In industry after industry, digital technology has changed the game in countless ways. From music (iTunes) to retail (Amazon) to the emerging internet-of-things, the changes have been pervasive and downright breathtaking.

What about real estate? The ramifications of the online revolution are certainly affecting real estate development as well, such as in the rising risk of cyber attacks.

What should developers be doing to manage these risks? In this post, we will address that question, using a Q & A format.

Why would real estate development be affected by cyber attacks?

New developments offer increasing levels of technological functionality, with ever-smarter computers to automate operations and connect buildings to sophisticated electronic grids.

With these enhancements come a corresponding increase in the risk of cyber attacks. As we noted in our August 1 post, cyber risk management is therefore becoming more and more important.

What are some of the cyber risks that must be managed?

Unauthorized parties could take control of computer networks and hold them for ransom or obtain private information that could be used to commit fraud and other crimes.

With more information available in the cloud, on mobile devices and on social media, there could also be risks of theft of electronic payments and sensitive personal information. There could also be theft of intellectual property.

Malicious hackers could even try to harm tenants through control of computer-controlled facilities systems. They could also try to destroy the buildings themselves.

The consequences to real estate companies if such attacks were successful would be significant. Tenants who have had their information compromised or even be assaulted might sue. Or, at the very least, they might leave for another building.

But the consequences of a successful cyber attack would go beyond immediate revenue loss. There would also be long-term implications for the developer’s brand, posing major reputation-management challenges and legitimate shareholder concern.

Have ransomware attacks been successful in other industries?

Yes. Ransomware attacks are a growing problem in the health care industry. Several hospitals have had their computers hacked. Earlier this year a hospital in Los Angeles paid thousands of dollars to hackers in order to get its computer system released.

The hospital industry is engaged in a furious game of data-security catch-up, trying to better protect itself from cyber attacks.

What are some of the steps that developers should consider to reduce the risk of cyber attacks?

Like health care companies, commercial real estate developers need to make improved cyber security a high priority. Once that is done, the tools and techniques will follow.

For starters, this means making a clear assessment of the strategic risks and enlisting appropriate expertise to address them. Getting buy-in among the key leaders of the company, such as the chief information officer and the chief financial officer, is critical, because implementing an appropriate risk-management solution will require coordinated efforts throughout the company.

Creating a robust response to the challenge of cyber attacks also requires a full awareness of legal issues. It is therefore important to get knowledgeable legal counsel about risk-management issues. This will help you avoid undue digital dilemmas as you seek to grow your business amid the opportunities and threats of this online age.

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The next time you go through the theatre district in Los Angeles and see a retail store in its place, you are not lost or hallucinating. It is the sign of the times when it comes to real estate. Essentially, developers have become very creative when it comes to making old, dilapidated properties new again.

Because moviegoers have long since shown their preference for new IMAX enabled metroplexes over historic, single screen theatres, landlords have had to find alternative uses for such large venues. With that, what was once home to some of the iconic venues for movie houses is becoming home to churches, hotels and especially retail outlets.

According to a recent LATimes.com article, the Rialto Theatre has become home to Urban Outfitters, a Philadelphia-based clothing retailer. The 10,000 square foot building was repurposed in 2013. Similarly, the United Artists building on Broadway was revamped and transformed into the Ace Hotel in 2014.

Indeed, the city is eager to see old buildings revitalized, so it should not be surprising that the historic Olympic Theater will be renovated to make way for COS; a higher brand of H&M.

As we noted in a prior post, an iconic property can bring the attention and foot traffic that businesses covet. However, a renovation contract must have the appropriate safeguards to protect investors. An experienced real estate attorney can help with the nuances and critical language to ensure such protections. With so much money required (and so much to be made) nothing should be left to chance.

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Overall, commercial real estate has been on the upswing for seven years, both nationally and in Southern California. The end of the Great Recession brought a bull market, with rising rents for commercial property.

Experts are now uncertain whether this can continue. However, the struggles of one component of the market, namely retail stores, seem likely to continue.

In this post, we will address two main questions. First, is commercial real estate as a whole really on the proverbial bubble? And second, what are the realistic prospects for commercial retail given the dynamic increase in online shopping?

Trends in the CRE market

Nationally, it isn’t difficult to find pundits who are concerned about a possible downturn in the commercial real estate (CRE) market. One concern is of course that the market is overbuilt, with too many properties and too few potential buyers or renters.

There are also other complicated economic factors in play. These factors include the availability of credit under the Federal Reserve’s quantitative easing policies and the viability of commercial mortgage backed securities as an investment.

For now, the market remains remarkable robust overall. One key indicator – the Green State U.S. Commercial Property Price Index – has doubled since the Great Recession ended. This index is still rising, at a rate of 7.5 percent.

These national trends are reflected in Southern California as well. Since 2009, Los Angeles-area rents are up more than 19 percent.

Risk of a downturn?

So is commercial real estate in Greater Los Angeles really at serious risk of a downturn?

One view is that LA is well positioned for continued growth. The rationale for this view is that a diversified economy and a desirable location will continue to attract investment and appeal to prospective tenants, at least in the office market.

We discussed the international aspects of these investments in our June 4 post.

An opposing view is that a bullish cycle lasting seven years is drawing to a close. This doesn’t mean a 2007-level crash is coming, but rather the possibility of stagnant or declining prices.

No one has a crystal ball to foresee how this will unfold. But at least one CRE trend seems crystal clear: the ongoing decline of bricks-and-mortar retailers.

Bricks-and-mortar struggles

Online shopping has changed the game in retail. It isn’t only that some big national brands, such as Borders and Sharper Image, are gone. Many other bricks-and-mortar retail stores, for companies of all sizes, are threatened by the explosion in Internet commerce.

To be sure, tech is, as always, a double-edged sword. When Amazon builds a big distribution center, it is a boost for the real estate market in that area.

There is no doubt, however that retailers of all kinds are struggling to keep physical stores open as the consumer migration online continues to evolve. And this will mean less demand for commercial retail space.

Making strategic decisions

For commercial real estate professionals, the trends we’ve discussed in this post have to be consciously weighed and evaluated. There’s an abundance of information to digest and analyze.

As you consider your specific goals, it’s important to get knowledgeable legal counsel. With a skilled attorneys’ help, you can create and execute a sound legal framework for your strategic decisions.

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A partnership is the foundation of many California businesses. In order for those collaborations to be successful for all involved, Forbes offers some advice about what makes for strong partnerships in business.

While there are millions of kinds of businesses, partnerships, investment projects and various kinds of business litigation disputes in Los Angeles alone, just about all business matters share one thing in common: contracts. A partnership starts with an agreement, and that partnership agreement should be thoughtfully, lawfully and formally created.

Partnerships and businesses can and do fail due to the weakness of a contract. Effective documentation is the basis of a successful, protected business entity. Therefore, legal support that is experienced in protecting business and partnerships is an important ally for entrepreneurs to adopt right away.

Beyond solid, foundational partnership documents, there is the important matter of whether the partnership is a promising idea in the first place. Forbes suggests that the separate parties think honestly together about the following questions:

• What are the other party’s/parties’ expectations of the business and the partnership overall? Do the expectations match, and do the expectations jive together?
• What does the other entity have to offer from a partnership perspective? Does the other party bring something to the big picture that is needed in order for the business to better succeed?
• Are both or all parties benefiting each other and the overall success of the business? If not all are benefiting from a partnership deal, not all parties will feel positively about the business venture. Discontent can make for an unsatisfying business relationship and less secure business.

A clear mind and confidence can help a business and partnership succeed. Experienced and knowledgeable business lawyers can help provide entrepreneurs with both. They will know what makes a solid contract and what questions potential partners should think about and discuss before taking on a new business venture.

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The sharing economy is a double-edged sword, creating both opportunities and issues.

The recent agreement between Los Angeles and Airbnb on the collection of lodging taxes on short-term housing rentals (STRs) is a case in point.

In this post, we will update you on this agreement, using a Q & A format.

Why are short-term rentals so controversial?

Proponents of STRs point to multiple benefits, including economic stimulus for neighborhoods and tax revenue for the city. For hosts, there is the chance to help make their mortgage payments and perhaps share a bit of their lives with travelers. And for travelers, STRs create more options.

Critics contend that widespread use of short-term rentals results in de facto unregulated hotels in residential areas, creating noise problems and taking much-needed housing stock off the market. Critics also believe STRs hurt hotels and bed-and-breakfast establishments (who pay lodging taxes) by putting them at a competitive disadvantage.

What are the current rules on STRs in LA?

Renting out a home or even a room for less than 30 days is not allowed under Los Angeles’s current rules. But the city struggles to enforce this restriction, with many homeowners renting out homes or rooms for shorter stays through sharing sites such as Airbnb or Homeaway.

Los Angeles is seriously considering changing the rules. The proposed rules are fairly complicated, but generally they would legalize and regulate STRs.

The new rules would allow homeowners to rent out a primary residence for up to 180 days a year. Activists concerned about the effect of STRs on neighborhoods contend that is too long.

The Planning Commission approved the new rules last month. The LA City Council, however, has yet to act on them.

How do LA’s rules compare with other cities?

Let’s take two examples, one nearby, the other up the coast.

San Francisco, where Airbnb was founded, has adopted an ordinance by which STR hosts who don’t register with the city could be fined. The fines would be hefty: $1,000 a day. Airbnb has filed a federal lawsuit, seeking to block the ordinance.

Santa Monica also has new rules in place. Santa Monica’s rules are among the most restrictive in the U.S., prohibiting homeowners from renting out an entire residence for less than 30 days.

What about the tax aspects of STRs?

The tax aspects are a story within the larger STR story. Los Angeles and Airbnb recently worked out a deal by which LA will collect lodging taxes from STR hosts.

As the LA Times pointed out in an editorial, this has put the city in an odd position. Given how restrictive LA’s current rules on STRs are, Airbnb will in many cases be collecting taxes on illegal activity.

The bottom line

In short, regulation of short-term rentals is an evolving issue that will affect the real estate industry in Southern California for a long time to come. If you are uncertain about how the emerging rules may affect you, it makes sense to discuss your specific situation with a knowledgeable attorney.

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The sharing economy is a double-edged sword, creating both opportunities and issues.

The recent agreement between Los Angeles and Airbnb on the collection of lodging taxes on short-term housing rentals (STRs) is a case in point.

In this post, we will update you on this agreement, using a Q & A format.

Why are short-term rentals so controversial?

Proponents of STRs point to multiple benefits, including economic stimulus for neighborhoods and tax revenue for the city. For hosts, there is the chance to help make their mortgage payments and perhaps share a bit of their lives with travelers. And for travelers, STRs create more options.

Critics contend that widespread use of short-term rentals results in de facto unregulated hotels in residential areas, creating noise problems and taking much-needed housing stock off the market. Critics also believe STRs hurt hotels and bed-and-breakfast establishments (who pay lodging taxes) by putting them at a competitive disadvantage.

What are the current rules on STRs in LA?

Renting out a home or even a room for less than 30 days is not allowed under Los Angeles’s current rules. But the city struggles to enforce this restriction, with many homeowners renting out homes or rooms for shorter stays through sharing sites such as Airbnb or Homeaway.

Los Angeles is seriously considering changing the rules. The proposed rules are fairly complicated, but generally they would legalize and regulate STRs.

The new rules would allow homeowners to rent out a primary residence for up to 180 days a year. Activists concerned about the effect of STRs on neighborhoods contend that is too long.

The Planning Commission approved the new rules last month. The LA City Council, however, has yet to act on them.

How do LA’s rules compare with other cities?

Let’s take two examples, one nearby, the other up the coast.

San Francisco, where Airbnb was founded, has adopted an ordinance by which STR hosts who don’t register with the city could be fined. The fines would be hefty: $1,000 a day. Airbnb has filed a federal lawsuit, seeking to block the ordinance.

Santa Monica also has new rules in place. Santa Monica’s rules are among the most restrictive in the U.S., prohibiting homeowners from renting out an entire residence for less than 30 days.

What about the tax aspects of STRs?

The tax aspects are a story within the larger STR story. Los Angeles and Airbnb recently worked out a deal by which LA will collect lodging taxes from STR hosts.

As the LA Times pointed out in an editorial, this has put the city in an odd position. Given how restrictive LA’s current rules on STRs are, Airbnb will in many cases be collecting taxes on illegal activity.

The bottom line

In short, regulation of short-term rentals is an evolving issue that will affect the real estate industry in Southern California for a long time to come. If you are uncertain about how the emerging rules may affect you, it makes sense to discuss your specific situation with a knowledgeable attorney.

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Many people in Los Angeles dream of living in a gated community where privacy and security suggest an almost idyllic quality of life. However, purchasing a home in a private community — such as a condominium, in a retirement neighborhood or a vacation timeshare — often includes membership in a Home Owners’ Association or similar organization. Reading the fine print before signing on may save potential homeowners the headache of a real estate dispute.

Belonging to an HOA means agreeing to abide by its Declaration of Covenants, Conditions and Restrictions even if they seem disagreeable. The terms of the CC&R are meant to protect the property values in the community as well as maintain a certain quality of life. So while the CC&R may prevent one’s neighbor from putting up a gaudy display of holiday lights or owning a persistently barking dog, it may also prevent one from displaying a flag of his or her favorite football team or installing an adorable mailbox.

HOA membership is not voluntary in most common interest communities. A person who purchases a home in an HOA-controlled community is legally bound to the association’s rules. In fact, refusing to abide by the terms of the CC&R, or even breaking the rules out of ignorance, may result in hefty fines or other penalties. The CC&R in one’s community may even give the HOA the right to foreclose on one’s house for unpaid fines or dues.

Carefully reading the CC&R and having a thorough understanding of one’s rights and responsibilities is vital before purchasing a home in a common interest community. Knowing what is in the contract will make it easier to recognize when one’s rights are being violated by an HOA. People in Los Angeles who feel their HOA is not keeping its end of the covenant or is overstepping its authority may consult an attorney for advice on how to resolve this real estate dispute.

Source: The Huffington Post, “When Homeowners’ Association Living Goes Haywire: How To Prevent The Common Problems Of Living Under An HOA or COA“, Jack Hanson, June 29, 2016

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In a prior post, we noted how the commercial real estate market was expected to be strong through 2018, thanks to several positive economic factors. They include a strong job market, low interest rates and dwindling vacancies.

The Los Angeles Times recently reported on another example of this trend. Rhode Island toy maker Hasbro recently decided to move its headquarters in Burbank to a larger space in the city’s media district. Specifically, Hasbro will now be located in the Media Studios North office park. The reasoning behind this move? It needed more room for its growing workforce.

The 78,000 square footage of office space is nearly double the size of the previous building. And it reflects the ongoing opportunities in the Tri-Cities area of Pasadena, Glendale and Burbank.

It is important to note that rents per square foot are increasing slightly, from $3.00 in the first few months of the year to $3.02 now. More importantly, vacancy rates have declined from 14.8 percent to 14 percent.

The growing market is a departure from the first quarter of this year, as the job market suffered several months of declines and many were concerned about slowing economic growth overall. Nevertheless, commercial real estate opportunities should be undertaken with caution underscored with legal advice. An experienced real estate attorney can help investors understand the legal implications with acquiring property and forge creative financial deals.

It remains to be seen whether these opportunities will continue as full employment may lead to slower commercial real estate growth.

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The real estate market in Southern California is enjoying healthy growth. That much is obvious given the number of cranes that are seen on a given day and how many more companies are vying for new and upgraded spaces. We noted in our last post how toy maker Hasbro will be moving into a new building that will accommodate its new and growing workforce.

With such optimism about the commercial real estate market, the question must be posed: when will it end? For real estate investors, this is a critical question since the most common way to make money in real estate is to buy low and to sell high. If you have the misfortune of buying high in a hot market, it is less likely that your investment will appreciate.

This is why the latest commercial real estate forecast from the UCLA Anderson School of Management is important. The forecast is a collection of views from real estate developers with respect to the market for the next three years, which is also essential given the amount of time it takes for a commercial project to be built.

According to the latest survey, it appears that the commercial office market is topping out. This follows sentiments that rental rate growth and vacancy rates have already hit their apex. Because of this, developers and investors alike must be particularly careful with new projects, and the guidance of an experienced real estate attorney can guard against potential losses.

The preceding is not legal advice.

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People in Los Angeles love the Runyon Canyon Park. It is estimated that 1.8 million people visit the 136 acre park each year for the hiking trails, the areas where dogs can roam off-leash, and of course, the Hollywood sign. However, catering to the masses costs money. This is why the city’s Recreation and Parks Department’s partnership division has allowed private donor to sponsor maintenance projects.

One such project has raised the ire of park users. An LA Times.com report highlighted the story of a private company’s sponsorship and construction of a retaining wall and basketball court that was initially approved by the city in November. Nevertheless, public outcry over the company’s logo on the basketball court has caused city officials to rescind its approval.

Ironically, the rescission will cost the city nearly $210,000 because much of the work on the project has already been completed.

Park users were apparently unaware of the project before the end of March, when the park was being closed to repair aging water pipes. The park was scheduled to be closed for four months while the retaining wall and basketball court were being built. This caused opponents of the project to dominate a recent council meeting and inundate the councilman responsible for approving the project with phone calls. While the council has yet to officially halt the project through a vote, it is a virtual certainty that it will be halted.

The project is a cautionary tale for private entities working with city officials. It is helpful to have an experienced real estate attorney to help navigate the administrative process so that a project can be successful.

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