Articles Posted in Real Estate

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blockchain_icon-300x300The real estate industry is frequently identified as one of the most likely early adopters of blockchain technology and smart contracts. However, industry participants remain skeptical as to the timing and magnitude of the expected changes. That is understandable given the close association of blockchain technology with bitcoin controversies, other virtual currencies and some questionable crowdfunding ventures. Moreover, it is an emerging technology that includes confusing public, private and hybrid versions and involves imprecise terminology and standards. And smart contracts, which pre-date bitcoin, are still misunderstood and mistrusted.

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la densityAs Los Angeles continues to struggle with lagging development pace as compared to the national pace of housing creation, communities across the city grapple with the potential implications of permitting increased density. The dueling priorities of providing much-needed housing in one of the nation’s fastest-growing markets and maintaining neighborhood history and character continue to square off as the city assesses development across its many communities.

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san-fran-downtownAlmost 18 months after it was introduced, the San Francisco Board of Supervisors recently approved Ordinance 150969, which creates development bonuses for private development projects where at least 30% of the units are subject to affordability restrictions. Known as the HOME-SF Program, the legislation allows qualifying projects to exceed otherwise applicable height restrictions by up to 20 feet and allows developers to select three additional zoning modifications from a menu of options, which includes reductions in required rear-yard setbacks and modifications to parking, exposure, and open space requirements. HOME-SF projects must also include on-site family-friendly amenities, such as dedicated bicycle parking and stroller storage, open space, and yard dedicated for use by children.

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iStock-157310650-money-construction-264x300Most construction loans contemplate multiple advances or disbursements of funds at various stages of the construction project. The construction loan agreement will set forth the conditions that the borrower must satisfy to receive each advance of funds. Given that a construction loan concerns an active construction project, there is a risk that a lender could lose its lien priority in an advance (secured by the insured mortgage) to a mechanic’s lien. This post addresses how a title insurance policy and endorsements can insure against such a risk. Continue reading

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iStock-519917363-coastal-real-estate-300x203Climatologists predict that sea levels will continue to rise in the coming years and that temperatures will increase, causing the frequency and intensity of hurricane-like storms to grow. These scenarios present challenges for waterfront buildings and residences—both existing and new construction.

New properties are still being built along coastal areas. Some developers are marketing homes and buildings that are designed to withstand major storms. Property owners are taking costly measures to protect existing properties. In fact, in the wake of Superstorm Sandy, numerous companies now offer various flood protection measures for both residential and commercial buildings, such as paneling, barrier systems, gates, removable stop logs and raised foundations. Continue reading

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I recently wrote here about the use of UPREITs, a form of real estate partnership combined with a real estate investment trust, to create liquidity for high net worth real estate investors while allowing them to defer taxable gains on highly leveraged and appreciated real property.

Another tax deferral strategy that’s growing in popularity again because of higher tax rates is the use of 1031 exchanges. Named after the Internal Revenue Code section authorizing these transactions, they are also known as “like-kind” exchanges.

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iStock-520129622-umbrella-300x247There are two reasons why borrowing has become the tax-preferred method of financing a sophisticated real estate investment portfolio.

First is the ability to finance improvements with debt, which offers depreciation deductions. Second is the ability to make leveraged distributions through refinancing without paying immediate tax on the proceeds. The tax basis of assets steps up to fair market value at the time of the holder’s death, eliminating the deferred gain, so the income tax deferral upon a refinancing is even more attractive for heirs.

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Stored materials present a potentially serious point of tension between lenders and borrowers in the negotiation of a construction loan agreement. In construction lending, the term “stored materials” refers to the materials and items that are purchased in advance of their use and incorporation into the project. Those materials will need to be stored either on the project site or in a warehouse or other location “off-site.” Many lenders are wary about allowing funds to be used for stored materials because of the risk of loss off-site and, accordingly, may place conditions on the use of such funds. However, the borrower, usually through its general contractor, needs to purchase materials “in advance” to keep construction moving smoothly. For example, it would be completely impractical to require the general contractor to purchase the windows of a high-rise on a daily, as-needed basis.

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As any builder will tell you, it is impossible to know with certainty the exact amount a project is going to cost. Variables affecting the cost run the gamut from labor and material costs to delays for unforeseen conditions, weather or other causes. The longer a project is expected to take, the more uncertain the project’s costs become. For this reason, contingencies are included in budgets by all parties involved: owners, contractors, subcontractors and, occasionally, lenders. Ideally, these contingencies will allow the project to absorb delays and other unexpected events without the owner being forced to contribute additional equity (and “balance the loan”) at the time. The owner will desire maximum flexibility over the re-allocation of the contingency(ies) to line items that will then be funded by the lender—while the lender will want to “control” the use of contingency line items to the extent possible.

With this in mind, let’s look at some of the competing motivations at play and “typical” loan agreement provisions regarding the use (or re-allocation) of contingency(ies) to other line items in the Project Budget.

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Pillsbury would like to congratulate the winners of the “Built by Women” contest in DC, which highlights women’s contributions to the city of Washington D.C in the areas of architecture, engineering, womeninconstructionconstruction, and real estate. Categories include Civic, Commercial, Cultural, Institutional, Landscape, Mixed-Use, Residential, Transportation, Urban Design.  The Built By Women initiative was started by the Beverly Willis Architecture Foundation to celebrate the contributions of women to the built environment and to support women pursing building professions.

You can view the full list of winners on the BWAF website here.  Additionally, the National Building Museum will honor the winning sites in the historic Great Hall the weekend of March 19 and 20.  Congratulations to all of the winning women on your accomplishments and contributions to D.C.’s built environment.

Photo:  University Salford Press Office, Women in Construction – Creative Commons