Articles Posted in Real Estate

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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

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In PATH Act Changes to FIRPTA, Pillsbury attorneys Brian Wainwright and Bob Logan Taxesdiscuss
important changes to the U.S. federal income  tax treatment of U.S. real estate investments by non-U.S. persons under the Foreign Investment in Real Property Tax Act of 1980.

Additional Source: Protecting Americans from Tax Hikes Act of 2015 (the PATH Act, Division Q of the Consolidated Appropriations Act, 2016, P.L. 114-113, enacted December 18, 2015); Technical Explanation of the Protecting Americans from Tax Hikes Act of 2015, House Amendment #2 to the Senate Amendment to H.R. 2029 (Rules Committee Print 144-40)

 

Photo:  DonkeyHotey, Taxes – Illustration – Creative Commons

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In late March, a trial court in Bergen County, New Jersey dismissed a condominium association’s construction defect claims against several construction entities for failure to comply with the applicable statute of limitations. This decision’s appellate aftermath will be interesting to follow, because the trial court stripped away some of the protection that New Jersey’s discovery rule affords to property owners who become aware of latent defects well after a project is substantially completed.

Pursuant to the discovery rule, “a cause of action will be held not to accrue until the injury party discovers, or by an exercise of reasonable diligence and intelligence should have discovered that he may have a basis for an actionable claim.” Lopez v. Swyer, 62 N.J. 267, 272 (1973). And unlike some states, New Jersey’s discovery rule applies in contract cases involving latent construction and design defects. Torcon, Inc. v. Alexian Bros. Hosp., 205 N.J. Super. 428, 432 (Ch. Div. 1985). What this means is that the statute of limitations for design deficiencies and construction defects begins to run upon substantial completion. Mahoney-Troast v. Supermarkets General, 189 N.J. Super. 325, 329 (App. Div. 1983).

In Palisades at Fort Lee Condo. Ass’n v. 100 Palisade, 2014 N.J. Super. Unpub. LEXIS 743, *3 (Law Div. Mar. 31, 2014), construction was deemed substantially complete on May 1, 2002. The Association hired a consultant to perform inspections in November 2006, and in May 2007, the consultant issued a report identifying various construction and design defects. The Association, however, did not file a Complaint until March 2009, almost seven years after the date of substantial completion. The trial court held that although the Association’s claims may not have accrued until May 2007, when it received the report, it still had until May 2008 to file suit. The trial court stated, “[i]t has been well established in New Jersey case law that if the plaintiff has sufficient knowledge of its claim and there remains a reasonable time under the applicable limitations period to commence a cause of action, the action will be time barred if not filed within that remaining time.” Id. at *8. One of the reasons the court dismissed the Complaint is because the Association had one year to file suit after becoming aware of its potential claims.

The Palisades court cited to Torcon (another trial court opinion) for this proposition, although the Torcon court’s holding in this regard related to application of equitable estoppel in the context of a contractor’s misrepresentation or concealment of material facts. By contrast, the intent of New Jersey’s discovery rule is to toll the accrual of the statute of limitations, and the Association’s six-year statute of limitations should have commenced in May 2007, if that is the date when it knew or should have known that it may have claims arising out of defective construction.

Nevertheless, the Palisades decision should give pause to property owners and their attorneys to carefully monitor early signs of faulty workmanship, and to not assume that the discovery rule will automatically extend the six-year time period to bring claims for construction defects. A Notice of Appeal has been filed in Palisades and it will be interesting to see how the Appellate Division handles this issue.

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The 22nd edition of Pillsbury’s Newsletter: Perspectives on Real Estate features articles on energy consumption data reporting (AB1103 and 531), construction and risk management, new foreign tax withholding forms, chapter 9 and public-private partnerships.

Articles include:

The Fall 2012 Edition of Perspectives on Real Estate is edited by: Laura Hannusch, Peter Freeman, Christine Roch and Noa Clark and can be downloaded in its entirety by clicking here.

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The 21st edition of Pillsbury’s Newsletter: Perspectives on Real Estate features articles on green leasing, mineral rights, avoiding construction project failures and California’s post redevelopment agency landscape. Articles include:

The Spring 2012 Edition of Perspectives on Real Estate is edited by: Laura Hannusch, Peter Freeman, Christine Roch and Noa Clark and can be downloaded in its entirety by clicking here.

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“In” and “out” of New York City that is. Roosevelt Island, in particular. Stanford withdrew its proposal to build a campus on New York City’s Roosevelt Island and a week later, the City agreed to provide 10 acres to Cornell plus $100 million in infrastructure improvements; Cornell will build a $2 Billion campus on that property. You can read Mayor Bloomberg’s quotes about it on Mayor Bloomberg’s company’s website here. (Surely there’s an antitrust violation somewhere in there.)

New Yorkers hope that the project will keep high tech software from fleeing to the suburbs. Bloomberg (the site — not the mayor) quotes the president of the New York City Economic Development Corporation as saying, “Software and applications need the kind of dense expertise that cities are full of.” If Pinsky is right, maybe Roosevelt Island will be the next Silicon Valley.

Cornell hired Skidmore, Owings & Merrell to design the project and it’s estimated that it will generate 20,000 construction jobs. It’s a bit early to say who the lucky 20,000 workers will be — or who their employer will be. Stay tuned.

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A funny thing happened at a recent ENRNewYork infrastructure conference titled Where’s the Money? — they found some. During a panel discussion concerning infrastructure financing, both Robert Dove, Managing Director, The Carlyle Group and Christophe Petit, President, Star America Infrastructure Partners, told the large audience that they had “money to spend” on infrastructure projects. Indeed, both men suggested that they were eager to find an infrastructure project in which to invest.

Interestingly, both men were looking for very different project profiles. Mr. Dove stated a desire to invest in brown field projects only, whereas Mr. Petit wants green field projects. Given the amount of money these two men represent, there is a very attractive opportunity for the promoter of the right project.

In light of this and the money Presidents Obama and Clinton have pledged to raise for infrastructure projects (see Michael McNamara’s 11/5/11 entry), perhaps some should be saying Show me the Project!!.