R EAL E STATE J OURNAL the most comprehensive source for commercial real estate news
Title Insurance Spotlight ISSUE HIGHLIGHTS Volume 25 Issue 19 October 11 - 24, 2013
On Richmond’s $110 million Gateway Plaza Project Hirschler Fleischer Commercial Real Estate team provides counsel
R
ICHMOND, VA — Hirschler Fleischer announced its involve-
Jones estimates that the project will generate 812 construction jobs with more than $50.7 mil- lion in wages. “Wo r k i ng c l o s e l y wi t h Hirschler Fleischer has enabled us the opportunity to incorpo- rate innovative and mutually- beneficial legal and financial approaches that benefit the City of Richmond, its residents and the businesses who operate there,” said Larry Chapman, principal of Clayco. Dan Siegel of SandsAnder- son also represented Clayco Inc. in the legal work related to the city’s issuance of bonds. Paul Macon and David Orwick of the St. Louis office of Thompson Coburn , rep- resented Clayco in connection with leasing matters and the construction loan financing for Gateway Plaza. ■ and large funds (such as pri- vate equity or pension funds) in particular are among the most active investors in single tenant net lease properties, which are also attractive to 1031 Exchange buyers.” “We saw the current market climate as being an advanta- geous time to capitalize on the demand for high-quality, long-term leased assets in solid locations, and are extremely pleased to have been able to complete this transaction with Inland”, said Profeta. CBRE executive VP Ster- ling Champ , one of the lead- ers of CBRE’s Net Leased Property Group, brokered the transaction on behalf of Profeta. Stated Champ: “We were pleased to assist Paul V. Pro- feta andAssociates on this im- portant transaction. The qual- ity of the properties attracted a strong buyer pool, and we were fortunate to be able to work with Inland Real Estate Acquisitions as the ultimate buyer of the portfolio.” ■
also signifies a turning point in our local economy. The col- laboration between the City of Richmond and the developer, Clayco, is reflective of the private-public commitment to revitalizing downtown.” The City of Richmond is financing construction of the public portion of the develop- ment’s parking garage through the issuance of general obliga- tion bonds that will be paid primarily by incremental gains in real estate taxes. Gateway Plaza, located on the site of a former parking lot fronting Canal Street between Eighth and Ninth streets, is slated for completion at the end of 2014. The 18-story office tow- er includes 315,000 s/f of office space, 14,000 s/f of retail space and over 500 parking spaces. Richmond Mayor Dwight C.
ment in the downtown Rich- mond commercial develop- ment, Gateway Plaza. The firm’s commercial real estate team represented Chicago- based developer Clayco, Inc., in the legal and government relations work required for the acquisition of multiple land parcels, closure and vacation of a public street, creation of a commercial condominium and ground lease structure, a master development agreement and other contracts, easements and municipal requirements for the $110 million project. Hirschler Fleischer partners involved in the project include Brian Jackson and Michael Terry . “Gateway Plaza is a land-
Gateway Plaza
mark property that represents the growth of downtown Rich- mond,” said Jackson. “Not only does the project create new jobs – both short-term in the development stages and in the long-run, thanks to the retail, restaurant and commercial leasing space created – but it
14-16A
Southern NJ Spotlight
To Inland Real Estate Acquisitions for $60 million Paul V. Profeta & Associates completes sale of 12 Walgreens-occupied properties
5-15B
Eastern PA Spotlight
WEST ORANGE, N J — Paul V. Profeta and As- sociates announced that the
company has c o mp l e t e d the sale of 12 properties in nine states to Inland Real Estate Ac- quisitions . The proper-
5-12C
Paul Profeta
Directory
DelMarVa ..........................................5-8A New Jersey .................................Section B Southern New Jersey....................... 5-15B Pennsylvania ..............................Section C Eastern PA ....................................... 5-12C
Walgreens stock photo
ties, all of which are occupied under long-term leases with theWalgreens pharmacy chain, were sold for $60 million. The Walgreens leases are 75 years in duration with Walgreens maintaining the right to cancel after 25 years. The properties are located in Illinois, Kentucky, Michigan, Minnesota, Missouri, Mon- tana, North Carolina, Ohio and Texas. “Single tenant leases that
are triple net and leased by a credit worthy tenant such as Walgreens are extremely appealing and very fungible, much more so than typical commercial real estate,” said Paul Profeta , principal of Paul V. Profeta and Associ- ates. “There is a very large, vibrant market for these types of assets, which are the least management-intensive com- mercial properties to own. Real estate investment trusts
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2A — October 11 - 24, 2013 — Mid Atlantic Real Estate Journal MAREJ a dvertisers d ireCtorY A Greener NJ................................................... 21A Asset Preservation .......................................... 10A Bayshore Recycling ........................................... 4B Benchmark Construction Co. ........................... 2C BL Companiesq ................................................. 9C Bohler Engineering........................................... 8C Brasler Props.................................................. IC-C Bussle Realty Corp............................................ 1B Campanelli Construction.................................. 8B CAMPBELL....................................................... 2C CBRE ............................................................... 12B Cenova ........................................................... FC-C Commercial Choice Realrty ............................ 13C Conestoga Title Insurance.............................. 16A Cooper Horowitz................................................ 1A Cushman & Wakefield .................................... 13B Deerwood Real Estate Capital ....................... 16B Earth Engineering ............................................ 7C Equity Realty Brokers .................................... 13C Exchange Strategies Corp. ............................. 13A Feinberg RE Advisors ..................................... 21A FORTNAAuctioneers ....................................... 4A Gebroe-Hammer Associates.............................. 3B GFCIB.............................................................. 18A GREP ................................................................. 6C Griffin Land....................................................... 9C Harvey Hanna & Associates............................. 8A Hawley Realty ................................................. 12C Heller Industrial Parks .................................... 4B Hinerfeld............................................................ 1C Kaplin | Stewart............................................... 2A Keast & Hood Co. ............................................ 15C Land Dimensions Engineering....................... 14B Landcore Engineering COnsultants ................ 9C Langan............................................................... 4C M. Miller & Son................................................. 3A Madison Capital ................................................ 6A Mericle ...........................................................BC-C Meridian ......................................................... IC-B NAI CIR............................................................. 3C NAI Keystone .................................................... 5C Nave Newell .................................................... 15C NorthMarq....................................................... 10C PennCap Props.................................................. 9C POA NJ ............................................................ 19B Poskanzer Skott Architects ............................ 16B Productive Painting .......................................... 2B Real Property Capital ..................................... 21A Regal Bank ............................................ BC-A,17B Revoltagen ....................................................... 21A SEBCO............................................................... 2B Security Resources .......................................... 19B Sheldon Gross Realty........................................ 3B Singer Financial...............................................11A SNJ AI ........................................................ 10-11B Sorce Cos .......................................................BC-B Spencer Savings Bank ...................................... 9B The James Balliet Commercial Group............. 2C The Kislak Co. ................................................. 17B Thompson Management ................................... 2B TTI Environmental ........................................... 7B Verrill Dana LLP............................................. 14A WCRE ................................................................ 6B Whitesell...................................................... IBC-B
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Mid Atlantic Real Estate Journal
Mid Atlantic R eal e state J ouRnal Publisher ............................................................................ linda christman Publisher ............................................................................... Joe christman Publisher/Senior Account Executive ................................. elaine fanning Section Publisher .................................................................... Steve Kelley Section Publisher ...........................................................Janine Hennessey Senior Editor/Graphic Artist .................................................Karen Vachon Production Intern .........................................................................Julie King Office Manager ................................................................... Joanne Gavaza Guest Columnists ............................. Stan freeman, Scott Hartstein, Sanford Herrick, pamela a. michaels, esq., Steve milona and Brent Shaffer esq. Mid Atlantic R eal e state J ouRnal ~ Published Semi-Monthly P.O. Box 26 Accord, MA 02018 (Mail) 312 Market Street, Rockland, MA 02370 (Overnight) Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, P.O. Box 26, Accord, MA 02018 USPS #22-358 | Vol. 25 Issue 19 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY mare Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
By Sanford Herrick, Steve Milona & Scott Hartstein A Window of Opportunity,” Particularly for Transitional Assets
T
he supply of real estate properties will continue to grow, more
assets are changing hands, increased competition for those assets has begun to drive up values and interest rates have started to rise. The bottom line for situational lenders, as well as owners and developers, is that the next few years will continue to provide a window of opportunity. This commercial real estate market investment forecast for the remainder of the year and 2014 is being offered by the principals and co-founders of Case Real Estate Capital LLC, a private direct lender whose middle-market situ- ational lending platform tar- gets transitional assets. Case also has the ability to purchase sub and non-performing loans direct from lenders. In the following commentary, managing principal Sanford Herrick and principals Steve Milona and Scott Hartstein provide a forecast for the highly
profitable opportunities ahead as traditional and institutional lenders continue to shed their sub- and non-performing loan portfolios. Q: Has the pace and height- ened volume of sub-performing properties coming to market started to wane? A: “The number of available properties is actually on the rise and will continue to in- crease well into the coming year and beyond. Interestingly, this trend has not dropped prices be- cause the competition for these properties and this business is mounting. This should continue for at least another two or three
continued on page 20A Q: What is a “typical” profile for today’s value-add prop- erty? A: “A good majority of these years, since so much product – a result of previous price declines – has been on the sidelines. Banks or institutional lend- ers will have more assets that will increase inventory of REO assets, which should increase internal pressure to shed them from their balance sheets as soon as possible,” said Herrick, who has invested in more than $4 billion of commercial prop- erties during the course of his 30-year career.
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M id A tlantic R eal E state J ournal 229 residential units trade in Whitehall and Reading Kislak completes $14.7m sale of PA multifamily properties
FOR LEASE IN YOUNGWOOD, PA YOUNGWOOD INDUSTRIAL CENTER
W
OODBRIDGE, NJ— TheKislakCompa- ny, Inc. announced
the $14,733,685 sale of two multifamily properties in east- ern Pennsylvania. The transac- tions include the $8,935,000 sale of Independence Square, a 133-unit property in White- hall, and the $5,798,685 sale of Washington Towers, a 96-unit property in Reading. “The demand for multifamily properties throughout eastern Pennsylvania remains very strong with local, regional and national investors vying for available properties,” said Robert Holland, president and co-managing director. “We are experiencing a surge of activity from New York and New Jer- sey investors given the area’s close proximity and its growth potential.” Independence Square is a brick apartment building with 133 one-, two- and three-bed- room apartments. Holland represented the seller and VP Jonathan Greenberg represented the purchaser. The seller was Independence Square, a subsidiary of Geller Associates of Roseland, NJ. “Rob Holland understands the Lehigh valley market and always delivers,” said Adam Geller , principal of Geller As- sociates. The seller was represented by Anthony Pantano, Esq. , and the purchaser was repre- sented by Louis Sroka, Esq. Financing was provided by Northfield Bank . At the time of closing, the property was 95% occupied. Washington Towers is a 12- story brick structure’s 96 units. The property is located in downtown Reading. Holland represented the seller and senior VP Joni Sweetwood represented the buyer. “The professional manage- ment of this property resulted in excellent cash flow from the apartments, which attracted the purchaser,” said Sweet- wood. “The additional upside potential of rent from the va- cant retail space helped close the deal.” The seller was represented by Michael Setley, Esq. , and the purchaser was represented by Scott Herzog, Esq. Fi- nancing was provided by Sov- ereign Bank . At the time of closing, the property was 95% occupied. n
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A — October 11 - 24, 2013 — Mid Atlantic Real Estate Journal
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A 10-building apartment community near the border of Washington, D.C. Greysteel’s Firoozabadi,Mullen, Tangney, Brown, Ahmadian & Bediones sell $7.09 million apt.
S
uitland, MD — Greysteel , a invest- ment real estate servic-
land I LLC on the successful $7.09 million sale of Regency CourtApartments to Regency Court DNB LLC. “With your knowledge, guidance, and market con- tacts, we realized a higher than anticipated sales price. We appreciate Greysteel’s hard work and look forward to working with you again,” said a principal of the seller, Miles-Suitland I LLC. The 10-building property is conveniently located across the street from the Suitland Metro Station and is nearby several major employment drivers, including The Suit-
land Federal Center and Andrews Air Force base. “The Suitland Federal Cen- ter and Metro station is a major economic driver for the submarket,” stated Director, John Mullen. “Other neigh- boring planned developments including the Suitland mixed- use town center, Tanger Out- lets, and the casino at the National Harbor are evidence that Prince George’s County is not only a growing employ- ment market but also a desti- nation for the D.C. region.” Greysteel served as ex- clusive advisor and agent to Miles-Suitland I LLC. n
es firm has sold Regency Court Apart- ments, a 115- unit walk up apar tment community l o ca t ed i n Suitland. Greysteel’s
John Mullen
multifamily division led by Ari Firoozabadi, John Mullen, W. Kyle Tangney, Caleb Brown, Lance Ah- madian, and Mike Bedio- nes congratulates Miles-Suit-
Regency Court Apartments
Burke of NorthMarq arranges $5m mortgage for Danville Square in MD
Marcus &Millichap brokers sale of two apartment bldgs.
Dundalk, MD — Jo- seph Burke , executive vice president and senior manag-
ing director o f No r t h - Marq ’s Bal- t imo r e r e - gional office, arranged first mortgage re- financing of $5 mi l l i on for Danville Square, an
Joseph Burke
614 Longfellow St. NW
82,000 s/f neighborhood shop- ping center located in Dundalk, MD. Pep Boys, PetSmart and IHOP are major tenants at the site. Financing was arranged for the borrower, Merritt Bou- levard Partnership, by North- Marq through its relationship with a correspondent life com-
WASHINGTON, DC — Marcus & Millichap Real Estate Investment Services has announced the sale of two boutique apartment buildings in D.C.’s Northwest quadrant totaling 44 units, according to Bryn Merrey , regional man- ager of the firm’s Washington, D.C. office. Marty Zupancic , a DC multi-family investment spe- cialist in Marcus & Millichap’s Washington, D.C. office, had the listing to market 6921 Georgia Ave. NW. The building sold for $1.75 million or $83,333 per unit. The property consisted of one efficiency unit, sixteen one-bedroom units, and four two-bedroom units. At approxi- mately 18,624 gross square feet, the 21-unit building was sold in a Chapter 7 Bankruptcy Trustee Sale, making the sale
exempt from D.C’s TOPA (Ten- ant Opportunity to Purchase Act) regulations, which allowed the buyer to close very quickly relative to other D.C. trans- actions. The amount of time between listing and closing was sixty-five days. The property is located directly across the street from the historic Walter Reed Army Medical Center, a future site of major retail and residential development in the District. Zupancic and his D.C. multi-family team represented both the seller and the buyer in the sale. Zupancic also had the exlist- ing to market the Longfellow St. Apartments located at 614 Longfellow St. NW. At 17,984 gross s/f, Longfellow Street Apartments sold for $1.475 million or $64,130 per unit at a 6.34% capitalization rate. n
Danville Square
pany lender. “NorthMarq was able to secure 10-year fixed-rate fi- nancing from one of their life
company correspondent lend- ers for this very successful and well-maintained shopping center,” Burke said. n
Annapolis Junction, MD — Corporate Office Properties Trust (COPT) COPT signs lease for 100% of The National Business Park Park in Annapolis Junction. The company recently com- pleted shell construction on the approximately 125,000 s/f, class A office building and anticipates the tenant will oc- cupy NBP 312 during the first quarter of 2015.
pre-leased. “We are pleased to be able to serve another strategic custom- er at The National Business Park,” said Roger Waesche, Jr., COPT’s president & CEO. “Despite the cuts to the federal budget that went into effect in the wake of the Budget Control Act of 2011, this lease at NBP 312 brings our total new devel- opment leasing, since year-end 2011, to 1.9 million s/f.” n
announ c ed it executed a lease with a strategi c t enan t f o r 100% of 312 Sentinel Way (NBP 312) at The Nation- al Business
As a result of this leasing, the company’s 1.5 million square foot construction pipe- line, which was 74% pre-leased at June 30, 2013, is now 82%
Roger Waesche, Jr.
6A — October 11 - 24, 2013 — Mid Atlantic Real Estate Journal
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d el M AR V A
2013 C alendar e ditorial and a dvertising F oCus
By Brent Shaffer Esq., Young Conaway Stargatt & Taylor delawarepermitscommercial real estate broker’s liens R egardless of your view of whether commer- cial real estate brokers
Code as Title 25, Chapter 26, available at http://delcode. delaware.gov/title25/c026/ index.shtml (I’ll refer to it as the “Act”). Maryland’s com- mercial real estate broker’s lien statute applies only to leasing commissions, but similar to Pennsylvania’s, Delaware’s Act pertains to both sale and leasing transac- tions. Unlike Pennsylvania’s law, the Act can also be used to enforce payments to a broker for “management” and other services for “con- veyance or acquisition of commercial real estate.” The “broker” claiming the lien must be an individual who holds a broker license from the Delaware Real Estate Commission and who is self- employed or employed direct- ly or indirectly by a brokerage organization. The broker’s agreement must have been signed on or after August 1, 2013 (or earlier only if the parties agree in writing). Delaware’s definition of “com- mercial real estate” to which the Act applies includes any real estate with improve- ments other than one to four residential units; unimproved
land zoned or available for commercial, manufacturing, industrial, retail or multi- family use; unimproved land of any zoning classification being purchased for develop- ment or subdivision other than land with four or fewer single-family residential lots; and even real estate used for agricultural purposes un- less the purchaser is buying the property for the purpose of continuing agricultural use. This is broader than in Maryland (where the lien ap- plies only to real estate with building floor space intended to be used by the tenant for non-residential use). Penn- sylvania defines “commer- cial real estate” subject to a broker’s lien more simply – any real estate other than real estate containing one to four residential units or real estate zoned agricultural not subject to an agreement of sale contingent upon rezon- ing to non-agricultural uses. Delaware clarifies that itsAct also applies to mixed-use real estate, including real estate with one to four residential units that also has another continued on page 18A
need a right to impose a special lien against real estate, the time for de- bate on the sub j e c t i s over in Dela- ware, as the
Brent Shaffer
Delaware Commercial Real Estate Broker ’s Lien Act became effective August 1, 2013. This new law gives brokers the ability to quickly place a lien on real estate for commissions – previously brokers had to sue for pay- ment and attain a court judg- ment first. While Delaware waited longer than its two closest neighboring states to establish a statutory lien for commercial real estate brokers – Pennsylvania did so in 1998 and Maryland in 1994 – in certain respects the protections for brokers in Delaware are the broadest of the three. The Delaware Commercial Real Estate Broker’s LienAct is codified in the Delaware
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Commercial-Industrial Realty Council (CIRC) Membership Events and Continuing Education Clarion Hotel-The Belle, 1612 N. Dupont Hwy.,New Castle, DE 19720 www.circdelaware.org
O ctober 9, 2013 - Lunch and CEU classes at Clarion Hotel-The Belle. Lunch is at 11:30 and Class- es are at 8:30 a.m. and 1:30 p.m.
N ovember 21, 2013 - Joint Dinner Event with SIOR-CCIM-CIRC- TRISTATE RCA at Harry’s Savoy Ballroom from 5:30 to 8:30
D ecember 11, 2013 - Holiday Luncheon Mixer and Charitable Event at University & Whist 11:30- 1:30
A lan Levin, the state of Del- aware’s Cabinet Secretary and Director of the Delaware Economic Developoment Of- fice, spoke at our September 11 meeting and addressed the membership about matters of interest, some hopeful, some wanting. D uring the Annual Meet- ing, Greg Ellis stepped down as CIRC’s president for the past two years and passed the gavel to John Birmingham, principal broker with Cush- man and Wakefield of Dela- ware. John will now assume leader- ship of CIRC for a two-year period that continues through June 30, 2015. S chedule of Events you will wan tto attend. You can REGISTER for lunch, dinner and classes at: www.circdelaware.org
2013 Board of Directors WÙÝ®Äã :Ê«Ä®ÙîĦ«Ã ƵƐŚŵĂŶΘtĂŬĞĮĞůĚŽĨĞů͘ s®WÙÝ®Äã ÙãZÊÊã͕s ,ĂƌǀĞLJ,ĂŶŶĂΘƐƐŽĐŝĂƚĞƐ dÙÝçÙÙ <ã«Ù®Ä>͘^®½®ãÊ͕W 'ƵŶŶŝƉΘŽŵƉĂŶLJ͕>>W ^ÙãÙù ùÙ:͘^ÄùÙ͕ ÝØ͘ ĂLJĂƌĚΘƐƐŽĐŝĂƚĞƐ ®ÙãÊÙÝͬÊÃîãã çã®ÊÄ«®Ù͗ Ä>Ý«Ù WĂƩĞƌƐŽŶtŽŽĚƐƐƐŽĐŝĂƚĞƐ >¦®Ý½ã®ò«®Ù͗ :͘'Ù¦ÊÙù ½½®Ý WĂƩĞƌƐŽŶͲtŽŽĚƐƐƐŽĐŝĂƚĞƐ WÙʦÙë®Ù͗ :Ê«Ä®ÙîĦ«Ã ƵƐŚŵĂŶΘtĂŬĞĮĞůĚŽĨĞů͘ DÃÙÝ«®Ö«®Ù͗ :ÃÝDÄÄ DŝĚŽĂƐƚŽŵŵƵŶŝƚLJĂŶŬ ĹîÄ:͘Ù¦Ù͕ ÝØ͘ ĞƌŐĞƌ,ĂƌƌŝƐ͕>> :®ÃK͛,Ù͕:Ù͘ E/ ŵŽƌLJ,ŝůůͲZĞƚĂŝůŝǀ͘ Z«½:çÝã® dWKŚƌŝƐƟĂŶĂ ÊĽZÊ®ãþÙ dŚĞŽŵŵŽŶǁĞĂůƚŚ'ƌŽƵƉ DÙò®Ä^«Ý ĞůůĞǀƵĞZĞĂůƚLJŽ͘ ƌŝŐŚƚ&ŝĞůĚƐ͕/ŶĐ͘ :ÙÃù½ÝÊÄ ͘^͘<ŝĚŶĞƌΘƐƐŽĐŝĂƚĞƐ ÊÄÊîò½͘>®®ÝÊÄÝ EóÝã½ÊçÄãù«ÃÙ Ê«ó®»͕®ÙãÊÙ E Đ͘Ğǀ͘ŽƵŶĐŝů ^ããÊ¥½óÙ :¥¥^ãÊÄ ^ƚĂƚĞŽĨĞůĂǁĂƌĞ͕ K ®ãùÊ¥t®½Ã®Ä¦ãÊÄ :¥¥&½ùÄÄ KĸĐĞŽĨ ĐŽŶŽŵŝĐĞǀ͘ ŽŶƚĂĐƚhƐ ǁǁǁ͘ĐŝƌĐĚĞůĂǁĂƌĞ͘ŽƌŐ ;ϯϬϮͿϲϯϯͲϭϳϬϱ øͲK¥¥®®ÊDÃÙÝ çÝ®ÄÝÝDĦ٠:Äã^͘W®ÖÖÙã /Zͬ>ĂŶĚŵĂƌŬ ^ĐŝĞŶĐĞΘ ŶŐŝŶĞĞƌŝŶŐ >¦®Ý½ã®ò>Êù®Ýã ͘^Êãã<®ÄÙ
Larry DiSabatino & Alan Levin
Greg Ellis, John Birmingham, Alan Levin
Susan Miller & Jill Riley
Kim Connell & Alan Levin
Melinda McGuigan, Scott Kidner & Tracey
Pete D., Pat Forester & Leigh J.
Continuing Education - Register Now! October 9, 2013 Ethical Case Studies (MOD. 2) Time: 8:30 AM Credits: DE 3.0 Core Mod. 2, PA 3.5 Elec., MD 3.0 Elec., NJ 3.0 Elec. Fair Housing and Agency (MOD. 1) Time: 1:30 PM Credits: DE 3.0 Core Mod. 1, PA 3.5 Elec., MD 1.5-Req’d F.H’g,/1.5 Elec., NJ 3.0 Elec. January 8, 2014 Understanding Bankruptcy Reform Act (MOD. 5) Time: 8:30 AM Credits: DE 3.0 Core Mod. 5, PA 3.5 Elec., MD 3.0 Elec., NJ 3.0 Elec. Contracts: Formation and Terms (MOD. 3) Time: 1:30 PM Credits: DE 3.0 Core Mod. 3, PA 3.5 Elec., MD 3.0 Elec., NJ 3.0 Elec. March 12, 2014 Real Estate Hot Buttons (MOD. 7) Time: 8:30 AM
Credits: DE 3.0 Core Mod. 2, PA 3.5 Elec., MD 3.0 Elec., NJ 3.0 Elec. Charitable Giving in Real Estate (MOD. 6) Time: 1:30 PM Credits: DE 3.0 Core Mod. 6, PA 3.5 Elec., MD 3.0 Elec. CLASS INFORMATION Location:Clarion Belle Hotel, Savannah Room, 1612 N. DuPont Hwy., New Castle, Delaware 19720 CIRC Class Cost: $35 Member/$45 Non-member REGISTER ONLINE: www.circdelaware.org/education/schedule.cfm
8A — October 11 - 24, 2013 — Mid Atlantic Real Estate Journal
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d el M AR V A
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F inancial D igest F eaturing T itle I nsurance
Mid Atlantic Real Estate Journal — October 11 - 24, 2013 — A
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Arranged by Wilcox and Raymond G.S. Wilcox & Co. closes $32.25 million
ethesda, MD & WASHINGTON, D.C. — HFF announced to- B Carras, Coker & Crivella lead debt placement team HFF secures $220.8 million financing for two apartments
day that it has secured $121.6 million in financing for the de- velopment of 8300 Wisconsin in Bethesda, MD, which will include 359 luxury apartment residences and a 50,000 s/f Harris Teeter grocery store. HFF worked on behalf of StonebridgeCarras to se- cure the construction financ- ing through Wells Fargo Bank . Slated for completion in 2015, 8300 Wisconsin is situated at the entrance to Bethesda on a 1.6-acre site at the intersection of Bat- tery Lane, just south of the National Institutes of Health and Walter Reed campuses. The nine-story building will occupy an entire city block. Community amenities will include a landscaped court- yard, rooftop swimming pool with separate lap pool, rooftop demonstration kitchen, club- room, fitness center, business center and 24-hour concierge services. The HFF debt placement team was led by Sue Carras, Walter Coker and Brian Crivella. StonebridgeCarras is a pri- vately-held real estate invest- ment and development firm based in Bethesda, Maryland focusing primarily on develop- ing mixed-use properties in the Washington, D.C. metro- politan region. WASHINGTON, DC — HFF has arranged $99.2 mil- lion in financing for Atlantic Plumbing, a 375-unit, classA, trophy urban infill mixed-use development in the U Street/ North Shaw submarket of Washington, DC. HFF worked on behalf of entities owned by The JBG Companies and Walton Street Capital, L.L.C. to place the four-year construc- tion loan, with extension op- tions for an additional three years, with Capital One . The development is situ- ated at the northwestern and southwestern corners of the in- tersection of 8th Street and V
18 Thatcher Rd. in South Brunswick, NJ
Morristown, NJ — G.S. Wilcox &Co. announced today that they have arranged financ- ings totaling $32.25 million arranged by GretchenWilcox , president and Al Raymond , principal of G.S. Wilcox & Co. Four loans totaling $27.75 million were originated with Thrivent Financial for Lu- therans with the borrower being Forsgate Industrial Partners . The loans were for four industrial buildings total- ing 950,000 s/f. The properties were located at 18 Thatcher Rd. and 1165 Cranberry South River Rd. in South Brunswick, 75 Oxford Dr., Moonachie and 100 Central Ave., Teterboro, NJ. The rates were fixed for 10 years with a 20 year amortiza- New York, NY & San Diego, CA — RCAP Hold- ings, LLC (RCAPHoldings) , a holding company managed by Nicholas Schorsch, William Kahane, Michael Weil, Pe- ter Budko and Brian Block , completed its previously an- nounced acquisition of all the outstanding equity interests of First Allied Holdings Inc. (First Allied) , an independent retail financial services organi- zation. First Allied, including its Legend Group division, man- ages over $32 billion in assets across 300,000 clients, advised by 1,500 independent financial advisors, out of 500 branches in the US. First Allied and its subsidiaries will continue to op- erate autonomously under their current management structure and respective brands as part of the RCAP Holdings’ family of companies.
tion. A15 year fixed rate loan with a 25 year amortization totaling $4.5 million was also completed for the refinancing of Abill Plaza, a 114,000 s/f mixed use retail/office property located on Route 46 in Totowa, NJ. The lender was Minnesota Life Insurance Company through its investment entity, Advan- tus Capital Management Inc. The property has secured a new anchor store; TJ Maxx. The lender was able to get com- fortable with the asset prior to renovation completion while the property was in transition of tenancy. The borrower signed TJ Maxx to a long term lease and is in a process of leasing the remaining space. n This transaction with RCAP Holdings provides significant financial resources to First Allied to make substantial investments in technology, add professionals and support personnel. Nicholas Schorsch, CEO and chairman of RCAP Holdings, said, “The acquisition of First Allied achieves our longstand- ing goal to expand our footprint in the independent financial advisor segment of the financial services industry. The com- bination of RCAP Holdings and First Allied allows us to broaden our portfolio of finan- cial companies to provide a fully integrated investment solution to the retail investor by deliv- ering high quality investment solutions through the combi- nation of both our wholesale broker-dealer and First Allied’s extensive network of indepen- dent financial advisors.” n
8300 Wisconsin in Bethesda, MD
RCAP Holdings, LLC acquires First Allied Holdings Inc.
Atlantic Plumbing, Washington, D.C.
Street NW, two blocks from the U Street metro station. Due for completion in early 2015, the property will consist of 375 designer residential units and 23,785 s/f of ground-floor retail space, including artist studios, in two separate buildings. De- signed by New York architect MorrisAdjmi , the project will feature one- and two-bedroom units averaging 716 s/f each.
Community amenities include a state-of-the-art fitness cen- ter with yoga and spin area, lounge with bar and theater, rooftop gardens, rooftop pool with panoramic city views, rooftop grilling stations , roof- top movie screening area and electric car charging stations. The HFF debt placement teamwas led by Carras, Coker and Crivella. n
10A — October 11 - 24, 2013 — Mid Atlantic Real Estate Journal
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F inancial D igest
By Pamela A. Michaels, Esq., Asset Preservation, Inc. Special Exchanges: Get 360 days to complete
S
AFE HARBOR GUID- ANCE Many investors tra-
a 1031 exchange, this may be achieved under Section 1031 as a standard delayed exchange as the purchase is within 180 calendar days of the sale. However, as the purchase is for more than the sale, if only a delayed exchange is performed there is approximately $50 million of unused value that the investor could use to defer gain on the sale of another asset. Suppose too that the investor is interested in selling a hotel located in New York City but does not yet have the buyer lined up. Properly structured, the investor could
take full advantage of its $90 million purchase by acquiring the multi family property in a parking arrangement utiliz- ing a Qualified Intermediary as an Exchange Accommoda- tion Titleholder (“EAT”) and entering into a Exchange Accommodation Agreement with the EAT prior to closing on the purchase. Then, under Revenue Procedure 2000-37, the investor has an additional 180 calendar days from the date the multi family property is parked with the EAT to sell additional relinquished prop- erty with the ability to use
such purchase to defer capital gain taxes on an additional $50 million sale. Tax deferred exchanges have been part of the U.S. Tax Code since 1921. Since that time, the government has approved certain methods to structure exchange transac- tions that are so called “safe harbors.” For example, in 1991 the U.S. Treasury issued final regulations that provided important guidance on the structure of delayed exchanges including the 45 day identi- fication period and 180 day exchange period timelines and certain other procedural re- quirements necessary to com- plete a tax deferred exchange safely. On September 15, 2000, the Internal Revenue Service released Revenue Procedure 2000-37 that provided guide- lines for structuring reverse exchanges (a transaction in which replacement property is acquired by an accommo- dating party before the sale of the relinquished property and held as replacement property to complete the exchange). A replacement property may be acquired and held (sometimes called “parked”) by the accom- modating party for up to 180 calendar days. Recently, the IRS provided guidance (See ILM 200836024 we should have a hyperlink to this cite so people can easily see it) approving the combination of a reverse parking arrange- ment exchange and a forward delayed exchange resulting in two sequential 180 day exchange periods associated with one integrated exchange transaction. Since the accommodating party, the “EAT,” in a reverse exchange can only hold the replacement property for 180 days, the relinquished prop- erty must generally be sold by the taxpayer within that 180 day time period. If the parked replacement property is the only property that is desired by the taxpayer to complete the exchange, then the exchange is complete upon the EAT’s transfer of the re- placement property to the exchanger. But what if the parked replacement property is just one of several replace- ment properties desired by the taxpayer? In that event, the standard delayed exchange that commences with the sale of the relinquished property continued on page 18A
desired purchase but not yet be ready to close or even under contract on the asset being sold. By combining a reverse and a delayed exchange, an investor may have as much as 360 days to complete all de- sired transactions and achieve 100% deferral. For example, suppose an investor is under contract to sell a Washington DC hotel for $40 million on December 2, 2013. The investor is also under contract to purchase a multi family property for $90 million on January 1, 2014. If the investor wants to perform
d i t i o n a l l y own assets of substan- tial value. At times, they may wish to sell and as- set and buy another but t h e a s s e t
Pamela Michaels
they initially seek to pur- chase is worth less than what they intend to sell. Further, an investor may have located and be ready to close on the
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Mid Atlantic Real Estate Journal — October 11 - 24, 2013 — 11A
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F inancial D igest
12A — October 11 - 24, 2013 — Mid Atlantic Real Estate Journal
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F inancial D igest
By Stan Freeman, Exchange Strategies Corporation The Optimal Exchange Strategy – Exchange Economics
T
his is the second in a se- ries of articles on the sub- ject of optimizing 1031
that Mary decides to liquidate $700k in T-Bills and municipal bonds and to use the addi- tional cash to buy a different income property for $3million that also has a 6.5 CAP. Mary wants to use a 1031 exchange to preserve her capital and she has a good enough relationship with her bank so that she can borrow the remaining funds ($900k) needed to acquire the new property at a rate that is very attractive compared to its CAP rate. Mary is familiar with 1031 exchanges and knows that the following will be the situation if she starts the exchange process with a forward exchange: • Her $1.4million in equity (less closing costs) will be held by the QI until she is ready to acquire replacement property • She’ll have 45 days to iden- tify potential new property and 180 days to acquire one or more of the properties she identifies • The forward exchange fee will be between $750 and $1,500, depending on which QI she engages • The QI will pay little, if any, interest on her $1.4million • Both her rental income and her depreciation deduction will go to zero when her current property sells The real cost of this type of strategy is very high. The lack of any form of ROI on the capital being held by the QI and no depreciation deduction and means that a significant amount of money ($1.4million) will earn virtually nothing for Mary for up to 180 days. And, given the difficulty of finding high-quality $3million proper- ties with 6.5 CAP rates, it’s likely that her money will be held by the QI for most of that 180 day period. The calcula- tions are shown in the table below.
exchange. Assuming a 3-month exchange period (perhaps a bit optimistic), she’ll pay a total of $650 for the exchange. How- ever, the QI will earn a fee (say $1,000) plus some amount of in- terest on Mary’s $1.4million for 3 months. QIs earn “marketing fees” from depository banks in addition to any interest “split” that is negotiated with a par- ticular client. If, as an investor, you receive no interest from a QI on exchange proceeds the QI holds, it almost certainly true that the QI is still making money holding your money. This is how most QIs generate the bulk of their revenue. Now suppose that Mary - unhappy with the prospects of leaving her money with a QI and getting virtually nothing for it - learns that things are very different with a reverse ex- change. Specifically, she learns the following: • In a reverse, she’d buy the new property before selling the old and the QI would hold title to the new property in an LLC for her benefit during the exchange • She would continue to de- rive rent and depreciation de- ductions from her old property until it was sold AND she’d get the rental income from the new property even though title to it was being held by the QI • She’d have responsibility for the cost of operating both properties • The fee paid to the QI for the reverse exchange is higher, probably $5,000 for her situ- ation • The QI holds the cash proceeds of the sale of her old property for 1 day and then the cash is returned to her The fact that the “burdens and benefits” of both the old and the new properties belong to Mary in a reverse exchange
exchanges in today’s CRE marketplace. This series a d d r e s s e s t o p i c s o f keen interest to real estate owners and investors as
Stan Freeman
well as the brokerage, legal and accounting communities that assist them. The first article described the challenges and risks associated with 1031 exchanges in today’s inventory-constrained market for high-quality investment as- sets. Essentially, the risks asso- ciated with satisfying the 1031 deadlines for identifying and acquiring replacement property often make forward exchanges unattractive because of the relatively high risk of failure. By contrast, acquiring replace- ment property first, in the context of a reverse exchange, means that the investor has accomplished the goal of the exchange and now has to sell relinquished property to com- plete the exchange - a task that is far easier in today’s market and, therefore, carries far less risk of failure. In this article, we discuss the aspects of optimization hav- ing to do with the real cost of an exchange, ROI on invested capital during the exchange and maximizing tax deductions from depreciation. Few, if any, other 1031 Accommodators are eager to discuss this topic. The discussion will reveal some of the details of how QIs make money. It will be relatively easy to conclude that what is optimal for the QI is usually not optimal for the investor and that optimizing the exchange for the investor nearly always means minimizing the amount of time that a QI is holding the investor’s cash proceeds from the sale of relinquished property. We’ll use an example to drive the discussion. Suppose that Mary (a savvy real estate in- vestor) bought an income-pro- ducing property 5 years ago for $1million using a $600k interest-only loan and $400k in cash and that the property has a 6.5 CAP rate. Mary has been told by her Broker that the FMV of her property is now $2million and that it will be easy to sell. Suppose further
For Mary, the difference in the strategies is stunning. In the forward exchange example, there is virtually zero ROI for Mary for a period of 3 months; in fact, the exchange costs her $650. Her cash lies fallow in the hands of a QI who is making money on her money. By con- trast, if she uses a reverse ex- change she will get rents from TWO properties. Yes, she has debt service to pay on two loans but the arbitrage between the CAP rates and the cost of the debt is attractive - otherwise there would not be so many buyers for good income produc- ing real estate. And, yes, the fee for the exchange is higher but that is more than offset by the overall ROI generated by her $2.1million during the exchange period. The following table compares the two strate- gies directly. In the forward exchange, Mary is leaving a sig- nificant amount of money “on the table” and a healthy portion of that is being taken by the QI. In a reverse exchange, Mary pays a flat fee - that does not change whether her exchange lasts one month or six months - and receives the net income and depreciation deductions from her old property until it sells PLUS the net income from the new property.
attractive for Mary than in a forward exchange. Clearly, not every investor’s situation will be either this simple or this clear but it is worth the effort to make the calculation as part of determining what strategy to use. For many investors, the chal- lenge may be assembling the funds needed to make the ac- quisition of the new property before the funds from the sale of the old property are available. This is a valid objection to using reverse exchanges and some investors will have no choice but to use a forward exchange for this reason. However, many investors, when they see the potential upside, may decide that some “creativity” is called for because of the advantages of using a reverse. We have seen all of the following creative solutions applied to make a reverse exchange work: • Use other funds or borrow from a relative knowing that the funds will be “replaced” as soon as the old property sells • Arrange with the bank lender for a loan that is larger initially and stipulate that the principle will be reduced when the old property sells • Obtain reasonable bridge financing from a third-party lender using the old property
As most observant readers will see, the advantages of a reverse exchange are clear. Both pre-tax income and de- preciation deductions in a reverse exchange are far more
as collateral • Use an equity line (e.g. a HELOC) to obtain a short-term loan using other assets as col- lateral continued on next page
As shown, Mary’s income and depreciation deductions disap- pear at the start of a forward
makes the situation entirely different, as reflected in the following table:
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