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Posts tagged "leases"

Home» Posts tagged "leases"

Legal Pitfalls That Could Impact Your Commercial Real Estate Deal

Posted on July 1, 2019 by Mike Kushner in Blog, Commercial Real Estate No Comments

Legal matters can arise just about anywhere and in any industry. Commercial real estate is no exception. In fact, commercial real estate transactions can be filled with legal pitfalls if you don’t take proper precautions or seek professional advice.

What legal challenges are common to commercial real estate? For the answers, we looked to an experienced real estate attorney who has helped many clients navigate through such challenges.

Hannah Dowd McPhelin is a partner with Pepper Hamilton LLP, resident in the Harrisburg and Philadelphia offices and vice chair of the firm’s Real Estate Practice Group. Attorney McPhelin concentrates her practice in real estate matters and other business transactions, including the acquisition, sale and financing of commercial real estate properties and leasing of office, retail, warehouse and industrial space, representing both landlords and tenants. She is an Accredited Professional and was named a member of The Counselors of Real Estate in 2017.

Omni Realty Group had the pleasure of interviewing Attorney McPhelin to further examine the legal pitfalls that could impact commercial real estate deals. Here’s what we learned.

Omni: Describe some of the most common legal challenges you’ve seen arise when working through a commercial real estate deal.

Hannah Dowd McPhelin: I’ve worked through a lot of different challenges on a variety of deals, but an enduring theme is that some level of trust between the parties is necessary to get a deal done efficiently. If there is no trust or trust erodes, it is extremely difficult to work through challenges and get to closing, and it makes the deal much more expensive for all parties.

Omni: What conflicts can arise between the LOI and the lease? How can this be avoided?

HDM: The issue I see most often is that, because LOIs are typically not binding, a party may not raise concerns at that stage and will believe those terms can be “re-negotiated” in the lease — this leads to mistrust and deal delays. It is better to raise material issues at the LOI stage so both parties do not waste time and resources when there is not a meeting of the minds. I also recommend that the LOI be a short and concise document containing only the most important terms. A long LOI slows down deals and makes it more likely that you will do a second round of negotiations on particular issues when you negotiate the lease.

Omni: How can an attorney help parties avoid legal pitfalls in commercial real estate transactions?

HDM: A good deal attorney should be creative and look to solve problems as they come up. Every deal has certain issues, but an attorney who only spots issues without offering useful and practical solutions to them is not helpful to the process and reduces the chance that the deal will get done. Frank and open discussions among the parties and their attorneys are the most useful tool in avoiding pitfalls and making sure that the deal is documented in such a way that each party understands its obligations and risks.

Omni: What are the benefits of using a commercial real estate broker?

HDM: Similar to a good attorney, a good broker can be very useful in moving a deal forward, particularly over any rough patches. A broker’s knowledge of the market and other options in the market is essential to understanding a party’s leverage, and a good broker has strong relationships in the relevant market that benefit his or her client.

Omni: For tenants/buyers, how will using an exclusive tenant representative help avoid conflict of interest in a CRE deal?

HDM: Exclusive tenant representatives are particularly helpful to companies that are not in the real estate industry but have real estate needs. The representative’s knowledge of the market, the tenant’s options, and the deal process helps set the tenant’s expectations and assists the tenant in making efficient decisions.

Omni: When entering a commercial real estate transaction, what is the best time in the process to engage outside professionals like attorneys and/or commercial real estate brokers?

HDM: As early as possible. A broker should be engaged when a tenant first considers a move in order to best understand the options in the market and to help the tenant make a considered decision. Ideally, an attorney is engaged in the LOI stage. As an attorney, I find it helpful if I can do a quick review of the LOI before it is signed, as I may see issues that will eventually become big problems in the lease if not addressed at the LOI stage. Often, what I am doing is asking a few follow-up questions to make sure the parties have considered how certain terms will play out in the lease.

Navigating commercial real estate transactions can come with many challenges. What’s most important to remember is that any successful deal must be built upon a foundation of trust. Additionally, seeking the input of an experienced commercial real estate broker, particularly one that is an exclusive tenant representative, will ensure your interests are represented. Finally, having the counsel of a real estate attorney on your side to review any documents and spot issues that could grow into bigger problems down the road can be invaluable to the success of your transaction.

To learn more about Attorney Hannah Dowd McPhelin or Pepper Hamilton LLP, please visit: www.pepperlaw.com.

attorney, broker, business, buyers agent, camp hill, carlisle, central pa, central pennsylvania, Commercial Real Estate, deals, Hannah Dowd McPhelin, harrisburg, hershey, industrial, investment, lancaster, leases, lemoyne, mechanicsburg, mike kusher, new cumberland, office, Omni Realty Group, pennsylvania, pepper hamilton LLP, real estate attorney, real estate broker, real estate lawyer, retail, space, tenant representative, transactions, york

Central PA Proves Its Increasing Demand for Retail Real Estate Q4 2015

Posted on February 10, 2016 by Mike Kushner in Blog, Local Market No Comments

Retail real estate investors and consumers alike should be excited about the market trends we experienced in fourth quarter 2015!

There are several strong indicators that the local market is healthy, growing and catching the eye of some major retailers like Field and Stream. The highlights from the most recent quarter include the lowest vacancy rate since prior to 2012 even with a continual increase in inventory as four new buildings were delivered this quarter. Additionally, a positive and increasing net absorption demonstrates the market’s ability to handle the new space while still growing in demand.

What else can we learn from how the retail real estate market in Central PA performed at the close of 2015? Let’s take a look at more important trends worth noting…

Select Year-to-Date Deliveries:

Specifically this quarter, we saw two new retail spaces delivered to the Central PA submarket that made it to the top 15 list for the Philadelphia market. Coming in at number 11 is the retail building at 4250 Chambers Hill Road in Harrisburg. This 59,400 square-foot space is 100% occupied by Restaurant Depot. Coming in at number 12, the Central PA market gained a new Field and Stream near the Capitol City Mall in Camp Hill that delivered 50,000 square-feet of new space to the market and is also 100% occupied.

Select Top Sales:

Among the nine select top sales highlighted in the fourth quarter for the Philadelphia market, just one occurred in the Central PA submarket. The 171,069 square-feet Lowe’s building located at 250 S. Conestoga Drive in Shippensburg was sold by Excel Trust, Inc. to the ARC Companies for $24,250,000.

Vacancy:

In fourth quarter 2015, the vacancy square-footage and vacancy rate dropped ever so slightly from the previous quarter, but overall these are the lowest numbers we have seen since prior to 2012! The vacant square footage is 4,295,660 and the vacancy rate is 4.9%. This is the first time we are seeing the vacancy rate drop into the 4’s since at least four years ago.

Rental Rates:

2015 finished the year with retail rental rates at $11.71. While this did not set any all-time low or high records for recent quarters, it is a slight decrease from the $11.76 we ended with in the third quarter. With the highest peak in recent history occurring in the second quarter of 2015 at $11.88, it will be interesting to see if this decreasing trend continues into 2016 and beyond.

vacant space quoted rental rates

Absorption and Demand:

Net absorption increased this quarter to 227,275 square-feet. A total of four new buildings were delivered to the market (two we just discussed) which contributed an RBA of 124,295 square-feet. The total RBA of existing inventory rose to 87,242,952 square-feet which is the highest we have seen since prior to 2012. Historically, total RBA has been on a steady climb for nearly four years and counting. 

deliveries absoprotion and vacancy

Our Summary/Analysis:

Fourth quarter 2015 delivered good news and positive signs of growth for the Central PA retail real estate market. We experienced the lowest vacancy rate in recent history, dropping into the 4’s with a rate of 4.9%.

What’s most impressive is that this decreasing vacancy rate occurred during a quarter in which inventory also increased, four new buildings were delivered to the market and nine new buildings are still under construction. The positive (and increasing) net absorption tells us that the local retail market is well-poised to handle this new inventory and that businesses are growing and expanding into Central PA.

Based upon the activity in the Central PA submarket for retail real estate in fourth quarter 2015, what do you think will have the greatest impact on our local economy? Share your thoughts by commenting below!

[Online Resources] Real Estate, 2015, analysis, blog, commercial, Construction, costar, data, deliveries, expert, field and stream, fourth quarter, leases, local, lowe's, market, Mike Kushner, news, Omni Realty, opinion, prediction, q4, report, retail, sales, statistics, summary, trends

Harrisburg’s Retail Real Estate Hits Record Low Net Absorption in Q1

Posted on June 2, 2015 by mike.kushner in Blog, Commercial Real Estate, Local Market, Trends No Comments

The Central Pennsylvania retail real estate submarket closed First Quarter 2015 with some good news and some bad news. On a positive note, the quoted rental rate is the highest it has been in nearly four years. However, this data is quickly overshadowed by the submarket’s negative net absorption which plummeted 316,783 square feet in a single quarter. Most concerning is how Harrisburg Area East has appeared to bear the brunt of this drop.

So what has gone on in the local retail real estate market this past quarter? And what could be the cause of this major shift in net absorption? Let’s first take a look at what the numbers are saying and then apply them to what this means for the health of the market.

Top Under Construction Properties:

The Central Pennsylvania submarket has two retail properties that are under construction that are among the Top 15 for First Quarter 2015. Coming in at number six, Messina Highlands has an RBA of 30,000 square-feet and is 45% preleased. This property is expected to be delivered in Second Quarter 2015.  Number 15 on the list is a property located at 108 Pauline Drive in York, Pennsylvania. This is expected to deliver an RBA of 7,200 square-feet in Fourth Quarter 2015 and is not preleased.

Select Top Retail Leases:

Out of the Select Top Retail Leases that were signed in First Quarter 2015, there were two Central Pennsylvania properties that made it to the top 10. Coming in at number three, the 46,158 square-foot Toy “R” Us, located in Harrisburg Area West was leased by an unlisted tenant. At number seven, a 14,976 square-foot property located at 611 N. 12th Street in Harrisburg Area East was leased by Save-A-Lot.

Vacancy and Availability:

First Quarter 2015 closed with 4,799,169 square-feet of vacant space. The vacancy % jumped from 5.7% last quarter to 6.0% this quarter. It appears the dip we saw in this number throughout Second, Third and Fourth Quarter 2014 is returning to its higher average in the 6’s, but not nearly as high as it was two years ago at this time. No new buildings were delivered in this quarter, so the total RBA stays put at 60,315,522 square-feet.

Del, Abs and Vac Q1 205 Retail

Absorption and Demand:

The net absorption was the biggest shift we saw in First Quarter 2015. Last quarter ended with a positive 62,480 square-feet, but this number since dropped to negative 254,303 square-feet. This is by far the lowest number we have seen in the Central Pennsylvania retail market in nearly four years. The closest comparison was back in Second Quarter 2012 with a negative net absorption of 49,528 square-feet – but still far off from where we are now.

Looking specifically at Harrisburg Area East, this submarket experienced a negative net absorption of 237,665 square-feet. In comparison to the rest of the submarket, Harrisburg Area West maintained a positive net absorption of 45,041 square-feet as well as York County with 48,431. The rest of the Central Pennsylvania submarket closed the Quarter with a negative net absorption, but not nearly as low as Harrisburg Area East. Adams County ended with negative 3,672 square-feet; Lancaster County ended with negative 98,938 square feet; and Perry County ended with negative 7,500 square-feet.

Rental Rates:

The quoted rental rate for First Quarter 2015 is $11.51. This is a mere penny increase from the previous quarter, which is just enough to bring it to the highest rate we have seen in Central Pennsylvania’s retail real estate market in nearly four years.

Vac space and quoted rental rates Q1 205 Retail

Our Summary/Analysis:

In some markets, retailers that are back in expansion mode are bumping up against a big obstacle – a lack of inventory when it comes to good real estate locations. The limited supply of new retail construction has been a huge help to improving absorption and vacancies. However, the Harrisburg East Submarket which is part of the Central Pennsylvania Submarket Cluster (including Adams, Cumberland, Dauphin, Lancaster, Perry and York counties) struggled in Q1 2015.  The major contributors were the closing of a Sears store in the Lebanon Plaza Mall and the Kmart at 2090 Lincoln Highway in Lancaster.

Sears Holdings Corporation, the company that runs Sears and Kmart, has a problem. They have a lot of real estate and not enough sales to keep all that real estate busy. As a result, they are forced to close stores that underperform or as their leases expire. In buildings they own or hold long-term leases, they often opt to rent out space to other businesses to try and minimize expenses as much as possible.

Harrisburg East experienced an unfortunate setback in Q1, but as a whole, the Central Pennsylvania submarket’s economic health looks hopeful for the remaining quarters. It’s important that we continue to watch other Sears Holdings Corporation’s real estate locations as well as any other big businesses that are struggling and closing retail locations as a result.

What other trends in the retail real estate market have you seen take place in First Quarter 2015? Share your insights by commenting below!

[Online Resources] Real Estate, 2015, absorption, adams county, availabilty, camp hill, central pennsylvania, Commercial Real Estate, Construction, demand, east, Economy, first quarter, forecast, harrisburg, health, lancaster, leases, lebanon, mechanicsburg, Mike Kushner, news, Omni Realty, pa, q1, report, retail, trends, vacany, west, york

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