Golfsmith International, Inc., a specialty golf retailer with 109 Golfsmith stores across the U.S. and 55 Golf Town stores in Canada, filed for Chapter 11 bankruptcy protection in Wilmington, Delaware on Wednesday, September 14, 2016. This case follows other large sports retailer bankruptcy cases, including Sports Authority and Eastern Mountain Sports, who both filed Chapter 11 proceedings in Delaware earlier this year.
How can retail landlords make more money? A recent article in the Wall Street Journal, entitled Shopping Malls’ New Product: Fun reveals the answer…add amusement attractions.
According to the article, many U.S. malls are profiting from entertainment tenants and amusement attractions, including go-kart racing, indoor rope climbing, laser tag, skydiving simulators, escape rooms, high-tech golf driving ranges, glow-in-the-dark miniature golf, state-of-the-art movie theaters, and new bowling and dining options.
BRIEFLY EXPLAIN THE RECENT NJ SUPREME COURT DECISION RELATED TO AFFORDABLE HOUSING OVERSIGHT.
After sixteen years without viable and constitutional regulations for Affordable Housing, the Supreme Court created new mechanisms to meet Affordable Housing goals. To really explain this issue, we need to go back for some history. In 1975 the Supreme Court said every municipality has an obligation to provide a reasonable opportunity for Affordable Housing. In other words, there needs to be a variety of choice in housing for residents and citizens of New Jersey at all income levels. In the eighties, the courts created a methodology to provide Builders’ Remedies, whereby builders who brought suit and established that municipalities engaged in exclusionary zoning would be granted the remedy of rezoning of their property for an inclusionary development, providing for a percentage of affordable housing within a market rate project. In response the legislature adopted the Fair Housing Act (FHA) whereby the Council on Affordable Housing (COAH) was delegated as the authority to create and enforce regulations concerning affordable housing. Since 1999, COAH has failed to act in a responsible manner to create those regulations—we’ve been without constitutionally satisfactory regulations for sixteen (16) years.
It is common knowledge that in the real estate market, the selling price for a mobile home is almost always dependent upon where is located. Yet, in a recent Chapter 11 case in the district of Delaware, Boomerang Tube LLC, the debtors relied upon a decision by Bankruptcy Judge Shannon, In re George Welch Sr. (Bankr. D. Del. October 19, 2015).
In that Chapter 13 setting, the debtor suggested that the replacement value of the equipment was the proper valuation for purposes of the cramdown sought in their Plan. In this Plan, the chapter 13 debtors’ sought to assume the ground lease, retain the mobile home, and cramdown the secured creditor’s claim to value the of the mobile home as determined in the NADA Retail Value Guidebook for Manufactured and Mobile Homes.
The creditor objected based upon an appraisal it had obtained, which valued the mobile home at $80,000 “in place.” The creditor reasoned that since the debtor decided to assume the underlying ground lease and use the mobile home as a residence, the creditor was entitled to a higher figure – the true value of the living accommodation if sold as it stood. Comps in the creditor’s appraisal had relied upon the location of comparable mobile homes in order to establish value.
This blog was co-authored with my colleague Tom Onder, Esq.
Pope Francis is coming to Philadelphia in September. The visit will attract millions of visitors from around the world. A quick look at prior Pontiff visits shows the enormous influx of people that the Pope attracts to other global cities:
Copacabana Beach, Rio, Brazil in 2013
Vatican in 2014
Manila, Philippines in 2015
Expected to see the Pope in Philadelphia 
Many commercial, retail and other property owners are now planning to benefit from the multitude that come to see the Pope when he visits the United States in September. Currently, the Papal itinerary has him in Washington, D.C., New York, and Philadelphia.
Bigger Economic Impact than the Super Bowl
The National Association of Homebuilders released a report, consistent with our predictions, indicating that approved lots ready for construction are a scarcity. 62% of builders indicate that the supply of developed lots is low or very low. This phenomenon, at record levels since at least 1997 when records were kept, is likely due to the great recession. For the most part, developers retrenched during the great recession and did not seek approvals for new developments. Instead, they hoarded cash in an effort to position themselves to come out of the great recession or for simply survival.
Unfortunately, few, if any, developers were in a position – or thought it wise – to be investing in approvals for projects for future development. This problem is likely exacerbated in New Jersey where development approvals, particularly for larger developments, can often take two to four years. As the recession subsided, developers in a position to do so typically bought up approved developments and/or brought already approved projects they owned off the shelf for development.
Prior to the great recession – and one could argue it was a depression for the real estate market – developers were largely building homes in New Jersey as fast as they could get them approved. Accordingly, there was not a glut of unbuilt lots. Once developers stopped spending money on future development once the recession hit, we found ourselves in the position we are today. The scenario was predictable.
Interestingly, much of the development in the future may be inclusionary development (including a set-aside for affordable housing) that will arise as a result of the groundbreaking affordable (Mt. Laurel) housing decision in March by the New Jersey Supreme Court. We addressed the affordable housing decision in a previous blog post, which you should definitely check out.
A Subordination Non-Disturbance and Attornment Agreement (an “SNDA”) is a document that is typically required by a lender for a landlord. Sometimes the lender will leave off the non-disturbance portion of the agreement, as the lender is only interested in the subordination and attornment. The subordination is the agreement of the tenant to subordinate its rights to the lender’s rights in the lender’s mortgage such that the tenant’s rights under the lease will be subject to any and all rights of the lender pursuant to the mortgage. The attornment is the agreement of the tenant to accept a purchaser at a foreclosure as the landlord. The purpose of the subordination and attornment agreement is to protect the lender in the event of a default under the mortgage and/or foreclosure of the mortgage so that the lender has the ability to collect rents (typically through a rent receiver), and if foreclosed, permit the lender or purchaser at the foreclosure to take possession of the property and step into the shoes of the landlord under the lease.
A wise tenant will negotiate into a lease that the tenant’s agreement to subordinate to the lender’s mortgage shall be conditioned on obtaining a non-disturbance agreement. The non-disturbance portion of the SNDA provides that so long as the tenant is not in default under the lease, the lender will not disturb the tenant’s use, possession and enjoyment of the leased premises, nor will the tenant’s rights be impaired. In addition, many subordination agreements will provide that a tenant’s right of first refusal option to purchase is not binding on the lender. A tenant should limit such restriction to only where the mortgage is not being paid off as part of the sale to the tenant. A well drafted SNDA can actually provide comfort to a tenant where it properly preserves the Tenant’s rights under the Lease by requiring the lender to honor the terms of the lease upon a foreclosure and allow the tenant to continue to occupy the space. It is important that a tenant be proactive about SNDA negotiations by properly preserving its rights in the lease.
If you are a tenant negotiating a lease, speak with an attorney about preserving your rights in SNDA negotiations with the Landlord’s lender to ensure your tenancy is not disturbed after a foreclosure.
Stark & Stark will host the New Jersey Builders Association’s Construction Defect and Liens Seminar on Monday, June 1, 2015 from 9:00am – 12:00pm at the Lawrenceville, NJ office. The seminar will feature three Stark & Stark Shareholders as panelists. Details on all presenters and speaking topics for each panel are provided below.
- Randy Sawyer, Esq., Stark & Stark: Construction defect claims, prosecution and defense.
- Mitch Frumkin, P.E., Kipcon Engineering: Preventing, defending and pursuing construction defect claims – A design professional’s perspective.
- Carlton T. Spiller, Esq., Greenbaum, Rowe, Smith & Davis LLP: Commercial general liability legislation.
- Anthony Bevilacqua, CPCU, Anthony & Company: Insurance coverage issues.
- Timothy Duggan, Esq., Stark & Stark: Construction Lien Law – Liening property and removing liens.
- Andrew Podolski, Esq., Stark & Stark: Litigating a construction lien claim & contractual limitations on liability.
- Alison Short, CPCU, 2-10 Home Buyers Warranty: Tips and tactics for dispute resolution between builders and homeowners.
- Don Sechler, Residential Warranty Company, LLC: Builder warranty performance and common structural defects and repairs.
Attendees can earn 3.0 CLE Credits for NJ Attorneys and 2.5 CPC Credits for NJ Engineers. If you are interested in attending this seminar please register here. Breakfast will be provided in the morning and we invite you to stay for lunch to network with the speakers and attendees.
As you are undoubtedly well aware, the March 10, 2015 ruling from the New Jersey Supreme Court stripping the Council On Affordable Housing (COAH) of their oversight of the constitutional obligation of every municipality in New Jersey to plan for and accommodate affordable housing has effectively changed the rules for all of us.
The Rules Have Changed!
Not only have nearly 400 New Jersey municipalities been put on notice that they must submit suitable plans for affordable housing to the Courts by July 8, 2015; but this ruling gives builders and developers legal remedies (outside of the administrative appeals process within COAH) with which to compel these municipalities to comply. If you have a property/site that you believe is suitable for affordable housing, the time to act is now.
For your convenience, here is a breakdown of the ruling and the implications for owners and developers in a video podcast Q&A.
How Can We Help?
Stark & Stark’s attorneys are prepared to leverage our relationships at the municipal level along with our intimate understanding of the zoning and land use process to help get your sites included in municipal affordable housing plans. Our litigators are also ready to counsel you on the legal remedies at your disposal if/when your property/site is excluded from an affordable housing plan. Don’t wait until it’s too late.
Various sources, including NJBiz, have reported that Mayor Fulop and Jersey City are pushing forward an ordinance largely prohibiting chain businesses, i.e., any business that has 10 or more locations within 300 miles from the City. If challenged, will the ordinance pass legal muster? Arguably not.
Generally land use ordinances must advance the purposes of zoning. Anti-competitive ordinances have historically and repeatedly been stricken by the Courts in New Jersey, for instance, distance regulations between competing businesses (e.g., a zoning ordinance that would purport to require at least 1500 feet between fast food restaurants or other uses otherwise permitted in the zoning district). Thus, in this instance, a chain located on the West Coast, such as In-N-Out Burger (whom ironically said it would not expand to the East Coast due to supply chain challenges) could locate in Jersey City, but Macy’s, Starbucks, Dunkin Donuts, Home Depot, and numerous other well-known chains would be prohibited from opening in most of Jersey City (excepting some areas of the waterfront).
Mayor Fulop asserts that the restrictions will keep the City “livable and desirable” and allow the City to “reflect diversity and spur creativity.” If challenged, the City and Mayor will have to convince the court that these considerations are valid land use objectives advancing the purposes of zoning. Cities such as San Francisco, California, and Nantucket Massachusetts, have enacted similar ordinances, but the authority for the Jersey City ordinance must pass muster under New Jersey’s Municipal Land Use Law, N.J.S.A. 40:55D-1 et seq., in order to survive a challenge.
This is definitely an issue we’re going to keep an eye on and will continue to update you as it develops.