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Donald Trump's Tax Increase/Tariffs

The Tariffs war between the United States and China are already affecting the commercial real estate industry, and it could potentially cause vacancy rates to increase and drag leasing and sales prices down; in addition, dragging the economy down with it.

President Donald Trump increased Tariffs from 10% to 25% on $200 billion of Chinese products imported to the U.S. on May 10, 2019.  This may cause a downturn in the commercial real estate industry and the economy.

What effect has tariffs had on the commercial real estate industry since President Trump began charging tariffs?  The President put 25% and 10% tariffs on steel and aluminum imported from China, Canada, Mexico and the EU in March 2018.  As a result, construction raw material costs have increased forcing an increase in commercial real estate development costs.

The construction industry has felt the hit from the added costs to potential new contracts.  As a result, new commercial real estate prices will escalate.  What do we expect in the future from 25% increase on almost all products from China?
 
The cost of goods and services are going to increase; as a result, consumer sp...

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Standard of Care for Real Estate Agents in a Transaction

The Standard of Care for agents in a transaction is difficult to measure since each agent has a different background and experience in real estate.  Standard of Care is what the client’s reasonable expectation is of the agent’s service in a transaction. What we find in a dispute is whether an agent’s actions are reasonable and then determine if the measure of Standard of Care is correct.

In litigation with an agent, one side claims that the agent fell below the Standard of Care. The other side indicates that the Standard of Care was appropriate. The methodology for determining the Standard of Care is measured by the following:

  1. Agent’s time in the business
  2. Education both from transactions and continuing education as required by the Bureau of Real Estate (BRE)
  3. What another agent would do in a similar situation based upon the same amount of education and time in the business
  4. What assistance/investigation was recei...

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Sports Developments are Rising in Inglewood and Raising CRE Rents, Forcing Tenants to Close thier Doors

The Los Angeles Rams will be moving into their brand-new stadium for the 2020 season. The $5 billion stadium entitled LA Stadium and Entertainment District at Hollywood Park is in the City of Inglewood. In addition, the Rams will share the stadium with the LA Chargers as a co-home stadium.

The Rams are currently playing at the Los Angeles Coliseum in Exposition Park and the Chargers have been playing their home games at the Dignity Health Sports Park in Carson.  The LA Stadium & Entertainment District at Hollywood park will provide a 298-acre complex including:

•    A 70,000-seat stadium with expandable seats up to 100,000 for big events
•    A 6,000-seat performance center in the stadium
•    890,000 square feet of retail space
•    300-hotel rooms
•    780,000 square feet of office space
•    2,500 residential apartments and condos  
•    25 acres of outdoor parks with bike and walking paths
•    State-of-the-art event, conference and meeting space
•    a 250,000-square-foot West Coast headquarters for NFL Media and Network
•    Parking

However, NFL football isn’t the only sport that is developing commercia...

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Leasing the Commercially Zoned Land Could be a Great Opportunity

 

With little vacant land left in Los Angeles County land leases are a viable option for owners; as a result, lawyers are busy working on contracts with the legalities of commercial land leases.

Land leases are two separate assets with two separate owners. The owner of the land and the owner of the building. Land leases are leases that only lease the land, and the lessee builds a commercial building on the land.

For example, an owner of a commercial zoned property lot who does not want to sell may be approached by a business who needs a bank located in that neighborhood; however, there is nothing available for lease or sale. As a result, the company asks the owner if they can build on his land and pay him to lease the property.

This is a win for both parties involved. The lessee pays for the construction of the building. They are responsible for their own maintenance, utilities and upkeep of the building. They don’t have to answer to the landlord.

The land...

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Government Controls Over Property Rental Rates

On November 6, 2018 voters went to the polls, and Proposition 10 was defeated which keeps the current laws effecting residential rental rates to remain somewhat constant.

The City of Los Angeles Rent Stabilization Ordinance protects tenants from excessive rent increases on multi-family apartments built before1979. However, it lets landlords increase the rents every year to a reasonable amount.  The rent increases are determined on the consumer price index, according to the Los Angeles City website.  The rent increase caps on rent stabilized apartments in Los Angeles City is currently 3% this year and has been 3% for about the last 10 years, according to the website.

The City of Los Angeles cannot cap rental rates when a tenant moves out of a building built before 1979.  The Costa-Hawkins Act of 1995 made it illegal for cities to enforce caps on multi-family rental rates when a new tenant moves in.  

The owner can rai...

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Alternatives for a 1031 Tax Deferred Exchange

Many of our Segal Commercial clients own commercial income producing properties.  These properties include but are not limited to shopping centers, industrial, office buildings and free standing retail properties.

A good sound commercial income producing property with positive cash flow is a difficult asset to replace.  Positive cash flow is the crown jewel of owning an income producing property.  Why would someone sell a property that is generating a positive cash flow?

Reasons for Selling a Cash Producing Property

There are numerous reasons for selling a successful income producing property.  I have listed a few reasons below:

•    The area has changed demographically
•    The property is not consistent with the marketplace
•    Death of an owner
•    Cash flow is not consistent with the size of the equity in the property
•    Depreciation has been depleted which can cause income taxes to rise
•    One or more tenants are a nuisance

The seller should do his or her own due diligence on the property and examine why they want to place the property up for sale.  The seller’s legal counsel or real...

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Industrial Real Estate Shortage

The lease length of typical industrial real estate buildings was an average of five years in Los Angeles County in the past.  However, today it is common to have a three year lease.  As a result, the property owner can take advantage of rapidly rising lease rates with a shorter lease term.  Frequently, the lease rate is also increased annually in accordance with the consumer price index or at a low flat annual fixed rate.  

Unexpectedly, Industrial real estate rents have increased 12% per annum in Los Angeles County in the past three years.  This phenomenon is partly due to a greater demand for industrial buildings from the rise in ecommerce in addition to many other factors.  The low construction rate of development after the Great Recession caused a lack of supply.  There is a shortage of construction labor, the trade tariffs are increasing material costs and the rising interest rates are making it harder for developers to secure loans.  In addition, there is no available land in Los Angeles County to build industrial buildings.    

Industrial vacancy rates in Los Angeles County are at an all-time low of 1%, according to AIR CRE.  Consequently, there are no vacan...

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Creative Office No Panacea for Landlords

There is so much information in the news regarding the major tech companies leasing large quantities of creative office and Research & Development (R&D) space. However, what we don’t hear about is all the creative office space available. For example there are many large beautiful creative office space buildings that are sitting empty in Santa Monica, El Segundo, Playa Vista, downtown and all over Los Angeles County.

The Pen Factory located at 2701 Olympic Boulevard in Santa Monica opened in 2017 with 222,000 square feet of creative office space. They leased 90,000 square feet when it opened; however, they still have a 132,000 square-foot building sitting empty. The available space divides into two units.

The Los Angeles Times reported “Growth among Los Angeles-area companies, especially those in fields related to technology and entertainment, kept the office rental market stable last quarter,” according to Journalist Roger Vincent on April 13, 2018.

The article went on to say; “data shows that El Segundo is a popular city for technology companies to move into office space. In 2011 the vacancy rate in El Segundo was almost 20%; however, it had fallen...

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The City of El Segundo is Finalizing the Smoky Hollow Specific Plan

Smoky Hollow Historical District is a light industrial area on a120 acres located one mile East of Dockweiler Beach.   The major streets surrounding the 329 mid-century industrial buildings and office buildings are Sepulveda Boulevard, El Segundo Boulevard and Main Street.  Residential property is located on the North side.  The City of El Segundo announced they are finally nearing the end of the Smoky Hollow Specific Plan process after six years of research.  The City of El Segundo Planning & Building Safety Department created the Specific Plan to update the area to provide new zoning laws.

The last Specific Plan was created in 1986 when there were mostly aerospace contractors in the area. The area has declined in the past 30 years with functionally obsolescent buildings. 

Due to the recent influx of hi tech companies into Los Angeles County, the plan sets a regulatory and planning framework that focuses development efforts on revitalizing buildings for attracting and retaini...

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Rising Interest rates worry commercial real estate investors

The Federal Reserve Bank raised interest rates for the first time this year by a quarter of a percentage point on March 21st.  If the Feds raise interest rates too aggressively in the next two years, the commercial real estate industry could stagnate.  The higher the interest rates in commercial real estate, the deeper the industry will fall.

The “retail” real estate market is very sensitive compared to office and industrial real estate at this time.  The continued shuttering of retail stores due to online retail is hurting the investor.  The landlords have to repurpose the space to attract new types of businesses. The rise in interest rates can deter owners from remodeling, and sales will decrease leaving empty spaces for months or years.  In addition, the empty spaces could bring property values and rental rates down with them.

New uses for the existing empty department and small retail stores in malls and on Main Streets is imperative to keep these investors above water.  Consequently, higher interest rates will hinder landlords in their attempt to attract new entrepreneurs.  The higher cost of borrowing money will be passed from the lessor to the lessee.

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“Not only was I impressed with the breadth of Lee Segal’s qualifications as a commercial real estate expert but when we met, his personality and credibility earned my respect right away. His many years of experience in the field of commercial real estate set him apart from other experts.”  
Stephen Webb, Law Office of Stephen P. Webb, P.C.