written by
Emily Bane

Real estate veteran brings more than 45 years of experience to Intersection’s brokerage division, providing expertise from San Diego to Orange County to enhance the services of the expanding commercial real estate company.

SAN DIEGO — Intersection, the downtown San Diego commercial real estate (CRE) firm specializing in brokerage, investment management, and real estate services names Jay Arnett as its latest Senior Director. Arnett spent the last 45 years building his relationships and portfolio at CRE firms in San Diego and Orange counties. Beginning his career in the industrial and office sectors, he grew his practice as a generalist, completing transactions from Oceanside to Chula Vista.

Arnett joins Intersection’s rapidly growing brokerage division, specializing in commercial brokerage tenant representation and investment sales. His extensive market knowledge enables him to identify sound sales and leasing opportunities that are both value-enhancing and strategic investments. As an active member of the Society of Industrial and Office Realtors (SIOR), Arnett is certified with the prestigious SIOR Designation representing the highest level of knowledge and ethics in the industry.

“Jay’s highly personalized service and informed strategic expertise will be invaluable as we continue to grow our brokerage division,” said Mark Hoekstra, Managing Director at Intersection. “As one of the most highly respected brokers in San Diego, his experience, leadership and integrity adds to the depth of the Intersection team.”

Over his 45-year career span, Arnett has completed in excess of 15 million square feet in office, industrial, and flex space transactions, resulting in over $1.5 billion in market value.

Arnett attributes his success to listening to clients and building tailored solutions that fit their needs. “The flexibility of a nimble, San Diego-owned company means that clients will benefit from local perspective and expertise that results in a more personalized experience overall,” said Arnett.

“I’m thrilled with the opportunity to have my brokerage career back in downtown at Intersection. There is immense opportunity at the company to expand both in San Diego, as well as into other submarkets,” Arnett said. “I’m looking forward to helping grow the brokerage division and assume a possible management position down the line.”

Emily Bane is the Marketing Coordinator at Intersection, providing strategic marketing expertise to support business objectives across company divisions. Contact Emily at 619-819-8725 or [email protected]

written by
Rob Kerr
Sale-Leaseback Overview

In commercial real estate sale-leaseback transactions, a property owner sells real estate used in their business to an unrelated private/institutional investor or other third party.  At the time of the sale, the property is leased back to the seller for a mutually agreed upon time period. It is generally structured as a 10 to 30-year triple net lease and often includes renewal options.  If executed successfully, a sale-leaseback will be mutually beneficial to both the seller/lessee and buyer/lessor.  All parties must give careful consideration to the business, tax advantages and disadvantages associated with this type of arrangement.

 
Seller Advantages
  • Improves bottom line —company can focus on their core operational business resulting in potential increased returns, productivity and efficiencies.
  • Seller receives 100% of property value (subject to possible capital gains tax) versus conventional financing or re-financing options with likely more favorable terms and without the associated fees and possible covenants.
  • Reallocation of capital/reinvestment of sale proceeds.
    • Funds available for dividends, re-purchase of stock, debt payments or financing of mergers and acquisitions.
    • Conversion of non-earning assets into investment capital provides flexibility and often results in potential higher return on capital/profitability.
  • Improves balance sheet and credit standing – eliminates asset book value and liability and replaces with cash resulting in improved financial ratios.
  • Position the company to take advantage of beneficial tax treatments.
    • Lease payments versus depreciation/interest deductions which may have inherent limitations, especially over time.
    • Timing of gain and loss recognition including the ability to offset expiring net operating losses.
  • Typically, a higher sales price is achieved in this type of transaction unlocking the property’s appreciated value while owner/user maintains occupancy.
  • Can act as a deterrent to corporate takeovers.
 
Seller Disadvantages
  • Loss of residual property value.
  • Possible relocation at the end of the lease term.
  • Potential for some loss of flexibility.
  • High rental payments if market softens.
 
Final Thoughts

Sale-leaseback may be an excellent way for a company to continue uninterrupted use of the property while retaining certain control over the real estate that is important to its operations for the foreseeable future. It also enables the company to free up debt and equity capital to achieve some of the various advantages listed above. Generally, the possible seller advantages outweigh the potential disadvantages. While there are certain marketing and legal restraints, with the right advisers the transaction can be carried out, the value is maximized, and the company’s operational interest are adequately protected during the term of the lease.

Rob Kerr is a Senior Director at Intersection, offering expertise in both property acquisition and disposition as well as investment sales, including NNN, retail, industrial, and multi-family. Contact Rob at 619-369-2400 or [email protected]

written by
Natalie Korn

Don’t let the advancement of today’s technologies and information make you lose sight of why we hire professional services in the first place. At your fingertips, you can file your taxes, design your living room, trade stocks, order groceries or book a vacation all from your smartphone.

Due to the digital convenience of these technological advancements, there has been an influx of DIY-ers within the residential markets – consumers are hunting for their next home virtually. That doesn’t mean you should take all Real Estate matters into your own hands, especially when it comes to securing a location for your new or growing business. Sure, you can find commercial space on Craigslist and a plethora of other sites, in which landlords and their representatives post available space. However, getting through to the correct broker, scheduling a tour and negotiating a lease is where you might run into problems. Additionally, a tenant representative may know of space that hasn’t been made public, otherwise known as “off-market”. They will be familiar with the market conditions, market rental rates, the right questions to ask, and most importantly they will be in your corner.

Not only can using a tenant rep broker save you money, it will also save that one precious commodity that we never have quite enough of, and we can never get back —time.

As an entrepreneur looking to set up shop or a current business owner looking to expand, you have probably made a few savvy money-saving-moves that have helped you get to where you are. Don’t let the notion of saving a few bucks cloud your judgement on something as important as your business’s location. A common misconception is that hiring a tenant/buyer representative is going to cost you money that could have otherwise been saved. In most cases, tenant representation services come at NO COST to the tenant. Per industry standards, tenant rep brokers are compensated by property owners for securing a lease at their property.

In addition to the fee not coming out of your business’s start-up or expansion fund, your tenant representative will work in your favor to negotiate terms, tenant improvement allowances, free rent and other concessions, without any conflict of interest. Not only can using a tenant rep broker save you money, it will also save that one precious commodity that we never have quite enough of, and we can never get back — time. Time that can be used to focus on your core business which, after all, is what got you here in the first place.

Natalie Korn is an Associate of Intersection, specializing in leasing of commercial space, representing both landlords and tenants, with an emphasis on retail. Contact Natalie at 619-785-3503 or [email protected] to learn more.

written by
Mark Hoekstra

Building a successfully commercial real estate brokerage team is not easy. With the turnover in many brokerage firms, one might question the sanity of even trying. The only reason to do it is to do it differently and create a better mouse trap.

To start, let’s consider the inherent flaws with the current system. For decades, the Commercial Brokerage Industry has been plagued with a lack of loyalty and trust between brokerage firms and the commercial real estate brokers. Changes in market dynamics, swings in the economy, mergers & acquisitions, and trends within the workplace, have all contributed to a community of disillusioned brokers who must first focus on their wallets when it comes to where they work.

I think that building a commercial real estate brokerage team is like building a sports team. Before you can start signing or drafting players you must determine what type of organization you want to be. Do you need to win immediately, or do you have the infrastructure, the patience, and the foundation to build a solid team that will be competitive year in and year out? Once you determine the type of organization you want to have, you then must formulate a strategy and create the foundation for that team to succeed.

The foundation first starts with the facilities that you have to offer the team. They must be state of the art, yet comfortable and work for both veterans and rookies alike. Once you have the facilities in place, you then need to make sure that you have all the appropriate tools and support so that the team can succeed. This means top tier marketing materials, advanced technologies, lead generation strategies and a culture that encourages collaboration (not silos!).

The economics must make sense for both parties. This is where most sports teams, and most brokerage companies, get it wrong. For the team to succeed, and for continuity and longevity, you must develop an economic system that works in all markets. One that does not change as the market or economy changes and one that promotes, and rewards consistent effort and results throughout the entire calendar year. The days of extending large signing bonuses for players to either stay or join your team should be over. The days of creating complex compensation structures, which are different for many players on the same team, and which change depending upon the economy, management, or corporate structure, should also be over. There is a better way.

Develop a financial structure which rewards accomplishments at the same rate day one of a calendar year as it does on day 365. A fixed split structure in which the commission rate only changes based upon whether the lead was generated by the house, is a much better way. This gives brokers the incentive to work on all business aggressively. Leads from the house at a lower split are very well received particularly when there is a reasonably clear path to closing. At the same time, commission splits for leads generated by the brokers is much higher and rewards them for bringing in business on their own. 85% of all existing commercial real estate brokers in our market would make more money under this structure (based upon our own company’s internal splits).

The key is to make sure the structure works for both the organization and the players. This type of structure may not attract the superstars but think of how many times teams have overpaid for superstars to find that they do not achieve the results they hoped. Additionally, many of those signings destroy team chemistry and morale.

Building the right facilities, providing ample marketing support, and implementing a new, simple, yet powerful compensation structure will not guarantee a successful team. The most difficult ingredients to cultivate are culture, personality, character, and chemistry. I would much rather have a team full of above average players with heart, determination, and the willingness to perform based upon a commitment to enhancing the lives of those they serve.

Building a successful commercial real estate brokerage team is not easy, but building one that is innovative, thoughtful and compelling is worthy of both the time and effort.

written by
Grant Thiem

Do you know that feeling when you have to rush to the mall because you forgot to buy your partner a gift and it’s the eve (or eves) of? Panic rushes over you and you think ‘Oh my goodness what am I going to get?! Why did I ever wait this long?! Is there going to be anything left on the shelf?!’ That is exactly what you want to avoid… the thought of, ‘well it’s going to have to be good enough because it’s the best I can do at this point’.

Let’s go back 180 days to when you closed escrow on your income property. Some broker had told you of a way that you could avoid capital gains tax by buying another property? That’s where the first common misconception needs to be cleared. A 1031 exchange is a tax deferred exchange. Meaning that when you sell your income property, instead of paying capital gains tax on that sale, you can exchange and all your prior equity and gained income for a ‘like-kind’ property. It’s not that the taxation goes away, but instead you kick the can further down the road to when you sell your new 1031 property.

So back to the timeline. You sell your property and closed escrow, but instead of collecting your money, you had to have found a Qualified Intermediary (QI) who holds your capital in a separate account so that you CANNOT access it. The second you touch those funds, is the second you are taxed on them. So, make sure you pick a company who is well recognized, because it never really feels good when someone else is holding your wallet. There are plenty out there and even some title companies have their own intermediaries so do don’t be afraid to do some research and look for someone with experience, Intersection’s team of experienced commercial real estate advisors are happy to help!

After your property closes escrow, you have 45 days to identify three like kind properties. Those properties must be at a cost high enough where it replaces the entire equity amount and your gains- because hopefully you made money on your sale, right? If that list includes a price of a new property that only partially accounts for the new equity amount, then that’s okay! But make sure another property on that list covers the rest- and be sure with the partial equity amount you still qualify for a loan for both properties, if needed. Otherwise known as spreading yourself too thin. Don’t do that!

This is where the panic might begin. This is crunch time. If you do not identify three possible new properties to purchase in 45 days, then your money will be returned to you and you will be taxed on it. Done. The End. You identifying properties does not mean you climbed a mountain and shouted from the top the three new addresses. What it means is that you spoke to your QI, filled out the proper IRC Section 1031 Exchange form and it was all filed by the 45th day after the sale of your property.

The reason as to why this is where the panic happens is because if not played correctly, the three properties can fall through, and you might have to identify something that you might not have originally wanted! Maybe it didn’t have as high of a return as you were looking for, maybe it is outdated and needs repairs, who knows?! The fact of the matter is; don’t wait until the last minute, when the shelves are bare! You don’t ever want to settle, right?! That said, this is where the hunt for an exchange property should have already been in place.

There are many routes to take to make sure you don’t settle for less than you deserve. What we find to be best is; before your escrow closes, you are already under contract to acquire a replacement property. You heard me right! The ideal time to start would be before the buyer of your property is under contract. That is how far along the process you should ideally be. It takes a little extra time and planning up-front, but trust us when we say, it’s well worth it, to not have to panic as your deadline closes in.

It might seem like a complicated process, but it’s only as complicated as you make it. You have deadline’s you must keep, but get your shopping done early and avoid that panic. It’s never worth the stress, or the risk of having to settle.

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