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Sunday, Feb 25, 2024

Concessions: Market Conditions Force Give and Take

Commercial real estate property owners and landlords are making a lot of concessions these days. As vacancy rates increase, the lengths they’re willing to go to fill their buildings are getting more extreme. Substantial tenant improvement allowances, beneficial occupancy, reduced rent, free rent, and short-term leases are just a few. Great time to be in the market if you’re looking to buy or lease. But, even in a tenant market, there’s a limit to how far property owners can go. A ridiculous offer is likely to stop a deal in its tracks. There’s gotta be give and take on both sides. So how can landlords and tenants find common ground in this market and negotiate terms beneficial to both parties? Local real estate pros have plenty to say on the subject. Michael S. Goodman of the Building Owners and Managers Association says he hears landlords are making a lot more concessions. On the bright side, even attracting a short-term lessee in this market adds to the value of the property. But landlords should not throw basic business sense out the window. They need to think long-term even if signing a short term lease. Running credit checks and understanding the financial health and goals of the lessor are key. And once the deal is done, landlords need to focus on tenant retention. George Stavaris, senior VP of Grubb & Ellis, encourages property owners and landlords to price products on the market not emotion. Even if initially insulted by an offer, don’t take it off the table altogether. It may come in handy if vacancy rates don’t improve. Lessors need to realize that every property owner is different. Some have less debt and more flexibility to offer concessions. Others operate on tighter margins. Working with a broker knowledgeable of the market and property owner’s unique positions can go a long way. Finding common ground is downright tricky, says Jay Rubin of Lee & Associates. Tenants should certainly take advantage of the market. But they should also consider that something like signing a long-term lease can be beneficial in the long-run. While a big commitment up-front, it locks the current low rates in for the future. Tenants also need to realize that every concession equals increased risk for landlords and prolongs the amount of time for them to realize a profit. And in this economy, even tenants that look good on paper at the get-go can go under. Multi-Family Rally Marcus & Millichap was involved in the sale of a 54-unit apartment property located at 5717 Laurel Canyon Blvd. in Valley Village. The property sale price was $9,752,500. Jeffrey Louks with the firm’s Encino office, and Vince Norris, an agent from Hendricks and Partners, had the exclusive listing to market the property on behalf of the seller, who is a private investor. The company sold a 19-unit apartment building, located at 8919 Willis Ave. in Panorama City, for $2,100,000. Jason Flashman of Marcus & Millichap’s Encino office had the exclusive listing to market the property on behalf of the seller, a private investor. Flashman also represented the buyer, who is a private investor. The firm was involved in the sale of the Maple Townhouse Apartments, a five unit property located at 912 East Maple Street in Glendale, for $1,290,000. Mark Groves and Nick Simpson of the firm’s West Los Angeles office had the exclusive listing to market the property on behalf of the seller, a private investor. The building, constructed in 1988, fetched $191.80 per square foot. Mixed News for Housing Market San Fernando Valley home sales continue to increase. The March 2009 San Fernando Valley Housing Report, completed by the San Fernando Valley Economic Research Center, reports sales in March were up 60.4 percent over March 2008. There were 1,229 new and existing home sales, compared to 947 in Feb. 2009, marking a 29.8 percent increase. Sales are happening primarily in the central and north Valley. The Valley’s median price of a single-family detached home appears to have stabilized, says the report. It was $347,500 in March, compared to $350,000 in February. But the current median price is 30.5 percent less than March 2008. The market is dominated by lower priced and foreclosed homes, and there is little price movement and sales volume in the over $500,000 market. Notices of default are up 63.4 percent compared to March 2008 and 22.9 percent compared to February 2009. Numbers are highest in the central Valley. There were 378 foreclosures, down 23.8 percent from 511 in March of last year. Foreclosures decreased 34.6 percent from February. Local foreclosures surged to 850 per month from last June through September. There were 922 foreclosures in August 2008. Retail Activity John Cserkuti and Allison Abel of NAI Capital’s Santa Clarita office represented lessor, Bridgeport Market Place, in a deal with Dan Csicsai Salon. The latter inked a 10-year lease, worth $1,515,199, for 3,553 square feet of retail space located at 23961 Newhall Ranch Road in Valencia. Yair Haimoff of NAI’s Encino office represented lessor, Adly Enterprises LLC, and lessee, World Muay Thai, in the lease of 3,450 square feet of retail space at 20655 Soledad Canyon Road, Unit 20 in Santa Clarita. The value of the five year lease was not disclosed. Staff Reporter Eric Billingsley can be reached at (818) 316-3124 or at ebillingsley@sfvbj.com .

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