As we noted in a few of our posts, the commercial real estate market has shown positive signs that suggest it will be a banner year for investors. Demand for high level space is very active, and a number of projects (including the Rams’ new stadium) suggests that development near landmarks will be active for years to come.

Part of this new found demand for commercial space comes from foreign investment. And a move by Congress earlier this year sets the stage for more foreign money to come into Southern California’s real estate market.

Essentially, Congress relaxed the Foreign Investment in Real Property Tax Act. This law requires foreign investors to pay additional income taxes on their earnings when they sell a property in the United States. Initially passed in 1981, legislators were afraid of foreign investors purchasing large portions of commercial real estate, including farmland for future development.

The move was largely a defense against individual investors. However, more investment came foreign public pension funds which was viewed much more favorably.  In fact, foreign pension funds have become the largest sources of foreign money used in commercial real estate projects, according to the Wall Street Journal.

To avoid the additional investment tax, foreign pensions previously purchased minority shares within real estate groups, since they were required to share ownership (and control) of such a property with other investors. But the new tax application may change this.

With this change, foreign investment in commercial real estate is expected to increase by $20-$30 billion per year. These new opportunities exemplify the need for experienced legal counsel with real estate projects.

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It finally happened. What analysts, realtors, lenders and sellers alike have been waiting for since the real estate market plummeted nearly a decade ago. The real estate market has risen to levels seen since the real estate bubble burst in 2008.

According to a recent LAtimes.com report, only Orange County has reached pre-recession levels. The median price of new and resale homes in the region reached $651,500 in May, eclipsed the previous high of $645,000 in June of 2007. This new high was not adjusted for inflation

In 2008, the great recession began and home prices reportedly bottomed out in 2009 at $370,000.

While this may seem to be cause for celebration, home prices in other counties in the region have a long way to go. For instance, prices in San Bernadino County are still 25 percent below pre-recession levels, and they are 23.6 percent behind such levels in Riverside County. But there is optimism in other parts of the region, since prices in Los Angeles and San Diego counties are approaching their 2007 levels.

Additionally, strong economic growth and the availability of home loans suggests that additional price gains are realistic in 2017 and 2018. Because of this, real estate opportunities abound for investors in residential markets just as they exist in the commercial market.

However, investors must be cautious of potential downturns. Indeed, analysts do not see catastrophic falls given the legal and regulatory protections in place now, but the help and guidance of an experienced real estate attorney can help in protecting investors.

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An essential question in whether a business takes on a real estate project is whether the project makes sense financially. This involves making thorough estimates on the costs to renovate a property and balancing them against projected revenue streams.

One important aspect is determining how much will be expended in securing and paying off a commercial real estate loan. A common way to determine this is to find out the interest rate for a loan as well as the annual percentage rate (APR). Both are useful tools to evaluate the cost of a loan, but understanding the differences between them are key.

This post will briefly explain their differences.

The interest rate on a commercial real estate loan is fairly straightforward. It encompasses the percentage that you will be charged for borrowing the money. However, it does not include any of the costs and fees involved with administering the loan.

The APR involves the entire cost of the loan, including feeds for originating the loan, closing costs, and most importantly, points assessed on the loan. The APR commonly gives potential borrowers a comprehensive view of what will be spent over the life of the loan.

However, comparing different APR’s may not always be a true indicator of what the loan may cost. For instance, a publicized APR may not include some of the fees commonly hidden from public view, such as third party title and appraisal fees. So as you evaluate loan options, it is helpful to review a lender’s Good Faith Estimate.

If you have questions when evaluating loan options, an experienced real estate attorney can advise you.

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“Think globally, act locally,” used to be a popular slogan, and it’s still a nice saying. But today, in a highly complex global economy, it’s starting to seem a bit quaint.

After all, the interplay between the local and the global has become increasingly intricate. And there are state and national factors that play key roles as well in shaping decisions about real estate investment and other economic activity.

In this post, we will attempt to illustrate this complexity by pulling together two stories about trends affecting real estate development in Los Angeles. One thread is the role of Chinese investment in American real estate. The other is the state of California’s efforts to recast the rules on the development of affordable housing.

Chinese investment

On a global level, there’s been lots of anxiety about China’s slowing economy and its implications for world economy.

That can be a pretty abstract topic. But on a tangible level, individual Chinese investors have poured billions of dollars into the housing market in the U.S. in recent years. From 2010 to 2015, the amount was upwards of $93 billion.

Chinese companies have invested substantial amounts as well.

Of course, some localities have benefited more than others from this influx of funds. Downtown Los Angeles is one of particular areas that has benefitted from this investment.

The investment has not only helped fund construction projects. It has also created jobs and made it possible for about 20,000 Chinese to come to the U.S. by using EB-5 immigrant investor visas.

U.S. housing market

This investment has come at a very opportune time for the U.S. housing market, which took huge hits from the housing crisis of 2008-2009.

The Chinese investment has helped both higher-end and more middle-class markets recover from the crisis and kept a lot of construction crews working. It has also contributed to development projects involving such industries as retail, office space and hotels.

The Chinese aren’t done yet, either. According to recently published estimates, direct investment from Chinese sources in U.S. commercial and residential real estate projects could be as much as $218 billion between now and 2020.

Investment could increase even more after 2020, as more and more Chinese investors look for ways to get their money out of China.

In short, large global trends have had had major effects on real estate in specific markets such as Los Angeles. This is made possible, in part, by national policy, in the form of the EB-5 investor visa program.

California state law

National and international factors are therefore very involved in local Los Angeles real estate trends.

It is also important to note, however, that the state of California also plays a significant role. For example, state laws such as the Right to Repair Act fundamentally shape the rights of the participants in real estate transactions.

We discussed that at some length in our April 19 post.

Affordable housing

This brings us to Gov. Jerry Brown’s controversial proposal to speed local government approvals of affordable housing projects.

Last month, Gov. Brown proposed a bill that would seek to expedite certain multi-unit housing developments. The bill would do this by exempting them from additional environmental and local government reviews, as long as they met zoning requirements and reserved some of the units for affordable housing.

Critics, including the Los Angeles Times, have blasted the governor’s plan. The Times contends that Governor Brown, a former Oakland mayor, is proposing to undercut the key role that localities have in shaping their communities.

Among the concerns these communities have are the environmental issues that come with development. Those issues take place amid a backdrop of state law, particularly the California Environmental Quality Act.

Getting counsel for the decisions you face

For developers, investors and others with decisions to make about California real estate, thinking globally is only the starting place for analysis. To manage your risks while embracing opportunities, it is critical to get counsel from a law firm knowledgeable about federal, state and local laws.

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To every property owner, whether it is an apartment building, a warehouse or commercial office park, getting a return on one’s investment is an essential part of doing business. This means that monthly rent must be collected from tenants. Invariably tenants may not be able honor their contractual obligation. In these instances, a landlord may have to commence eviction proceedings.

Although it may appear to be a simple procedure, the eviction process in Southern California is fraught with pitfalls for the unwary. Essentially, landlords must strictly adhere to rules governing eviction notices and the initiation of unlawful detainer lawsuits.

For instance, California law requires that residential landlords serve a proper notice to pay rent (or to quit) and that such a notice must be conspicuously posted or provided directly to the tenant before an unlawful detainer suit may be commenced. Additionally, landlords are prohibited from taking “self-help” actions to expedite evictions, such as changing locks, shutting off services or otherwise harassing tenants who have not paid rent.

These missteps can serve as legal grounds for denying an unlawful detainer and the corresponding writ of possession that enables the sheriff to physically remove the tenant. In fact, there are companies that represent tenants in the midst of eviction proceedings that look to exploit rule violations so that their clients can buy additional time to avoid evictions.

To that end, landlords must be vigilant when it comes to evictions. The guidance of an experienced real estate attorney can help to ensure that you adhere to California law.

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Raymond Chandler was in his early 50s when he published his first novel, “The Big Sleep.” It had a major influence on the emerging hard-boiled detective genre and was made into a movie starring Humphrey Bogart and Lauren Bacall.

Other notable examples of creativity from people even older are not difficult to find. Colonel Sanders launching Kentucky Fried Chicken at 66 and Grandma Moses committing completely to painting at 78 are oft-cited instances.

Nor is it only a few exceptional people who continue to have creative contributions to make later in life. Many, many seniors have this capacity and seek to develop it. And that is where an opportunity comes in for developers of senior housing.

Senior artists colonies

Here in the Los Angeles area, where Chandler set “The Big Sleep,” developers are awakening to the business opportunities presented by seniors’ desire to continue to engage in creative activities.

After all, traditional senior housing hasn’t done much to stimulate the creative spirit. There may not be clichéd games of shuffleboard or endless games of bridge in such settings, but the overall atmosphere does little to nurture the artistic spirit either.

In recent years, developers in Southern California have been acting to respond to this void. They have done this in the form of senior artists colonies.

Like traditional senior housing, these apartment complexes tend to be age-restricted. But the buildings are designed to give seniors for artistic stimulation by including such features as art studios and theaters.

These are not studios and theaters to sit and passively consume culture created by others. They are venues for seniors themselves to make music, create artwork or engage in wellness-related programs.

Business opportunities

There are also business opportunities for bringing programs that encourage creativity into traditional senior housing.

But the newest powerful trend has been to build entirely new developments that embed the infrastructure for artistic expression right into the buildings themselves. This has already happened in North Hollywood, Long Beach, Burbank and elsewhere.

In a way, such communities can be compared to the coworking settings we wrote about last month. Coworking settings seek to draw in younger folks, especially Millennials, with a new, more collaborative workspace model. Senior artist colony-type developments seek to draw in older folks with a new, more creative housing model that will encourage ongoing creativity and wellness.

Making the right moves

Of course, recognizing the existence of a business opportunity is only half the battle. You’ve also got to act on it effectively.

That is where knowledgeable counsel about real estate, insurance and regulatory matters comes in. And for projects aimed at cultivating the creativity of older folks, the time may be right. Indeed, to use a line from “King Lear,” one could say, on this subject, that “ripeness is all.”

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There’s an old saying about economic phenomenons that “a rising tide floats all boats.” This saying is based on the notion that everyone benefits from good economic conditions. Such may be the case with the new home of the Los Angeles Rams.

For the uninitiated and those who are not sports fans, the National Football League has not had a team in Los Angeles since the Rams left for St. Louis before the 1995 season. But when the NFL approved the Rams relocation to Southern California in January, and with the announcement of a new stadium to be built near the former Hollywood Park race track, interest in real estate in Inglewood has grown dramatically.

The current real estate surrounding the future stadium consists of strip malls, body shops and parking lots, all of which can ostensibly be bought at a bargain (right now) to be converted into new properties. Essentially, the basic principle of real estate holds true here: buy land at a low price and let it appreciate over time. Indeed, renovating such property at a reasonable price can increase its value tremendously.

With that, the possibilities of commercial and mixed-use properties near the stadium already have investors salivating at what they can do near the future stadium. The stadium will not be ready until the 2019 season, but when completed, it will likely be the largest and most expensive venue in the NFL.

The tide appears to be coming in for Inglewood, and it remains to be seen how industries (especially real estate) will rise in the meantime.

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If you are a business owner looking for a new venue, you have probably learned about the trends shaping commercial real estate in Southern California. Essentially, the outlook is optimistic, meaning that construction of new buildings and renovations of older properties will continue at least until 2018 barring any major catastrophes. This may bring about a seminal question for business owners: whether to rent space or to buy property.

Indeed, there are many who are not financially able to make a purchase right now, but given the desire for building owners to fill space, leasing may be an attractive option. Despite this, it is critical for business owners to closely scrutinize the terms of a lease, so that potential problems can be mitigated.

This post will focus on a few important clauses to pay attention to.

Sublease – It is important to have flexibility in the lease, given how business plans can change which could lead to your company relocating. So you should have the ability to rent the space to another tenant. After all, you should not be paying for space you are not doing business in.

Co-tenancy clause – Part of the attraction of (and the cost for) a particular space is being next to a prime anchor tenant such as a Barnes & Noble or Best Buy. But if that tenant leaves, what will happen to your business? Because of this possibility, having a co-tenancy clause  that allows you to break the lease if the landlord does not replace an anchor tenant can be helpful.

Exclusivity clause – In today’s competitive market, no one wants to be located next to a rival. As such, an exclusivity clause that bars a competitor to lease space near or next to your business should be considered.

If you have additional questions about commercial leases, an experienced real estate attorney can help.

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With the midpoint of 2016 approaching, it is safe to assume that the growth that investors had predicted will come to fruition, albeit at a slower pace. Nevertheless, the real estate market in Southern California is poised to continue its growth.

This notion is based in part on the encouraging flow foreign investment into commercial real estate projects,  so that more than just multi-family real estate projects are expected to drive international money into our economy.

According to a Forbes.com report, investors are flocking to six major cities across the globe for deals. Indeed, Sydney, Australia; London, England and New York City are obvious choices, but foreign investment is also expected in Los Angeles and San Francisco. The growing employment opportunities in Southern California suggest that developers will be working diligently to keep up with the demand for suitable business venues and multifamily housing projects.

Additionally, with the volatility that the stock market has given so many investors pause in past years, the real estate market has maintained a steadiness that has analysts have come to rely on.

If past numbers are a predictor of future success, consider this; $625 billion was invested in real estate during the first nine months of 2015. This was a 12 percent increase from the same period in 2014.

With the future of the real estate market poised to reap considerable benefits, property owners have a genuine interest in avoiding costly legal issues. The advice and counsel of an experienced real estate attorney can help.

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In the first part of this post, we discussed a key appellate ruling on the scope of California’s Right to Repair Act, also referred to as SB 800.

In Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, the California Court of Appeals held that SB 800 is not an exclusive remedy for homeowners when seeking compensation for construction defects.

In this post, we will discuss some of the implications of this decision. We will also consider the question of how SB 800 affects subrogation claims when insurers take immediate action to repair defects.

Implications for homeowners

The Liberty Mutual ruling is a welcome one for homeowners who may face defect issues. In situations where there has been actual property damage, the ruling makes clear that homeowners have options.

One option is to use the alternative remedies allowed under SB 800. This means using a pre-litigation procedure in which the builder is given notice of the alleged defects and given a chance to repair them before any formal litigation is filed.

Another option is to assert a common law claim against the builder for damages from the defects. That type of action is based on principles of tort law, not on SB 800.

Even if the losses suffered by the homeowner involve economic losses but not property damage, homeowners can still pursue common law claims – as long as they utilize the pre-litigation procedure in SB 800 first.

In short, California’s Right to Repair Act puts significant burdens on builders. These burdens make getting the right insurance in place, and complying with its requirements, very important.

Subrogation claims by insurers

But insurance companies also have their own challenges under SB 800.

In that context, let’s take note of another important appellate ruling in recent years, KB Home Greater Los Angeles, Inc. v. Superior Court (Cal. App. 2013).

In KB Home, a property manager for the insured found a water leak and informed the owner. The owner quickly informed the homeowners insurer, which promptly stepped in to six problem. This included repair of the damage done to drywall and carpeting by the leak.

The homeowners insurer then tried to recover from the builder through a subrogation action. But the court found that the insurer could not do this because it had failed to notify the builder of the defect, as required by SB 800.

The court’s ruling raises many questions about what an insurer has to do in order to retain its subrogation rights. To know how this may affect your particular situation, it makes sense to get counsel from a knowledge real estate attorney.

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