Commercial real estate
Lane says Mississippi is faring much better than others
Nancy M. Lane is president of Nancy Lane Commercial Realty in Jackson. Formerly the director of real estate for the McCarty Holman Company for 18 years, Lane opened her own commercial realty company in 1998. She recently sat down with the Mississippi Business Journal’s Nash Nunnery to discuss the current state of the commercial real estate market and other topics regarding the industry.
Q — With the slump in the economy, what has been the effect on the commercial real estate industry in Mississippi?
A — Mississippi as a whole is fairing much better than many areas of the country and for that we can be very grateful. That is not to say that the commercial real estate industry is what it was two years ago. Sales have slowed significantly, as has leasing, and we are seeing requests for reductions in rent and space. Even on a national scale, many of the successful chains are taking advantage of the tenant market to request rent reductions in an attempt to improve profit margins. If you drive around Mississippi and see an unusual amount of vacant space, remember that this was partially predictable, since Go Zone benefits drove new development that might not have otherwise occurred. With a deadline for completion of Dec. 31, 2008, it was a foregone conclusion that there would be more available space in the marketplace at the end of 2008. That coupled with the national economic slowdown has resulted in a larger than average vacancy rate for our state.
Q — What is the biggest challenge for the industry in economic recovery?
A — Confidence and availability of funding are huge challenges in today’s market. Many individuals are concerned about what is waiting around the corner for them and their families. Many people are responding to this fear by spending less and paying down debt. Just a few years ago, that was not the case, when everyone wanted to purchase an investment property. Many borrowed the maximum in order to purchase, without anticipating that in the near future the tenant they depend upon might be unable to make rent payments or worse, file bankruptcy leaving them with the vacant asset. Money was easy to borrow then. Today, money is only available to the strongest of investors and those willing to put down a large portion of the purchase price. The most recent quotes for equity investment range from 30 to 50 percent. In other words, if you want to purchase a $1-million property, you need between $300,000 and $500,000 to obtain a loan for the balance, dependent upon the financial strength of the occupant, the location of the property and even where the purchaser lives relative to the property. Even with all of the change, there are many opportunities in real estate. They are just different than they have been in the past.
Q — Are there standard representations and warranties usually included in a commercial real estate contract?
A — A commercial contact can be either very simple or very complex. Some properties are sold on an “as is/where is” basis without warranties other than that the seller conveys to the purchaser, usually by quitclaim deed, and whatever title they have to the property. More often, at a minimum, the contract will require the seller to deliver “good and marketable title” without defects or liens and warrant that each party signing the contract has full authority to execute the agreement.
Q — What happens if there is damage to the property from fire, hail, flood or wind during the term of the contract or before closing?
A — That depends upon what is stated in the contract. Every contract for property with improvements should address what happens if the improvements are damaged between the date of the contract and closing of the sale. Often, the purchaser has an option to terminate the contract and receive a return of the earnest money. Other options may be for the seller to turn over the insurance proceeds to the purchaser or the seller may have an option or obligation to make repairs to repair the damaged areas to the condition they were at execution of the contract. Hurricane Katrina was a vivid reminder of the importance of contract language to specifically state what happens in the event of a loss or disaster.
Q — When is either party obligated to pay a broker’s fee upon the sale of commercial real estate?
A — Obligation to pay a broker’s fee results from a contractual or written agreement between the two parties. The contractual agreement should state at what point a commission is earned and at what point it is payable. These are not always the same dates. The listing agreement between the owner and listing broker is where the terms of payment should be clearly stated. If the property is an unlisted property, there should be a written commission agreement. Most often, payment of a sales commission occurs at the closing and a leasing commission upon execution or commencement of the lease.
Q — If a person purchases commercial real estate, what should be included in the contract?
A — EVERYTHING THAT THE PARTIES TO THE CONTRACT HAVE AGREED UPON SHOULD BE INCLUDED IN WRITING WITHIN THE CONTRACT. I cannot impress enough the importance of this. Nothing should be left out based on a verbal promise. At a minimum, a contract should include the effective date of the agreement, the term of the contract or expiration date, the sale or lease price, how and when the funds are payable, the correct names of the parties to the contract, the obligations of each and what happens if either party fails to fulfill their obligations. Also, by law, if a broker is involved, the contract must state the name of each broker and which party they represent.
Q — How are zoning ordinances changed?
A — Each city or governmental agency has its own set of rules defining the process for zoning changes. The basic criterion that is required is the show of change and need. Generally, an application for a change must be made, advertisement to the public of the requested change, certified notification to property owners within a certain distance from the property lines, payment of a fee to the governing body and then a hearing before the zoning board followed by approval by the city council. The time required to obtain zoning changes differs greatly in the various cities, often based upon how often the zoning board and city council meet. Requests for rezoning are very detail oriented and should most often be handled by a competent zoning attorney. In the event the zoning request is denied, it is important that the proper testimony and information has been included in all parts of the process. If the proper basis for the request is not established, an appeal to a higher body may be futile.
Hometown: I consider Jackson my hometown. I was born in Brookhaven, and have lived in Mississippi, Arkansas and Louisiana, attending eight different schools in the process.
Degree(s): I hold a CCIM (Certified Commercial Investment Member) designation from the National Association of Realtors. I attended Hinds Junior College and University of Southern Mississippi
Hobbies/Interests: Fishing, water sports, reading and grandchildren
Favorite Restaurant: My son’s kitchen but also love Tico’s Steakhouse
Favorite Movie: “My Cousin Vinny”
Last book read: “The Given Day” by Dennis Lehane
Person who’s inspired you the most: Several former bosses have been wonderful mentors to me. My dad and other family members taught me the value of hard work and the importance of faith.