Jodi Summers = Office Real Estate

SOCAL OFFICE REAL ESTATE SNAPSHOT ~ MAY 2013 ~ BROOKFIELD’S DOWNTOWN COUP

by Jodi Summers

The biggest news in L.A. office real estate is a changing of the guard. Brookfield Office Properties Inc., one of the biggest players in Manhattan real estate reached a deal valued at more than $2 billion, including debt, to become the largest office landlord in the Los Angeles downtown.

Brookfield and its partners agreed to pay $3.15 a share for MPG Office Trust Inc.’s (MPG) common stock, at a 21% premium, notes the Wall Street Journal. When the deal closes in 3Q, Brookfield will take control of four skyscrapers totaling five million square feet, including the Wells Fargo Tower and KPMG Tower, two of the five tallest buildings in Los Angeles. Taken with a purchase of preferred stock, the Brookfield-led group would pay more than $425 million in cash for the company, which has about $1.9 billion in debt.

Upon completion, Brookfield becomes the largest downtown office landlord, having 8.3 million square feet to rent in seven buildings.

The deal marks the end of an era for one of Los Angeles’ most celebrated office developers, MPG Office Trust. Founded by Robert F. Maguire in the 1960s, MPG was the best-known builder of top-flight office space in Southern California during the construction boom of the 1980s and 1990s.

Brookfield has eyed MPG for years. The deal “provides the opportunity to combine and operate a sizable portfolio of the highest quality assets in a major U.S. gateway city,” shares Friedrich.

To buy the four MPG towers, Brookfield created a fund with unnamed institutional partners to buy and reinvest in Brookfield’s Los Angeles assets. In all, the institutional partners have committed $600 million to the fund, which said it was putting in an additional $140 million for the deal.

While the Westside has been dubbed Silicon Beach because of the recent influx of technology and entertainment companies, the downtown towers have been dependent on financial firms, which are contracting. According to the L.A. Times, overall vacancy in the business district was 21% at the end of the first quarter, almost two percentage points higher than it was a year ago,

“We are being realistic about the downtown market,” he said. “It’s going to be a slow, steady improvement,” offers Brookfield CEO Dennis Friedrich.

With MPG’s departure, Brookfield will become the dominant operator of prime office space in the city’s financial core and play a major role in setting rents in downtown Los Angeles.

Brookfield owns $23 billion worth of office properties in some of the largest cities in the United States, as well as Australia, Canada and the United Kingdom.

We’re here to help you with your real estate needs. Please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – jodi@jodisummers.com or 310.392.1211, and let us move forward together.

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http://www.latimes.com/business/money/la-fi-mo-mpg-to-sell-its-buildings-20130425,0,3897654.story?track=rss

http://www.latimes.com/business/money/la-fi-mo-brookfield-boss-20130426,0,2329482.story?track=rss

http://online.wsj.com/article/SB10001424127887323789704578444750509774718.html

http://www.socalofficerealestateblog.com/?p=2372

http://www.labormarketinfo.edd.ca.gov/

http://laedc.org/business-assistance/additional-resources/e-edge-newsletter/#1

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A LAWYER’S ADVICE ON LEASING OFFICE SPACE

edited by Jodi Summers

We were poking around online, looking for interesting topics related to Southern California office real estate, and on the Remodeling website we found some interesting advice attorney Richard Feeley, president of Feeley Mediation and Business Law, in Marietta, Ga.

How long is a commercial lease?

Richard Feeley: It all depends on the location and the use. There can be a number of things involved in a commercial lease, especially since the space typically has to be built out for the tenant’s use. Some multi-year deals may include an allowance for those improvements. Thus, depending on the type of space and length of the lease, it may make good sense for the tenant looking to establish a commercial space to work with a commercial real estate agent to get the best deal and use needs.

Should leases have an Exit Clause?

RF: Some tenants might worry about getting out of their lease if their business activity doesn’t support the cost and they are reluctant to put their personal assets in jeopardy. Commercial leases, just like commercial credit accounts and other accounts, are highly connected to the ability of the business to cover the obligation.

For example, an established home builder with a good reputation in the community may have no problem obtaining a lease in the business name only that would not include personal guaranties. On the other hand, a tenant who is renting his first commercial space may very well have to personally guarantee the obligations under the lease if his company doesn’t have the assets or business history to support it.

What is the best way to establish business credibility?

RF: It is essential for the tenant to first establish his company as a legal entity (corporation, LLC, partnership, etc.). Then, it is essential that the tenant manage the financial and other aspects of that legal entity in a manner separate from his personal financial dealings. The longer and stronger credit and financial history the business entity has, the more likely a commercial landlord may lease a property without requiring personal guarantees.

Although, you didn’t need a lawyer or anyone else to tell you this, but if you’re running your business in an efficient, professional manner, you likely won’t have any issues finding the right commercial space for your company. Then again, if there are a number of foreclosures in your area, you might find a good deal on commercial property to purchase.

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http://www.remodeling.hw.net/owner-issues/leasing-office-space-a-legal-opinion.aspx?utm_source=newsletter&utm_content=jump&utm_medium=email&utm_campaign=RDU_120512&day=2012-12-05

http://www.socalofficerealestateblog.com/?p=2323

http://www.aem.umn.edu/info/spotlight/construction312.shtml

http://www.builderonline.com/remodeling/victorian-victory-a-new-england-victorian-gets-a-stylish-and-sustainable-remodel.aspx

http://www.cds.org/News/Featured_Article.aspx

http://contentlead.com/news/consumers-use-the-web-for-legal-advice-are-attorneys-there-to-help

NEGOTIATING YOUR COMMERCIAL REAL ESTATE LEASE

By Rieva Lesonsky

Are you thinking of moving or expanding your business? Data from commercial real estate listing site LoopNet shows commercial real estate prices in the Los Angeles area are slowly starting to rise. While the economic recovery is still uncertain, market research firm IBISWorld predicts competition for commercial space will grow in the next five years. Follow these 10 tips for negotiating a commercial real estate lease.

1. Do your homework. Know the average cost of the type of commercial space you’re seeking-retail, office or industrial. A commercial real estate broker can show you historical data for the region, and you can research prices on websites such as CIMLS.com, CityFeet.com or LoopNet.com.

2. Determine your needs. Consider space, utilities, infrastructure, parking, storage, accessibility to major highways and more. Create a checklist of your needs and wants, specifying which are “nice to have” and which are essential.

3. Get professional help. Real estate brokers work for landlords and receive commission on the lease’s value, so while they can offer a lot of useful information, it’s also important to consult a lawyer. Get an attorney experienced in commercial real estate who can explain terms, advise you and help you negotiate.

4. Ask what the total cost covers. Cost per square foot is just the beginning. There may also be Common Area Maintenance (CAM) costs, property taxes, insurance, trash collection, repairs and utilities. Depending on lease terms, you may be expected to pay some or all of these costs directly, pay them to the landlord, or have them built into your rent.

5. Know what is permitted. Make sure you understand what uses the property is permitted for and that there are no zoning regulations or laws that could adversely affect your business.

6. Discuss improvements. If you need to remodel the property to suit your business (known as a “build-out”), be sure you understand what improvements can be made, who will pay for them, who will oversee the work and whether you’re expected to restore the space to its original state if you move.

7. Ask about subleasing. Getting the rights to sublease part or all of your space to another tenant protects you from breaking the lease if you must move unexpectedly. It also helps you cover costs if you’re leasing more space than you currently need in anticipation of growth.

8. Consider timing. You can generally negotiate better terms by signing a longer lease, but what if your business grows faster than expected and you need to move before the lease is up? A short lease with options to renew and a cap on future rent increases may offer the greatest flexibility.

9. Put it in writing. Before viewing properties, make a list of questions to ask the broker and landlord. Never negotiate based on a verbal offer. Get terms in writing and have your attorney review them. Commercial landlords generally expect you to make a written counter-offer, too.

10. Ask for what you want. In today’s economy, tenants still hold the bargaining power-so now is the time to ask for the extras you want. Who knows? You just might get them.

Rieva Lesonsky is founder and President of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Before launching her business, she was Editorial Director of Entrepreneur Magazine. Follow Rieva at Twitter.com/Rieva, read her blog at SmallBizDaily.com, and visit her website SmallBizTrendCast to get the scoop on business trends and sign up for free TrendCast reports.

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http://www.smallbizla.org

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AB 1103 SAYS IT’S TIME TO MONITOR COMMERCIAL ENERGY USAGE

by Jodi Summers

Time flies. Do you remember back in 2007 when Arnold Schwarzenegger was governor and the state assembly passed AB 1103 Commercial Building Energy Use Disclosure Program? It was supposed to begin in 2010, but of course, it got changed and delayed and modified and finally, low and behold, the time to disclose energy data is upon us. The first phase of the Energy Use Disclosure Requirements begins July 1, 2013.

To refresh our memories, Assembly Bills 1103 and 531 require owners of nonresidential buildings located in California to disclose energy usage of such buildings in advance of any sale, lease, or financing of the entire building.

NEW RULES

Here is the schedule for when commercial buildings need to keep and disclose energy usage records:

1. On and after July 1, 2013, for buildings with a total gross floor area of more than 50,000 square feet;

2. On and after January 1, 2014, for buildings with a total gross floor area between 10,000 square feet and 50,000 square feet; and

3. On and after July 1, 2014, for buildings with a total gross floor area between 5,000 square feet 10,000 square feet.

AB 1103 and 531

Assembly Bill 1103, signed into law on October 12, 2007, requires the tracking of the energy use of all nonresidential buildings and the disclosure of such energy use as part of the sale, lease, or financing of an entire nonresidential building. T

The disclosure requirement is intended to “motivate building operators to take actions to improve their buildings’ energy profiles” and “to allow building owners and operators to compare their buildings’ performance to that of similar buildings and to manage their buildings’ energy costs.”

Since we’re talking government, AB 1103 then added Section 25402.10 which contained a compliance deadline of January 1, 2010. Assembly Bill 531 removed that deadline, and replaced it with the disclosure of energy usage data on a schedule of compliance established by the State Energy Resources Conservation and Development Commission.

HOW TO COMPLY

Compliance with Assembly Bills 1103 and 531 expects owners of nonresidential buildings to take certain actions at least 30 days before the sale, lease, or financing of the entire building.

1. Register for an account with “Portfolio Manager,” the U.S. Environmental Protection Agency’s ENERGY STAR program online tool for managing building energy use data.

2. Create a profile within Portfolio Manager for the nonresidential building.

3. Use Portfolio Manager to request that utilities serving the building release the last 12 months of energy use data for the building to Portfolio Manager. What you’ll get is:

• Disclosure Summary Sheet;
• Statement of Energy Performance;
• Data Checklist; and
• Facility Summary (collectively, the “Disclosure Data”).

4. After the utility data has been provided, download the Disclosure Data; and provide the Disclosure Data as part of the sale, lease, or financing.

(Regulations section 1683(a) + 1684(c).)

Here’s the curious caveat, there is no specific penalty for non-compliance, but a failure to disclose a building’s energy usage could be viewed as a material fact in the transaction.

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http://www.allenmatkins.com/en/Publications/Legal-Alerts/2013/02/02_19_2013_Energy-Use-Disclosure-Requirements.aspx?utm_source=Listrak&utm_medium=Email&utm_term=http%3a%2f%2fwww.allenmatkins.com%2fen%2fPublications%2fLegal-Alerts%2f2013%2f02%2f02_19_2013_Energy-Use-Disclosure-Requirements.aspx&utm_campaign=Green+Building+Update+-+February+21%2c+2013

http://www.socalgreenrealestateblog.com/?p=2656

http://www.allenmatkins.com/Publications/Legal-Alerts/2013/02/02_19_2013_Energy-Use-Disclosure-Requirements.aspx

http://www.socalofficerealestateblog.com/?p=2348

http://www.energy.ca.gov/ab1103/

http://www.socalmultiunitrealestateblog.com/?p=2368

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THE OFFICE OF THE FUTURE

by Jodi Summers

Corner offices and cubicles are so last century. The new millennium workspace is versatile, with options for focused, individual work and also fully equipped to support collaborative groups, team projects and social interaction.

NAIOP, the Commercial Real Estate Development Association, recently held the Office Building of the Future design competition. The winning designers identified several common themes that could drive changes in how we “office” in the future. The biggest driver for change is personal technology, which has untethered workers from by providing the capability of completing service and information-based tasks from wherever they choose. An individual with a laptop can work from home, or at a wi-fi equipped location, or any variety of locations along the road.

The company of the future doesn’t have one grand office rather they have several smaller hub locations, closer to their workforce and rapid transit. This will result in a reduction of the average size of any individual office location, but shouldn’t impact demand.

“Office design is changing rapidly and our industry needs to position itself ahead of the curve,” offers Thomas J. Bisacquino, NAIOP president and chief executive officer. “This unique competition opened the door to thinking about what an ‘office’ may look like in the very near future.”

On the green side, the office building of the future should also be more affordable to build and operate, thanks to advances and cost reductions in construction materials and systems. Sustainability will become financially viable. Net-zero buildings will meet the demands of tenants as well as the improved building performance sought by building owners and developers.

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http://www.naiop.org/en/About-NAIOP/News/NAIOP-News/2012/091812-NAIOP-Inaugural-Office-Building-of-the-Future-Design-Competition.aspx

http://www.youtube.com/watch?v=XRv46VioM-Y

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http://www.costar.com/News/Article/Mixed-Use-20-The-Office-Building-of-the-Future/143317?ref=100&iid=306&cid=383F14EEE265B182474DA2442BACBBBF

REHABBING YOUR CLASSIC OFFICE BUILDING

Edited by Jodi Summers

The National Trust for Historic Preservation defines rehabilitate as: “To repair a structure and make it usable again while preserving those portions or features of the property that are historically and culturally significant.”

To successfully rehabilitate a historic building, they are offering us 10 basic principles to keep in mind when undertaking a rehabilitation project.

Of course, every project is different and will have different needs and solutions. But this handy reference guide is a great way to get you started.

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http://www.slideshare.net/PreservationNation/10-on-tuesday-10-basic-principles-for-rehabbing-the-right-way