While commercial real estate becomes increasingly scarce and expensive, urban populations continue to grow with millennials demanding more retail services. Challenged by local jurisdictions trying to curb sprawl, retailers are adapting to these economic, demographic and regulatory changes by moving away from their prototypical stores and developing smaller formats for in-fill locations.

Moreover, as internet retailers like Amazon have become adept at capturing sales from a broad demographic of consumers, the need for brick and mortar retailers to create a “shopping experience” has never been greater.  Apple was a pioneer in creating that shopping experience with its Apple Stores – and, as a result, more mall retailers are focusing on using their space to deepen brand identity and solidify positive connections with consumers.  Now, a number of national “big-box” retailers including Gap, Target, Petco, Best Buy, Office Depot, and Walmart are leading the pack in downsizing store footprints in order to bring the shopping experience to urban neighborhoods.

Target has recently adopted two new formats, dubbed “CityTarget” and “Target Express.” Both concepts offer smaller footprints than traditional Target stores – in San Francisco and downtown Los Angeles the stores range from 100,000 to 120,000 square feet, while the Target Express, which just opened its doors in the South Park neighborhood of San Diego on October 7^th, is approximately 18,000 square feet. These small format shops aim to bring the convenience of their big-box counterparts to the modern urban dweller on the consumer’s terms.

The trend seems to be stretching even into established suburban areas as well. Wholesale giant Costco has started opening stores in regional malls where an existing department store has closed.  In these situations, Costco has demolished the existing department store and constructed its store in the same location, but on a single level and with an entrance into the mall.  In addition, other users such as theaters, hotels and even grocery stores have taken advantage of department store vacancies and mixed-use development opportunities within regional malls.

This trend will have broad reaching effects for urban consumers, local governments and CRE companies alike, providing consumers with more diverse shopping options closer to home.  Smaller, yet more numerous, retail outlets will allow local jurisdictions to diversify their tax base, and commercial real estate companies will be able to accommodate marquee tenants in locations that were previously too small for such retailers.

Smaller formats also create internal efficiencies for the retailers – who can rely heavily on their e-commerce operations as an alternative to carrying large inventories of products on-site – and offer a way for them to open more stores within the same trade area. Moreover, millennials are comfortable with a hybrid consumer approach whereby items ordered on-line are delivered to the store that is closest to the buyer’s home, thus allowing smaller formats to offer a wider selection of merchandise without the expensive overhead costs associated of maintaining large on-site inventories.

Sources:

By Craig Swanson, Crosbie Gliner Schiffman Southard & Swanson LLP (CGS3)

Craig Swanson, a partner at the San Diego-based commercial real estate law firm CGS3, recently helped negotiate the lease of the smaller format Target Express project in San Diego’s burgeoning South Park neighborhood.

When it comes to commercial real estate acquisition and disposition due diligence analysis it helps to have a good checklist, and a good adviser. Navigating the sometimes murky waters of real property transactions can be complicated and risky when unprepared.

To arrive at a deal with favorable terms, both buyer and seller must perform a thorough and complete due diligence analysis, otherwise known as launching a thorough investigation to uncover all aspects of the real property to be conveyed. The information obtained from the results of the due diligence act to identify significant issues, and where possible, provide estimates of the financial impact such issues may have on the asset. Thereby better informing the buyer or seller and either confirming or denying the deal’s viability, or leveraging the ability to renegotiate.

Acquisition of Commercial Property

When a buyer makes an offer on a piece of commercial real estate, the offer is typically contingent on the buyer’s investigation of the property including the condition, the financial performance, title on record, interests in the property, etc. Due diligence is performed during the timeframe when the deposit is placed into escrow and the agreed upon close of escrow date.

Many times commercial real property transactions are completed on an “as-is” basis, which allows the seller to provide little to no warranties upon the close of the deal, and little to no recourse for the buyer once the sale is complete. Therefore the onus is on the buyer to perform their due diligence up front.

Disposition of Commercial Property

Many of the same standards that apply to due diligence performed in regards to the acquisition of commercial real estate, also apply to the disposition of commercial real property. Certain areas to address include, but are not limited to, the following:

1. Independent appraisal of property value
2. Environmental Report
3. Recordable survey
4. Legal description
5. Location map
6. Pictures of property
7. Summary of property including:
   1. Size
   2. Description of physical improvements
   3. Any known easements, restrictions or reversions
   4. Current use

Financing Transactions of Commercial Real Estate

When a buyer is either looking to finance part or all of its purchase price for a piece of commercial real estate or a commercial property owner is refinancing to lower its interest rate, or due to a maturing loan, the lender will perform due diligence prior to providing financing. The buyer or property owner then has to provide all the necessary documentation regarding the property in order to facilitate the funding process.

Checklist for Performing Due Diligence

The main reason behind performing a due diligence analysis, whether in terms of an acquisition, disposition, or financing, is to arm the buyer, seller or financer with relevant information in regards to the suitability of the deal.

In addition to enlisting the assistance of a trusted adviser, the following basic checklist should be adhered to in order to ensure that the appropriate areas are investigated during the due diligence period, including, but not limited to:

Meissner Jacquét Commercial Real Estate Services has years of experience handling the acquisition and disposition of single projects, as well as complex, multi-project and portfolio transactions in major sectors of the commercial real estate industry, including office, retail, and industrial properties. Jerry Jacquét, a Principal at Meissner Jacquet, says that “we have developed the systems and relationships required to quickly and efficiently complete substantial transactions that are local, regional, and national in scope, as well as individual assets of any size.”

Meissner Jacquét’s commercial real estate acquisition and disposition services address the needs of each transaction, including land use, due diligence, environmental, joint ventures, and debt structuring. To learn more about Meissner Jacquét’s due diligence services and request a free proposal, contact Brent Williams at [email protected] or 858-373-1113.

Sources:

GlobeSt.com

Meissner Jacquét Commercial Real Estate Services

The latest mile marker on California’s road toward a clean air future came in the form of legislation encouraging the growth of the electric vehicle market.

Last year, Gov. Jerry Brown signed Assembly Bill 2565 – codified in California Civil Code Sections 1947.6 and 1952.7 – setting the stage for the continued development of electric vehicle infrastructure by permitting the addition of electric vehicle charging stations in commercial properties. California already accounts for 40 percent of all electric vehicles sold in the nation, so the impact of AB 2565 will reach across the state and across industries. Moreover, Brown wants California to put 1.5 million electric vehicles on the road by 2025.

With the rapid increase in the number of electric vehicles in the state and mounting pressure for commercial enterprises to be green, AB 2565 creates important new territory for commercial landlords – and their attorneys.

The law notably voids and makes unenforceable any provision in a lease for commercial property that prohibits or unreasonably restricts the installation of an electric vehicle charging station. It also provides a framework of rules governing the rights of tenants to install a charging station and their obligations regarding the operation, maintenance and removal of a charging station.

While there are some nuanced differences between Sections 1947.6 and 1952.7 regarding their specific applicability to commercial and residential real estate leases, there are relevant provisions of both statutes that may impact commercial properties such as office, retail, multifamily and industrial buildings. As a result, both commercial landlords and tenants should carefully consider the key provisions of the law early in the lease negotiation process:

Prohibitions to Charging Stations

Most importantly, any provision in a commercial lease signed, renewed or extended on or after Jan. 1, 2015, that either prohibits or unreasonably restricts the installation or use of a charging station is unenforceable. This prohibition does not apply to commercial properties with less than 50 parking spaces or which already have existing charging stations for tenant use at a ratio of 2 charging stations per 100 parking spaces.

Landlord Delay

Landlords may not willfully avoid or delay a tenant request for the installation of a charging station. In fact, landlords must approve a tenant’s written request to install a charging station so long as it complies with the Civil Code and the landlord’s reasonable procedures governing the making alterations to the property.

Locating the Charging Station

If the lease does not provide a tenant with a reserved parking space, and if the circumstances surrounding the installation of a charging station effectively provide the tenant with a reserved parking space, then the landlord may charge a reasonable monthly rent for that reserved space. But if an additional parking space is not available, then landlords are not obligated to provide a designated parking space to accommodate the installation of a charging station. Finally, a tenant does not have the right to install a charging station in more parking spaces than are allocated to the tenant under its lease.

Costs of the Charging Station

The tenant is responsible for all of the costs related to the design, installation, operation, maintenance and removal of a charging station (including reimbursing the landlord for the reasonable costs incurred by landlord in connection with the installation of the charging station, such as the cost of permits or supervision). These costs also include the obligation to pay the related electrical usage as additional rent.

Written Agreement

AB 2565 contemplates that the landlord and tenant will enter into a written agreement (presumably by way of an amendment with respect to leases in effect prior to the effective date of the statute) that incorporates, among other things, (a) the terms and conditions regarding the installation, operation, maintenance and removal of a charging station, (b) the tenant’s obligation to pay the costs associated with the installation, operation, maintenance and removal of a charging station, and (c) representation by the tenant that it is in compliance with applicable government requirements.

As landlords face a surge in tenant requests to install electric vehicle charging stations on their properties, alternative provisions must be incorporated into all legal forms regarding the charging stations. Such provisions and related agreements should be drafted in consultation with the landlord’s design, development, property management, and legal teams.

Plug-in vehicle sales currently represent about 3% of personal vehicle sales in California.

Electric cars and the infrastructure to support them are an important part of our transportation future. In fact, plug-in vehicle sales in California passed the 100,000 mark earlier this year, and currently represent about 3 percent of personal vehicle sales in the state.

With electric vehicle sales soaring, the National Renewable Energy Laboratory estimates that up to 1.2 million residential and workplace charging stations will be needed statewide by 2020. As the drive toward electric vehicles continues, attorneys – as well as tenants, landlords, property managers, and developers – need to stay abreast of the nuances and implications of this important new legislation.

Sources:

Sean W. Southard & Van Nguyen, CGS3

Sean W. Southard is a partner and Van Nguyen is an attorney with San Diego-based Crosbie Gliner Schiffman Southard & Swanson LLP – aka CGS3 – a law firm specializing in commercial real estate law.