Clay & Company » A Texas Commercial Real Estate Blog

The below article is reprinted from Texas REALTOR® magazine

How will new laws affect you? Several changes to state laws that affect real estate professionals, property owners, and tenants go into effect Jan. 1, 2012. Here’s what you need to know.

Do you remember what happened during the 82nd Texas Legislature earlier this year? If you’re like most people, you can barely remember what you ate for breakfast today let alone what state legislators did in May. The Texas Legislature changed and added many laws, but some specific to real estate don’t take effect until Jan. 1, 2012. Here’s a summary of the changes to come and what they mean for you, property owners, tenants, and real estate transactions.

Changes for you and your transactions

You’ll need more experience to qualify for a broker’s license
The Texas Real Estate Commission will soon require more time spent as a salesperson to qualify for a broker’s license and will require you to submit evidence that you’ve performed a certain amount of brokerage activity during that time.

As of Jan. 1, 2012, you’ll need to have been licensed as a salesperson in at least four of the previous five years. You’ll also need to show, using TREC’s new point system, that you’ve participated as a salesperson in “enough” real estate transactions during that time.

How much is enough? TREC has devised a points system that awards you for various real estate tasks. For example, re
presenting a buyer or seller in a transaction that closed is worth 300 points, and an executed lease is worth 50 points. To qualify for a broker’s license, you’ll need at least 3,600 points, with some points earned in each of those four years.

Part of your broker-license application will include a sheet showing the points you’ve accumulated. If you’re part of a sales team, you may only claim points for brokerage activity for which your name is on a document (e.g., a sales contract or a property-management agreement). Initially, you won’t have to provide proof of your experience; you and your broker will sign the sheet. However, TREC will have the option to require supporting documentation.

Education requirements for a broker’s license remain the same.

Buyers can get an HOA resale certificate
Beginning January 1, a homebuyer purchasing a property in a subdivision will have the ability to request a resale certificate directly from a homeowners association. The HOA may require the buyer to show he has a valid contract for the property and may require payment before beginning work on the resale certificate. The association is prohibited from processing the payment until the resale certificate is prepared and may not charge a fee at all if the certificate is not provided in a timely manner.

Buyer’s representatives should be aware that for contracts entered into on or after January 1, buyers will be required to pay the fee for the resale certificate unless the buyer and seller have negotiated otherwise in the sales contract. Currently, the TREC addendum provides options for delivery of the resale certificate and states the seller will pay for it. That addendum is likely to change early in 2012 to reflect the change in law.

The law still allows sellers, seller’s agents, and title and insurance companies to order updates to already issued resale certificates. But under the new law, a resale certificate is only good for 60 days. For any resale certificate older than that, a new one will have to be issued.

Tweaks to owner’s and lender’s title policies
Title policies could always exclude coverage of the ownership of minerals, but as of Jan. 1, 2012, title companies are no longer required to provide a 2% credit on the cost of the owner’s policy for this exclusion.

Also on January 1, title companies are no longer required to insure a loss from damage to property resulting from the use of the surface of the land to extract minerals. Prior to that date, if title companies excluded minerals from coverage, they were required, upon request, to insure against such damage. This insurance was provided through an endorsement to the policy, which cost $50. The endorsement is still available for the lender’s policy and the owner’s policy, but there will be no charge for the endorsement to the lender’s policy. For an endorsement to the owner’s policy, the charge remains $50.

Disclosure requirements for private transfer fees.
Most future private transfer fees on real property were prohibited on Sept. 1, 2011. However, as of Jan. 1, 2012, a real estate sales contract for a property with existing private transfer fees must disclose those fees.

Changes for property owners and tenants

HOAs face new rules for foreclosures, finances, and more
Homeowners associations, as of Jan. 1, 2012, have new guidelines for maintaining association documents, providing access to association records, and conducting open meetings. Also, unless waived in writing by a property owner, a homeowners association will be required to use an “expedited foreclosure” process, which includes obtaining a court order, before foreclosing against a property owner. Property owners can now add or remove an HOA’s foreclosure power by a two-thirds vote of association members. Additionally, HOAs are prohibited under the new laws from foreclosing a debt consisting solely of fees charged for obtaining copies of HOA records.

The new law dictates the order by which a homeowners association must apply owners’ payments: delinquent assessments, current assessments, attorneys’ fees, and fines—affecting their ability to foreclose. Also, the notice that must be given to a property owner by an HOA before it can take certain actions against the owner, including foreclosure proceedings, must now inform the owner that he may have special rights or relief if the owner is on active military duty.

Paperless property-tax bills.
Starting January 1, local tax offices can offer an electronic tax bill. Interested property owners should check with their tax office to see if they can begin receiving their bill via e-mail.

Appealing property appraisals without going to court
Also January 1, property owners in Collin, Denton, Fort Bend, and Montgomery counties whose properties are worth more than $1 million can appeal their property appraisals through the State Office of Administrative Hearings rather than taking that appeal to district court. Property owners in Bexar, Cameron, El Paso, Harris, Tarrant, and Travis counties were given that option two years ago.

Tenants can appeal eviction regardless of ability to pay court costs
Effective January 1, a tenant unable to pay the costs of appealing a judgment in a residential eviction suit may still appeal by filing a pauper’s affidavit. The tenant will still be required to pay rent, which goes into the registry of the court, and must make a rent deposit into the registry within five days of filing the pauper’s affidavit. Without this deposit, a landlord can request a writ of possession in his favor, which the court will immediately issue.

Lori Levy is legislative and regulatory counsel for the Texas Association. Reprinted from Texas REALTOR® magazine.

1. and 2. Austin, TX, and Houston, TX.

The bloom’s not off the yellow rose of Texas. Steady job growth and a construction revival make Austin and Houston two of my five cities to watch. Texas isn’t hung over from the housing boom like the other big states of the South and West, so there’s little to hold back growth. Honorable mention to Fort Worth and San Antonio.

See more here.

• Clayco Academy purchases site of new Baytown Academy Sports, Houston Business Journal
• Two Clay & Co Execs Awarded CCIM Designation, REDNews
• The newest Houston-area Academy Sports + Outdoors store, at 6425 Garth Road, has a new landlord, Houston Chronicle
• The Deal Sheet, Real Estate Bisnow

Investing in Triple-Net Properties: Now Is the Time
By Randolph T. Mason
Senior Vice President & Partner, Lee & Associates Commercial Real Estate Services
Original article here. Reprinted by REDNews here.

If you could have an investment that paid you regularly with limited management, would that excite you?

If so, the long-term triple-net-leased property to a sound company with good financials (and maybe even personal guaranties or letters of credit) may be an investment for you.

One of the exciting components of a triple-net investment is that the tenant is the one who maintains the property and typically pays all of the building’s expenses. You, as the owner, receive your rent. Should you have any debt service on the building, this rental income goes to pay that expense. The balance is for you.

Let’s look at what’s currently happening in the market. Cap rates seem to be stable, or possibly shifting downward slightly, on most types of properties. Some of the lowest cap rates are apartments, followed by central-business-district office projects, R&D industrial, neighborhood retail and industrial properties. Some of the favorite triple-net properties are, not surprisingly, those that seem to offer the least risk – such as Wal-Mart, McDonald’s, Lowe’s, Walgreens and other high-profile tenants. Should an investor be looking for a higher return on their investment, they should probably look at lesser known, yet well capitalized companies.

While long-term triple-net investments provide stability and income, there is a downside. Your assets are locked into a long-term lease, and you’ll miss out on chances to capture any gains in rental income when fundamentals improve.

But there still seems to be a strong supply of debt available due to long-term leases to credit tenants, a trend strengthened by the ease of underwriting for single-tenant properties. We are still seeing institutional investors, REITs and foreign buyers, as well as private investors, investing in all-cash transactions; currently, they have nowhere else to put their money and achieve a decent return.

So, investors looking for limited management responsibilities, longer-term leases with a stable cash flow and the unique tax benefits from real estate, a triple-net investment may be the right play.

Clay & Co Note: See a recent example of this type of investment here or read more triple-net leased investments articles.

Investors vie for the safety, convenience, and ROI of top net-leased deals.
By Sara Drummond for Commercial Real Estate Investment, The Magazine of the CCIM Institute

Looking for a rock-solid investment in a shifting economy?

Look no further than single-tenant net-leased properties. In markets where shopping centers sit empty and office buildings are dark, the lights are on (usually 24 hours) at the corner drugstore — provided it’s a Walgreens or a CVS. With their invest- ment-grade credit ratings and penchant for long-term leases, these drugstore triple net- leased deals attract top dollar in almost every market.

But drugstores are only one of a stable of creditworthy tenants for net-leased deals, according to a recent anecdotal survey of CCIMs. Other tenants are also attracting buyers. CCIMs report that everyone from all-cash individual buyers in small towns to big-city real estate investment trusts are looking to add one, two, or 20 of these stable investments to their portfolios.

Supply/Demand
From every U.S. region, CCIMs report that the NNN supply is tight and the demand is high. “The entire state of California has more money than product,” says George L. Renz, CCIM, of Renz & Renz in Gilroy, Calif. He has the investors: His big- gest challenge is finding deals with good intrinsic value that “truly reflect safety and truly reflect investor’s goals — most of which involve risk avoidance.” In Atlanta, “I am seeing more out-of-town buyers from everywhere in the country and even international,” says Virginia I. Wright, CCIM, vice president of net-leased invest- ments for Bull Realty. “With a strong lease, tenant, and location, they are satisfied without having to visit the property and just enjoy the rent checks. Many buyers would love portfolios of properties; however, these are more difficult to come by.”

Many of those portfolios are going to institutional investors that have turned their attention to net-leased product in the past few years. REITs, insurance companies, and pension funds have contacted CCIM brokers in smaller markets this year, looking for portfolio deals.

Money Is Available
One reason for the interest in net-leased deals is that financing is available at alllevels. With most net-leased properties priced under $5 million, many single-asset purchasers buy with cash, according to the CCIM market round-up. “We have been doing transactions almost always with knowledgeable all-cash buyers who want to close swifly,” says Rob Murdocca, CCIM, of Prescient Property Group in Wayne, Pa. Len S. Jarrott, CCIM, of Jarrott & Co. in Santa Barbara, Calif., has completed three portfolio deals ranging in price from $9 million to $32 million — all 1031 deals that closed with cash. “When I do use debt, I go to life companies,” he says.

Wright adds that a variety of financing sources are available for investors who want leverage, and CCIMs in most markets con- firm this.

“Smaller investment deals are getting financed through smaller, extremely well-capitalized rural banks flush with farmers’ cash,” says Shad J. Phipps, CCIM, a senior associate with CB Richard Ellis in Columbus, Ohio.

“Very desirable rates, usually in the 60 percent loan-to-value range, can be found for qualified buyers with qualified properties,” says Chris Schreiber, CCIM, an associate broker with Kiemle & Hagood Co. in Coeur d’Alene, Idaho.

NNN Challenges
Despite the availability of money for NNN properties, financing is still a concern, given that most local banks require pre-existing relationships. “All of the smaller community banks require that a borrower has an estab- lished track record of working with them,” says Casey Weiss, CCIM, of Access Com- mercial Real Estate in LaCrosse, Wis. Tey also ofen limit their loans to the local area, he adds.

Another problem is conflicting buyer and seller timelines, Murdocca says. “Sellers need to be prepared to meet buyers’ need for due diligence. Triple-net deals sell well, but buyers still want a feasibility period.”

While lack of supply is a problem in almost every market, a hidden niche may be older net-leased properties, Weiss says. “Investors seem to be more interested in NNN proper- ties that have some age, versus brand-new NNN properties,” he says. “Older NNN properties have a lower per-square-foot price, which means that they don’t require as high of lease rates if they are forced to release.”

In today’s market, he adds, “Investors are putting more emphasis on their back-up plans. They realize that losing a tenant is a real possibility, and buying older properties can help them prepare.”

Even with newly developed NNN properties, investors are not taking as many chances, says Gregg H. Tompson, CCIM, general manager of Ratcliff Facilities, in Alexandria, La. Ratcliff specializes in developing NNN properties, recently for Dollar General. “Since there is no such thing as ‘too big to fail’ anymore, investors are exploring options and worst-case scenarios with their properties,” he says. “We are seeing this hedging early in the negotiating phase of our completed development projects.”

Thompson is also concerned about upcoming FASB changes. “As a developer, we feel that these proposed changes will dec- imate the design-build net-leased market by forcing tenants into shorter lease terms or to revert back to fee-simple ownership of properties. Tis will dramatically decrease the attractiveness of commercial real estate as an investment due to increased manage- ment and risk associated with properties.”

Two of Clay & Company’s executives were recently awarded the Certified Commercial Investment Member (CCIM) designation by the CCIM Institute. Amy Silvey, Vice President, and Kevin Dalrymple, Director of the Sales and Brokerage Division, were awarded the designation during the Institute’s fall business meetings on October 12 in Phoenix, Arizona. Amy and Kevin were among the 348 commercial real estate professionals (9 from Houston) who earned the designation last month.

A CCIM (Certified Commercial Investment Member) is a recognized expert in the commercial and investment real estate industry. The elite designation is earned after successfully completing over 160 hours of case-driven study and submitting a comprehensive portfolio demonstrating the depth of their commercial real estate experience. Finally, they have demonstrated their proficiency in the CCIM skill sets by successfully completing a comprehensive examination. Only then is a designation candidate awarded the coveted CCIM pin, joining the ranks of highly skilled commercial and investment real estate experts.

One of our most loyal clients recently attended the Institute for Regional Forecasting symposium, entitled “Houston – The Teflon® Economy and Real Estate Markets: A Few Scratches, But the Bad Stuff is Not Sticking and We Keep on Cooking…” Our client shared the slideshow with us in which Dr. Ted C. Jones, Senior Vice-President and Chief Economist for Stewart Title, painted a strong and exciting outlook for Houston over the next 12 months. Below is an article from the Houston Chronicle highlighting some of Dr. Jones’s points or you can get a full copy of the slideshow here.

A local real estate economist predicted Tuesday that the Houston area will add about 62,000 jobs next year, a gain of 2.4 percent.

Oil and gas exploration and production, construction and manufacturing will be among the sectors leading the growth, said Ted C. Jones, chief economist for Stewart Title Guaranty Co. He made his comments during a luncheon sponsored by the University of Houston’s Institute for Regional Forecasting.

The Houston economy is on pace to finish 2011 with more than 66,000 jobs added for the year, he said. According to the most recent data from the Texas Workforce Commission, the Houston area added 66,300 jobs from September 2010 to September 2011, a year-over-year increase of 2.6 percent.

Jones was not as bullish a year ago when he predicted that Houston would add a little more than 30,000 jobs in 2011. The increase, he said at last year’s luncheon, would be led by gains in government, retail and oil and gas exploration and production.

Jones said on Tuesday that he underestimated the growth at the Port of Houston, airport construction work that has created blue-collar jobs and the boom in energy-related manufacturing and services.

Demand for Houston-made energy products is strong globally, he said, which is boosting the local economy.

At the same time, he said, all levels of government have cut spending because of lower tax revenues and the end of federal stimulus spending.

Authorities say they are up to 70% containment on the Central Texas wildfire that has consumed more than 34,000 acres and over 1,500 homes. But they also are worried that stiff winds with gusts up to 25 miles per hour Tuesday afternoon and later in the week could cause flare-ups. Fires outside Bastrop, about 25 miles from Austin, have been burning for 10 days and have destroyed more homes than any in Texas history. Below are some ideas on how to help victims of this fire and others around the state:

• Disaster Relief And Disaster Training (DRADT) specializes in responding to disasters immediately and share the needs of survivors via social media; allowing you to join the relief efforts. Visit www.texasfirerelief.com for information on how to help.
• Houston-based Friends for Life brought in its mobile shelter to help treat injured Bastrop animals until their owners can be found. Make a donation to them here.
• Pearland High School is collecting items to provide relief to our Texas neighbors displaced by the devastating wildfires. The community is invited to join in this effort to help these families by donating the items listed belYou may bring your contribution to the Sheryl Searcy Ninth Grade Center Choir Room (room 1500), between 7:00 a.m.-3:00p.m. on school days.If you prefer, you may make a monetary contribution to benefit theTexas Wildfire Relief Fund. Please make your check payable to PHS, and notateTexas Wildfire on the memo line. The drive ends on Friday, September 23, 2011.
• Buy this shirt and 100% of profits will benefit the AmericanRed Cross with their efforts in Texas.
• Friends of Texas Wildlife supports the rehabilitation of native Texas wildlife and the promotion of co-existence of wildlife and humans through education. Go here to find out how to support their efforts through donations or volunteering.
• The Houston-area Red Cross has opened 3 shelters around Houston to assist over 130 people.  For updates, to volunteer or to help by giving a financial donation, click here.
• This new site has been set up to keep the public updated on information on the wildfires.

UPDATED

• Tuesday night, El Real Tex-Mex will present “Pray for Rain” a four-course interactive dinner to benefit the wildfire victims. Chef/owner Bryan Caswell and Underbelly’s Chris Shepherd will team up for create a “Texas-style” menu, and Hay Merchant’s Kevin Floyd will contribute margaritas and drink pairings. Windsor Village United Methodist Church pastor Kirbyjon Caldwell will also be present to open the evening with a prayer. The dinner tariff is $85 per person, including beer and margaritas, and the dinner begins at 7 p.m. with cocktails served for half an hour beforehand. Reservations are required, and all proceeds from the dinner will go to Society of Samaritan, a local Magnolia organization that Caswell and Shepherd came into contact with while bringing foodstuffs to Waller and Montgomery counties on Friday.
• To help local farmers affected by the Texas wildfires, Urban Harvest has set up a Wildfire Farm Relief Fund (WFRF). The public can make donations to the WFRF fund and to buy their products, which will all help support the farmers’ day-to-day lives. Checks should be written to Urban Harvest and 100 percent of these donations will go directly to the farmers. Checks, cash or credit card donations are tax deductible and can be made at any of the Urban Harvest Farmers Markets, or mail checks c/o Urban Harvest, 2311 Canal, Suite 200, Houston TX 77003.

Houston Chronicle Real Estate Transactions (Sept 5, 2011)
INDUSTRIAL: HAF Enterprises has purchased a 13,092-square-foot office warehouse space at 14038 S. Gessner in Missouri City. Tim Clay and Barton Kelly with Clay & Co. represented the seller, First Bank. Champions Real Estate Group represented the buyer.

Real Estate BISNOW The Deal Sheet (Sept 6, 2011)
Clay & Co has been selected as the exclusive leasing agent for a 94k SF industrial building on the South Loop at Mykawa Road. The building is comprised of 78k SF of warehouse space and 16k SF of office space. Central Transportation Systems occupied the facility through August of this year.

We are moving to an updated and expanded space! Please make note of our new suite number beginning Monday, August 15:

9821 Katy Freeway, Suite 875
Houston, TX 77024