Commercial Real Estate Negotiation - Good time for Tenants

An Article from the WSJ regarding commercial real estate leasing:

More than two years before his firm's five-year office lease was due to expire in 2013, Robert Finlayson told his landlord he was interested in renewing, but wanted some incentive to stay put.

Mr. Finlayson, a managing partner at Mozley Finlayson & Loggins LLP, a 40-person corporate-law firm in Atlanta, says on the advice of a broker he felt it was the right time to make a deal. After three months of negotiations, he secured a six-year extension at a 20% discount, plus one year of rent at half price, starting in January.

Annual retail-property leases averaged $15.56 a square foot in the fourth quarter of last year.

The firm's landlord, real-estate firm Ackerman & Co., was satisfied with the agreement. "We don't want to see tenants walk out the door, particularly big tenants who have been with us a long time," says Frank Farrell, a senior vice president for Ackerman in Atlanta. "You're trying to renew early because it reduces risk. The costs of a renewal are probably half of what they are on a new deal."

Weitz - A lot of Tenants overlook this in their negotiation - its not easy to re-let a property. Don't be afraid to negotiate at lease renewal.

Small-business owners are seeing opportunities in the soft commercial real-estate market, trying to renegotiate their office, retail and industrial leases for less money. Now, with rental rates even lower than they were during the recession, and the economy showing signs of improvement, more tenants are scurrying to lock in better deals.

"It's a feeding frenzy," says Faith Hope Consolo, chairman of the retail leasing, marketing and sales division at Prudential Douglas Elliman Real Estate, a brokerage firm in New York. Business owners are "concerned that rents will be out of their reach sooner or later."

In the fourth quarter of 2010, annual leases for U.S. office properties averaged $23.20 a square foot, down from $25.02 during the same period in 2008, according to data from CoStar Group Inc., a commercial real-estate services firm in Washington. At the same time, vacancies rose to 13.4% from 11.8%.

The trend was similar in the retail and industrial sectors, CoStar's data show. Annual retail-property leases averaged $15.56 a square foot in the fourth quarter of last year, down from $17.51 in 2008's fourth quarter, while retail vacancies rose to 7.3% from 6.6%. Industrial-property leases averaged $5.47 a square foot in the fourth quarter of 2010, down from $6.28 in the same period in 2008, and vacancies rose to 10.2% from 8.8%, according to CoStar.

Chris Macke, a senior real-estate strategist for CoStar, says the commercial market is more tenant-friendly today than two years ago because it tends to react more slowly to economic changes. But, he adds, "we are already starting to see rents increase in some markets," such as Washington, D.C., and New York.

Data from LoopNet Inc., a San Francisco information-services provider specializing in commercial real estate, show similar figures, with the lowest yearly rental rates per square foot for office space in metro areas such as Rochester, N.Y., ($12.25), Columbus, Ohio, ($12.50) and Minneapolis-St. Paul-Bloomington ($12.54). For retail spaces, the lowest yearly rental rates per square foot are in Oklahoma City, Okla., ($11.08), Buffalo-Niagara Falls ($11.39) and Rochester, N.Y., ($11.58).

But it may be difficult for business owners to renew a lease at a lower rate more than two years in advance of its expiration date, says Wayne D'Amico, president of PropertyPolitics.com, a consulting company to both tenants and landlords in Essex, Conn. "It's easier if the opportunity to renew is close or imminent," he says.

Entering into lease negotiations can also be dicey. "You have to be willing to move," says Nick Balletta, chief executive officer of TalkPoint LLC, a Web-technology firm in New York with 100 employees.

Late last year, he completed a renegotiation of his company's decade-long office lease for six-a-half more years at a 20% discount, plus an initial six months of free rent. He entered into negotiations 13 months before the lease was due to expire and discussions lasted for nine months, during which he considered several other properties.

Mr. Balletta made the move because a broker told him that his company's office building was 30% vacant at the time and several other tenants' leases were up for renewal. "We knew we had leverage for negotiations," he says, adding that his broker helped him seal the deal.

"Let the broker have the hard conversations with the landlord because you have to live with the landlord post transaction. It's kind of like a real-estate pre-nup."

For more information, consider contacting a Seattle Commercial Lease Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98022
T: (425) 889-9300

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Small Business Capital Raising? - Look to China

An AP article on what I expect to be popular trend in the coming years – Chinese investment in the U.S.

Two years ago, Brad Williams halted production at his 250-employee recreation-vehicle company and eventually laid off more than 200 workers, unable to find cash to keep his factory humming when sales slowed.

Brad Williams, left, is hiring 1,200 at MVP RV, thanks to a $310 million investment from China. 'It's almost something out of a fairy tale,' he says.
"During the downturn, we went on the hunt for capital, but after 44 presentations we came up short," says Mr. Williams, 56 years old.

Today MVP RV Inc. is on the verge of hiring 1,200 workers and boosting production by some 30,000 motor homes to 40,000 this year. The difference is a $310 million investment from a Chinese entrepreneur who sees Asia as an untapped market for American-made RVs.

"It's almost something out of a fairy tale," Mr. Williams says.
His Riverside, Calif., company is one of a growing number of small U.S. companies benefiting from a surge in foreign direct investment from China.
Once dominated by purchases of U.S. Treasury bonds, Chinese foreign investment is shifting to mergers and acquisitions, joint ventures and taking stakes in new businesses.

Private-sector Chinese businesses and investors put nearly $5 billion into U.S. firms of all sizes last year, more than double the amount in 2009, according to the Rhodium Group, a New York research firm. That's a small fraction of the more than $55 billion that has flowed from the U.S. to China, according to the U.S. Commerce Department.

But the flow of private-sector investment toward the U.S. from China is expected to grow substantially, says Rhodium research director Thilo Hanemann.

It isn't clear how much of the Chinese investment funds go to small businesses. Many of the deals with small businesses are under $10 million and involve Chinese investors looking for early-stage U.S. partners as an entree into the U.S. market and for exporting goods and services back to China,, says Siva Yam, president of the U.S.-China Chamber of Commerce.

Recent deals have involved clean-energy, automotive, aerospace, information-technology and health-care industries, he says.

The White House, meanwhile, is encouraging small-business owners to seek global partnerships. Of the nearly 30 million small and midsize companies, only 1% currently sell goods abroad, trade figures show.

George Haley, a marketing professor at the University of New Haven in Connecticut, says although China investors provide welcome capital to U.S. companies, he worries that the ultimate goal in small-business investments is part of an effort by Beijing to relocate the companies to China and reap gains in technology, resources and jobs.

Mr. Williams, however, describes MVP RV's deal as a partnership, not a takeover. "We're not exporting jobs, we're exporting products. We're a homegrown company that happens to have a partner from China," he says.

His lifeline arose almost by accident. When sales were slow last year, Mr. Williams traveled with a team of MVP RV executives to Shenzhen, China, as part of plan to remake the company as an electric-car manufacturer. Talks with the Chinese electric-car company he'd gone to meet collapsed, but Mr. Williams was introduced to Winston Chung, whose company, Winston Global Energy, makes batteries for electric vehicles.

Over the course of several months, Mr. Chung became the majority shareholder in MVP RV in exchange for his $310 million investment. Messrs. Williams and Chung hope to develop a battery-powered motor home for sale in the U.S. and export to China's rapidly expanding automotive market.

Mr. Williams says although Mr. Chung is a majority owner, the company was very clear throughout negotiations that the MVP RV team will be running the business. He would regret being perceived as having sold out the company and offshoring jobs. Mr. Williams adds, "That fear is unfounded. As American businesses, we should not be fearful of partnering with foreign investors. This is something we need to do."

Business Up for Sale face harsh reality

An interesting Article for the Wall Street Journal:

Small-business owners banking on a big payoff when they sell their establishments may have to settle for a lot less than planned.

A combination of tight credit, skittish buyers and business owners unwilling to sell at rock-bottom prices—factors similarly affecting home sellers—has left the small-business marketplace at a standstill.

David Wetzel says he spent two years trying to sell his business, Dorset Hardware, a Ventnor City, N.J., shop he's owned since 1993. He's now liquidating the business and expects to earn only about a third of his asking price. "I had some very close leads who wanted to buy, but they could just not get the financing," says Mr. Wetzel, who is 64 years old.

Just 1,117 small businesses were sold in the U.S. in the third quarter, the same number as in the year-earlier period, reports BizBuySell.com, an online marketplace for small-business acquisitions in San Francisco. By contrast, there were 1,462 small businesses sold in the third quarter of 2008, according to BizBuySell. (BizBuySell.com licenses some of its data to The Wall Street Journal.)

One of the problems, experts say, is that business owners are proposing prices greater than their companies' true value.

"Owners still think their businesses are worth what they used to be," says Thomas Coffey, a partner in Malvern, Pa., with B2BCFO, a provider of outsourced chief financial officers to small businesses. In reality, many "small companies just aren't earning what they used to earn," he says.

Weitz- the converse of this is that there could be great opportunities for buyers of businesses. Remeber, if you're buying - try to do an 'asset sale'.
During the third quarter of 2010, owners listed their businesses for a median price of $245,000, according to BizBuySell. However, the average closing sale price in the period was $140,000, which was 6% less than what owners sold their businesses for during the same period in 2009, according to BizBuySell data.

Some owners say they have identified interested buyers but that many of these people are unable to obtain sufficient funding amid declines in loans guaranteed by the Small Business Administration. The agency backed $16.84 billion in loans in its fiscal 2010, down from about $20.61 billion in 2007.

As an alternative, some sellers are offering to finance part of the asking price for buyers "to close the gap," says Joseph L. Caffrey, president of Worldwide Business Brokers LLC. The arrangement has been typical of transactions that his company has brokered over the past 18 months, he adds.

Another challenge hindering sellers is that even potential buyers with sufficient funding are hesitating to close deals due to the volatile economy, says Mike Handelsman, BizBuySell.com's general manager. "People's risk profiles have taken a dramatic kick in the stomach over the last few years," he says.

Business owners also are shying away from the marketplace. Though the number of enterprises sold in the third quarter was stagnant, there was a 7.1% decline in listings from a year ago, to 31,856, according to BizBuySell.

Mr. Caffrey says some owners whose businesses lost market value during the recession are waiting for the economy to rebound before going to market. "They're reluctant to sell based on current valuations," he says.

For many, selling in the current environment will likely mean having to settle for less, which from the buyers' perspective, can be a good thing.

Franchises may have the benefit of a more recognizable brand name. Stacy Swift, owner of FranNet Colorado, a franchise brokerage business in Denver, says sales of new and existing franchises she's brokered over the past year have increased moderately. She declined to disclose figures.

"They probably started thinking of selling their businesses years ago and times got tough," says Maria Coyne, executive vice president of the business-banking unit at KeyBank, a division of KeyCorp., in Cleveland. "But now they're thinking we're back to a more reasonable environment" and they're not going to go through a recession again.

For more information on Small Business Law, consider contacting a Kirkland Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300

weitzlawfirm.com

Export Licenses: An Overview

Export Licensing Overview:

This post is designed to give people who are new to exporting, and, in particular, new to export controls an overview of the regulations and how to use them. Note: nothing provided here can substitute for consulting the Export Administration Regulations (EAR).

Does My Shipment Require an Export License?

Maybe. A U.S. export license requirement from the Department of Commerce can be triggered by several important factors specific to your transaction:
a. the actual item (commodity, software or technology) being exported,
b. where it is going,
c. who is going to use it, and
d. what they will be using it for.

If any of these factors change in your transaction, the license requirements may change.

What types of items does the Department of Commerce regulate?

The Bureau of Industry and Security (BIS) implements and enforces the Export Administration Regulations (EAR). The EAR regulate the export and reexport of most commercial items.

Does the Department of Commerce regulate all exports?
The DOC does not regulate all goods, services, and technologies. Other U.S. Government agencies have export control responsibilities for regulating more specialized exports. (For example, if you are shipping military goods, your item may be subject to the licensing jurisdiction of the Directorate of Defense Trade Controls at the Department of State.)
The Treasury Department’s Office of Foreign Assets Controls (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations, and international narcotics traffickers. The BIS website identifies resource links for various U.S. Government agencies with export control responsibilities. Go to http://www.bis.doc.gov/About/reslinks.htm for a listing.

Is there a list of restricted countries to which I can’t export?

Restrictions vary from country to country and from item to item. The most restricted destinations are the embargoed countries and those countries designated as supporting terrorist activities, including Cuba, Iran, North Korea, Sudan, and Syria.

So how do I know if my shipment needs an export license?

Step 1: Know your item’s Export Control Classification Number (ECCN). ECCN entries are found on the Commerce Control List (CCL) and identify reasons for control which indicate licensing requirements to certain destinations. Other reasons an export license may be required for your shipment relate to concerns about the parties to the transaction and the end-use of the item.

Do all items have an ECCN?

Many commercial goods are not on the Commerce Control List and do not have an ECCN. These goods are designated as EAR99. EAR99 items generally consist of low-level technology, consumer goods, etc. and do not require a license in most situations. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern, or in support of a prohibited end-use, you may be required to obtain an export license.

Where do I find the Commerce Control List?

The Commerce Control List is part of the Export Administration Regulations (EAR) which can be found on the Government Printing Office’s EAR database at http://www.access.gpo.gov/bis/ear/ear_data.html#ccl Scroll down the page to Part 774. Below are the ten categories of the Commerce Control List which can be viewed as separate files in several different formats, including PDF.

So if my item is EAR99, does that mean I don’t need a license?

EAR99 items will generally ship under the designation “NLR” which stands for “No License Required”. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern or in support of a prohibited end-use, you may be required to obtain an export license.

What is the difference between EAR99 and NLR?

EAR99 is a classification for an item. It indicates that a particular item is subject to the Export Administration Regulations (EAR), but not specifically described by an Export Control Classification Number (ECCN) on the Commerce Control List (CCL). While the classification describes the item, the authorization for shipment of that item may change, depending on the circumstances of the transaction.
NLR stands for the "No License Required" designation. NLR may be used for either EAR99 items, or items on the CCL that do not require a license for the destination. However, exports of an EAR99 item to an embargoed country, an end-user of concern or in support of a prohibited end-use may require an export license.

If I determine my item is classified EAR99 and I can ship under NLR, what do I need to do?

You indicate “NLR” as your authorization for export on the Shipper’s Export Declaration or Automated Export System record. By signing the SED or submitting via AES (or designating your freight forwarder to do so), you are certifying that your item is eligible for NLR. You should also keep records relating to your NLR determination and the export transaction for five years.

What is a license exception?

A license exception is an authorization that allows you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license based on the ECCN and destination.

What do you mean by prohibited end-user or end-use?

If you know or have reason to know your item would support a proliferation activity, such as nuclear, chemical/biological, or missile proliferation activities in a country of concern, a license would be required. Part 744 of the Export Administration Regulations spells out the specific regulations related to end-user and end-use controls.

Do the licensing requirements change depending on how I’m sending the item?

No. Export license requirements stay the same regardless of the method of shipment or transmission. This includes technology shipments via the internet or items carried in a briefcase. [Note: although license requirements may not change, license exception availability may (i.e. BAG or TMP.]

I’m not a company, I’m just sending something overseas to a friend. Does this mean I don’t need to worry about whether or not my item needs a license?

Whether or not something is being given away or sold does not affect the license requirements of your shipment. You still need to determine whether or not an export license is required.

Does it matter if what I’m sending is under $2500 dollars?

No. The value of the shipment does not affect the export license requirements. However, the value of the shipment may affect the requirements for filing a SED or AES Record. If an export license is required, a Shipper’s Export Declaration will be required as well, regardless of value.

Can I just have my freight forwarder fill out the license related information on the Shippers Export Declaration or AES record?

Your freight forwarder is generally not in a position to determine your requirements because a technical assessment of your item is required to determine its ECCN and any associated license requirements. You are ultimately responsible for the proper export authorization

What if my customer asks me to send the item to their freight forwarder here in the U.S.? Do I still have obligations?

Yes. Just because your customer is directing the U.S. forwarder to ship the items does not relieve you of obligations in the export transaction. The responsibility for determining the proper export authorization and obtaining an export license, if necessary, would be your obligation unless your customer provides you something in writing indicating that they are assigning the licensing responsibility to another party in the U.S., such as the forwarder. In either case, you will continue to show as the “Exporter” on the Shipper’s Export Declaration. In this case you need to provide specific information to the forwarder in order for them to do what it takes to ensure compliance. You will still be cited on the export declaration as U.S. Principal Party in Interest (USPPI).

I’ve got some paperwork from past exports made before I started here, can I just use the same information again?

Not necessarily. Export license requirements are transaction specific. If the item, country of destination, end-user or end-use have changed, it could affect the type of authorization for which the export is eligible.

My company has been exporting for years and I’ve never heard of an ECCN or license requirement. Is this requirement new?

No, this requirement is not new. Perhaps someone in your company already determined that the items you export are not listed in a specific ECCN on the Commerce Control List and do not require export licenses for the destination to which you ship. Be aware that classifications may change over time. Since the exporter is responsible for determining the proper authorization for shipment, you will want to review the Commerce Control List or submit a classification request.
If you find there have been exports without proper authorization, you should notify your company’s management and consider filing a voluntary disclosure to BIS.

I know the Schedule B number for my item, will that help in determining the ECCN?

No. The ECCN and Schedule B number do not correlate, although you will need to know both when you make a shipment.

What is the Schedule B Number and how do I get it?

Schedule B commodity codes are 10-digit numeric codes used to identify products for trade statistics purposes. The Bureau of Census’s Foreign Trade Division can assist you at 301-763-2238. A Schedule B search engine is available at http://www.census.gov/foreign-trade/schedules/b/.

I’ve been told that I can I get an official ECCN determination over the phone from the Department of Commerce. Is this true?

No. The ECCN is based on the technical characteristics of the item and requires a detailed analysis of the item in order for it to be classified. The Department of Commerce cannot provide you with an ECCN over the telephone. However, we can assist you in understanding how to do a self-classification of the item using on-line resources and your technical understanding of the item. We can also explain the process of submitting an official request for a classification which typically takes 4-6 weeks. The Office of Exporter Services has counselors available from our Washington DC headquarters at (202) 482-4811 and our Western Regional Office in California at (949) 660-0144 or (408) 998-8806.

I don’t have time to wait for a response to my classification request. Are there any alternatives to this?

If you are not the manufacturer of the item you are exporting, the item may have already been classified by the manufacturer if they themselves export. One of the quickest ways to determine the ECCN of your item is to check with the manufacturer. Many companies list ECCNs on their website.

I’ve found an official classification done by the Department of Commerce back in 1996. Can I still use this?

The Commerce Control List and ECCNs change often - sometimes items are added to the CCL and other times item specifications are changed or removed. In addition, your item may have different technical characteristics than what was classified previously. It’s important to stay up-to-date with changes to the Commerce Control List which may affect your item’s classification.

Once I’ve determined my ECCN, what do I do?

Once you have classified the item, the next step is to determine whether you need an export license based on the “reasons for control” of the item and the country of ultimate destination. You begin this process by comparing the ECCN with the Commerce Country Chart (Supplement No. 1 to Part 738). The ECCNs and the Commerce Country Chart, taken together, define the items subject to export controls based solely on the technical parameters of the item and the country of ultimate destination.

How do I screen my customer?
Certain individuals and organizations are prohibited from receiving U.S. exports. Others may only receive goods if the transaction has been licensed, even for items that do not normally require a license based on the ECCN and country or based on an EAR99 designation. There are various lists that may be relevant to your export or reexport transaction such as the Denied Persons List and Entity List. These lists are available on the BIS website at http://www.bis.doc.gov/ComplianceAndEnforcement/ListsToCheck.htm.
In addition, BIS has guidance on its website on knowing your customer and potential red flags in a transaction at http://www.bis.doc.gov/complianceandenforcement/KnowYourCustomerGuidance.htm.

What happens if I don’t get the proper export authorization?

Responsibility for export compliance rests with the exporter. Administrative and criminal penalties exist for violations of U.S. export law. The maximum financial penalty per administrative violation is $50,000.

I’m a small businessperson. Does everyone have to follow these regulations?
Yes. Keep in mind that most low-level or dual-use products will have the designation EAR99 and be eligible for shipment under the NLR designation. Products with this designation will only require a license to certain prohibited destinations, end-users, or end-uses.

If I do have to apply for an export license, can I do it online?

Yes. The fastest way to get an export license is to use the Internet based electronic licensing system, SNAP-R. You must first obtain a PIN prior to submitting an electronic license application or classification request. For further information regarding SNAP-R and PINs, visit the BIS website at http://www.bis.doc.gov/snap/pinsnapr.htm.
The alternative is the paper application, the BIS-748P multipurpose application which is available from BIS. You must use the original form which must be typed. You can order the form by calling (202) 482-3332.
Is there someone I can call if I have additional questions or need specific guidance?
Assistance is available. The Office of Exporter Services has counselors available from our Washington DC headquarters at (202) 482-4811 and our Western Regional Office in California at (949) 660-0144 or (408) 998-8806.

Is there information available on the Internet?
Yes, additional export control information and related resources are available online at www.bis.doc.gov.

For more information on your small business, consider contacting a Seattle Small Business Attorney.