Over years, I have had the experience of converting corporations (either S Corps or Corps) to a limited liability company (LLC).  The reasons are to achieve better asset protection from outside creditors and have less ongoing documentation (avoiding corporate minutes) but not to be considered to have liquidated for income tax purposes.

I have also converted general and limited partnerships to LLCs.  Conversion is a formless matter under California law that does not impact your business operations or how you hold your assets, if you still want to be tax as you currently are.

Some of my clients decided during the formation of a new business venture to be taxed as an S Corporation in order to take care of favorable tax treatment, but want from an operational standpoint to be an LLC compared to operating as a corporation as mentioned above.  Generally, LLCs are taxed as partnerships and more often than not that is the preferable choice, especially if you own real estate.
Formless Transaction.
It wasn’t until a couple of years ago that California allowed a corporation, similar to other business entities, (i.e., general partnerships, limited partnerships) to convert to an LLC.  The effect of a conversion is to merely change the form of how you do business, but it does not change any of your legal obligations.  This is a very key concept to understand.  You even keep your old employer identification number after a conversion.  More importantly, if you want to preserve favorable tax benefits as either a C Corporation or S Corporation you will not be subject to the gross receipt tax discussed below under the disadvantages of utilizing an LLC.

A major reason that an LLC is more attractive as a business entity is because you are not required under the Beverly-Killea Limited Liability Company Act (the “Act”) to have formal membership meetings compared to corporations.  Because of this benefit, you would not want your operating agreement to provide for annual or regular meetings.  If there was a requirement of annual or regular meetings and you did not do so, you may not avoid an alter ego attack by creditors.

Another reason why an LLC is more favorable under the Act compared to the corporate laws under the State of California and other states is the charging order protection.  Under a charging order, an outside creditor (did not deal directly with LLC) becomes only an assignee and will not to be able to vote your membership interest and dissolve the LLC compared to a corporation and being able to vote your stock.

LLC Taxed as a Corporation.
The solution is to make certain that the corporations that have converted to LLCs will still be taxed as corporations.  I previously mentioned the preservation of the NOLs and avoiding the double taxation.  You must be certain that before and after the conversion the equity interest remains the same.  This is particularly true regarding NOL limitations on a change of ownership.

However, there are other reasons why people would choose to want to remain as corporations or be tax as one on formation.  Family members may prefer the certainty of corporate tax treatment for their closely held business.  In a non personal service business that distributes almost all of the profits as salaries or other compensation the marginal tax rate for a corporation is lower, eg. 15% on the first $50,000 of income compared to the tax rate of each individual member.  Even in a personal service business, the marginal tax rate for a corporation of 35% is less than the maximum tax rate of the individual members ie. 39.6%.  Moreover, an LLC taxed as a corporation may deduct certain employee benefits, such as accident and health premiums, while avoiding state laws’ corporate governing provisions.

Conversion Concept
Besides converting corporations, I have also converted general and limited partnerships into California LLCs.  The reason for the conversion with regard to the general partnership was to make certain that if an inside creditor (compared to an outside creditor) were to be successful in obtaining a judgment against the partnership, the general partner risk of loss would be to only the partnership asset and not any of their other personal holding.

Conversion of existing corporations or other business entities to LLCs via the statutory conversion provision is generally preferable to other conversion techniques, including statutory mergers.  The reason for this is a statutory conversion is in compliance with state law that legally allows the conversions without numerous conveyance documents.  The assets and liabilities of the corporation or other entities become the assets and liabilities of the LLC by operation of law.  Unlike the entities in a statutory merger, the converting LLC is treated as the same entity that existed before the conversion, thus avoiding conveyance or transfer tax which is particularly important in real estate holding.

Disadvantages
Lastly, there are some disadvantages for conducting business under an LLC.  The first is a financial disadvantage regarding the graduated gross receipts fees that can be as high as $12,990 on gross receipts in excess of $5,000,000 a year.  If the gross receipts of an LLC were under a half a million dollars then the annual fee would be $1,700.  Some people would much rather be subject to the lower annual $800 imposed on C corporations and limited partnerships.  If an LLC is taxed as a C corporation you are not subject to the LLC gross receipts fees because the LLC will be filing a corporation rather than an LLC income tax return.

A second disadvantage has to do with the fact that if the converting entity owns real estate, a lender may construe this to be a type of transfer that would have to have lender approval and therefore may charge you an additional fee under the deed of trust. Generally this is not an issue because the conversion is done by operation of the law and mere a change of business form.

Conclusion
With proper planning converting a business entity to an LLC, particularly a corporation or general partnership can be accomplished easily without adverse tax consequences.  When forming of a new business entity consideration can be given to forming an LLC, but have it taxed as a corporation rather than a partnership because of favorable tax rates.

D. Michael Trainotti has a general tax practice in Long Beach which emphasizes real estate, closely held businesses and estate planning matters. He has a master’s degree in taxation and is a member of the tax sections of the State Bar of California dealing with real estate, pass-through entities and estate planning. He is also a member of the same tax sections of the Los Angeles County Bar Association and the American Bar Association. Mr. Trainotti would be pleased to hear from you regarding  future topics of interest or comments on this article. Please contact him directly at his office at (562) 590-8621 or by e-mail at mike@trainotti.com. You can also visit his website at http://www.trainotti.com

By Bradley Luster

If you have been in any Real Estate transaction or plan to be, as a Buyer you are afforded a Due Diligence period. But what exactly is a Due Diligence period?

“Due” according to Webster’s dictionary means “Meeting special requirements”; and “Diligence” again according to Webster’s means “Marked by painstaking effort”.

A Due Diligence Period is a defined period in time for which the Buyer shall perform studies into the physical and material aspects of the Real Estate being sold and/or bought to determine if the Buyer wants to proceed with the purchase. Most Due Diligence periods commence upon the opening date of escrow and conclude on an agreed upon time sometime thereafter.

In many of my transactions, I am representing the Seller and it is then that I try to put a different spin on the words of Due Diligence. I ask my Seller’s to perform specific studies that by my experience determine what a Buyer may want. For example, I usually suggest that owners perform a Phase I environmental study for their property. It can cost from $1,500-$3,000 or more pending the property, size, etc…

Many Sellers’ in the beginning of this conversation usually balk at the idea of spending money prior to finding a Buyer. But I usually turn them around by explaining the reason to perform the study. Most contracts, standard forms for industrial property require the Buyer to perform the study. So what is wrong with me? I hope I’m o.k.  It is my job to represent the Seller, it is also important to find out what might be a problem in escrow that might kill a deal. What would be worse than entering into escrow on a sale and the buyer performs a Phase I environmental study and it comes back that you have an issue that needs more investigation. Maybe it says that in the past there was a use on the property that might have used an underground fuel tank?

Who was hired to do this study? The Buyer is an adversary in a transaction and it has been known to use a less than truthful contractors to renegotiate deals. So why not spend a few dollars and know what you are selling first. If there is an issue, you can take care of it if you chose or disclose it to a Buyer. This strategy has helped my clients close more deals and the main reason is that we avoid the waste of time. We know the issues and deal with them. You cannot bury your head in the sand and hope that no one will find out the problems at a property. Also, who wants to get into a legal battle with anyone? That is a losing proposition always.

There are many different things that a Buyer investigates while in the Due Diligence Period. Here is a list:

These are the basics of what a Buyer will investigate. I try to arrange information in advance of going onto the market for as much as possible to reduce the Due Diligence time needed by a Buyer as the work has been done. My best story is the one where I sold a property in downtown Los Angeles for $4 million more than the Seller anticipated. I listed the property but did not put a price on it. I prepared a marketing package with all the Due Diligence materials named about and more. I sent out marketing materials about the opportunity to known prospective Buyers who might want to buy the site for future development. The Seller got $15 Million, and the Buyer went hard with $1Million non-refundable in 10 days and closed 30 days thereafter. The Buyer’s put a $100Million development on that site.

If you are a Buyer it is important that you receive full disclosure about a property and then still investigate the sources and information for accuracy. These types of transactions are for big money and require expert representation and guidance weather you are the Buyer or Seller.

A seasoned real estate professional, Bradley A. Luster has been a consistent Top Producer for Major Properties for 24 years. In 1992, he and his brother Jeff became owners of the firm started by their father, Arnold Luster, in 1964. Mr. Luster is the President of the firm and has literally sold millions of square feet in the Downtown Los Angeles real estate market. Major Properties has brokered over $3.0 billion in transactions and has served thousands of commercial and industrial property sellers, buyers, lessors and lessees. Check them out at www.majorproperties.com. Mr. Luster may be contacted at (213) 747-4151, by fax at (213) 749-7972 or by email at brad@majorproperties.com.

If a routine inspection of the facility shows disturbing signs of water intrusion, facility managers must take the necessary steps to mitigate the problem.  Water damage can weaken the structural integrity of the building, threaten the health and safety of building occupants, and expose the facility to the risk of building code violations.

Signs of Waterproofing Problems

Commercial building waterproofing contractors can accurately detect waterproofing system failures through a comprehensive inspection.  But facility managers will be able to spot waterproofing problems through these visible signs:

1.  Wet basement walls and floors.  A sign of continuous moisture seepage coming from above or below ground.

2.  Molds and fungi growth.  Microorganism colonies in certain areas of the building mean a source of moisture is feeding their growth.

3.  Rot.  Wooden or concrete materials are decaying, a sign that the presence of moisture is changing the room temperature and humidity.

4.  Pools of water.  Water brought in by foul weather disappears in time.  If pools of them remain, this means there is a failure in the commercial building waterproofing system.

The Importance of Waterproofing

Building operations are potentially affected by failure of the commercial building waterproofing system.  The importance of waterproofing is summarized below:

1.  It prevents water entry by sealing every possible way that water can enter — roofs, walls, decks, and basements, to name a few.

2.  It allows the building to “breathe”.  When water unavoidably enters the building, it can be channeled out using drains and ventilations.

3.  It maintains air quality.  The growth of water-borne and harmful microbes is prevented, which can compromise the air quality of the interior environment.

4.  It maintains comfortable interior temperature.  Water is denied entry into the building, preventing temperature changes that make HVAC systems work harder to compensate.

5.  It preserves structural integrity.  Water cannot stay long enough to cause material rot and weakened foundations.

When is the Time to Waterproof a Building?

Here are the instances when commercial building waterproofing systems should be installed:

1.  During construction, when building designers incorporate the waterproofing system to the overall building design.  The barrier system is built into the building, ensuring greater moisture protection.

2.  During building retrofit, soon after the building is built.

3.  During regular building maintenance, when the facility conducts regular inspections, tune-ups and re-servicing of building areas and equipments to ensure their top condition.

4.  During building renovation, such as when a building feature is added, or the building layout is changed.  The commercial building waterproofing system has to be re-installed to accommodate the renovation.

5.  When needed, or when damages occur from emergency situations such as flood, fire or major disasters.

Waterproofing for Commercial Buildings

Designing a barrier system against water intrusion often means focusing on the various ways that water can possibly enter the building.

In case of ground water seepage, basements and low-lying areas are the entry point.  Waterproofing these areas require commercial building waterproofing contractors with basement waterproofing specialties. The barrier system will seal the inner wall and floor chambers with water-tight lining.

Structural waterproofing systems are installed in other areas of the building. Multi-coat systems, concrete-based coatings, epoxies and bituminous formulations can be used in the barrier system, because of their water-repellent properties.

Drainage systems complete the commercial building waterproofing system, where pre-formed channels are installed in walls to direct water outward.

Article submitted by Raider Painting Company for exclusive use in the Contractor’s Corner (by Raider Painting) of Commercial Property Management Magazine only.

Raider Painting is a full service Commercial & Industrial Painting & Coatings Contractor serving the U.S. for 27 years.  Our services include:  interior/exterior painting, concrete restoration & deck coatings, tank painting/lining, steel structural coatings, including machinery & equipment, waterproofing, wallcovering, artistic finishes, and more. Our painting professionals have the expert product knowledge, industry experience & application know-how to ensure a job done right. We’re ready to serve you!  (877) 724-3371 ext. 1 (877-RAIDER1)  info@raiderpainting.com;  www.raiderpainting.com

It is common for a tenant to leave personal property in the premises after vacating.  Depending on the facts of the situation, the landlord must follow one of three procedures in order to avoid potential liability to the former tenant or owner of the property.  This article will provide a brief overview of California law governing disposition of such property.

In all situations, the landlord must act reasonably. This means that the landlord should store the property safely until its final disposition.  At all times, the landlord must also act based on his or her “reasonable belief”.  “Reasonable belief” is as the actual knowledge or belief that a prudent person would have, given the facts then known by that person.  Generally, the landlord need not make an investigation to determine the owner of abandoned property unless he or she has specific information indicating that such investigation would “more probably than not reveal pertinent information” and the cost of the investigation is reasonable in light of the value of the property.  Also, “self-help” should be avoided, meaning that the landlord should not take or convert the property without following the applicable procedure.

LOST PROPERTY Where the owner of the property is unknown to the landlord, the property is deemed “lost”.  If the value of lost property is $10 or more, the it must be turned over to the police or sheriff’s department for the city or county in which the premises are located, under affidavit describing the property and stating where it was found. The law enforcement agency is then obligated to use reasonable efforts to find the owner. If not claimed with in the specified time period, it is sold at auction for the benefit of the city or county.

If the law enforcement agency refuses to accept the property, it is deemed not “lost” and the landlord may follow the procedures for disposition of abandoned property. (see below).

ABANDONED PROPERTY If the landlord reasonably believes that the property is not “lost” (see above), he or she must follow the procedures for disposing of abandoned property.   Different procedures apply depending on whether the lease is for commercial or residential property.  The following procedures relate to commercial tenancies and are more fully described in California Civil Code Section 1993 et seq.

First, the landlord must provide a notice to the former tenant and others “reasonably believed” to be owners of the apparent abandoned property.  A new notice is not required where the tenant vacated under a writ of possession served after an unlawful detainer judgment because the tenant already received the notice of he, she or its right to claim property in the “Notice to Person Served” section of the writ.  A separate notice also need not be given when the tenancy is terminated by a “Notice of Belief of Abandonment”, or where the tenant has already initiated the process for requesting a return of the property.  (see below)

Contents of Notice. The notice must include:

1. Description “reasonably adequate” to permit the owner to identify the property.
2. If applicable, a statement that the return of the property may be conditioned upon payment of a reasonable storage charge.
3. The place where the property may be reclaimed.
4. The deadline by which the property must be reclaimed prior to sale or  other disposition.

Service of Notice. The notice must be served either by personal delivery to the former tenant or nontenant owner or by first class postage prepaid mail to the former tenants’ and/or other supposed owners’ last known address AND to an alternate address known to the landlord (such as an attorney) IF there is a reasonable belief that the first notice will not be received AND to the address of the premises.

Deadline For Claiming Property. The landlord must release the property to the former tenant or, at the landlord’s option, to any person “reasonably believed” to own the property, if such person pays the reasonable storage costs and takes possession no later than the deadline stated in the notice for taking possession.  For commercial tenancies, the deadline is 15 days after personal delivery of the notice, or 18 days after the notice was deposited in the mail.  If the claim for return of the property is made after the deadline but before the property is sold, the landlord must still return the property if the claimant pays the reasonable storage costs, plus the reasonable costs of advertising and sale incurred before the property was withdrawn from sale.

Disposition Of Property If Not Claimed The landlord of a commercial property may keep any abandoned property with a resale value of less than the lesser of $750 or $1 per square foot of the premises.  Any property worth more than this amount must be sold at public auction.   The basic procedures for the sale are:

1. Published Notice of Sale. The time and date of the public sale must be published once a week for two successive weeks, with at least 5 days between publications in a newspaper in the county of the sale.  The notice must include a description of the property.
2. Publication Date. The notice cannot be published until the expiration of the period for claiming the property and not later than 5 days before the sale date.

3.       Bidders. A former tenant may stop the sale by paying the storage, advertising and sale costs, but other owners who are not a former tenant cannot stop the sale, and must bid at the sale to recover the property.

4.       Sale Proceeds.  The landlord may recover its costs of storage, publication and sale from the sale, but the balance of the sale proceeds must be paid to the treasury of the county where the sale took place no later than 30 days after the sale, unless the former tenant claims the balance before that time.

TIMELY REQUEST TO RETURN PROPERTY The third procedure for disposing of the property is triggered when the former tenant requests return of the property left in the premises.   A landlord is required to surrender the property of a vacating tenant when all of the following occur:

1. The tenant makes a written request for return of the property within 18 days of vacating.
2. The property is in the landlord’s possession or control.
3. The tenant offers payment of all reasonable costs associated with the landlord’s removal and storage of the property.
4. The tenant agrees to remove the property within a reasonable timeframe, no later than 72 hours after the tenant tenders payment of costs to the landlord.

This is not an exhaustive list of all of the remedies available to judgment creditors under the Enforcement of Judgments Law.  There may be other legal tools available to recover on a judgment.  You may want to consult with legal counsel to develop a strategy that best suits your situation and budget.

Craig Sunada is an AV rated attorney with over 20 years of experience.  Mr. Sunada specializes in real estate and business litigation, including landlord/tenant, partnership disputes, breach of contract, breach of lease and lease guarantees, directors’ and officers’ liability, unfair competition claims, intellectual property litigation, and toxic mold litigation.  His practice is in the South Bay and he also serves as Of Counsel to McBirney & Chuck, a Professional Corporation, a boutique downtown law firm specializing in complex real estate and business matters.  He may be reached at (310) 544-7161 or craig@sunadalawfirm.com.

Welcome

Greetings Readers!  This is the first article of an ongoing series on technology and how it impacts your property management business.   The goal of this recurring column will be to explore new technologies, products and services that can increase efficiency and profits – ultimately helping to improve your business.  We will also explore the tenant perspective on new technologies to help understand and improve the customer experience in your property business.  Some anticipated topics will include: Social Media, Internet Services, and Property Management Software.  I encourage all readers to submit ideas or suggestions for future topics to me at mcorbera@revopayments.com.  By way of brief background, I am a former business lawyer (don’t hold it against me) turned technology geek and internet entrepreneur.  Over the past 15 years I have focused on building companies that focus on using the internet and other technologies to grow and improve the way organizations operate.  I am currently CEO at Revo Payments, a company that builds software for a variety of industries, including property management.  I look forward to sharing information and establishing a forum for learning together.   So without further ado, let’s get started with our first topic:  Exploring e-Payments for Your Property.

Just as in other competitive industries, property management firms employ new technologies with the goal of saving money, increasing cash flow, and improving customer service.  Forward-thinking property management firms have embraced electronic payment systems for security deposits, special fees, and rent payments with great success.   The benefits are many, including:  faster cash flow, lower payment handling expenses, increased reporting accuracy, reduced delinquencies, and happier customers.

Accelerate Your Cashflow and Reduce Delinquencies

The traditional “check by mail” or “lock box” systems for collecting tenant payments are filled with inefficiencies that result in volatile cash flow and delays in liquidity.  This is true for any business, but in the case of property management it is an issue that is most pressing because PMs tend to receive payments in a “lumpy” fashion – with most payments due on the same date.  Thus, your firm may expect almost all of your monthly revenue on a specific date (i.e. the 1^st of the month).  However, the reality is that the process can take several days for that payment to be in your bank: Tenant mails payment (1 day), mail time (2-3 days), lockbox or office receives and opens payment (1-2 days), payments recorded (1 day), and payments bundled and deposited to bank (1 day).  All told, many PMs with due dates on the 1^st actually have an average collection date closer to the 5^th or 6^th of that month – or later if weekends occur.  This means that moving (or “accelerating”) the day on which that bulk of funds are received will have a substantial impact on cash flow.  As business owners, most of us intuitively know that it’s better to get paid today than tomorrow.  The accountants and finance folks call this “time value of money” – which, depending on the size of your portfolio and interest rates, can represent thousands of dollars a year (or each month for really large portfolios).   A related by-product of online payments is that delinquencies will be reduced.  Pamela Day is Managing Director at Crimson Holdings, a Los Angeles-based developer and property manager.  After implementing e-payments she found:  “Not only do we get paid faster, but now we require all tenants to maintain ACH and credit card information on file.  When a payment is late, we are previously authorized in the lease agreement to debit the tenant account.  This has reduced our delinquencies dramatically.”

Lower Your Costs (and Improve Your Profits)

Traditionally, rent week is considered “down time” when staff is focused on sorting, organizing, depositing, reporting, and reconciling rent payments that come in the mail.  By automating this process, the amount of staff time required is dramatically reduced – freeing employees to focus on other things, or allowing you to streamline the team and reduce your labor costs.  The US Treasury Department estimates that it costs up to $4 to handle each paper check (not including return fees and bank charges). Likewise, many lockbox services cost $1 per item (not including exceptions, such as checks mailed with no coupon).   Importantly, these figures do not include the cost of your staff following up by phone with late tenants or sending late payment notices.   Related to this, I suggest caution that some bank-sponsored “bill pay” services actually send you a paper check (even if initiated online by the bank customer) – ultimately causing you greater inefficiency since these bank-issued checks arrive with no coupon and are hard to track.  In contrast, e-payments that are centralized at your firm offer a clear cost savings when compared to these figures.  In some cases it is possible to spend less than $1 per e-payment.  Moreover, while online options will not make late payments completely disappear; there is evidence to suggest that the combination of auto-payments and offering multiple payment options significantly reduces the amount of late payments.

Happier Tenants

Every business depends on its customers for its success.  But it is rare to find a product or service that makes customers happy at the same time that it improves your business.   Over the last 20 years (and accelerating in the last 5), consumers have embraced technology in general, and online payments in particular.  Today consumers and businesses prefer to pay online because it is more convenient for them.   Industry statistics make it clear that online payments are part of the new social and business landscape.  Visa recently reported a 158% increase in its card use for rent payments over the previous year, according to Jim Eitler, Visa’s vice president for client services.   Jupiter Research’s Online Bill Viewing and Payment Forecast estimates that more than 90 percent of U.S. households and businesses manage daily payment transactions online.  I can certainly say that my personal experience at our organization supports this shift.  My company employs a number of young professionals.  I recently took an informal survey to ask how many of them use paper checks and was surprised when many responded that they rarely use a paper checkbook.  While this may not (yet) be true of your corporate tenants; rest assured it is a leading indicator of a fundamental shift in our society.    Driving the demand for online tenant payments are added convenience, better visibility, increased broadband penetration, environmental concerns, and the ability to choose how to pay monthly fees.  Based on the clear and strong tenant preference, many property management companies have seized the opportunity to offer electronic payments as a competitive advantage over those not offering an e-payment service.

Conclusion

In light of these multiple benefits of e-payments, it seems obvious that every PM should consider implementing online payments.   By using a customized e-payments solution properties and managers control every aspect of the collection process.  With the reduction of  deposit slips that need to be completed and the reduction of time consuming data entry and posting, property managers are now free to devote their time and resources towards maintaining profitability for their portfolio.  Perhaps most important, online payments represent a market-driven service that can set your firm apart and make existing tenants more satisfied.

In the past decade the real-estate market has been one of the last remaining industries to implement electronic payments. This was mostly due to the lack of battle tested platforms and lack of providers with expertise in the real-estate industry. Today these platforms offer efficient, flexible, and cost effective solutions that return your investment many times over.  As mentioned previously, it’s truly rare to find a business model that benefits everyone involved, but e-commerce as applied to the property management industry is one of those cases.

Feedback, ideas, or questions?  Email me at mcorbera@revopayments.com

By: Houston Neal

In the latest of our Expert Roundtable Series, we report on best practices for managing leads. We interviewed three experts in the multifamily housing market to learn about the technologies and procedures they use for successful lead management. Among our experts are executives from Gables Residential and Archstone – both are ranked in the Top 50 Apartment Managers report from the National Multifamily Housing Council. Let’s meet our experts:

Donald Davidoff is Group Vice President, Strategic Systems for Archstone, a large privately held multi-family housing developer and operator. His teams manage Archstone’s entire marketing platform, which includes ecommerce, field marketing, creative services and corporate communication. He also pioneered Archstone’s industry-leading business process management solution to automate key forms and processes resulting in a “less paper-full” office.

Lynette Hegeman is Vice President of Marketing for Gables Residential. In this role, Hegeman oversees the development and execution of general marketing, internet marketing, public relations and advertising. With 19 years of experience in marketing, sales management and real estate development with companies such as Intrawest, Hilton Hotels Corporation and Preferred Hotels and Resorts Worldwide, she leverages her experience to further establish Gables as a leader in the multi-family industry.

Tracy Guillen is the owner of Esquire Property Management. She has many years of experience providing Ventura County property management services to real estate investors in Ventura County. Tracy is passionate about the real estate business and takes a personal interest in this field as she actively owns, sells, buys, and manages her own property management portfolio in Ventura, Oxnard, & Camarillo. Her affiliations include: California Broker’s License, California State Bar Association and the California Apartment Association.

Lead management is a critical component for any property management company serious about marketing. In a study from the Aberdeen Group, 90% of companies using automated lead management had average yearly revenue growth of 59%. So without a strategic and organized process for vetting prospective tenants, you may be leaving money at the curb.

What Technology Do You Use to Manage Leads?
Technology is central to any lead management process and infrastructure. Whether it’s a simple contact management system or a custom lead management system, you cannot scale your lead management efforts without technology.

Experts from our roundtable use three general types of applications to track leads. From least to most sophisticated, they are: contact management systems, property management software with customer relationship management (CRM) functionality, and customized lead management software.

In general, small property management companies use less sophisticated technology than their large counterparts. First, small companies don’t need the functionality, automation and scale included in best-of-breed lead management software. Secondly, they don’t have the budget or resources to warrant buying a dedicated lead management system. Instead, most will do happily with a simple contact management program.

Tracy Guillen – “Currently, we just use our website’s contact form to track leads. We use a system called Formstack. It allows us to create a custom, online contact form in HTML, then track inquiries by email and in an online database.”

On the opposite end of the spectrum are large commercial and residential firms that manage thousands of units and field thousands of property inquiries. They often need property management systems with CRM functionality, or  stand alone lead management systems. Both Gables Residential and Archstone have developed proprietary lead management software to track prospects.

Donald Davidoff – “We have a comprehensive set of tools to manage leads. We built our own Lead Management System (LMS) as a standard interface from lead sources into our property management system (PMS). Leads from Internet listing services (ILSs) come directly into our LMS which notifies our community associates when they have a new lead and tracks their response. For inbound phone calls, we use Level One which sends leads into this same LMS and provides independent reporting as well.”

Lynette Hegeman – “Gables Residential utilizes a custom built, proprietary system called Insite to manage all referral sources, prospects and conversion results to lease. In addition we have launched a custom analytics tool that tracks lead data, cost and conversion attribution.”

How Do You Prioritize Leads?
According to a Raintoday.com report, fewer than 25% of new leads are sales-ready. The report is not specific to the property management industry, but this industry isn’t very different to others in that regard:  not all prospective tenants are ready to sign a lease. So what do you do with the “leftovers?”

To begin, you should create a formal lead scoring process. Identifying qualified leads can have a big impact on the productivity and effectiveness of your sales teams. Without prioritization, your sales rep could hound a prospect who is six months away from moving while another “ready-to-move” goes untouched.

An effective lead scoring system will rate a lead based on a number of criteria. Take Gables Residential for example. They consider a prospect’s apartment preferences, budget, location and time-to-move before prioritizing.

Lynette Hegeman – “All leads go through our “funnel” and are prioritized by the level of information received. For instance, two-way communication indicating apartment preference, budget and preferred location would be deemed a priority lead if the community being looked at meets the prospects requirements. Another priority factor would be timing of move. Those with short time frames would be considered a priority. However, in general, we treat all leads with equal care and attention and follow-up on all.”

In some cases, a simpler strategy may be just as effective. Both Esquire Property Management and Archstone take a hot-or-not approach to prioritizing leads.

Tracy Guillen – “We have a simple rating system. They are either hot, or warm and need more nurturing. If the lead is cold, we typically let them go without any further follow up.”

Donald Davidoff – “There’s really not a formal scoring process. We follow up on every lead we get. We identify very quickly if the lead is unqualified (price/quality too high or too low, location doesn’t work, etc.), so those leads fall off very quickly. In fact, many of those are filtered out through Level One, so we don’t even waste time with those. Once we have a qualified lead, we try to time the follow up with their desired move-in so that we don’t push them too quickly – or too slowly – for what they want.”

What is Your Lead Nurturing Process?
After you prioritize leads, what do you do next? This is where a lot of companies drop the ball. Without a good follow-up or lead nurturing process in place, many companies miss out on revenue opportunities. As a general rule, you need to deliver the right message via the right communication channel at the right time. Gables Residential and Archstone use a a multi-touch process for following up with following up with opportunities.

Lynette Hegeman – “The sales team nurtures each lead by following up within a 2 hour window either via phone, or email.  A guest card for each prospect details all conversations and recaps prospects’ needs, wants and price range. Coupled with the tactical approach of three touches, the sales associates work to engage each prospect and guide them through the buying process – ensuring that all objections are overcome.”

Donald Davidoff – “We use a variety of tools including phone follow up, visits and tours and email. We try to understand how each prospect prefers to be communicated with and therefore follow up in the ways and means each prefers.”

How Do You Track Effectiveness of Marketing Campaigns?
At the end of the day, the best lead management still relies on good marketing to bring in prospects. To know that your marketing is working effectively, you need to be able to track its return on investment (ROI).

First, you need to define your marketing metrics. Is cost per lead or cost per lease more important? Or a combination? Archstone uses several:

Donald Davidoff – “We have real-time reports in our PMS, and we do monthly and quarterly reviews using data from our ILSs and Level One to continuously evaluate critical metrics like lead volume, cost per lead and cost per lease.”

It’s also important to track the origin of leads. Did it start with a Google search? A phone call? An advertisement? Companies that track the origin of leads will better understand the value of their marketing campaigns. Fortunately, there are several ways to get this level of detailed information using the right technology.

Lynette Hegeman – “Gables has been using a custom-built analytics tool that tracks each lead by lead source(s), cost and results. Essentially, using a myriad of tracking tools such as Google Analytics, Web Trends and Hit Wise, we created a tool that ties together and scrubs all referral source data.

As a result we follow each piece of traffic through the sales life cycle and gauge the referring source, how many sources did they view in the process (as best we can), how much budget did it take to drive that piece of traffic to the source, and the quality of the lead. We are also geo-targeting to see where traffic comes from in relationship to the proximity of the community.

Another important tactic is our lease matching process that we continue to refine and filter through the analytics program. By understanding who leases and the steps they took in their search process, we can create communication strategies to improve our resident retention programs. The end goal is closing the loop from generating traffic to closing a lease to increased resident retention with lease renewals.”

What’s your lead management process? Do you use technology to automate lead management activities? Do you have formal lead scoring and nurturing procedures? Tell us about your best practices in our comments section.

Please visit www.propertymanagementsoftwareguide.com for more information.

The early 1990′s near economic implosion had a deleterious effect on the Southern California residential, commercial and industrial real estate sectors.

The downturn was so severe that the greater Los Angeles real estate markets for all sectors got slammed.

Riots, earthquakes, floods, the near disintegration of the Southern California aero space industry following the end of the cold war helped fuel a near housing depression and the major downturn in the commercial and industrial sectors. Jobs lost, and large segments of our workforce wiped out of jobs, hitched U-Hauls to their cars and headed toward Arizona, Seattle and Las Vegas for better opportunities. Added to the economic disaster was the RTC and Mexico defaulting on their loans to the International Monetary Fund. For a short period of time, trade between California and Mexico was frozen. Tens of thousands of jobs were at risk, again!

Local governments were not helpful to the economic malaise that followed. An over taxed infrastructure and layers of local governments helped hinder the entrepreneurship that eventually came to the rescue of the Southern California economies. We now have a diverse economic base due to the small businessman picking us up by their bootstraps back in the mid to late 1990′s.

But now, the small to mid-size businesses are again getting slammed.

So where are we the last quarter of 2010 and where will we be in 2011 and beyond?

Are we in the beginning of the upturn or will there be a double dip?

When I am asked the questions above, the answers have many complexities to it. The simple starting point is where are you on the real estate food chain? Are you an owner/user, investor, speculator, developer, tenant or casual interested observer?

An Owner/User is someone whom has a business and owns the property they occupy.

A speculator is a person or group that invests in property to change the use, flip or create some other type of hidden value.

A developer is a person or group that buys land and builds various types of new construction some on speculation and some as build to suits.

A tenant is a company that occupies a property for their business as a renter.

And then there is the casual interested party that wants to keep up on various information, but has no interest in real estate at the moment.

Now that we have identified the basic players in the marketplace, we can divide them into three sub-categories,

A) Those with no debt;

B) Those with manageable Debt and

C) Those that are over leveraged.

Depending on your position in the food chain, and who you may be relying on to be successful in your business determines how you see the market that we are #1 striving to succeed in.

But the next question everyone will be asking is: Brad, what is going to happen next?

Based upon our prior experience and what I am currently observing, the market will continue to float downward in property values, more businesses will continue to go under and/or struggle. Unemployment will continue to rise slowly, keeping the economy under stress with no end in sight.

With that said, there is still business to be done. There will continue to be a demand by business and investors for buildings and services and for family housing of all types. There are strong companies with deep reserves that will be the leaders and survivors in this market. Millions of dollars will be made! There are and will continue to be opportunities for those risk takers of each category of the market mentioned above.

I am seeing more money on the sidelines than at any time in our history coming into the Los Angeles market for real estate investment. The question is where are you in the food chain? Too many companies and businesses and the labor force . . . are getting eaten up.

Having a solid flexible business plan for whatever your level is in this market is essential to survive and thrive. There are no prizes for second place and no compassion in the business world for those that get take or eaten.

I am seeing land for development deals over $150-$200 per foot, owner/users buying buildings at $100-$200 per foot, and 6 cap investment NNN deals. The active buyers are at all ends of this market and moving their money in.

I was recently in a meeting with a client that told me about a property he wanted very badly. He made a full price offer of $13 Million of which he thought for sure he would be the buyer. There were 32 offers on the property. Six from buyers like him and 26 from institutions. The property sold for over the asking price around $14.5 Million and a sub six cap rate.

Yet, the government and various local and state agencies are cutting back on space and jobs. Most recessions are caused or lengthened by government actions or inaction. Lack of smart spending, saving and planning can cause deep recession, or even cause a double dip. I personally think that we will see a second dip.

Los Angeles’ economic diversity will allow our economy to move forward as it did in the 1990′s. Unfortunately, there will be many companies businesses and people unemployed and out of business. Real estate prices will continue to fall and those that cannot maintain their properties will lose them to foreclosure.

Make no mistake; this market is unique to itself. There are millions if not billions of dollars getting ready to jump into the market. This will create a nice cushioned landing for us. This could be the best buying opportunity in a generation or it will be deemed by history as the most foolish investments of all time. This will depend on many factors that we have no control over at the  highest levels of business, destabilized governments, political unrest spreading throughout western society, stock market crashes, unattainable debt levels, State and city defaults on debt, infrastructure decay and inability to manage the increased populations, terrorism, and finally. a housing double dip. These are real potential recovery killers and they are not the same as the 1990’s; fires, floods, riots, and locust!

I will leave you with this one bright light. There is a light at the end of the tunnel; we just don’t know how long the tunnel is?

Bout the author

A seasoned real estate professional, Bradley A. Luster has been a consistent Top Producer for Major Properties for 24 years. In 1992, he and his brother Jeff became owners of the firm started by their father, Arnold Luster, in 1964. Mr. Luster is the President of the firm and has literally sold millions of square feet in the Downtown Los Angeles real estate market. Major Properties has brokered over $3.0 billion in transactions and has served thousands of commercial and industrial property sellers, buyers, lessors and lessees. Check them out at www.majorproperties.com. Mr. Luster may be contacted at (213) 747-4151, by fax at (213) 749-7972 or by email at brad@majorproperties.com.

By Don Logay

On February 1st, 2009, ELAN General Contracting Inc., headquartered in San Diego, California, began a unique commercial retail design/build project 2,800 miles away in the fashionable SoHo district of Manhattan in New York City.

The challenge was to create a contemporary flagship retail store for Crocs, Inc. footwear in what was originally an 1818 Federal-style house. The three-story structure located at 143 Spring Street (at the corner of Wooster) had a rich 192-year history. Originally built as a single-family residence, it underwent substantial changes in form, use and occupancy over the years and in 1850 was expanded and converted to a commercial structure. The building underwent six renovations in all, with the most recent tenant being a neighborhood Bar-B-Q restaurant.

Two years of pre-planning and preparation by designers, architects and project managers had already taken place since lease signing to ensure transforming such an aged building into a basically new structure would blend both new and old in a look and manner that was suitable to the historic SoHo “Cast-Iron” District, which is now closely governed by the NYC Landmarks Preservation Commission.

Note the key word: “Suitable.” This is a primary consideration that any contractor, owner or tenant must be aware of, and must keep in mind, and will have to deal with when considering, planning or completing a commercial retail design/build project that falls under the classification of “Historic Restoration.”

Experience and Expertise

“The approved plan called for completely removing and rebuilding the structural interior and demolishing an adjacent three story building on Wooster, which was to be replaced with a unique and visionary all-glass addition, “ notes ELAN General Contracting CEO, Adrian Johnson. “To successfully accomplish this, and to navigate the extreme requirements of such a demanding historic restoration, we had to assemble a design/build team second to none.”

“It was important to pick the ‘right’ team,” he notes, “and having the building owner participate from the outset was a key ingredient, as well.”

Planning began with National Retail Designer, William Morgan, of Morgan Design Associates, who acted as project manager in conjunction with ELAN. “Historic restoration requires special considerations at virtually every step of the design/build process,” states Morgan, “and consultants well-versed in the areas of historical documentation, historical materials and assembly of these materials, along with knowledge of various Landmarks committee members and agendas, was a valuable asset all throughout the presentation, approval and construction processes.”

Two respected NY architects were enlisted to manage the design and planning. William J. Rockwell, of William/Architect, headed historic research, was Landmarks Commission liaison for approval of design and materials, and prepared plans and specifications for both building exteriors. The NY architect of record was Donald W. Laukka, of L&M Associates, Ltd., Minneapolis, MN, who helped plan interior improvements and mechanical systems.

Morgan Design Associates also designed the unique attached glass building and its dramatic interior.

Avoiding a Horse Built by Committee

Dealing with various Landmarks committee members, who seem to have their own agenda and guidelines regarding what is appropriate for the neighborhood and the historic preservation of the property, is an on-going challenge from start to finish.

Historic restoration governing committees are generally comprised of many members, each with their own ideas and who are most often not well-versed in the areas of architecture and construction, and this can be very challenging.

It is said that a camel is a horse built by a committee. Avoiding such a fate and side-stepping potential budget-busting time delays requires a special awareness and attention to detail all throughout the project.

Start by obtaining a thorough understanding of the Landmarks approval process.

Budget additional time for presentations, as well rescheduling of presentations (which will happen), the cost of presentations and wait-time for approvals, if it is within your area of responsibility.

Also be aware that review boards can and do change personnel frequently and, with that, it is the responsibility of the design/build team to maintain a continuum of plans and thoughts as each new member of a board enters with their own new agendas and ideas. Build alliances through networking and referendums.

Resources and Experience Come into Play

You must also have plenty of resources, or locate sources for various restoration materials and/or the installation of these materials, as it is a specialty both in production (or reproduction) and installation.

Here are a few specific tips that will help keep historic restorations on track, on schedule and on budget:

• Use a well-versed expeditor that understands the processes involved for approvals, interim and final inspections.

• Know the time period and design classification of the building to be restored and what the interest level of the building is to the Landmarks committee.

• Know the neighborhood and adjacent tenants and property owners.

• Have a thorough understanding of all required inspections, special permits, approved hours for construction activities, parking laws, structural erection requirements, DOB, DOT and other regulatory requirements, material disposal and material storage requirements.

All of these items are extremely regulated, complicated and can be expensive – especially in the downtown areas of major cities.

There are no Givens / But Some Truths

The number one consideration with historic restoration projects is how it will ultimately impact your budget. The answer: time is money… and a very knowledgeable expeditor is invaluable throughout the entire process of presentations, scheduling, budgeting, applications, inspections and sign-offs.

For starters, different areas of the country and the complexity of the project will determine some of the additional costs involved.  In New York, for example, one can anticipate about double the cost and timeframe for completion of such a project. Approvals alone can take from three to four months per presentation.

Depending on complexity, even something as simple as a Landmarks building façade review can add a minimum of six to eight weeks.

Costs can also easily double due to unforeseen structural issues, material acquisitions and installation, additional inspections, and Landmarks design interpretations and applications. A case in point, none of the existing decorative lentils above the doors and windows on the Crocs project were reusable. At one point, the exterior restoration was halted for a number of days while the best versions were carefully removed and sent to an area specialty shop, that made molds and cast historically accurate duplicates to replace the deteriorated lentils. None of which could be installed until approved by the Landmarks commission. All while the budget clock continued to run. Ka-ching.

“Historic restorations are an area where typical costs can and do escalate quickly and significantly,” notes ELAN’s Adrian Johnson. “The reason is the many hours, and days needed for reviews, meetings, hearings, etc… this went on for almost two years in this case.”

“First meetings are to understand the owner’s wishes. Second meeting is to interpret what the commissions will allow, and from there on,” notes Johnson, “it is simply the process of volleying ideas back and forth between what authorities request and what they will allow… all while attempting the completion of a design/build that is challenging in and of itself.”

“Simply put, hope for the best and prepare for the worst,” he adds. “Variables can range anywhere from 10% to 100%. Certain assumptions can be calculated while others are like surprise birthday parties… you never know until you get there. Awareness and a good, experienced team are your best defense.”

The good news? It Can be Done

After more than two-years years of intensive work – filled with lots of surprises, numerous local and federal agency interventions, and with both neighbors and local press offering varied and strong opinions – on May 1, 2010, the project was completed to everyone’s satisfaction. The keys were handed over and seven days later, on Saturday, May 8, 2010, the gleaming new Crocs flagship store had a successful and well-attended grand opening as the latest gem in the trendy and fashionable Historic Cast-Iron District of SoHo.

An additional nice touch worth noting: In this instance, to commemorate the successful completion of such a demanding and intricate project, ELAN General contracting installed a beautiful brass plaque on the face of the building offering a brief historical overview dating back to 1818 and crediting those who played a role in the four-year restoration process. Inside, a large framed photo collage was created, and now hangs, with before, during and after photos.

“The contrast of the new and old… combining original brickwork with a sleek glass addition that reveals even more of the original house’s features at its north side…  tells the story,” notes Adrian Johnson. ”It truly demonstrates how buildings and neighborhoods endure… reassembled, restored and revitalized.”

Don Logay is an award-winning home improvement writer. Former Editor-in-Chief of top three professional remodeling magazines, he also created the widely quoted annual study for remodeling investment and return. Today Logay also writes homeowner tips heard daily on hundreds of radio stations nationwide.

The TOBY winners were recognized for excellence in office building management and operations in specific categories of building size or type. To win the international award, the office buildings first won both local and regional competitions. Judging was based on community impact, tenant/employee relations programs, energy management systems, accessibility for disabled people, emergency evacuation procedures, building personnel training programs and overall quality indicators. A team of expert industry professionals also conducted a comprehensive building inspection.

The winners of the 2010–2011 TOBY Awards in the 14 categories:

In the Corporate Facility category, the winner is Robert S. K. Welch Courthouse, St. Catharines, Ontario. The building is managed by Ontario Realty Corporation and is owned by the Ontario Ministry of Energy and Infrastructure.

In the Earth category, the winner is Collier Center, Phoenix, Arizona. The property is managed by CB Richard Ellis and owned by GE US Pension Trust.

In the Government Building category, the winner is Howard M. Metzenbaum U.S. Courthouse, Cleveland, Ohio. The property is owned and managed the U.S. General Services Administration.

In the Historical Building category, the winner is Pembroke Courthouse, Pembroke, Ontario. The property is managed by Ontario Realty Corporation and is owned by the Ontario Ministry of Energy and Infrastructure.

In the Industrial Office Park category, the winner is Legacy Center Business Park, Houston, Texas. The property is owned and managed by Liberty Property Trust.

In the Medical Office Building category, the winner is OHSU Center for Health and Wellness, Portland, Oregon. The property is managed by CB Richard Ellis, Inc. and is owned by RIMCO, LLC.

In the Renovated Building category, the winner is Park Central 789, Dallas, Texas. The property is managed by Parmenter Realty Partners, and is owned by Parmenter Park Central, LP.

In the Suburban Office Park Low–Rise category, the winner is Ballantyne Corporate Park, Charlotte, North Carolina. The property is managed by The Bissell Companies Inc. and is owned by H.C. Bissell.

In the Suburban Office Park Mid-Rise category, the winner is Greenway Plaza, Houston, Texas. The property is managed by Crescent Real Estate Equities LP and is owned by Crescent Crown Greenway Plaza SVP LLC/Crescent Nine Greenway SVP LLC.

In the buildings Under 100,000 Square Foot category, the winner is Port Huron Federal Building & U.S. Courthouse, Port Huron, Michigan. The property is owned and managed by the U.S. General Services Administration.

In the 100,000 to 249,999 Square Foot category, the winner is Manulife Place, Vancouver, British Columbia. The property is owned and managed by Manulife Financial.

In the 250,000 to 499,999 Square Foot category, the winner is 300 West 6th, Austin, Texas. The property is managed by Thomas Properties Group Inc. and is owned by TPG-300 West 6th Street LLC.

In the 500,000 to One Million Square Foot category, the winner is Accenture Tower, Minneapolis, Minnesota. The property is managed by CB Richard Ellis and is owned by CalSTRS.

In the Over One Million Square Foot category, the winner is Aon Center, Chicago, Illinois. The property is managed by Jones Lang LaSalle Americas (Illinois) LP and is owned by Piedmont Office Realty Trust.

The TOBY Awards are sponsored by Securitas Security Services USA (www.securitasinc.com).

About BOMA International
The Building Owners and Managers Association (BOMA) International is an international federation of more than 100 local associations and affiliated organizations. Founded in 1907, its 17,000-plus members own or manage more than nine billion square feet of commercial properties. BOMA International’s mission is to enhance the human, intellectual and physical assets of the commercial real estate industry through advocacy, education, research, standards and information. On the Web at www.boma.org.

The delinquency rate for loans held in CMBS is the highest since the series began in 1997.  Delinquency rates for other groups remain below levels seen in the early 1990′s, some by large margins.

Between the fourth quarter 2009 and first quarter 2010, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 1.54 percentage points to 7.24 percent.  The 60+ day delinquency rate on loans held in life company portfolios increased 0.12 percentage points to 0.31 percent.  The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.16 percentage points to 0.79 percent.  The 60+ day delinquency rate on multifamily loans held or insured by Freddie Mac increased 0.05 percentage points to 0.24 percent.  The 90+ day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.32 percentage points to 4.24 percent.

“Weakness in the economy has continued to weigh on commercial properties, which in turn weighs on the mortgages they back,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research.  “Economic growth, specifically in areas of jobs and consumer spending, will be key to stabilizing the commercial property and mortgage markets going forward.”

Construction and development loans are not included in the numbers presented here, but are included in many regulatory definitions of ‘commercial real estate’ despite the fact that they are often backed by single-family residential development projects rather than by office buildings, apartment buildings, shopping centers or other income-producing properties.

The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac.  Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding.

The analysis incorporates the same measures used by each individual investor group to track the performance of their loans.  Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another.

Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the first quarter were as follows:

.           CMBS:  7.24 percent (30+ days delinquent or in REO);

.           Life company portfolios: 0.31 percent (60+days delinquent);

.           Fannie Mae:  0.79 percent (60 or more days delinquent)

.           Freddie Mac:  0.24 percent (60 or more days delinquent);

.           Banks and thrifts:  4.24 percent (90 or more days delinquent or in non-accrual).

About MBA

The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country.  Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation’s residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA’s Web site: www.mortgagebankers.org.