California to Consider New Legislation on Dual Agency
Bills Supported by Brokerage Industry Rivals Could Clarify Disclosure Requirements in Dual Agency Transactions – Or Restrict Practice Outright

By: Randyl Drummer
April 6, 2016

A pair of bills addressing dual agency broker representation have been introduced in the California State Assembly. If taken up and passed, the proposed legislation has the potential to upend and reshape the way commercial real estate brokerages do business in California, and influence real estate practices in other states across the country.

As reported by CoStar on Friday, Assembly Bill 1059, introduced by Assemblywoman Lorena Gonzalez Fletcher, D-San Diego, would add a section to the California Civil Code prohibiting a brokerage firm, broker or any of the broker’s or brokerage’s licensees from acting as a dual agent in its representation of both the buyer and seller or any of their principals in the same commercial property transaction. The bill is scheduled for a hearing before the Assembly Judiciary Committee on May 2.

Jason Hughes, president and CEO of San Diego-based tenant representation firm Hughes Marino and a vocal critic of dual agency transactions, said he approached Gonzalez Fletcher’s office after the high court’s decision last fall about potential legislation to ban dual agency. Hughes said he recently formed a new nonprofit organization called the Association for Commercial Tenants (ACT) to advocate for the rights of businesses and tenants in commercial transactions.

“For the last 100-plus years, the commercial brokerage industry’s primary constituent has been landlords, but the real consumers are tenants,” Hughes tells CoStar. “Companies that lease or purchase office, industrial, manufacturing, retail, R&D, lab, and other space have always been on the short-end of the receiving stick in the commercial real estate industry. I fully support this bill and I know there are thousands of companies who lease and purchase commercial space who support it also.”
Industry Supported Bill Focuses On Disclosure

Another bill introduced last Friday in the California State Legislature, rather than ban dual agency outright, proposes to clarify and expand current disclosure requirements and has received early support from a lobbying group representing the broader CRE brokerage and business communities. AB 1626, introduced by Assemblywoman Jacqui Irwin, D-Thousand Oaks, would clarify the disclosure responsibilities of associate licensees and supervising brokers in dual agency transactions.

The Irwin bill, currently scheduled for Judiciary Committee hearing on April 25, would more clearly define when a dual agency condition exists and specify the fiduciary duties of licensees engaged in such transactions under existing state law.

Both bills are in response to a decision by the California State Supreme Court last November upholding a lower-court ruling that a listing broker had a fiduciary duty to both the buyer and the seller in a dual agency transaction. In the case, Hong Kong businessman Hiroshi Horiike sued Coldwell Banker and its agents in a dispute over the square footage of a Malibu home purchased by Horiike in 2007.

“We see Assemblywoman Irwin’s bill as the serious legislation that’s trying to address the concerns in the Horiike case,” said Matthew Hargrove, senior vice president of governmental affairs for the California Business Properties Association (CBPA), a legislative advocacy group representing CRE owners, tenants, developers, brokers, contractors, attorneys and other industry professionals.

“The real estate industry is already working with many advocates on the consumer side to look at the policy implications of what the Supreme Court said what needs to be fixed, in the statute and in practice, to make sure that the lessons handed down in the Horiike case are actually implemented,” Hargrove added.

The CBPA, which boasts a membership of 10,000, describes itself as the designated legislative and regulatory advocate for several major industry groups, including the International Council of Shopping Centers (ICSC), Building Owners and Managers Association of California (BOMA California) and CCIM of Northern California.

While a commonplace practice for decades in both residential and commercial deals in the U.S. and around the world, several states in recent years have moved to regulate or ban dual agency real estate transactions in order to limit potential conflicts of interest and increase transparency in property sales. California, where dual agency deals are legal, adopted Senate Bill 1171 in January 2015, which requires disclosure to clients of dual agency relationships in commercial property transactions.

Hughes played a leading role in the passage of SB 1171 but said the Horiike decision demonstrates that dual agency in CRE deals needs to be banned rather than regulated. In supporting the Gonzalez Fletcher bill, Hughes noted a statement published last month by the Royal Institution of Chartered Surveyors (RICS), a global real estate accreditation body that certifies property and construction professionals, that advances more stringent conflict-of-interest requirements for its members, including an official ban on dual agency in the United Kingdom.

While a handful of states such as Colorado, Kansas, Florida and Wyoming in some form specifically prohibit dual agency, Hughes noted that about a dozen states closely follow California’s example on real estate regulation.

“Prohibition of dual agency would truly level the playing field for tenants, offering them legitimate transparency and conflict-free representation, something that should have happened decades ago,” Hughes said.
Lobbyist: Ban Would ‘Upend’ CRE Industry

However, the CBPA’s Hargrove argues that AB 1059 is too extreme a measure and would upend and disrupt the entire commercial real estate industry in California, while failing to address the core issue of fiduciary responsibility raised by the Supreme Court in the Horiike case.

“Under state law on the commercial side, you already have to disclose when there’s a dual agency situation in no uncertain terms,” Hargrove said. “We think those disclosures are right and appropriate, and we are concerned about how the political communications supporting AB 1059 are trying to undermine or claim that dual agency is nefarious. I absolutely disagree with that.”

“Under AB 1059, every single transaction would need to have two real estate agents,” Hargrove added. “It would disadvantage tenants by taking away the choice they now have to work with the real estate agency of their choice. Under current state law, you already have to disclose to tenants that you’re a dual agency, which allows the tenant to make their own decision.”

Hughes countered that AB 1626 is a “nothing burger bill” served up by advocates for the large brokerages and CRE groups that want to have it their way in maintaining the status quo.

“This is their way to proactively address the problem through misdirection and confusion with language that actually creates less accountability for brokers and adds more conflicts of interest, lack of transparency and consumer exposure than there is now,” Hughes said. “This is a legacy sponsored bill that continues to help the industry while hurting small business.”

While tenant representation firms would clearly benefit from a law prohibiting dual agency, the political influence and deep roots in the California market likely gives the advantage to legislation supported by the global full-service CRE brokerages and real estate lobbying groups, noted Katie R. Jones, real estate attorney with Walnut Creek, CA-based Miller Starr Regalia.

That being said, California agency law clearly requires more guidence from the Legislature in the wake of the Horiike decision, Jones said.

“The way the law is drafted now, based on current disclosure requirements, it’s an extreme challenge if not impossible for dual agents to adequately uphold their fiduciary responsibilities,” Jones said. “It makes more sense to find a solution that doesn’t upend the entire industry.”

Link to article: CoStar-Dual Agency Legislation

According to the New York Times, industrial real estate is experiencing a pot fueled “boom”. In the US states where steps have been taken to make marijuana legal, the demand for grow & pot processing warehouses and industrial spaces has increased with some “factories, warehouses, and self-storage units…being re-purposed for cultivation and processing of potent marijuana”.

While some in the real state industry view grow facilities as a gamble due to the fact that marijuana remains an illegal substance at the Federal level, for now Landlords across the nation are taking advantage of the premium rents being achieved for such facilities. Commercial real estate research firms are reporting prices for warehouse spaces increasing “by more than 50% from 2010 and 2015” in the Denver market where recreational pot was legalized in 2012. But, Denver is not the only commercial market experiencing a boom in industrial real estate activity. According to the New York Times, industrial areas “from Monterey, CA to Portland, ME” have undergone a transformation spurred by the pot industry and, “once-blighted neighborhoods and sending property values soaring.”

Furthermore, according to BISNOW, “legal pot sales hit $6.7B in 2016 and are expected to rise above $20B by 2021.” With increased sales of legal pot, the demand for industrial space will continue to grow, potentially creating a “new sector in the industrial real estate market.” But, with the new Federal Administration in place, some in the industry are concerned that the weed bubble will pop due to stricter regulation of pot sales and pot cultivation.

According to the Registry, two buildings located at 657 & 667 Mission Street in San Francisco’s South Financial District have sold for approximately $100MM to Align Real Estate and Vanke Holdings USA. “657 and 667 Mission Street total 130,000 square feet…are currently 65% occupied with short term leases allowing the new owners the flexibility to re-position the buildings as Class A creative office space with premier ground floor retail”, as reported by the article.

Registry has based the pricing of the assets on a press release from Square Mile Capital Management wherein the loan brokerage firm stated they originated a $70 Million loan for 657 & 667 Mission Street. According to the article, the loan “represented a 70 percent loan-to-value” which equates to approximately “$770 per square foot, or roughly $100 Million.”

Calco Commercial completed over 70 lease and sale transactions in 2016 totaling over 650,000+/- square feet of industrial, commercial, office and flex spaces in San Francisco and the Peninsula Areas. We are a leading industrial & commercial real estate firm, and consistently complete more transactions in the industrial market than any other firm in San Francisco. We have decades of experience in Landlord /Owner representation, helping Tenants find spaces to fit their needs, and assisting Buyers with net investment properties and trades. Calco Commercial is a full service firm that can help make the most of your real estate properties and investments.

If you would like to discuss your real estate options, or would simply like more information related to current market conditions, please call our office a 415.970.0000, or directly contact one of our professionals.

Source: CoStar News
By: Mark Heschmeyer
Date Posted: February 10, 2017

BGC Partners Inc. (NASDAQ: BGCP) will be the first to test the IPO market this year for a major commercial real estate firm after it submitted a confidential draft registration statement to the U.S. Securities and Exchange Commission to spin off Newmark Grubb Knight Frank (NGKF) as a separate public company.

Under the plan for a proposed initial public offering, BGC would offer Class A common stock in a newly formed subsidiary that will hold BGC’s real estate services business.

The number of Class A shares to be offered and the price range for the proposed offering have not yet been determined.

In the filing, BGC said it may choose to distribute the shares that BGC will hold of the newly formed subsidiary to BGC’s stockholders in a tax-free spin-off after a certain period following the expected offering. Very little else about the proposed public offering was disclosed in its announcement.

NGKF is a full-service commercial real estate platform that comprises BGC’s real estate services segment and includes such other operations, including Newmark Cornish & Carey, ARA, Landauer Valuation & Advisory, and Excess Space Retail Services Inc. Together with its affiliates and London-based partner Knight Frank, NGKF has more than 12,800 employees across more than 370 offices and manages 250 million square feet.

In its most recent quarterly report, BGC partners reported that real estate services segment generated approximately 44% of its revenues for the three months ended September 30, 2016. Real Estate brokerage revenues were $233.7 million, up 4% year-over-year, which included growth in real estate capital markets of 17%, partially offset by decreased leasing and other services revenue of 3%.

In that filing, BGC said it believes that BGC’s assets and businesses are worth considerably more than what is reflected in its current share price.

“As we have previously stated, we are actively working on ways to unlock substantial value for our investors,” the company said then.

BGC has been growing its real estate business with notable new hires, including atop investment sales team in New England in late 2015 and landing a top-producing Los Angeles office investment sales team, eight star brokers in Southern California and a pair of elite Chicago tenant rep brokers early last year.

In making the announcement, BGC seems to have beaten rival Cushman & Wakefield to the punch in going public. Cushman & Wakefield has been rumored to be eyeing an IPO this year as well.

Link to article: Real Estate Services IPO

On Tuesday, February 14, 2017, Federal Reserve Chair Janet Yellen testifed before the Senate regarding current economic trends, bank lending, and possible changes to Dodd-Frank. According to Bisnow, Yellen stated that due to “solid job growth, rising inflation, and healthy wages” that she may “recommend another rate hike” but did not provide specific timing of an increase. The Fed will be exploring the rate hike discussion at its upcoming meeting in March at which a clear timeline may emerge, however, as the article notes Yellen clarified that any future rate hikes would be steered by “economic trends alone” and not on “speculation on fiscal stimulus”.

In regards to bank lending, Yellen indicated that “commercial and industrial loans have surpassed” the number of loans made during the “2008 peak”. Although U.S. institutional lending had decreased, according to the article, capital for commercial projects has been buoyed by “foreign investment and rising interest from institutional investors.” Further, “commercial and industrial loans have been on the rise…increasing by an average rate of 10.6% a month over the last five years.”

According to Dodge Data & Analytics, commercial real estate construction will witness a “6% increase on top of the 12% gain estimated for 2016”. The report also indicates increases in construction activity in the single-family, institutional, and manufacturing plant markets ranging from 6%-9%. Conversely, Dodge Data estimates that the multi-family and utility plant construction markets will decrease by 2% and 29%, respectively.

Source: CoStar News
By: Mark Heschmeyer
Date Posted: December 20, 2016

Fred’s Inc. (NASDAQ: FRED) has signed an agreement with Walgreens Boots Alliance Inc. (NASDAQ: WBA) and Rite Aid Corp. (NYSE: RAD) to purchase 865 stores and certain assets related to store operations located across the eastern and western United States for $950 million in cash.

Closing of the transaction is expected to take several months after Walgreens Boots Alliance’s proposed acquisition of Rite Aid is completed. The deal is also subject to approval by the Federal Trade Commission as well as customary regulatory approvals and closing conditions.

The pending $17.2 billion merger between Walgreens and Rite Aid first proposed in the fall of last year has lingered while the FTC analyzed its competitive impact. This past October, Walgreens Boots Alliance and Rite Aid announced an extension of their end date for the merger agreement to Jan. 27, 2017.

Walgreens executives continue to signal their confidence in closing the merger and have always expected that they would have to sell from 500 to 1,000 stores to help seal federal approval.

Shareholder approval is not required.

The store divestiture to Fred’s Pharmacy, if approved, is targeted to close during the first half of 2017 and will position Fred’s as the third-largest drugstore chain in the U.S. and create a new national competitor. Memphis-based Fred’s Pharmacy currently operates 647 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in the southeastern US.

In connection with this transaction, the company said it has received financing commitments from BofA Merrill Lynch and Regions Bank to fund the purchase price, transaction-related costs, ongoing business operations and anticipated capital investments.

“This will be a transformative event for Fred’s Pharmacy that will accelerate our health care growth strategy,” said Fred’s Pharmacy CEO Michael K. Bloom, “We have been working for several months on integration plans to ensure a seamless transition.”

Fred’s appointed Michael Bloom as its new CEO last summer. One of his first moves was to hire Chris McDonald as vice president for real estate. McDonald previously was senior category manager at CVS and has extensive real estate experience from her time at Chase Bank and Walgreens.

In aggregate, the 865 stores are generally representative of Rite Aid’s pre-divesture store performance with respect to both sales and EBITDA. Fred’s Pharmacy expects that the acquired stores would be accretive to earnings and generate substantial cash flow.

Fred’s Pharmacy said it expects to keep certain store and certain field and regional team members, contingent on consummation of the transaction. Post-acquisition, the company will operate the acquired stores and will retain the Rite Aid banner through a 24-month transition.

A.T. Kearney served as a strategic advisor to the CEO and board and provided financial and operational diligence related to the transaction.

Link to article: Walgreens Rite Aid Merger

Federal Reserve Chairwoman Janet Yellen indicated in November that a raise to the U.S. interest rate could be happening “relatively soon.” The “soon” came just a month later with the announcement by the Federal Reserve yesterday that the rate will increase by an initial 0.25%. However, as reported by the Wall Street Journal, the rate could increase by as much as 0.75% over “three quarter-point moves” in 2017.

Financial analysts are suggesting that the move to increase the rate is a signal by the Fed of its optimism about the strength of the economy and “pointed to a strengthening labor market nearing full employment and inflation moving more rapidly towards targeted levels,” according to the article. This latest increase by the Fed is only one of two in the last decade.

But what the increase to the interest mean for commercial real estate? According to Bisnow, rate hikes usually lead the way to “higher borrowing costs…impacting profitability and future acquisitions.” However, as the article points out, this particular increase was long in the making and investors, REITS and property owners have anticipated this increase and have planned/priced accordingly. Therefore, the impact of the first .25% jump “may not have as great an impact” on commercial real estate activities as the effect that “comes from long-term rates.”