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Annapolis Real Estate and Business Litigation Law Blog

Retail vacancies remain high despite growing economy

While commercial real estate values in Maryland and around the country have largely recovered the losses inflicted by the 2008 financial crisis and ensuing recession, retail vacancy rates across the country remain worryingly high at about 16 percent. A growing economy and plummeting unemployment figures have fueled rabid demand for office and manufacturing space, but boarded-up retail stores are a common sight in many of the nation's 50,000 or so shopping malls.

Experts in the commercial real estate sector feel that this excess of capacity has been largely caused by the increasing popularity of online shopping. Consumer spending is driving the current economic recovery, but an increasingly large percentage of this spending is being done on the Internet. Shopping online allows consumers to forego clogged parking lots and long checkout lines and buy the items they want with just a few mouse clicks, and a failure to compete with this level of convenience has led once dominant retail institutions like Blockbuster Video and Borders Books to close their doors for good.

Expected growth pushing commercial property demands

While many of sectors that enjoyed post-recession gains have slowed in growth, an area that has lagged may soon be picking up steam. According to the CEO of a leading commercial real estate broker, the office space sector is now showing signs of full recovery and signals point to growth for investors. The growth in demand for office space is expected to lead commercial property gains. The CEO clarifies why this segment is late to the game and the reasons for investors to expect future growth.

Part of the problem with late gains is related to the terms by which businesses contract space in office buildings. Long-term leases continued during the recession despite the fact that companies no longer needed the space due to shrinking their work forces. As businesses began growing their employee rosters after the recession, they naturally utilized the space that had already been leased instead of taking on new obligations.

New office sharing trends may change commercial real estate

An increasing number of companies in Maryland and other states are moving away from traditional office occupancy. Instead, these firms seek to save money and create more flexible working environments by co-working, or sharing rental space with other businesses. Observers say factors like the lower cost of co-working and the informal nature of such arrangements are driving the trend's popularity, and it could also affect investors and develpers.

Co-working can potentially minimize the amount of space each employee needs. Although the square-foot costs are typically higher, the fact that companies can cycle employees in and out of the same slimmed-down office areas may mitigate the price difference.

How to protect your business with a buy-sell agreement

If you are not the sole owner of your business, then there are events that could threaten your future. Many of life's twists and turns could leave you without one of your partners for any number of reasons, a buy-sell agreement is a way to make sure you and your company are protected from the consequences of fallout.

What is a buy-sell agreement?

Also called buyout agreements, these plans are very similar to premarital agreements. In general, they set the conditions and arrangements that will be used for one partner or shareholder to buy out another under certain conditions. These conditions can be as diverse as the business itself, but the most common reasons are tied to a party leaving the business through retirement or death. A general rule is that any business that has more than one owner should include a buyout agreement. On the other end of the spectrum, publicly owned companies are subject to different regulations and would not use this type of contract. Therefore, if you understand what the agreement is, the next step is to understand what it should include and how it works.

Several strategies of real estate investment

As many Maryland entrepreneurs know, there are several benefits to investing in real estate and different ways property can be purchased. Real estate investors achieve success by employing various strategies in the process, including obtaining financing.

One strategy real estate investors use to buy property is through wholesaling investor purchase-to-sale. As a short term funding option, this strategy is much like flipping houses in that the real estate investor buys the property, pays for the closing and then, on the day of closing, pays the loan off. Then, the investor will assign the contract to another buyer or investor who will then be responsible for paying off the debt.

Understanding the basics of a business divorce

If you thought starting a business was difficult, try ending one. There are a many reasons a business partnership might end and just as many ways to do it, but before you close the doors for good, there are some important proceedings you need to understand to avoid unintentional fraud, tax evasion or other tricky legal situations. In general, any time a business partnership ends, or divorces, it can be grouped into one of two categories: real or technical termination. Once you see which fits your circumstances, you can make an appropriate plan and move on to the next phase of your life.

Real termination

In a real termination, no aspect of the business will remain. Every branch of the business will completely close and not simply change ownership. In order to completely dissolve a partnership, a handful of steps need to be taken:

Millennials prefer city life to suburban sprawl

Commercial and residential real estate prices in Maryland and around the country tend to reflect societal trends. Suburban areas were quite popular in the 1950s and 1960s as couples sought a quieter life and more space to raise their children, but urban centers have been becoming more popular in recent years among Millennials who enjoy the entertainment options and cultural amenities offered by big cities. Residential real estate prices in urban centers are now outpacing suburban values according to the real estate company Zillow.

This trend has led to a shift in commercial real estate development away from suburban strip malls and office parks and toward mixed use developments in city centers. However, developers should be aware that the character of a neighborhood can have a significant impact on the type of commercial tenants that it will attract. While big box retailers may thrive in suburban areas, stores and restaurants in bohemian neighborhoods tend to be more eclectic and cosmopolitan.

Maryland and distressed home sales

In February, Maryland posted the largest percentage of distressed home sales of any state in the country at 19.9 percent, with the Baltimore-Columbia-Towson metropolitan area also posting the largest at 19.8 percent. Distressed sales include short sales and real-estate owned properties. Nationwide, distressed sales accounted for 11.1 percent of all homes that were sold.

The peak for distressed home sales in the United States was in Janaury 2009 when they comprised nearly 33 percent of all home sales. According to Core Logic, the company that issued the report detailing February 2016 transactions, distressed sales help to clear the market of housing stock. Since the prices are at a large discount for distressed or foreclosed properties, however, the reduced prices can pull down the prices of all homes on the market, including those that are not distressed.

Maryland commercial property values may be stagnant

According to the Green Street Commercial Property Price Index, U.S. commercial property appreciation remained unchanged in April and, the advisory firm said that values have ground to a halt. This is after many years of property appreciation that reached almost double digits annually. However, property values are still 7 percent higher than they were at the same time last year and 23 percent higher than they were in August 2007.

In a statement from Green Street, it was noted that "grade B" properties were probably worth less than they were at the start of 2016. However, the firm said that properties in quality locations were probably holding their values. The Sony Building and a building on Fifth Avenue were sold for $1.3 billion and $525 million respectively, which is seen as good news for landlords of so-called trophy properties located in Manhattan.

How to determine if starting a franchise is right for you

For those who are interested in opening a business involving minimum risk, entering into a franchise agreement may be an option worth considering. However, a franchise includes a process many consider complex due to the legal considerations. It is important to remember that opening a franchise doesn't guarantee that your business will be a success, and there is still some degree of risk involved. When making your decision, it's important to consider the possible pros and cons of starting a franchise in order to determine if it's the right venture for you.

You must do your market research

As with any business, a franchise is susceptible to how the market changes, fluctuates and reacts. Your market research must include knowing where other franchise business owners are located, knowing your area's demographic, having a firm grasp of economic trends and understanding why market fluctuations occur. As your business grows, your market research will continue to evolve and be on-going. So, be prepared to continue these efforts moving forward. Your research should not be a "one and done" undertaking.