Real Estate Advisor Law Blog

I am pleased to announce that I have been named the editor of my law firm's, Ulmer & Berne LLP, real estate law blog: the Real Estate Advisor Law Blog.



The tools of the Web 2.0 world of social networking and blogs of every type and nature have created a connectivity of people and a sharing of information never before witnessed. These tools have made a large world smaller and more manageable.
The “Real Estate Advisor Law Blog” is written to disseminate pertinent information in a timely manner relating to real estate, construction, financing, environmental and related matters. From time to time we will write about other issues we think those in the real estate, construction, design and finance industries have an interest in or should be aware of. Our posts will be concise articles written to identify trends and opportunities that our clients and contacts deem important for their businesses. We know that your time is valuable and if we are fortunate to have your attention for a few minutes a week while reading a blog post we want you to come away with an idea or tool which will translate into making you more effective, profitable and successful.

Ulmer & Berne is uniquely situated with offices throughout the Midwest and with one of the top-ranked real estate law practices in the region. Our attorneys are able to see trends developing from local, regional, national and international perspectives. We hope that by us sharing our thoughts with you we will demonstrate to our clients and contacts that we have "skin in the game" just as they do.

The Real Estate Advisor Law Blog is now open for business! You can receive the new blog posts directly by subscribing through your RSS reader, email or just bookmark this page and visit us periodically. Thanks for visiting us and make sure you leave us your comments from time to time on your thoughts relating to the posts which we will publish.

THERE IS A FAMILIAR SCENT IN THE AIR.............

You know how you can smell the familiar scents of the changing seasons in the air ? Well those of us who have the honor to have survived a career in the real estate industry have recognized the smell in the air for some time. Right now that smell is pretty offensive; but we know from experience that it is going to turn sweet before you know it ! Recently, I was speaking with Mark Sinkhorn of LandAmerica National Commercial Services in Columbus, Ohio who reminded me that back in 1980 when the economy was experiencing record inflation and the only transactions we were doing were land contracts ; and more recently in 1987 and 1994 there was a similar collapse in the lending market. In all instances, the economy and real estate industry rebounded .

Today, other than for some condominium developments in larger markets, the commercial real estate market is not over-built and once credit frees up again commercial development should lead the way as businesses expand their operations. In the mean time, manufacturing and distribution operators might wish to consider sale-leaseback transactions as an alternative to creating cash and moving assets from on balance sheets to off balance sheets. Sale-Leaseback transactions properly structured are a "win-win" for both the developer (buyer/landlord) and the company (seller/tenant). Residential sellers might consider loan assumptions, seller purchase money mortgages and land contracts once again as tools to move their properties. There is a lot of room for creativity in commercial and residential property transactions, but care should be taken in structuring the same.

HIgh Speed Rail for America Act Gains Traction

Trains For America, the blog focused on passenger rail across the United States, has posted a copy of a letter Senator John Kerry (Dem-Mass.) wrote to his Senate colleagues advocating support of the proposed High Speed Rail for America Act.  Senator Kerry is advocating that as one way to keep the United States competitive we need to develope a high speed rail system to address public transportation needs across the United States focusing on distances of 100-500 miles.  The proposal states that links between cities will encourage the development of light rail links within the cities served by the high speed rail lines.  It is really not that much of a stretch to imagine getting on the train in downtown Cincinnati and getting off 3.5 hours later in downtown Chicago; or traveling to Cleveland and Columbus for meetings and returning home in the same day, while staying connected and working via your laptop practically the entire time with very few compromises.

I just returned from a week of business meetings in central Europe.  I traveled between cities by rail.  I started in Brussels, then traveled to Munich, Zurich, Paris to make the connections to Nantes, France.  The experience was overall much more satisfying and restful than air travel.  The most comfortable and impressive rail service is the French TGV high speed rail service.  Throughout I was able to connect wirelessly to the internet and keep up with emails and telephone calls.  Also, the cabin noise was much lower than in a jet airplane and therefore less draining.  

As noted below in prior posts, developers, lenders and governments need to recognize the opportunities for economic development, job growth and increased tax revenue that building and maintaining new rail networks will provide.  Come on real estate industry GET ON BOARD NOW BEFORE THE TRAIN LEAVES THE STATION !!!

Housing Industry Relief ?

Recently, I was speaking with Scott Malof of the Cincinnati office of SS&G Financial Services and Scott reminded me that on July 30, 2008 President Bush signed into law the Housing and Economic Recovery Act of 2008 (H.R. 3221). While there are several important aspects of H.R. 3221, most of the attention has been centered on the new First-Time Homebuyer Tax Credit which will function to give first time homebuyers a temporary refundable tax credit equal to 10 % of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately). The tax credit will phase out for married taxpayers filing jointly with adusted gross income in excess of $150,000 ($75,000 for individual returns). The credit will remain effective for home purchases occuring after April 9, 2008 and before July 1, 2009. However, the taxcredit is not free money; it must be repaid to the government over 15 years. So, essentially the tax credit is an interest free loan from the government for first time homebuyers.

Among several other notable componants of H.R. 3221 it also addresses changes to the low-income housing tax credit (LIHTC), tax-exempt housing bonds and mortgage revenue bonds to name a few. The tax credits are being paid for through changes to reportable interest expense, application of gains from the sale of principal residences and acceleration of certain corporate estimated tax payments.

Given the how complicated the application of the benfits of H.R. 3221 is for individual taxpayers, the residential development community is disappointed that the tax credits were not given directly to the development community which could have used the same as reductions in sale prices. Nevertheless, if this industry incentive is going to have a meaningful impact, lenders and developers are going to have to educate their borrowers and buyers about how to take advantage of the benefits of the tax credits; and of course, tax advisors will need to create new strategies for their clients on how to adjust for the revenue offsets.

Metropolitan Statistical Area Shuffle (or the coming Demographic Inversion)

"Demographic Inversion", what is it, where has it occurred and why should you take note of this developing trend in the United States. My good friend, David Ginsburg, the President and CEO of Downtown Cincinnati, Inc., forwarded to me an article posted on The New Republic website entitled Trading Places written by Alan Ehrenhalt. The article discusses a trend which has its roots far back in the development of the urban centers of Europe, from Paris to Vienna, where middle class society lived within the urban core and the working poor and newly arrived immigrants lived further out beyond the urban core. Cities in North America from Chicago, Manhattan, San Francisco to Vancoover have witnessed demographic inversion over the last 30 years. The de-industrialization of our cities has made demographic inversion possible. As manufacturing and distribution facilities relocated in our outlying suburbs and exburbs the urban cores of these great cities opened up to permit the infusion of a service industry economy and the housing stock for those new "urbanites" to live and raise families.

As pressure is put on our "auto" economy the suburbs and exburbs in the second tier United States cities (Cleveland, Columbus, Cincinnati, Indianapolis, Dayton, Toledo, Akron, Pittsburgh, St. Louis) are ripe to take advantage of their own "demographic inversion." It is not just the need to change transportation and commuting habits, but lifestyle changes are driving this trend. The Generation X and Y segment of our population wants to live in an environment condusive to the social networking they participate on-line. An urban lifestyle in which work, play and learning can take place and stimulate growth and enhance the urban experience. Government and public institutions need to help stimulate this trend by permitting zoning law changes, development tax incentives, re-building the inner city public schools and development of efficient public trnasportation systems.

High Speed Rail for Ohio

In today's Cincinnati Enquirer the lead article discussed the allocation of anticipated state tax revenue generated by a proposed casino to be situated along I-71 around the Wilmington area. Just like the tobacco settlement funds, everyone is now going to spend the revenue even before the casino is approved and built. So, why not float another idea. One which will attract business investment into Ohio, make Ohio the center piece of a regional passenger rail network ??

This is the idea: Using the rights of way already in existence along Ohio's interstates and highways, build a high speed rail system linking Ohio's cities (see my earlier post). Of course a stop along the route would be the Casino. The first two legs of the system could be: (i) Cincinnati, Wilmington (Casino) Columbus, Akron, Cleveland; and (ii) Toledo, Dayton, Wilmington (Casino) where a transfer station would be constructed to link the two lines. Later Toledo-Cleveland and Dayton-Cincinnati could be built.

Federal transportation funds can not be counted on for financing rail transportation initiatives, so Ohio needs to be creative and think out of the box to take care of itself.

Now close your eyes and think about what this plan would mean for the real estate community. Rail stations, whether situated in downtown, suburban or rural areas would spur the need for commercial and residential development in and around the same. They would also serve as the local hubs for alternative transportation such as local light rail and bus transportation.

So, if you consider the other ideas presented earlier in this Blog (2% Solution) all of these efforts when taken together create a really powerful and solid base for economic development and growth.

The 2 % Goal for Ohio's Cities

The Brooking's Institute is known for promoting ideas and suggestions which promote out of the box thinking. Recently, I read Bruce Katz and Jennifer Vey's, fellows at the Brooking's Institute studing urban issues and trends, article The Goal for Ohio Metros: 43,000 residents suggests that Ohio's cities achieve 2% growth. The authors write "Imagine the economic, fiscal and psychological impacts of housing 43,000 residents in downtown Cleveland, 40,000 residents in downtown Cincinnati and 17,000 residents in downtown Dayton - substantial jumps from their current populations. The critical massing of people would attract amenities that lure businesses and jobs for downtown and metro-area residents, shoppers and tourists, and help stem the exodus of young workers. And appealing new housing with street-level cafes and shops would bring life and a virtuous cycle of growth to metropolitan hubs."

So, how do our leaders achieve this 2% growth and clustering of residents ? We are all familiar with the use of tax incentives for commercial development and entertainment venues. We are also familiar with the benefits brought to residential development by low income housing tax credits, new market tax credits, tax increment financing and other such tools.

The authors further suggest that universities locate satellite campuses in areas where residential and commercial growth is desired. Universities include associate, bachelor and masters degree programs. Take Chicago as an example. Several undergraduate, graduate and professional school programs are located in the LOOP business district and east and west of Michigan Avenue. These programs have helped spur the development of residential projects, commercial projects and transportation projects while integrating a student and professional academic population into the demographic mix of the respective areas.

The authors write "Some 50 four- and two-year colleges are located in the eight Ohio cities highlighted by our report and should be encouraged to develop downtown satellite campuses. Higher education institutions are not only major employers but incubators of new, creative businesses and jobs. As low-wage service-sector jobs replace industrial jobs, encouraging the expansion of tech ventures and health care facilities is essential to expanding the number of Ohio residents earning a good living in reborn downtowns."

The message to pull out of this article, the trend to create or capture, is that development projects will require a conglomeration of ideas and efforts pulling together the needs and interests of all sorts of private and public institutions. The development community should work with the universities, colleges and municipalities to enhance our use of our cities and expand educational horizons beyond the traditional campuses they call home.