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Posts tagged "financial"

Home» Posts tagged "financial"

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.

[Online Resources] Real Estate, business, camp hill, Commercial Real Estate, contract, coronavirus, cost, COVID, COVID-19, CRE, downsize, Economy, financial, harrisburg, hershey, industrial, investor, lancaster, landlord, lease, lemoyne, mechanicsburg, Mike Kushner, money, negotiation, office, Omni Realty Group, owner, pennsylvania, recovery, relief, retail, tenant, tenant representative, terms, york

Pros and Cons of Crowdfunding and Commercial Real Estate

Posted on November 28, 2018 by Mike Kushner in Blog, Commercial Real Estate, CPBJ Articles, Trends No Comments

Note: This article was published by the Central Penn Business Journal. Click here to read the original version.


By now you’ve likely heard of the concept of crowdfunding. Maybe you’ve even ran a campaign for yourself or used a crowdfunding platform to give money to a cause. When most people think of crowdfunding, they think of using it to raise money for charity, like Go Fund Me, or to help grow a business, like Kickstarter. But one sector of crowdfunding that is steadily growing is crowdfunding for commercial real estate investments. It’s exactly what it sounds like. A group (or “crowd”) of fellow CRE investors purchase shares of a property or properties. Their combined resources allow them to jointly own CRE properties that none could afford to invest in individually.

On paper – or should we say on the internet – it’s a seemingly simple concept with obvious benefits. But it’s not without drawbacks too. Next we’re going to take a closer look at the pros and cons of crowdfunding for commercial real estate, and how this investment option may or may not be a good fit for you.

The Pros –

Affordable Price of Entry

Most people don’t have millions of dollars, even a hundred thousand dollars to put into a commercial real estate investment. This obstacle no longer has to stop interested investors from getting in on a great CRE deal. Through crowdfunding, pooling together funds is simple and fast. Commonly the price of entry is anywhere from $1,000 to $5,000. Compare this to outright owning your own investment property and you’ll see that this price of entry makes crowdfunding a really affordable opportunity.

Control of Your Cash

Compared to putting your money in a real estate investment trust (REIT), CRE crowdfunding gives you a lot more control and oversight. You get to choose exactly the type of property you want to invest in; you’re not relying on a trust manager to do this for you. For some investors, they love the thrill of the hunt of doing their own research and finding just the right property to invest in. If this is you, then you’ll enjoy that crowdfunding gives you control over when and how you invest your cash.

Diversity

Having a diverse investment portfolio is important. You want to be sure you’re not betting on just one horse. Through crowdfunding, you can invest in many different CRE properties within different sectors and classes. Even if you only have a moderate amount of money to invest, because the entry price for crowdfunding is so reasonable, this gives you the opportunity to diversify where your money is going.

Stability

No investment is completely stable, but when compared to traditional stocks and bonds, a CRE crowdfunded investment offers more stability because it’s not at the mercy of the stock market. Yes, other factors within the economy will certainly impact the value of the property, among other things; however, this is rarely an overnight change and can usually be predicted well in advance.

The Cons –

Longer-Term Commitment

When using crowdfunding to invest in commercial real estate, you’ll need to abide by your operating agreement. Usually when you invest, you have to lock this in for a set period of time. Sometimes this is several months, other times it’s several years. No matter how you look at it, crowdfunding investments are not easy to liquidate. They take time – and time isn’t always something people have, especially when it locks away cash that could be needed elsewhere.

Little to No Say in the Property

In the pros section we mentioned how CRE Crowdfunding gives you more control; however it’s important to note that really only pertains to your money. When it comes to the actual investment property, you have little to no say in the project. As a smart investor, you should do your homework to be sure you agree with the plans for the property and how it will be managed. Because after you invest, your opinion will most likely not be solicited.

The Unknowns

CRE crowdfunding most certainly has its risks. If you can tolerate these risks, then there is the potential for a high reward. A lot of the risks revolve around the unknown. Will the project stay on budget? Will it be completed on time? Will the property be managed as intended? Will the predictions and assumptions for the investment hold true? If you don’t like the risk and worry of the unknowns, CRE crowdfunding could really weigh you down.

Fees, Fees and More Fees

One final con is that there are a lot of hidden fees that could catch you off guard. The crowdfunding platform itself will apply fees to your investment. This varies from platform to platform, so be sure to read the fine print. Additionally, the investment property may also slap on additional costs for things like a construction fee, management fee, etc. Again, be sure to closely and carefully read every piece of your operating agreement because this is where you should uncover these fees before you sign on the dotted line.

The real takeaway here is that, like anything, crowdfunding for commercial real estate has its ups and downs. A smart investor will closely consider each side and weigh the risk versus the reward. Even with its cons, crowdfunding is a valuable investment opportunity that cannot be ignored, especially if you’re looking for ways to diversify your investment portfolio.

How do you feel about crowdfunding for commercial real estate? Is there something we missed on our list? Share your thoughts by leaving a comment below!

[Online Resources] Real Estate, benefit, Commercial Real Estate, cons, CRE, crowdfunding, digital, drawback, financial, industrial, investing, investment, Mike Kushner, money, office, Omni Realty Group, portfolio, property, pros, retail, technology

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