April 2023


Don’t Forget to Notify

  • When an insurance company will not pay what it owes a policyholder for property damage, it may be necessary to file suit against that insurance company.
  • But in Texas, before a policyholder can file suit against its insurer, it must provide pre-suit notice.
  • Failure to do so can limit the amount of damages recoverable and/or have the suit dismissed.

We talk about housing a lot in this blog. And for good reason. It’s a major issue in almost every American city. But we are not going to do that this week. At least not directly. We are going to focus on something a little more … exciting?

We do a good amount of litigation at Bukowski Law Firm. Specifically one of the areas we work in is first party insurance litigation. That means that if the roof at your commercial real estate building is destroyed by wind and hail – and your insurance company will not pay the amount you are owed to fix it – we come in and sue them to get you whole.

A few years back, the Texas state legislature added a very important requirement to any first party insurance claim – the pre-suit notice. And that’s what we are going to talk about this week.

Insured Must Give Insurance Company a Pre-Suit Notice


In Texas, before a policyholder can file a lawsuit against an insurance company for unfair claims settlement practices, they must comply with the pre-suit notice requirements under Texas Insurance Code Section 542A.003.

Under this Code section, a policyholder must provide written notice to the insurance company at least 60 days before filing a lawsuit. The notice must provide a statement of the acts or omissions giving rise to the claim, the specific amount of damages being sought, and a reasonable explanation of the basis for the damages. The notice must also include a copy of the policy at issue and all relevant supporting documents.

This provision was allegedly enacted to encourage parties to resolve disputes without the need for litigation and to ensure that insurers have the opportunity to investigate and respond to claims before being sued. If you have a cooperative insurance company, this can potentially help to resolve disputes without the need for a lawsuit and can also ensure that the insurance company has all of the relevant information necessary to evaluate the claim.

Insurance Company Should Respond to Pre-Suit Notice


Once the insurance company receives a pre-suit notice under Section 542A.003, it has 30 days to respond. The response must be in writing and must include a statement of the company’s position regarding the claim, any defenses that the company may have, and a request for any additional information that the company may need to evaluate the claim.*

If the insurance company fails to respond to the pre-suit notice or the response is inadequate, the policyholder can file suit 60 days after sending the pre-suit notice.

If Policyholder does not Send Pre-Suit Notice, Could Lose Right to Claims


It is important for policyholders to comply with the pre-suit notice requirements under Section 542A.003 in order to preserve their rights to file a lawsuit. Failure to comply with the notice requirements can result in the dismissal of a lawsuit, and may prevent the policyholder from recovering damages for their claim. In addition, the policyholder may not be able to collect attorneys’ fees if it does not provide notice.

It is, obviously, very important therefore to make sure you, as an insured, sends pre-suit notice before filing your lawsuit against your insurance company. If you have any questions or are currently having problems with your insurance company, do not hesitate to give Bukowski Law Firm a call.

*Beware an insurance company using this as a sword to delay its obligation to respond to your claim.

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A Great Idea from the Austin Planning Commission

  • The Austin Planning Commission put forth two proposals that could help affordability in Austin.
  • Both compatibility waivers and the proposed town zoning category were approved by the Planning Commission.
  • Its not clear when the City Council will take up these issues.

Guess what we are going to talk about again this week? It’s the biggest issue in Central Texas. And no, surprisingly its not why Austin FC has struggled so much this season. Though I would LOVE to find out the reasons for that from some soccer experts.

But if its Central Texas, then we must be talking about housing. As we have discussed many times, its probably the single biggest issue facing us as we continue to grow. And this week brought some hope – some optimism. And its at least partly because of an old friend of the firm – Greg Anderson.

So what did Greg do this week? That’s what we talk about below.

Austin Planning Commission Recommends New Zoning Standard

Last week, the Planning Commission approved two proposals that were put forward by Greg Anderson.* The first is a proposal to allow the Commission to waive compatibility setbacks. We have talked a lot about the harm that compatibility requirements have caused in hindering more dense, urban centers and preventing more housing. If this measure is approved by the City Council, then the Planning Commission will be allowed to waive some of those requirements to encourage more development.

The second proposal was to create a new zoning category called Town Zoning. The intent of the proposed new zoning is to allow more housing to be built across the city by encouraging mixed-use developments that are centered around a pedestrian-friendly town center. These developments would be designed to be walkable, bike-friendly, and transit-oriented, allowing residents to easily access shops, restaurants, and public transportation without relying on cars. The proposal also calls for a mix of housing types, including apartments, townhouses, and single-family homes, to create a diverse and affordable community.

Under Town Zoning, the base entitlements would be similar to what is currently offered under Commercial Services zoning. But Town Zoning would allow any residential use in the area. And would require a smaller setback than Commercial Zoning.

There likely will be an affordability requirement to get extra housing units approved. The developer would be required to make those units at 60 percent of the median family income.

These Planning Commission Suggestions Will Help Affordability

Its no secret that housing is issue one, two, and three in Austin. And these new proposals are exciting because they can potentially help that process along.

By allowing developers to build more dense projects with more units in a (hopefully) streamlined fashion, Town Zoning will help increase the number of units the city has. And by requiring developers to include affordable housing units in their developments, the city can ensure that low-income residents have access to safe and affordable housing in desirable areas of the city. This can help prevent displacement and ensure that Austin remains an inclusive and diverse community.

Town Zoning could also help reduce sprawl and promote denser development within the city. By creating walkable communities that are well-connected to public transportation, the city can reduce its dependence on cars and encourage more sustainable modes of transportation. This can also help reduce traffic congestion and improve air quality, making the city a more livable place for all residents.

Overall, the proposal for town zoning is an exciting development for the City of Austin. By promoting denser, more sustainable, and more affordable development, this new zoning category has the potential to make Austin a better place to live for all residents. While there are still many details to be worked out, and its not clear how long the overall process will take, the proposal represents a step forward in the city’s ongoing efforts to create a more livable, equitable, and sustainable future.

*Please subscribe to Jack Craver’s Austin Politics Newsletter. Its fantastic for keeping abreast of local news and developments.

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What to do When the Chips are Down

  • The current stress in the economy may put significant pressure on commercial real estate owners who need to refinance their property.
  • The options to refinance may be severely limited in the current market.
  • But there are alternatives to refinancing that a property owner can explore.

In last week’s article, I wrote a lot about how the outlook for our economy right now may not be the rosiest. And while that’s not a very fun topic to think about, it is best to be prepared for it. And, potentially, take advantage of the opportunities it provides.

One specific area that has tightened significantly is the debt markets. There are a lot of owners that, when they purchased their commercial real estate, had short term debt on it. And that debt may mature soon. But unfortunately it may be difficult for them to find new debt to refinance the property.

So if you are in that position, what are your options? That’s what I am writing about this week.

Owners Have a Few Options if They Cannot Refinance

In some ways, this climate reminds me a little of the 2008 time period. Now, of course, I do not expect it to be anywhere near as dramatic or significant as that time. But there are some similarities. Especially the part where commercial real estate owners had trouble getting access to debt to refinance properties.

You likely recall, at that time there were a lot of foreclosures as banks likely thought they had no choice but to take back the property. I thought this would be an even more attractive option to lenders now because there is likely more equity in the real estate that the bank has debt on. But I recently spoke with a banker and he assured me that the banks do not want to own commercial real estate.

So what does that mean for commercial real estate owners who are facing expiring debt with limited refinance options? There are a few alternatives, including:

  • Workouts – Specifically, I mean renegotiating the current debt on the property. This was very popular back in 2008. And still think it’s a possibility because, as that lender told me, the banks do not want to own commercial real estate. So your lender is very likely to work with you in lieu of foreclosure. If it can be done, it is by far the best option because it allows you to keep the property and not have to find new debt somewhere else. I do recommend starting the discussion with your lender sooner rather than later.
  • Default – Unfortunately, there are times when your lender just will not entertain a workout. In that scenario, you may need to go into default. That may be the only option that brings the lender to the table. Obviously this comes with significant risk, including but not limited to additional fees, potential foreclosure, receivership, etc. But it may be the only thing that brings the lender to the negotiating table.
  • Sell the property – This may not be the most ideal solution because selling a property under duress can lead to a rushed sale for a lower price. But if its your only option, you may not have much choice.
  • Bankruptcy – Putting the ownership entity into bankruptcy should be a last resort for any property owner. It may violate the bad boy provisions of the loan and activate a personal guarantee by the sponsor. And the sponsor may have significant difficulty getting future debt for a property. As a result, we rarely recommend this action unless there is significant built up equity in the underlying asset.

Your situation may dictate that there are more options than the ones listed above. But these are a few of the most common choices. And they all assume that you cannot find other debt in the market. And that may not necessarily be true.

I wrote last week that the debt markets have tightened up. And that’s true. But they are not completely frozen. There are alternative debt structures out there that may be able to help with a distressed asset. Some may require a personal guarantee, for example. But at least you get to keep your commercial property.

We have a lot of contacts in the debt world so if you need to find a new lender, please let me know. And also call if you just need some help navigating the world of difficult refinancing and want to discuss your options. We would very much like to work with you to protect your commercial real estate investment.

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What does the Near Future Hold for Commercial Real Estate?

  • Recent bank failures and bailouts have raised uncertainty in the debt markets.
  • In addition, the fed continues to raise interest rates to combat inflation.
  • As a result, there may be opportunities for buyers of distressed assets in the near future.

I like to generally be upbeat and positive. Its not always possible, but I think if you can look at the sunny side of life, it’s a nicer way to get through a day. That’s quite an introduction to a blog article talking about the state of the economy, eh?

But now is the right time to check in on the economy. We all know about the recent bank failures, the rise of interest rates, the high inflation – its all lead to some significant uncertainty in the markets. But what is next? Where is the economy going? And what does it mean for the commercial real estate industry? Well that’s what we are going to talk about this week.

Bank Failures Significantly Impact the Commercial Real Estate Markets


Its been a pretty rough few weeks for the banking industry. The most shocking was probably the Silicon Valley Bank failure. It was amazing how quickly it went from allegedly doing well to a complete failure. That was followed shortly thereafter by Signature Bank and Credit Suisse effectively being rescued.

These failures obviously create a lot of uncertainty and tension in the market. And that uncertainty creates problems in the credit markets. When a bank fails, it often results in a decrease in the supply of credit, which can make it harder for businesses and individuals to borrow money. This can lead to a decline in economic activity, as businesses are unable to invest in growth or hire new employees. In addition, the failure of a bank can lead to a loss of confidence in the financial system, which can lead to a broader economic downturn.

The tightening of credit markets can also have an impact on interest rates. When the supply of credit decreases, lenders may raise interest rates to compensate for the increased risk of lending. This can make it more expensive for borrowers to access credit, which can further slow economic activity. That is about where we are now, as I am sure you have all seen a tightening of the credit markets.

Fed Continues to Raise Rates


In addition to the bank failures and tightening credit, the Fed continues to fight inflation. On March 22, the Fed once again raised interest rates another 0.25%. This was the ninth consecutive rate hike. Chairman Powell reiterated that the Fed’s goal was to get inflation down to 2%.

The latest twelve-month inflation data showed an inflation rate of 6% for February. So theoretically, at least, the Fed still has a long way to go. If that’s true, and the Fed agrees, we could continue to see more interest rate raises for the near future.

What All this Means for Commercial Real Estate


So what does this uncertain news mean for commercial real estate? Its not great. Not only are the debt markets incredibly tight because of the uncertainty in the banking industry, but even if you can get a loan, the interest rate is very high.

Obviously that could negatively impact buyers who are looking to acquire some properties. Because of that, we have seen, and will likely continue to see, cap rates increase across the board for commercial assets. It seems like sellers are starting to acknowledge the cap rate expansion and, as a result, the value of properties is decreasing.

This also could present a serious problem for anyone who needs to refinance a commercial asset. If you have a property that needs to be refinanced, it may be very difficult to find another loan for a rate that will not severely disrupt your cash flow. As a result, there may be current owners that are in trouble and looking to sell. Combined with widening cap rates, that could provide a lot of opportunity for buyers.

This is just one man’s opinion and I could be wrong. But if I’m not, there may be some choppy waters ahead for commercial real estate.

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