ewark, NJ — The $50 million sale of 452 multi-family units at N Gebroe-Hammer Associates exclusively reps. seller and buyer 452-Unit Forest Hill Terrace Apartments in Newark, NJ sells for $50 million
ISSUE HIGHLIGHTS Volume 30, Issue 7 April 13 - 26, 2018
Located at 325 Grafton Ave., Forest Hill Terrace is nestled within the suburban tree-lined Forest Hill neighborhood of Newark’s North Ward. The garden-apartment community is strategically situated directly across fromBranch Brook Park, the city’s symbol of green open space and outdoor recreation featuring tennis courts, hik- ing/biking/jogging trails, sport courts and fields. Like its four counterparts, the North Ward has its own distinct charisma. In addition to the 360-acre Branch Brook Park, it is home to the captivating Cathedral Basilica of the Sacred Heart. NJPAC, Riverfront Stadium, Newark Symphony Hall and Prudential Center are minutes away. Comprised of 452 total units, Forest Hill Terrace features 94 studios, 297 one-bedroom and 60 two-bedroom layouts. The sale also included a four- bedroom home that is on the property. n owns 64 properties totaling approximately 22.5 million s/f in 23 cities in 18 states. The privately-held company has been in an aggressive growth mode, more than doubling its portfolio in the last five years. It has entered other new markets – such as Houston and Las Vegas – in recent months as well as expanded operations in other cities such as Cleveland, Indianapolis, Richmond and New Orleans. “With the new, redevelop- ment of the inner harbor, we believe Baltimore is poised for substantial population and job growth,” said Jim Ingram , Hertz Investment Group’s chief investment of- ficer. “Wells Fargo Tower is a property that companies find attractive due to the location, proximity to the courthouse and opportunities for expan- sion. We are pleased to be in the Baltimore market, and continue to look for additional acquisitions.” n
Forest Hill Terrace Apart- ments, a critical-mass gar- den-apartment community in Newark, has been finalized, announced Gebroe-Hammer Associates . Executive vice president David Jarvis , the firm’s Newark market special- ist, represented the seller Ka- mson Corporation, the decades- long owner, and procured the buyer, a private family-office entity with numerous holdings citywide. Allen Popowitz, Esq. , of Brach Eichler LLC in Roseland, provided legal counsel on behalf of the seller. “High-density apartment properties like Forest Hill Ter- race are at the core of Newark’s transformation. These types of properties present a rare invest- ment acquisition opportunity and are therefore considered premium product among expe- rienced multi-family investors who are familiar with the city’s Baltimore, MD — Hertz Investment Group has acquired Wells Fargo Tower, a 24-story class A office building located in Baltimore’s Central Business District. Hertz purchased the property for $36.75 million and is the company’s first office property acquisition in Maryland.
Ammon Labs Expands in Union County, NJ
Forest Hill Terrace Apartments
past, its present and its future potential,” said Jarvis. “This property mirrors Newark’s re- birth and promise. Forest Hill Terrace is an iconic, 1940s-era property with boundless value- add potential, which is what interested the buyer, who is a long-time client of Gebroe- Hammer.” According to Jarvis, the resi- dential population of Newark is comprised of almost 80 percent renters. The architectural land- scape of historic and modern
apartment buildings account for almost the same percent- age when it comes to the city’s overall building stock. “Growth and development bode well for existing apart- ment properties such as Forest Hill Terrace,” added Jarvis. “Even if a portion of the current tenant base finds homeowner- ship affordable, the millennial/ young professional pipeline will continue to feed demand for well-located, transit-accessible apartment rentals.” & Skeen. The property is in the heart of Baltimore’s central busi- ness district, with conve- nient access to the Charles St. metro station and near restaurants, hotels and enter- tainment venues. It is located one block from the courthouse and just three blocks from the city’s scenic Inner Harbor. “We’ve been studying the Baltimore market for several years, and finally found the asset that met our acquisi- tion criteria and investment strategy,” said Judah Hertz , chairman of Hertz Invest- ment Group. “We seek office properties located in or near central business districts that offer strong investment value.” The property, constructed in 1985, recently underwent several improvements, in- cluding lobby renovations and replacement of water pumps, chillers and cooling tower. Hertz Investment Group
MAREJ Events April 26, 2018 New Jersey Office Conference May 24, 2018 Delaware CRE Forecast
Hertz Investment Group acquires Wells Fargo Tower for $36.75 million in Baltimore, Maryland
Conference June 7, 2018 NJ Land Development Conference For speaking and sponsorship information, please contact: Lea at 781-740-2900 or firstname.lastname@example.org
Upcoming Spotlights Recon ICSC Convention Greater Philadelphia Facility Mgmt. Expo Spring Preview Financial featuring Appraisal Spotlight.................... 5-17A DelMarVa.............................................................. 19-21A New Jersey.........................................................Section B Southern NJ............................................................ 9-14B Pennsylvania......................................................Section C Central PA............................................................... 7-13C
Wells Fargo Tower
Located at 7 St. Paul St. and 106 E. Baltimore St., Wells Fargo Tower is a premier office property comprising 378,010 s/f, with ground floor retail and above ground park- ing. Currently, the property is 67% leased and major tenants include Wells Fargo Bank and law firms Whiteford Taylor & Preston, Anderson Coe King and Wright, Constable
Inside Cover A — April 27 - May 10, 2018 — M id A tlantic
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Hollywood Palladium 6215 SunSet Boulevard loS angeleS, California The undersigned arranged the above financing.
622 Third Avenue New York, NY 10017 (212) 986-8400 | Fax: (212) 983-0512 www.cooper-horowitz.com
Real Estate Journal — April 13 - 26, 2018 — 1A
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TERMS: BP Deposit: $20,000 due at time of sale. Cash, certified funds, personal/ business check w/ ID. 30-day settlement. 10% BP. Broker co-op invited. See website for full terms & conditions. *Sale on Premises. Auctioneer -Charles Parrish L# A-351. Mobile Home Park located on +/- 3.61 acres, 34 units, 20 leased, 11 spaces vacant, 1 is renovated & for sale, & 1 home w/ 2 apts needs renovation. Long time manager/tenant lives in Park. Current gross income: +/- $104K/yr. Public water & sewer. All units have separate elec. meters. Potential gross income: $171K/ yr after rehab of home w/ 2 apts & renting all spaces. Study plans for bridge from Baltimore to Kent County. Sold AS-IS. Gopal Hariani 410-977-9390 CUSTOM WOOD PLAQUES SHOWCASE YOUR BUSINESS ACCOLADES & PUBLICITY 410-426-2622 AUCTION BROKERS TM A C HARLES P ARRISH C OMPANY www.AuctionBrokers.net 5656 C i rc le Park Dr, Rock Hal l , MD 21661 t H u r s d a y , a p r i l 2 6 t H @ 1 p m P U B L I C R E A L E S TAT E AUC T I ON k e n t c o u n t y aBsolute auction over $500k!
Mid Atlantic Real Estate Journal
Mid Atlantic R eal E state J ournal Publisher, Conference Producer ......................................Linda Christman AVP, Conference Producer . .................................................Lea Christman Associate Publisher ................................................................Steve Kelley Associate Publisher .................................................................. Kim Brunet Associate Publisher ............................................................ Miriam Buttrick Senior Editor/Graphic Artist ................................................ Karen Vachon Contributing Columnists ........ .TimMalloy, Barley Snyder; Steve Niggeman, Metro Commercial; Craig Sadowski,Brockerhoff Environmental Services LLC; Mark Scott, Commercial Mortgage Capital; Kevin Shtofman, Deloitte US 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, 350 Lincoln St., Suite 1105 Hingham, MA 02043 USPS #22-358 | Vol. 30, Issue 7 Subscription rates: $99 - one year, $148 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion 781-740-2900 | Fax: 781-740-2929 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
How the Tax Cuts and Jobs Act Will Affect the Real Estate Industry C Tim Malloy ongress enacted the Tax Cuts and Jobs Act in December to provide the most substantial overhaul of the United States tax code in decades. There has been plenty of publicity surrounding the personal income tax effects stemming from the enactment of this act, however, there are a number of other areas of the tax code which are signifi- cantly affected. There are a number of pro- visions in the act that will directly affect the real estate industry: Bonus depreciation. The act will now allow certain taxpayers to elect to treat qualifying property as a de- ductible expense rather than as a capital expenditure. This will allow many business to immediately expense large expenditures made in connec- tion with certain real estate purchases. This particular provision will be phased out as by 2023. Real property asset lives. The act now is intend- ed to provide that qualified
improvements to real estate will have a useful life of 15 years. A technical correction to the lawwill be necessary in order for this piece of the law to actually come into effect. Like-kind exchanges. Generally, tax-free like-kind exchanges have been elimi- nated. However, the like-kind exchange of real estate has been preserved. The impact of this is that upon each pur- chase of real estate the buyer will need to consider what the tax effect is for the tangible personal property associated with the purchase. Business income de- duction. There is a new deduction for business in the amount of 20% of qualifying business income, however this deduction is limited to 50% of the W-2 wages paid by the business or the sum
of 25% of the wages paid plus 2.5% of the unadjusted basis of certain property the busi- ness uses to product qualified business income. Changes for a tax-ex- empt investors. The unre- lated business taxable income rules have been modified significantly in that you can no longer offset the income from one unrelated trade or business with the loss from another. It is possible that the IRS will treat each real estate asset as a separate business, thus losses from one property may not be able to be used to offset income on another property. This can effect nonprofits across the board. Net operating losses. They can no longer be carried back but may only be carried continued on page 14A
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Real Estate Journal — April 13 - 26, 2018 — 3A
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HFF Named Mi d-At l an t i c Rea l Es t a t e Journa l ’s “Best of 2017” Rankings from Mid-Atlantic Real Estate Journal Survey
Top Investment Sales Brokers Jose Cruz Mark Thomson # 1 # 5
Top Mortgage Brokers Jon Mikula Ryan Ade # 1 # 2
Best/Largest Office Sale of 2017 Six Property Office Portfolio - Northern New Jersey Largest Industrial Sale 19 Chapin Road, Montville, New Jersey Largest Multifamily Sale 22-Property Multihousing Portfolio - Philadelphia Suburbs Largest Medical Office Sale 8001 and 8,040 Roosevelt Boulevard - Philadelphia Best Financial Deal of 2017 51, 101 and 103 JFK Parkway - Short Hills, NJ
HFF NEW JERSEY 200 Campus Drive, Suite 410 Florham Park, NJ 07932 (973) 549-2000
HFF PHILADELPHIA 1700 Market Street, Suite 3232 Philadelphia, PA 19103 (484) 532-4200
4A — April 13 - 26, 2018 — M id A tlantic
Real Estate Journal
M id A tlantic R eal E state J ournal DiGiorgio Associates Inc.; DAI, Inc.; &Monitor Builders Inc. specialize in the healthcaremarket The LiRo Group acquires three N.E. architecture engineering & construction management firms
yosset, NY — The LiRo Group (LiRo) , a national, multidis-
c i p l i n a r y project and construction m a n a g e - ment, engi- neering, ar- ch i t e c ture , and technol- ogy firm, has just acquired
The LiRo Group served as construction man- ager for the new $375 million, state-of-the-art Jacobs School of Medicine and Biomedical Sci- ences at the University at Buffalo, which opened in December 2017. Photo by Douglas Levere
DAI’s and MBI’s portfolio of recently com- pleted projects includes the $40 million, 100,000-square foot Lakes Region General Hospital Patient Tower in Laconia, NH. Photo courtesy of DiGiorgio Associates Inc.
LiRo is currently providing construction man- agement services for the Stony Brook University Medical and Research Translation Building and Hospital Pavilion in Stony Brook, NY. Photo by Christopher Swann/The LiRo Group
three affiliated New England- area companies: DiGiorgio Associates Inc.; DAI, Inc. (collectivelyDAI); andMon- itor Builders Inc. (MBI) . The
acquired companies, which specialize in the design (DAI) and construction management (MBI) of healthcare-focused
facilities, are headquartered in Boston, MA and share a satel- lite office in Portland, MN. ENR Engineering News-
Record magazine currently ranks LiRo as the 15th-largest constructionmanagement firm in the United States. LiRo’s
2017 revenues exceeded $400 million. Since their founding, DAI and MBI have cumula- tively designed or constructed projects valued in excess $2 billion. “DAI and MBI are a welcome addition to the LiRo fam- ily,” said LiRo owner Rocco Trotta , PE. “At LiRo, our em- ployees are our most important asset, and the new DAI and MBI staff will enhance our capabilities and strengthen our resources nationwide,” he continued. DAI andMBI have been serv- ing medical clients throughout New England for more than three decades. The three firms have either designed or built projects in Massachusetts, Maine, NewHampshire, Rhode Island, and Connecticut. Luis Tormenta, PE , LiRo’s president and CEO, said, “LiRo’s acquisition of DAI and MBI marks our strong entry into the New England market and augments our healthcare and life sciences expertise nationwide. It is an important step in the on-going strategic expansion of our firm that aims at providing complete construction, engineering, architecture, and technology services to both public and commercial clients through- out the U.S. and beyond. DAI and MBI bring to LiRo valu- able client relationships and expand our company’s multi- disciplinary staff to over 900 professionals.” The DAI and MBI deal fol- lows LiRo’s recent acquisition of the assets of Bowne Man- agement Systems, Inc. (BMS) and Sidney B. Bowne & Son, LLC (Bowne), both based in Mineola, New York. The BMS and Bowne asset acquisition enabled LiRo to expand the complement of integrated con- struction services it provides in the geographical information systems (GIS), location ser- vices, land surveying, and in- formation technology areas. n
www.marejournal.com F inancial D igest F eaturing A ppraisal S potlight Sale of 176-unit multifamily property built in 2001 drives the defeasance in DC transaction Waterstone Defeasance, LLC closes on a $28.5 Million CMBS Loan M id A tlantic Real Estate Journal — April 13 - 26, 2018 — 5A
secured by multifamily prop- erty located in Augusta, GA. Waterstone guided the owners through the defeasance process coinciding with the owners’ sale of their property. As the defeasance consul- tant, Waterstone managed the activities of the numer- ous parties involved with the transaction in order to meet the borrower’s closing schedule. Parties associated with a de- feasance transaction typically include the servicer, servicer’s counsel, borrower, borrower’s counsel, securities broker, custodian, accountant, rating agencies, and the successor borrower. “Waterstone worked with the seller to facilitate the defeasance closing on their
Waterstone managed the ac- tivities of the numerous parties involved with the transaction in order to meet the borrower’s closing schedule. Parties as- sociated with a defeasance transaction typically include the servicer, servicer’s counsel, borrower, borrower’s counsel, securities broker, custodian, ac- countant, rating agencies, and the successor borrower. “The sale of this 176-unit multifamily property built in 2001 drove the defeasance transaction. The borrower is currently restructuring their portfolio and chose Waterstone to assist with their defeasance transactions to refinance and sell certain properties. We ap- preciate their confidence in our services,” said Tillman. n fromwhich a future tenant will benefit, the investment was an ideal fit for their portfolio.” In other HFF news, the company announces $14.5 million in preferred equity for the development of Skye 750, a 248-unit, mid-rise apartment community in King of Prussia, PA. The HFF team worked on behalf of the developer, Le- Cesse Development Corp. , to arrange preferred equity from Parse Capital . Due for completion in early 2020, Skye 750 will consist of a five-story building atop a con- crete podium comprising one- and two-bedroom residential units averaging approximately 1,000 s/f. Skye 750 will fea- ture a resort-style clubhouse with a state-of-the-art fitness center, cyber café, juice bar, co-working, private movie theater, game room, sauna, fire pit, package delivery system and miscellaneous resident lounges throughout, as well as an outdoor courtyard with an infinity swimming pool, a fire pit and a summer kitchen. The HFF team representing the developer included manag- ing directors Gregg Shapiro and Ryan Ade . n
Parties associated with a de- feasance transaction typically include the servicer, servicer’s counsel, borrower, borrower’s counsel, securities broker, custodian, accountant, rating agencies, and the successor borrower. “Like many of our clients, the borrower took advantage of higher yields and lower interest rates to refinance their Freddie Mac debt. The loan was secured by a 247-unit multifamily prop- erty inMaryland. The borrower was very pleased with Water- stone’s service and worked with us on their next transaction as well,” Carol Tillman , COO with Waterstone. Waterstone recently closed a defeasance transaction for a $2.4 million CMBS loan,
188 unit, over 90% occupied apartment complex built in the 60’s. The buyer secured a Fannie Mae loan through Arbor Commercial Funding. The defeasance replaced the original debt placed by C-III Commercial Mortgage. We enjoyed working with this new client and look forward to working with them again,” said Tillman. Waterstone Defeasance re- cently closed a defeasance transaction for a $10.3 mil- lion CMBS loan, secured by a multifamily property in Washington, DC. Waterstone guided the owners through the defeasance process coinciding with the owners’ sale of their property. As the defeasance consultant,
yattsville, MD — Waterstone De- feasance recently
closed a de- f e a s a n c e transaction for a $28.5 m i l l i o n CMBS loan, secured by a multifamily property in Hyattsville.
Waterstone guided the owners through the defeasance process coinciding with the owners’ refinance of their loan. As the defeasance consul- tant, Waterstone managed the activities of the numer- ous parties involved with the transaction in order to meet the borrower’s closing schedule.
HFF announces $16.2 million in financing for spec industrial development in Newark, New Jersey
Newark, NJ — Holli- day Fenoglio Fowler, L.P. (HFF) announces the $16.2 million in financing for the development of a 290,063 s/f, to-be-built, spec industrial project in Newark. The HFF team worked on behalf of the developer, a joint venture partnership between Penwood Real Estate In- vestment Management, LLC (Penwood) , through its fourth value-added investment vehicle, Penwood Select In- dustrial Partners IV, L.P. , and Penford Group , to place a construction loan with Prin- cipal Real Estate Investors . The industrial distribution facility will be situated on 14.85 acres at 256 Vanderpool St. within the Northern New Jersey Industrial market, one of the top industrial markets in the nation. The site has im- mediate access to the entire New York City metro area via its proximity to Interstate 78 and other highways. Addition- ally, the site is 1.8 miles from the Port of Newark-Elizabeth and 4.1 miles from Newark Liberty International Airport. The state-of-the-art build- ing will feature 40-foot clear heights, 64 loading docks, 79
256 Vanderpool St.
trailer stalls and 8,702 s/f of office space. The HFF debt team repre- senting the developer included managing director Michael Klein and director Matthew Pizzolato . “HFF is pleased to have secured another loan on Pen- wood’s behalf as it contin- ues to expand its presence in the Northern New Jersey Industrial market,” Klein said. “Principal has been making loans on industrial properties in this market for a long time and has a firm grasp of the market’s fundamentals and the property’s attributes and
was able to get comfortable making a construction loan on a speculative development.
Given the property’s accessibil- ity to major highways, the port, airport and deep labor pool
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F inancial D igest
By Kevin Shtofman, Deloitte US Blockchain is coming: Is the world of Real Estate ready?
s speculators have rid- den the Bitcoin wave up (and down), a dif-
technology that fuels Bitcoin and its offspring: Blockchain. A Blockchain is a type of distributed ledger. This means that every participant has his or her own copy of the ledger and there is no central record of account. Once recorded, ledger transactions cannot be altered and every copy of the ledger is identical across the network. The network and all constitu- ent parts act as a database that records transactions – generat- ing an immutable audit trail for transactional activity. The net- work can be either completely open or open only to trusted counter parties.
What benefits could Block- chain provide to players in the Real Estate industry? Here are three areas that suffer from efficiency problems where Blockchain technology could be an effective solution: Real Estate Documentation Currently, the majority of real estate documentation required and used for transac- tions (deeds, rental agreements, titles, mortgage documents, etc.) are in paper form and come from various third par- ties, opening these transactions to the risk of potential forgery and providing opportunities for fraud. System efficiency is low,
manual errors happen often, and record keeping is open to theft and human error. A Blockchain land registry platform would eliminate mul- tiple third party intrusions and mitigate fraud by streamlining participation and authenticat- ing data/documents. The Swed- ish National Land Survey is creating a proof-of-concept to investigate how Blockchain technology may reduce the manual errors while transfer- ring documents. Leasing and Technology In owning and managing a commercial or residential prop- erty there are a multitude of
service and payment transac- tions that must occur between the lessor, lessee, and other third parties. Cash flow, appreciation, and tax information must be tracked, recorded, and verified, and compliance maintained. Therefore, managing properties and tenants, and enforcing the agreements around lease terms requires a better platform for consensus and reference as well as payments. Smart contracts on Block- chain can structure secure cash flows and automate payments with real-time reconciliation. Smart contracts can also enable split ownership and distributed rents. The City of Rotterdam has teamed with Deloitte to achieve data driven city man- agement, beginning with a prototype for recording lease contracts on Blockchain utiliz- ing smart contracts. Purchase Process Property research requires a significant amount of time where financials and legal regu- lations are concerned. A large part of this effort is finding and verifying physical proofs of identity, ownership, etc. Since this is a manual task, the process is time consuming and human error and data loss eas- ily occur. Searching for proper- ties, vetting, and entering into terms of sale is an extensive and unnecessarily complicated effort that can discourage in- vestment. An MLS built on Blockchain would enable more accessible and comprehensive listings with better data control and verified historic records through a peer-to-peer network. In addi- tion, by building unique digital identities for each property on a Blockchain, key information such as financials, owner his- tory, vacancies, etc. would be readily accessible on demand. ABN Amro has begun a pilot with IBM to develop a system in which buyers, sellers, brokers, and regulators may share and record real estate transactions while supporting connectivity with regulatory bodies such as the central bank and Land Registry Office. Although still in the early stages of development and testing, Blockchain progress is gaining steam, and real estate professionals will be rewarded for getting onboard sooner rather than later. Kevin Shtofman is Na- tional RE Blockchain Lead at Deloitte US. n
ferent group of global citi- zens has come to realize the potential ben- efits of this technology: Real Estate investors, de- velopers, op-
erators, and service providers. Their shared cautious optimism has very little to do with the rise of fall of cryptocurrency prices, but instead comes from the promise of the underlying
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Real Estate Journal — Financial Digest — Appraisal — April 13 - 26, 2018— 7A
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A ppraisal By Ed Falkowski III, MAI, SRA & Walt Krzywicki, MAI, AI-GR Real Estate Appraisal Career FAQs
How do you become one? What oppor- tunities are there?” These are four ques- tions which are both com- mon and typi- cally asked in “Y
viduals. Are you unsure about how an appraiser can assist with your valuation needs? Ask us! A s w i t h
are different valuation-related educational (200 hours resi- dential, 300 hours commercial and a national exam for both) and experience (2,000 hours residential, 3,000 hours com- mercial) requirements. The ex- perience requirements, known as your “trainee” time, need to be satisfied under the guidance of a certified appraiser who will serve as your “mentor” during this process. Competency, how- ever, isn’t something which is satisfied by the completion of an exam or by a fixed number of hours. The appraisal profes- sion is one which necessitates Recent AppRAisAls
continuous learning, adapting and updating of one’s skillset in order to perform your du- ties competently. Additionally, ethics, another key component in real estate appraisal, goes hand-in-hand with compe- tency during a person’s career. Therefore, make sure that you keep up with the latest trends, laws, and events in real prop- erty valuation! We are often asked two addi- tional questions: “have you ap- praised anything interesting” and “what do you like about your job”? We have appraised unique properties such as: a
national monument, golf cours- es, fractured condominiums… we’ve even appraised an ease- ment between two neighbors’ houses! We never know what kind of assignment will come in next and we always need to be ahead of the curve to serve our clients’ valuation needs. Another great facet about our job is flexibility. With both of us having young families, we can be there to get our kids off of the bus, go on a hay ride during a field trip or see the school play. We also make time for the off-the-cuff round continued on page 14A
ou’re an appraiser… what do you do? Why do you do it?
most licensed professions, the following are critical elements in the successful navigation to a chosen ca-
Ed Falkowski III Walt Krzywicki
reer in this field: education, experience and competency. Depending on your desired career path (residential or commercial valuation), there
conjunction with one another. An appraiser provides an opinion of value on a property utilizing market data and fi- nancial analysis. For most properties, this is done by one or more of the following techniques: Sales Comparison Approach, Income Capital- ization Approach and Cost Approach. Why would I pay more/less than the property which just sold down the street (Sales Comparison)? Which property offers me the best re- turn (Income Capitalization)? Why would I pay more for an already-built property when I can build the same property for less and exactly the way that I like it (Cost)? These are some of the major questions that appraisers have to answer for every assignment. There are many “intended uses” for real property valua- tions; some of which you may not know existed. The most common use is for mortgage lending purposes. Have you ever purchased a house or an investment property? Chances are that you’ve encountered an appraiser during the lending process. They are an essential part of helping the lender to understand the pledged col- lateral and structuring a loan package. The mortgage lending industry is a large part of the American economy and ap- praisers play a crucial role in that industry. However, what about the intended uses that many may not know about? Property tax assessment ap- peal, estate planning, pre-list- ing guidance, financial report- ing/purchase price allocation, PMI removal, condemnation, divorce, partnership dissolu- tion, investment decisions… these are just a few of the myriad uses for real estate appraisals. Additionally, we perform these valuations for mortgage lenders, insurers, REITs, pension funds, attor- neys, accountants, financial planners, investors, buyers/ sellers, corporations and indi-
Wade Appraisal, LLC delivers value-added services to clients through diligent research, analysis and well-documented, unbiased opinions. Specializing in commercial, industrial, multi-family and special purpose properties and can handle all of your appraisal needs.
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8A — April 13 - 26, 2018 — Appraisal — Financial Digest — M id A tlantic
Real Estate Journal
he legalization of mari- juana for recreational use in the Northeast- The Impact on Commercial Real Estate from the Legalization of Marijuana Values and Rents Get High T 1 Year After Legalization % Change Number of Colorado Marijuana Licensees As of 3/1/2018 marijuana usage. Specifically, the legalization of marijuana will be a boon to commercial real estate, as an increase in new demand for real estate will cause vacancies to sig- nificantly decline, and rents and values to significantly increase, in specific sectors. Based on our national experi- ences in states that have previ- ously legalized marijuana for recreational use, we project an inflation bump in the market rents and values to warehouse and industrial space and retail space in those markets that would permit marijuana grow- ing or retailing operations. The economic theory is straight forward. With the swipe of a pen, the legaliza- tion of recreational marijuana creates an entirely new in- dustry which will consume real estate. Analogous to the prohibition and re-legalization of alcohol, where a vast, real estate-using, industry was first condemned, then re-in- stated, the marijuana industry will be a sizeable industry that instantly needs real estate. Risk Rates One major difference from the end of alcohol prohibition is that marijuana will not be legalized on the federal level. This creates special risks to the property owner or land- lord. Federal prohibitions will complicate the real es- tate transactions. As federal regulations ban the produc- tion and sale of marijuana, many marijuana businesses will be prevented from using banking services or credit card payment networks, meaning much of this business will be in cash. Obtaining insurance will also be complicated. The com- plications caused by the fed- eral prohibition, and perhaps the culture of this industry, may increase business failure rates and thus borrower and tenant credit loss rates. These conditions are expected to increase risk components in discount and capitalization impacting local markets. From our appraisal analysis of those, we forecast the following impac s: Category Change Vacancy Rate Warehouse/Industrial Space -1% Retail -1% Rental Rates Warehouse/Industrial Space 20% Retail 10% Market Values Warehouse/Industrial Space 10% Retail 5% Property Taxes Warehouse/Industrial Space 10% Retail 5% The marijuana industry requires two types of commercial real estate; warehouse and industrial spac for growing and processing operations, and retail space. We expect the zoning, permits and approvals process to be intensive. With that, the final outcomes will impact real estate as follows. W rehouse/Industrial Space If rules in the northeast follow those of other states, marijuana growing and processing operations will outbi conventional tenants and buyers for otherwise general-purpose warehouse and industrial space. In Colorado, for example, marijuana plants must be grown indoors. Since grow ops do not require structurally different space than a typical industrial user needs, but are much more profitable, they can afford to pay higher rental rates or purchase prices for industrial space. Marijuana uses do require upgraded electricity for growing lights, ventilation, heating, nd some plumbing modifications may be needed. Of course, security is a notable issue. For example, in New Jersey, where warehouse markets are already strong near New York and Philadelphia, markets will experience accelerated inflation. This will drive less competitive busine ses to the northwestern and southern-most counties. If legislators zone the grow ops to the currently less dynamic counties, the state may aid in the economic development in these counties, and may preserve the currently healthy industrial property market status quo while avoiding displacements there. In any case, overall values for warehouses will be going higher. The marijuana industry re- quires two types of commercial al estate; warehouse and industrial spac for growing and processing operations, and retail space. We expect the zoning, permits and approvals process to be intensive. With that, the final outcomes will impact real estate as follows. Warehouse/Industrial Space If rules in the northeast follow those of other states, marijuana growing and pro- cessing operations will outbid conventional tenants and buy rs fo otherwise gen ral- purpose warehouse a d in- dustrial space. In Colorado, for example, marijuana plants must be grown indoors. Since grow o s do ot requir st uc- turally different spac than a typical industrial user needs, but are much more profitable, rates. However, on balance the increased demand and higher rental rates are expected to off-set these risk rates. Value Trends The economic data is also straight forward. In states that have previously legalized recreational marijuana, we observe significant decreases in vacancies, significant in- creases in the market rents and values to warehouse and industrial space and retail space where the legalization is impacting local markets. From our appraisal analysis of those, we forecast the fol- lowing impacts: they can afford to pay higher rental rates or purchase prices for industrial space. Marijua- na uses do require upgraded electricity for growing lights, ventilation, heating, and some plumbing modifications may be needed. Of course, security is a notable issue. For example, in New Jersey, where warehouse markets are already strong near New York and Philadelphia, markets will experience accelerated infla- tion. This will drive less com- petitive businesses to the north- western and southern-most counties. If legislators zone the grow ops to the currently less Mark Pomykacz dynamic counties, the state may aid in the economic develop- ment in these counties, andmay preserve the currently healthy industrial property market status quo while avoiding dis- placements there. In any case, overall values for warehouses will be going higher. Retail Space Our research reveals that there will also be a large im- pact from legalization to class B and C retail space. Prime re- tailing outlets, such as major malls owned by institutional grade landlords are less likely to accept marijuana retailing tenants, given the risks asso- ciated with the Federal legal standing. Much like certain alcohol retailing establish- ments, marijuana retailing tenants are likely to be located in standalone buildings away from national retailers, or in secondary properties. The exterior and interior finishes are often average or better, for both customer expecta- tions and the maintenance of regulator good will. Building structure must allow for high security. High traffic counts and visibility may not be need- ed as these establishments are destinations. Otherwise normal retail space will suf- fice. The experience in other states indicate those older, previously less desirable retail facilities suddenly have new prospective, monied tenants. But not all locations will benefit as marijuana retailing zoning is typically restrictive. Zoning typically prevents such retailing near schools, play- grounds and the like. Thus the overall positive impacts will be unevenly spread over localized maps. Still, overall values for retail will also be going higher. Mark Pomykacz, MAI, AI-GRS, ASA is managing member of Federal Ap- praisal, LLC. n Growing Operations 724 283 527 419 73% Manufacturing Operations 98 189% Retail Stores 322 839 64% 83% Total Recreational 1,534 ern United States will be a boon to the economy and will sig- n i f i c a n t l y increase tax revenues to t he s t a t e s t h a t a l l ow
Real Estate Journal — Financial Digest — Appraisal — April 13 - 26, 2018— 9A
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Turning words and numbers into meaning and value
Commercial real estate Businesses and business intangibles Power plants, utilities, and infrastructure, Personal property (machinery and equipment)
For various purposes and uses, including Legal – disputes, litigation, expert testimony, estates & gifts, damages, condemnation Accounting and Tax o Federal, and SALT, tax reporting, tax disputes and appeals o Cost segregation, purchase price allocation, estates and gifts o Investor reporting, SEC reporting
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Mark Pomykacz, MAI, ASA Managing Member 1.908.535.3590 460 Route 22 West, Suite 403 Whitehouse Station, New Jersey 08889 1.908.534.3595 1.908.823.0575 fax
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ashington, DC — Continuing its aggressive growth Industry veteran Dennis Duffy to lead DC office Integra Realty Resources continues national expansion, opens four new offices W
platform and industry leading technology resources to better serve our existing clients and take on larger, multi-market portfolio assignments. This strategic partnership also bet- ter positions us to attract top talent, as we look to expand our reach.” Duffy has been valuing complex properties in the Mid- Atlantic region for more than three decades. His practice has focused on large, compli- cated sales transactions and has handled from 20-35 per- cent of all major commercial real estate sale transactions in
serve as senior managing director. The office opens alongside new offices includ- ing, IRR-Northern New Jer- sey, IRR-Philadelphia, PA, and IRR-Fort Worth. In less than 18 months, IRR has added a dozen new offices in San Francisco, Sacramento, Chicago, Puerto Rico, Aus- tin, San Antonio, Houston, and Dallas and launched IRR-Hotels, a hotel specialty practice group. “Unlike other firms that parachute into markets for an assignment, Integra takes pride in delivering property
valuation and consultation the right way—with a national platform supported by on- the-ground market experts to ensure clients have the most accurate information they need to make informed decisions,” said Anthony Graziano, MAI, CRE , chairman of IRR. “We’re pleased to be able to reestablish a local market pres- ence in Washington, DC and will continue to make strategic moves to rebuild and grow our geographic footprint with syn- ergistic partners like Dennis.” Duffy added, “Joining In- tegra provides a national
DC Metro area on an annual basis. Duffy brings exten- sive experience in litigation related assignments, valua- tions for pension fund related entities and their required financial reporting needs, and valuations of all property- types under complex ground lease agreements. He is also a widely published author and frequent speaker at industry forums. Integra Realty Resources (IRR) is the largest indepen- dent commercial real estate valuation services firm in NorthAmerica, coveringmore than 60 markets with nearly 700 employees throughout the United States, and the Caribbean. The firm special- izes in real estate appraisals, feasibility studies, market studies, expert testimony, and related property consult- ing services. Many of the na- tion’s largest and most pres- tigious financial institutions, developers, corporations, law firms, and government agen- cies are among IRR’s clients. In 2017, IRR completed more than 23,000 assignments across 60 metro markets to- taling more than $257 billion in asset value. n Progress Capital negotiates the terms of loan on behalf of West of Hudson Properties NEWARK, NJ — Fully renovated in 2007, the two- building 70-unit apartment complex at 10-36 Osborne Terrace and 9 Hedden Ter- race was brought to the mar- ket in late 2017. Working with Progress Capital’s Brad Domenico , ‘West of Hudson Properties’ sought to acquire the subject property – adding it to an already robust North Jersey multifamily portfolio. Domenico negotiated a $5.265 million non-recourse permanent mortgage with 5 years interest-only at a fixed rate of 3.86%. The loan represents a 65% Loan to Purchase Price accompanied by a 20 year term and 30 year amortization. After the 5 year interest-only period the rate will reset at 6 month LIBOR + 3.25%. In addition, The borrower will adhere to a 3-1-0-0-0 declining prepay- ment schedule. n
strategy, In- tegra Real- ty Resourc- e s ( IRR) , announced t h e o p e n - ing of four new offices i n c l ud i ng , IRR-Wash - ington, DC.
IRR-Washington, DC opens under the leadership of 30- year industry veteran Den- nis Duffy, MAI , who will
Real Estate Journal — Financial Digest — Appraisal Directory — April 13 - 26, 2018— 11A
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