Jeff Rauth, of Commercial Finance Advisors, has received Expert Authur status through Ezine Articles. He discusses the Lease vs. Own question, Common Commercial For Sale By Owners Mistakes, Recent Changes in Commercial Finance, Commercial 30 Year Fixed, commercial Loan brokers, Commercial Hard Money among other topics below
The Art and Science of Due Diligence
John McCann
DesignStruct
248 547-1500
We have all heard of Murphy's Law. When this concept is applied to real estate investing it can unnerve even the most intrepid buyer. While it may be impossible to predict every twist or turn on a chartered path, routing out potential issues is possible through vision and persistence. The best advice is to know what you're buying- its assets and draw backs. Too often the emotional component of the buying process gets in the way of truly analyzing a property's downside.
Theworst problems that crop up after close are the ones that were never considered or were believed to be "non issues". You're an investor. You have energy, vision, confidence. You bring the art to the deal. You can extract intrinsic value others can't see. But does this property fit the bill? What's it got under the hood? Now it's time to apply the science. A solid, formal due diligence process is essential.
Consider the following:
A. Existing Conditions:
Really take a close look at what you're buying- inside and out. Does the build-out or shell meet the demands of your occupancy? Do you have enough parking? Inspect the electrical service entrance and the hvac system. Are sprinklers required for your use? Check out the space for compliance to A.D.A. and Michigan Barrier Free. Verify the building's square footage. Obtain construction drawings and a site survey from the local building department or seller. Review building department and planning department requirements, particularly if you're changing the use or proposing a building addition. Talk to the local planning official to discuss your project. Inquire regarding environmental issues with the local fire marshall.
B. Occupancy Process:
Compile a critical path for the eventual occupancy of the building. Consider time required for inspections, preparation of site plan and construction drawings and the build-out of the space. Often planning commissions only meet monthly and have submittal deadlines. Time is money and the quicker you or your tenants occupy the space the faster you will see a return. Discuss the construction phase timetable with a general contractor to get a proper estimate. Assumptions regarding the timing can put tremendous stress on pending leases, relocating windows and operating agendas.
Also, keep in mind, consulting with design and construction professionals during the due diligence period can be invaluable. They often uncover issues that can be very problematic later. Applying a healthy dose of art and science can be just the prescription to keep Murphy out of the equation.
John Wm. McCann
Designstruct Inc.
248 547-1500
Brownfield Redevelopment Enhancements in the Pipeline
Doug Brown
ASTI Environmental
810/225-2800 (ext. 201)
Because ASTI Environmental strives to mitigate our clients risk and expense to exceed their expectations we have gone beyond science and technology to outline pending legislation that can benefit our clients' bottom line.
Following are timely summaries of Brownfield/Greyfield legislation (environmentally impacted sites/functionally obsolete or blighted buildings) that you might factor in your future development plans.
Enabling legislation proposed for Brownfield tax credits to survive if SBT is repealed
Passed out of committee on June 14th, House Bills 6183 and 6184 would create the Credit Preservation Act to bridge the gap for brownfield and historic preservation projects until Michigan formulates a replacement tax in the event SBT is eliminated two years earlier than its scheduled 2009 expiration. Approved projects that are not completed before SBT is repealed but would be completed before January 1, 2010 could claim the credit on the return for its last tax year under the act. The Senate plans action in the coming weeks.
20 Michigan communities win $9 million for Brownfield assessments and cleanups
Of the $70 million in Brownfield Assessment Grants and Revolving Loan Funds that the Environmental Protection Agency (EPA) just awarded 209 communities in 44 states, 20 Michigan communities will receive more that $9 million for assessment and cleanup of approved brownfield projects. To illustrate; because ASTI Environmental is one of the preferred firms that administers Oakland County's EPA Assessment grants for sites impacted with hazardous and petroleum substances, one recent project saved our developer client more that $17,000 that would have otherwise been expended for Phase I/II/BEA activities to return a vacant industrial site into a mixed-use development in downtown Royal Oak.
45-day approval for SBT credits on smaller brownfield projects now law Public Acts 111, 112 and 113 of 2006 have paved the way for brownfield Single Business Tax (SBT) credits to be awarded within 45 days of application for projects that are $2 million or less. A new $10 million pool of SBT credits has been created and guarantees that at least 50 small projects each year will benefit. Additionally, business owners can now assign SBT credits outside of their LLC, and credits can be claimed after each phase of a project (maximum of 20 phases) as opposed to a single distribution upon receipt of certificate of occupancy as previously structured.
Core Communities list may expand House Bills 5988 - 5992 would expand core community benefits to all local units of government in Michigan and kick start hundreds of idle revitalization projects, create new jobs, generate additional tax revenues and improve Michigan's quality of life. Currently, cities such as Romulus and Sterling Heights are at a competitive disadvantage because, unlike Michigan's 104 Core Communities, they cannot reimburse site improvements, demolition, asbestos/lead based paint abatement or public infrastructure improvements at sites containing functionally obsolete or blighted buildings. Not expanding Michigan's Core Communities list will leave unsafe buildings a haven for crime, undesirable for investment and reuse and impede neighborhood revitalization.
Commercial Rehabilitation Act to be improved House Bill 6043 would revise Public Act 210 of 2005 that allows for reduced property taxes for up to 10 years in specially designated districts as determined by the local unit of government. By deleting the requirement that the district be at least 75 acres and the buildings involved having to consist of at least one million square feet of space that's been 40 percent vacant for at least 12 years; HB 6043 can help attract redevelopment of urban and first-ring cities. School operating taxes and the State Education Tax remain in effect and are not abated.
In lieu of simply parroting back regulations that are negotiated by others, ASTI Environmental (ASTI) has taken a leadership role in shaping many of the brownfield redevelopment tools that has positioned Michigan as a leader in returning Brownfields/Greyfields to productive reuse (source: National Brownfield Association).
In fact, ASTIers Chair the Michigan Government Relations Committee of the International Council of Shopping Centers, sit on the Board of the Michigan Housing Council and are often selected as expert speakers on legislative issues that effect our clients' business. We would welcome the opportunity to explain how your specific development plans can benefit from pending legislation described in this article.
For further information, please CONTACT
Doug Brown
Director of Development
ASTI Environmental
o810/225-2800 (ext. 201)
f3800
c810/599-8131
Rick Ax, MBA
Commercial Real Estate Broker
Berridge & Morrison
248 543-7960
The first step in marketing commercial property is to assemble the correct information about the subject property. This involves the following:
1) What is the current zoning and the future zoning?
2) What kind of uses are in political favor in the community?
3) Is the subject property ADA compliant?
4) What kind of uses can the subject building be grandfathered.
5) How many parking spots are on site and how many parking spots are public?
6) Measure the outside dimensions of the space for industry standard square footage.
7) Research property lines and easements.
8) What are the current lease/sales prices in the area for the like kind use as the subject property?
9) What level of cost does the subject property owner have to incur to create marketable space?
There may be many other items to gather depending on the type of commercial property. It is important to know what the subject property has to offer. The next item to consider is your audience. What type of user fits the subject property? For example, the property owner has had an insurance company leasing space in an older building which is not ADA compliant. The insurance company moves out and leaves the building vacant. There are only 3 parking spots available on site and it is not close to public parking. The owner receives a call from a hair salon. The hair salon will need a lot more parking and the building will need to have major upgrades to meet current code. An informed property owner may not waist time on this lead because it will take a more time and more money just for the small chance of receiving occupancy from the municipality for a non-conforming use.
The marketing reach into the marketplace is the next step in the marketing process. A sign will receive very local reach. An ad on Craigslist or the local paper will reach a little wider audience. A listing on Local community web sites both company and government sites. Some municipalities have web sites promoting their available real estate. A decision will have to be made on whether to use a commercial real estate agent or not.
Commercial agents will either specialize in the type of commercial real estate or specialize in an area. It is important to use an agent that specializes in the same type, size and area of the subject property. Agents receive leads off of their other listings that can be switched to the subject property. Agents also work tenants on site selection projects. The listing agent will broadcast to site selection agents on these assignments for possible matches. The listing agent’s ability to generate leads is the most important benefit but it is also important for the agent to be willing to help the owner thru this whole process and provide good customer service.
Whether a commercial agent is used or not, the subject property owner is helped by getting the correct information about the property, researching possible uses for the building and deciding on the appropriate reach into the marketplace.
Rick Ax, MBA
Berridge & Morrison
248 543-7960