As if losing a major tenant at an investment property weren’t bad enough, investors need to be aware that when a building becomes vacant there could be added risks written into the property’s insurance policies. Vandalism, “malicious mischief” and other damages are just some of the exclusions of certain insurance policies.
By Tez Warmey | July 13th, 2021
If the past year has taught us anything, it’s that in the blink of an eye, lessors can unexpectedly lose even a top producing retail tenant. When a business declares bankruptcy, the business is removed from the property and the building may sit vacant for a long time. While business owners have to deal with huge losses in their revenue, property owners face a loss in their own revenue plus the stress that can arise from insurance coverage exclusions for their vacant buildings.
With all insurance companies, there are policy exclusions which are carefully noted on the policy itself. These policies must be read carefully before entering into any contractual obligation with an insurance provider. Before any policy is drafted, the insurance company makes its own assessment of the building. Here, the insurer weighs the risks and benefits involved in insuring a specific property. For instance, if a building is actively occupied and a tenant conducts business there regularly, the risks of vandalism and “malicious mischief” are relatively low. A vacant building, however, where no business activities take place, can be an easy target for vandals.
Insurance policies usually indicate that if a building is vacant or unoccupied for around 30 to 60 days, or more, then the policy won’t cover certain losses, such as damage done to the building by vandalism, “malicious mischief” and other destruction of property. It is absolutely essential for a property owner to be aware of these policy coverage exclusions as they vary from company to company.
This particular insurance exclusion has driven a lot of legal action between owners and insurance companies as of late. There is much back and forth between both parties in terms of the difference between “vacant” and “unoccupied.” If very limited activities are happening in the building, it might be “vacant” but not “unoccupied,” or vice versa.
Instead of budgeting for hefty lawyer fees, a smart investor should be proactive and make sure his or her insurance policy is clear with regards to unforeseen damages that may arise from vacancies. Is there a “vacancy exclusion” and if so, what isn’t covered in the vacancy exclusion?
In some cases, it may be a good rule of thumb for a property owner to notify their insurance provider if the building will be vacant or unoccupied. This information will usually lead to a reassessment of insurance coverage, which may bring about a renegotiation or cancellation of coverage, if the policy holder and insurance provider are not able to compromise on the contract revision. A savvy owner should read his/her policy and weigh out risks and benefits in relation to insurance policy exclusions before needing to file a claim, rather than after.
At SVN Vanguard, we are committed to helping property owners and tenants alike. Do you have a vacant Orange County commercial property? We are experts in Orange County Commercial Real Estate For Lease and Sale. SVN Vanguard has headquarters in Orange County as well as San Diego. We happily serve all of Southern California. Contact us for a property evaluation, leasing information and more.
FOR IMMEDIATE RELEASE
(SANTA ANA, CA, October 19th, 2020) SVN | VANGUARD one of the nation’s premier net lease brokerage firms, has completed the sale of the the 5,600 SF industrial warehouse located at 16065 Foothill Blvd in Sylmar, CA to a private buyer for $1.65 million. Hala Chalan of SVN | VANGUARD represented the seller, Truman Investment, LLC.
16065 Foothill Blvd is strategically located in north Los Angeles county with close proximity to several major freeways including the 210, 5, 405 & 118. The property is a free standing single tenant building that was built in 2005. The warehouse was previously occupied by the owner-user and remains in very good condition. The building features fire sprinklers, LED lighting, 200 AMPs, private gate and 8 parking spots with great security throughout. LAC2 zoning provides flexibility and permits diverse commercial use.
SVN is the only major commercial real estate brand that proactively markets all of its qualified properties to the entire brokerage and investment community. Participating in approximately $12.1 billion in sales and leasing transactions in 20187, SVN Advisors shared commission fees with co-operating brokers in order to close more deals in less time and at the right value for clients. Advisors also reap the benefits of our SVN Live® Weekly Property Broadcast, cloud-based leading-edge technology, and national product councils. This open, transparent and collaborative approach to real estate is the SVN Difference.
About SVN | VANGUARD
SVN | VANGUARD is an independently owned and operated SVN® franchise with offices located in Orange County & San Diego, CA. The SVN® brand is a globally recognized commercial real estate entity united by a shared vision of creating value for clients, colleagues and communities. Currently, SVN comprises over 1,600 advisors and staff working in more than 200 offices across the globe. SVN’s brand pillars represent the transparency, innovation and inclusivity that enable all our advisors to collaborate effectively with the entire real estate industry on behalf of our clients. SVN’s unique Shared Value Network® is just one of the many ways that SVN Advisors create outsize value for all stakeholders. For more information, visit www.svn.com.
About OUR COMMITMENT TO YOUR INVESTMENTS
We know what factors impact value.
The SVN | VANGUARD industrial experts are on top of Southern California market trends and forecasts. Whether you are leasing, buying, or selling an industrial building, our team is ready to provide in-depth expertise. Whatever your need, whether that be light industrial, flex space, large industrial park, or a free-standing net-leased building, we have the market knowledge to help you make the best decision. We bring value to our clients by monitoring specific factors that impact the industrial market and the ultimate function of the space, such as demographics, site plans, tenant mixes, tenant credit and traffic patterns.
By Mina Saeid | October 7th, 2020 1:00PM PST
SVN | VANGUARD is pleased to welcome Madeline Choi as a Commercial Real Estate Advisor. Choi is specializing in meeting the needs of international investors who own properties across the U.S. In addition to negotiating the sale of shopping centers, apartments, and restaurants, Choi will focus on hospitality, a product type in which she represented internationally known clients such as Wyndham and Sheraton Hotels.
“We are delighted to have Madeline join the firm. She is a dynamic individual who brings over 30 years of entrepreneurial expertise and unique business connections. Madeline and her clients will benefit greatly from the level of collaboration we can achieve with the 200 SVN offices nationwide that make up our network.” said Executive Director Cameron Irons.
Before joining SVN | Vanguard, Choi gained valuable industry experience at Intero Commercial in San Jose, CA. While at Intero, Madeline began marketing high-quality hotels and won $116M in listings in one year. Intero recognized Choi as their Best Commercial Agent of 2015 and presented her an Outstanding Achievement Award for Excellence. Among her achievements, Madeline was also once named Business Person of the Year by the Korean American Chamber of Commerce in Greater Santa Clara County.
Choi also has an extensive professional background in business consulting and operations both in the U.S. and abroad. She’s been the President of numerous tech industry businesses in Northern California and was most recently the CFO and COO of AppBanc, LLC, in Santa Clara, CA.
For details about any commercial needs, contact Madeline Choi at 949-303-7866 or madeline.choi@svn.com.
________________________________________
About SVN | Vanguard
SVN | Vanguard is a commercial real estate firm with offices in Orange County and San Diego, CA. We provide sales, leasing, and management services to clients in Greater Southern California. We combine a comprehensive national footprint with local decision making, expertise and market-leading execution. All SVN® Offices are Independently Owned and Operated.
Published Sep 16, 2020,08:10am EDT on Forbes
Expert Panel® Forbes Real Estate Council
In commercial real estate, buyers and sellers alike are often very eager to sign a contract and get the deal underway. However, this eagerness to close shouldn’t eclipse the need to properly review the terms of the sale.
Before signing any contract, performing proper due diligence is critical so that both parties understand their obligations and agree that the arrangement is fair. That’s why we asked 14 Forbes Real Estate Council members to share some red flags people should be wary of before signing a lease for a commercial real estate property. Their responses are below.
1. Overly Optimistic Business Projections
“I think the biggest red flag for a company signing a commercial lease today would be improper or too optimistic of an analysis of that business’s survivability. This is especially true if it could be negatively impacted economically once the government tapers and shuts down further stimulus support.”
– Rod Khleif, Lifetime Cash Flow Academy
2. Inability To Give Back Space
“Make sure you have a right to give back space in the first five years. At the same time, you should also have the right to offer first for adjacent space if it becomes available.”
– Didhiti Bhoumik, BLG
3. Unclear Landlord/Tenant Responsibilities
“Delineations of landlord and tenant responsibilities, defined by the terms of the lease, are rightfully coming under an increasingly large microscope. It is critical that adherence to health and safety guidelines and assignments of obligation are clearly defined in the lease. Failure to include this language widens the umbrella of legal exposure for both parties.”
– Kevin Maggiacomo, SVN International Corp.
4. One-Sided Provisions
“As with any contract, a huge red flag is one-sided provisions. Keep an eye out for things that only benefit one side and aren’t mutual. That’s a sign that a lease was probably written with many problematic provisions. Always have an experienced real estate attorney review any lease before signing to understand liability.”
– Jeremy Brandt, WeBuyHouses.com
5. Unfavorable Force Majeure Clauses
“Landlords and tenants must pay closer attention to force majeure clauses in commercial leases. Force majeure relieves a party of its performance obligations when certain circumstances arise beyond their control. Certain tenants have attempted to use this clause to exit leases in 2020, which has led to the creation of Covid-19 carve-outs. If they’re in your lease, make sure you can live with them.”
– Ian Formigle, CrowdStreet
6. No Demographic Or Analytical Study Results
“Due diligence is very important. Tenants who are new to the commercial market skip this phase and when they arrive at the signing of the contract stage, they believe everything has been resolved. They do not examine the demographic and analytical study results, leading them to discover that they will not get the revenue they expected. Once that happens, it’s too late and they are already bound by the contract.”
– Rodrigo Brandao Schiavo, Premier Capital Realty, LLC
7. Verbal Confirmations
“Commercial real estate should be treated like a business and you should never trust someone to keep their word. Everything must be in writing. If any property owner wants you to take their verbal confirmation, you shouldn’t work with them.”
– Raja Seetharaman, Propstack
8. Pass-Through Language About Planned Capital Projects
“Tenants should request a three-year operating expense history on the property and a list of any capital projects planned for the next year or two. Then, negotiate the pass-through language carefully in the lease. Landlords will attempt to recover as much of their costs as possible over the term of the lease.”
– Nathan Anderson, NAI Heartland
9. Vague Math Calculations
“After the tenant and landlord are named in a lease, everything else is a flag. Be clear in all terms including the math. If there are rental abatements, early termination clauses and fees or rent escalations, make those numbers part of the document. Net terms and core factor definitions are paramount, but agree on the math upfront. Write it out for 10 years and one headache is averted.”
– Kristin Geenty, The Geenty Group, Realtors
10. Lack Of Landlord Obligations
“A lease should include a listing of various landlord obligations. These obligations are typically defined within the term sheet during early negotiations. The term sheet will identify shortcomings of the building and/or required modifications, such as upgrades to restrooms, lobby areas and corridors, MEP Systems, demising walls, lighting, etc. Additionally, it will describe operational needs and amenity incentives.”
– Peter Ferzan, Ferzan Company LLC
11. Unclear Intended Uses
“I believe that any tenant should make sure that they can operate as planned in the space they have chosen. This includes your current operating needs and any future plans the space will have to accommodate. Check with the governing zoning body in the area of the property. Ensure you are open about your current operation and future plans as they relate to space.”
– Michael J. Polk, Polk Properties / Matrix Properties
12. Sloppy Documents
“A document that’s sloppy or error-ridden is a very bad sign. Everything should be correct and complete, including the identity of the owner. Ensure the property is in the agreed-upon condition so that you’re not liable. Make sure that the rent, who pays what expenses (such as maintenance), the number of people allowed to live at the property, etc. is lease assignable and spelled out. If the answer to any questions is, ‘I don’t know,’ run away!”
– Charles Argianas, Argianas & Associates, Inc.
13. Poorly Written CAM Definition
“How does the fine print read with regard to the CAM definition? What is included or not included? Poorly written and vague descriptions can cause confusion and conflict if an issue arises. Extremely lengthy definitions may include things that are uncommon like all major capital improvements. Is there a cap on the per annum increase? A major jump could affect a business owner’s budget significantly.”
– Catherine Kuo, Elite Homes | Christie’s International Real Estate
14. Failure Of Either Side To Hire An Attorney
“One common red flag is not hiring a proper attorney to review the lease for you! You should always have a local attorney to assist with reviewing and signing any new lease or sale.”
– Heidi Burkhart, Dane Real Estate
