What should my Cap Rate be on my commercial space?

During our recent class on Property Management I was asked about Capitalization Rates for property in Long Island. A great website to get this type of information and other commercial real estate statistics is ReisReports. Click here to visit their site.

Organizations and Clubs for Long Island Commercial Real Estate

I am often asked how someone can get into commercial real estate. My general response is that a first step is to read literature on financial statements so that you can understand the money driver behind the industry. I suggest watching talks from leading developers, which can be found at i Tunes U. Its also important to read a form lease and to look up all of the terms so that you can gain a basic understanding of the language of the industry. Yet, what can be done that takes less self-discipline to get someone motivated, kind of a jump start?

I suggest joining one of these five (5) regional organizations to meet, network and discuss your passions and you can see if commercial real estate is really right for you.

Website	Name	Topic
www.lireia.com	Long Island Real Estate Investment Association	Real estate investment club for brokers
www.lireg.org	Long Island Real Estate Group	Provides the real estate industry and allied trades a platform for real estate-related charitable giving and networking
www.licommercialnetwork.org	Long Island Commercial Network	Commercial Division of the Long Island Board of Realtors
www.cibs-li.org	Commercial Industrial Brokers Society of Long Island	Where Nassau and Suffolk commercial dealmakers meet and build relationships
www.bomali.org	Building Owners’ and Managers’ Association	The leading advocacy group for the commercial real estate industry

Go to the website, look up when a meeting is happening, drive to the meeting, introduce yourself around the room and you are half way there. You will gain mentors and friends that can help you along the way.

Also, keep your eyes open for this year's Long Island Commercial Real Estate Convention and come experience the leading service providers to the industry and take a seminar or two to sharpen your skills.

Eminent Domain & Foreclosure: States take a look, our Federal Government has a position on this

A few posts back we discussed the technique of government utilizing its Eminent Domain power to force mortgage restructuring by taking mortgages at their current fair market value (not face value) and thrn having investors push money into government in order to modify the terms of the borrower's payments.

Thereafter, the Real Property Committee to the Suffolk Bar Association discussed this topic at our monthly meeting and addressed the issue of if Eminent Domain could force the taking at the depressed value or if instead, the taking should be had at the pre-depressed value as Eminent Domain takings had occurred during the Great Depression - our most similar reference in case law. To be clear, there are Eminent Domain cases that dispute the value at which property should be taken during a depressed market and it is unclear if, in NY, Eminent Domain could even be utilized to take mortgages at their current market value instead of their pre-depressed value.

Well our Congress now has a bill, HR 5397, Defending American Taxpayers from Abusive Government Taking Act of 2012, which basically prohibits Federal Agencies from partaking in such restructuring through Eminent Domain. So even if local government did utilize Eminent Domain, if this bill passes, many many mortgages would be off limits.

Your author doubts the bill will pass because there has been so much push back on the use of Eminent Domain in the first place throughout our Country, the issue of valuation in the second place within NY and other States, and the history of not much really getting done in Congress these days.

Regardless, to view & track the bill, as it is intellectually interesting, click here.

Consumer Financial Protection Bureau seeks to amend both Regulation X of RESPA & Regulation Z of the Truth in Lending Act

Following up on previous blog posts about Regulation X & RESPA our latest chapter brings you a proposal by the CFPB to add new mortgage servicing rules. To be clear, servicing refers to the business of managing the billing, accounts & management of a note and mortgage.

Here are the proposed rules:

• Monthly mortgage statements
  Servicers would be required to provide clear billing statements including information on the loan, amount due, and application of past payments.
• Warnings before interest rate adjustments
  Servicers would be required to provide consumers with a new notice 6 to 7 months before the first rate adjustment, as well as earlier and improved notices before rate adjustments causing an increase in a consumer’s mortgage payments.
• Force-placed insurance
  Servicers can only charge borrowers for buying insurance on the property when they have a reasonable basis to believe that the borrowers have let their own insurance lapse and have given borrowers two notices estimating the cost of the “force-placed insurance.”
• Early outreach for delinquent borrowers
  Getting a delinquent borrower back on track requires early intervention and information about options available.
• Prompt crediting of payments
  Payments must be applied as of the day they are received, and the handling of partial payments is clarified.
• Accurate information management
  Servicers must have reasonable policies to ensure that when borrowers provide documents and information the servicers can find and use them.
• Error resolution and information requests
  Mistakes happen, but they need to get fixed. Servicers must address borrower concerns about possible errors within certain timeframes and provide the information they request.
• Direct and ongoing access to servicer personnel
  Delinquent borrowers will be able to contact the right people at their servicer to get information and take steps to avoid foreclosure.
• Evaluation for alternatives to foreclosure
  Servicers would be required to appropriately review borrower applications for loan modifications or other options to avoid foreclosure.

Make your voice heard - Comment by October 9:
For Regulation Z, click here
For Regulation X, click here

Brokerage Fee Disputes DON'T Belong in the Commercial Division

In New York State Courts there are distinct Judges that sit to hear commercial cases. These Judges seek to better serve the needs of the business community and our State's economy. To accomplish this goal, there are distinct rules (202.70) in place to provide for earlier assignment of cases and uniform and more thorough procedures for expert discovery. To learn more about the purpose of the commercial division, read the Chief Judge's Task Force report by clicking here. 

Yet, Real Estate Agents are Professionals, not business people. They are licensed by the Department of State and have certain ethical requirements to maintain their status as a professional. These professionals consist of Brokers and Salespersons. As a result, when these professionals aren't paid and they bring suit to collect their professional fees, they should not sue in the commercial division. 

Here is why. Rule 202.70(c) of the Uniform Civil Rules for the Supreme Court & the County Court states that "Non-commercial cases The following will not be heard int he Commercial Division even if the monetary threshold is met: "(1) Suits to collect professional fees". Therefore, real estate brokerage fee disputes are relegated to a non-commercial part where the litigation is typically over a longer duration, without as precise rules and the parties are not pushed as eagerly to settlement. It seems being a professional is distinct from being a business person and our job as professionals is to uphold the nobility of the profession beyond merely making a profit. The Court System's Rules echo this fact and we should take these rules into our assessments of collectibility of our fees when clients refuse to pay. 

Being a professional changes things. 

Foreclosure and the Economy - Some helpful links

Yesterday, we had a wonderful group of real estate agents attend our continuing education course, Foreclosure and the Economy.

During the class, we warned real estate agents not to negotiate with lenders directly unless they comply with the rules for Mortgage Assistance Relief Services and Distressed Property Consultant Contracts.

Here are some helpful links to comply:

Mortgage Assistance Relief Services: http://www.ftc.gov/os/fedreg/2010/december/R911003mars.pdf
Distressed Property Consultants:  http://codes.lp.findlaw.com/nycode/RPP/8/265-b