A real estate owner that may not have sufficient cash flow to support the debt on a building may need to obtain other forms of financing, said David Csontos, executive managing director of FirstService Williams New Jersey.
Real Estate Steven J. Dundas OWNERS Under review ➤➤ Continued from page 1 about 4 million square feet of industrial and com- mercial space in New Jersey. “They’ve exhausted their capital budgets, or they’ve exhausted the reserves in their loans or they’ve not reserved up properly in the operation of the property.” In general, landlords are under pressure to get space leased, said Jerry Kootman, president of Cost Recovery Solutions, a commercial depreci- ation consulting firm in Metuchen. “In this market, there are a lot more vacan- cies — so landlords are very hungry,” he said. “In terms of today’s economy, if he doesn’t fill out space, it could very well mean foreclosure.” But landlords have struggled to lease up space, given “the hesitancy on the part of ten- ants to make long-term commitments,” said David Csontos, executive manager director at the Parsippany office of commercial real estate brokerage firm FirstService Williams New Jer- sey. “Most of them, for the most part, are inclined to stay where they are and figure out what their business model is going to look at.” At the same time, landlords are looking to Because of the down economy, tenants have requested to review landlords’ financial statements, says David Freinberg, attorney with LeClairRyan in Newark. refinance as commercial mortgages mature, but many are unable to obtain the same amount of director at the Parsippany office at Jones Lang occurrence, since tenants previously didn’t ask financing as in years past, owing to more stringent LaSalle, a real estate services firm. for such disclosures, he said. “It’s really a function Smaller owners’ troubles underwriting criteria, Csontos said. In many As a result, “I’ve seen more of this scrutiny by of the severe economic downturn that we’re in, cases, property owners need to pay out-of-pock- tenants than I have ever seen,” Freinberg said. In and really the much greater concern of the abili- TROUBLED LANDLORDS account for only a et or find other means to make up for the short- about half a dozen large leases that he’s handled ty of the landlord to deliver what it promises.” small percentage of real estate owners in fall, but that could leave some cash-strapped in the past year, he said tenants have been very In addition to financial disclosures, some New Jersey, said Jeff Schotz, executive man- landlords even more strained, making it hard for concerned about the wherewithal of the landlord; tenants are requesting financial assurances from aging director of First Service Williams New them to pay “to do some of the work that tenants this was a very rare occurrence in previous years. the landlord — usually by having the landlord’s Jersey, in Parsippany. “The vast majority of would like to get done” before moving in, he said. Some tenants have requested current lender set aside money in an escrow account, so buildings in New Jersey are owned by strong Landlords’ finances are then raising con- financial statements or private bank references that a separate fund is available to pay for the owners,” he said. cerns among tenants in the market for new space. from landlords, so “you can at least get a notion construction of the tenant’s space, Freinberg said. “It’s the minor one-off, two-off, three-off “People might be more anxious to make a of the credit issues or creditworthiness and “We would always advise a tenant to be with building owners that have serious capital deal, and the competitive environment is such cash positions” of the landlord, Freinberg said. a strong landlord,” Stanton said. But “if the eco- problems,” said Lloyd Tulp, managing mem- where an owner reaches beyond capacity to tie This sharing of financial information with nomic deal that’s being made is sufficiently attrac- ber of Tulfra Realty. With larger landlords, the tenant in a transaction that he might not be the tenant — usually done on the basis of a con- tive to the tenant, it wouldn’t be out of the realm “you have a capital base that allows you to able to fulfill,” said Thomas Stanton, managing fidentiality agreement — is a relatively recent of possibility that the tenant finances their own move capital quickly to take advantage of ten- tenant work” in exchange for lower rent, several ant opportunities.” months of free rent or some other concession. But smaller real estate owners have fewer Landlords can explore other options The key, however, is establishing safe- guards for the tenant in a lease, Stanton said.
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