guidance for rent relief requests and other commercial ......real estate tenant / landlord issues...

“The

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Courtesy ofThe CCIM Institute

Guidance for Rent Relief Requests and Other CommercialReal Estate Tenant / Landlord IssuesThe COVID-19 pandemic continues to disrupt public health and economic activities across the globe. While the full effects of the virus remain to be seen, commercial real estate professionals need to be prepared for what could be a challenging time.

Relationships between tenants and landlords will be disrupted as millions of people shelter in place, thousands of businesses close their doors and the U.S. economy faces its biggest challenge since the 2007-2009 Great Recession.

With contributions from CCIM Institute Instructors Cynthia Shelton, CCIM, Mark Cypert, CCIM and Capital Rivers Commercial, we've gathered some resources to help you navigate potential issues among tenants, landlords and lenders.

How Landlords Can Respond

As retail outlets across the country close, it is only a matter of time before tenants approach landlords about negotiating rents. When a business closes suddenly, even if it's temporarily, the tenant cannot produce rent, meaning a landlord may have difficulty paying a mortgage (if there is one). There are no winners in this situation. Here are some viable alternatives to mitigate this issue:

How Tenants Can Respond

Highlights From Inside

Rent Abatement. If a tenant is significantly past due on rent payments, a landlord may agree to forgive a certain amount of the past due rent if the tenant remains current thereafter.

Loan Conversion. Rather than abating past due rent, a landlord may agree to convert the past due rent into a loan payable over time. The tenant would, however, continue to pay the current rent. The loan is then evidenced by a promissory note that is cross-defaulted with the lease.

Application of Deposit. If the landlord holds a deposit, this amount could be credited against the tenant's current obligations.

Subletting. Bringing in a new tenant (for part of or all of the rented space) could reduce or eliminate the rent obligations while replacing revenue for the land-lord.

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Review your lease to see if your rent is simply base rent or it includes pass-through expenses. How much are these expenses and are they set to increase?

When does your lease end? What renewal options are available?

What constitutes a default of the lease? What tools are available to the landlord in such a case (penalties, eviction, interest, etc.)

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OUR PROFESSIONALS MAKE THE DIFFERENCE

PRESIDENT’S MESSAGEIn the Midst of Chaos, there is also Opportunity Page 3

LEGAL BRIEFSRolling the Dice with Uncertain Lease Options Page 6

DEALMAKERS! Pages 8 & 9

Rent Reduction. The landlord can reduce the tenant's rent for a portion or all of the term left on the lease. The usual forms of rent reduction are to reduce the base rent, operating expenses, or both. In regard to retail, it is possible to convert base rent to percentage rent.

Rent Deferral. In this case, the landlord can defer a portion of the tenant's rent but would require them to repay the rent deferred at a later time, either in a lump sum or by increasing subsequent payments. A variation of rent deferral could be to cap or set a base year to operating expenses for a short or extended period of time.

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2 Southern NevadaCCIM Chapter

2020 Southern NevadaCCIM ChapterBoard of Directors

Chapter AddressSouthern Nevada CCIMP.O. Box 97653Las Vegas, NV 89193-7653www.snccim.org

Management CompanyAlternative Management1880 E. Warm Springs Rd., Ste. 100Las Vegas, NV 89119Phone: (702) 798-5156Fax: (702) 798-8653Katrina [email protected]

CCIM Institute430 N. Michigan Ave., Ste. 800Chicago, IL 60611Phone: (312) 321-4460Fax: (312) 321-4530www.ccim.com

OFFICERS:

Ryan Martin, CCIM, SIOR President SponsorshipAdam, Gregory, CCIM President-Elect Designation PromotionSalina Ramirez, CCIM Secretary/Treasurer Community Outreach LiaisonJennifer Ott, CCIM Immediate Past President Legislative Affairs

DIRECTORS 2019-2020:

Jeff Chain, CCIM Wine TastingRobin Civish, CCIM Candidate Guidance Communication/MarketingPhillip Dunning, CCIM NewsletterBobbi Miracle, CCIM, SIOR, CIPS EducationJoshlyn Steele, CCIM Community Outreach

DIRECTORS 2020-2021:

Andy Crawford, CCIM University OutreachJakke Farley, CCIM ProgramsRoy Fritz, CCIM MembershipAmelia Henry, CCIM ScholarshipMeaghan E. Levy, CCIM, CPM Social/Networking

2020 UNELECTED CHAIRS:

Sunshine Bono, CCIM, CPM Education Co-ChairPaul Chaffee, CCIM University Outreach Co-ChairAngelina Scarcelli, CCIM, CPM Wine Tasting Co-Chair

Contact Us

Southern Nevada CCIM ChapterMission Statement

“Position the Chapter as the premier commercial real estate organization for Southern Nevada by enhancing the value of the CCIM designation and increasing the number of desig-nees and candidates through professionalism and educa-tional excellence.”

The CCIM Perspective is a bimonthly publication, (excluding November), of the Southern Nevada CCIM Chapter.

To submit an article, please contact Eric Tischler, Editor at [email protected] or 702-688-3056.

The CCIM Perspective may contain controversial or unsub-stantiated information by the authors. The contents herein are not necessarily the views of the Southern Nevada CCIM Chap-ter. The Southern Nevada CCIM Chapter cannot be held responsible for opinions, views or facts expressed.

About The CCIM Perspective

First and foremost, I hope this finds everyone and their loved ones safe and healthy during these difficult and uncertain times. I am extremely fortunate to be writing this article from the comfort of my own home – now office – in my most relaxed wardrobe. How fortunate am I, even in the midst of the chaos?

The Chapter remains committed to providing the very best that it can – nationally and locally. There is no better time to invest in yourself and take the next class or maybe even a refresher course for those who have already earned their CCIM designation. Chapter member or not, there are definite opportunities in what CCIM can offer you. I encourage everyone during these confusing times, more than ever, to improve upon yourself. Pursue the presti-gious designation, if you have the designation then make sure you are utilizing everything offered by the CCIM Institute at www.CCIM.com.

As zoom becomes my new routine, in conjunction with dial-in conferencing, I find myself attending lots of webi-nars that I usually did not have the time for in the past. Like other chapter members, I am grateful that I am still conducting business. With those whom I have spoken with, seem to share my same sentiment and we are very optimistic on how and what Vegas will look like, when we do bounce back.

There is no doubt times are challenging, and we will not work the same after this Pandemic. However, adapting is what we do as humans – physically, mentally and spiritu-ally. Most of us have taken on new roles as professionals, as parents, as teachers, as caretakers and the list goes on. The lines are getting blurry and isolation can have its pros/cons for all of us.

There is a portion of me that can appreciate the slower pace in which we’ve been forced into, consequently, it is significant that we all maintain structure and routine. Deals are, have and can be done, during COVID-19 Pandemic. Everyone in our industry is open for business in some way, and I know we are all happy to be working on what we do have. Some of our best customers, venues and especially clients, might be closed temporarily with ‘Delivery/Take Out Only’ as their new norm, but everyone will find a way through it and this too shall pass.

Battle Born is the motto of our great state of Nevada. The Southern Nevada CCIM Chapter members are proud citizens of this community, and it is with great courage and hope that we all stay true to some of the best qualities of this city we call home including hospitality, friendliness and customer service. In a time of need, these values are more important than ever. We must remember to be kind and considerate as this Pandemic is affecting everyone a little differently.

President’s MessageIn the Midst of Chaos, there is also Opportunity – Sun Tzu

3PERSPECTIVEMARCH / APRIL 2020 EDITION

By Ryan Martin, CCIM, SIOR2020 Southern NevadaCCIM Chapter President

Guidance for Rent Relief Requests and Other Commercial Real Estate Tenant / Landlord IssuesContinued from Page 1

How Tenants Can Respond (cont’d)

Examining Challenges Faced by Different Market Sectors

For more resources, visit CCIM Institute's Coronavi-rus (COVID-19) Resources and Guidance page at https://www.ccim.com/covid-19/?gmSsoPc=1

Does your landlord hold a security deposit? If so, how much is it?

Review operating covenants and co-tenancy.

Speak to your insurance agent to see what cover-ages are maintained by each party. Know your options to file a claim under existing insurance.

Does the lease include force majeure, excusing a party's performance due to outside circumstances?

Explore governmental relief programs, which may be popping up quickly, for tax relief, access to loans, relaxed restrictions/regulations, etc.

Consider consulting a lawyer to know your options in limiting your financial obligations.

Based on our current financial position, understand what concessions you would need from your landlord in both best- and worst-case scenarios related to COVID-19.

Contact your landlord and specifically outline how your business is being impacted by the COVID-19 pandemic. Arrange a meeting and be prepared with data to have an open conversation to identify a solution or combination of solutions.

For additional tenant resources, please visit Capital Rivers Commercial’s Community Resources and Assistance Amidst COVID-19 page at https://capitalrivers.com/covid19-response/

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Retail: Retail will see a bifurcated reaction to this economic downturn. Storefronts selling consumer staples - like Walmart, CVS, and grocery stores-will thrive, while dine-in restaurants, for example, could remain closed for the foreseeable future.

Hospitality: Unsurprisingly, hospitality has been decimated by the national response to the pandemic. CCIM Institute Chief Economist K.C. Conway recom-mends those in the sector ask themselves some basic questions. “For those that own hospitality assets and invest in that space, you need to step back and reflect on what brought you to that property type. Why? Where were you going into this particular period? The market had near record revenues per available room, average daily occupancy, and rental rates. … Whether I'm a hospitality REIT, hotel owner, or I've got properties, I want to negotiate with my lenders for some debt restructuring.”

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Office: The office leasing market is likely to suffer in the short-term due to COVID-19 as layoffs diminish tenants' overall need for space and, in many cases, set aside expansion plans they may have had. In addition, tenants who remain in the market for addi-tional space will have a difficult time touring proper-ties. Office workers' pushback against the open office environment is likely to accelerate, as illness is more easily transmitted in an open environment. Many employers already had recognized that in a competi-tion to attract and retain top talent, squeezing work-ers into increasingly tight spaces was not a sustain-able strategy. Now, an emphasis on social distancing and good health practices - continuing in some fash-ion even after the crisis has passed - may help reverse the densification trend, with less shared space and fewer workers per leased square foot.

Multifamily: Similarly, the multifamily sector could see significant upheavals as unemployment rises. Businesses that are closed employ people who now will struggle to pay rent. It's a similar situation to retail, only in this case the tenant is an individual or family who lost its source of income. Tellingly, Fred-die Mac announced a nationwide relief plan for current multifamily borrowers and residents.

Industrial: Industrial, meanwhile, is in a two-pronged situation similar to the retail sector. Grocery and medical items, for instance, are flying off the shelves, so properties in this supply chain are humming along. But other industrial sectors could be in store for tough times, depending on what areas of the national economy slow or stop.

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By Collin M. Jayne, Esq.Marquis Aurbach Coffing

Collin M. Jayne is an attorney with the Las Vegas law firm, Marquis Aurbach Coffing. He can be reached at (702) 382-0711 or by visiting the firm’s website at www.maclaw.com

Legal BriefsRolling the Dice with UncertainLease Options

Fluctuations in the real estate market prevent most land-lords and tenants from comfortably agreeing to a set rent schedule for more than a few years at a time. For example, no one can predict when the next Great Reces-sion will hit, or if the property will be re-zoned resulting in substantially higher rent rates. Thus, in the context of a long-term commercial lease with options to extend, many people – landlords and tenants alike – may find appeal in the flexibility of agreeing to hold rent “to be agreed” at a later date. If crafted carefully, utilizing this technique can avoid potentially detrimental harm from shifting market conditions. However, entering into an “agreement to agree” is betting that the parties are actually able to agree in the future. Rolling the dice on this flexibility can create significant legal hurdles and unexpected consequences if an agreement is not reached.

Agreements become enforceable contracts when the parties agree to essential terms. Which terms are “essen-tial” generally depends on the type of agreement. Long-

standing Nevada law provides that enforceable lease options must contain the same essential terms of an ordinary lease: (1) the names of the parties, (2) a descrip-tion of the property, (3) the amount of rent, (4) when rent is payable and (5) the duration of the lease. Thus, any lease (or lease option) which does not specifically state any of these five terms will have issues.

Consider the following likely scenario (based on an actual Nevada case): Landlord and Tenant enter into a lease for a given property for 20 years, providing for monthly rent beginning at $5,000.00 and increasing by $100.00 every year. The lease further provides that Tenant has an option to extend the lease by an additional five years, and that the option period will be based on “the same terms as the original lease, at a monthly rental to be determined at that time.” In year 15, the national economy begins a steep decline, resulting in severely decreased income for Tenant’s business for the next several years. In year 19,

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Southern Nevada CCIM Dealmakers

Chris Lane, CCIM of Colliers Inter-national, represented Matter Real Estate Group in a lease of a 100,405 square foot industrial property located at 1387 Executive Airport Dr., Hender-son, NV with a value of $9,023,397.00.

Eric Larkin, CCIM of NAI Vegas, represented Ace Worldwide in a lease of a 102,948 square foot industrial property located at 1840 Aerojet Wy., North Las Vegas, NV with a value of $4,083,330.00.

Eric Larkin, CCIM of NAI Vegas, represented OSM Worldwide in a lease of a 75,454 square foot industrial property located at 74 W. Craig Rd., North Las Vegas, NV with a value of $2,470,775.36.

Ryan Martin, CCIM & Jarrad Katz, CCIM, SIOR of MDL Group, repre-sented Thomas Dermatology in a lease of an 8,555 square foot office property located at 6170 N.Durango Dr., Ste. 120, Las Vegas, NV with a value of $1,531,029.00.

Jennifer F. Ott, CCIM & Brian Sorrentino, CCIM of ROI Commer-cial Real Estate, represented New Bethsaida, LLC and Lauren Tabeek, CCIM of Newmark Knight Frank represented the landlord in a lease of a 4,400 square foot retail property located at 3229 Losee Rd., North Las Vegas, NV for an undisclosed value.

Jennifer F. Ott, CCIM & Brian Sorrentino, CCIM of ROI Commer-cial Real Estate, represented Rainbow Alta, LLC in a lease of a 14,057 square foot retail property located at 771 S. Rainbow Blvd., Ste. 150, Las Vegas, NV for an undisclosed value.

Jennifer F. Ott, CCIM & Brian Sorrentino, CCIM of ROI Commer-cial Real Estate, represented New Bethsaida, LLC in a lease of a 4,563 square foot retail property located at 2401-A E. Lake Mead Blvd., North Las Vegas, NV for an undisclosed value.

Jennifer F. Ott, CCIM & Brian Sorrentino, CCIM of ROI Commer-cial Real Estate, represented Provi-dence Dental Dhillon, PLLC in a lease of an 1,800 square foot retail property located at 3520 St. Rose Pkwy., Henderson, NV for an undisclosed value.

Jennifer F. Ott, CCIM & Brian Sorrentino, CCIM of ROI Commer-cial Real Estate, represented Dutch Bros. in a lease of an 800 square foot retail property located at N. Stephanie St. & American Pacific Dr., Henderson, NV for an undisclosed value.

Jennifer F. Ott, CCIM & Brian Sorrentino, CCIM of ROI Commer-cial Real Estate, represented Dutch Bros. in a lease of an 800 square foot retail property located at W. Craig Rd. & Home Depot, North Las Vegas, NV for an undisclosed value.

Jennifer F. Ott, CCIM & Brian Sorrentino, CCIM of ROI Commer-cial Real Estate, represented Dutch Bros. in a lease of an 800 square foot retail property located at E. Craig Rd. & Arcata Wy., North Las Vegas, NV for an undisclosed value.

Jennifer F. Ott, CCIM & Brian Sorrentino, CCIM of ROI Commer-cial Real Estate, represented Dutch Bros. in a lease of an 800 square foot retail property located at N. Aliante Pkwy. & W. Centennial Pkwy., North Las Vegas, NV for an undisclosed value.

Alexia Crowley, CCIM and Stacy Shapiro, CCIM of Colliers Inter national, represented Smith Building, LLC in a sale of a 7,569 square foot surgery center / medical office located at 8871 W. Sahara Ave., Las Vegas, NV with a value of $2,600,000.00.

Alexia Crowley, CCIM and Stacy Shapiro, CCIM of Colliers Interna-tional, represented IRIS, LLC in a sale of a 3,701 square foot medical office property located at 2860 E. Desert Inn Rd., Las Vegas, NV with a value of $560,000.00.

LEASES:

Chris Lane, CCIM

CONT’D ON PAGE 9

Alexia Crowley, CCIM

Jarrad Katz, CCIM, SIOR

Eric Larkin, CCIMRoy Fritz, CCIM

Devin Lee, CCIM

SALES:


Southern Nevada CCIM Dealmakers Cont’d

*Publications are limited to designees who are Chapter and Institute members in good standing. Announce-ments are for publication in The Perspective, but sub-missions may also appear on the website. All parties are aware that space is limited and are accepted at a mini-mum value of $500,000.00 and published by largest dollar volume within each submission section. Please contact Eric Tischler, Perspective Editor for the submis-sion form at [email protected].

Jennifer F. Ott, CCIM

Brian Sorrentino, CCIM

Ryan Martin, CCIM, SIOR

Lauren Tabeek, CCIM

Stacy Shapiro, CCIMGino Vincent, CCIM

Roy Fritz, CCIM of Sun Commercial Real Estate, Inc., represented the seller in a sale of a 28,129 square foot multi-tenant retail property located at 1820 E. Lake Mead Blvd., North Las Vegas, NV with a value of $3,550,000.00.

Jarrad Katz, CCIM, SIOR of MDL Group, represented the buyer, Jsant Properties, LLC in a sale of a 20,700 square foot retail property located at 1631 W. Lake Mead Blvd., Las Vegas, NV with a value of $5,245,125.00.

Jarrad Katz, CCIM, SIOR of MDL Group, represented the seller, Seltzer Holdings, LLC in a sale of a 6,060 square foot industrail property located at 4117 Wagon Trail Ave., Las Vegas, NV with a value of $1,224,120.00.

Chris Lane, CCIM of Colliers Inter-national, represented Juliet Compa-nies in a sale of a 130,842 square foot industrial property located at 860 Wigwam Pkwy., Henderson, NV with a value of $19,000,000.00.

Chris Lane, CCIM of Colliers Inter-national, represented West Las Vegas Venture, LLC in a sale of an 83,125 square foot industrial property located at 845 Pilot Rd., Las Vegas, NV with a value of $12,100,000.00.

Chris Lane, CCIM of Colliers Inter-national, represented Matter Real Estate Group in a sale of a 21,886 square foot industrial property located

at 7930 W. Warm Springs Rd., Ste. 100, Las Vegas, NV with a value of $3,854,045.00.

Chris Lane, CCIM of Colliers Inter-national, represented Matter Real Estate Group in a sale of a 22,805 square foot industrial property located at 7925 W. Arby Ave., Stes. 130-150, Las Vegas, NV with a value of $3,854,045.00.

Devin Lee, CCIM of Northcap Com-mercial, represented Summer Place Apartments, LLC in a sale of a 112-unit multifamily property located at 27 N. 28th St., Las Vegas, NV with a value of $6,750,000.00.

Devin Lee, CCIM of Northcap Com-mercial, represented VPVT, LLC in a sale of a 28-unit multifamily property located at 2556-2576 Van Patten St., Las Vegas, NV with a value of $2,240,000.00.

Ryan Martin, CCIM of MDL Group, represented LV Grier, LLC in a sale of a 9,028 square foot office property located at 1100 Grier Dr., Las Vegas, NV with a value of $3,450,000.00.

Gino Vincent, CCIM of LOGIC Com-mercial Real Estate, represented Las Vegas Rainbow Holdings, LLC in a sale of a 43,676 square foot retail property located at 1950-2050 S. Rainbow Rd., Las Vegas, NV with a value of $4,850,000.00.

Legal BriefsRolling the Dice with Uncertain Lease OptionsContinued from Page 5Tenant seeks to exercise the option and suggests to Land-lord that rent should be reduced to allow the business to get back on its feet. Landlord, meanwhile, would prefer to keep the regular $100.00 annual increases. Although negotiations continue, the parties fail to come to an agree-ment by the end of the 20-year lease term. At the begin-ning of year 21, Tenant begins paying monthly rent in an amount it believes to be reasonable, rather than increas-ing rent by $100.00. In this situation, the law would normally dictate that the option period lacked a definite rent amount (which is an essential term), and thus that the option is unenforceable. In other words, the lease ended at the end of year 20, and Tenant is in possession of the premises as a month-to-month holdover tenant, by default. This can be problematic for both parties, as Land-lord may want the certainty of a long-term lease to keep a tenant who has proven to be reliable, and Tenant may not want to have to go through the expense of moving and starting over somewhere else.

Despite this general rule, the Nevada Supreme Court has developed a special exception to allow the parties to enforce a lease during an option period, if rent is the ONLY essential term that is not agreed on. In the above

scenario, either party could file suit seeking to enforce the option. Then, if the court finds that all essential terms except for rent were agreed upon (as is the case here), the court can fix the rental rate for the option period at a “reasonable rent,” based on economic conditions at the time. Of course, the determination of what rent is “reason-able” will typically require in-depth factual analysis includ-ing comparable leases and the details of the negotiations between the parties. Moreover, the specific wording of the option provision may be relevant, such as an option which provides that rental “increases” will be negotiated.

To ensure that an option at an indefinite rental rate can be enforced, great care should be taken to provide all other essential terms for the option in the lease. Further, while negotiating rent for the upcoming option period, one should be particularly aware that, if an agreement is not reached as to rent, an intervening court may set rent at what it believes to be a “reasonable” rate. This sort of outcome may not make either party happy, so taking the time when drafting a lease to think through these potential issues can save a lot of time, money and stress – and add some predictability to what could otherwise be a roll of the dice.



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guidance for rent relief requests and other commercial ......real estate tenant / landlord issues...

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