We hear of energy benefits, tax credits, incentives and the like all the time but yet seldom do we actually use them to the fullest.  At Globelé Energy, LLC  (www.GlobeleEnergy.com), we encourage and assist our clients in taking full advantage of these opportunities by providing customized solutions to solve energy needs. To start, below is a list of resources available to the Connecticut commercial real estate owner and lessee.

1. Connecticut Energy Efficiency Fund (CEEF)- Energy efficiency money and renewable energy product money. http://ctsavesenergy.org/

2. Connecticut Clean Energy Fund – Renewable energy money. http://www.ctcleanenergy.com/ 

3. Municipal Energy Efficiency Fund- Energy conservation money. ttp://www.ct.gov/opm/cwp/view.asp?a=2994&q=437162 -

4. IRS 179 (d) tax deductions for energy conservation work performed. http://www.irs.gov/formspubs/article/0,,id=177054,00.html

5. IRS renewable installation credit or rebate

6. IRS bonus depreciation

7. Deregulated electricity and natural gas supply purchase.

The energy benefits available are cumulative as well. This should encourage the building owner or lessee to make the benefits a substantial consideration in their decision making process when planning work to their buildings.

The CEEF energy conservation money is available for ratepayers of the non-municipal utility companies. The fund has 4 commercial programs available. Be sure to contact the fund prior to beginning any projects you are considering to learn which fund may apply and the criteria involved.

Conserving energy in a building can be done in many ways, below are a few examples of types of projects that can qualify for incentive money:

• Putting mechanicals or equipments on timers.
• Changing mechanicals to a more energy efficient models.
• Using an energy management system to control the mechanicals.
• Using the energy management system to alarm you of problems.
• Insulating all parts of the building such as roofing and piping
• installing window inserts, films or energy efficient e rated windows
• Using energy star approved LED lighting or lower watt CFL lighting.

Creating your own energy is easier to accomplish than it may seem. If you are co generating energy, you can then use the co generated energy in peak times which will save you money two ways. Co generating will save you the k/Wh charge as well the KW charge and likely the KW charge savings are greater than the k/WH savings. Some examples of co-generating include:

• natural gas or diesel generator
• solar thermal system
• solar panels
• wind turbines
• geothermal energy

In the ever speculative world of deregulated energy, purchasing deregulated electricity and natural gas can be lucrative, even with the reduction in electricity supply cost from both CL&P and UI in January. The key is understanding and finding the right product for you. The three most common products are:

1. fixed contract product
2. variable product (with or without a locked in contract)
3. variable with a cap product

Contracts can range in length from 1 month to 5 years. Your utility rate class will usually be what the supplier or broker will use to determine the deregulate rate they can offer you.

What to be careful of:

• variable product in a locked contract, ask questions about when it can go up and how high it can go up as well
• the length of your contract, if you take a long contract and the utility company reduces their supply rate below your rate, you will have to pay a penalty to get out if you are locked into a contract
• what is included in your price, are the ancillary fees included or not.

An example of how deregulation works well. You are on the UI January 1 , 2011 commercial rate of .1056 and you are offered a one-year contract for .0874. You consume 25,000 k/Wh a month. Your deregulated rate would afford you a savings of $455.00 in one month and $5,460.00 in one year if the k/Wh usage remained constant. Imagine companies who are using 250,000 k/Wh a month, the savings are $ 4,550.00 a month, $54,600.00 annually and it goes on.

For the Federal incentives we will refer you to your accountant. We recommend you call your accountant as soon as you can and ask him/her about the bonus depreciation available this year. Then remember your accountant will be as good as the information you give him/her. Begin separating your receipts and be sure to let your accountant know what projects you have done that conserved energy in the areas of lighting, HVAC and enveloping.

For more information, or assistance in the area of energy conversation for your business or property, please call;

Elena Cahill

Globelé Energy, LLC

240 Sargent Drive,  New Haven, CT 06511

203.799.8200 Office

203.314.6089 Cell

203.823.4911 Fax

Elena@globeleenergy.Com

www.GlobeleEnergy.com

What can be described as “slow and steady” for New Haven County’s industrial market, the same can also be said for the office leasing market.  “Stable” is probably more appropriate.  The overall office vacancy rate at the end of year 2010 was 8.9%, compared to 9% at end of 2009. according to CoStar Group, a national commercial real estate information firm.  However, as Landlords continue to compete for tenants in all markets; downward pressure on rents resulted in a 3.3% decline in asking rents through 2010 for Class A properties.

With the exception of Anthem Blue Cross & Blue Shield’s announcement that they signed a lease for 218,000 SF and will be moving their North Haven operation to 108 Leigus Road in Wallingford, the market has been dominated by office building sales.  Recent transactions include 188 Boston Post Road in Madison, a 11,200 SF property sold for $1.7M or $151.00/SF; 100 South Shore Drive in East Haven, a 48,171 SF building sold for $3.4M or $71.00/.SF; and 59 Elm Street in New Haven, a 112,000 SF office tower sold for $9.7M or $86.61/SF.

Medical practices continued growth in the area resulted in the construction or conversion of existing office properties.  A 25,000 SF facility at 84 North Main Street, Branford, was recently completed.  Yale announced their intention to convert 6 Devine Street Street, North Haven, into a 114,000 SF medical office facility.  Both transactions demonstrate the viability of medical office space.

We continue to be cautiously optimistic about commercial real estate market in New Haven County. Increased industrial activity, including closed transactions and property inquiries, are being reported by the brokerage community. Our only caution is that until un-employment rates start to fall, the office leasing market will probably remain sluggish but stable through 2011 with no real growth or improving vacancy rates. However, recent office building sales activity indicate a positive sign that investors feel that prices have bottomed out.  A recent survey of the Association of Foriegn Investors in Real Estate overwhelmingly ranked the U.S as their No. 1,  choice for investment this year.  Anticipating falling vacancies and value appreciation through rising rents in the years ahead is what may be driving this surge.

Happy Hunting!

FredP

For purposes of this month’s discussion, we have focused on sales of industrial and office properties in the New Haven County, CT market area………….

Industrial Building Sales/Values: Since January 1, 2010, there have been 30 recorded sales of industrial/flex buildings ranging from 4,130 – 176,975 SF with an average size of  29,832 SF and a median of 15,640 SF. Sale prices ranged $18.95 – $89.93/SF with a combined average sale price of $43.92/SF and a median of $33.82/SF. It is typical to see significant price ranges when reviewing industrial building sales. More than any other building type; building age, ceiling heights, power loads, amount of office space, environmental conditions, etc. have a significant impact on value. However, newer (built within the last 20 years) “fully air-conditioned” buildings tend to have more consistent value with ranges  in the $55.00 – $80.00/SF, while older functionally obsolete or buildings with some level of deterioration sell for lower values…..A sampling of some 2010 sales are; three (3) building portfolio sale of 15 – 45 Northeast Industrial Road, Branford (153,125 SF) by an investment group for $3.5M or $22.86/SF; Fastenal Corporation’s purchase of 61 North Barnes Road, Wallingford (176,975 SF) for $6.0M or $33.90/SF; and 312 Woodmont Road, Milford (12,036 SF) by Tri-State Rentals, LLC for $1.0M or $83.08/SF.

Office Building Sales/Values:  At the end of the 3rd quarter 2010, data indicates that there have been 29 office sales in the New Haven County market with a building size between 1,494 – 99,850 SF with an average size of 15,880 SF and a median of 5,292 SF.  The sale price range was between $74.23 – $383.92/SF with an average of $153.42/SF and a median of $142.65/SF. However, after reviewing the data more closely, there were four excessively high sales which we felt were not representative of the general market and therefore needed to be eliminated from our calculations.  As a result, the average adjusted sale price was $123.37/SF with a median of  $104.04/SF. We feel these number are more representative of the true value of office buildings in the marketplace……….Some 2010 sales include; 59 Elm Street, New Haven (99,850 SF) for $9.722M or $97.37/SF;  215 Cherry Street, Milford (6 building portfolio, 77,896 SF) for $13.M or $166.89/SF; 1764 Litchfield Turnpike, Woodbridge (52,906 SF) for $5.07M or $95.83/SF.

Finally, above we mentioned that this is data that an experienced broker would use to establish a value of a property which they are preparing or proposing to go to market with. However, in order to more accurately determine the true value range of any given property, we need to segregate the data and extract those sales which more closely resemble the features and possible deficiencies of the property. We stress the term “range” because no property has an absolute value, it is a high and low value which a broker wants to establish. The final value is determined after the negotiations between a Buyer and a Seller has been settled.

Happy hunting!

FredP

Below is a short recap of the enhancements and benefits for your small business clients:

•Fee Reductions – The bill extends the authority for the SBA fee reductions through December 31st , 2010. Benefit – reduces cost of borrowing to borrower and should serve as an incentive for potential buyers to act quickly to take advantage of this stimulus that will end by the end of this year.

• Maximum Loan Amounts – The maximum size of the SBA 504 loan is permanently increased from $1.5 million to $5 million. This is the SBA portion only. Benefit – this will allow up to 90% financing for purchase transactions up to $12 million, allowing the SBA program to be used by more buyers on larger deals. Another benefit is that it will allow businesses that had previously used the SBA program and maxed out their availability, to once again access the program for additional purchase or expansion.

• Increased Business Size Standard – The SBA has increased the definition of what is considered a “small business”. The old standard was business net worth of $8.5 million or less and average business net income less than $3 million. The new standard is net worth less than $15 million and average net income of $5 million or less. Benefit – This will allow the SBA 504 program to be utilized by larger companies. This increase will allow the program to become a very viable option for middle market companies

• Debt Refinancing – Established a 2 year window for the SBA 504 program to be utilized by creditworthy borrowers for refinance of eligible business debt. Benefit – Allows existing small business property owners to have access to 20 year below market fixed rates offered by the SBA program. With declining real estate values, the 90% financing program provides a solution for a customer with a maturing conventional loan which has a LTV that exceeds bank guidelines (75-80%). Affordable access to credit is a key element for buyers of commercial real estate. The enhancements outlined above are some of the most significant improvements made to the SBA 504 program in the past decade and are considered my many industry experts to be “game changers” for buyers and real estate professionals. Small Business Jobs & Credit Bill cleared the House of Representatives last week and was signed into law Monday by President Obama. The bill has many benefits for small business and particularly to the SBA 504 program. These enhancements will provide greater access to credit for small business owners to finance commercial real estate. As a reminder, the SBA 504 program provides up to 90% financing at 20 year below market fixed rate, (4.67% for September, 2010), for small business owners to purchase commercial real estate for business use. Below is a short recap of the enhancements and benefits for your small business clients:

• Fee Reductions – The bill extends the authority for the SBA fee reductions through December 31st , 2010. Benefit – reduces cost of borrowing to borrower and should serve as an incentive for potential buyers to act quickly to take advantage of this stimulus that will end by the end of this year. • Maximum Loan Amounts – The maximum size of the SBA 504 loan is permanently increased from $1.5 million to $5 million. This is the SBA portion only. Benefit – this will allow up to 90% financing for purchase transactions up to $12 million, allowing the SBA program to be used by more buyers on larger deals. Another benefit is that it will allow businesses that had previously used the SBA program and maxed out their availability, to once again access the program for additional purchase or expansion.

• Increased Business Size Standard – The SBA has increased the definition of what is considered a “small business”. The old standard was business net worth of $8.5 million or less and average business net income less than $3 million. The new standard is net worth less than $15 million and average net income of $5 million or less. Benefit – This will allow the SBA 504 program to be utilized by larger companies. This increase will allow the program to become a very viable option for middle market companies

• Debt Refinancing – Established a 2 year window for the SBA 504 program to be utilized by creditworthy borrowers for refinance of eligible business debt. Benefit – Allows existing small business property owners to have access to 20 year below market fixed rates offered by the SBA program. With declining real estate values, the 90% financing program provides a solution for a customer with a maturing conventional loan which has a LTV that exceeds bank guidelines (75-80%). Affordable access to credit is a key element for buyers of commercial real estate. The enhancements outlined above are some of the most significant improvements made to the SBA 504 program in the past decade and are considered my many industry experts to be “game changers” for buyers and real estate professionals.

Summary overview compliments of my fellow CCIM collegue;

Dean Murphy, CCIM
Fairway Commercial Lending
Director of Commercial Lending
Carmel, IN 46032

• KVT-Koenig, LLC, a division of the Swiss based KVT Group recently leased 18,000 SF at 73 Defco Park Road in North Haven;
• Clopay, a manufacturer and distributor of residential and commercial garage doors, has signed a 13,500SF long term lease at 285 State Street in North Haven;
• Woodbridge Corporate Park in Woodbridge, a 50,000 SF Class A office building recently sold for $5.07M;
• 401 Boston Post Road in Orange, 30,000 SF formerly occupied by CompUSA, sold for $2.7M and will be the new local home of Ocean State Job Lots;

As for foreclosures in the commercial/industrial markets, not much to talk about there. Except for a handful of deteriorating building in the inner city, most lendors reporting minimal foreclosed properties on their books………Working some good sized deals, so more to report in the coming months.

FredP

Purchase Price /  SF: When evaluating a possible purchase of a property, use the purchase price / SF as a gauge against comparable sales in the market. The total cost is meaningless, the cost per SF will give you an accurate measure.

Purchase price/Renovation Costs - You may have found what you consider a steal as it relates to purchase price, however, you need to also factor in the cost associated with renovating the building . Purchase Price +  Renovation Costs = Real Acquisition Price. The Real Acquisition Price is now the true cost of purchasing the building which should be compared to comparable sales prices in the marketplace. As an example, if you acquire the property for $35.00/SF, and your cost estimate for renovations are $30.00/SF, your total purchase price is$65.00/SF. Will the market support that price if you have to sell?

Capital Improvement Costs - While under contract, do your homework and get a true estimate of what your cost are going to be for capital improvements. Is the property going to need a new roof in the next five (5) years?; what condition are the mechanical systems in?; does the parking lot need to be replaced or repaired soon?; will you need to add more office space, or construct loading docks?

Environmental Factors - There is nothing that kills more deals than environmental issues especially in industrial real estate. However, don’t walk away because of ”perceived” or “rumored” environmental contamination. What I have found is that except for “Super Fund Sites” most environmental issues can be addressed if both Buyer and Seller work together on solutions. Like any business risk, environmental issues can be managed and minimized. (There are insurance companies that do offer environmental insurance coverage on pre-existing conditions) However, make sure that you have environmental studies completed and talk to a qualified environmental attorney if you are unsure. As an investor, several of my purchases have been properties with some level of contamination. We have worked to minimize the risks, and in some cases, still have the Seller retaining a significant portion of the risk.

Your Due Diligence - The “Due Diligence” period of your contract, is the time period which you have to investigate all aspects of the property to determine whether you really want to purchase. During the period, you will establish your capital improvement costs; have the environmental studies completed; apply for your financing; complete an A-2 survey; etc. In order to do a comprehensive investigation, make sure you require in the contract, that the Seller provide all documents in their possession including, but not limited to, previously completed environmental studies; invoices of significant building repair or replacements over the past 3 – 5 years; construction drawings; site plans; surveys, etc..

Finally… be sure to retain an attorney who has experience in commercial and industrial real estate transactions. It could be a costly short and long term mistake to hire the same person that represented you in the purchase of your home. Commercial transactions have many more complicated legal issues that need the expertise provided by an experienced commercial real estate attorney.

Happy hunting and feel free to drop me an email with any questions.

Fred Petrella (fredp@ctrealtygroup.com)

Absolute Net, Triple Net (NNN), Gross, Gross plus utilities, all terms that every small business owner has heard when looking to lease a facility or office space for their business. It can be confusing, so let me try to make life simple for you the next time you are evaluating your space needs.

• Rent/SF: Most commercial space (industrial, office, retail) is priced on a cost per SF per year. (Except some western US states which quote rent on a cost per SF per month). Example: $4.00/SF on a 10,000 SF block of space would equal $40,000.00 per year of rent, or $3,333.33 per month.
• Absolute Net Rent: This term is more commonly heard in the industrial real estate world. This means that the Tenant is responsible to pay the contracted rent, but also for all repairs, maintenance and replacements of everything having to do with the structural and mechanical aspects of the building and property. Example: If the roof leaks, Tenant make the repairs or if needed the replacement; if the HVAC units break down and need replacement, Tenant is responsible for that as well.  Today it is unlikely that you will be presented with an “absolute net rent”, but beware and clarify it before you spend any money on attorney fees.
• Triple Net Rent (NNN): This is the most common form of rent for both industrial and retail space. Occasionally, office owners will also offer this form as well.  This simply means that the Tenant is responsible for the contracted rent, but also their proportionate share of real estate taxes, building insurance and common area maintenance (CAM). This rate is also usually quoted on a cost per SF per year. CAM usually includes lawn mowing, snow removal, and any other general maintenance cost associated with operating the property. Don’t be afraid to ask the Landlord for the past 2 to 3 years of operating expense history.
• Gross: Don’t worry, it just sounds “gross”, but it won’t hurt. This term is used primarily in the office market. When a Landlord quote their rents as “Gross”, they are saying that all operating expenses are included in the rent. That includes air conditioning, heating, electric, gas, water, grounds maintenance, janitorial service for both your office and common areas. Again, another term to beware of so get it clarified before having the lease executed.
• Gross plus Utilities: Mostly found in office leasing, this means that your rent per SF per year includes everything as mentioned under “Gross”, except that the Tenant will pay separately for all utilities. This could include gas, electric, oil, propane, water, sewer, etc. Again, get this clarified before you have a lease drafted.
• Gross plus Electric: Mostly found in office leasing, and sounds similar to “Gross plus Utilities”, however, the Tenant is responsible for anything that consumes electric within the space including lights, plugs, and HVAC (watch out for electric heat).
• Gross plus Tenant Electric: Now you will understand why small business owners need to know and clarify the terms professional commercial real estate brokers and Landlords use. Sounds the same as “Gross plus Electric”, but it is not. Under this arrangement, Tenant pays only the electric consumption generated by their lights and plugs. The buildings HVAC is wired to the Landlords electric meter and the Landlord is responsible for these costs. 

As you can see, the lease terms can be confusing, and this is just one of a variety of issues to consider when evaluating lease option.  Always consult with a professional commercial broker and these seemingly dangerous elements can be tamed and positioned to your advantage.

That’s it  for now, next I will address the purchase of commercial real estate and some of the critical aspects that business owners should consider.

FredP

Frederick P. Petrella, CCIM is the President of Connecticut Realty Group, LLC and a 26 year veteran as a commercial real estate broker with an office in New Haven, Connecticut. He also a principal in Corner Properties, an investment property owner with a portfolio of industrial and office properties in Connecticut.

• the most common mistakes and oversights property owners make when buying or leasing space for their company;
• know how commercial real estate is priced and understanding of the vernacular;
• when is it better to buy, and when is it better to lease;
• is buying a property for my business, really the smart decision?;
• how do a simple evaluation of the financial and operational qualities/impact of an investment property;
• why hire a broker;
• what qualities and qualifications you should look for when considering hiring a commercial real estate broker;

Although our current economic climate has provided challenges to the business and investment community not seen in our lifetime, I am finding that companies are still distributing their products, manufacturers are still making widgets, and service companies are still providing service. They’re doing it with fewer employees, less space, and less capital. However, commerce still goes on, and commercial real estate can still be a good investment and most every business needs a facility to operate.

Stay tuned….