Stanford Home for Children
BOYA’s Biggest Winner

Thank you ACRE! Together We Are Building a Dream in Sacramento!
Thank you to these generous supporters of Stanford Home for Children’s
first permanent service center in 30 years!

$25,000
Association of
Commercial Real Estate

Tips For Working With
Adjacent Neighbors During Development

By: Steve Spain and Valerie Hoff, TLA Engineering & Planning, Inc.

ACRE Scholarship
Awarded to Student at CSUS

By Gordon Duff, Boyden, Cooluris, Livingston & Saxe PC

Rusian Moroz (who goes by Russ), a student at California State University, Sacramento, has been chosen by the ACRE Scholarship Committee to receive the 2008 ACRE Scholarship. Russ, a Senior and member of the Rho Epsilon real estate organization at CSUS, plans on graduating at the end of the Fall 2008 semester with a degree in Business Administration, with a concentration in Real Estate and Land Use. The ACRE Scholarship will pay his entire tuition for the Fall semester and a portion of his other educational expenses. He will also receive a credit to attend several ACRE events at no charge during the next 12 months. The ACRE Scholarship is intended to assist qualified students in the College of Business Administration at Sacramento State who are pursuing an undergraduate degree in business administration with a concentration in real estate and land use. The recipients are chosen each Spring based upon academic achievement and an interest in pursuing a career in commercial real estate, among other criteria.
 

March Lunch Meeting Featured Dan Corfee

Dan Corfee of Preferred Capital Advisors was our guest speaker at the March ACRE lunch. Dan’s vast and impressive career experience with Panattoni Development, Union Bank of CA and now with Preferred Capital Advisors was evidenced in his thorough and entertaining presentation on financing, structured equity and property values. Thank you Dan for providing your valuable knowledge on these topics.

Kevin Johnson: Featured AT APRIL LUNCH Meeting

Sacramento mayoral candidate and developer, Kevin Johnson, was our guest speaker at the May ACRE lunch. Kevin provided his ideas and visions for development of several key locations within the Sacramento area which included the Rail Yards, CAL Expo (potential new arena locale), the K street mall and Oak Park. Kevin also shared some entertaining stories about his experiences in developing several of his local projects. Thank you Kevin for sharing your insights with us.

ACRE VP Membership Update
An ACRE Membership is Priceless!

By Lynn Gibson, Opus West, ACRE VP Membership

Greetings members – New and Old! As we navigate through what I anticipate to be one of the most interesting real estate cycles of “our time,” I am re-connecting with my core work values established back in the mid-eighties. Even though that was a boom time for real estate development, sales, and tenant activity, my leasing assignments consisted of single anchored “B” locations with lots of deep shop space. A National tenant sign call was non-existent, and any sign call “made my day.” My mentors and peers embedded in me fundamental concepts and personal disciplines that have established my principals and business acumen, no matter how easy or difficult times may be.

It’s time to let go of the notion that a career in commercial real estate has allowed even the “blind squirrels to find nuts”! It’s now time to either build sales skills and critical communication techniques, or flounder. If you learned them back in the 80’s or even the 90’s, beware, times have changed and the type “A” – ram it down their throat-sales style is outdated and ineffective. Despite the all encompassing (OCD “on-line connection disorder”) – never leave your desk – world of E MAIL, don’t forget, we’re in a RELATIONSHIP BUSINESS.

This is the best time to call on old clients (and use that phone or e-mail only to make the appointment), take prospective clients out to lunch, attend a seminar or lunch meeting, and/or participate in a mixer or golf tournament. Invest now in your future business, and invest in yourself. Get out of your office. It’s time to make things happen, not wait for things to happen.

ACRE is one of many ways to do that. With approximately 400 members to network with, learn from and leverage off of, an ACRE membership is priceless. Since January, I have had the wonderful experience of welcoming our new members each month (over 50 this year so far). I hear the excitement in their voice when I say “welcome to ACRE and congratulations – you’re in – here’s what we have going on over the next few months.” Often, I hear, “Oh that sounds great, thank you for telling me, and how can I get more involved in that?” I have already had lunch with some of those new members and see great talent joining our organization. Thank you for approving my membership. I won’t ever become complacent or take it for granted.
 

LEGAL TIPS: BROKER BEWARE
Brokers May Pay Big When Tenants Fold

By: Greg Broderick, Downey Brand LLP

With the subprime mortgage meltdown, credit tightening, and the bankruptcy bogeyman lurking around every corner, there is plenty of uncertainty for commercial landlords and tenants. But brokers also need to be worried about more than the shrinking pie of commissions: a new court decision lays the groundwork for brokers to get stuck with the bill when a tenant defaults.

In Blickman Turkus, LP, v. MF Downtown Sunnyvale LLC, a recent California appellate court case, a commercial real estate developer known as Mozart hired an agent to find a tenant for a single-tenant, build-to-suit office property in Sunnyvale. Mozart’s agent was entitled to half of the commission when the lease was executed and the other half upon payment of the first month’s rent. In the swinging dot-com days of the late 1990s, Mozart’s agent had no problem finding a tenant: Handspring, a flashy tech company specializing in wireless devices. Handspring, who was represented by BTC, signed the lease, provided $23 million in letters of credit, and looked forward to delivery of its prime Silicon Valley office space in late-2002. Mozart paid the first half of the commission to its broker ($853,000) and started construction.

But as most of us know all too well, the roaring-90s came to a screeching halt when investors figured out that a new idea, a quirky name, and $800 ergonomic chairs were not necessarily a sure-fire formula for making billions. Everyone felt the pinch, including Handspring, which told its broker BTC in 2001 that it might have to back out of its lease. But nobody told developer Mozart until mid-2002—ten months after Handspring’s troubles were apparent. Mozart and Handspring negotiated a termination of the lease, the developer was stuck with an empty building, Handspring had to shell out a little money, and the brokers missed out on the second half of their commission. This all might have faded away as a cautionary and tragic tale of another over-hyped tech company coming back to Earth; might have, that is, until Handspring’s broker BTC sued Mozart for a share of the never-paid second half of the commission.

Broker BTC theorized that it was really a “procuring agent” and thus owed a share of the second-half of the commission Mozart was supposed to have paid its own broker. Mozart counter-sued, claiming that BTC knew Handspring was in financial trouble but never told them, breaching a duty to disclose the tenant’s financial condition. According to Mozart, BTC was liable for “concealment” because (1) as the real estate agents for Handspring, BTC owed Mozart a general duty of full and fair disclosure; and (2) when the lease was signed, BTC made representations that obligated BTC to speak when they learned later that Handspring might be unable to perform under the lease. Mozart claimed that these duties continued even after the lease was signed because had BTC disclosed Handspring’s changed financial condition, Mozart could have stopped construction or found a new tenant ten months earlier and avoided some of the injury it suffered when Handspring terminated the lease.

The court rejected Mozart’s claims because the alleged bad conduct all occurred after the lease had been signed, and because Mozart never claimed that BTC fraudulently induced Mozart to enter the lease with Handspring. According to the court, the landlord’s broker must disclose everything about the landlord and the property to the tenant, but the tenant’s broker does not necessarily need to disclose everything about the tenant (and its financial condition) to the landlord. Furthermore, the court explained that any such duty to warn would not continue after the lease was signed. The situation might have been different had BTC known about Handspring’s poor financial condition before the lease was signed, or if Mozart had asked about Handspring’s financial condition even after the lease was signed. But nothing required BTC to call Mozart out of the blue and warn that Handspring might be in trouble.

This case provides a number of important lessons for brokers, landlords, and tenants. First, the tenant’s brokers should beware: Even though the broker “got away” in this case, the court laid a clear path for future disappointed landowners. While a landlord cannot recover from a bankrupt tenant’s broker by claiming that the tenant’s broker failed to disclose poor financial conditions arising after the lease was signed, it seems clear that a landlord could recover by proving that the tenant’s broker “knew or should have known” of the poor financial condition before the lease was signed or by claiming that the tenant’s broker gave false assurances of solvency after the lease was signed. Second, in build-to-suite agreements, landlords should continue to investigate the future-tenant’s financial condition, and should obtain adequate deposits, letters of credit, or other tangible security when entering into these kinds of agreements.

DISCLAIMER: This article does not constitute legal advice. Readers should consult with their own legal counsel for the most current information and to obtain professional advice before acting on any of the information presented.

BIOGRAPHY: Greg Broderick is an associate in the Natural Resources Group at Downey Brand LLP. He specializes in environmental litigation and regulatory compliance and defense, and also assists clients with remediation and development of real property. gbroderick@downeybrand.com; 916-444-1000.
 

Affiliate’s Corner

Featuring Scott Gelbke
MG West

Scott Gelbke is a Principal and Director with MG West’s Sacramento office, responsible for managing the sales team, project management, and planning team. With over ten years of industry experience, Scott prides himself on bringing a high level of integrity and professionalism to both his clients and in his interactions with the brokerage community. Currently a member of the Sacramento Active 20/30 Club #1, Scott enjoys the service aspects of charitable organizations. Scott resides in Elk Grove with his wife and young family. His personal interests include cycling, running, golf and spending time with his family.

MG West, Northern California‘s premier contract furnishings dealer, provides high-quality office furniture that will improve the design and functionality of your commercial space. MG West has been dedicated to providing quality contract office furniture since 1905. Founded by Monroe George West just prior to the Great Earthquake, MG West worked and grew with many of California’s great companies, including, Wells Fargo Bank, Bechtel, Bank of America, Transamerica, Hewlett-Packard and many others. Our goal is to efficiently provide our customers with comfortable and productive working environments in an ever-changing technological world. As a full service contract office furniture dealership, we have created value for our clients and earned a reputation for uncompromising excellence in the products we sell, the services we provide, and the people we employ. The success we have achieved is based on a corporate-wide commitment to quality in all that we do. This is a direct result of listening to the needs of our clients who demand the very best. Our exceptional customer service, attention to detail and superior product has helped MG West remain an institution among Northern California’s business and design communities.