Prepare for Q4 in the Summer

by Buchalter

Commercial Property Executive, July 16, 2014

Typically, there is a lull in commercial real estate transactions during Q3, with summer vacations and other factors creating distractions.  Nevertheless, given the likelihood that commercial real estate will experience a strong Q4, it is a good time to look at one’s portfolio and “clean things up” in advance of dispositions and financings, which will all begin in September.

What are some obvious tasks and projects that RE professionals should consider?

(i) Review all leases to confirm that fully executed copies of all deal documents have been received, and are available digitally.  You would be surprised how many times I find that the files are missing Lease Amendment No 2. when the lease has been amended 4 times, or that the copy of Lease Amendment No. 3 in the file is only signed by the tenant.  No reason to chase that when it is an emergency.  Have the asset management staff focus on this during July and August.

(ii) Review tenant delinquencies.  Are there delinquencies that are more than 90 days outstanding?  Are there maintenance and repair issues at properties that need to be addressed – are these tenant responsibilities or deferred maintenance that ownership is responsible to perform?   Develop a plan to address these.  Focus on tenants that you perceive to be experiencing financial issues.  Be proactive before Q4 in approaching tenants to address late payments, breaches of use provisions (excess utility usage, for example), and failure to maintain and repair.  If the property where these issue arise is being positioned for disposition in Q4, now is the time to “clean it up” with appropriate documentation.

(iii) Review vendor agreements for compliance with insurance and scope of services.  These often go unmonitored for too long.

(iv) Have building engineering review fire life safety protocols, and have property management review compliance with law matters – are there any open notices of violation, any known conditions of non-compliance that may affect a disposition.  Focus on common areas and path of travel for ADA compliance.

(v) Focus on adoption of energy conservation measures (water and electricity), and how this is impacting operating expenses.   There are many firms and consultants that can assist in some form of audit.   The real estate industry, because of the bell curve of its consumption, is a target for regulators in the area of energy consumption.

(vi) If the property is in the queue for disposition, have a title company pull a title report.  Are there liens for any unpaid taxes, any old mechanics’ lien filings, other matters that need to be addressed and “cleaned up.”

If some of the foregoing tasks are not applicable to your portfolio, think of one or two that are (riser management, access control, standard-form agreements).  From my perch as a real estate lawyer, I am seeing the pipeline being strong, and while this is good, focusing on asset management at this time of year will reap benefits in Q4.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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