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Fall 2009
Leveraging a Sale: Case Study
In a depressed real estate market, sellers must be willing to offer
inducements to buyers that in “normal” markets would not be contemplated.
Such inducements can be viewed as “leverage” in the broadest meaning of that
term, i.e., giving something extra to the buyer just as financial leverage
in the form of borrowed funds gives the buyer a higher return than in an
all-cash deal. The following shows how a "leveraged sales contract" can
provide both buyer and seller exactly what they are looking for and allow
the transaction to proceed.
Read more...
Negotiating a Space Reduction
A tenant with excess
space due to weak business conditions and with a lease having years to run
may be under pressure to reduce rent payments. Had the tenant been able to
obtain a space reduction provision in the lease, it could have provided a
solution. Even without this, several alternatives may make a downsizing
possible. Four alternatives are (1) lengthening the lease term; (2) buying
out the remaining lease term; (3) restructuring the lease; and (4)
subleasing the unneeded portion of the space.
Read more...
Co-Tenancy Provisions
The current retail recession is causing retailers in shopping centers and
shopping malls to take a close look at their leases to discover if they have
co-tenancy provisions permitting them to reduce their rent or even cancel
their leases if the anchor tenant that generates traffic for the facility
closes its doors. One approach reduces the small-store tenant’s minimum rent
by a designated percentage until a new anchor begins business. As an
alternative, the tenant’s rent might be a percentage of sales without regard
to any minimum.
Read more...
Unused Property Sales
The U.S. Tax Court ruled that when a couple purchased several parcels of
land to build a home and then sold the excess parcels, the realized profit
was capital gain rather than ordinary income because the land was not held
primarily for sale to customers in the ordinary course of business. Bruce
and Donna Rice bought 14.4 acres of undeveloped property near a preserve.
The property was for sale as a unit and could not be subdivided. While they
initially planned to keep the entire property, they eventually decided to
sell the excess land. Other than sales of their own homes, the Rices had
never engaged in the sale of real estate.
Read more...
Words Speak Louder than Actions
While actions may speak louder than words in many circumstances, it is not
so when it comes to changing the terms of a written contract, ruled a New
York appellate court in the case of Regal Realty Services, LLC v. 2590
Frisby LLC, 2009 WL 1324121 (NYAD 1st Dep’t). 2590 Frisby LLC entered into a
contract in 2007 to sell real property to Regal Realty Services LLC for a
price of $3.050million, with a down payment of $152,500 to be held in escrow
by Frisby’s attorney. The contract required Regal to obtain a written
mortgage commitment in the amount of $2,182,500. If Regal was unable to
obtain the mortgage, each party at that time had the option to cancel the
contract by written notice to the other. In that event, the down payment
would be refunded. The contract also provided that its terms could be
changed only by written agreement.
Read more...
Tighter Loan Structures
Banks and other financial institutions are facing challenging times as
borrowers are unable to meet mortgage payments, or in the case of balloon
loans reaching maturity, are unable to refinance. In many cases, lenders will
have no choice but to re-negotiate loan terms. In doing so, they are likely
to insist on structural elements and remedies that were not considered
necessary in the boom years just past. Some of these are described herein.
Read more...
Somerset Real Estate Team News
ICBR Conference - Our Real Estate Team will be exhibiting at the Indiana
Commercial Board of Realtors Conference on Friday, November 6. Please stop
by to see us. More information about the conference is on
ICBR's web site.
Michael Fritton Quoted in
IBJ - In the September 21 issue of the
Indianapolis Business Journal,
Michael Fritton was interviewed for comment on the Indianapolis
commercial real estate market for the article, "Developer Broadbent sues
banks after they tighten credit line."
 Tell
Us How We Are Doing and You May Win Pacers Tickets
- If you are a Somerset client,
please take our survey concerning the services we have provided to you by
October 15, and you will be entered into our drawing for a pair of tickets
to the Pacers vs. Miami on Friday, October 30.
Take
survey now.
 Somerset
Practical MBA Program - Our monthly Practical MBA Program is a 2-hour
live presentation that includes a webinar simulcast so
those of you outside the Indianapolis area can participate. Upcoming topics
include "Customer Lifetime Value & Testimonials and Referrals" presented by
Larry Dykes on September 30 and "Four Ways to Grow Your Business" presented by
Michael Fritton on October 28. Please
go online
to see the complete schedule and to register.
 Financial
Literacy for Women Programs - Our Financial Literacy for Women seminar
series is currently underway. On October 1,
Cynthia Bay of our Real Estate Team and
Cathy
Weaver of our Health Care Team will present "Cash Flow and Budgeting for
Women." There are several other topics scheduled in the coming weeks. Please
go online for the full series schedule.
More News - Somerset publishes a variety of newsletters in addition to Real
Estate Focus--such as Wherewithal, Work-In-Process, Tax Times,
Financial Reporting News
and several others. Please
visit the Newsletters page of our web site to read the archives and sign
up to have new issues delivered to your email inbox.
 Real Estate Focus is
provided by Somerset’s
Real Estate
Team for our clients and other interested persons upon request.
For additional information on the issues discussed, please contact
Michael Fritton, CPA. Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
These articles were written by and
published herein with the permission from professionals of BDO Seidman, LLP.
Somerset is a member of the BDO Seidman Alliance, a nationwide association
of independently owned accounting and consulting firms.
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