Texas Real Estate Blog

Now Boarding-Airport Retail

July 7, 2011
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Obviously, with the real estate market in such great shape, real estate professionals have had to break out of their comfort zone and seek non-traditional sources of revenue. Since it’s summer time and many of you will be travelling on vacation, I thought I would share with you the nuances of leasing in the airport space. Most of the basics of down and dirty leasing are essentially the same as other areas but, of course, there are some aspects of the process that you need to be aware of when attempting to lease, or represent a tenant in leasing, an airport space. Personally, once I have parked, I enjoy the airport atmosphere. The buzz and constant activity actually can make you believe that we are in the middle of a vibrant economy. Plus, the retail areas of the major airports around the country have stepped up in class and quality considerably over the years. As such, I have to believe that there is ample opportunity to make a buck in this area. Attached is an article that takes you through the process and nuances of leasing retail in airports.SP-#3473498-v1-Retail_Leasing_at_Airports Even if you have absolutely no interest in this area you sure as heck can impress your family during one of your layovers of your vast knowledge of the process of how that airport Whataburger came to be!

All of you know by now, if you read my posts here or on LinkedIn, that I am a big fan of Dave Barry, a really funny columnist for the Miami Herald. I think he is bright and to the point on most subjects. However, in 2006, he wrote a piece on the upcoming NBA Championship matchup between Dallas and Miamihttp://www.miamiherald.com/2006/06/08/2275478/miami-wins-now-we-can-go-shopping.html. Frankly, I was really disappointed in his description/depiction of my beloved hometown of Dallas. As such, as one final jab at our friends in Miami and, in particular, Mr. Barry, I offer the following rebuttal to his column (you have to read it first or you will think I am just being a smart a—!) First, while Dave doesn’t  even know or care that Dallas is located in beautiful North Texas, that’s ok, because we generally think of Miami as somewhere close to  Cuba. Second, while our owner, Mark Cuban, can be a little eccentric, he is generally very generous and gracious (cue to trophy acceptance ceremony where he took a back seat to our original owner, Don Carter)  as opposed to the “King” who debases all of the “little people” (such as Miami fans and others who but tickets and merchandise to pay his bloated salary). Third, I agree that our airport is huge. In fact, when we refer to the Miami airport we call it Terminal “B”. Finally, it is gratifying to know that , arguably, the biggest choke in NBA history in 2006 has been far surpassed by the monumental, and all time biggest NBA, choke in 2011.  Ok, I vented (and I still love Dave Barry!)

I am headed off for vacation so my next post won’t be until the week after next. I can’t wait to awe my family with my intricate knowledge of airport retail—-yeah right.


Assigning Those Rents In Texas?

June 28, 2011
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It’s that time of the year, here in Texas, when some of the sausage being made in the Texas Legislature finally ends up on the consumer’s tables. One of the links that will certainly draw some hungry eyes is the new Chapter 64 of the Texas Property Code which will significantly alter how the “assignment of rents” provision in real estate loan documents is interpreted. While this may seem trivial to most readers, you have to understand that Texas has always provided lenders with the option to have an “absolute” assignment of rents which means that upon the execution of the loan agreement , the rents secured under the agreement become the property of the lender with a “license back” to the borrower to permit the borrower to collect the rents until the borrower defaults under the loan. However, this new law brings Texas in line with the rest of the country by defining the interest in the rents (no matter what your loan agreement says) as a security interest which is enforceable only upon the default of the borrower.  The collection by the lender of the rents  is then strictly defined by the statute. This has significant impact on lenders, borrowers and tenants because it creates a whole new set of procedures and requirements of all the parties once a loan goes into default. Attached is an article prepared by my partner, Stephen Roberts, (and edited by my partner, Beth Tiggelaar) detailing the specifics of the new statute. TX-legislature-may-have-just-rewritten-your-real-estate-agreements It is a very well written summary of the statute and it’s implications on real estate loans in Texas.

And- for something scarier than this new law—a dad texting-http://damnyouautocorrect.com/9815/the-big-game/

POA Mystery Revealed

June 22, 2011
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This week I decided to share a presentation I am doing for some clients on Property Owner’s Associations (POA’s). With the advent of so many mixed use projects (residential/retail/commercial) this topic has expanded beyond the local HOA we all know and love. Frankly, there are very few projects these days that don’t have some sort of community association twist. As such, as I meander through transactions I find that my colleagues, let alone their clients, know very little about how these associations work or are structured. In fact, while they look very complex, once you know where to look for the laws that affect them and are familiar with the documents that create and operate them, you will find that they serve a very valuable purpose and are essentially easy to understand and navigate. The article I have attached takes you from soup to nuts on the purpose of a POA and the laws that govern them in conjunction with the documents that control their operation. Nuts_and_Bolts_of_Community_Organizations.D… This article provides a basic framework for those of us who work with POA’s every day and for those of you who get drafted to serve on your own HOA (Advise-NEVER miss the annual meeting of your own HOA-you will be sorry).

As far as I am concerned, summer is the time to lighten up a little bit. For those of you who have not wasted countless hours on the website www.damnyouautocorrect.com you are certainly missing out on a real treat. Here’s a tastehttp://damnyouautocorrect.com/9683/coming-out/  And here’s a hint–turn yours OFF!

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Assignments vs Subleases

June 15, 2011
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Those of you outside the DFW Metroplex are probably a little sick of hearing about the tremendous win by our Mavs last week. Sorry, but I can’t let this post go by without paying homage to a team that pulled off one of the biggest and most satisfying upsets in NBA history. I called this for the Heat in 4. I mean, come on, the Heat, on paper, is the most talented team in the NBA and, I guarantee, they will win their share of Championships, but what a testament to, and perfect example of, pure American grit (by a German no less) and determination. Congratulations to the Mavs organization and thanks for a memory we in Dallas will cherish for a long time.

Now, to business. This post is devoted to assignments and subleases. I know, another riveting exhortation on lease transactions. However,  this area has become hot with all the movement in the leasing arena. We have had many clients move from their existing space to bigger and better digs because of the fabulous rental rates in the market today. We have also had many clients trying to unload their lease space to fend off bankruptcy. So, short of giving the space back to the landlord, what are the alternatives? Answer–assign or sublease the premises. Once the hard part (finding a viable subtenant) is done, the next crucial part of the process is the actual transfer and all the legal complexities attendant thereto. Most of our clients who are not in the real estate business assume that once they assign the lease or sublet the premises to someone, they are off the hook forever. Not even close. As such, attached is a fairly detailed article which addresses the differences between the two alternatives, the strategy behind both and the ramifications thereof.SP-#3396686-v1-Lease_Assignment_and_Sublease_Agreements This too, is a good desk reference for anyone who advises clients in the leasing area.

Ok—one more tribute to our beloved Mavs. How many times have we seen a draft or a trade ultimately make a huge difference for a franchise (Does Cowboys/Vikings/Jimmy Johnson/Hershel Walker ring a bell??)http://www.businessinsider.com/sports-chart-of-the-day-mavs-title-can-be-traced-to-one-trade-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29&utm_content=Google+Reader Now, Go Rangers! Have a great week everyone.

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Partnerships, LLC’s and Other Fascinating Stuff

June 8, 2011
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You are probably wondering why I have a picture of a poor guy who is on the mound on ESPN with his fly down? Well, I will get to that later but I had to get your attention because this post, while important, is a yawner. Today, I am posting a compilation of laws and statutes pertaining to Partnerships, LLC’s and other entities. Yes, we lawyers have to actually know this stuff so I thought it might be nice to share the pain. Seriously, I can’t tell you how many times a week I get a call from a client asking me,”How quick and how much to form an LLC”? Actually it takes a matter of minutes to form an LLC; however, if the constituent documents underlying the LLC/Partnership are not done correctly the ramifications could be expensive and last for years. The most important part of the formation of an LLC or Partnership is the Operating Agreement for the LLC and the actual Agreement of Partnership. These documents will set out the basic rights, obligations and ownership interests of the respective members and partners. These are very detailed and act as the “game plan” for the venture and the pre-nup for the investors. In addition there is a ton of law that governs LLC’s and Partnerships, much of which is covered in this articlePartnerships_and_LLCs. The bottom line is that this article can serve as a great desk reference for anyone who advises others in business relationships. Frankly, with all the stellar legal advice we render for clients in this regard, the best advice/caution I always give to clients is that if the person(s) you are about to do business with are not the type of people you would do business with on just a handshake, then I would think twice (no–thrice) about the marriage.

Now to the photo-it’s actually a snippet from an article on business etiquette that I found refreshinghttp://www.businessinsider.com/how-to-tell-the-boss-his-fly-is-down-2011-6?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29&utm_content=Google+Reader You never know what people are observing about you, so its best to always maintain a “professional” demeanor. In short, manners matter.

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Off to the Outlet Mall!

May 31, 2011
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I thought this week, in the spirit of Memorial Day,  I would pay homage to the outlet mall which, despite our economic crisis in the real estate world, is actually making a come back. If you think about it, it makes perfect sense as people love to shop, especially on holidays (just ask my wife and daughters) and outlet malls provide the ability for my brood to obtain designer labels at discount prices (most of the time). Nevertheless, in my world, the outlet mall development presents a number of unique challenges that a normal strip center does not. As such the attached article SP-#3396871-v1-Issues_In_Outlet_Centers addresses  a number of issues that affect outlet centers.  Hopefully, this type of development will lead the way in the resurrection of retail.

Speaking of shopping–have you ever wondered what the logos of various brands of automobiles actually mean? Frankly, never gave it much thought until I read this article http://www.businessinsider.com/car-logos-2011-5#the-aston-martin-logo-was-designed-to-suggest-speed-11. Very cool historical reflection on where these logos that we have come to know, love and buy. Have a great week everyone!

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CAM Caps Anyone?

May 23, 2011
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This week I am posting about “Common Area Expenses” which is  a topic which is often intentionally over looked in both retail and office leases. If you are well versed on this topic then this post will be perfect bed time reading. If, however, you routinely skip over this issue, get ready for some sleepless nights. I find that this section of the lease is often ignored because either the parties assume it is standard language or they won’t admit they just don’t understand it. Regardless, the failure to drill down into this paragraph can cost both the landlord and tenant some serious angst. I have attached an excellent article prepared by two of my colleagues, Margaret Jordan (Kane-Russell/Dallas) and Robinson Plowden (Sutherland-Asbill/Atlanta), that should serve as the go to desk reference on this issue.SP-#3389981-v1-CAM_Costs__Caps__Audits_and_New_Ideas This article details the costs and expenses typically allocated among the landlord and tenant in a lease for Common Area and related expenses. It uses retail as an example but the concepts equally apply for office and other areas. Obviously, the failure of a tenant to recognize the CAM expenses which are reasonably payable increases its CAM expense inordinately. Conversely, the failure of the landlord to include expenses normally payable by a tenant eats into its IRR. As such, it behooves the parties to a lease to pay attention as a mistake in this area is a costly one.

Now, speaking of the unfair payment of expenses–On this day in 1895 our beloved Supreme Court issued one of its all- time best rulings by deciding that Congress had clearly exceeded its authority in imposing an onerous and counter-productive law commonly known as “the graduated income tax”. In fact, it was denounced by Senator John Sherman of Ohio as …”a symbol of socialism, communism and even devilism”. Since the law was new and controversial, the party in power in the Congress decided it was best to sneak it in…er…to pass it as part of the “Wisconsin-Gorman Tariff Act”. But when they started to collect the tax, it was a secret no more. The Court thought the concept of a graduated income tax was not worthy of discussion on its merits so they struck it down on procedural grounds. Unfortunately, that allowed later and lesser Regulators, Legislators and even Jurists to change procedures and charge taxpayers. Oh the agony…..

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Exhibit “C” Says What?

May 17, 2011
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Yes, I have heard this lament many times by unsuspecting contractors who agree to perform tenant improvements but fail to coordinate the terms of their construction agreement with the work letter. Oh, and yes, I have heard the same lament from landlords and tenants who failed to consult with the contractor before they signed the lease. As you can imagine, it raises some real interesting issues and conflicts; hence, my children are fed for yet another day. This is just one example of why I continually preach  about the complexity of all real estate transactions let alone those involving construction. In this scenario, either the landlord or the tenant has simply agreed,under the terms of the “work letter” (attached as a long forgotten addendum to the lease)  to take on the construction of the tenant’s leasehold improvements. Simple, right? Well, the problem is that neither the landlord or the tenant is going to perform the actual work. The party agreeing to perform the task is going to hire someone (the contractor) who actually knows how to construct something. Ergo, it makes perfect sense to let the contractor in on just what work , and under what terms and conditions, it is going to perform. Simple things like time of performance, price, scope, change orders and the like, are things the contractor may want to know about. You would be surprised how often we have to try and revise the work letter post execution of the lease. Depending on who has the leverage in the transaction makes for a lively discussion! So, this articleSP-#3396770-v1-COORDINATING_WORK_LETTERS_WITH_CONTRACTOR–… deals with the key provisions that landlords, tenants and contractors must address in the context of  tenant improvements. It gives a retail scenario as an example but it applies to every lease that has a work letter. Oh, did I mention that these mistakes are expensive?

Speaking of expensive–on this date in 1918, the US Postal Service issued it’s first “airmail stamps”. They came in 6,16 and 24 cent denominations. On the second day of the sale, a man by the name of Bill Robey bought a 100 sheet of the 24 cent variety and noticed, as he headed for the door, that the Biplane-Curtiss Jenny that was on each stamp was printed upside down. Robey knew he had a hot item and assumed hundreds of similar sheets would be shortly running off the presses. (In fact, the USPS caught the mistake and destroyed the faulty ones leaving Robey with the only sheet). He quickly sold his sheet to a stamp collector for $15,000 who had already pre-sold it to another stamp collector for $20,000. About 60 years later, one single stamp sold for $198,000 which would make Robey’s sheet worth $19.8 million. Even more interesting, when airmail service actually started, the inaugural flight featured a Curtiss Jenny Biplane with the same markings as the stamp. Shortly after take-off it crashed—-upside down.  Coincidence–I think not!

Building Something?

May 10, 2011
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Clearly one of the most complicated documents in the area of real estate law is the construction contract. Besides the very nature of the transaction, namely, building something, it incorporates numerous terms and conditions which are generic to the construction industry as well as touching upon or incorporating certain other contracts and construction disciplines (architecture, engineering etc..) As such, there are very few disasters more complicated than the situation where, for a myriad of reasons, a construction project is abandoned. The procedures and processes that must be implimented upon the abandonment of a project are far beyond this scope of this blog edition. In fact, I could blog every day for a solid month and probably not cover every scenario. So, instead, I will focus on some of the terms and conditions an owner should address in every construction contract with a view to the remote possibility it were to go bad. This article outlines those terms and conditionsSP-#3396789-v1-The_Incomplete_or_Abandoned_Construction_Pr…  On the one hand, an owner must recognize that the usual forms presented to the owner by the contractor, architect and engineer are typically standard format contracts developed over the years and distributed to the disciplines for use by their respective professional organizations. Ergo, the forms tend to favor the contractor, architect, engineer etc..(surprise-surprise). Nevertheless, all in all, these are good forms. They just need to be modified to give some latitude and control to the owner and be coordinated so they don’t have conflicting provisions.  However, at a minimum the owner should insist on some of the suggestions set forth in the article to be assured of protection in the event the project falls apart.

Speaking of a failed construction project—on or about this date many moons ago there was a man who was so adept at story telling that people came from miles around to hear his marvelous tales and buy his work. So, this man decided to kick it up a notch and develop a theme park. He solicited money from friends and decided to buy up some property in Hollywood. Now, as we all know, the theme park was a huge success–at least it was when Walt Disney did it several years later. But this was not Disneyland and it flopped. This financial fiasco was the brainchild of L. Frank Baum who created the Wonderful Wizard of Oz. Now, even more weird, this financial fiasco may have led to one of the great odd coincidences in movie making. When the filming of the Wizard began in the late 1930’s the costume folks could not find the right design for the shabby coat worn by Professor Marvel when he and his horse Sylvester are visited by Dorothy. Then, one of the costume crew found just the right coat in a secondhand clothing store in LA.  One day while filming, the actor, Frank Morgan, noticed a label on the inside of the coat. It said “Baum”. Could it be? Yes, it was, the old coat was originally owned by L. Frank Baum. The Wizard would have like that!

Leasing To A Franchise?

May 2, 2011

Clearly, franchises (especially nationally recognized ones) can be a huge asset to any development due to their ability to generate traffic, visibility and, hopefully, juicy percentage rents. However, if you have ever had the opportunity to work on a lease or development agreement with a franchisee or franchisor of a national powerhouse, you quickly realize that there are numerous issues (other than leverage) which are unique to this type of business and, if addressed correctly, will prove to be a benefit to both the landlord and tenant over the long haul. I think the most complex issue I ever addressed  was the unfortunate demise of the franchisee. This gets really ugly especially when the franchise is a good one with a stellar reputation but failed primarily due to the incompetency of the franchisee. The last thing the franchisor wants is a very visible and public closing which could be a publicity nightmare. I represented the developer in that case and fortunately I was lucky enough to have astute parties involved so, while it took some time to get a new franchisee on board, both the developer and the franchisor absorbed some of the costs to resolve the matter. They both took a long-term approach to the viability of the project and it worked out well. This is not always the case, so both parties need to address, at the outset, as many contingencies as possible to assure a favorable outcome. This articleSP-#3389981-v1-Leasing_to_Franchisees discusses several issues of importance to franchisees, franchisors and landlords. Surprisingly, it’s a short list, but an important one.

Speaking of franchisees—Normally a franchisee is an entrepreneur recently AWOL from the corporate rat race to seek his/her fortune in the “easy money” of the franchise world.  However, those of us who swim with this energetic and creative crowd, know all too well of the many pitfalls which often trap the unwary small business owner. As such, I share this great piece which I found this morning while scanning the news wires for all of the fantastic dirt on slime ball Bin Laden’s demise http://www.businessinsider.com/five-legal-traps-every-entrepreneur-should-avoid-2011-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29&utm_content=Google+Reader This is just a few of the many, many issues that must be resolved by a founder of a business, but I love the practical, common sense approach.

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    Steve Watten

    Real Estate News& Views

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