8-26-16

R EAL E STATE J OURNAL the most comprehensive source for commercial real estate news

ISSUE HIGHLIGHTS Volume 28 Issue 16 Aug. 26 - Sept. 15, 2016

F Jose Cruz and Andrew Scandalios and managing director Kevin O’Hearn lead team HFFcloses same-day sale of twoNJ properties totaling $396.5 million LORHAM PARK, NJ — Holliday Fenoglio Fowler, L.P. (HFF) has drew Scandalios and managing director Kevin O’Hearn.

SPOTLIGHTS

The class A property, which sits in the heart of the Princ- eton market, includes nine interconnected buildings on 58 acres, with Novo Nordisk cur- rently leasing 563,000 s/f on a net lease basis with expansion rights through April 2031, no termination rights and one 10- year renewal option. “The superior investment- grade tenant and durable in- place cash flow with contrac- tual rent steps at 800 Scudders Mill enabled us to source this noteworthy partnership as the purchasing entity,” Merin said. “The result – a major offshore investment in New Jersey - is a big win for the state. The transaction came with a num- ber of challenges, including the complexity of multiple partners on both sides of the sale.” Cushman &Wakefield’s abil- ity to also arrange financing for the acquisition and future funding was key in moving the sale to its conclusion. n “The market continues to aggressively underwrite single- tenant assets in prime loca- tions with exceptional credit, and we are honored to be the broker for the largest office sale in 2016,” said Cruz. “The money chasing these deals is both domestic and interna- tional as this property profile has become a safe haven for capital.” According to Tom Taranto, Chief Investment Officer of Intercontinental, “The HFF team was terrific to work with during the entire sale process. Jose Cruz and his excellent team always place client inter- est first which lead, ultimately, to this highly-successful sale execution. On behalf of our public pension and many union investors, we are proud and grateful.” In other news, HFF also continued on page 12A

closed the $305 million sale of Novo Nordisk’s North Ameri- can headquarters, a 761,824 s/f, class A office campus in Princeton, New Jersey. HFF marketed the property on behalf of the seller, Intercon- tinental Real Estate Corpora- tion. In 2011, HFF worked on behalf of the seller to secure capital for the development of the property in a deal that was honored with NAIOP New Jersey’s Creative Office Deal of the Year award. Novo Nordisk’s North Ameri- can headquarters encompasses nine interconnected buildings situated on 58 acres at 800 Scudders Mill Rd. within the amenity-rich Princeton For- restal Center Office and Re- search Park in the Princeton business and pharmaceutical corridor. The transit-orient- ed campus is less than one

C OMM E R C I A L REAL ESTATE LAW

Section A

The Monarch, a 316-unit, class A, luxury apartment community.

mile from Route 1, less than four miles from the Princeton Junction mass transit center and convenient to Interstates 95 and 295. Redeveloped in 2013, the LEED Silver-certified building features state-of-the- art technology, energy-efficient systems and design upgrades such as a new façade, 10-foot glass exterior walls and a two-story, 30-foot lobby with

floor-to-ceiling glass. Campus amenities include a 267-seat cafeteria; fully-equipped fitness center; presidential suite and executive boardroom; covered parking; full concierge service; and 4,000 s/f rooftop terrace with outdoor kitchen and din- ing patios. The HFF investment sales team was led by senior manag- ing directors Jose Cruz and An-

Section B

PA/NJ/DE/ I CSC IDEA EXCHANGE

Section C

Cushman & Wakefield arranges $305 million sale of Novo Nordisk HQ in Plainsboro, NJ

For speaking and sponsorship information, please contact: Linda at 781-871-3456 or lchristman@marejournal.com Multifamily Summit September 16, 2016 Philadelphia Commercial Real Estate Forecast Summit UPCOMING CONFERENCES September 15, 2016 3rdAnnual NJ Apartment/

PLAINSBORO, NJ —Novo Nordisk’s 762,000 s/f North American headquarters in Plainsboro has traded for $305 million, marking the larg- est single-asset sale in New Jersey to date in 2016. Com- mercial real estate services firm Cushman & Wakefield

Directory

Commercial Law................................................ 5-9A Owners, Developers & Managers............... Section B Shopping Centers....................................... Section C

Novo Nordisk’s 762,000 s/f North American headquarters

brokered the sale and secured financing for this challenging transaction. Members of Cushman & Wakefield’s Metropolitan Area Capital Markets Group, includ- ing Andrew Merin, David Bernhaut, Gary Gabriel and Brian Whitmer , represented the seller, a partnership of Ivy Equities, LCOR, Inc., and Intercontinental Real Estate Corp. Ken Lorman with Lee

& Associates – New Jersey, advised the purchaser, a Korea investment firm, Hana Asset Management Company. On the finance side, the Cushman & Wakefield Equity, Debt & Structured Finance team of John Alascio, Alexander Hernandez and Alex Lapi- dus arranged acquisition fi- nancing and future funding tied to the planned expansion of the tenant.

Upcoming Spotlight September 16 th APPRAISAL www.marejournal.com

Inside Cover A — August 26 - September 15, 2016 — M id A tlantic

Real Estate Journal

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RECENT SUCCESS SALE +

ACQUISITION FINANCING

Cushman & Wakefield’s Metropolitan Area Capital Markets Group closed in excess of $2 billion of office, industrial, retail, land and multifamily transactions year-to-date in 2016.

CLOSED AUGUST 2016 305,000,000 $

NOVO NORDISK 762,000 SF N.A. H.Q. Largest Single-Assest Sale in N.J. To Date in 2016

CAPITAL MARKETS GROUP

Andrew J. Merin andrew.merin@cushwake.com David W. Bernhaut david.bernhaut@cushwake.com H. Gary Gabriel gary.gabriel@cushwake.com Brian J. Whitmer brian.whitmer@cushwake.com

Robert Donnelly Jr. robert.donnellyjr@cushwake.com Kyle B. Schmidt kyle.schmidt@cushwake.com Nicholas J. Karali nicholas.karali@cushwake.com

Ryan W. Dowd ryan.dowd@cushwake.com Ryan J. Larkin ryan.larkin@cushwake.com Andrew J. MacDonald andrew.macdonald@cushwake.com

Frank DiTommaso frank.ditommaso@cushwake.com Andrew Schwartz andrew.schwartz@cushwake.com Kubby Tischler kubby.tischler@cushwake.com

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3rd Annual New Jersey Apartment/Multifamily Summit

September 15, 2016 APA HOTEL WOODBRIDGE

120 Wood Avenue South, Iselin, NJ 08830 7:15 am Registration | 7:30 am Breakfast 7:55 am - 12:00 pm Program MEET THE SPEAKERS & SPONSORS!

Lara Schwager VP, Development PIRHL

Anthony L. Marchetta Executive Director NJHMFA

Mark McBride Tax Credit Investment Officer TD Bank

Richard Conley Sr. Vice President/Originations Director CPC

Ronald Ladell Sr. Vice President, NJ AvalonBay Communities, Inc.

Carmelo G. Garcia EVP/Chief Real Estate Officer Newark CEDC

Kathy Anderson President Progress Capital

Jose R. Cruz Senior Managing Director HFF | New Jersey

Brian Whitmer, CCIM Senior Director, Capital Markets Group Cushman & Wakefield of NJ

Paul Heilmann Senior VP Columbia Bank

Timothy Touhey CRE Team Leader Investors Bank

Richard Gatto Marcus & Millichap’s National Multi Housing Group

Mark A. DeLillo Founder/Managing Partner BlueGate Partners

Bronze

Corporate

2A — August 26 - September 15, 2016 — M id A tlantic

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AG&A.........................................................................6A American Architectural Window & Door.................1B Arcara Realty Advisors...........................................19A AW Meyer. ...............................................................19A Azarian Realty Co.. .............................................IBC-C Barley Snyder............................................................7A Behr Building Services............................................20B Bennett Williams Retail....................................... BC-C BL Companies............................................................6C Bohler Engineering. ................................................12C Capitol Aerials...........................................................2B CAPSTAN..................................................................2A Caryl Communications............................................19A Cooch and Taylor.....................................................10A Crystal Window & Door..........................................14B Cushman & Wakefield, Inc................................... IC-A E.B. Cohen.................................................................4B Earth Engineering Inc.. ..........................................15C Ehrlich, Petriello, Gudin & Plaza...........................10B Electronic Access Foundation...................................2B Elliott-Lewis. .............................................................5B Environmental Systems..........................................19A Fowler Companies...................................................18B Hillcrest Paving & Excavating...............................19A Integrated Business Systems. ..................................6B Investors Real Estate Agency.................................19A IREM.................................................................. 24-25B Jewel Electric...........................................................13B Kaplin|Stewart.........................................................8A Kay Commercial Realty. .........................................19A Levin Management................................................ 8-9C LEW Corporation. .....................................................8B Lewis-Chester Associates........................................11B Lightbridge Academy..............................................11C M. Miller & Son.......................................................19B Marcus & Millichap........................................ 19, BC-A Meridian Capital. ....................................................10A NAI Summit....................................................... 19A,2C NAI Mertz..................................................................4A National Realty & Development........................... IC-C NJ’s Clean Energy Program. ..................................15B NJAA........................................................................18B NorthMarq Capital....................................................3A P.Cooper Roofing. ................................................. BC-B Poskanzer Skott Architects.......................................3B Premier Compaction Systems.................................22B RD Management.................................................... 4-5C Rittenhouse Capital Advisors.................................13C Silbert Realty & Management Co.............................3C Specialty Building Systems. ................................. IC-B Stark & Stark............................................................7C Stout & Caldwell. ......................................................9B Subway.....................................................................14C SVN Motleys..............................................................3A Target Building Construction.................................10C Total Cleaning Associates.........................................2B USGBC.....................................................................23B Weichert Commercial Brokerage............................19A MAREJ A dvertisers D irectory

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M id A tlantic R eal E state J ournal Publisher .................................................................Linda Christman Publisher ....................................................................Joe Christman Senior Editor/Graphic Artist ..................................... Karen Vachon Production Assistant/Graphic Artist ............................... Julie King Associate Publisher ....................................................... Kim Brunet Associate Publisher ................................................. Alissa Aronson Associate Publisher .............................................. Barbara Holyoke Associate Publisher .....................................................Steve Kelley Office Manager .........................................................Joanne Gavaza Contributing Columnists . .........................Andrew Cohen, JD, LLM ..................................................... Michael Greenwald, MPPM, CPA Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 312 Market St. Rockand, MA 02370 USPS #22-358 | Vol. 28 Issue 16 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

Andrew Cohen Michael Greenwald

Late Adoption of the Tangible Property Regulations

h, no. We’re more than halfway through 2016, I haven’t filed my 2015

tax returns (fortunately they are on extension) and I never did anything about the Tan- gible Property Regulations (“TPR”) that became effective in 2014. Is there anything I can do? As a matter of fact, there are a number of things you can still do. There is no prohibition against adopting the TPR in 2015. You can still file for an automatic change of account- ing method with your 2015 tax return. What you don’t get is the audit protection that was available to taxpayers who adopted the TPR in 2014. Most accounting method changes are granted with audit protec- tion, which means that the Service will not require the taxpayer to change its method of accounting for the same item for a taxable year prior to the year of change. If your 2015 return is examined by the IRS, adjustments resulting from the method changes as well as the tax treatment of the same or similar items in prior years are subject to challenge. You also don’t get to take full advantage of the new partial asset disposition (“PAD”) rules which allow taxpayers to claim a loss on a retired structural component of a unit of property when the asset is permanently withdrawn from use in the taxpayer’s trade or business or when ownership is transferred.

A PAD is required when there is a casualty loss, tax-free ex- change or a transfer of the prop- erty. One of the advantages of adopting the TPR in 2014 was the opportunity to take a de- duction for PAD that occurred in prior years. Now taxpayers may take such a deduction only for current year PAD. The TPR provide guidance on whether certain expendi- tures are currently deductible or require capitalization and apply to anyone who pays or incurs expenditures to ac- quire, produce or improve tan- gible real or personal property. In general, when adopting the TPR, a taxpayer is adopt- ing the following changes: • Utilizing the Safe Harbor for Routine Maintenance; • Defining the Unit of Prop- erty (“UoP”) for building(s), cer- tain specified building systems and land improvements; and • Determining the amount to be capitalized as an improve- ment to tangible property The Routine Maintenance safe harbor allows for the

deduction of certain costs incurred on a unit of tangible property. Repair or mainte- nance activities are consid- ered routine if the taxpayer reasonably expects to perform the activities more than once over a ten-year period. The taxpayer can qualify for the safe harbor deduction even if the activity does not occur more than one time over that ten-year period if it can be established that, at the time the property was placed in service, it was reasonable for the taxpayer to expect that the repair or maintenance would be required more than once. The UoP definition is impor- tant when determining wheth- er expenditures incurred to improve upon tangible per- sonal property must be capi- talized or could be deducted as a repair. The larger the UoP, the more likely the expendi- ture will be deducted. The UoP is a group of func- tionally interdependent compo- nents – when one component’s continued on page 12A

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M id A tlantic R eal E state J ournal 131,000 s/f office building located in Fulton, MD NorthMarq arranges financing of Maple Lawn IV off. building F

ULTON, MD — Nancy Ferrell , senior vice pres- ident/managing director of NorthMarq Capital ’s Bal- timore-based regional office secured permanent financing of Maple Lawn IV, a 131,000 s/f office building located at 8135 Maple Lawn Blvd. in Fulton. The transaction, which featured a construction loan takeout, was structured with a 10-year term and 25-year amortization schedule. North- Marq arranged financing for the borrower through its cor- respondent relationship with a life insurance company. “The project had reached Redwood’sMcCrann nominated for Forty Under 40 HASBROUCK HEIGHTS, NJ — Redwood Realty Advisors announced that NJBIZ . The awards celebrate the rising stars of the New Jer- sey business community. Past winners and current nomi- nees are accomplished young professionals that are often recognized for professional excellence and contributions to the community. “I have known Kevin as a business partner and friend for more than a decade. He is very deserving of this award and our whole team at Red- wood Realty Advisors couldn’t be more proud that he is being recognized for his business ac- complishments,” said Thomas McConnell, CCIM , manag- ing partner at Redwood Realty Advisors. Kevin graduated from Drew University with a degree in Economics and Business Man- agement in 2004. Kevin began his real estate career with Marcus & Millichap in 2005. Kevin teamed up with fellow colleague McConnell to form the #1 multifamily investment sales team in Marcus & Mil- lichap’s New Jersey office. In 2015, the two teamed up again to co-found Redwood Realty Advisors and Kevin has taken a hands-on role in guiding the firm’s rapid growth. n Kevin McCrann c o - f ounde r and manag- ing partner Kevin Mc- Crann has been nomi- nated for the prestigious Forty Under 40 honor by

8135 Maple Lawn Blvd.

munity is advantageously positioned between Baltimore and Washington DC and pro- vides an attractive live-work- play environment.” n

completion and the construc- tion lender was taken out by our correspondent life company,”said Ferrell. “The Maple Lawn mixed-use com-

FORECLOSURE SALE • Sterling, VA • Next to Dulles Airport 60,358± SFWAREHOUSE ON 3.72± AC 0.4± AC COMMERCIAL LOT ZONED PD-IP

#1 #2

22445&22435Powers Ct., Sterling, VA20166 Located just off Route 28 near Washington Dulles International Airport SALE 1: 60,358± SFWarehouse & Office Facility on 3.728+/- Acres • Built in 2004, the property is comprised of 22,609± SF of office and 37,749± SF of warehouse space • Zoning: PD-IP (Planned Development – Industrial Park) • Parking: 2/1,000 SF (76 Total Spaces) • 14,400± SF Currently Leased for $7,800±/ Month SALE 2: 0.4± AC Commercial Lot • Zoning: PD-IP (Planned Development – Industrial Park) • Zoned for an additional warehouse building which can also be used for parking or future development ON-SITE SALE: TUESDAY, 9/13@11 AM

0.4± AC

495

22445 POWERS CT

WashingtonDulles InternationalAirport

WASHINGTON. D.C.

1%Paid toQualified Brokers

Flooring Solutions, Inc. Bankruptcy Liquidation of Equipment, Tools, Supplies, Furniture &More Sold Separately in (2) ONLINE ONLY SALES. BID SEPT. 6 - 14 & SEPT. 6 - 15 • See Website For Details!

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M id A tlantic R eal E state J ournal At 1380 S. Pennsylvania Ave. in Morrisville NAI Mertz team inks sale of 16,700 s/f flex building

M ORRISVILLE, PA — NAI Mertz an- nounced the sale of a 16,700 s/f office and industrial building sale at 1380 S. Penn- sylvania Ave. in Morrisville. Representing both the seller, Michael Fardella, and the buy- er, MJLS Holdings, LLC, was the NAI Mertz team of Zena Charokopos , vice president- office division, Jeffrey Licht, SIOR , senior vice president and Adam Lashner, SIOR , vice president. The buyer of the property is an electrical contractor that was looking to expand from its

previous facility. “This transac- tion created the perfect scenar- io for the buyer—providing the additional space it required for its growing business in an ideal location to serve their clients,” stated Charokopos. Located in Falls Twp., 1380 S. Pennsylvania Ave. is a two- story fully air-conditioned building with four office suites ranging from 2,300 to 2,625 s/f, including kitchen areas and a conference room. The 6,948 s/f industrial area is divided into two spaces—one unit includes two office areas and the second unit features a 1,100 s/f mez-

zanine area. The building also features a video surveillance system and a 130-KW back-up generator. Strategically located in Bucks County, the building is in close proximity to U.S. Route 1 and I-95 offering easy access to New Jersey. “We are pleased to have rep- resented both parties in meet- ing their business goals,” added Lashner. “Morrisville is a great location offering convenience to major highways, as well as a myriad of housing, retail and entertainment options.” n Feinberg Real Estate Advisors represents Peoples Security Bank & Trust ALLENTOWN, PA — Fein- berg Real Estate Advisors, LLC represented Peoples Se- curity Bank and Trust on the purchase of 2151 Emrick Blvd., a 25,000 s/f office building located in Bethlehem Twp. Peoples plans to develop the property as a regional center for retail and business banking and plans to occupy the first floor of the prop- erty by the end of 2016. CindyMcDonnell Feinberg of Feinberg Real Estate Advisors represented the buyer, Peoples Security Bank and Trust and Ron Eichenberg with The Frederick Group represented the seller, Shaleen, LLC. The property sold for $3.55 million. “We’re excited to be in a grow- ing area of the Lehigh Valley,” said Neal Koplin, Lehigh Valley Region president for Peoples Security Bank and Trust. “The area around Rte. 33 has seen sig- nificant growth in commercial, retail and residential develop- ments, and provides great access for our planned banking center for businesses and consumers.” “It was a pleasure to find a great location for a regional banking center for Peoples Security Bank and Trust.” said Feinberg. “We searched the Lehigh Valley market and found a perfect comple- ment to Peoples Security Bank and Trust location on Airport Road.” “Cindy’s professionalism and knowledge has been great- ly appreciated by the Peoples’ executive and facilities team,” said Koplin. “She’s been our commercial real estate broker from the beginning and we look forward to working with her on future projects.” n

1380 S. Pennsylvania Ave.

Captains of Industrial. NAI Mertz has been an industry leader in industrial and commercial real estate on both sides of the Delaware River and beyond for over 35 years. Contact our team of specialists today to find out how we can help you achieve your strategic commercial real estate goals.

naimertz.com Mount Laurel, NJ +1 856 234 9600 Philadelphia, PA +1 215 221 1100 Southampton, PA +1 215 396 2900 Wilkes-Barre, PA +1 570 820 7700

M id A tlantic R eal E state J ournal C ommercial R eal E state L aw

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M id A tlantic

nsell Grimm & Aaron, PC attorneys have filed a federal antitrust com- Monopolization of the gas station convenience store market in the Borough of Eatontown, NJ Ansell Grimm & Aaron, PC attorneys file a federal antitrust complaint A antitrust action in accord with the Hanover decision.

of choice and options in the marketplace. Robust compe- tition benefits businesses and consumers alike. The market for gas station convenience stores is not different from any other and it is essential that competitors be allowed to enter the marketplace free from the predatory practices of would- be monopolists. The action is predicated on a recent decision from the United States Court of Appeals for the Third Circuit, Hanover 3201 Realty, LLC. v. Village Supermarkets, Inc., 806 F.3d 162 (3d Cir. 2015), which up- held a developer’s antitrust claims arising out of the sham litigations and other anticom- petitive acts undertaken by an objector -- akin to those actions allegedly taken by Defendants here -- to unlawfully block de- velopment. In fact, Plaintiffs expressly provided Defendants with notice that their anticom- petitive conduct would result in the now pending federal

cifically, Plaintiffs allege that Defendants engaged in sham litigations and frivolous and pre-textual appeals of plan- ning board, governing body, and State agency actions to prevent the development of competing gas station conve- nience stores thereby preserv- ing their monopoly position. By intentionally delaying and seeking to prevent the de- velopment and construction of the Projects, including Plain- tiffs’ gas station convenience stores, Defendants would ef- fectively eliminate new com- petitors in the geographic area providing the goods and services associated with gas station convenience stores. The elimination of fair, robust competition is alleged to be the sole animating factor behind Defendants’ abusive illegal actions. Further, it is alleged that as a result of the series of sham petitions and legal actions filed by Defendants, Plaintiffs have been forced

to pay thousands of dollars toward application fees, ex- pert fees, and attorney fees to pursue land use approvals and have suffered lost profits and other costs associated with the delay in construction resulting from the Defendants’ willful and abusive tactics. Numerous developers face similar, frivolous opposition when seeking land use approv- als for their projects -- compel- ling them to incur significant expense and suffer intermi- nable delay. While it usually is best to amicably resolve ob- jector concerns, the Hanover decision opens a new path to challenge sham objectors in de- fense of our developers’ rights. Joshua S. Bauchner, Esq. is a partner with the law firm of Ansell Grimm & Aaron, PC, where he is Co-Chair of the Litigation Department and a member of the Bankruptcy Depart- ment. He may be reached at (973) 247-9000. n

The Complaint alleges De- fendants engaged in an ongo- ing illegal scheme designed to injure competition in the market for gas station conve- nience stores in the greater Eatontown geographic area and to interfere with Fidelity’s site development agreement with aWawa convenience store with a gasoline dispensing ca- pacity, a Chick-Fil-A fast food restaurant, and an office/retail building with a bank, and QuickChek’s development of a fresh marketer convenience store with a gasoline dispens- ing capacity (the “Projects”). The Complaint further alleges that Defendants sought to preserve their monopoly posi- tion in the greater Eatontown marketplace through a series of calculated and intentional acts designed to impede Plain- tiffs’ lawful plans to develop a directly competitive gas sta- tion convenience store. Spe-

plaint assert- i ng c l a ims arising from the attempt- ed monopoli- zation of the gas station convenience store market in the Bor-

Joshua Bauchner

ough of Eatontown, New Jer- sey. The action was filed in the United States District Court for the District of New Jersey captioned Fidelity Eatontown, LLC and QuickChek Corpora- tion v. Excellency Enterprise, LLC, Kennedy Auto Service, Inc., and Gas Of Eatontown, Inc., Docket No. 3:16-cv-03899- FLW-LHG. The essence of any produc- tive market economy is full and fair competition in the marketplace. Competition drives innovation, techno- logical progress and growth

Also Inside:

Jessica Zolotorofe, Esq., Ansell Grimm&Aaron, PC

Joseph Falcon, III Barley Snyder

Jeffrey L. Silberman, Esq. Kaplin Stewart Meloff Reiter & Stein, P.C.

Douglas M. Hershman, Esq. Cooch and Taylor, P.A.

6A — August 26 - September 15, 2016 — Commercial Real Estate Law — M id A tlantic

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C ommercial R eal E state L aw By Jessica T. Zolotorofe, Esq., Ansell Grimm & Aaron, PC Controlling Interest Transfer Tax

he majority of U.S. states impose a tax on the conveyance of

Tax in 1986. Yet thirty years later, only about one-third of states have followed suit. And even among those states that do have some form of a non- deed transfer tax, laws are entirely inconsistent. (1) Entities Subject to the Tax. Many states only tax the conveyance of a controlling interest in entities that are in the real estate business. Under Pennsylvania law, for example, a ‘Real Estate Com- pany’ is defined as an entity that is in the business of hold- ing, selling or leasing realty, which either (a) derives 60%

or more of its annual gross receipts from ownership or dispossession of real property, or (b) real estate accounts for 90% or more of its tangible assets. Initially, the two tests only considered property with- in the State when calculating the percentage, but a recent amendment to the Pennsylva- nia Code now considers all real property owned by the entity, wherever located. To the contrary, Washington DC, still only considers prop- erty located within its jurisdic- tion. There, the tax is imposed if more than 50% of an entity’s gross receipts are from real

property located within the District; or if the entity holds real property located within the District that has a value comprising 80% or more of its tangible assets. There are also a number of exceptions and exemptions, which, in certain jurisdictions include publicly traded stock, mergers and acquisitions, or non-profit organizations. (2) What Qualifies as a “Controlling Interest”? State laws also vary as to the definition of ‘controlling interest’. In Pennsylvania, the tax is applicable when 90% or more of the interest in an

entity is transferred. In Vir- ginia, there is an exemption from the realty transfer fee when less than a 50% interest is conveyed. Other examples include Maryland and Delaware, each of which consider a control- ling interest to be more than 80%, and New Jersey, having among the most restrictive ‘non-deed transfer tax’ laws, assesses any conveyance of interest of more than 50% when the consideration is in excess of $1,000,000. Some states outside of the Mid- Atlantic region do not specify or define ‘controlling interest’ and have left it to the taxpay- ers’ interpretation until such time as the tax-courts rule on the issue. (3) Series of Transactions. Controlling interest transfer tax may be imposed in connec- tion with a single transaction, or when interest is conveyed in a series of transactions. Delaware and Pennsylvania have the most stringent time frames, both considering all transactions completed within three years to be part of a single transaction, while New Jersey only extends out six months. Many states’ laws are silent in this regard, but may expressly indicate, like the Virginia Code, that suc- cessive transfers cannot be with the intent to avoid realty transfer tax. (4) Calculating the Tax. Some jurisdictions calculate the tax based upon the consid- eration paid for the interest. Others use fair market value or equalized assessed value of the real property owned by the entity. With the State assessing 1% of the value of the realty held by the entity, and the counties charging up to 4%, Pennsylvania’s control- ling interest transfer tax can be among the highest in the Country. (5) States that Impose the Tax. Other than those mentioned above, the following states im- pose some form of a ‘non-deed’, ‘controlling interest’, or ‘change in ownership’ transfer tax: Washington New Hampshire Illinois Rhode Island Connecticut California Maine Florida Minnesota Michigan Virginia Rhode Island The information and exam- ples in this article should not continued on next page

real proper- ty. However, the transfer of member- ship interest in an entity t ha t own s real proper- ty effectively conveys the

Jessica Zolotorofe

property without necessitat- ing the recording of a deed. New York recognized the loss of revenue that results from this loophole and enacted the Controlling Interest Transfer

• Complex Local and National Commercial Transactions

• Retail and Mixed-Use Development • Representation of Real Estate Investment Trusts • Tax Appeals • Land Use and Zoning • Real Estate Related Litigation

• Property Acquisition and Disposition • Commercial Property Financing • Leasing Matters on Behalf of Tenants, Landlords and Real Estate Brokers

• 1031 Exchanges

Real Estate Journal — Commercial Real Estate Law — August 26 - September 15, 2016 — 7A

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C ommercial R eal E state L aw

By Joseph Falcon III, Barley Snyder Understanding Intellectual Property

be concerned with it? According to the Unit- e d S t a t e s Patent and Trademark Office (USP- TO), intellec- tual property W

hat is intellectual property and why should I actually

competition from replicating a patented invention, and allow the owner to profit in a variety of ways. Intellectual property, like real property, can be bought, sold, licensed, exchanged, or given away like other forms of property. As a result, it may be strategic for the owner to transfer those rights through assignment or license, which is the functional equivalent of a “sale” and a “lease” under real property. An assignment of a patent, for example, is a transfer of sufficient rights so that the assignee acquires title to the

patent. The assignee becomes the owner and has the same rights that the original owner had. The owner may strategi- cally exploit the intellectual property right by way of as- signing the patent. This may be for a variety of reasons, including under capitaliza- tion or disinterest in the in- vention. However, once the owner transfers the rights to a third party, all rights are then reserved with the third party and exhausted within the assignor. Alternatively, a license is written authorization to use owned intellectual property

rights. Typically, an owner will make arrangements to license intellectual property rights, which authorizes a third party to use those rights in exchange for consideration. However, unlike assignments, the owner retains owner- ship of those rights, and can contract for a running rate of payments. Although there are always uncertainties with product in the market place, a license may have a larger upside than a single assign- ment of rights. Intellectual property rights allow a business to distin- guish their goods and services

amongst competitors. As dis- cussed, a patent owner holds a significant advantage against competitors and a clear ad- vantage in market utilization, since the patent owner can enforce patent rights against those competitors. Therefore, acquiring and managing in- tellectual properties rights, provides the owner with op- portunity to grow, protect, and exploit these rights as commercial value. Joe Falcon is an intel- lectual property, U.S. Pat- ent and Trademark Office registered patent attorney at Barley Snyder. n

Joseph Falcon, III

be considered legal advice, and are not intended to create an attorney-client relationship. This article provides only a very gen- eral overview of an extremely complex area of law, each state having unique nuances and ex- emptions in addition to the lack of uniformity in the laws themselves and the applications thereof. Please consult with your attorney and accountant prior to relying on any information contained herein. Jessica Zolotorofe is an attorney with the law firm of Ansell Grimm&Aaron. n continued from page 6A Controlling Interest Transfer Tax . . . However, it should be noted that this right is an exclusion- ary right, which allows the owner to exclude others from making, using, selling and importing what is protected. That’s right, a patent does not provide the right to make, use, sell or import what is protected by the patent, but rather lets you exclude others. That said, this exclusionary right is very important, since a patent can be used to deter is “ownership of a dream, an idea, an improvement, an emotion that we can touch, see, hear, and feel. It is an as- set just like your home, your car, or your bank account.” Both intellectual property and real property can create wealth. Inventions and se- crets have real value consider- ing the laws governing intel- lectual property provide own- ers’ rights therewith. This in return provides an edge over competitors. In the United States, intellectual property is broken down into patents, trademarks, copyrights and trade secrets (considering the patents are most alike to real property). A patent is a right to a lim- ited monopoly granted by the government in an invention that is unique or novel, or a non-obvious development or improvement of an existing technology.

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8A — August 26 - September 15, 2016 — Commercial Real Estate Law — M id A tlantic

Real Estate Journal

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C ommercial R eal E state L aw

ou and a colleague have i den t i f i ed a cherry property to ac- By Jeffrey L. Silberman, Esquire, Kaplin Stewart Meloff Reiter & Stein, P.C. So you want to be partners? The short-list of issues to consider Y

of the Company, but certain major decisions require the approval of all or some super majority of the partners, and (3) decisions require the con- sent of some stated percentage of the partners or percentage interests. Major decisions are typically (among others) whether to sell the asset, obtain financing, admit new partners and sign contracts for the Company over a certain dollar amount. Of course, every answer to a question leads to another, so the next question is, what happens if the partners can’t agree on a decision that re-

getting into the conflicts of interest issues, which is an ar- ticle of its own and which will be discussed very briefly at the end of this one, there are a few important points that partners need to vet before going into a joint venture. To set some pa- rameters, this article assumes a basic joint venture with part- ners contributing fairly equal dollars and services. The first question I ask the partners is, how will the com- pany be managed? The usual options are: (1) all decisions require unanimous approval, (2) one or two of the partners manage the day-to-day affairs

quires some level of consent (known as a “deadlock”). One option is the partners submit the deadlock to arbitration or mediation by a person or persons with expertise on the subject matter of the dispute. Another, more drastic, solution is the parties have a buy/sell right. One such right, known to some as a “Texas buyout” is where one partner offers to purchase the other’s interest for a stated amount, and the other partner can either ac- cept the offer and sell, or turn the tables and buy the offering partner’s interest for the same amount. The theory is the of-

fering partner will not lowball the other because, if it does, it risks being bought out at the lowball number. Another solution is the parties simply do nothing. Another sticky issue is deal- ing with the possibility that the venture needs money when loan funds are not avail- able. In that event, are part- ners obligated to come up with more money and, if so, what happens if someone does not fund their share? The usual remedies for failure to fund is that the other, funding part- ners, have the right to fund the “defaulting” partner’s share, and that amount is treated like a high interest loan. Tak- ing it one step further, in some instances the defaulting partner’s percentage share is reduced by some agreed upon formula. As with everything, there are problems inherent in this remedy (again another article). Finally, an important issue concerns the ability of part- ners to transfer their interests. Inmost partnerships, partners that are familiar with each other do not want an unrelated partner, so transferring part- nership interests is restricted. However, transfers to family members and trusts is typi- cally allowed. In the case of death of a partner, the inter- est can transfer to the estate, but the parties need to decide if the remaining partners should be stuck dealing with an estate, the trustee or repre- sentatives of which may have no experience at all with real estate, when decisions need to be made. There are a host of other is- sues that need to be resolved, but partners could have op- posing views on certain basic points, all depending on their relative financial capabili- ties, age, experience and risk tolerance. An open discussion should be had before any pen is set to paper, which brings up the last point. Two members of a joint venture, while they could be childhood buddies, each have their own interests. I would be remiss if I did not say that partners should be encouraged to have their own, separate counsel. Leave it to the lawyer to kill the party! Jeffrey L. Silberman, Es- quire is prinicpal at Kaplin Stewart Meloff Reiter & Stein, P.C. and a member of the Real Estate Transac- tions Department. n

quire and you come to your trusted attor- ney to draft a “ s imp l e ” joint venture agreement. The di sap- pointment is obvious from

Jeffrey Silberman

your voice when I tell you there some issues we need to discuss and that you and your colleague may actually have differing (aka conflicting) posi- tions on those issues. Without

Firmly Rooted in the Law and in the Community We are well grounded in every facet of real estate law, from acquisition to construction. We are committed to serving the needs of our clients and our communities.

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Contact: Jeffrey L. Silberman, Esquire • jsilberman@kaplaw.com

910 Harvest Drive, Blue Bell, PA 19422-0765 • 610-941-2518 • www.kaplaw.com Visit our Real Estate Blog: www.philadelphiarealestatelaw.com Visit our Construction Blog: www.pennsylvaniaconstructionlawyer.com Other Offices: Cherry Hill, NJ 856-675-1550 • Philadelphia, PA 215-567-3120

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Real Estate Journal — Commercial Real Estate Law — August 26 - September 15, 2016 — 9A

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M id A tlantic

C ommercial R eal E state L aw By Douglas M. Hershman, Esq., Cooch and Taylor, P.A. Tenancy-In-Common Interests and Like-Kind Exchanges

ment between the various owners of the property (since the investor involved in the exchange will only be a 10% owner, there will be other parties who will own the re- maining 90%, whether just one or several). Typically, when more than one party owns real estate, the various owners will want to have an agreement in place that sets out the rights and benefits of the various owners. An agreement that goes too far will be deemed to be a part- nership agreement and will

void the exchange. In sum- mary, the Ruling requires that each owner of a TIC interest must hold title as a tenant in common under lo- cal law and that there can be no more than 35 co-owners. The co-owners cannot file a partnership or corporate tax return, nor can they conduct business under a common name. The co-ownership agreement must not identify the co-owners as partners, shareholders or members of a business entity, nor can they hold themselves out as any

of these things. In regard to voting rights, the agreement must require unanimous ap- proval for hiring of any prop- erty manager, the sale of the property, any leases of all or a portion of the property and the creation of any blanket liens against the property, such as a mortgage lien. There can be no restrictions on the sale, other disposition or encumbrance of the TIC interest. Sharing of revenues from the property must be based on ownership percent- ages. Proceeds from a sale of

the property must be used to pay debt secured by the prop- erty before the net proceeds get distributed. There are various other “rules” that are contained in the Ruling and it would be wise to work with competent legal counsel in regards to structuring a TIC ownership relationship for investment property. But, it can be done and remains one of the few viable tax benefits fir real estate investors. Douglas M. Hershman, Esq. is director at Cooch And Taylor, PA. n

like-kind exchange under Section 1031 of the Internal Rev-

enue Code remains one of the last g r e a t t a x savings op- portunities for real es- tate inves- t o r s ( a n d b u s i n e s s owne r s as

Douglas Hershman

well). It enables an investor to defer the payment of in- come tax on the gain from a sale of investment real estate. This can be quite beneficial when the potential gain that results from the sale could leave the investor with a large tax bill. So, where an investor wants to liquidate out of one real estate invest- ment and into another, using a like-kind exchange can be a great tool. However, what if the investor is liquidating a smaller valued solely owned and managed property but does not want to continue his or her investment in a similar smaller valued solely owned and managed property? The investor might think about re-investing the funds from the like-kind exchange into a tenant-in-common interest in a larger property whose management is handled by another party, such as an exchange of a 100% inter- est in real estate valued at $100,000 into a 10% tenant- in-common (TIC) interest in qualified real estate valued at $1 million. But there are cer- tain complications that could arise in such an exchange if the TIC structure is deemed a partnership by the IRS. While real estate can be the subject of a like-kind exchange, a partnership interest cannot as it is deemed to be personal property. If the TIC structure gets reclassified as a partner- ship, the IRS will disallow the exchange for tax purposes and require the payment of all of those taxes the investor thought would be deferred (with penalties and interest). In May of this year, the IRS released Private Letter Rul- ing 201622008 (the “Ruling”) in order to provide guidance on when a TIC interest might be deemed a partnership interest. It mostly relates to the provisions of the agree-

10A — August 26 - September 15, 2016 — M id A tlantic

Real Estate Journal

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Commercial Real Estate’s Global Standard for Professional Achievement

CI 101

Financial Analysis for Commercial Investment Real Estate

September 19-22 at Brandywine Realty Trust 555 East Lancaster Avenue Suite 100 Radnor, PA 19087 This Class Is Offered

this course is your introduction to the CCIM Cash Flow Model

Learn to apply the CCIM Cash Flow Model to make your investment decisions based on wise investment fundamentals. Some of the concepts you will explore include IRR, NPV, Cap Rate, Capital Accumulation and the Annual Growth Rate of Capital. This class will also introduce you to two other important tools: the CCIM Strategic Analysis Model (the fundamentals behind the numbers) and the CCIM Decision-Making Model (a process for analyzing and making real estate decisions). After completing this course, you will be able to: • Make better investment decisions by using the CCIM Cash Flow Model as a framework for real estate analysis, and; • Apply state-of-the-art real estate analysis tools to quantify investment return, and; • Measure the impact of federal taxation and financial leverage on the cash flow from acquisition, ownership and disposition phases of real estate investment. Next Class Offered: November 14-17 CI 102: Market Analysis for Commercial Real Estate at Brandywine Realty Trust, Radnor, PA

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September 20: Networking with CI-101 Students (Radnor, PA) October 13:

for addional informaon, to register for events & classes please visit CCIM PA NJ DE .com The PA/NJ/DE CCIM Chapter Proudly Acknowledges and Thanks the Following Sponsors: CCIM Commercial Developer’s Forum, Villanova University (Keystone Event) November 14-17: CI-102 Market Analysis for Commercial Real Estate at Brandywine Realty Trust (Radnor, PA) November 17: Joint annual dinner with CCIM, CIRC, SIOR & Tri-State at Harry’s Savoy Grill (Wilmington, DE)

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