No business can operate alone; we all need a large group of other individuals and businesses to help us succeed. At Garan Commercial Properties, when one of our clients needs someone to help their business grow, we look into our list of contacts to see if we can find someone with the requisite skills to further aid our client or their business.

Let’s meet David Kurtz, CPA, one of the people we know:

1. Please provide a brief history of your current business and/or area of expertise.

Kurtz & Company is a Dallas based, 17-year old, 10-person niche CPA firm that provides federal and state income tax planning, return preparation, and compliance services.

2. What is your specialty or target market(s)?

Although we provide tax services to all, our target markets are those individuals and businesses involved in real estate, oil & gas, entrepreneurial, international and multi- state businesses.

3. What are the greatest challenges facing your clients presently?

We hear from our clients most often that the so-called Great Recession and the jobless recovery have made it very difficult to transact business, borrow money and otherwise raise capital.

4. What advice do you give clients or potential clients to overcome these challenges?

Almost everyone I meet with, read about, or listen to is having the same issues, so we encourage our clients to remain positive, work long and hard hours, be as innovative, patient, and flexible as possible and continually and carefully manage their personal and business cash flows.

You do not need to have a lot in the bank at the end of this market to survive, but you must have something.  Prepare, Plan, and Produce intelligently without breaking the bank and you will weather the storm.

5. What, if any, positive aspects do you see in the current market?

Given the current business climate and the need to be industrious, creative, and patient, we may all learn to improve our cash management, business planning, and the management, marketing and selling of our products and services.

6. What is your outlook for the remainder of this year? Next year?

The economy and business activity for the first half of 2010 was generally better and trending positive compared to 2008 and 2009.  However, that seems to have stalled and may reverse somewhat during the second half of 2010 and maybe into 2011.  The recent news stories seem to be about the business environment becoming uncertain and more challenging, but there should be gradual improvement.

7. What separates you from your competition?

I feel our substantial and specific background and experience in providing federal and state income tax services to real estate, oil & gas, entrepreneurial, international and multi-state businesses, our diligence and thoroughness in our work, and our frequent communication with our clients sets us apart from other accounting firms.

8. What is the greatest satisfaction that you get from operating your business?

I gain great satisfaction in my business through working with our clients and my employees on the various income tax issues and opportunities which result in our clients legally minimizing their federal and state income taxes, penalties and interest.

9. What are some points you hope clients take away from their initial meeting with you?  After conducting and completing business with you?

It is my hope clients will take away the knowledge of our high level of professionalism and our desire to provide the most beneficial tax services for themselves and their business which will form the basis of a long term relationship based on consistent beneficial results and excellent client service.

10. How may people contact you?

I can be reached at 972.383.7305, or directly at 972.841.3359.  Feel free to contact me by email at david.kurtz@kurtzcpa.com or visit the Kurtz & Co website at www.kurtzcpa.com.  We look forward to helping you with your tax needs.

We hope you have enjoyed learning a little about David Kurtz and his Dallas, Texas based CPA firm, Kurtz & Company P.C.

Check back often to meet more of the people we know who can help you and your business succeed.

(the following is a full reprint from the Federal Reserve Bank of Dallas publication)

Second Quarter 2010 Federal Reserve Bank of Dallas Cloud Over Commercial Real Estate Is Slowly Lifting in Texas By D’Ann Petersen The year 2009 was a terrible one for Texas commercial real estate. With the U.S. and Texas economies mired in recession and credit markets still reeling from the global financial freeze-up, every segment of the state’s commercial property sector suffered. Demand withered for space in offices, warehouses and retail centers, pushing up vacancy rates and lowering rental rates. Private nonresidential construction dropped sharply, reaching near-record lows. Texas’ commercial real estate (CRE) sector has been through booms and busts before —most notably, leading up to and following the state’s deep recession in the mid- to late 1980s.[1] What differed in the current down cycle was a global financial crisis that temporarily brought lending to a halt. Problems began on the residential side but soon spread to CRE financing. Commercial-mortgage-backed securities (CMBS) lending dried up in Texas and the U.S. as it became clear that repackaging suspect loans didn’t lower risk. Banks also became wary of adding CRE loans to their books, especially in Texas, where the share of these assets exceeded the national average. By 2009, no one wanted to touch CRE. Commercial real estate impacts the region’s economy through several channels. For example, construction activity contributes to state output and employment growth, and CRE lending is important to the state’s banking sector. While the recession appears to be over, commercial activity is a trailing indicator and, given still-tight credit conditions, remains a potential drag on economic recovery. Significant declines in property values and rents have raised concerns about impending defaults and foreclosures as loans come due, posing risks to the banking sector and the economy as a whole. Indeed, the share of nonperforming CRE loans at Texas banks is rising. In a positive sign, the lower rents and prices are beginning to stir demand for space as well as investor interest. In addition, sectors of the economy that drive real estate demand have turned the corner, suggesting the bottom is near. Construction Hits a Wall Texas private commercial construction surged during the state’s expansion, picking up steam as the economy shook off the jobless recovery that followed the 2001 tech bust. Growing demand for Texas-produced goods boosted construction of industrial space, and more office space was built as service-sector firms expanded. Construction of retail space was also strong. By 2006, the inflation-adjusted value of CRE construction had almost reached the high of the previous economic boom. Just as the construction cycle was gaining steam in Texas, the global finan cial col lapse put an abrupt halt to activity. Construction faltered in 2007 and plunged in 2008 and 2009 (Chart 1). Currently, private CRE construction levels are near lows last seen after the Texas oil and real estate bust of the mid- to late 1980s. Click to enlarge The Dallas Beige Book, the Dallas Fed’s anecdotal survey of economic conditions, regularly includes comments from executives at construction and building-related product companies. In late 2008 and early 2009, contacts said private construction activity came to a virtual standstill as credit dried up. Since then, reports on building activity have remained grim. With construction of warehouses, office and bank buildings, and stores and restaurants in the doldrums, public construction accounted for a larger share of the pie. The little nonresidential construction that occurred in 2009 was partly the result of the federal government’s economic stimulus programs. Compared with previous years, public projects like schools and government buildings made up a larger chunk of Texas building activity in 2009 (Chart 2). Hospital construction was boosted by strong population growth and a thriving health care sector. While hotel construction is largely private, building activity picked up in 2009 with the start of the Dallas Convention Center hotel, mostly funded by public dollars. Click to enlarge Leasing Markets Suffer The recession and the financial fallout took a toll on rental markets in Texas. As demand for space dropped off, vacancy rates climbed in the major property markets—retail, industrial and office. Retail. Demand for retail space was strong from 2002 through 2004, thanks to the state’s housing boom and retail sales growth. Even with new retail construction at high levels, vacancy rates edged downward in Texas metros. Texas’ housing and retail boom lasted longer than the nation’s. However, consumer confidence began to wane in 2006 as the U.S. housing problems spread to the state, and demand for retail space began to slow. Already weakened by the housing drop-off, retail markets took another hit from the national recession in 2008. Store and restaurant closings—including Circuit City and some Starbucks locations, as well as Texas’ own Bombay Company—were commonplace. In real estate circles, demand is usually measured by net absorption, or the net change in square feet for competitively leased space, including new construction. The widespread business closings and slack demand for retail space led to weak absorption from mid-2008 to early 2009, pushing up vacancy rates in Texas’ major metros (Chart 3A).[2] Click to enlarge Overall, Texas had positive absorption of 873,000 square feet in 2009, an improvement over 2008 but still well below the 3.2 million in 2004. Conditions worsened in first quarter 2010, and the Texas population-adjusted retail vacancy rate edged up. In a spot of good news, recent industry reports suggest grocers, discount clothiers, wholesale clubs and electronics stores are expanding in Texas markets.[3] Industrial. Before the recession, rising exports and imports and strong growth in industrial production played large roles in Texas’ expansion, leading to robust demand for warehouse and industrial space. However, the state’s industrial real estate market deteriorated sharply as global demand for goods dropped off and Texas exports and production fell precipitously. The Port of Houston, for example, reported value declines of 15.9 percent for exports and 39.6 percent for imports during 2009. Throughout the recession, Dallas Fed contacts reported almost no industrial leasing activity. Not surprisingly, the major metros had six consecutive quarters of negative net absorption totaling just over 26 million square feet as of first quarter 2010—more than half of which occurred in Dallas–Fort Worth, which houses the state’s largest share of industrial space (Chart 3B). Texas’ population-adjusted industrial vacancy rate increased from 8.5 percent in third quarter 2007 to 13.5 percent in first quarter 2010, exceeding the highs of past recessions. More recently, the Dallas Beige Book notes that some deals are being made after landlords took a realistic look at market conditions and drastically reduced rents. Contacts report a pickup in leasing transactions and firms scouting sites for distribution hubs. Still, the large amount of available space suggests it will be a slow recovery, and construction probably won’t resume soon. Office. Texas office markets weakened during the recession as firms in finance, energy, real estate and other sectors put leasing and expansion decisions on hold amid credit uncertainty, cost cutting and downsizing. As a result, the Texas population-adjusted office vacancy rate began to rise in 2008 and stood at 18.2 percent as of first quarter 2010 (Chart 3C). Despite the increase, the rate remains below the levels seen in the previous two Texas recessions. However, absorption was negative in the first quarter of this year, suggesting vacancy rates may continue to edge up. Dallas and Austin have the highest metro vacancy rates, although several downtown lease deals led Austin to a marked improvement in the first quarter. Because of the popularity of Austin’s downtown location, several developers plan to build commercial properties with an office component once credit restrictions ease, according to C.B. Richard Ellis (CBRE).[4] Houston’s vacancy rate is below the national average, but it may move up as construction wraps up on several large projects started before the recession took hold. Dallas Fed business contacts report building owners are aggressively reducing office rental rates and making concessions. For instance, first quarter office rents are down $1.87 per square foot in Austin and $1.48 per square foot in Dallas from the highs reached in 2008, according to CBRE. The lower rental rates are encouraging some recent leasing activity, according to the Dallas Beige Book. Prospects for recovery. A rebound in the retail, industrial and office leasing markets depends on broad economic improvement. Recent data give reason for optimism. Renewed growth in Texas and U.S. retail sales bodes well for the retail property sector (Chart 4). Moreover, Texas exports have recovered from record lows, following improving trends in U.S. industrial production—an encouraging sign for the Texas industrial market. Finally, data point to a brewing recovery in Texas employment in service industries that typically drive office demand—notably, professional and business services and finance. Click to enlarge Signs of Life The analysis of conditions in Texas’ retail, industrial and office property markets finds a common theme—a sharp decline during the recession that gives way in the most recent reports to a few glimmers of hope. A similar scenario emerges from data and reports on investment property sales. Credit crisis halts investment. In the years leading up to the credit crunch, financial innovations that repackaged risk—most notably, securitized lending—surged not only in the residential mortgage market but also in CRE and other investments. This led to large increases in the share of mortgages held by investors. CMBS issuers that held commercial and multifamily mortgages spiked from about 4 percent in 1990 to just over 25 percent by 2009 (Chart 5). Click to enlarge Commercial banks still hold the largest amount of CRE debt, with their share rising to 45 percent over the past two decades. Life insurance companies, savings institutions and other investors saw their shares decline. Researchers suggest that CMBS issuers’ rising share made the overall commercial market more vulnerable to financial market disturbances.[5] Texas’ commercial investment market was jolted when financial markets panicked in 2007. CMBS lending was virtually shut down, and banks halted most CRE lending, too, putting stringent standards on new loans. The Dallas Beige Book noted that virtually no loans were being made for large commercial deals as banks tried to reduce their exposure to CRE. Sales low but starting to stir. When credit dried up in 2008, Texas commercial property sales plummeted. Early 2009 was even worse, with Texas transactions falling to almost zero. Later in the year, business picked up, but the full-year sales volume of office, industrial, retail and apartment properties totaled just $3.8 billion, down 68 percent from 2008 (Chart 6).[6] Click to enlarge Sales activity for all property types was hampered not only by a lack of available credit but by sellers unwilling to sell at very low prices. Nationally, commercial property prices plunged 44 percent from their peak in late 2007 before bottoming out in October 2009, according to Moody’s/REAL commercial property price index. Texas price statistics are difficult to obtain, but anecdotal reports and rough figures reflect the U.S. trend. More recently, competition for good deals has spurred some property sales. Data from Real Capital Analytics show first-quarter property sales volumes inched up from year-ago levels in the U.S. and Texas. The largest transaction nationally in February was Anadarko’s $215 million purchase of its headquarters in The Woodlands, near Houston. Anecdotal reports from Dallas Fed contacts concur that investor interest is growing, with scattered instances of bidding wars bumping up sales prices. Financial hurdles lie ahead. Texas has its fair share of the nation’s growing volume of distressed assets—defaults, foreclosures or bankruptcies. While rising distress may mean bargains for investors, it’s a concern for the banking industry. The large number of CRE loans maturing over the next several years is another worry for banks, given today’s tighter lending standards and lower property values. This can leave borrowers who are current on their payments with a refinancing gap that may be hard to fund with new loans. This is why banks have preferred to extend maturing loans in hopes that conditions will improve. Most Texas CRE loans are concentrated at smaller regional and community banks, which depend on CRE lending as a major source of business. Texas banks have almost double the commercial real estate exposure as the national average, although the Texas share has come down considerably from almost 30 percent in third quarter 2008 to 26 percent as of first quarter 2010. The good news is that Texas’ share of nonperforming—or troubled—CRE loans has remained well below the national average throughout the downturn. What the Future Holds The outlook for CRE may not yet be optimistic, but it is less gloomy. With the national and Texas economies turning a corner and demand in the rental and investment markets stirring, a bottom may be within sight. It will take time for the Texas CRE sector as a whole to heal, and it will likely be quite a while before private commercial construction activity picks up. Asset devaluations and weakness in rental markets remain challenges for CRE loans on banks’ books. CRE lending will likely remain subdued while banks address these concerns. Demand for new space will depend on sustained employment growth and business expansion, and the Texas economy remains fragile, having just entered recovery. Nevertheless, the state’s business activity does appear to be moving in the right direction. «Previous Article | Next Article» About the Author Petersen is a business economist in the Research Department at the Federal Reserve Bank of Dallas. Notes See “Office Real Estate Cycles in Texas: Some History,” by D’Ann Petersen, Federal Reserve Bank of Dallas Southwest Economy, March/April 2005, www.dallasfed.org/research/swe/2005/swe0502a.pdf. Data for all metro property markets provided by CBRE Econometric Advisors. Grubb and Ellis 2010 Forecast Reports. From first-quarter Austin office MarketView research report, CB Richard Ellis. See “Is Commercial Real Estate Reliving the 1980s and Early 1990s?” by C. Alan Garner, Federal Reserve Bank of Kansas City Economic Review, Third Quarter 2008. Apartments are included as commercial real estate properties in sales data because they are income-generating. For the same reason, apartment properties are included in banking statistics for commercial real estate. .

The Texas Note Company, LLC

No business can operate alone; we all need a large group of other individuals and businesses to help us succeed.  At Garan Commercial Properties, when one of our client’s needs someone to help their business grow, we look into our list of contacts to see if we can find someone with the requisite skills to further aid our client or their business.

Let’s meet Robert E Young, one of the people we know

1. Tell us about The Texas Note Company and your area of expertise.

The Texas Note Company, a Texas owned and operated business based in Austin, is a group of real estate professional that specializes in owner financing strategies and techniques.

Our core business model is to buy and sell owner financed notes on a daily basis; our greatest strength in this endeavor is that a majority of our investors are local to the Texas market.  We provide our customers top dollar for their notes because all parties are local; Texas money helping Texas businesses.  In 2010 we have added loan servicing as a service we offer to our investors and clients.

2. What is The Texas Note Company’s specialty or target market?

Our target market are those businesses and individuals who have sold real estate using owner financing and are now receiving monthly payments. We seek out those who are receiving monthly payments from sold real estate and who are interested in determining the value of their note in the secondary market and possibly cashing out.

3. What are the greatest challenges facing your clients presently?

I see several issues on several different fronts:

a) In the current economic climate where credit is tight and lenders are particular about who gets approved for a loan, our clients are looking for alternative solutions after having gone through      traditional methods with less than favorable outcomes.

b) Many clients who have created a real estate note by implementing owner financing without professional guidance, often struggle with the how the note was created later on when they try to sell their note or have challenges with the payor.

c) Record keeping tends to be another area that client struggle with.

4.  What advise do you offer to overcome these challenges?

We try to educate every person that contacts us about the benefits of owner financing by explaining:

a) Owner Financing – Seek a specialist like The Texas Note Company to become familiar with and understand the benefits and strategies of owner financing.  Owner financing is not just for individuals who are challenged by negative credit scores and can be greatly beneficial to those with easy access to various forms of traditional funding.

b) Always, seek the advice of a Note Professional to assist you in creating an owner financed note.  In theory the process is the same as with traditional lenders.  A note professional can assist you bypass the pitfalls of owner financing.  Often we will come across a note holder who created a note with the home buyer in mind, not himself or a potential investor that may purchase the note 6, 12, 24 months later.

c) The Promissory Note is the most important document.  Keep it in a safe place where you can find it!

5.  What, if any, positive aspects do you see in the current market?

As traditional lenders continue to make it difficult for many to get approved for loans you will see owner financing become more popular as a solution that will fit their needs to buy and sell real estate. I believe this is indicative of the American “can do” attitude as businesses and individuals seek out the best financial solutions themselves without bowing to the whims of mega banks and financial institutions.

It is comforting to see Texans reverting back to our roots and finding a way to make ideas and business happen.

6. What is your outlook for the remainder of this year? next year?

The continuing credit crunch bodes well for The Texas Note Company.  We remain very confident looking forward for 2010 and believe it has the opportunity to be our best year to date.  As the necessity and benefits of owner financing continue to increase our business will continue to grow and prosper.  Additionally, as our new loan serving products develop our business will continue to grow.

7. What separates you from your competition?

Our experience is what I believe sets us apart; also, we stand by our word and work with our clients to really get what they want and need from a funding provider.  The strong relationships we have with local investors allows us to stand ahead of our competitors and offer top dollar top our clients as well as protect the interest of our investors.  When you work with The Texas Note Company you know that the due diligence has been done and the goals of our clients and investors are front and center.

8. What is the greatest satisfaction that you get from operating your business?

Being a business owner is great and challenging; at the end of the day your effort is judged only by the guy looking at you in the mirror.  I love the various interactions with people from all walks of life, their stories, and the people themselves.   Mortgage Finance is often a subject that many don’t truly understand; my career has been Data Analytics and Finance so it comes natural to me.  What I truly enjoy the opportunity to use that ability and bring a deal together for all involved parties.

9. What are some points you hope clients take away from their initial meeting with you? After conducting and completing business with you?

I hope that clients and prospective clients walk away thinking, “This Texas Note guy has some good ideas that we should consider.  He is someone that I can talk to, someone who will sincerely listen, and gives an honest opinion.”  As often is the case when a client contacts the Texas Note Company to sell his or her note or determine its value we will go through process of putting the transaction together.  When we are done, whether the sale was done or not, the client will tells us that he/she has three or four or 10 other notes that they want us to look at and sell for them.   90% of the transaction is document chasing and if we have all the documents at hand we can get the deal done in as little as 5 days.  When that happens we truly look like heroes because our processes are smooth and flexible.

After the transaction our customers tend to keep in touch with us, via Facebook or email because they like the straight forwardness of The Texas Note Company and how we treat our clients.  The best compliment that we can get is when a customer refers us to friends and business associates.  The other compliment we get is “Ya’ll” have so much fun can I come work for The Texas Note Company?”  We often get referrals which is awesome when a satisfied customer refers a friend or business associate.

10.  How may people contact you?

Robert E Young can be reached at The Texas Note Company at 3571 Far West Blvd. #213, Austin, 78731, or by phone at PH 512.464.1214, Toll Free 888.304.7779, or fax  512.464.1214.  Further you can find The Texas Note Company on the web at, http://TexasNoteCo.com, on Twitter, and Facebook.

Robert may also be reached by email at robert@TexasNoteCo.com, or on LinkedIn with any questions you may have about owner financing or the Texas Note Company

If not at the office of The Texas Note Company, Robert is most likely with his family.  He has two daughters who are the stars of his life.  Both of them play kickball in the Northwest Austin Little Miss Kickball League and Robert coaches his oldest daughter’s team, The Porcupines.  It is a lot of fun and FUN is the name of the game.  GO PORCUPINES!

Check back often with Garan Commercial Properties to meet more of the people we know who can assist you and your business.

We left off our lease review after having identified the need to clearly identify the parties and premises while remembering the most important rule of commercial leases, EVERYTHING IS NEGOTIABLE.

The next section you will encounter in the lease document will most likely be titled “Term”.  This is the length of time that makes up your lease, or the amount of time that you have agreed to rent the described space.  Generally, commercial leases run anywhere from 3 to 5 years but can range from as short as 1 month to as long as several decades.  The term you desire will be dependent on the present condition of your business and your future projections.

Most leases in this section will also outline a basic renewal plan, “tenant may renew once for an additional 5 years”, which may or may not include a method for calculating a rental rate during the renewal period. In any situation, the initial described period will be called the “primary term” and the renewal periods will be called the “secondary terms” (you may also see primary period or secondary period). This would be the proper language to use when discussing your lease with the landlord, “I noticed that in the third year of the primary term my base rent goes up by 15%, why?”

Lease terms may start at any time of the month or year you would like; so pick dates that coincide with an advantageous time of your year.  Calendar year and fiscal years are the most commonly used time frames used in commercial leases.  A calendar year is just a 12 month period starting in January and ending in December.  A fiscal year is any 12 month period that works best for the accounting needs of your business; April to March, October to September, so find a term that works for you.

Make sure you understand the term of your lease as this will be the length of your agreement and a main schedule for adjustments of rents and expenses.

The next section that you will most likely encounter in your lease is a description of the rental rate.  There are several ways that this number can be expressed; annually, monthly, or as a total amount. In the examples below we are only discussing the base rent. The base rent is the minimum rental amount for the leased space; it does not include expenses, additional rent or any pass throughs.  We will discuss these later, but for now, the base rent.

In the industry, the rental rate is most often expressed in an annual rate per square foot; i.e. $12/sf.  What this means is that the tenant will pay a total annual base rent of $12 for each foot of the leased space. Ex: a 1000 sf space equals $12,000 total annual base rent.

Sometimes the rent is expressed in a monthly bases, $1/sf. As the name implies, each month you will pay $1 for each square foot of the leased space.  Ex: 1000 sf equals $1000 base rent per month.  You may have noticed that the the way to calculate the annual base rent into a monthly figure is to divide the annual base rent by 12. The two examples above are the same, they are just expressed in different units, annual versus monthly.

The last method seen in leases is to just describe a monthly base rent number. Ex: Your rent is $998.50. This is not usually preferred as it lends itself to some manipulation and the development of this number may in no way be connected to the market.   This is often seen in leases drawn up by individuals not practicing in the commercial real estate field and should be  a red flag to look for other areas of concern in the lease.  Always break the figures down into an annual and monthly number before signing a lease which simply states the total rent due.

The manner in which the rent is described means little if you are not familiar with current market rates. I often see naive tenants sign a lease thinking that they are getting a great deal when in fact they are several dollars or more above market rates.   If you are unfamiliar with market rates contact your local commercial broker, in lease transactions  such as this the tenant representation services are free so you lose nothing and gain the advantage of experience and market knowledge.

Most modern commercial leases will include sections which will attempt to a) recover expenses extended by the landlord at the building, and b) create a profit making center.  Be very careful of this section and make efforts to reduce/restrict it as much as possible.  Items you will often see in this section are insurance, taxes, common area maintenance, capital expenditures or improvements, property management fees, support staff fees, security fees, landscaping, general building maintenance, office management fees, building advertisement fees, and others; it can get exhaustive so be mindful of them all.

The inclusion of additional rent can be a very tricky situation as it is one of the key places where extraordinary efforts to obtain  reasonable rent and concessions can be blown away if not properly examined.  I do not think it is necessary for a landlord to bear all expenses however, some will try to pass through an entire slew of expenses which are more properly categorized as landlord/developer business costs.  The tenant has paid the base rent and should contribute to the upkeep of the building and/or costs associated with their presence in the building  but beyond these points every Landlord desired expense or additional rent request should be reviewed and negotiated.  Again, remember our rule, everything in a commercial lease is negotiable.

(This is the second of several articles which are a compilation of shorter posts discussing common commercial lease sections.)

(When I first tried my hand at blogging about commercial real estate I failed miserably.  So to resurrect some material that may not have circulated widely, I have compiled in the following article several posts from the beginning about common sections of commercial leases.)

In the current climate we see numerous companies reworking their leases and resizing their space.  There are some very good lease deals to be had and those in the market for office or retail lease space should be mindful of the various concessions that are available just by asking. However, if you are unaware of the underlying lease document you may not know how or what to ask for.  In this and future articles, we will be reviewing common commercial lease sections and general principles that you can apply to both office and retail leases by working our way through a very simple general lease.

As we begin to discuss commercial leases there is one general rule to always remember…..EVERYTHING IN A COMMERCIAL LEASE IS NEGOTIABLE.

If you take nothing else away from our review of commercial leases, remember the general rule above. There is no such thing as a “standard” or “general” lease.  Most leases follow only the form commonly used by the person who drafts the lease; so be mindful of who is writing the document, their intent or purpose, and adjust their lease suggestions toward your own under the rule above.  As you review commercial leases, always remember the above rule and it will greatly increase your ability to negotiate and execute leases favorable to your business needs.

One of the first things you will encounter when reading any lease will be the introduction.  There may be some legal language here but within the first two or three sentences you should see something like “XYZ Incorporated, Landlord” and “ABC Company, Tenant”.  This is not an exact model, but what is important is that the parties are clearly identified. If you cannot clearly identify the parties after the first few paragraphs demand a clearer document.

Another issue that may arise in the introduction is when  a landlord or tenant is a legal business entity, i.e. corporation, partnership, LLC, etc.  In this instance it is important that you verify that the person signing the lease has the authority to sign the lease on behalf of the legal entity. This can be done by including it in the opening paragraphs, “comes now XYZ Incorporated, through its authorized representative, Joe Smith, President, …..” or by a formal acknowledgement of the signatory by the entity, as in a corporate resolution.  Either way make sure the person signing the lease has the authority to sign the document and is clearly identified somewhere in the agreement and/or its addendum(s).

Often the person signing for the entity will be another entity.  The same rule applies, make sure the signatory has the authority to do so.  “XYZ LLC, through its general partner, QRS Inc.” The correct document with an unauthorized or wrong signatory will be an ineffective lease. Always identify the parties of the lease and the authority of parties.

Shortly after identifying the parties, the lease will identify the property.  Though important, technically it is only required that the space or location be easily identifiable from the provided description. “Joe Smith’s old place” is not sufficient. “1234 Main, Unit 100, Joe’s Smith’s old place” is most likely sufficient.  Most often you will see both a physical and legal description of the property, something similar to “1234 Main, Unit 100, Houston, Harris County, Texas, also being described in the records of Harris County at page 1234, document 4783, as Unit 100 of Lots 3 and 4, Smith Subdivision, Rollins Survey.”

Always make sure that the lease space described in the agreement is what you are seeking, what you thought you were leasing, and what you actually are leasing. Most errors of this type are caught early on but it could be a costly mistake.  Lastly, remembering our general rule about commercial leases, if you need half a unit, or a quarter of  a unit, ask for it and make sure it is properly described. There is nothing that says a certain address or unit cannot be partially leased. Do not be bound by borders set by developers, builders, landlords, or county officials.

This is Part 1 of our commercial lease review; please check back often as we work out way through common Texas commercial lease sections.

No business can operate alone; we all need a large group of other individuals and businesses to help us succeed.  At Garan Commercial Properties, when one of our clients needs someone to help their business grow, we look into our list of contacts to see if we can find someone with the requisite skills to further aid our client or their business.

Let’s meet Sharon Hairston-King, one of the people we know:

1. Please provide a brief history or your current business or expertise.

I am the owner of Hairston & Associates, a small, growing insurance agency; we have been in business for almost 20 years and during that time we have sought to have a positive influence on the           Houston community.

We offer commercial coverage for businesses large and small as well as personal line(s) insurance coverage for home, life, auto, and medical.

2. What are your specialty or target markets?

Although we service all markets in the greater Houston area, our focus for 2010 is women owned businesses. This is not to say we we will avoid other markets, but we recognize the growing strength of this business community and we would like to participate in helping it expand.

3. What are the greatest challenges facing your clients presently?

The greatest challenge facing our clients today are primarily financial; meeting budgets, maintaining payroll, paying overhead costs and other monthly expenditures. Our clients are no different than much of America today; they are trying to maintain a sense of balance in an unbalanced economic environment.

4. What advice do you give clients or potential clients to overcome these challenges?

At Hairston & Associates we tell clients that it is key to keep a positive outlook in the face of adversity. I like to say “as long as we can turn the key in the door to open up, there is hope.”  America is no stranger to difficult economic times; we have survived them before and we will continue to persevere.

5. What positive aspects do you see in your market given the current economic climate?

Our market has the unique ability to get better as times get more difficult. The tendency for most people under economic duress is to try and protect their possessions. Insurance not only serves to give them peace of mind during such periods, but it also protects them from the possibility of loss.

6. What is your outlook for the remainder of the year? Next Year?

The outlook at Hairston & Associates for the remainder of the year is positive. From all indications, we are making small strides towards turning around the problems we’ve faced over the last couple of years.  There is still much work ahead but we remain confident in the turn around.

For next year we see more need for hard work and continued hope. However, with the grace of God and a continued focus on our clients, I have no reason to believe 2011 will be anything less then great for our business and the economy in general

7. What separates you from your competition?

I think what separates us from the competition is the continued commitment to provide the type of customer service that our clients would find hard to replace.  We seek to make out clients feel they are a valuable part of our agency and not just a policy number.  Are we successful all the time? No, but when you’ve failed and honestly try to make amends your clients appreciate the efforts.

8. What is the greatest satisfaction you get from operating your business?

My greatest satisfaction comes from retaining satisfied clients and being able to place the business with a carrier that is affordable for the insured during any market condition.

9. What are some points you hope clients take away from their initial meeting with you?After conducting and completing business with you and your firm?

I hope my clients feel my sincerity in trying to provide them a valuable and protective service. I hope they feel the joy I have in knowing our agency has a variety of insurance products available for their various needs at competitive prices. I hope they walk out of our offices with the feeling that our business matters to us, because it does.

10. How may people contact you?

Sharon Hairston-King can be contacted at Hairston & Associates, 281.257.0252.  Feel free to call or stop by their office at 8701 Spring Cypress, Ste B, Spring, Texas. You can find them in the Yellow Pages under Insurance Providers or on the web at, www.hairstonassociates.com.

Check back often to meet more of the people we know who can help you and your business.

No business can operate alone; we all need a large group of other individuals and businesses to help us succeed.  At Garan Commercial Properties, when one of our clients needs someone to help their business grow, we look into our list of contacts to see if we can find someone with the requisite skills to further aid our client or their business.

Let’s meet Mark Narro, one of the people we know:

1.Please provide a brief history of your current business or area of expertise.
I am a broker associate with RE/Max Westside Realtors offering buyer and seller brokerage services since 1984.

2. What is your specialty or target market? My core market is new or upgrading home buyers or sellers specializing in Memorial, Katy, Alief, and master planned communities.

3. What are the greatest challenges facing your clients presently? As with most business sectors, the greatest challenge today is financing.  Lending requirements have tightened up significantly making it harder to be approved for home financing.

4. What advice do you give clients or potential clients to overcome these challenges? I recommend buyers get pre-approved before beginning your home search to determine the amount of purchase you can qualify for and if there are any personal issues that need to be addressed prior approved.

5. What positive aspects do you see in the current market? Though difficult to maneuver in without an experienced realtor, the current markets provide ample buying opportunities and low interest rates.

6. What is your outlook for the remainder of the year? Next year? I see a continued improvement in the market as deals get done which should improve market confidence and strengthen value.

7. What separates you from your competition? I feel that my expertise, knowledge and common sense approach along with my ability to to properly price, stage, and market your home allow me to stand apart from other residential realtors.  In addition, I continually strive for excellence, am a supporter of the Children’s Miracle Network, and am an inductee of the 1999 RE/MAX Hall of Fame.

8. What is the greatest satisfaction that you get from operating your business? I take great pleasure in being able to assist homeowners obtain their largest asset with ease, confidence, and joy.

9.What are some points you hope clients take away from their initial meeting with you? After conducting and completing business with you? When meeting with potential clients, I hope they take away knowledge of the current housing market, how to get the best price for their home, and what their needs are for their next home purchase.  After the purchase, I hope my clients take away clear concise advice on how to maintain their asset as well as the calm of a stress free transaction which will allow them to enjoy their new home.

10. How may people contact you? Mark can be reached at www.marknarro.com where you can sign up for his quarterly newsletter, by email at marknarro@remax.net,  or by phone at 281.798.2676.
Check back often to meet more of the people we know who can help you and your business.

The overall strength of the Texas markets in relation to other major metropolitan cities throughout the United States is clearly evident in the market cycle representations below. These charts were included in the recently published annual report of IRR, Integra Realty Resources, Viewpoint 2010.

The Office Cycle:

The vacancy rates of major Texas cities, Houston(10%), Austin(14.4%), and San Antonio(22.3%) clearly define them as within the hyper-supply stage of the business cycle with projected increasing rates and and little to no rental rate growth. Dallas(21.2%) remains the only CBD to have entered the recessionary phase and will see continued depressed numbers for 2010.

Save Dallas and San Antonio, Texas MSAs remain below the national vacancy rate of 15.37%.

The Retail Cycle:

Retail will continue to see a tough year in 2010. Only Austin(9.2%) will experience a competitive retail market in the upcoming year with San Antonio(11.7%), Houston(15.82), and Dallas(10.01%) all entering the downward phases of the cycle. Only Austin is seeing competitive overall vacancy numbers in line with the simple national average of 9.7%

The Multi-Family Cycle:

Again the Texas markets are in stronger position then most other metropolitan cities and is lagging behind their recessionary markets. As in most commercial real estate sectors, multifamily construction is down for a second year with a decrease of 18.6%. Multifamily vacancy rates on a national scale are 7.6% with varied numbers throughout local markets and regions providing both good and bad investment opportunity.

The Industrial Market CycleAccording to Viewpoint, the industrial markets, though depressed, were not as greatly

Assignment: A transfer of interest from one person to another.

Example: Most commercial leases will allow the assignment of the lease; one tenant may assign their leasehold interest to the property without further obligation.

Base Year: A 12 month period which is the basis for determining expenses; most often the initial 12 month period, the base year can be negotiated to other 12 month periods to secure expense relief.

Example: Often in a multi-year lease a base expense level is determined by calculating the expenses incurred during the base year.

Build-Out: The process of finishing out the raw space of a building.

Example: New commercial tenants often do not realize the costs associated with the build-out of their leased space.  This often affects their ability to get fair TI concessions.

CAM/Common Area Maintenance: The additional rent charged as an expense to the tenant, commonly pro-rated to maintain the common areas of the building.

Example: Our building CAM charges include security, janitorial, and landscaping services.

Expense Stop: A fixed dollar amount agreed upon by the landlord and the tenant above which the tenant is responsible for all building expenses.

Example: The expense stop, best understood as the landlord expense stop, is a set dollar amount where the landlord stops paying expenses.

Holdover: A tenant that remains in possession of the property after their lease has expired.

Example: Anytime a tenant remains in leased space without an extension or renewal they are considered a holdover and are subject to the terms of the lease’s last period.

Option to Renew: An option found in most leases which allows the tenant to extend the lease once the primary term has expired.

Example: A fast growing firm taking a conservative leasing approach might opt to take a shorter lease with an option to renew. This allows the tenant flexibility if the business expands too fast or takes an unfortunate downward turn.

Sublet: When a sub-lessor transfers a portion of their leasehold interest to another person or entity.

Example: The subletting of the property will not eliminate the financial responsibility of the sub-lessor (original lessee) but may significantly reduce their financial burden.

Subordination Clause: A clause in a lease by which the entity with an interest in real estate or real estate consents to a reduction in priority with regard to another person or entity holding an interest in the same real estate.

Example: Most tenants of new construction will be required to sign a lease with a subordination clause that will prioritize the liens of the developer’s lenders ahead of any interest of the tenant.

Turn-Key: A term used to describe a property that is ready for business.

Example: Because the space was already built out for a restaurant, the cafe owner was able to find turn-key space for his new venture.

Tenant Improvements / TI : A dual use term meaning a) The design and construction of any leased space and b) The allowance or credit given by landlords to complete the design and construction of the space.

Example: In an effort to entice new tenants to their properties, landlords are offering high TI’s for build-out.

Class A: The highest quality of building or available space on the market. These buildings are often newly constructed or have had a long term top tier maintenance program, and contain various state of the art building systems which are sought after by investors and users. They most often command high or above-market rental rates.

Example: Our investor was looking for Class A buildings only- newly constructed, green utility systems, fully wired high speed networks, and efficient, elegant architecture.

Class B: This describes the average quality of existing buildings or available space on the market. This property type has common but dated systems, a general maintenance program, and commands average market rental rates.

Example: The Class B building had been in the neighborhood for 10 years, had several updates and renovations, and had a steady stream of local business tenants.

Class C: A commercial real estate term that describes the lowest grade of building or available space on the market. These buildings are usually in need of major renovations throughout and bring in lower market rental rates.

Example: Cracks in the walls, damages and/or dated systems, and a high tenant turnover often are signs of a Class C building.

HVAC: A commonly used acronym for Heating, Ventilation, and Air Conditioning systems.

Example: When purchasing a new investment property, ensure that all systems are properly functioning. A faulty HVAC system alone can run into a six figure repair quite easily.

Net Absorption: The difference between space newly occupied and space newly vacated. If more space is vacated there is a negative absorption; if more space is occupied a positive absorption.

Example: Negative absorption in office markets is indicative of a depressed or slowing economy.

Usable Area: The area or unit that is available to be occupied in a building or floor plan.

Example: The 10,000sf office building space has 9,547sf of usable space that can be leased.

Common Area: The area of a multiuser building that is used by and benefits more than one tenant in the building. These spaces include areas such as bathrooms, the main lobby, and elevators.

Example: In addition to your base rent, tenants may pay their prorated portion of maintaining the building’s common areas.

Gross Rentable Area: A measurement term which is most often used to determine a tenant’s rent, and is determined by measuring from the inside of the exterior walls to the center of the partition walls.

Example: The commercial real estate broker carefully examined our rental rates by comparing the building’s usable area with its gross rentable area and discovered that our original rent calculation was incorrect.

Rental Rate: The rate detailing the annual costs of occupancy for a lease space based on a square foot basis.

Example: James, the owner’s leasing agent, quoted us $17 dollars per square foot to lease out the 3,000sf office space on North Main; our monthly rent will be $4,250.

Tenant Representative: In a lease transaction, the broker that represents the interest of the tenant is referred to as a tenant representative. A tenant rep will locate and evaluate a space for the tenant as well and negotiate the lease; they are paid by the landlord.

Example: For no cost to the tenant, the hiring of a tenant representative can often yield better lease terms and rates then if they negotiated the lease themselves.

Vacancy Rate: The measurement of the available vacant space in a given market or building; it is determined by dividing the total amount of vacant space by the total amount of available inventory.

Example: The office building that John plans on purchasing has a total of one million square feet; the building is only half full and thus has a 50% vacancy rate.