For Jon Blumenthal, it’s all about the fundamentals.
Blumenthal, partner in the real estate section at Omaha-based law firm Baird Holm, said that his commercial real estate clients are ready today to close more deals. This isn’t surprising; the national economy, though still sluggish, has been steadily improving. So has the commercial real estate market. This means more sales, leases and new developments.
It also means that commercial real estate developers, buyers and sellers need to be careful: In the rush to close these new deals, the temptation is to get sloppy. And that will only lead to future problems.
“We are working with our clients to help them get back to the fundamentals when doing deals,” Blumenthal said. “We want to make sure that they do their proper due diligence before closing a deal. We want to make sure they do it right.”
Pitfalls
As developers take on more deals, the legal challenges they face are, in many cases, multiplying. In addition to focusing their clients on the fundamentals, the real estate attorneys at Baird Holm, for instance, are also frequently negotiating the tug-of-wars that are now breaking out among buyers and sellers.
As Blumenthal says, buyers today want a longer free-look period at real estate before they commit significant money to a purchase. Sellers, of course, prefer certainty. They want as much earnest money upfront as they can get. They want buyers committed as soon as possible.
This often results in tension between buyers and sellers, Blumenthal said.
On the leasing side, owners are trying to recover as many expenses as possible when agreeing to new leases. On the flip side, tenants are trying to minimize those expenses whenever possible.
“It brings about an interesting debate,” Blumenthal said. Landlords are trying to recoup as much as possible in the way of administrative fees. Those fees are becoming industry standard, an increase in those fees is becoming industry standard. Tenants, on the other hand, want to get certainty. They want to reduce as much as possible the administrative fees they are paying for.”
Who wins in these debates? As usual, leverage is the key. And it’s up to real estate attorneys to help their clients understand whether it makes more financial sense for them to accept a deal – whether on the leasing or renting side of the equation – that they’re not entirely happy with or whether it’s a smarter move to shop around for a better lease option or tenant elsewhere.
Tenants, for instance, might want to pay fewer administrative fees. But maybe the location of a building or the amenities that come with it make the administrative fees an acceptable cost. This is especially true when it comes to lease renewals. Tenants might balk at new administrative fees, but they might also find that moving to a new location is such a hassle that the new fees start to look like a bargain.
“It always depends on the deal and the leverage,” Blumenthal said. “Like in any case, leverage is what matters. When landlords have a better alternative or tenant available, they have the leverage. The problem many tenants find themselves in is they might not want to pay newer costs with their current landlord. But they may not be able to get a better deal elsewhere. The moving expenses, relocation costs and aggravation of moving often result in more leverage for the owners.”
