New Development in West Hollywood at French Market Place

New Development in West Hollywood at French Market Place

From: CurbedLA

Last spring, word came that a West Hollywood fixture, French Market Place, would close for a “renovation,” but our friends at Eater found that workers’ rumblings suggested a more permanent closure was on the horizon. Turns out, they were right. At a public meeting next month, prolific local developer Jason Illoulian of Faring Capital will present his company’s plans to redevelop French Market Place and an adjacent building that once housed the Voyeur and DBA clubs, reports WeHoville; Faring Capital bought the properties earlier this year. The gist is that the DBA building will stay and the French Market space will be replaced by a mid-rise mixed-user with space for restaurant, retail, and offices.

Continue reading “New Development in West Hollywood at French Market Place”



The Arts District, just east of downtown LA has become one of the hottest real estate markets in Los Angeles.  About 30 years ago, artists who were being priced out of areas like Santa Monica, Silverlake and other artsy areas of LA found that the old factory lofts in the district were reasonably priced and would make good artists lofts.  Now it is a trendy up and coming area.  RENTV has produced a film of the area.  If you have interest in this part of Los Angeles, spend a few minutes watching this video.




Fed Makes Long-Awaited Move; End of an Era, Signal of Confidence

  • The U.S. economy passed a major psychological threshold as the Federal Reserve closed the door on the extraordinary measures put in place to combat the financial crisis. With the quarter-point increase of its overnight lending rate, the Fed signaled that the economy has finally returned to normal operating levels. Though some sectors still face headwinds, broader economic measures including employment, retail sales and even home prices have largely returned to healthy performance standards. The Fed’s policy-setting committee reiterated that it will maintain a gradual pace of rate increases, aligning actions with key indicators such as labor market conditions, inflation, and international developments.
  • While short-term lending will be influenced by the Fed’s move, long-term interest rates will face little upward pressure in the immediate future. During 2016, the cost of long-term debt could see upward pressure, but this will be influenced as much by domestic and international confidence as by the central bank’s actions.
  • The move by the Federal Reserve will likely benefit commercial real estate investors, more because of the message it conveys than the influence of the rate change itself. By raising the rate for the first time since 2006, the Fed
    has finally expressed its confidence in economic growth, potentially opening the door to increased consumption and business investment. These positive trends would benefit all commercial real estate sectors as household formations escalate and increased discretionary income supports the demand for housing, retail goods, and business services.
  • The tempo and sustainability of economic growth that swayed the central bank represent a decidedly positive development for the office sector and industrial properties will also benefit from this trend. Additional hiring will generate new office space demand and put downward pressure on vacancy. Also, incremental demand may also emerge in interest-rate-sensitive financial services businesses, contributing to a projected decrease in the U.S. vacancy rate next year. In the industrial sector, a more robust pace of economic growth stemming from higher consumption will stimulate additional space demand from retailers. However, the rate increase will likely also strengthen the dollar, restraining U.S. companies with significant export business.
  • A solid pace of household creation accompanies an economic expansion and will generate new demand for apartments in the near term. U.S. apartment vacancy will fall this year to 4.2 percent and will rise nominally in 2016 as elevated completions narrowly outpace net absorption. Also, the Fed’s benchmark rate most directly affects consumer borrowing for items that include residential mortgages. Any additional tightening in monetary policy that suppresses the purchase of single-family homes and maintains a low rate of homeownership will provide a supplemental lift for the multifamily sector.




Congress Extends EB-5 Investor Visa Program Until Sept. 30, 2016 Without Changes


After much speculation and debate, the U.S. Congress has extended EB-5 U.S. Investor Visa Program until September 30, 2016. As recently as last Monday December 14, 2016, the draft legislation would have raised the minimum investment required in Targeted Employment Areas to $800,000 from the current $500,000 and also would have implemented a new $10,000 filing fee per investor but the draft fell apart last minute.

Thus, on December 15, 2016, Congressional leaders finalized the legislation and the current provisions the EB-5 program will continue as is without any changes.

While we would have liked to see some permanency to the EB-5 investor visa program with meaningful changes, this is certainly good news for investors that took the wait and see approach and that have been on the fence about investing for U.S. immigration purposes.



Commercial real estate jargon is second nature to practitioners, but it probably sounds like a foreign language to occupants who are negotiating their first lease or purchase.


This column is designed to provide a “one-stop glossary” for those terms most commonly used in “the trade.”

NNN: Also called “triple net,” this refers to the way property taxes, property insurance, and maintenance of the foundation roof and walls are paid by the tenant. Generally, these sums are paid as due and are “net” of the base rent – in addition to – but in some cases, the owner will collect a monthly estimate of the annual expenses in addition to base rent.

Modified Net: Similar to NNN but one or two of the “n’s” are included in the base rent.

Gross: Property taxes, property insurance, and maintenance of the foundation, roof and walls, and other maintenance of the property are included in the base rent. Gross lease rates are generally higher than NNN lease rates.

Industrial gross: Similar to “gross,” but in this case the tenant is generally responsible for some property maintenance in addition to base rent. These leases include a “base year.”

Modified gross or MG: Property taxes, maintenance of the foundation, roof and walls, property insurance, or other maintenance of the property are paid in addition to base rent.

Full service gross or FSG: This is generally an “office” term and refers to the gross expenses plus janitorial and utilities included in the base year. These leases have an “expense stop” and a “base year” for expenses.

Base year: Used in FSG, MG, and industrial gross leases, this is the first full year of the lease. The tenant pays increases in expenses over the base year.

Expense stop: Used in a FSG lease, the expenses of the base year (first full year of the lease) are calculated and the tenant pays increases above this “stop.”

Lessor: Landlord or property owner

Lessee: Tenant or entity that leases or rents the location

SubLessor: Tenant

SubLessee: Subtenant

Master lessor: Property owner

CAM: Refers to common area maintenance and is generally in addition to base rent and commonly found in MG, or industrial gross leases

TIs: Tenant improvements

Bumps: Increases in the base rent that occur throughout the term of a lease

COLA: Cost of living adjustment

ROFR: The right of first refusal is a tenant’s right to buy the property in the event an acceptable offer (from another party) is received by the owner.

ROFO: The right of first offer is the tenant’s right to submit an offer in the event an owner decides to sell the property.

Option to renew: A tenant’s right to extend the term of the lease at pre-negotiated points.

Option to purchase: A tenant’s right to purchase the property at pre-negotiated points.

LOI: A letter of intent expresses, in a nonbinding fashion, the occupant’s desire to lease or purchase the property.

Due diligence: A period of time negotiated in a purchase and sale agreement for the purpose of studying the property to determine its suitability for financing, occupancy, title, etc.

Loan contingency: A period of time used for securing financing.

Prelim: A preliminary title report outlines matters of record – loans, ownership, recorded easements, liens, etc.

Free rent: A period of a lease that is free.

Abated rent: In the event of tenant default, an owner can sue for repayment of abated rent.

NOI: Net operating income is the rent on the property, less any expenses stated on an annualized basis.

Cap rate: The NOI divided by the purchase price.

Congratulations! You now can speak commercial real estate.



Source: What’s a ‘bump?’ A ‘base year?’ Get wise to commercial real estate jargon – The Orange County Register



Sam Zell was recently interviewed on Bloomberg’s “GO” TV.  The beginning of the post are some selected quotes from the interview.  I also provide a link to the full transcript.


By Mike “Mish” Shedlock

Wednesday morning, Sam Zell, billionaire chairman at Equity Group Investments, spoke with Stephanie Ruhle and David Westin on Bloomberg’s “GO” TV.

Zell discussed a wide variety of topics from the Federal Reserve rate hike, the risk of a near-term recession, real estate, energy, and various foreign investment ideas. The interview was before the Fed announcement.

I put a spotlight on some interesting Zell ideas. Everything below is a selected quote except for two comments by me in braces[].

Twenty-Two Ideas

  1. Economy: High probability that we’re looking at a recession in the next 12 months.
  2. Rate Hike: Interest rate hike is probably 6 or 8 months too late. I think that the economy is closer to falling over than it is to going up.
  3. US Dollar: Devalued currencies make it very difficult for the US to compete internationally.
  4. World Trade:  World trade is slowing. Currencies continue to be manipulated. You’re looking at the beginnings of layoffs in multinational companies. Weakness is going to be pervasive.
  5. Global Deflation: You can’t put aside China. You can’t put aside Europe. If China’s numbers turn out not to be as accurate as we think, China could go into a recession. That’s about as deflationary a scenario as you could possibly come up with. And one that would for sure impact growth and affect Janet Yellen’s decision.
  6. Fed Tools: “Uh” …  [as in the Fed has none]
  7. Asset Prices: Assets will get cheaper.
  8. Cash: With zero interest rates the penalty for holding cash is not very significant.
  9. Stock Market: Nothing cheap. A number of falling knives that have been obfuscated by Amazon and Facebook et cetera. If you take out those stocks, the stock market isn’t doing real well.
  10. Mexico:  Mexico is terrific. I think there’s extraordinary opportunity there.
  11. China: I don’t think China is growing as fast as it reports to be. And I think that the world has a significant deflationary risk coming from a slowdown in China which I think would impact the cost of goods all over the world.
  12. Brazil: Brazil is obviously suffering significantly. On the other hand, as an investor I’m always looking at where nobody else is willing to go. We’re there already and under the right set of circumstances wouldn’t have any problem investing in Brazil today. I just think you can’t lose sight of the fact that this is a country with 180 million people. It’s still growing. It’s self-sufficient in water, oil, food. It’s an extraordinarily badly managed you know entity. But the extraordinary part hasn’t changed. I’m somewhat of an optimist and I think this whole process will be a cleansing process.
  13. Oil: It’s not so much prices as it is specific opportunities. What makes the opportunity is the distress of the situation.
  14. Natural Gas: I’m probably more focused on gas than oil. And it’s, you know, it’s a little bit like real estate. I mean we made a fortune because we bought real estate at a discount to replacement cost. Well we’re buying gas in the ground, gas that’s been drilled. People have spent $10 million a well, we’re buying wells at dramatically less than that. So it’s the same kind of creating a competitive advantage by virtue of your entry price.
  15. Real Estate: It’s very hard not to be a seller. And so we’re in effect fulfilling in some respects our longer term strategy in AQR where we’re liquidating the remaining garden apartments we have.  I’m not a big fan of buying at these cap rates.
  16. Blackstone: Blackstone is just buying brick and mortar. And they’ve been able to raise staggering amounts of money. And they’ve got to put that money to work. That’s something we’ve never wanted to be in a position of having so much capital that it affects our decision-making on an ongoing basis.
  17. Currencies: I’m very concerned about what’s happening in currencies. I think that you know Bretton Woods in 1948 was the allies coming together and saying we can’t recover in the world without growing free trade. We can’t create growing free trade without stable currencies. So let’s make sure we have stable currencies. That worked for a long time. Now we have very unstable currencies. World trade is slowing.
  18. Dodd-Frank: I’ve never known of a single situation in my life where reduction in liquidity was a plus. And effectively Dodd-Frank has dramatically reduced liquidity and that’s a big negative. And that’s something we haven’t dealt with yet.
  19. Politics: The American people are extraordinarily angry. The American people are extraordinarily depressed. The last time we had anything like this in my opinion was 1979. [To a statement regarding Trump’s popularity Zell responded]:  It’s because you guys are sitting here in New York City and you’re not in Des Moines. And you’re not in Boulder and you’re not all over the country. And you’re not seeing the enormous disparity that has existed between you know the coasts and the rest of the country. We have a lot of very unhappy people and I think this election is reflecting it. And I think it will be very dangerous.
  20. Flat Tax: I think if I were given a straight choice I would be in favor of a simple flat tax.
  21. Government Bonds: I’m not a big lender of money to governments period.
  22. Climate Change: The level of certainty of exactly what is happening has a lack of humility and arrogance to it that scares me. As far as I’m concerned, conventional wisdom is my greatest enemy. And this strikes me as an awful lot of conventional wisdom.

It was a fascinating 2-hour interview. I stripped off the intro, the rest appears below. It’s well worth a read.

For the full transcript go here.




The Los Angeles City Council on Wednesday unanimously approved a developer’s plan to demolish Studio City’s landmark Sportsmen’s Lodge event center and replace it with a nearly 100,000-square-foot outdoor mall.


The proposed $60 million Sportsmen’s Landing retail center by Weintraub Real Estate Group of Malibu will feature five restaurants, 20 shops and a 40,000-square-foot Equinox fitness center.

The project will be not break ground immediately, however.

A lawsuit challenging previous planning commission approval of the project has been filed in Los Angeles Superior Court by the owners of the adjacent, 39,000-square-foot Sportsmen’s Lodge Hotel. In May, Ventura Blvd Associates LLC, a North Hollywood holding company representing the New York family that has owned the hotel since 1961, sued Weintraub and the city to stop the development.

Land use attorney Alicia B. Bartley, who represents Weintraub, said she expects the lawsuit to get a court date sometime in the first half of next year. L.A. Superior Court Judge John Torribio is hearing the case.

Earlier this year the project drew opposition from neighbors, who said they had not been adequately notified about the development and complained that it would worsen traffic and parking congestion in the neighborhood.


Read on for a deep dive into the net operating income, including step by step calculations, a full example, and common misconceptions.

Understanding net operating income (NOI) is essential when it comes to investment commercial real estate. Without a firm grasp of net operating income, commonly referred to as just “NOI”, it’s impossible to fully understand investment real estate transactions. In this article we’ll take a closer look at net operating income, discuss the components of NOI, and also clear up some common misconceptions.

Net Operating Income Formula

Net operating income (NOI) is simply the annual income generated by an income-producing property after taking into account all income collected from operations, and deducting all expenses incurred from operations. The net operating income formula is as follows:

Net Operating Income

Net operating income is positive when operating income exceeds gross operating expenses, and negative when operating expenses exceed gross operating income. For the purposes of real estate analysis, NOI can either be based on historical financial statement data, or instead based on forward-looking estimates for future years (also known as a proforma).

Net operating income measures the ability of a property to produce an income stream from operation. Unlike the cash flow before tax (CFBT) figure calculated on a typical real estate proforma, the net operating income figure excludes any financing or tax costs incurred by the owner/investor. In other words, the net operating income is unique to the property, rather than the investor.

Net Operating Income and Lease Analysis

Before we go over each of the components of NOI, let’s first take a quick detour into the world of commercial real estate leases. Lease analysis is the first step in analyzing any income-producing property since it identifies both the main source of income as well as who pays for which expenses. As you can see from the net operating income formula above, understanding this is essential to calculating NOI.

While there are many industry terms for different real estate leases, such as the modified gross lease, triple net lease, or the full service lease, it’s important to understand that these terms all have various meanings depending on who you are talking to and which part of the world you are in. It’s critical to remember that you must read each individual lease in order to fully understand its structure.

At a high level, leases can be viewed on a spectrum of possible structures. On the one hand you have absolute gross leases where the owner pays all of the operating expenses related to the property. On the other hand you have absolute net leases, where the tenant is required to pay all operating expenses. Everything else falls in between these two extremes and is considered a negotiated or hybrid lease.

How to Calculate Net Operating Income (NOI)

Calculating net operating income is relatively straightforward once you break out each of the individual components. The components of net operating income consist of potential rental income, vacancy and credit losses, other income, and operating expenses.

Potential Rental Income – Potential Rental Income, or just PRI, is the sum of all rents under the terms of each lease, assuming the property is 100% occupied. If the property is not 100% occupied, then a market based rent is used based on lease rates and terms of comparable properties.

Vacancy and Credit Losses – Vacancy and credit losses consist of income lost due to tenants vacating the property and/or tenants defaulting (not paying) their lease payments. For the purposes of calculating NOI, the vacancy factor can be calculated based on current lease expirations as well as market driven figures using comparable property vacancies.

Effective Rental Income – Effective rental income in the net operating income formula above is simply potential rental income less vacancy and credit losses. This is the amount of rental income that the owner can reasonably expect to collect.

Other Income – A property may also collect income other than rent derived from the space tenants occupy. This is classified as Other Income, and could include billboard/signage, parking, laundry, vending, etc.

Gross Operating Income – This is simply the total of all income generated from the property, after considering a reasonable vacancy and credit loss factor, as well as all other additional income generated by the property.

Operating Expenses – Operating expenses include all cash expenditures required to operate the property and command market rents. Common commercial real estate operating expenses include real estate and personal property taxes, property insurance, management fees (on or off-site), repairs and maintenance, utilities, and other miscellaneous expenses (accounting, legal, etc.).

Net Operating Income – As shown in the net operating income formula above, net operating income is the final result, which is simply gross operating income less operating expenses.

What’s Not Included in Net Operating Income

It’s also important to note that there are some expenses that are typically excluded from the net operating income figure.

Debt Service – Financing costs are specific to the owner/investor and as such are not included in calculating NOI.

Depreciation – Depreciation is not an actual cash outflow, but rather an accounting entry and therefore is not included in the NOI calculation.

Income Taxes – Since income taxes are specific to the owner/investor they are also excluded from the net operating income calculation.

Tenant Improvements – Tenant improvements, often abbreviated as just “TI”, include construction within a tenants usable space to make the space viable for the tenant’s specific use.

Leasing Commissions – Commissions are the fees paid to real estate agents/brokers involved in leasing the space.

Reserves for Replacement – Reserves are funds set aside for major future maintenance items, such as a roof replacement, or air conditioning repair. While the textbook definitions of NOI usually exclude reserves from the NOI calculation, in practice many analysts actually do include reserves for replacement in NOI. For example, most lenders will include reserves for replacement into the NOI calculation for determining debt service coverage and the maximum loan amount. This makes sense because lenders need to understand the ability of a property to service debt, which of course has to take into account required capital expenses to keep the property competitive in the marketplace. To see how much confusion and disagreement there is on this, just take a look at all of the various answers you see here on this LinkedIn thread.

Capital Expenditures – Capital expenditures are expenses that occur irregularly for major repairs and replacements, which are usually funded by a reserve for replacement. Note that capital expenditures are major repairs and replacements, such as replacing the HVAC system in a property. This does not include minor repairs and maintenance which are considered an operating expense, such as replacing doorknobs and lightbulbs.

While many of the above items are almost always excluded from net operating income, it’s important to remember that some are open to interpretation depending on the context. Keep this in mind when building your own proformas and when evaluating NOI calculations performed by others.

Net Operating Income Example

The following is an example of a typical real estate proforma that would be commonly used by lenders, investors, developers, brokers and appraisers. It breaks out how net operating income is calculated and presented for an example warehouse property.

Net Operating Income Example

As shown above the net operating income line follows the above NOI formula by deducting vacancy and credit loss from gross potential rental income, then subtracting out all operating expenses. Also, note that the debt service and leasing commission expenses are not included in the NOI calculation.


Source: Understanding Net Operating Income in Commercial Real Estate



The much-publicized EB-5 “Immigrant Investor” program is set to expire this week, putting billions of dollars for commercial development at risk.


EB-5 gives visas to foreign investors who invest $500k in projects that create at least 10 American jobs. When the program first passed in 1990, it required investors to spend $1M but was later adjusted to allow investors to spend half in rural or high-unemployment areas, CNBC reports.

Its popularity has soared in recent years—sparked in large part by Chinese investors, who account for around 90% of all EB-5 visas granted—causing it to hit its visa limit of 10,000 per year in 2013 for the first time. (In 2007, only 700 visas were issued.)

The US Citizenship and Immigration Service estimates that EB-5 has brought in more than $2M and created more than 77,000 jobs, although those numbers are up for debate.

But some are concerned that more EB-5 money is being spent on projects in wealthy areas like New York City’s Hudson Yards or San Francisco’s Hunter’s Point Shipyard.

This week the Securities and Exchange Commission announced enforcement actions against lawyers charged with defrauding the system. A developer was also charged with using $6M from Chinese investors for a building conversion that never happened.

But on the flip side, EB-5 money has been beneficial, with projects like Washington DC’s Uline Arena (pictured), which is being converted into an office and retail center, as part of a project to rejuvenate the entire area.

Angelique Brunner, president of EB5 Capital, says the program needs more regulation so it can focus on the reason it was created, which was to spark economic development in distressed areas. One possible solution is a bipartisan proposal spearheaded by Judiciary Committee Chairman Chuck Grassley and Ranking Member Patrick Leahy. The proposal would increase the minimum investment in rural and high-unemployment areas to $800k and would reserve 4,000 of the 10,000 EB-5 visas for rural and high-unemployment areas. [CNBC]


Source: EB-5 Program Could End This Week – Commercial Real Estate