Archive for January, 2015

Protection Against ADA Lawsuits

Obtaining a Certified Access Specialist Certificate (“CASp”) can help commercial real estate owners and tenants avoid the headache and expense relating to lawsuits alleging violations of the Americans With Disabilities Act (“ADA”).  Recently enacted California Civil Code Section 1938 provides: “A commercial property owner or lessor shall state on every lease form or rental agreement executed on or after July 1, 2013, whether the property being leased or rented has undergone inspection by a Certified Access Specialist (CASp), and, if so, whether the property has or has not been determined to meet all applicable construction-related accessibility standards pursuant to Section 55.53”

The cost of this property audit typically ranges from $1,200-$2,500, and the cost of “readily achievable barrier removal,” as required by the ADA (e.g., improper parking lot signage, striping and ramps) might be thousands of dollars more. However, because the cost of settling or defending an ADA lawsuit can easily exceed these preventive costs, and the barriers will still have to be removed, it makes economic sense to proactively thwart such lawsuits. The most apparent “barriers” are usually the cheapest and easiest to fix, and even their removal can significantly reduce the exposure to drive-by (and Google Map) serial plaintiffs. After obtaining a CASp, the owner then has an extended period of time to address, budget and finance needed repairs.

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2015’s Most Desirable Investment Property Types

2015 will be the office and industrial sector’s turn to shine as a fully recovered labor market finally starts to translate into meaningful tenant demand in these property types.

 Expect the OFFICE sector to lead the pack in 2015 because demand, occupancy and rent growth are poised to accelerate with the continually improving job market.

The INDUSTRIAL sector performance continues to strengthen as increased tenant demand and investment activity returns to historical norms. Industrial is benefitting from increased demand for warehouse space, driven by increasing global trade and the continued expansion of e-commerce. The rapid advance of e-commerce fueling commitment to same-day delivery services from large retailers such as Amazon and Wal-Mart is pushing the integration of retail and warehousing.

Investor appetite for MULTI-FAMILY properties has driven pricing well beyond replacement costs in many markets. While the long-term demographic outlook for household formation is very positive, the current level of supply when combined with pricing is a challenging environment for investors seeking core properties.

The RETAIL property type is closely aligned with the general health of the U.S. economy. In spite of healthy job gains and the re-achievement of prior peak employment levels in spring 2014, retail sales remain sluggish. The two primary reasons have been meager real wage growth and unwillingness on the part of consumers to re-leverage. As a result, most consumers have remained modest spenders, demonstrating why bargain/discount store formats continue to perform well post-recession. E-commerce is another major factor. Although internet retail sales currently account for just 7% of retail sales (excluding automobiles), growth has been rapid. Over the last 3 years, e-commerce sales have increased by almost 60%, compared to approximately 10% for total non-auto retail sales. Needless to say, online shopping is sapping a portion of sales from brick-and-mortar stores. Investors should seek well-located, neighborhood and community centers that are anchored by or include “thrifty” store formats as well as grocery-anchored retail centers rather than traditional department stores. In addition, investors should also consider retail tenants with omni-channel delivery systems and a strong online presence, thereby providing a better probability for long-term profitability.

LODGING demand historically correlates with the economy (consumers and businesses spend more when confident) and the nation’s hospitality industry has seen increases in both occupancy rates and room rents. Though average hotel occupancies and rates have been increasing the recent strength in the dollar and a slowing global economy could result in near-term slowdown in tourism from foreign visitors. The outlook for the U.S. lodging industry remains positive in 2015 with the economy forecast to stay strong. Accelerating demand, increasing but still-moderate supply, and large amounts of capital seeking investment makes for a favorable outlook for the lodging sector. Given the pricing of high-quality hotels, investors wishing to reap the benefit of a strong hospitality industry may wish to consider development or value-add/repositioning strategies. In 2015, a new, state-of-the-art hotel can be built for the same cost or less than an outright purchase. In addition, the fact that a newly built hotel will have no deferred maintenance or capital expenditures, may increase the likelihood of an even better profit margin. Of course, there are always risks in new construction, including the fact that the economy can change dramatically in the time it takes to deliver the product to market, plus the additional time for the asset to stabilize and provide return on investment.

 

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