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What Could Brexit Mean For Your CRE Investment?

Searching for likely outcomes amid uncertainty

January 31 is the due date for Brexit to happen. Boris Johnson, Great Britain’s Prime Minister, selected that date as the date for his nation to divorce itself from the European Union, with or without a deal. The result, not surprisingly, is that those on both sides of the issue have varying predictions about the impact of the transition period—ranging from a slight blip to a collapse of the global economy.

While many of the issues will most likely be contained to Great Britain and other EU-member nations, investors in the United States are curious about what to expect when the Brexit pebble is tossed into the pond and the ripples or tidal waves arrive on American shores.

Brexit 101

From the moment of its inception, much of the UK was never really convinced that a coming together of European nations could work. In recent years, though, that uncertainty has grown, especially as additional countries were allowed to enter. There is notable skepticism from some analysts about Central and Eastern European nations that have not fully embraced representative democracy, and Southern European nations that are not considered fiscally disciplined.

The Brexit issue is a divisive one for Europe, and it has turned out to be just as divisive on British soil. While EU-member nations will certainly feel the loss, experts generally agree that UK citizens will most likely absorb the brunt of the divorce, deal or no-deal. How long those consequences last is anyone’s guess. Among the key predictions are:

  • Trade deals and tariffs will all have to be renegotiated. Until this is accomplished, there will most likely be a shortage of various goods and merchandise, especially of those imported by Britain. This list may include food items, building materials, and medications.
  • Labor issues will have to be resolved. These include construction-labor issues since the UK relies on a pool of workers from Eastern European EU-member nations, and white-collar, European, non-UK citizens based in Britain.
  • Uncertainty about the EU. There is a possibility that other European nations may follow the UK’s lead and leave the EU, creating a sort of economic domino effect.

Post-Brexit CRE investments in the UK

Brexit has a history of being an ever-changing process, and the word at the outset of its execution is caution. The greatest worry is that the level of uncertainty will result in a decrease in demand for UK properties, falling prices, and a reluctance to enter the UK CRE market.

Additionally, the dust of transition will settle at varying speeds. Besides labor and building material shortages, there may also be changes made to safety and building codes and legal and tax regulations, as well as to the process of moving funds across borders. To help navigate these waters, it will be essential to work with a UK-skilled due diligence consultant.

While a cautious approach certainly sounds like a wise option in times of change, it’s also important to remember that potential opportunities also appear. When Great Britain leaves the EU on January 31, expect to see an increase in new deals and projects, especially as UK investors seek to partner with the US, Canada, India, and China.

Post-Brexit CRE investments in the US

The most volatile Brexit challenge that may impact US CRE firms is cross-border investment, especially if other EU nations either leave the union or re-examine their own policies as a result of policy changes in the UK.

That being said, the US CRE marketplace is expected to see more positive outcomes as a result of Brexit. The combination of chaos in the UK, the attractiveness of REITs and EB-5 investments, and continued low-interest rates translate into global investors seeking the stability and economic security found in the US commercial sector.

Investors must be proactive

When reading Brexit predictions and various what-if scenarios, it’s inevitable to have even more questions and concerns. Because the situation is uncertain now—and likely to remain so for the next several years—US and global commercial real estate investors should seek answers from a skilled team, like the professionals at Morris Southeast Group.

To learn more about investment opportunities and what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

How South Florida CRE Is Addressing Climate Change

How South Florida CRE Is Addressing Climate Change on morrissegroup.com

A new way to invest in a weather-weary world

Not a day goes by when there isn’t some sort of mention of climate change and sea-level rise. Pundits may debate the validity of the science behind the issue, but Miamians and other South Floridians are becoming increasingly adept at wading and driving through flooded streets and sidewalks.

Businesses, too, keep a supply of sandbags on hand to protect their investment from flood damage, while neighborhoods have seen tidal flooding rise from an infrequent to a regular occurrence.

With more than $130 billion of US commercial real estate (CRE) located in the top 10% of cities most vulnerable to sea-level rise, the CRE industry is at looking at ways to help investors weigh the risks, prepare for the challenges, and make wiser investment decisions.

Investing at water’s edge

While experts are in no way recommending a mass sell-off of coastal properties, they are advising that if investors do not prepare today, their real estate values could be severely impacted tomorrow.

  • In 2017, the year of hurricanes Harvey, Irma, and Maria, damage to US properties hit a record high at more than $300 billion.
  • In 2018, from May to July, rainfall along the entire east coast was three times higher than normal.
  • In 2019, temperature records, including those throughout October in SoFlo, were shattered on a daily basis.

Because the real estate industry is especially vulnerable to climate change, the Urban Land institute embarked on a global study that looked at the issue and its long-term impact on property investment. Results indicate that meeting the climate-change challenge will require futureproofing structures and projects, as well as working with governments to develop proactive policies and plans.

Assessing the risks of climate change

When assessing the risks associated with a particular property, developers and investors generally rely on insurance data. But because insurers usually determine prices on an annual basis, long-term risk factors—such as those associated with climate change—are often not considered. It’s difficult for that industry to use actuarial science to charge for future risks that are as unpredictable as the weather.

As a result, a new analytics industry—one that merges climate science with business and policy decisions—is emerging. It allows real estate professionals and investors to become better informed and it’s rapidly becoming a part of the due diligence process.

In addition to assessing the physical risks to a specific property as it’s impacted by climate change, these analytics also include transition risks or those factors that will most likely occur as a result of climate change. These include:

  • An increase in disruption for tenants as weather-related events become more frequent.
  • Higher operational and capital costs as properties experience greater wear and tear due to extreme weather.
  • Higher taxes as cities and municipal jurisdictions cover protection costs. In Miami, for example, residents approved bond issues to raise their taxes to pay for pump station installation and raising sidewalks, roads, and seawalls.

Meeting the climate change challenge in South Florida

In case you haven’t figured it out, the Morris Southeast Group team fully believes that South Florida is worth fighting for—and it will meet the challenges posed by climate change. And we’re not alone.

In more and more projects around the region, developers are adding soil to raise the ground level beneath new construction, as well as investing in and incorporating climate-mitigation and adaptation technologies. These building-for-resilience strategies, in turn, help to lower operational costs while increasing the potential return on a CRE investment.

Speaking of resilience, it’s more than just a means of meeting the needs of a property. City leaders, for many reasons, want to ensure that their municipalities remain attractive for residents and developers.

In many regions, resilience strategies are taking center stage, and it’s important for investors to let policymakers know—on local, state, and national levels— that they’re interested in the issue and want to see action.

To learn more about these issues or Morris Southeast Group’s commercial real estate investment and property management services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Commercial Real Estate Trends For 2020

Commercial Real Estate Trends For 2020  on morrissegroup.com

5 key areas that will shape the new year and beyond

A television commentator recently claimed that 2020 isn’t a year. He did say, tongue-in-cheek, that it’s the name of a news show on a competing network. He also said it’s a word that defines hindsight and perfect vision—but not a year.

In commercial real estate (CRE), though, hindsight and vision are essential to determine the trends and cycles that will define the industry in 2020 (which is, indeed a year).

It’s no wonder, then, that as the calendar page has turned to a new year and a new decade, so many experts have offered their insights on the shape of things to come. Here are 5 of the top things that may be on the horizon:

1. Will the economy continue to expand?

At the moment, the United States is in the midst of its longest expansion in history. While there are national issues (constant talk of an approaching recession, a looming Presidential election and an impeachment process, and a slowing down of GDP) and global issues (Brexit and the potential for war), the steady strength of an expanding economy is expected to continue.

This could further expand job growth and consumer confidence. And, according to CBRE, these factors and Federal interest rate cuts are expected to have a positive impact on continued CRE growth.

2. Changing demographics

Just about everything that could be said about Baby Boomers (aging) and Millennials (blamed for just about everything) has been said, but it’s still worth noting that both generations will continue to have an impact on all real estate sectors. At the same time, Generation Z and a yet-to-be-named generation will also start to exert their influence on the CRE marketplace.

CRE opportunities are expected to meet the needs of longer life expectancies among Boomers and steady population growth that has already outpaced Japan and is expected to surge past Europe. Ground Zero for many of these projects will be seen in the Sunbelt states.

3. Property trends

A word often repeated in many of the 2020 predictions is “steady.” In other words, trends, especially as they relate to properties, will follow the same path seen in recent years:

  • E-commerce growth and competition will continue to steer the industrial and warehouse sectors.
  • Co-living and co-working trends, especially in urban markets, are creating greater consumer demand for flexibility and fluidity in those sectors.
  • Alternative properties, such as data centers and self-storage, will continue to grow.
  • Don’t be quick to ring the death knell for brick-and-mortar properties. While some sectors, such as retail chains, are struggling to keep doors open (thanks to e-commerce, by the way), others are in great demand. Among these are premium and necessity retailers, restaurants, and grocery and drug stores.

4. Due diligence and data continue to take center stage, in new ways

No matter if a CRE transaction involves a single party or a group, and no matter if a CRE project is small or grand, there are risks. As a result, due diligence is a must—and that simple fact cannot be stressed enough, particularly as we move into 2020 and beyond.

A key tool aiding due diligence is the gathering and use of data in all areas—from the state of a building’s operating systems today and how they are expected to perform tomorrow, to funding issues and the impact of climate change on specific properties in specific locations. And this last item is expected to become a larger one as we move into this decade.

What hasn’t changed and won’t? A well-informed CRE deal is still far likelier to be a strong one.

5. Digitization

At the start of the 21st century, most people in the developed world were terrified of Y2K and the potential collapse of the global economy. Twenty years later, globalization, urbanization, a changing workforce, AI, and the IoT have transformed CRE. That’s why the findings of Deloitte’s recent survey of 750 CRE executives in 10 countries are so interesting.

While most respondents rated tenant experience as a top priority, the majority had not truly addressed the digital tenant experience. To that end, expect investors, owners, managers, and landlords to embark on a smart building, mobile app odyssey to meet tenant demands while improving efficiency and performance.

2020 trends that work for SoFlo

When you look at these trends through a South Florida lens, the region appears to be headed in the right direction. As a Sunbelt state, Florida has already witnessed an increase in population, a building boom, and an embrace of co-living and co-working environments.

At the same time, there are large tracts of industrial and warehouse spaces, as well as climate-change-mitigation technologies that are being incorporated into new construction and retrofits. To learn more about these trends and what Morris Southeast Group can do for you in the coming year and beyond, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

What Investors and Developers Need To Know About EB-5 Investment

What Investors and Developers Need To Know About EB-5 Investment on morrissegroup.com

The impact of changes to the EB-5 program on commercial real estate investment in South Florida and beyond

For developers, one of the keys to seeing a proposed project completed is sufficient capital. At the same time, investors are looking for the right projects with the best potential returns on their investments—wherever those investors are from. Enter the Immigrant Investor Program or EB-5.

A brief history of EB-5

Created by Congress in 1990, the program was designed as an incentive for foreign investors to help stimulate the US economy through capital investments and job creation in exchange for green cards and eventual US citizenship. In its early years, the program was practically dormant. But during the Great Recession, when banks were reluctant to approve construction loans, EB-5 was able to help fill that void.

Mixing immigration with money, it’s no wonder the EB-5 has, over the decades, seen its share of criticism. While some have seen this as a green-card-for-cash initiative that favors wealthy investors, others view it as a highly beneficial job (at least 10 jobs per project) and investment program that’s good for the US economy.

Changes to EB-5

Nevertheless, the Obama and Trump administrations have each taken a very critical look at EB-5, with each making its own set of recommendations and changes. In July 2019, the Department of Homeland Security (DHS), which oversees the program, released its latest rules:

  • At the core of EB-5 are targeted employment areas (TEAs), which are determined by unemployment rates. For TEA investments (high unemployment), the minimum investment is $900,000, up from $500,000. For the non-TEA projects, the minimum investment amount is $1.8 million, up from $1 million. While these increases were made to account for inflation, the higher minimum amounts may shrink the pool of potential foreign investors.
  • The Office of US Citizenship and Immigration Services and DHS will now designate TEA areas. In the past, this was left up to the individual states. While some projects may no longer qualify as being located in a high-unemployment area, the change is meant to stimulate job growth in the newly defined and targeted areas.
  • When an immigrant investor files an EB-5 petition, he or she receives a priority date, which is the date the USCIS receives that petition. In essence, this is the investor’s place in the green-card line. In the past, the immigrant would receive a new priority date each time a new EB-5 petition was filed. With the current change, investors can retain their first priority date.
  • The final regulation is designed to clarify the technical and procedural issues as the immigrant investor files an I-829 petition, which must be submitted within 90 days preceding the second anniversary of when he or she received conditional resident status. Additionally, the regulation clarifies which family members can be included in the principal investor’s petition and who must file independently. The change is meant to bring the EB-5 green card process in line with the current USCIS green card process.

EB-5 advice for developers and investors

Very often, EB-5 is considered an immigration program—but that doesn’t even begin to scratch the surface. It is, in fact, so much more than that and it’s constantly evolving. As a result, developers and investors have to be aware of the changes and be willing to adapt to them.

  • EB-5 is actually a security. And as a result, it is heavily regulated and full of financial complexities.
  • EB-5 is often thought of as a means to acquire quick funds for a project when it’s really a slow-money concept. As a result, not all projects are suitable for EB-5 investment.
  • While the EB-5 interest rates are low, they are rising. In addition, foreign governments have their own regulations and fees when monies are transferred across borders.
  • As part of the investor’s due diligence process, they will require a developer’s strong history of completing other EB-5 projects and possibly request tours of those sites.
  • Because of political and economic turmoil, Latin America has surpassed China in EB-5 demand. At the same time, gateway cities, such as New York, Los Angeles, and Miami, continue to be attractive locations for EB-5 interest.

It’s important for all parties to work with a team skilled in the nuances of EB-5. Morris Southeast Group is one such group. And because of our reputation in South Florida, we are especially skilled at building the EB-5 bridge between Latin America and the SoFlo region.

To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

The Latest CRE Gadgets & Gizmos In One Word: PropTech

The Latest CRE Gadgets & Gizmos In One Word: PropTech on morrissegroup.com

Now more than ever, your investment is in your hands

In the world of CRE, 2019 may be remembered as the year PropTech became a key buzzword in the industry’s vernacular. Short for property technology—or using information technology to research, purchase, sell, or manage the property—the concept has moved out of the residential market and into the commercial one.

For anyone watching from the sidelines, it can be an overwhelming (or daunting) scenario. There are many products currently available, and with investor interest, more are on the way.

Data is the bottom line

At the core of PropTech is data: collecting it, analyzing it, and utilizing it. But the term generally applies to several elements:

  • Software, like property portals and platforms, is used to improve property research and management, as well as to streamline communication between all parties involved with a specific property or project.
  • Hardware includes the tools that gather the data, such as sensors and drones. According to one estimate, over a trillion sensors will be connected to the Internet by 2022, and this Internet of Things (IoT) network will be collecting all kinds of data from building systems and energy efficiency stats to foot traffic to weather patterns. One company has even developed sensors to be placed on cranes at building sites to better understand and prevent expensive delays and extended deadlines.
  • Materials, such as bricks to act as batteries for solar panels and climate change-mitigation products, and manufacturing, such as 3D printing, are also key elements.

The new kids on the PropTech block

The latest additions to the PropTech industry are start-ups. At the moment, there are countless start-ups around the country competing for billions of dollars in investment capital. At the same time, big names like Amazon and Google are jumping into the CRE PropTech arena.

While smart technology is pretty much a staple when it comes to new construction or repurposing older buildings, the increased amount of data and financial interest in PropTech are pushing next-generation development to the fringes of the CRE imagination in several key areas:

  • Expect greater use of drones, not only for capturing footage of properties from the air but also for data collection. More and more drones are being used to capture real-time progress on construction projects, as well as to map them.
  • With all of this data, someone—or, rather, something—has to sort through all of it to develop predictive analytics. Enter Artificial Intelligence (AI). While already responsible for virtual reality tours and filtered property searches, future AI will only be enhanced by areas such as biometrics, bots (for 24-hour customer support), geolocation tech (to better predict trends for specific properties in specific locales), and to oversee IoT technology that manages building systems’ usage and maintenance.
  • While today’s AI devices are designed to act intelligently, Machine Learning (ML) devices are a form of AI that is intelligent. By feeding data to ML devices, they will be able to learn for themselves.
  • In general terms, a platform is a means to digitally facilitate communication between individuals or groups of people. Think of it as a public ledger of data without the middleman. Blockchain, a platform that was instrumental in the cryptocurrency craze, is beginning to gain a foothold in the real estate industry, especially as it pertains to lease transactions, property acquisitions, maintenance records, and due-diligence processes for both full and fractional property sales.

Working together to make PropTech work

While there is no predictor of which technologies will have staying power and what their exact influence will be, one thing is certain: technologies, as exciting as they are, must be able to work together. For example, IoT sensors will gather data for AI to analyze and apply. Without one, the other can’t reach its full potential.

The same could be said about people. Without good relationships, successful CRE investment is a lot harder, if not impossible.

To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Alternative Property Investment Opportunities: What are Some Options?

Sometimes it pays to think different—or more specific—in real estate

If the 21st century has taught us anything, so far, it’s that the rules have changed. What was once considered inconceivable at the dawn of the millennium is now a reality. Livable, walkable downtown development is surging, shared workspaces and telecommuting are givens, and ridesharing, scooters, and on-demand food delivery are a smartphone swipe away.

It makes sense, then, that the traditional boundaries of commercial real estate are also expanding in new and alternative directions—or breaking down into smaller segments. Individual investors and REITs are no longer confined by the large multifamily, retail, office, or industrial boxes.

1. Niche housing

Investing in housing has long been a tried-and-true way to enter the real estate marketplace. In recent years, though, things have gotten a lot more personal, with owners and landlords eager to market properties to very specific tenants. There’s something for everyone.

  • Mobile homes have long catered to those who are unable to afford a down payment for a single-family home and some “luxury” mobile home parks have started to become more common. Mobile homes are also an opportunity for someone new to CRE investing or who doesn’t have a lot of capital. While profits may be smaller than those in higher-priced CRE properties, the affordability makes it possible for someone to develop property investment and ownership skills in an area with low competition.
  • On the opposite end of the housing spectrum is corporate housing. Very often, companies having to do regular business in locations away from the home office need mid- to long-term accommodations for employees. To keep costs down, they would rather avoid pricey hotels while providing employees with a home-away-from-home experience. While leases can be either short or long term, the goal is to make an attractive property financially attractive for the tenant.
  • With college enrollment continuing to climb even during slow economic periods, students are facing a housing crisis. On-campus dorms are crowded and run-down, while off-campus housing can be expensive—and this, in turn, has given birth to a larger student housing marketplace. Investors are purchasing multi-family properties close to college campuses and offering clean and affordable accommodations with shared social spaces. Anyone investing here should be prepared to manage first-time renters who lack references; their parents; and significant wear and tear on the property.
  • While Millennials are front and center in many of today’s discussions, Baby Boomers are the gift that keeps on giving. In this case, it’s through a seniors housing trend. The scope of that population spans those approaching retirement to significantly older individuals—and this translates into everything from active adult communities to assisted-living facilities to nursing homes.

2. Medical office buildings

In addition to seniors housing, an aging population—along with an increase in outpatient treatment—is also creating a strong demand for medical office buildings. Sweetening the prospects for investors is the idea that medical office tenants tend to be stable, long-term occupants and the need for patient care remains strong no matter the economic climate.

3. Self-storage

In recent months, there’s been the talk of a looming recession. Whether or not that economic downturn gets here is anyone’s guess, but it’s always wise to look at opportunities that have historically done well in lean years. Self-storage properties are often that investment. In good times and bad, people need to store stuff—and interest appears strong across economic classes and market locations.

4. Data centers

Demand for data grows each day, and there is no indication that will ever slow down. As a result, storage—the size of the cloud and the buildings that store the physical servers that support it—has to grow. That’s why data centers are predicted to be strong performers. While they can be considered a riskier investment because of the increase in competition and capital commitment, the business model has performed well even during slow times. 

Thinking outside of the box in SoFlo

When it comes to thinking outside of the CRE box, the professionals at Morris Southeast Group cannot think of a place that’s more creative than South Florida. Whether it’s converting a warehouse into an artist hub or developing a vacant lot into a state-of-the-art housing rental property, everything seems to be achievable here.

To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

CRE Insurance For Owners And Tenants in South Florida

Who needs what and why

When it comes to commercial real estate, owners and tenants have at least one thing in common: both want to protect their investment. To that end, insurance is a necessity—but all too often, it becomes the elephant in the room. Everyone knows it’s there, but few ever want to talk about it because it’s overwhelming, confusing, and somewhat negative at a time when everyone is energized about positive possibilities.

Ignoring the insurance issue, though, can mean very expensive and legally complicated consequences for both parties. On the other hand, understanding what’s required can prevent lots of last-minute scrambling and help develop a smarter business plan. Here, then, is a rundown of who needs what and why.

Insurance needs for the CRE owner

The trick with insurance is creating a balanced plan that is fiscally sound and provides appropriate coverage. To that end, it’s imperative for the investor to consider what sort of coverage works best for each specific property. Property along the coast, for example, has different risk factors than one located further inland or in another part of the country.

First and foremost at the top of any insurance list are fire insurance and liability insurance. From there, depending on the needs of the owner and/or the property, other insurance plans can be added:

  • Flood insurance, especially if the property is located in a designated flood zone or if flooding is an issue in the property’s location.
  • Terrorism insurance in case the property is a terrorism target risk.
  • Builder’s risk insurance if the property is vacant or mostly vacant and will be renovated.
  • General contractor insurance if the owner will act as the general contractor and pull his/her own permits for the work.
  • Workers compensation insurance if the owner plans to hire on-site employees, such as maintenance workers.

Insurance needs for the CRE tenant

As important as it is for the owner to protect the entire physical property, it’s equally essential for the tenant to provide coverage for the actually leased space. Commercial renters insurance generally covers damage or destruction to property caused by fire, vandalism, and most weather-related issues. This property can include office and manufacturing equipment, inventory, and business records.

From here, a tenant can look into additional coverage, some of which are identical to that carried by the owner, such as worker’s compensation and flood insurance policies. While not mandatory, some owners may require the following options:

  • Business liability insurance not only protects the tenant should a customer become injured on the leased property, but it also protects the owner. Because the owner does not want to be held responsible for the tenant’s mistakes, he/she may ask to see the tenant’s certificate of liability insurance at the time of the lease signing. No certificate, no lease.
  • Business interruption insurance assists the tenant in paying bills, including rent, if the business is not generating income for a variety of reasons, such as theft, vandalism, or even sewer/water line repairs by the city.

Ensuring you’re insured correctly

The last thing anyone wants is for the elephant in the room to destroy an investment or leasing opportunity. Whether you’re new to the CRE market as an investor/owner or a tenant, it’s important to work with a team of professionals who are acutely aware of commercial properties and their insurance needs for specific locations. With more than 30 years of experience in South Florida, Morris Southeast Group is that team.

To learn more about owner and tenant representation and what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Going Green On Top: Heat-Mitigation Design is an Emerging Climate Solution

Going Green On Top: Heat-Mitigation Design is an Emerging Climate Solution on morrissegroup.com

Commercial real estate is a cool key player in new green solutions

Most discussions about climate change and South Florida focus on sea-level rise. The topic is one of the major concerns when predicting storm surges during hurricane season, and it’s a regular headache for more and more residents during periods of King Tide.

Temperature is less frequently one of the region’s climate change talking points—even though South Florida is coming off one of the warmest summers and autumns on record. For many, the feeling is that it’s supposed to be hot here. But is it supposed to be this hot?

CRE can help cool things off

A recent study from the Urban Land Institute, Scorched: Extreme Heat and Real Estate, took an in-depth look at the causes, concerns, and cures for the Urban Heat Island Effect, a very real phenomenon in which asphalt and cement absorb heat during the course of the day and then radiate that heat throughout the evening. The result is a marked heat difference between downtown and rural areas. In turn, this can have a negative impact on the environment, the economy, and public health.

In many areas of the country, the loss of green space for the sake of development has played a huge role in raising temperatures. The good news, however, is that CRE development is playing a larger role in cooling things off. Designers and developers around the country are incorporating cutting-edge heat-mitigating technologies in their new projects.

Among these are the creation of green roofs; gardens in the sky that can reduce a building’s energy consumption and stormwater run-off while improving sound insulation and filtering out pollutants. They also help reduce urban temperatures.

Things to know before going green on top

Although it’s far easier to incorporate a rooftop garden at the start of the design process, existing buildings can also participate in this greener solution—one that is considered a high-impact temperature reduction strategy. There are, though, a few things to consider:

  • A structural engineer first needs to evaluate the load capacity of the roof, since rooftop gardens are quite heavy. A watered garden with a 6” soil depth can weigh up to 40lbs. per square foot.
  • In addition, the waterproof integrity of the roof also needs to be evaluated. The last thing any owner wants is to install a rooftop garden and then discover that there is a leak beneath the soil—or that the membrane was damaged during installation.
  • Working with a rooftop garden designer, owners and landlords can decide the type of garden, the plant selection, any safety issues should the public have access and alternatives if a full garden is not an option.

Embracing heat-resilient technologies comes with unique challenges but also significant rewards for CRE developers and investors, especially in the areas of new project development, marketing, and operations.

South Florida’s coolest solution

There is little doubt that South Florida is hot—in terms of temperature and the real estate market. And Morris Southeast Group recognizes the immense value of finding sustainable and ethical solutions that also enhance ROI. Our professionals can help you brainstorm smart, green CRE options and connect you with leaders in the field.

To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Leasehold, Tenant, and Build-Out Improvements in CRE

Three terms which are similar, but different

There’s an old song, made most popular by an Ella Fitzgerald/Louis Armstrong duet, in which the singers lament the differences in how they each pronounce the same words differently. One says “to-may-to,” while the other says “to-mah-to.” As they compare their words, the two must decide if they’re going to overlook their differences or call the whole thing off.

It’s sort of the same thing with leasehold, tenant, and build-out improvements—three terms that kind of mean the same thing. Pretty much, that is. There are subtle differences, and it’s important for landlords and tenants to understand the nuances. Because, like Ella and Louis, no one wants to call the whole thing off.

A look at the similarities between leasehold, tenant, and build-out improvements

In commercial leases, the three terms are industry-specific ways of describing the same idea: improvements and modifications to a structure in order to prepare for a new tenant.

  • “Leasehold improvements” is the accounting term.
  • “Tenant improvements” are from the world of commercial real estate.
  • “Build-out” is the term in the construction industry.

The scope of these improvements is determined by several factors, including if space was previously occupied, the age of the building, and how closely aligned the previous tenant’s business is to that of the new tenant. Modifications can include everything from lighting and plumbing systems to security and Wi-Fi to reconfiguring the space inside and out.

A look at the differences

The differences between the terms become more apparent when examining which party—landlord or tenant or both—is overseeing the work and who will be paying for the improvements. For both parties, this is a critical part of the lease negotiation process and the secret is in the details.

To assist both parties, there are several standard tools at their disposal.

  • Tenant Improvement Allowance (TIA): In this lease concession, the landlord will provide a specific amount of money to be used as an allowance by the tenant to make any necessary modifications. The tenant will oversee the project.
  • Rent Discount: Very often, landlords will agree to free rent or a discounted rent, with the understanding that the tenant will apply the savings to the remodeling project. Again, the tenant oversees the project.
  • Building Standard Allowance: The landlord puts together an improvement package offering the tenant a choice of modification options, such as three paint colors for the walls. The landlord oversees the project, but the tenant is responsible for any improvements not included in the offered package.
  • Turnkey: The tenant provides the landlord with a design plan and estimated costs. The landlord agrees to pay for the improvements and oversees the work.

Preparing for the inevitable bumps in the road

Although there is a definite excitement to moving into a newly remodeled space, it’s important to not get distracted by that excitement. Problems will arise. Delays will occur. To that end, it’s critical that both parties fully understand the tenant improvement project, the costs, and the penalties if either party is unable to fulfill its obligation.

One of the easiest preventative measures is to attach a detailed improvement plan to the lease, including a description of building-standard materials and finishes. At the same time, there must also be a timeline for not only the progression of the project but also a date when work is to be completed—and the consequences, should either party miss that deadline.

An option for tenants and landlords

At the end of the day, it doesn’t matter how one says “tomato.” It’s more important to work with a team that is as skilled with the subtle nuances of tenant improvement provisions as it is with the details that are designed to protect the financial assets and business goals of landlords and tenants. Morris Southeast Group is that team.

To learn more about owner and tenant representation and what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

The War Of The Tenants: How Landlords Can Broker Peace

Landlord can be another word for mediator

When most landlords and developers decided to enter the CRE marketplace, they probably had lots of reasons. Perhaps it was the chance to give back to a particular community, or to reap the rewards of a strong investment, or to provide a high-quality service that others can enjoy. Hardly any of them, though, thought that CRE would be an excellent opportunity to be a mediator.

Nevertheless, that’s exactly what they’re called to be when tenants are at war with one another. As more commercial tenants seek shared spaces and as retail tenants amp up competition for a population adapting to e-commerce, tenant conflicts have expanded beyond the multi-family housing arena.

And adopting some proactive solutions not only heads off potential conflict between tenants, it also comes in handy when a landlord has to take a firm stance.

A strong lease is the number-one tool

To head off any potential conflicts between tenants, a strong lease can set the proper tone from the beginning—especially in an environment where several tenants may be sharing everything, from adjoining walls and amenities to kitchens and parking.

The lease is the landlord’s chance to spell out specific rules that address two of the top concerns residential and commercial tenants have: safety and a peaceful environment. This is a chance to define expectations for tenant behavior and consequences for making threats against or harassing other tenants, as well as violating noise restrictions.

Get the balance right

Where commercial properties are concerned, especially those that house multiple tenants, landlords often try to achieve a sense of balance. This effort, though, has become more complicated in light of a sharing economy, where everything from offices to parking spaces are being used by more than one tenant.

When looking for new commercial tenants, it’s critical to have a full understanding of their business. This includes hours of operation (so that shared parking is achievable) to demographics (so that a yoga studio with evening classes is not next to a music venue) to not filling a complex with high-use tenants (so that customers have trouble parking, which results in their avoiding the complex … which results in a loss of revenue for tenants and the owner).

Develop a resolution policy

It’s especially helpful for landlords and owners to have a procedure to follow when mediating disputes. This guarantees that all tenants and their complaints are handled equally.

  • Consider creating a welcome package for tenants. This information can include basic information about living or working in a specific property, but it’s also a chance for the landlord to again spell out the expectations of good tenant behavior. This can include suggestions on how tenants can appropriately solve a conflict with another tenant on his/her own, as well as steps to take if the matter should escalate.

  • The welcome package should include instructions on how to file a complaint against another tenant with the landlord. Forms for such a complaint document can be included, with specific instructions on how and when to contact the landlord, owner, or property manager.

  • As the person receiving the complaint, there is a tremendous responsibility to respond in a timely manner. The tenant making the complaint wants to know that his or her concerns have been heard. This can be done with a return phone call, email, or letter to assure the tenant that you will investigate and that you take lease-violating behavior seriously. Each complaint, no matter how trivial it may seem, must be taken seriously.

  • At the same time, the landlord should contact the tenant named in the dispute to inform him or her of the situation. While the source of the complaint should remain confidential, this call is the perfect time to remind the tenant that violations of the lease—the landlord’s number-one tool—are grounds for eviction. A written summary of this interaction should be sent to the tenant in question.

  • It cannot be said enough times: document everything. This includes the initial complaint—using the complaint form in the welcome package or an online format—and logs and summaries of conversations and steps taken. This protects the landlord should the infraction result in an eviction and/or if there is future legal action as a result of this dispute.

  • Follow up with the tenant who made the complaint to ensure that the situation was resolved.

  • It may be necessary to conduct a face-to-face mediation with both parties. If this is the case, it is imperative for the landlord to remain professional and impartial. Both parties should air their grievances, and the landlord can rephrase these to help the parties understand that their concerns have been heard. The landlord can then produce documentation, such as the signed lease (there’s that number-one tool again) with the specific expectations for a safe and peaceful environment and the consequences for violating those expectations.

Being a commercial or residential landlord involves the art of mediation

Whether you’re a tenant or a landlord, being part of a dispute—either as a complainant or a mediator—can be messy, time consuming, and complicated. Morris Southeast Group’s property management services can assist in the mediation process. In addition, our tenant and owner representation skill set can help match your vision with the right property to prevent potential conflicts. To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com


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