Thursday, December 18, 2008

Government Seizes 650 Park Avenue

According to the Wall Street Journal, the United States Attorney for the Southern District of New York has filed a forfeiture proceeding against 650 Fifth Avenue in New York.

In its press release: United States files civil forfeiture action against ASSA corporation's interest in Manhattan office tower (.pdf), the DOJ claims that a 40% interest in the building is held by the ASSA Corporation which is acting as a front for Bank Melli. The Government of Iran controls Bank Melli and ownership is considered an export under the Iraninan Transaction Regulations (Title 31 CFR, part 560)


Wednesday, December 3, 2008

Stealing the Empire State Building

The New York Daily News tried to show that it is easy to "steal" property by filing fake deeds. The story is rather foolish, but if you want to read it: It took 90 minutes for Daily News to 'steal' the Empire State Building.

The reporters think that by filing a forged deed, they somehow could control the building and get a mortgage. Sure it is possible to try to steal money by going through this exercise. Of course you are just leaving a paper trail that makes it easy to figure out what happened and get caught. I could also jump into a car and drive off. That is stealing too.

What is wrong with the story? The property manager is unlikely to turn over the bank accounts to some unknown person just because they have a deed. Tenants are unlikely to redirect rent payments without more evidence of a transfer. A mortgage lender is not going to turn over loan proceeds based on mere deed. One reason to insert lawyers into the real estate conveyance process is to prevent scams like this.

Mortgage lenders demand lots of documentation because they try to avoid scams like this. Mortgage lenders get title insurance to protect against fraud and scams.

It was a stunt and created an interesting headline. However, someone is likely to pay a fine or go to jail for it. I am not a New York lawyer but I would guess that there is a law against filing fake documents.

Image is by David Shankbone from Wikimedia Commons

Tuesday, December 2, 2008

Tenant Allowance and Build-Out Obligations When a Tenant Files for Bankruptcy

Sutherland published a timely legal alert on what a landlord can do with a tenant allowance and tenant build-out obligations when a tenant goes bankrupt: Obtaining Relief From Tenant Allowance and Build-Out Obligations When a Tenant Files for Bankruptcy.

The alert points out that lease provisions that allow the landlord to stop completion or funding upon the tenant filing bankruptcy are largely unenforceable as ipso facto provisions under section 365(e).

The alert notes two cases which came down with different results on tenant accommodations.

In re Postle Enterprises, Inc., 48 B.R. 721, 724 (Bankr. D. Ariz. 1985) found an improvement allowance to be a financial accommodation under 11 U.S.C. § 365(c)(2),(e)(2)(B). Therefore allowing the landlord to limit its exposure.

In re United Press International, Inc., 55 B.R. 63, 66 (Bankr. D. D.C. 1985), that court found a landlord’s build-out of a tenant’s premises to a tenant’s specifications did not rise above “an ordinary lease” and as such was not a financial accommodation.

Thanks to James B. Jordan, David J. Rabinowitz and Garland L. Reid of Sutherland for putting together an alert on a topic that is on the mind of landlords.


Wednesday, November 26, 2008

Not Not Creating a Title Insurance Behemoth

The off and on combination of Land America Financial Group with Fidelity National Title Title is back again. LandAmerica press release: LandAmerica Signs Stock Purchase Agreement for Underwriters.

The two signed a merger, then Fidelity terminated, now they restructured the transaction again. This time, Fidelity is purchasing the Lawyers Title and Commonwealth Land Title subsidiaries.

The parent holding company and its 1031 exchange company are filing for bankruptcy. That sounds like bad news for anyone with cash sitting in a LandAmerica 1031 account. It turns out that the company had $290 million invested in auction rate securities as part of the its 1031 business.[Fitch Downgrades LandAmerica's IFS to 'BB'; on Watch Negative] Perhaps that is what Fidelity saw during its diligence and decided to cancel the original deal.

That means Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation will combine with Fidelity National Title, Chicago Title, Ticor Title, Security Union Title and Alamo Title.

Its unclear how the transactions will impact employees and agents of LandAmerica, Lawyers Title and Commonwealth Title. David Stejkowski of the The Dirt Lawyer's Blog thinks it will be good for agents to "have the backing of the 800 pound gorilla in writing policies."

The combined company will have almost half of the real estate title insurance market, based on the Demotech Performance of Title Insurance Companies 2008 Edition.

See my prior posts:


Monday, November 24, 2008

Not Creating a Title Insurance Behemoth

Fidelity National Financial, Inc. (NYSE: FNF - News) canceled its plans to acquire LandAmerica Financial Group, Inc. (NYSE: LFG - News) . The combination would have created a behemoth that controlled almost half of the title insurance market.

Under the agreement, Fidelity National had discretion to terminate the merger on or before Nov. 21 under its contractual due diligence termination right. Fidelity exercised that termination.

LFG's stock price plunged over 80% today on that news. On Nov. 10, LandAmerica reported in its third-quarter results that it was no longer in compliance with financial debt covenants and hadn't yet obtained waivers, putting into a growing list of companies with "growing concern doubts."

See also:


Friday, November 7, 2008

Creating a Title Insurance Behomoth

Fidelity National Financial, Inc. (NYSE: FNF - News) and LandAmerica Financial Group, Inc. (NYSE: LFG - News) today announced the signing of a definitive merger agreement under which FNF will acquire LFG. [Press Release]

That means Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation will combine with Fidelity National Title, Chicago Title, Ticor Title, Security Union Title and Alamo Title.

The combined company will have almost half of the real estate title insurance market, based on the Demotech Performance of Title Insurance Companies 2008 Edition.


Friday, October 31, 2008

FinCEN Withdraws Proposed Rulemaking for Unregistered Investment Companies

On September 26, 2002, Financial Crimes Enforcement Network issued a notice of proposed rulemaking, proposing to require unregistered investment companies to establish and implement anti-money laundering programs. (Anti-Money Laundering Programs for Unregistered Investment Companies, 67 FR 60617 (Sep. 26, 2002))

In that notice of proposed rulemaking, FinCEN proposed to define the term “unregistered investment company” as (1) an issuer that, but for certain exclusions, would be an investment company as that term is defined in the Investment Company Act of 1940, (2) a commodity pool, and (3) a company that invests primarily in real estate and/or interests in real estate. FinCEN proposed requiring these companies to file a notice so that FinCEN could readily identify such companies and require them to establish and implement anti-money laundering programs.

I have been watching that rule-making process because it could have a profound impact on buying and selling real estate. For big commercial transactions we keep an eye on the parties to see if there is a reason to be wary and to see if they on the Specially Designated Nationals and Blocked Persons List. But I had some concern that they could extend the "know your customer" rules deep into real estate transactions imposing lots of administrative overhead for little benefit. 

Yesterday, FinCEN gave notice under 31 CFR Part 103 Withdrawal of the Notice of Proposed Rulemaking for Anti-Money Laundering Programs for Unregistered Investment Companies . FinCEN is not abandoning the possibility of pursing the rulemaking. Given the six year span since the notice, they feel it has gone stale. If (or when) they decide to proceed with an anti-money laundering program requirement for unregistered investment companies, they will publish a new notice.

Monday, October 27, 2008

Emerging Trends in Real Estate

The Urban land Institute's  Emerging Trends in Real Estate for 2009 came out with a picture of doom and gloom, predicting that in 2009, commercial real estate will suffer its worst year since the industry's crash of 1991-92, with a noticeable rebound unlikely until 2011 at the earliest. It also forecasts a decline of 15% to 20% in property values, on average, from their 2007 peaks, with even sharper declines coming in weaker markets.

Of the 50 markets tracked, the study found only Dallas and Houston have prospects for investment and development in 2009 that should be better than in 2008, thanks to their exposure to the energy industry. All other markets face deteriorating conditions next year, the study said.

But, the report does point out that there are opportunities to be found.


Thursday, October 9, 2008

A New Chapter for Me

Yesterday was my last day at The Firm.

It was hard to walk out the door after 13 great years. Andy Sucoff extended me an offer to join the real estate group during the summer of 1995.  It has been great working with one of the best group of real estate lawyers in the country. I was able to work on interesting and complex real estate transactions. I will miss the practice and my clients.

Don Oppenheimer transformed my practice by introducing me to knowledge management about 8 years ago. The Firm was very forward-thinking in trying to maximize the collective intelligence of its attorneys and staff. And still is. We have experienced tremendous success through the knowledge management program. It has been growing even more with The Firm's adoption of enterprise 2.0 tools as part of the knowledge management program.

I had a great time and learned a great deal during those two chapters of my career. But, a great opportunity presented itself and I had trouble ignoring it. So, now I start a new chapter.

I am taking a few days off to relax. I have some biking trips and kayaking trips lined up. Of course, you cannot rely on New England weather.

Later this month, I join Beacon Capital Partners as their Chief Compliance Officer. It is a big change in career. But I am looking forward to new challenges and opportunities.

As for Real Estate space?

It will live on.

At least for a little while longer. 


Tuesday, September 30, 2008

Largest Real Estate Investment Managers

Pensions and Investments Online put together a list of the Largest Real Estate Investment Managers. The list is ranked by total worldwide real estate assets, in millions, as of June 30, 2008.


Monday, September 29, 2008

Economic Emergency Stabilization Act of 2008

The White House and Congressional Leaders finalized the Bailout Bill: Current draft of the Economic Emergency Stabilization Act of 2008. (from the Wall Street Journal) It will be interesting to see how it progresses through the House and Senate. I expect to see a lot of salesmanship as politicians try to weave into their current political campaigns.

What does it actually do?  Read this summary from the Shape of Massive Bailout Bill Starts to Develop Definition


Monday, September 15, 2008

When Life Hands You Lehman, Make Lehman-Aid

Over the weekend, Lehman Brothers lost its interested buyers and got ready to file for bankruptcy. According to the New York Times, interested buyers wanted the federal backstop that was put into place for JP Morgan Chase purchase of Bear Stearns: 2 Wall St. Banks Falter; Markets Shaken.

According to the Wall Street Journal, the lack of a backstop scared off Bank of America and Barclays PLC: Ultimatum by Paulson Sparked Frantic End. Most people think various buyers will swoop in and buy individual pieces of Lehman.

On Sunday afternoon, a trading session was opened to allow firms to try to unwind their derivatives transactions with Lehman by finding other parties to step into Lehman's shoes: Lehman Risk Reduction Trading Session and Protocol Agreement.

It should be an interesting Monday and an interesting week.

Thanks to Rob Hyndman for coming up with this blog post title. I stole it from one of his Twitter Post (@rhh)

All of these companies are clients of The Firm, but I am not aware of The Firm's participation in any of the weekend's events. If The Firm was involved, I was not. 

Friday, September 12, 2008

Opportunity Funds Overfloweth

National Real Estate Investor published a story by Joe Gose on the flow of capital into distressed property funds: Opportunity Funds OVERFLOWETH.
"Opportunity funds concentrating on distress intend to take advantage of the seized-up debt markets in a few different ways. Many funds are buying debt at a discount from investment banks stuck with billions of dollars of loans they can't securitize. Other investors believe loose underwriting and over-leveraged properties will soon lead to maturity defaults, essentially defaults that occur when a landlord can't refinance a property because it isn't worth the loan coming due or because a landlord can't come up with a slug of equity that lenders want. Those funds intend to buy up that real estate, or at least gain a position in the assets."
It will be interesting to see if the capital markets come back into time to avoid a commercial real estate crash.  The loose underwriting standards we saw eighteen months ago are gone (for the foreseeable future). But most commercial property owners have enough cash flow to pay the monthly debt payments.

The problem will come at maturity. Commercial property owners may have a hard time rounding mortgage debt to replace the maturing debt. It was the short maturity on Mr. Macklowe's debt that forced him to sell the GM Building. More commercial property owners are going to be faced with mortgage debt maturity. Will there be mortgage debt there to replace it?


Monday, September 8, 2008

Blockshopper is trying to make news out of residential transactions. The site has launched in Chicago, St. Louis, South Florida and Las Vegas, trolling the listing services and registries of deed to find what notable people are doing with their real estate.

According to, some lawyers at Jones Day are not happy that their real estate purchases are making headlines: Lawyers Shrink From Web Real Estate Spotlight. They have sued Blockshopper. Of course, that is just more publicity for Blockshopper. Not free publicity since they will need to pay the lawyers.

Will the suit go anywhere? I thought real estate records were public documents and open for anyone to see. So what is the problem?


Monday, August 11, 2008

Floor Area Ratio and Residential Property

Floor Area Ratio has longed been used as a way regulate building density under zoning laws.  The owner of the property can choose to build a short building on most of the property or a taller building on less of the property.

Although Floor Area Ratio has been used to regulate commercial properties, there was some uncertainty as to whether you could use it for single family residential property in Massachusetts. Floor Area Ratio restrictions is one way to limit McMansions.

In the case of 81 Spooner Road LLC v. Town of Brookline (SJC-10104), the Massachusetts Supreme Judicial Court ruled that towns and cities can use Floor Area Ratio to regulate the density of single-family residential properties.

The uncertainty comes from M.G.L. c.40A, §3 that provides in part:
 "No zoning ordinance or by-law shall regulate or restrict the interior area of a single family residential building . . . provided, however, that such . . . structures may be subject to reasonable regulations concerning the bulk and height of structures and determining yard sizes, lot area, setbacks, open space, parking and building coverage requirements. . . ."
A property owner challenged the Town of Brookline's imposition of a 0.3 Floor Area Ratio on a single family house the owner proposed to build on a vacant lot.

The Massachusetts Supreme Judicial Court ruled in part:
"that regulation of single-family residences pursuant to the authority in the proviso of G. L. c. 40A, § 3, second par., including bulk regulation by floor-to-area ratio, is a proper exercise of the zoning power, provided the effect of such regulation on the interior area of such structures is incidental.  Although the town's bylaw requires consideration of gross floor area of single-family residences for purposes of calculating floor-to-area ratio, this is not a prohibited direct regulation of interior area.  Its effect is only incidental."
It looks like Massachusetts cities and towns can use Floor Area Ratio to limit McMansions from sprouting up, with over-sized houses growing in existing neighborhoods.


Friday, August 8, 2008

Massachusetts City and Town ByLaws

Here is collection of bylaws and ordinances available online for Massachusetts:

Amesbury (Zoning)
Ashby (Zoning)
Attleboro (Zoning)
Barnstable (Zoning)
Becket (Zoning)
Bedford (Zoning)
Bellingham (Zoning)
Belmont (Zoning)
Billerica (Zoning)
Blackstone (Zoning)
Boston (Zoning)
Bourne (Zoning)
Boxborough (Zoning)
Boxford (Zoning)
Brewster (Zoning)
Bridgewater (Zoning)
Burlington (Zoning)
Canton (Zoning)
Carver (Zoning)
Charlton (Zoning)
Chelsea (Zoning)
Chester (Zoning)
Concord (Zoning)
Cummington (Zoning)
Dartmouth (Wetland)
Dartmouth (Zoning)
Dunstable (Zoning)
Eastham (Zoning)
Easton (Zoning)
Fairhaven (Zoning)
Fall River
Foxborough (Zoning)
Framingham (Zoning)
Gardner (Zoning)
Gill (Zoning)
Gloucester (Zoning)
Goshen (Zoning)
Grafton (Zoning)
Great Barrington
Great Barrington (Zoning)
Greenfield (Zoning)

Hamilton (Zoning)
Hampden (Zoning)
Hanover (Zoning)
Hanson (Zoning)
Hull (Zoning)
Ipswich (Zoning)
Kingston (Zoning)
Lancaster (Zoning)
Lanesborough (Zoning)
Lee (Zoning)
Lowell (Zoning)
Ludlow (Zoning)
Lynnfield (Zoning)
Manchester-by-the Sea
Manchester-by-the-Sea (Zoning)
Marlborough (Zoning)
Mashpee (Zoning)
Maynard (Zoning)
Medway (Zoning)
Milford (Zoning)
Millbury (Zoning)
Millis (Zoning)
Milton (Zoning)
Monson (Zoning)
Montague (Zoning)
Natick (Zoning)
New Bedford
New Bedford (Zoning)
New Marlborough
Newbury (Zoning)
North Andover
North Andover (Zoning)
North Attleborough
North Reading (Zoning)
Northborough (Zoning)
Northbridge (Zoning)
Norwell (Zoning)
Norwood (Zoning)
Oak Bluffs (Zoning)
Palmer (Zoning)
Peabody (Zoning)
Pepperell (Zoning)
Phillipston (Zoning)
Plympton (Zoning)
Princeton (Zoning)

Raynham (Zoning)
Rochester (Zoning)
Rockport (Zoning)
Rowley (Zoning)
Salisbury (Zoning)
Sharon (Zoning)
Sheffield (Zoning)
Shelburne (Zoning)
Sherborn (Zoning)
Shirley (Zoning)
Shutesbury (Zoning)
Southborough (Zoning)
Spencer (Zoning)
Sterling (Zoning)
Stockbridge (Zoning)
Stow (Zoning)
Sunderland (Zoning)
Sutton (Zoning)
Taunton (Zoning)
Tewksbury (Zoning)
Tisbury (Zoning)
Topsfield (Zoning)
Truro (Zoning)
Upton (Zoning)
Walpole (Zoning)
Watertown (Zoning)
Wellesley (Zoning)
Wendell (Zoning)
West Boylston
West Newbury
West Springfield
West Springfield (Zoning)
West Tisbury (Zoning)
Westborough (Zoning)
Westfield (Zoning)
Westwood (Zoning)
Wilbraham (Zoning)
Williamsburg (Zoning)
Wilmington (Zoning)
Wrentham (Zoning)
Yarmouth (Zoning)

From Massachusetts Law Updates, produced by the Massachusetts Trial Court Libraries: Massachusetts Town and City Bylaws.


Monday, August 4, 2008

New Law Liberalizes REIT Provisions

Last week, President Bush signed the Housing and Economic Recovery Act of 2008 [html] [pdf] into law. You have heard about all of the programs designed to stimulate the housing market and to deal with Fannie Mae and Freddie Mac. Summary of the “Housing and Economic Recovery Act of 2008" [.pdf] from the Senate Banking Committee.

The Act also contained some changes to the REIT limitations. From Goodwin Procter's Client Alert, New Law Liberalizes REIT Provisions [.pdf]:

The Act shortens the prohibited transactions safe harbor holding period from four years to two. Unless the safe harbor applies, a REIT is potentially subject to a tax equal to 100% of the net income derived from a prohibited transaction (i.e., a sale of property held primarily for sale to customers in the ordinary course of business, or “dealer property”). The prohibited transaction safe harbor used to apply to a sale of real property if, among other requirements, (i) the REIT held the property for at least four years for the production of rental income, and (ii) the aggregate expenditures made by the REIT during the four-year period preceding the date of sale that were includible in the basis of the property (i.e., capital expenditures) did not exceed 30% of the net selling price of the property. The Act shortens both the minimum holding period under the safe harbor and the period during which the limit on capital expenditures applies from four years to two. This provides REITs with significantly more flexibility to dispose of properties without risk of the 100% tax being imposed, provided the other requirements of the safe harbor are met.

An additional requirement for a sale to qualify for the prohibited transactions safe harbor was that the REIT must not have made more than seven sales of property during the applicable tax year, or, that the aggregate tax bases of the properties sold during the taxable year must not have exceeded 10% of the aggregate tax bases of all of the assets of the REIT as of the beginning of the taxable year. The Act changes the 10% limitation so that a REIT can measure its sales based on either tax basis or fair market value, at the REIT’s annual election. This change also applies to sales made on or after July 31, 2008, although IRS guidance will be required to implement this change for 2008.

The Act increases the REIT asset test limitation with respect to securities of taxable REIT subsidiaries from 20% to 25% of the REIT’s assets.

The Act extends the “related party rent” exception that permits leases between REITs and their TRSs for lodging facilities to qualify as “rents from real property” to cover healthcare facilities. Now, a TRS can rent a healthcare facility from its parent REIT without disqualifying the rents paid to the parent REIT for purposes of the 75% and 95% income tests, provided that the healthcare facility is managed and operated by an independent contractor and not the TRS itself.

The Act broadens the REIT income tests with respect to foreign currency exchange gain. Under existing IRS guidance, certain foreign currency gain was treated as qualified income in certain circumstances. Effective July 31, 2008, certain foreign currency gain attributable to real estate income, real estate assets or to certain indebtedness attributable to the REIT’s real estate assets is excluded from the 75% and 95% income tests, and other passive foreign currency gain is excluded from the 95% income test.


Thursday, July 31, 2008

Office Building Classifications

I was poking around for a definition of Class A buildings and had a hard time finding a solid definition.

In BOMA's Building Class Definitions, buildings are grouped into Class A, Class B and Class C. But BOMA does not recommend the publishing of a classification rating for individual properties.

Metropolitan Base Definitions
Class A. Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.

Class B. Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.

Class C. Buildings competing for tenants requiring functional space at rents below the average for the area.
BOMA goes further with International definitions:

International Base Definitions
Investment. Investment quality properties are those that are unique in their location in the best metropolitan markets in the world, their design and construction quality, the solidity of the tenants and the tenant markets that they serve and the outstanding building management that is responsible for operating and maintaining them. These properties stand out as leaders not only within their own metropolitan areas but also within the international investment community. Investment properties usually contain state of the art mechanical, electrical, life safety, elevator and communications systems. Their finishes are of the highest standards and they often provide the occupants with a mix of amenities - in variety and quality - that is exceptional. Often they house a lead tenant for whom the property is named and usually they are located in a premier metropolitan area. Investment grade properties need not be considered to be "trophy" material but trophy properties are usually investment grade.

Institutional. Institutional grade properties are those of sufficient size and stature that they merit attention by large national or international investors, hence the name. These properties are of good design and construction, although they are rarely monumental in design or the use of construction materials. They are typically large. They may be located in secondary metropolitan areas, but invariably they will have a very stable tenant base.

Speculative. Speculative properties usually will conform to popular design conventions (at the time that they are constructed), but without the use of exceptional materials or construction methods. The design and construction of these properties emphasizes functionality, in contrast with aesthetics or image and the design rarely reflects the image of any particular tenant or occupant. To attract national or international attention, speculative properties must be relatively large, although minimum size requirements are lower for properties located in premier office markets. They are often occupied by multiple tenants.
Of course, Wikipedia has an entry: Wikipedia's Class A Office Space

Although the US seems to be lacking objective classification of buildings, the Moscow office market has laid out some objective standards for classifying buildings: Office Building Classification. According to the Moscow Office of Jones Lang LaSalle:
The new classification aims to divide the office stock into three classes according to a number of objective criteria. The classification was developed with the participation of professionals from the Construction, Property Management and Office Service industries.  The principal difference of the new classification from the previous one is the division of stock into А, В+ and В- classes. The major difference is also in giving a more structured criteria for modern office building classification. Leading real estate consultants: CB Richard Ellis Noble Gibbons, Colliers International, Cushman and Wakefield, Stiles and Riabokobylko and Jones Lang LaSalle have prepared a new classification of office buildings, dividing modern quality office stock  into 3 classes: A, B+ and B-.
Square Feet started this with his (or her) Guide to Office Building Classifications.


Wednesday, July 30, 2008

Retail in Russia

In last week's Wall Street Journal, there was an article on Developers Diversified Realty Corp.'s plan to expand into Russia: Mall Developer Targets Russia.

I found the statistic on retail space to be really interesting.
In Russia, the volume of shopping space per 1,000 inhabitants makes up about 420 square feet, according to Maxim Karbasnikoff, European Director, Russia, at brokerage Jones Lang LaSalle. In contrast, there is 25,758 square feet of shopping space available for every 1,000 people in the U.S.
 It makes me want to head out to the Chestnut Hill Mall and mark off my own 5 feet square of space in the courtyard.


Thursday, July 24, 2008

Update for Recording Fees for Multiple Transactions in a Single Document

The Massachusetts Real Estate Bar Association sent me a notice that:
On July 13, 2008, Governor Patrick signed the FY 2009 budget which included outside sections amending Massachusetts General Laws Chapter 262, § 38 and Chapter 44B, § 8 to require additional recording fees for multifunctional documents. The Amendments provide that “when a document includes multiple references to a document or instrument intending or attempting to assign discharge, release, partially release, subordinate or notice any other document or instrument, each reference shall be separately indexed and separately assessed and additional recording fee.”

The intent of the Amendments is eliminate any confusion that may have arisen with respect to recording fees subsequent to the Patriots Resorts Corporation case [71 Mass. App. Ct. 114] and to codify the current practice of most Registries. The practical result is that if a single document discharges a Mortgage, an Assignment of Leases and Rents and a U.C.C., the recording fee will be $225.00, as if it were three separate discharges. The effect of the Amendments is retroactive to eliminate any potential claims for excess recording fees that may have been brought pursuant to the Patriots Resorts Case
 I previously posted on the Patriots Resorts Case [Recording Fees for Multiple Transactions in a Single Document]. After the case, the registries were still trying to charge multiple fees.  Now the legislature has sided with the Registrars.


Friday, July 11, 2008

Twitter and Real Estate

Dick Howe at the Middlesex North Registry of Deeds in Lowell has jumped into Twitter. You can see his page and follow him at You can also follow me at

Twitter is great way to stay connected people all around the world.

If you are not familiar with Twitter, here is a quick video from Common Craft:


Monday, July 7, 2008

Real Estate Opportunity Fund Performance

Stephane Fitch of put together a sensationalist piece on real estate opportunity funds: The Other Real Estate Disaster.

Fitch puts together some interesting numbers on the extent of holdings by private real estate funds:
They account for one-sixth of $2 trillion in total net assets in private equity, says the London firm Private Equity Intelligence, which tracks the industry. A year ago the most closely studied funds in the U.S. were holding $213 billion in commercial real estate equity, leveraged 70% on average.
Fitch also touches upon some interesting thoughts comparing the performance of private real estate funds against public REIT stocks.

Instead of focusing on these interesting thoughts, Fitch focuses on how the real estate fund performance is a black box revealing little about their current returns.


Fitch evidently does not understand the real estate market.

Real estate is a very illiquid asset. The equity value of the commercial real estate may have decreased. (If you compare your real estate to the sales of comparable real estate.) Few funds take on the expense of an annual valuation. But that valuation makes no difference until you sell the real estate. As long as the real estate is throwing off enough income to pay debt and expenses, you can just sit back and own the property.

That is exactly what is happening right now. There are very few commercial properties for sale and even fewer are actually selling. The exception is a property owner with liquidity concerns. Harry Macklowe being the most public case: Harry Macklowe Doesn't Own Those Seven Buildings Anymore.

The investors in private real estate funds are smart and know what they are getting into. They know they will have to pay fees to the sponsor/manager of the fund. They know their investment is illiquid and that it is investing in illiquid assets. They know some funds will perform well and some funds will perform poorly. They also know that the performance of the fund will not be known for years after they make their first investment in the fund.

That does not mean that private real estate funds are the next real estate disaster.

Thanks to the Deal Junkie for pointing out this story: The Other Real Estate Disaster


Monday, June 30, 2008

Choice of Entity For Real Estate Ownership in Massachusetts

William V. Hovey published his regular column in Massachusetts Lawyer's Weekly: Choosing the Best Real Estate Holding Entity.

He discussed the entities in this order:
  • Individual
  • Tenants in Common
  • Joint Tenants
  • Tenants by the Entirety
  • Trust - Standard with named beneficiaries
  • Nominee Trust
  • Massachusetts Business Trust
  • Corporation (C corp)
  • Corporation (S corp)
  • General partnership
  • Limited partnership
  • Joint venture
  • Limited liability partnership
  • Limited liability company
This is a good outline of the issues. But I think Mr. Hovey is little off base on a few points.

First, a joint venture is not an holding entity and has no place in the list. Several of the other types are not entities, but they at least ownership choices.

Second, he states that limited partnerships are "likely to be replaced by LLCs and LLPs." I hate to break it to Mr. Hovey, but LLCs replaced limited partnerships about a decade ago. I rarely see LLPs used for real estate ownership in Massachusetts.


Friday, June 20, 2008

You Can Construct a Sewer Line In Your Private Right of Way

Constructing a sewer line under a preexisting easement which allows for ingress and egress is permissible under Massachusetts General Laws c. 187, § 5.

Massachusetts General Laws c. 187, § 5 provides that the owner of property abutting a private way who has existing rights of ingress and egress upon such way “shall have the right by implication to place, install or construct in, on, along, under and upon said private way or other private way pipes, conduits, manholes and other appurtenances necessary for the transmission of . . . sewer service, provided such facilities do not unreasonable obstruct said private way or other private ways, and provided that such use . . . does not interfere with . . . the existing use by others of such way.”

A driveway easement has been ruled to be a "private way" for purposes of this statute. See Barlow v. Chongris & Sons, Inc. 38 Mass.App.Ct. 297 (1995)

This right applies retroactively to easements granted before the statute was enacted in 1973. See Nantucket Conservation Foundation, Inc. v. Russell Management, Inc. 402 N.E.2d 501 (Mass 1980). The sewer service need not be installed by a public utility service; the private owner may install the necessary pipes and conduits himself. See Robinson v. Bd. Of Health of Chatham, 791 N.E.2d 350 (Mass. App. 2003). This ability to install utilities under a right of way is intended to “reflect the importance of utilities to modern society.” Id. at 354. Thus, § 5, supported by this policy consideration and Massachusetts case law, allows an owner with a right of way to construct a sewer line under the right of way.

Thanks to Lorretta Waitr for her research.


Thursday, June 19, 2008

Mass. Lawyer's Weekly Is Now Blogging

The Massachusetts Lawyers Weekly has launched a blog: The Docket.
"Breaking stories and noteworthy information from the Massachusetts Lawyers Weekly newsroom. If it impacts Massachusetts lawyers, we’ll be blogging about it here."


Thursday, June 5, 2008

NAREIT has collected a bunch of information and sites under one umbrella site: (Watch out for the music on the opening page!)

According to SmartBrief:
" replaces the existing NAREIT Web site, as well as the current Real Estate Portfolio and sites. is designed to be your central source for investment news, industry data, event information, Policy and Politics updates, as well as all exclusive NAREIT member services. is designed with easy-to-use navigation that will let you find relevant content faster and easier than before."
I don't remember the old NAREIT site, but it is good that they folded more information into one place. I think they should kill the music on the home page and make the news available by RSS. If you jump to SmartBrief from the site you can find RSS feeds for news.


Tuesday, June 3, 2008

Mapping Foreclosures in Massachusetts

The Boston Federal Reserve Bank has put together a great interactive map showing two decades of foreclosure activity in Massachusetts: Foreclosure Rates in Massachusetts Cities and Towns 1990-2007.

There is a lot of red, showing lots of foreclosures in 2007

But there was a lot more red in 1992

This graphic was developed in conjunction with a paper by Kristopher Gerardi, Adam Shapiro, and Paul S. Willen, "Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures," which presents the first rigorous assessment of the homeownership experience of subprime borrowers, using data on subprime mortgages, foreclosures, and house prices from 1989 to 2007 in Massachusetts cities and towns.

"Subprime Facts: What (We Think) We Know about the Subprime Crisis and What We Don't," by Christopher L. Foote, Lorenz Goette, Paul S. Willen, and Kristopher Gerardi.

Dynamic Maps of Nonprime Mortgage Conditions in the United States (Federal Reserve Bank of New York).
Thanks to's Real Estate Now for pointing out this map:
Mapping foreclosures

Monday, June 2, 2008

Vintage Wine Trust is Liquidating

Back in August, I noticed Vintage Wine Trust as a REIT focused on the wine grape industry. According to a story by Chris Rauber of the San Francisco Business Times, Vintage Wine Trust Selling Off Its Holdings and Shutting Down.

[T]he REIT's "big problem was we didn't buy enough properties," noting it was trickier than expected to find profitable properties that fit the company's REIT framework. "I still think the concept could work. We just needed more time."


Wednesday, May 28, 2008

Model Real Estate Development Operating Agreement from the American Bar Association

The February 2008 edition of The Business Lawyer contains a report on Model Real Estate Development Operating Agreement with Commentary [pdf. ABA membership logon required].

The model agreement was put together by a Joint Task Force of Committee on LLCs, Partnerships and Unincorporated Entities and the Committee on Taxation, ABA Section of Business Law.

Here is the fact pattern that the model agreement addresses:
The Project. The real estate project involves the acquisition of undeveloped land and the construction of an ice skating rink complex with a hotel, retail shops, condominiums, and an office building.

The Venturers. The proposed venturers are: (1) a real estate development and management company (the “Developer”), whose focus is to organize the venture, acquire the land, obtain appropriate permits, oversee construction of all the buildings in phases, manage all of the buildings, and hire the appropriate leasing agents and ancillary specialists necessary for the project; (2) the owner of the undeveloped land (the “Land”) upon which the project is to be constructed (the “Landowner”); and (3) an investor who will provide the necessary equity financing for the venture to obtain the needed debt financing for the construction and subsequent operation of the project (the “Financial Investor”).

The Entity. The venture (the “Company”) is to be organized as a manager-managed limited liability company under the Delaware Limited Liability Company Act (Del. Code Ann. tit. 18 §§ 101 et seq.) as in effect on August 1, 2007.

Debt Financing. While in many (if not most) cases, the construction financing will require guaranties or other forms of credit enhancement, it is assumed, for simplicity sake, that the construction loan, the permanent refinancing loan, and the operating capital line-of-credit will not require any credit enhancement and, therefore, will be treated as “nonrecourse debt” under applicable federal income tax regulations.

The Ownership/Membership Interests. The contributed capital will consist of the Land contributed by the Landowner (which is assumed to have a fair market value of $5,000,000 and an adjusted tax basis at the time that it is deeded to the Company of $1,000,000) and the cash contributed by the Financial Investor (which is assumed to be $10,000,000). The Developer does not contribute any capital to the Company. The Landowner and the Financial Investor are entitled to receive a preferred return on their contributed capital. Any residual profits will be shared 40% to the Developer, 20% to the Landowner, and 40% to the Financial Investor. These percentages were selected for mathematical convenience. The amount of the Developer’s “carried” or “promoted” interest and the amount of the investors’ preferred return (if any) will need to be discussed and agreed upon by the parties.

Tax Treatment of the Company. The Company is to be treated as a partnership for federal tax purposes as provided under Treas. Reg. § 301.7701-3(b)(i). For that reason, in many parts of the operating agreement and the commentary, the Company is referred to as a “partnership” and the members are referred to as “partners.” See, for example, the rules of construction in Section 11.8(b).

Cash Flow. In addition to the Developer’s carried or promoted interest, the Developer likely will be entitled to certain fees (e.g., development and management fees). Those fees, and the services to be provided in exchange for those fees, often are contained in other contracts between the Company and the Developer. Those fees will be paid “other than in the Developer’s capacity as a member” of the Company within the meaning of Code § 707(a) and, therefore, are not to be treated as “distributions” by the Company. Distributions of available cash after the Company has serviced its debt obligations and paid or made provision for its other liabilities are to be made to the members first, in the amount of their presumed aggregate, net income tax liabilities on their shares of the Company’s net income; second, in the amount of any remaining accrued, but unpaid, preferred return (i.e., net of applicable tax distributions) on their contributed capital; and the balance, in proportion to the members’ residual profits percentages (adjusted for any applicable tax distributions that they previously received on those profits). An exception to the foregoing distribution regime is made or proceeds received from the sale or refinancing of the Company’s property. Under hose circumstances, the members’ contributed capital is to be repaid before the remaining sale or refinancing proceeds are distributed in accordance with the members’ residual profits percentages.

Allocations. Capital accounts will be maintained in accordance with applicable Treasury Regulations. Allocations of the Company’s income, gains, losses, and deductions are to be made in a manner that allows all distributions to be made as described in the preceding paragraph while complying with applicable Treasury Regulations.
I will put up some future thoughts on the model agreement. My initial reaction is that I am not used to running into a situation where there are three parties. Usually, there is the Financial Investor and the Developer. The Landowner throws a different curve into the agreement.

Saturday, May 24, 2008

Rev. Proc. 2008-28 and Foreclosure Relief for Securitizations

The Internal Revenue Service issued Revenue Procedure 2008-28 [.PDF ] which provides for the modification of certain mortgage loans will not jeopardize the favorable tax treatment of the capital structure for certain securitization capital structures.

One issue impacting the downturn in the real estate market is the inability of some lenders to revise the loan terms to avoid foreclosure. The packing of loans into a securitization structure was usually accomplished by using a REMIC or other tax-favorable structure. By adhering to the REMIC rules, the payments to the lender passed through the REMIC structure would not be taxed until received by the investors in the REMIC structure. REMICs are governed by Section 860A - 860G of the Internal Revenue Code.

One of the limitations in the REMIC structure is that the loans cannot be materially modified. If modified, the IRS imposes a hefty tax penalty. Section 860F(a)(1) imposes a tax on a REMIC equal to 100 percent of the net income derived from “prohibited transactions.” The disposition of a qualified mortgage is a prohibited transaction unless the disposition is pursuant to "(i) the substitution of a qualified replacement mortgage for a qualified mortgage; (ii) a disposition incident to the foreclosure, default, or imminent default of the mortgage; (iii) the bankruptcy or insolvency of the REMIC; or (iv) a qualified liquidation."860F(a)(2)

The IRS promulgated Rev. Proc. 2008-28 to give the servicers of residential mortgage loans some more flexibility in providing foreclosure relief, without jeopardizing the capital structure of the mortgage loan securitization. This revenue procedure applies to "a modification of a mortgage loan that is held by a REMIC, or by an investment trust, if all of the following conditions are satisfied:
  1. The real property securing the mortgage loan is a residence that contains fewer than five dwelling units.
  2. The real property securing the mortgage loan is owner-occupied.
  3. (1) If a REMIC holds the mortgage loan, then as of either the startup day or the end of the 3–month period beginning on the startup day, no more than ten percent of the stated principal of the total assets of the REMIC was represented by loans the payments on which were then overdue by 30 days or more; or (2) If an investment trust holds the mortgage loan, then as of all dates when assets were contributed to the trust, no more than ten percent of the stated principal of all the debt instruments then held by the trust was represented by instruments the payments on which were then overdue by 30 days or more.
  4. The holder or servicer reasonably believes that there is a significant risk of foreclosure of the original loan. This reasonable belief may be based on guidelines developed as part of a foreclosure prevention program similar to that described in Section 2 of this revenue procedure or may be based on any other credible systematic determination.
  5. The terms of the modified loan are less favorable to the holder than were the unmodified terms of the original mortgage loan.
  6. The holder or servicer reasonably believes that the modified loan presents a substantially reduced risk of foreclosure, as compared with the original loan."
If the modification meets those requirements, then
  • The IRS will not challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications are not among the exceptions listed in § 1.860G–2(b)(3);
  • The IRS will not contend that the modifications are prohibited transactions under section 860F(a)(2) on the grounds that the modifications resulted in one more dispositions of qualified mortgages and that the dispositions are not among the exceptions listed in section 860F(a)(2)(A)(i)–(iv);
  • The IRS will not challenge a securitization vehicle’s classification as a trust under section 301.7701-4(c) on the grounds that the modifications manifest a power to vary the investment of the certificate holders; and
  • The IRS will not challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications resulted in a deemed reissuance of the REMIC regular interests.
This revenue procedure governs determinations made by the Service on or after May 16, 2008, with respect to loan modifications that are effected on or before December 31, 2010.

Tuesday, May 6, 2008

A Tale of Two Property Markets

While commercial property owners are worried about property market, much of the commercial property market remains stable or strong. In contrast, the residential market is still spiraling down and take lots of people and companies with it.

First up, the summary of REIT earning reports show that most of the public real estate companies are still hitting their earnings targets: REITs Cautious Despite Strong Quarter.
Given fears that a sagging economy and a crippled credit market might wreak havoc on the commercial property market, real-estate investment trusts delivered surprisingly strong earnings for the first quarter, with many companies beating analysts' estimates.
The implosion of the residential markets is taking down builders: Falling Prices Hit Builder Horton - Home Cancellations, Write-Downs Spur $1.31 Billion Loss.

The implosion is also showing the weakness in the underwriting and origination processes for mortgage lender. It was apparently bad enough at Countrywide that it is giving Bank of America second thoughts about its takeover: Acquisition of Lender Is Possibly in Jeopardy. According to an older story, Loan Data Focus of Probe:
The investigators are finding that Countrywide's loan documents often were marked by dubious or erroneous information about its mortgage clients, according to people involved in the matter. The company packaged many of those mortgages into securities and sold them to investors, raising the additional question of whether Countrywide understated the risks such investments carried.

Many of these companies mentioned are clients of The Firm. I have no knowledge of the background except what was in these stories.

Monday, April 28, 2008

Cities are Enacting Green Building Requirements

On Earth Day, the City of Los Angeles enacted a green building ordinance. According to the Sheppard Mullin Real Estate and Construction Law Blog:
The program sets mandatory standards of sustainability for large projects. In essence, the program provides that no building permit shall be issued for projects at or above 50,000 gross square feet of floor area unless “[t]he project applicant…demonstrates that the Project meets the intent [emphasis added] of the criteria for certification at the LEED certified level.” See LAMC, Section 16.10 D.1. Formal LEED certification, however, is not required.
Boston enacted its green building ordinance last year. In January of 2007, the Boston Zoning Commission approved several amendments to the Boston Zoning Code to require all projects over 50,000 SF to be designed to meet the “certified” level.

Friday, April 25, 2008

REITs still have a Buy Rating

In another sign that the commercial real estate sector is not in the same trouble as the residential sector, many REITs still have good ratings from S&P.

According to Business week in the first quarter of 2008, the group posted a 0.8% total return, at a time when the S&P 500 index fell 9.4%. (REITs Show Strength)

Business Week put together a list of 17 REITs that have a 4- (buy) or 5-STARS (strong buy) rankings from S&P Equity Research:

Alexandria ARE
AMB Property AMB
Annaly Capital Management NLY
Developers Diversified Realty DDR
Essex Property ESS
Federal Realty FRT
First Industrial Realty FR
General Growth Properties GGP
Macerich MAC
Mack-Cali CLI
National Retail Properties NNN
ProLogis PLD
PS Business Parks PSB
Regency Centers REG
Simon Property Group SPG
Taubman Centers TCO
Weingarten Realty WRI

(Disclaimer: Some of these REITs are clients of my employer.)