Commercial Real Estate Blog by Madison

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Real Estate Trends

CAM Negotiations – What You Need to Know before Signing, Part 2

By: Arnon Wiener, Esq., CEO, Real Diligence and LeaseProbe

It is news to no one that CAM charges can be a contentious issue for Landlords and Tenants alike. Generally, Landlords want the CAM clause to be broad and all-encompassing, covering the Landlord’s costs of ownership, management, maintenance, repair, replacement, inspection, improvement, operation, and insurance of the property together with any costs allocated to administration and overhead. The Landlord benefits from a highly expansive CAM definition to avoid the risk that any necessary costs of operation have no corresponding revenue to cover them.

Tenants, on the other hand, generally understand that they need to compensate the Landlord for operating and maintaining the center. But they view the Landlord’s ownership costs as part of the Landlord’s cost of doing business and not a recoverable operation cost. This “maintenance versus ownership” struggle shapes many of the issues relating to inclusion in and exclusion from CAM costs

Here are some questions Landlords should consider. Continue reading

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CAM Negotiations – What You Need to Know before Signing, Part 1

By: Arnon Wiener, Esq., CEO, Real Diligence and LeaseProbe

Common Area Maintenance (CAM) charges can be a contentious issue for Landlords and Tenants alike. CAM charges are one of the net charges billed to Tenants in a commercial lease, and may be charged in addition to base rent. On one hand, Landlords may feel that their expenses are high, and this is the chance to be refunded for the outlay. On the other hand, Tenants may feel squeezed by the rent, and are resentful of any additional charges. CAM becomes the rope in a tug-of-war.

When entering CAM negotiations, there are considerations for both Tenants and Lenders. Continue reading

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FIRPTA Withholding Rates have been Increased to 15%

By Lee David Medinets, Esq., Chief Counsel, MCRES and Senior Counsel, Madison Exchange, LLC a/k/a Madison 1031 and their affiliates

Until a few days ago, The Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), IRC Sec. 1445, provided generally that the transferee (i.e., the purchaser) of U.S. real property or a qualified substitute must withhold from closing proceeds 10% of the gross purchase price paid for the U.S. real property. That amount must then be forwarded to the IRS as a withholding tax on the transferor (i.e., the seller) whenever the transferor is a foreign person (as that term is defined in the act). Real estate attorneys, escrow agents and qualified intermediaries routinely act as qualified substitutes in these transactions. If the transferor or a qualified substitute fails to forward FIRPTA withholding in a timely fashion, that party can be liable for the funds it should have withheld plus penalties and interest. The liability of qualified substitutes however, is generally limited to the compensation it received on the transaction.

The Consolidated Appropriations Act, 2016, Public Law 114-113 is a massive omnibus financial and tax bill (6.75 Meg. in Word format) that recently became law. Division Q of that law is titled the “Protecting Americans from Tax Hikes Act of 2015” (the “PATH Act”). Section 324 increases the FIRPTA withholding rate from 10 percent of the gross sales price to 15 percent of the gross sales price. Continue reading

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Inadvertent Mortgage Fraud: A Day Late Means Many Dollars Short

By: Eliezer Shaffren, Esq., Senior Commercial Counsel, Madison Title Agency

There are situations that arise in real estate transactions that can result in inadvertent mortgage fraud. That’s right. Unintentional and without malice, but mortgage fraud just the same. Case in point.

Mr. Jones arrived at the sale of his property fully prepared. At the closing, all title exceptions had been cleared, and payoff letters have been obtained for the remaining open mortgages. The first mortgage, a purchase money mortgage, had a payoff of $500,000, which would be paid off at closing. The second mortgage, a home equity line of credit (HELOC), had a maximum allowable draw of $50,000. Mr. Jones had only drawn $10,000 of the HELOC. He obtained a payoff letter, confirming this amount was also to be paid at closing.

The closing proceeded smoothly and Mr. Jones left the room, confident that all of his bills had been paid and debts satisfied. Newly flush with cash from the sale, Mr. Jones invited a group of friends to his favorite restaurant to celebrate. That’s where things went wrong. Continue reading

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Off-the-Wall Savings – How Businesses with Demountable Walls are Saving on Taxes

By: Eli Loebenberg, CPA, Chief Executive Officer, Madison SPECS

The traditional office workspace has come a long way since the classic mahogany desk in a corner office. Thanks to technological advances, many employees can and do work from anywhere, which makes creating a vibrant and thriving office a new challenge. Today’s leading companies are creating office space that encourages collaboration with an interactive atmosphere. The modern office environment focuses on the employee experience within the company culture.

Many times, this environment is created with moveable office space made from demountable walls. Demountable or moveable walls are partitions that are pre-engineered and manufactured. Demountable walls offer businesses a simple way to build out and customize their work space.

Companies opt for walls that can be configured with customizable panels and different options for desk and storage spaces. These flexible interiors allow organizations to change the aesthetics, functionality and size of various office spaces in order to suit changing needs. Demountable walls also come with technological add-ins, such as plug-and-play power and data, so there is no need to rewire cables every time there is a change.

This trend in demountable walls has spread to corporations, educational institutions, health care and government organizations. While the initial project costs for demountable walls are higher than standard construction, this cost difference can be offset by major tax savings. Continue reading

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Real Estate Fraud – “Stealing” a Home

By: Debra Smith, Associate General Counsel, Madison Title Agency

An increasingly common type of real estate fraud occurs when someone impersonates the true owner of real property and does one of two things- sells the home or obtains a mortgage on it.

Typically, the wrongdoer first identifies a low risk transaction. The wrongdoer may look for a home nearing foreclosure for unpaid taxes. This is very easy information to obtain because so much data is accessible on the Internet now. The wrongdoer will then visit the property and confirm it is vacant. The ideal target has no mortgages (or only a very small mortgage) encumbering it.

The wrongdoer will obtain fake identification in the true owner’s name. He may then sell the property to a bona fide purchaser. He collects the net sale proceeds and moves on to the next victim. In criminal proceedings against Maria Leyna Albertina in Brooklyn a decade ago, it was alleged that she had identified and purportedly “sold” 32 such properties.

There are many variations on this scheme. Continue reading

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Let’s Go CFPB!

By Sam Shiel, Esq., Director of National Title Services and Senior Underwriting Counsel, Madison Title Agency

At the time of this writing, the Green Bay Packers are heading to the NFL playoffs with a record of 10-6. While the team’s record is reason for most Packer fans to rejoice, certainly there are some fans with more on their mind. Specifically, members of the Orlando-based fan club, the Central Florida Packer Backers (CFPB). But for those members of the CFPB purchasing a home in Florida, “fun” is hardly the word that comes to mind these days.

Since September 2, 2014, home purchasing members of the CFPB, along with all other Florida home purchasers, have been subject to an additional title charge of $3.28. Why? It is to pay for the multimillion-dollar collapse of an Orlando title company.

Back in 2007, a Florida law firm formed a title company by the name of KEL Title Insurance Group (KEL) headquartered in Orlando – much like the CFPB. The company had written in excess of 10,000 title insurance policies. However, in October 2012, KEL was ordered into receivership for purposes of rehabilitation by the Courts. The partners of the law firm have denied any wrongdoing, blaming KEL Title’s problems on a fraud scheme by an unidentified rogue agent in South Florida who allegedly fabricated sales and stole escrow money. While KEL is no longer writing new or renewal insurance coverage, the company’s existing policies are not cancelled by the rehabilitation order and will continue in the ordinary course of business.

The result. Just months after the takeover by the state, KEL policy claims are skyrocketing and its cash is nearly gone Claims soared as homeowners discovered flawed sales closings and bogus title insurance sales. When the state took over in 2012, KEL had claim liabilities of $12.8 million and cash of $2.7 million, according to state records.

The solution?…. Continue reading

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The Pervasiveness of Mortgage Fraud – Forged Documents

By Debra Smith, Associate General Counsel, Madison Title Agency

Mortgage fraud is pervasive. This is the first of a series of blogs describing different types of mortgage fraud and the flags that can help anyone involved in the real estate and financial sector identify them.

One fraud seen with increasing frequency is forged mortgage satisfactions. A major example of this type of fraud occurred in 2005 in Greenwich, Connecticut. A respected real estate developer owned a number of commercial properties. It turns out that to generate more cash flow, he was routinely forging mortgage satisfactions of mortgages encumbering properties he owned. Continue reading

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Parking Arrangements in Construction Exchanges and for Other Purposes

By: Lee David Medinets, Esq., Chief Counsel, MCRES, Madison Exchange a/k/a Madison 1031, and affiliates

In the last few posts, we looked at how parking arrangements are handled in reverse exchanges. Construction exchanges are in some ways very similar to reverse exchanges. Both involve a parking arrangement. In a construction exchange, however, the purpose of the parking arrangement is different.

IRC § 1031 allows for the cost of construction on replacement property to be counted as part of the purchase price of that property, but only to the extent that the improvements have been made to the property before the taxpayer acquires it. Once the taxpayer owns the replacement property it is too late. Moreover, payment for bricks and mortar sitting at the construction site does not count for exchange purposes until those bricks and mortar have been attached to the ground. The cost of services performed for construction counts, but not the cost of services that have not yet been performed. In a construction exchange, the parking arrangement allows these improvements to be made while the property is in the hands of a friendly party. Continue reading

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Parking Arrangements in Reverse Exchanges – Part 3

By Lee David Medinets, Esq., Chief Counsel, MCRES, Madison Exchange a/k/a Madison 1031, and affiliates

In my last post, we looked at how a safe harbor reverse exchange works under Rev. Proc. 2000-37. Either the relinquished property or the replacement property is “parked” with an “exchange accommodation titleholder” or “EAT”. We also discussed the restrictions on a safe harbor reverse exchange that must be included in a “qualified exchange accommodation agreement” (a “QEAA”) in order to have the benefit of the safe harbor. In this post we will examine the difference between parking a replacement property versus parking a relinquished property.

There are usually some significant advantages to parking the replacement property instead of the relinquished property. Here are five advantages. Continue reading

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