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Annapolis Real Estate and Business Litigation Law Blog

CRE market set for downslope

According to a forecast made by a UCLA economist in July 2016, the bull market that has characterized commercial real estate in Maryland and around the country for almost a decade is coming to an end. Although market segments like multifamily housing have grown since 2011, experts say that fewer tenants are willing to pay high monthly rental rates.

Consumer habits were cited as important factors in the CRE market. Around 20 percent of all department store mall anchors are predicted to close over the next few years. This is contrary to the fact that retail sales have been on the upswing overall, but analysts point to the idea that consumers are beginning to favor online shopping. This same trend may lead to improvements in the industrial CRE market as retailers transition to operating models that rely on warehouse spaces.

The pros and cons to consider before taking your company public

Business is good, but it could definitely be much better. You have some great ideas. The problem is that putting anything major into actions costs a lot of money. You've done the math, and you know that your best bet is getting some outside investors. Now you have a big decision to make. Should you ke the company public or stick to private investors? There are many rationalizations for either choice, so you will want to consider carefully. This is an overview of the pros and cons of going public.

Pros:

More money

A successful IPO will generate more revenue for your company than any other option. You can implement your long-term plans, and you may even do well enough for some business acquisitions that open entire worlds to your potential. There's no other way to put it. Going public has the highest potential to increase your liquid assets.

Finding alternative financing for commercial real estate

Many commercial real estate developers own strip malls or multi-family properties in Maryland that are secured by loans. As a large number of these types of loans are scheduled to mature in 2017, some borrowers will be left scrambling for refinancing.

According to Morgan Stanley, people holding these types of loans may find it difficult to secure financing in order to refinance them when they mature. The problem is that these types of property are ineligible for government-sponsored enterprise financing. This has left many investors to depend on smaller banks in order to secure the funding they need.

Finding ways to work with zoning laws

Maryland municipalities each have their own particular zoning laws and regulations. These rules govern what kind of enterprise may operate in any given area of the town and they are meant to prevent commercial and industrial activities from conflicting with each other or with residential use.

However, neighborhoods evolve rapidly and the zoning regulations set down by the city councils of the past may not be sufficient to today's needs. It may be a good idea to build a new commercial enterprise in an area that had previously been designated residential, or it may happen that a business springs out of a property in a different type of zone and grows to the point where it could conflict with the rules.

Commercial lease negotiations

Maryland business owners are in most cases able to negotiate the terms of any commercial leases for the locations that they are considering. Negotiating the terms of commercial leases is a common practice and is expected by most landlords. It is especially likely that a business owner will be able to secure concessions from a prospective landlord at times when the real estate market is slower.

One area that is ripe for possible negotiation is the monthly rental amount that will be charged. The landlord may be less willing to negotiate on the inclusion or exclusion of other costs.

How Brexit may affect commercial real estate markets

The Maryland commercial real estate market might be affected by the June decision of the United Kingdom to leave the European Union, but analysts say it is too soon to say for certain what will happen. In the U.K., the market is likely to remain uncertain for some time. London has been popular with investors from the Middle East, but they might shift their focus to the United States if it looks as though the U.K. will be less profitable.

The U.S. is already popular with foreign investors. They contributed $16.3 billion to the multifamily sector in 2015. One observer says the decision to leave will have a much greater influence in the U.K. and Europe than in the U.S.

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.