginning in February of 2021 for a 5-year term. It had previously been vacant for 13 months.

#3 – 990 Peiffers Ln – NRG Engine Services, Harrisburg, PA 17109

Campbell Commercial Real Estate leased out the 23,382 SF Class B Office Building built in 1987 to UPS Midstream Services Inc. beginning in February of 2020 for an unspecified term.

#4 – 1770 Hempstead Rd – Greenfield Corporate Center, Lancaster, PA 17601

High Associates Ltd. leased out the 16,088 SF Class B Office Building built in 1990 to an unnamed leasee beginning in November of 2020 for unspecified term. It had previously been vacant for 19 months.

#5 – 200 Corporate Center Dr – 200 Corporate Center Dr, Camp Hill, Camp Hill, PA 17011

Cushman & Wakefield leased out the 11,655 SF Class A Office Building built in 1986 to an unnamed leasee in August of 2020 for an unspecified term. It had previously been vacant for 52 months.

Top 5 Retail Leases

#1 – 3975 Columbia Ave, Columbia, PA 17512

The 86,100 SF Class B Retail Building built in 1992 was leased to U-Haul, as the single tenant, beginning in June of 2021.

#2 – 1801 Hempstead Rd – Former Best Buy, Lancaster, PA 17601

Bennett Williams Commercial and ShopCore Properties leased out the 45,915 SF Class B Retail Building built in 2009 to Bob’s Discount Furniture beginning in September of 2020 for a 10-year term. It had previously been vacant for 23 months.

#3 – 921 E Main St – Mount Joy Square Shopping Center, Mount Joy, PA 17552

Bennett Williams Commercial leased out the 44,761 SF Class B Retail Building built in 1989 to an unnamed business beginning in March of 2021. It had previously been vacant for 25 months.

#4 – 1130-1170 Mae St – Hershey Square Shopping Center, Hummelstown, PA 17036

Bennett Williams Commercial leased out the 38,202 SF Class B Retail Building built in 1994 to Big Lots beginning in June of 2020 for a 10-year term. It had previously been vacant for 12 months.

#5 – 4075 E. Market St – York, PA 17402

The Flynn Company leased 27,000 SF Class C Industrial/Manufacturing Building built in 1972 to No Piston, LLC beginning in October of 2020 for a 5-year term.

Top 5 Industrial Leases

#1 – 1 Walnut Bottom Rd – Shippensburg 81 Logistics Center, Shippensburg, PA 17257

Colliers International leased out the 1,100,500 SF Class A Industrial Building completed in 2020 to Lowes Distribution Center beginning in February of 2021. It had previously been a vacant shell space for 160 months.

#2 – 200 Goodman Dr – Building 2, Carlisle, PA 17013

CBRE leased out the 938,828 SF Class A Industrial Building built in 2017 to Syncreon beginning in December 2020. It had previously been vacant for 44 months.

#3 – 951 Centerville Rd – Penn Commerce Center – Building A, Newville, PA 17241

Cushman & Wakefield leased out the 807,998 SF Class A Industrial Building to an unnamed leasee. It had previously been vacant for 5 months.

#4 – 4875 Susquehanna Trl – ES3 LLC Bldg 1, York, PA 17406

The 790,042 SF Class B Industrial Building was leased to ES3, a Professional, Scientific, and Technical Services company, beginning in February 2020 for an unspecified term.

#5 – Centerville Rd – Penn Commerce Center – Building B, Newville, PA 17241

Cushman & Wakefield leased out the 753,000 SF Class B Industrial Building to an unnamed lease beginning on January 2021. It had previously been vacant for 3 months.

Top 5 Flex Leases

#1 – 60-64 Industrial Rd, Elizabethtown, PA 17022

Cushman & Wakefield leased out the 113,720 SF Class B Flex Space completed in 1992 to WillScot beginning in September of 2020. It had previously been a vacant shell space for 13 months.

#2 – 1740 Hempstead Rd – Building 380, Lancaster, PA 17601

High Associates, Ltd. leased out the 34,000 SF Class B Flex Space completed in 1964 to an unnamed business beginning in January of 2021. It had previously been a vacant shell space for 92 months.

#3 – 6400 Flank Dr, Harrisburg, PA 17112 – Harrisburg Area East Ind Submarket

NAI CIR leased out the 32,212 SF Class B Flex Space completed in 1987 to an unnamed business beginning in June of 2020. It had previously been a vacant shell space for 3 months.

#4 – 1000 Kreider Dr – Building A, Middletown, PA 17057

CBRE leased out the 12,030 SF Class B Flex Space completed in 2006 to an unnamed business beginning in August of 2020. It had previously been a vacant shell space for 8 months.

#5 – 3545 Marietta Ave – Silver Spring Center, Lancaster, PA 17601

Prospect Leasing & Management leased out the 7,192 SF Class B Flex Space completed in 1997 to an unnamed business beginning in January of 2021 for a 5-year term. It had previously been a vacant shell space for 6 months.

With so much square footage having exchanged hands in Central PA in 2020, it will be interesting and important to keep an eye on how these businesses impact the region. There were quite a few properties that made it to this list that had sat vacant for years. Now with new tenants, this will drive jobs and contribute to the local economy. And with some of these leasing terms for 5, even 10 years, these businesses have made a commitment to being here long-term.

Among all the top leasing deals that took place in 2020, which sector – office, retail, industrial, or flex – do you think will have the largest and most immediate impact on the Central PA region? Share your thoughts by leaving a comment below.

*Data of the top commercial real estate sales provided by CoStar.

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Impact of Eliminating Like-Kind-Exchange on Commercial Real Estate

Posted on January 18, 2021 by Mike Kushner in Blog, Commercial Real Estate No Comments

Right before the 2020 election took place, we shared important information as to how any new president of the United States would impact just about everything, including commercial real estate. Specifically, we examined Joe Biden’s plan to introduce a new probate real estate tax that would greatly reduce inheritances in the future as beneficiaries will have to pay tax on non-qualified assets. Now with President-Elect Joe Biden set to become the 46th President of the United States, the tax implications are becoming much more real and worthy of a closer look. Continue reading to learn how his platform will likely impact like-kind-exchange on commercial real estate, and what this could mean for you as a real estate investor.

The History of Like-Kind-Exchanges

Since 1921, investors have been permitted to defer paying capital gains taxes on investment property sales. In return, they must reinvest the proceeds into a similar investment property within a specified time frame, typically 45 days to identify the replacement property and 180 days to complete a transaction. To look at it another way, 1031 exchange (named from Section 1031 of the U.S. Internal Revenue Code to which it refers) is a swap of properties that are held for business or investment purposes. The properties being exchanged must be considered like-kind in the eyes of the IRS for capital gains taxes to be deferred. Biden’s policy proposal, which is referred to as “The Biden Plan for Mobilizing American Talent and Heart to Create a 21st Century Caregiving and Education Workforce” could eliminate 1031 like-kind exchanges for high earning real estate investors.

Proposed Changes

According to Biden’s administration, “The plan will cost $775 billion over 10 years and will be paid for by rolling back unproductive and unequal tax breaks for real estate investors with incomes over $400,000 and taking steps to increase tax compliance for high-income earners.”

The overarching goal of this change is to prevent investors from deferring the payment of taxes on the sale of real estate. On the surface, to those not investing in commercial real estate, such a change may seem positive or even necessary. But recent studies led by the Real Estate Research Consortium concluded that eliminating 1031 exchanges would disrupt many local property markets, harm both tenants and owners, and small investors.

Furthermore, a study conducted by David Ling Ph.D., a professor at the University of Florida, and Milena Petrova Ph.D., an associate professor at Syracuse University, claims that eliminating 1031 exchanges would likely lead to a decrease in commercial real estate prices in many markets, less reinvestment in commercial and residential real estate, a greater use of leverage to finance acquisitions, and an increase in investment holding periods that would result in a decrease in market liquidity and a slowdown in related industries.

The (Unintended) Impact

Simply put, the entire real estate sector benefits from such exchanges. Brokers and agents receive more deals, banks and mortgage lenders gain more borrowers, other property owners benefit from an increase in demand for real estate, tenants receive more affordable housing options, and cities and localities benefit from higher property taxes and more investments back into their real estate economy. So whatever perceived benefit Biden’s administration hopes to gain from eliminating like-kind exchanges in commercial real estate, they will certainly pay for, ten-fold, in negative consequences.

Here are just a few examples we can immediately spot. In the longer run, rents would need to increase from eight to 13 percent to offset the effects of elimination, and cost increases would be more pronounced in high-tax states (such as NY, NJ, CA, HI, MN). And in case anyone still believes that 1031 exchanges are an end-around used by the rich to never pay taxes, the estimated taxes paid when an exchange is followed by a taxable sale are on average 19 percent higher than taxes paid when an ordinary sale is followed by an ordinary sale.

A Done Deal?

Like anything in government and politics, nothing is set in stone until it’s, well, set in stone (or ink). So, Biden’s changes are by no means a done deal, and may take a good deal of time to come to fruition, if at all. Upon Biden becoming the nation’s 46th president, this does open the door to a whole host of changes that very well may impact commercial real estate investors on the take front. The best thing you can do right now, and this goes for anyone, not just CRE investors, is to meet with a tax advisor, tax, attorney, CPA, etc., to review what changes could be coming down the line and how this should impact the decisions you’re making today. As you prepare to close out your taxes for 2020, you may wish to make some changes and move things around to put you in a more favorable position for any changes that may be coming down the line.

How might the eliminations of like-kind-exchanges impact your financial future and the decisions you make regarding real estate? Do you feel this is a likely threat to CRE investments?

Join in the conversation and share your opinion by leaving a comment below.

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Central PA’s Top Commercial Real Estate Sales in 2020

Posted on January 15, 2021 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Local Market, Retail, Trends No Comments

2020 was quite the year, but even a global pandemic did not halt the exchanging of commercial real estate. In Central Pennsylvania, the sale of commercial real estate continued well through the end of the year with hundreds of millions of square-feet being bought and sold. As to be expected, the largest commercial real estate transactions in both  square feet and price was industrial space. More than 3.5 million SF of industrial space exchanged hands in 2020 with the most taking place in York and Carlisle which are major distribution destinations along the I-81 corridor.

The top 5 multifamily sales in Central PA ranged in price in location, from 160 Class A units in one transaction and 663 Class C units in a Manufactured Housing/Mobile Home Park in another. The largest exchange of space in a single transaction was 339,612 SF in a townhouse complex in Marietta.

Three of the top five office sales exchanged hands between the same two parties. AR Global purchased 50,800 SF of office space, primarily occupied by health centers, from RVG Management and Development Company. In retail sales, the Blackstone Group L.P. sold 274,764 SF of York retail space to a joint venture  between Triple Crown Corporation and J.C. Bar Properties, Inc. in three separate transactions.

Keeping reading for a full list of the top 5 commercial real estate transactions, for office, retail, industrial, and multifamily, that took place throughout Central Pennsylvania in 2020.

Top 5 Office Sales

#1 – 1171 S Cameron Street, Harrisburg, PA 17104

Olcam Corporation sold the 121,518 SF Class C Office Building built in 1989

to Boyd Watterson Asset Management on July 22, 2020 for $20,500,000 ($168.70/SF). At the time of sale, the property was 100% occupied by the Pennsylvania Department of Labor & Industry.

#2 – 300 Corporate Center Drive – Camp Hill Corporate Center, Camp Hill, PA 17011

LNR Partners LLC sold the 173,296 SF Class A Office Building built in 1989 (renovated in 2005) to Linlo Properties on July 6, 2020 for $14,394,731 ($83.06/SF). At the time of sale, the property was 62.5% occupied by Deloitte and Pennsylvania Health & Wellness, Inc.

#3 – 805 Sir Thomas Court – Arlington Place – Old English Gap Professional Park, Harrisburg, PA 17109

RVG Management and Development Company sold the 24,800 SF Class B Medical Building built in 1994 to AR Global Investments, LLC on January 16, 2020 for $7,812,000 ($315.00/SF). At the time of sale, the property was 100% occupied by Pennsylvania Spine Institute and PinnacleHealth Express.

#4 – 2140 Fisher Road, Mechanicsburg, PA 17055

RVG Management and Development Company sold the 15,000 SF Class C Office Building built in 1990 (renovated in 2016) on January 16, 2020 to AR Global Investments, LLC for $5,394,000 ($359.60/SF). At the time of sale, the property was 100% occupied by PinnacleHealth Shepherdstown Family Practice.

#5 – 5400 Chambers Hill Road – Swatara Medical Center, Harrisburg, PA 17111

RVG Management and Development Company sold the 11,000 SF Class B Office Building built in 1988 (renovated in 1993) to AR Global Investments, LLC on January 16, 2020 for $5,394,000 ($490.36/SF). At the time of sale, the property was 100% occupied by Chambers Hill Family Med Center and Select Physical Therapy.

Top 5 Retail Sales

#1 – 2449 E Market Street – Lowe’s – York Marketplace, York, PA 17402

The Blackstone Group L.P. sold the 125,353 SF Retail Freestanding (Community Center) Building built in 1955 (renovated in 2004) to Triple Crown Bar York Marketplace, LLC on November 3, 2020 for $13,916,926 ($111.02/SF). At the time of sale, the property was 100% occupied by Lowe’s.

#2 – 2415 E Market Street – Giant Food – York Marketplace, York, PA 17402

The Blackstone Group L.P. sold the 74,541 SF Retail Supermarket (Community Center) Building built in 1994 to Triple Crown Bar York Marketplace, LLC on November 3, 2020 for $11,939,079 ($160.17/SF). At the time of sale, this property was 100% occupied by GIANT.

#3 – 2501-2555 East Market Street – York Marketplace, York, PA 17402

The Blackstone Group L.P. sold the 74,870 SF Retail Storefront (Community Center) Building built in 1994 to Triple Crown Bar York Marketplace, LLC  on November 3, 2020 for $11,407,972 ($152.37/SF). At the time of sale, this property was 95.2% occupied by 13 tenants: Firehouse Subs; Gamestop; Kids First Swim School; Market Street Viet Thai Cafe; MyEyeDr.; Oreck; Pet Valu; PLCB Wine & Spirits Store; Red Lobster; Starbucks; Super Shoes; Verizon Wireless; VIP Nail & Spa.

#4 – 1360 Columbia Avenue – Stone Mill Plaza, Lancaster, PA 17603

Brixmor sold the 76,056 SF Retail Supermarket (Community Center) Building built in 1988 (renovated in 2007) to Tristate Ventures, LP on March 13, 2020 for $10,772,036 ($141.63/SF). At the time of sale, the property was 88.5% occupied by GIANT and Great Clips.

#5 – 1278 S Market Street – GIANT – Elizabethtown Shopping Center, Elizabethtown, PA 17022

Frist City Company sold the 65,146 SF Retail Supermarket (Neighborhood Center) Building built in 1982 to James Gibson on November 30, 2020 for $7,338,000 ($112.64/SF). At the time of sale, the property was 100% occupied by Citizens Bank, GIANT Food Stores of Carlisle, and Starbucks.

Top 5 Industrial Sales

#1 – 3419 Ritner Highway – Ritner Logistics Center, Newville, PA 17241

Artemis Real Estate Partners sold the 1,215,240 SF Class A Distribution Building built in October 2019 to Exeter Property Group on October 1, 2020 for $85,000,000 ($69.95/SF). At the time of sale, the property was unoccupied.

#2 – 4875 Susquehanna Trail – ES3 LLC Bldg 1, York, PA 17406

C&S Wholesale Grocers, Inc sold the 790,000 SF Class B Distribution Building built in 2002 to Ahold Delhaize on February 11, 2020 for $75,665,684 ($95.78/SF) as a sale leaseback. At the time of sale, the property was 100% occupied by ES3 (also the seller).

#3 – 4875 Susquehanna Trail – ES3 LLC Tower 2, York, PA 17406

C&S Wholesale Grocers, Inc sold the 705,000 SF Class B Distribution Building built in September 2009 to Ahold Delhaize on February 11, 2020 for $64,234,316 ($91.11/SF) as a sale leaseback. At the time of sale, the property was 100% occupied by ES3 (also the seller).

#4 – 192 Kost Road – Silver Springs Distribution Center, Carlisle, PA 17015

Black Creek Group sold the 422,400 SF Class A Warehouse Building built in June 2016

to Prologis, Inc. on January 8, 2020 for $30,218,510 ($71.54/SF). At the time of sale, the property was 100% occupied by Acme.

#5 – 100 Louis Parkway – Carlisle Distribution Center, Carlisle, PA 17015

Black Creek Group sold the 400,596 SF Class A Warehouse Building Built in 2006 to Prologis, Inc. on January 8, 2020 for $28,658,651 ($71.54/SF). At the time of sale, the property was 100% occupied by Overstock.

Top 5 Multifamily Sales

#1 – 2035 Patriot Street – The View at Mackenzi, York, PA 17408

Morgan Communities sold the 224 Unit, 242,323 SF Class B Apartments Building built in 2006 to Larken Associates on March 2, 2020 for $28,058,244 ($115.79/SF; $125,260/Unit). At the time of sale, units were 90.6% occupied.

#2 – 310 Honeysuckle Drive – The Villas of Castleton, Marietta, PA 17547

Keystone Custom Homes sold the 160 Unit, 339,612 SF Class A Apartments Building built in 2009 to Steinman Real Estate LLC on February 28, 2020 for $25,191,760 ($74.18/SF; $157,448/Unit). At the time of sale, units were 96% occupied.

#3 – Fox Run Road – Chesapeake Estates of Grantville, Grantville, PA 17028

David Sherrill sold the 663 Unit Class C Manufactured Housing/Mobile Home Park built in 1987 to RHP Properties on October 29, 2020 for $21,040,000 ($18,785.71/SF; $60,634/Unit).

#4 – 1 Chesapeake Estate – Chesapeake Estates of Thomasville, Thomasville, PA 17364

David Sherrill sold the 663 Unit Class C Manufactured Housing/Mobile Home Park built in 1986 to RHP Properties on October 29, 2020 for $19,800,000 ($19,800.00/SF; $62,658/Unit).

#5 – 200 South Court Street – Mulberry Station Apartments, Harrisburg, PA 17104

AION Partners sold the 100 Unit, 116,667 SF Class B Apartments Building built in 1987 (renovated in 2020) to Post Road Management on January 16, 2020 for $12,100,000 ($103.71/SF; $121,000/Unit). At the time of sale, the property was 100% leased.

In the coming months and years, it will be important to keep an eye on the top commercial real estate sales in the region. As office, retail, industrial, and multifamily real estate exchanges hands, the businesses who own this space, and their tenants stand to have a great impact on the local, and global economy moving forward.

Among all the top transactions that took place in 2020, which do you think will have the largest and most immediate impact on the Central PA region? Share your thoughts by leaving a comment below.

*Data of the top commercial real estate sales provided by CoStar.

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This Election Day will impact everything – including real estate

Posted on November 2, 2020 by Mike Kushner in Blog, Commercial Real Estate No Comments

Another reminder about the importance of the 2020 Presidential Election? Yes, but with good reason. We’ve been inundated with news, ads, and messages forcing very carefully crafted information upon us. There’s a lot we know about each candidate and their platform, but there is much more than we don’t know. This applies to all candidates and political parties. Tomorrow, the nation will vote for the candidate who represents the values and policies that best align with our own. However, I doubt anyone will say they agree 100% with any, one candidate. So instead, we’ll vote based upon the criteria that are most important to our own views. And if this happens to include the creation of new taxes, particularly on real estate, then there is something very important to consider.

Should Joe Biden become the next President of the United States, his plan includes a new probate real estate tax hidden in his platform that could cause a massive hit on capital gains.

Taxing Appreciation

As proposed by Biden, his new probate real estate tax would end the process of real estate heirs taking probated property on a stepped-up basis and instead require them to pay capital gains taxes on all appreciation that accrued on the property before their inheritance. This would put heirs on the hook for paying capital gains taxes on the appreciation of a property, plus any other profits earned above the current market value once the heir sells the asset.

Existing law is much more favorable to those who inherit real estate. For example, if someone purchased a property when it was valued at $100,000 and died when it had reached a fair market value of $1M, the owner’s heirs would inherit the property at a stepped-up basis of $1M. As a result, heirs under current law do not have to pay capital gains on the $900,000 in appreciation that accrued before the original owner’s death, and if they were to sell the property down the road, they would only pay capital gains taxes on any value above $1M.

Biden’s proposed tax changes as a whole would essentially add a fourth tax bracket to the capital gains schedule of 39.6% on income above $1M, meaning the top rate could reach 43.4% when we include the 3.8% net investment income tax.

How This Affects You!

When your parents pass and leave you the family house normally you inherit that property at what it is worth today. If you would sell that house, you would only pay taxes on what it is worth today and what it sells for.  If Biden does away with the stepped-up basis you will inherit the property for what your parents paid for the property.  If you decide to sell you will pay taxes on the difference between the original purchase price and what it sells for today.

In addition, a Biden presidency would greatly harm multigenerational ranches and farms by killing the next generation with taxes.  Simply put, this election stands to drastically change the transfer of generational wealth as we know it.

It’s Not a Done Deal

First, nothing is known until after November 3 and the election results are tallied. Should Biden win, the change is far from a done deal as his plan could change or be voted down by the legislative branch.

Then there are some unknowns in Biden’s proposal, and how those are worked out could make the tax changes less of a blow, or even worse. For one, it’s unclear if death itself becomes a “taxable event” that forces heirs to pay capital gains taxes on all appreciated value at the time of their inheritance. It’s also possible the Biden plan may allow heirs to inherit real estate on a carry-over basis, so they only have to pay for the years of appreciation when they sell the asset, not at the time of inheritance. Another option is that heirs could spread their taxes out over time.

What is known is that if you care about these changes, and stand to be negatively impacted by them, casting a vote is the best way to voice your opinion on the matter. This is not to say any other candidate does not also plan to change other aspects of the tax structure, which will have a negative impact on at least one sector of the population. This is all the more reason to do your research before taking to your polling location.

The Big Takeaway

Regardless of candidate or political affiliation, the thing that matters most is that you cast a vote, and you do so being as well informed as possible. If you have chosen to vote in person, you still have ample time to do your own research and look for reliable sources. And when you do vote, consider what is most important to you and the candidate most likely to uphold this viewpoint when in office.

No matter the outcome – November 3, 2020 will be a historic day for the world!

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COVID-19 Prompts Manufacturing Companies to Make Long-Term Changes

Posted on October 28, 2020 by Mike Kushner in Blog, Commercial Real Estate, Industrial, Trends No Comments

According to a new study, more than 90% of companies expect the disruption of global supply chains caused by the pandemic to have long-term effects on their businesses. This has caused manufacturers to closely examine various aspects of their businesses and consider what may need to change, possibly permanently, to adjust to the new COVID-19 reality we are living in.

Furthermore, businesses have begun to realize the importance of continuously monitoring their suppliers, especially those overseas, for risks and disruptions as they try to accommodate many personnel issues, supply chain disruptions, and uncertainty in general.

Keep reading to learn what this new survey and other news sources are reporting about the change to manufacturing and supply chain businesses as the result of the pandemic, and how these changes stand to impact the commercial real estate market.

Widespread Impact in a Variety of Areas

Respondents to the survey estimated that on average about 43% of their entire supply chain suffered some kind of interruption. For the majority of respondents, this was due to fluctuation in supplier pricing and safety restrictions causing orders to be paused or slow to fill. The next most common interruption was the need to find suppliers in other geographic regions due to import/export restrictions, followed by the challenge of suppliers going bankrupt. Many manufacturing businesses didn’t experience just one of these interruptions, but a combination of several which made for an exceptionally chaotic time when COVID-19 first hit. Now that the world has gone on to accept where we are the new reality, at least for the foreseeable future, manufacturing and supply chain industries are shifting from short-term considerations to long-term changes that will make them more stable in the future to sustain a global event in the future.

What this means for commercial real estate: As businesses are reacting to the widespread impact of COVID-19 on manufacturing and supply chain operations, there is a valuable opportunity for commercial real estate owners and investors here in the United States to position their properties as solutions for addressing these changing needs. Businesses may need more space, or a different configuration of space to accommodate their new systems and processes. The more flexible CRE professionals can be with their space, the more they will be able to attract new tenants and even expand their portfolio.

Shift to Reshoring and Nearshoring

In an effort to learn from what this pandemic has already taught us, manufacturing businesses have shifted their focus toward solutions that stand to reduce risk and protect against future shocks as of the likes of COVID-19. Many businesses are taking steps toward retooling their supply chain, and one major shift in mindset is reshoring or nearshoring manufacturing that was once offshore. Reshoring is the process of bringing back overseas supply chain operations to the country of origin and nearshoring is the process of bringing supply vendors closer to the point of origin, from farther overseas destinations. Reshoring and nearshoring an operation’s most vital materials reduces the risk of being held hostage by offshore suppliers.

In that same survey, 97% of respondents said they agree that better visibility into their suppliers is imperative. When various components of a business are broken up and distributed all across the globe, it can be nearly impossible to keep your thumb on all aspects of operations and it can make it harder for these points of operations to communicate effectively with one another. Now more than ever, businesses are seeing the value of keeping their operations within the same country, if and when it’s possible.

What this means for commercial real estate: For commercial real estate owners and investors, this means the demand for industrial space is going to rise. As businesses look to retool their supply chain and bring components back to the United States, they will inevitably seek more warehousing and manufacturing space to accommodate their growing needs.

The Smartest Businesses Are Acting Now

In such a challenging environment, the most forward-thinking businesses are not wasting time addressing vulnerabilities in their supply chains. Many respondents (98%) are planning to take some kind of action to build resilience against future disruptions – and the top courses of action are identifying and employing alternative suppliers, continuous monitoring, and increasing reshoring capabilities. Additionally, diversifying or localizing supply chains are a way to reduce costs, as well as better prepare for future economic disturbances.

What this means for commercial real estate: Now is the time to position your CRE assets as solutions for manufacturing and supply chain businesses. If your space is a fit for such needs, you should market it as such. Be direct in the unique benefits your space can provide a business. For industrial businesses, this means a large and functional space located conveniently for transportation. The Central Pennsylvania region is accessible to major cities and transportation hubs on the East Coast. Commercial real estate space along the I-81 and I-83 corridors will benefit from any beefing up of supply chains and logistics in this area.

With the impact of COVID-19 causing many manufacturing businesses’ to change how and where they make, store, and transport goods, the silver lining is that the Central Pennsylvania is likely to experience an increase in demand for industrial and manufacturing space. This will in turn drive new construction, bring more jobs to the area, and strengthen the overall economy. This is not to overlook the many significant challenges the pandemic has caused to all industries, but it’s at least one path that is headed in the right direction, particularly for industrial real estate in Central PA.

Do you have a question or idea related to manufacturing, commercial real estate, and COVID-19? Join the conversation by leaving a comment below.

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How the Pandemic Stands to Impact Property Taxes in PA

Posted on July 22, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

School districts in Pennsylvania are working to set their budgets for the 2020-2021 school year, and are potentially facing a $1 billion loss in local revenue as a result of coronavirus, according to the Pennsylvania Association of School Board Officials (PASBO) study. Even if the economy recovers quickly, and there’s no predicting if it will, that still leaves schools with a predicted loss of $850 in revenue.

So how will they make up for the gap? Naturally, the focus shifts to property taxes. Raising property taxes is never a desired solution, but it’s among the most obvious and effective. While some school districts in the capital region are not considering a property tax increase, and instead choosing to cut programs, contract out services to reduce spending, or drawing upon reserves, many others say a tax increase is unavoidable.

Pennsylvania is not unique in this dilemma, just last month Nashville approved a 34% property tax increase to account for revenue loss as a result of COVID-19. For a property appraised at $250,000, that would mean an increase of about $666.25 per year. This tax increase, compounded by any other financial hardships property owners have faced this year is a significant stressor.

It’s important to note that in Pennsylvania that the Act 1 index caps how much school property tax rates can rise. It takes into account the average statewide weekly wage, which is likely to be lower in wake of this pandemic. To go above the index requires state or voter approval.

School districts across the Commonwealth are having their budgetary discussions now. As property owners, it’s important to stay aware of what’s being proposed in case it stands to impact the tax rate on your residential or commercial property. Let’s take a look at a few local school districts to see how they are addressing their budgetary issues and whether this could result in a property tax increase in your township.

Camp Hill School District

The Camp Hill School Board is recommending a 3% tax increase to support its preliminary $24.7 million budget for 2020-21. By going with a tax increase of that size, it left the district facing a $403,458 revenue shortfall as opposed to one that would be double that amount if the tax rate was frozen. The district anticipates a post-COVID-19 loss of nearly $431,000 in local and state revenue so it trimmed its proposed spending by $116,740 to adjust for that. It is looking to use some of its $6.2 million unassigned reserves to bring the budget into balance.

Central Dauphin School District

Central Dauphin School Board says they are looking at every possibility including cutting nearly $300,000 from their budget without giving up things that would pose difficulties for students. The board must next consider approving a preliminary $204.2 million budget that still has a $2.4 million revenue shortfall to close to bring it into balance. The options laid on the table for the board include a mix of ideas that range from no tax increase and dipping into reserves to raising property taxes by the 3.1% allowable tax increase under the Act 1 index.

Cumberland Valley School District

Cumberland Valley School Board feels that a property tax freeze is not feasible for the district. The district anticipates a $3.1 million loss in local revenue, $300,000 in lost interest earnings, and a projected budget deficit of $2.4 million. Without the additional $2.3 million in revenue the district would receive from an Act 1 index allowable property tax increase of 2.6%, the deficit grows to almost $5 million.

Derry Township School District

While no tax increase is expected in the Derry Township School District, it is going to be a challenging year. And Derry Township is in a particularly unique situation. The amusement tax brings in about $1.5 million annually, and with Hersheypark and its related venues being closed due to the coronavirus, that could be a big hit to their bottom line. How they plan to make up for the delta is still in discussion.

Lower Dauphin School District

Lower Dauphin School District has also been dealt a uniquely challenging hand. Not only are they dealing with the financial fallout of the coronavirus like everyone else, but they’re also the school district that’s home to Three Mile Island Nuclear Generation Station. The shutdown of TMI is a loss of roughly $300,000 in payments in addition to taxes that the plant once made. Despite the loss, the school board already approved a budget on Monday, and they were able to make ends meet without raising taxes by borrowing about $4 million from their reserve funds.

Northern York County School District

Northern York was already looking at a $1.5 million shortfall pre-CVOID, which had to do with health insurance increases, pension payments and other increases. Now with the expected loss of close to $1 million in earned income tax and less revenue from realty transfer taxes because of the hold put on real estate activity, that gap grows closer to $3.5 million. To bridge this gap, the district does not plan to increase property taxes, at least yet. Instead, they announced they would cut costs by moving to full day kindergarten which reduces midday transportation. They will also put a hold on any construction or renovation, and outsource its instructional aid duties to an educational agency.

West Shore School District

West Shore School District is anticipating a significant reduction in revenues related to earned income tax. As a result, a budget with a property-tax increase is currently on the table. For West Shore’s Cumberland County communities, it’s a 1.63 percent tax increase, and it’s an increase of 1.16 percent in York County. The budget also relies on $1 million from the school district’s reserves.

How would an increase in property taxes impact you? If you own commercial or residential real estate, this will affect you directly. And even if you don’t own real estate, there will still be a trickledown effect. If you rent your home or place of business, landlords may be forced to increase rent to pass off some of these costs. Or businesses may increase the cost of their goods or services to help balance their own books.

There are many unknowns in our community, government, and economy right now. What we do know is that everyone has endured change and hardship to some degree as the result of the pandemic. School districts, just like all of us, are looking hard for solutions that will keep them afloat while having the least negative impact on teachers, students, and the community.

What is your opinion on increasing property taxes to help school districts make up for financial losses due to COVID-19? Join in the conversation by leaving a comment below.

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What Does ‘Back to Business’ Look Like Post-COVID? – Part II

Posted on July 13, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Retail No Comments

This is Part II in a two-part series where we look at how commercial spaces must adapt and implement new policies to adhere to social distancing guidelines. We interviewed Matt Luttrell, Partner at ThYNK Design LLC for his input on this timely and important topic. In Part I we focused on the issue of square-feet per person requirements in buildings and how this will limit capacity. We also discussed how HVAC systems might be used to create fresh air and healthier work environments. Now, we’re going to shift our focus to other tools and tactics commercial spaces can use to keep the spread of COVID-19 down. Keep reading to find out what these are.

Omni: Aside from greatly adjusting the layout according to social distancing guidelines of commercial spaces, what other changes or precautions could be taken to adhere to revised distancing guidelines in a more efficient and effective manner?

ML: When possible, the ability to predict and schedule activities and users can be a great tool for optimizing the use of space. In K-12 educational environments, the circulation of students and faculty is highly planned and will become even more necessary to ensure that occupant use and density do not overwhelm resources and create unhealthy situations. Likewise, it appears that restaurants will need to enhance and promote reservation systems to manage seating and staff while using delivering and curb-side services for extended patron options. More movie theaters will use on-line reservations and pre-selection of seats. These commonplace practices can have long-term as well as short term benefits and will most likely become more prevalent in our daily experiences.

Omni: You talk about the importance of scheduling as a way for schools and businesses to manage capacity and social distancing. But what about when this is not an option?

ML: When scheduling or reservations are not an option, such as in retail or grocery store settings, human or automated occupancy counters are being used to limit the number of users at any given time. Employing staff to do this can be quite costly, and if we’re honest, not a desirable job. For automated options, there are many venders, such as Sensource, that provide hardware and software that can easily be set up and adapted to an organization or business’s specific needs.

Omni: Beyond limiting capacity in a space, what other precautions can businesses take?

ML: Thermal scanning of customers or guests determines if individuals have an elevated body temperature so that buildings can prevent a person showing symptoms from entering. This is another effective mechanism for controlling the spread of virus. There are readily available systems for small businesses that range from a $100 handheld scanner for checking individual temperatures to group and line screening systems for approximately $5,000. TEquipment.net provides an array of options for consideration.

Additionally, masks seem to be one of the more accessible and more effective tools for moving forward. While they are not 100% effective, it appears that they may significantly reduce transmission via air, which seems to be the primary source. No one seems to want to quantify how effective masks are, but based on common sense, the practice appears warranted. Given the ease, minimal costs, and purported effectiveness, masks seem to be the most readily available option for reopening our society without inundating our current resources.

No system is fail-proof, but simplicity and redundancy are always good principles when evaluating options.

Omni: In your opinion, can common areas like waiting rooms, break rooms, or lobbies realistically adhere to new CDC social distancing guidelines?

ML: These spaces are pinch points within every building. While they are designed to accommodate the building’s occupancy load, they are not intended to minimize interactions; they are generally shared spaces designed for efficiency and ease of use. Accordingly, each type of space has its challenges and should be evaluated for options, but these spaces are inherent barriers without actively implementing changes to a buildings configuration and/or user actions.

Reconfiguration can be a costly endeavor, especially if it is a short-term solution. Repurposing spaces may be a solution that allows for relief. Several areas traditionally found in a building, such as conference rooms and breakrooms, can be repurposed to address immediate needs. Breakrooms may be better utilized as an office or workspace for a limited number of employees, while employees are required to eat at their desks. Conference rooms could also become workspaces, or often, these rooms are located close to or adjoin lobbies/ waiting rooms and can become an extension of the room. These are potential short-term solutions and should involve an evaluation of HVAC, lighting, power, egress, and other potential code implications.

Omni Realty Group thanks Matt Luttrell for sharing this valuable insight to help us to better understand the challenges many business owners face when it comes to renovating and recreating commercial real estate space to accommodate social distancing and sanitization both now, and for what many feel will be long into the future. If you missed Part I of this two-part series, be sure to check it out here.

Do you own or work in a commercial space – office, retail, or industrial? What do you see being the biggest challenge related to COVID-19 required changes? Join in the conversation by leaving a comment below.

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What Does ‘Back to Business’ Look Like Post-COVID? – Part I

Posted on July 8, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Retail No Comments

Based on the continually evolving data and recommendations, the efforts to mitigate the spread of COVID-19 while pursuing a more normalized personal and professional life has focused on separation, isolation, and decontamination. As things currently stand, it appears that the only potential remedy to return to a pre-COVID-19 environment is the development of a vaccine. In the meantime, business owners and professionals are faced with living with less than ideal situations. Some wish to persist with maximum isolation and separation; however, it appears that the majority have deemed the consequences of shutting down all interactions beyond a household as untenable, and have demanded that measures be developed to support an acceptable level of social and professional interaction. What is acceptable? Well, that is a matter of individual choice.

To help provide some insight on what options exist for businesses to re-open their doors to employees and the public we asked Matt Luttrell, Partner at ThYNK Design LLC, to weigh in. ThYNK Design, LLC is a modern architectural firm pursuing a better way to develop, deliver, and celebrate the immense value of good design. Given his experience and background, Matt shares some valuable information to help frame and evaluate some of the inherent issues in the built environment that conflict with the proposed social distancing guidelines. Here’s how he responded when Omni Realty Group asked him several key questions.

Omni: What industries are likely to be most impacted by the proposed revised building code distancing guidelines?

ML: The restaurant industry may face the greatest short-term and long-term challenges. The proposed social distancing guidelines directly conflict with historic planning principles as well as the industry’s business model. However, each restaurant, business, and building should be evaluated to determine what resources are available to develop an effective mitigation plan.

Omni: How will the introduction of new social distancing constraints impact the long-term viability of most existing buildings?

ML: With the recognition that the design and development of the built environment is in response to many considerations, including; user needs, business models, and building code requirements, the introduction of new constraints that directly conflict with established practices will challenge the long-term viability of most buildings. These challenges focus on developing an environment that effectively manages occupant density, frequency, and duration of interactions, surface contaminants, and air quality. To effectively manage these challenges, an inventory and understanding of the available resources and building configuration are required. These can include: building area, sizes of rooms, type, and capacity of HVAC system, operable windows, number of entry/ exit points from a space or building, quantity, and location of shared facilities (toilet rooms, break rooms, waiting areas) and flex spaces.

Each resource can impact the effectiveness of a mitigation plan and should be carefully considered, but the most significant challenge is how to overcome the area requirements per person. Expanding a building, reconfiguring interior spaces, and adding entry and exit points are not readily done. In addition to the expense, the required time frame for approvals and construction is prohibitive.

Omni: Can you provide more information to paint a picture of the potential magnitude of the problem you’re describing?

ML: The proposed social-distancing guidelines recommend a density of 1 person per 113 SF (area of circle with a 6′ radius) whereas standard planning practices include densities that are 2x to 10x higher.

Following are the maximum area allowances, per the 2015 International Building Code, for several of the more common functions included in buildings:

Assembly spaces:

  • -with concentrated chairs (lecture halls, waiting rooms, etc.):
    • One occupant per 7 SF
  • -standing room (lobbies, areas holding events such as cocktail hours):
    • One occupant per 5 SF
  • -unconcentrated chairs and tables (restaurants, breakrooms, open office)
    • One occupant per 15 SF

Business areas: One occupant per 100 SF

Classroom: One occupant per 20 SF

Exercise rooms: One occupant per 50 SF

Retail: One occupant per 60 SF

Compared to the recommended 113 SF (area of a circle with a 6 radius) per occupant you begin to see the potential implications. As an example, a worst-case analysis would provide the following reductions:

Example 1: For a restaurant with a dining area design occupancy of 100 (15 SF per occupant) the occupancy would be potentially reduced to 13 occupants at 113 SF per occupant. This is a worst case and does not consider that you may have a family grouped so that they are separated from other family groupings.

Example 2: A classroom designed for 25 occupants could have a reduced occupancy of 5.

As indicated by these examples, if we want to remain economically viable, then social distancing cannot be the only criteria for determining the use of a space.

Omni: How do commercial HAVC systems currently play into the issue, whether standing to hurt or help air sanitization and circulation in shared commercial spaces?

ML: For most people, the quality of a HVAC system is based on the system’s ability to control the temperature of a space. Only in the relatively recent past (10-20 years) has the industry focused on delivering improved air quality, increased fresh air, controlled humidity, and energy conservation within the typical system. Each of these four items should be evaluated as a potential resource or barrier for developing a mitigation plan. In the current environment, an incorrect understanding or use could potentially have disastrous consequences and it is highly recommended that a contractor or engineer be consulted to determine the full capability of your system.

Omni: Could you give a bit deeper into the impact of air quality on comfort and health?

ML: Air quality may be one of the more challenging issues when it comes to controlling a virus. One of the more prevalent components for managing air quality is the filter. The systems air-filter is rated according to the level of filtration needed/ desired for a given environment. According to Grainger.com, “What Is MERV Rating? Air Filter Rating Chart,” most commercial and residential buildings will have filters that range from a MERV 5 to MERV 12. A MERV 5 rating filters particles down to a 10.0 micron level and a 12 filters down to 1.0 micron level. A MERV 12 or higher, which is not very common outside of critical healthcare and clean-room environments, effectively filters pollen, dust mites, mold, and even cement dust.

However, according to various publications, the coronavirus average size is 0.125 microns. While this is substantially smaller than the particles that are filtered, it does not mean that these particles freely pass. This is due to a variety of reasons, but one of them has to do with humidity. Dry air allows particles to float freely/ unattached, while humid air promotes particles binding together. The larger particles are more readily filtered or trapped. A similar concept applies to our lungs. When we breathe air that is too dry it reduces the amount of mucus within our bodies; thus, part of our human filtration system is compromised.

Omni: Is there any research to back this up?

ML: A study conducted in Sydney, Australia indicates that the reduced humidity conditions associated with winter weather can lead to an increase in COVID-19 cases. The researchers identified that a 1% decrease in humidity could lead to a 6% increase in cases. So, what is the ideal relative humidity? In this case, it appears that the industry recommended RH of 40% to 60% corresponds with the current recommendations for mitigating COVID-19. Too little humidity and the filtration system is compromised, too much humidity and mold growth is supported.

Omni: So then, how is indoor humidity controlled?

ML: A/C systems are primarily designed for thermal control. Thus, most A/C systems control humidity by circulating warm, moist air over cold coils, which leads to condensation, which is collected and drained away. The key here is ensuring that the AC cycles the proper amount of time to allow the warm air to be adequately circulated over the coils and the moisture removed. This process relies on the A/C unit being correctly sized. This involves a variety of factors, including the number of people in a facility.

In essence, if a system is sized to provide cooling for 100 people, it accounts for the amount of energy/ heat and moisture generated by 100 people. Accordingly, it will work to get the temperature where it needs to be while accounting for the amount of humidity that needs to be removed. If the occupant load is reduced to 50, then the system is effectively oversized and will get the air to the desired temperature before it has a chance to remove the humidity. This leads to RH levels that can far exceed the recommended upper level of 60%.

Omni: What connection do you see between fresh air and healthier work spaces?

ML: Fresh air, or air that is not recycled, has become an integral component in the development of an HVAC system that supports overall occupant health. Sick building syndrome (SBS) developed following efforts to close-up buildings to establish greater energy efficiency, and a quick search will indicate that the SBS symptoms are frighteningly similar to COVID-19. The introduction of fresh air into a HVAC system does two things: it dilutes the air and pollutants, and it helps to pressurize a building. Diluting air is readily understood, but proper pressurization is equally as important. If a building is not properly pressurized, then air can start to stratify and pockets of dead-air form. This can allow areas of a building or room to be filled with contaminated air that can promote the spread of a virus. Most new systems include fresh air as required by the building code, but many older systems do not. A professional should be consulted to determine if your system incorporates fresh air or if it can be modified to do so. Simply put, a properly sized HVAC system that incorporates fresh air is a critical component in supporting occupant health.

As we move forward in this new environment, we seem to come across unforeseen challenges every day. But the response to all challenges is the same: assess, move-forward, reassess, move-forward… The one certainty is that we must be persistent in creatively evaluating the situation and developing solutions based on available resources. Stay tuned for Part II where Matt presents us with even more information on your topic!

Do you own or work in a commercial space – office, retail, or industrial? How do you feel like impact of COVID-19 will require changes be made to the configuration and functionality of your space? Please offer your comments or experiences in the comment section below.

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How Commercial Tenants Can Negotiate Rent Relief During COVID-19

Posted on June 18, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Tenant Representative/Buyer Agent No Comments

 

Our world remains in a global pandemic and there is a long road to economic recovery. Seemingly overnight, our ways of working, living and playing drastically changed, and we were forced to sustain these changes for weeks and months on end. As a result, businesses closed their doors to the public, some temporarily and some permanently. This has led to the sudden need for these businesses to shed, or at least reduce, their commercial real estate overhead.

Think of it this way. When a business agrees to a rent amount, it does so with the expectation that it will have a certain level of income. All those expectations were upended with COVID-19, as many businesses have been forced to fully close for months or significantly reduce their use of their commercial space. Even though offices, restaurants, and stores are starting to reopen, their capacity for employees and customers — and, therefore, for revenue —remain diminished, making rent renegotiation necessary for staying afloat.

It’s important for commercial tenants who have lost the use of their spaces as a result COVID-19 to understand what options might exist for them to favorably negotiate some form of rent relief from their landlords. Take a look as we examine the key steps any commercial tenant or business owner should take when venturing down the path of lease negotiation.

Know the terms of your current lease.

Start with closely reviewing your current lease. What are the terms, conditions, and pricing you originally agreed to? What does it say about lease negotiations or early termination? Does it give conditions for if and when this would be considered? In order for your lease negotiation to be most effective, you must come armed with all the information related to your lease, and your leasing experience. Upon reviewing your lease, make note of the most important details and write or type those out on paper so that you can have it with you during your conversation. This will help to keep these details top of mind and easily accessible.

Seek representation and advice.

One of the most important things you can do is seek the representation and advice of a commercial tenant representative. This person is different than a real estate agent in that they exclusive represent the rights and interests of commercial tenants, not landlords. A tenant representative, like Omni Realty Group, would help review your current lease, advise you of your best plan for negotiating more favorable lease terms or even an early termination, and represent you at the meeting with your landlord. This not only provides peace of mind, but it gives you the best potential for a favorable outcome.

Be direct and professional with your request.

Schedule a meeting with your landlord and be direct that it’s to discuss your current lease terms. In your meeting, be clear and professional with your communication. Present your plan for new lease terms or early termination just like you would present a product or service to a client or customer. You want to sell your landlord on your plan; therefore, you need to make it clear why he or she should “buy” it.

Back your position with facts and data.

You can expect that your landlord will have questions and rebuttal. Why should he or she grant you new lease terms that are likely more favorable to you than they are to the landlord? Come armed with facts and data that support your plan. And also speak from a point of reason. Explain how your business was impacted by COVID-19. What were your losses or layoffs? How long were your doors closed to customers? And also look to other cities or states where possibly new laws are coming into place to offer rent relief for commercial real estate. This is taking place in California where a new bill, if it becomes law, allows businesses, particularly bars and restaurants, to terminate their lease agreements. While this may not be a law in your state, it’s worth discussing with your landlord how other places are approaching this difficult topic for perspective.

Finally, it’s worthwhile to research and consider how certain lease clauses could play in your favor and back up your position. Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, like COVID-19, takes place. There is also the frustration of purpose doctrine, which comes into play when an unforeseen event undermines a party’s principal purpose for entering into a contract, such as how COVID-19 left many businesses without the need or ability to use their commercial space. And these are just a few examples. Upon more research and seeking legal counsel, there may be additional clauses and doctrines that could protect you in this situation.

Present the benefits of both parties.

Sure, the benefit to your business is clear. Shortening your lease terms or negotiating lower rent for less space will help your business stay afloat financially and shed overhead that is no longer needed as a result of COVID-19. Be sure to also make it clear what could be in the deal for your landlord. Could you recommend a new tenant, such as another business you know? Could you negotiate taking less space rather than leaving the building completely? Or could you reduce the length of your lease, but not terminate it immediately? Another option, if it’s of value to your landlord, is leaving behind desks, chairs, and other office furniture so that the space can be offered as fully furnished to new tenants.

Prioritize what’s most important, and be flexible with the rest.

Go into your discussion with your landlord knowing what you absolutely must accomplish in order for your lease to be sustainable for your business. Maybe this must be lower rent costs, or maybe you need to downsize your space. Try to pick your one most important thing, and then be prepared to make some concessions in other areas. If your landlord is willing to terminate your lease early, he or she may ask to keep your security deposit, or charge for one more month of rent. Or maybe they’re willing to let you downsize your space, but they need you to move to a different floor or location because it makes it more feasible for them to rent out other space. Be willing to listen and to negotiate.

Remember that you have options and support.

Omni Realty Group is working hard to address the ever-changing needs of businesses that have been impacted by COVID-19 and now need to rethink their commercial real estate leases. We want to help be a part of the solution. With the right strategy and presentation of your proposed changes to your lease, it’s reasonable and possible to find a favorable outcome with your landlord. Keep in mind that landlords have also been impacted by COVID-19 in ways you might not imagine. The right tenant representative can help guide you through the complexities of negotiating rent relief, share the most current updates on how they and/or others are addressing similar challenges, and provide the necessary thought leadership to help you make informed decisions.

Has COVID-19 impacted your business’s need for and use of its commercial real estate space? Are you considering asking for new lease terms as a result? If you have a question or need assistance, don’t hesitate to contact Omni Realty Group, Central Pennsylvania’s exclusive commercial tenant representative today.

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Commercial Spaces Likely to See New Requirements for HVAC Due to COVID-19

Posted on June 1, 2020 by Mike Kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

COVID-19 has changed life as we know it. The home office became the new workspace, video conferencing replaced in-person meetings, events shifted to virtual delivery, and parents became homeschool teachers while trying to balance career demands. It’s safe to say that the majority of people are looking forward to a time when they can return to work and feel a sense of normalcy again. One of the most important elements of this being possible in the near future is the ability for businesses to create a safe and sanitary work environment while adhering to CDC guidelines. The sooner this can be accomplished, the sooner commercial spaces can begin to reopen.

Some of the most important considerations are how to effectively filtrate, circulate and sanitize the air in shared and common spaces to reduce the spread of viruses. What options exist to improve air filtration and sanitization in shared office, retail, or industrial work spaces? And what new requirements might we expect commercial spaces will need to adhere to in order to ensure a safe work environment for their employees?

To lend some expertise on this topic, Omni Realty Group turned to John Gunning, who is the Senior Mechanical Engineer at McClure Company, based in Harrisburg, PA. Working within the Engineered Services division, he is responsible for the design of building mechanical systems for the commercial, educational and industrial markets. He is a licensed Professional Engineer in Pennsylvania and a LEED Green Associate. John is McClure Company’s in-house expert on the subject of ventilation and dehumidification and is frequently asked to speak at both technical and non-technical seminars regarding these subjects.

We asked John a series of questions related to how office, retail, and industrial spaces may need to adjust the functionality of their air filtration and sanitization in light of COVID-19. Keep reading to learn what he predicts to be the “new normal” of commercial HVAC requirements in Pennsylvania and beyond.

Omni: Prior to COVID-19, what was considered the standard level of air filtration in most office spaces?

JG: Pre-COVID we would expect to see 1-2” thick filters with a MERV 6 to MERV 8 rating. However, some systems may use lesser rated 1” filters, MERV 4 or less, with mesh or washable media.

Omni: As people return back to physical office spaces after stay-at-home orders are lifted, what changes do you anticipate businesses making to their office spaces to be more sanitary for their workers, particularly as it relates to HVAC and air-filtration considerations?

JG: With much of the discussion of the transmission of COVID revolving around the virus in aerosol form, we can anticipate businesses thinking of their HVAC system as more than just a tool to keep the space at the correct temperature. Building codes require outside ventilation air to be introduced into the building to dilute contaminants. Over time, outside air dampers may have been closed for reduced energy usage or for service and there may not be sufficient ventilation air being provided to the building. The American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) has also issued this position document which includes recommendations for building owners. Among the recommendations are upgrades to a minimum MERV 13 filter and use of ultraviolet (UV) lights in the airstream. Previous studies have also shown that optimal humidity range for human health and reduced infection rates of seasonal Influenza and other viruses is 40-60% relative humidity.

Omni: What are the options available for a higher standard of air-filtration in commercial spaces?

JG: Most commercial HVAC equipment will except a 2” filter. A 2” filter can be manufactured with an efficiency rating up to MERV 13. However, there is a trade-off in both cost and in energy usage as the more efficient filter will have a higher air pressure drop. This higher pressure drop requires greater fan horsepower to move the same amount of air through the filter as compared to a lower efficiency filter.

Omni: In your opinion, what industries most need to make such improvements to air-filtration?

JG: At present, healthcare facilities and some manufacturing businesses are the industries whose filter requirements must meet or exceed the latest ASHRAE recommendations related to preventing the dissemination of airborne pathogens. Office, Retail, Education and Hospitality business are candidates for filtration upgrades as more people return to utilizing these spaces.

Omni: In addition to HVAC and air-filtration changes, what other improvements might you suggest to business owners to increase the cleanliness of their air quality?

JG: Active dehumidification is strongly recommended in order to keep the space’s relative humidity below 60 %. Limiting cooling season humidity can also reduce the risk of mold growth which can be a source of respiratory issues. On the other end of the spectrum, maintaining humidity levels above 40% is of equal importance. To that end, we expect more owners to consider the use of humidification in the heating season. Incorporating UV lights, in the supply air stream, is documented by ASHRAE as an effective method to deactivate genetic building blocks of viruses. While newer, bi-polar ionization shows potential as a technology capable of deactivating airborne viruses, it has yet to be recommended by ASHRAE. When outdoor conditions permit, increasing the use of outdoor air to dilute indoor contaminants is beneficial.

Omni Realty Group thanks John Gunning for sharing this valuable information and helping us to better understand the changes that may need to take place to improve air filtration and sanitization in commercial spaces as the result of COVID-19. During this unprecedented era in all of our lives –and the history of the world – it’s so important to arm yourself with knowledge and options that exist to continue to improve the health and safety of our communities where we live, work, and play. John’s insight and explanation of enhanced HVAC filtration requirements for commercial spaces should be helpful to all Central Pennsylvania businesses who are looking for additional health measures they can put in place for the safety of their workers.

Do you work in a commercial space – office, retail, or industrial? How do you feel like impact of COVID-19 will require changes be made to the air filtration and sanitization in your space? We welcome you to share your questions or reflections in the comment section below.

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