Commercial Real Estate Blog by Madison

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Real Estate Trends

Hot Definitions – Trending Words Every Real Estate Professional Should Know

By: Lainie Goldberg, Director of Education

As societies evolve, language and word usage changes to reflect new trends and the reality of our ever-changing world. Did anyone know what carbon footprint or best practices meant before the 1990s? Did the terms crowd funding or tweeting even exist a decade ago? New words and phrases often help to define a generation, a society, or a movement. Staying current of the new lingo and phrases in real estate helps professionals stay up-to-date.

The Trusted Advisor brings you three new terms to add to your real estate vocabulary portfolio. Use them now in day-to-day conversation, or stow them away for your next meeting with a new client or business prospect. Knowledge and usage of these new words and phrases will grow your real estate expertise and keep you on the cutting-edge of industry jargon. Continue reading

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Increase Commercial Real Estate ROI by Aggressively Managing Costs

How Many Property Managers Does it Take to Change a Light Bulb? Three Ways to Increase the ROI of Commercial Real Estate by Aggressively Managing Costs
By: Daniel Kasten, CPA, Chief Financial Officer, Madison Commercial Real Estate Services

In reviewing the line items for a commercial property, costs are divided into two categories: non-controllable and controllable. Non-controllable costs are those items which usually remain fixed, such as, taxes, insurances or utilities. Short of an appeal, real estate taxes remain at a fixed percentage. If you shop around, you can try to lower your insurance rates, while utilities are billed by the standard fees.

Most controllable costs can be adjusted to some degree. One category of controllable costs which is sometimes overlooked is payroll. Labor is the one category with the highest costs and the highest benefits. Whether the owner manages the property himself or uses a property management company, there are a number of variables which can affect the bottom line within the category of payroll and HR.

The greatest deterrent to saving money in property management is passivity. Hands-off managers who are satisfied with the status quo will not investigate their current methods and systems to look for ways to trim costs.

It is worthwhile to conduct a comprehensive review of the controllable costs of salaries and benefits. A savvy property owner should analyze the expenses accumulated under payroll, in order discover ways to cut costs or gain value from the money invested in HR. A knowledgeable property owner or manager who wants to trim payroll expenses can try a few of these tips.
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Air for Sale: Transferring Excess Development Rights is Big Business

By: James Lee, Esq., Senior Commercial Counsel, Madison Title Agency

Real estate developers in New York City seeking to construct a brand new building or to expand on their existing building confront zoning constraints on the size of the buildings that may be built on a particular piece of land. Faced with this zoning limitation, these real estate developers sometimes turn to the adjoining landowners for excess development rights to maximize what they can build on their site. The transfer of excess development rights have allowed NYC developers to build towering residences with enhanced views.

The sale and purchase of these developments rights have become a very big business, particularly in Manhattan. Thanks to a recent feeding frenzy, prices have skyrocketed for these development rights. In the theater district in Manhattan, development rights have sold for $409 per square foot and every indication points to the price of development rights increasing even higher. Continue reading

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Potential Pitfalls in DIY Deals in Real Estate

By Elliot Zaks, Principal, Madison Commercial Real Estate Services

Do-it-yourself projects may be a worthy endeavor for a handy homeowner refinishing a deck or a green thumbed gardener installing a herbaceous border. However, in the complex world of real estate transactions, DIY measures may backfire. Buyers seeking to cut costs with DIY methods can miss out on some vital resources.

The residential home market is experiencing a shift in attitudes. Rising interest rates and stiff credit requirements are causing a slow down in residential mortgage lending, as buyers struggle to get home loans. Rather than submit to the strict rules of the banks and creditors, many home buyers are turning to all cash deals. While cash buyers have the advantage of evading lender’s regulations, they should be careful not to forego essential industry safeguards. Continue reading

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The Effect of Mineral Rights on Title, Part 2

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

Oil and gas leases can help to increase property value as well as the value of the surrounding area properties. The landowners receive an initial signing bonus, along with royalties from extracted gas. The lease also has the ability to generate revenue for the state, which benefits the local economy. The last post’s discussion on mineral rights outlined the various ways in which drilling companies can obtain access to mineral rights.

Landowners should be aware, however, that granting mineral rights can adversely affect title to the property.
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The Sale and Leasing of Mineral Rights, Part 1

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

In a typical real estate transaction between a buyer and a seller, when title to real property is transferred, all corresponding rights are transferred as well. In such a scenario, the property transferred is a ‘fee simple’ estate. The owner of a fee simple estate owns all corresponding rights to the land, including land, sky, water, and minerals. However, some states allow for the owner to stipulate severance of these rights, leading to a “split estate” system. The “split estate” system allows one parcel to be owned by separate and distinct entities. There is also a system called “fractional ownership” where the surface owner splits the ownership of the mineral rights with others, such as other family members, a corporation, or the government. Lastly, there is a “severed ownership” system, where the government owns all oil and gas resources below non-federally owned surface property.

Mineral rights, or subsurface rights, are a significant aspect of the gas and drilling industry. A drilling company will purchase the mineral rights to various adjoining properties in a certain region and then drill down and horizontally across the properties to extract the underground gasses. This could be beneficial to the landowner because he is selling or leasing rights to a valuable resource that he would be unable to access on his own. However, there are risks inherent in deeding or leasing subsurface rights to a drilling company.

There are three ways in which a drilling company can obtain rights to drill underneath privately-owned real estate. Continue reading

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My BFF – the CFPB

By Eli Young, Madison Title Agency

Are we still only in the beginning of the second quarter of 2014? Those of us living in the Banking and Insurance industries are tightly focused on August 2015, thanks to our new BFF – the Consumer Financial Protection Bureau (CFPB). Like any BFF, we want to stay as close as possible. With the CFPB’s rollout of their final integrated mortgage disclosure forms; we are closer than ever. A search through my emails for the term “mortgage disclosure” yielded an average of six or seven publications or organizations within our industry offering seminars, webinars or some sort of training to prepare ourselves for the big day in August 2015 when these new forms will be mandatory.

For those not familiar with the CFPB, let me introduce you to your new BFF. This acronym is not just for texting teenagers. It is essential for any professional in the financial industry. Continue reading

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New Private Letter Ruling Suggests a Method for Handling Certain Construction Exchanges

By Lee David Medinets, Esq., CES®, Chief Counsel, Madison Exchange, LLC

A “Construction Exchange” is a special type of tax-deferred IRC § 1031 like-kind exchange that allows a taxpayer to defer recognizing income by sheltering proceeds from the sale of relinquished property into improvements made to replacement property, not just in the cost of buying the replacement property (as in an ordinary “forward exchange”). In order for a construction exchange to work, the taxpayer cannot own the property at the time the im-provements are made. In a typical safe-harbor construction exchange [Rev. Proc. 2000-37], the replacement property is purchased from a third-party seller on behalf of the tax-payer by an exchange accommodation titleholder (“EAT”). The EAT is essentially acting as the taxpayer’s agent under a contract that allows the taxpayer to use and improve the re-placement property during the taxpayer’s 180-day exchange period. By the end of the ex-change period, the EAT transfers legal ownership of the replacement property to the tax-payer, which completes the exchange.

One common problem is that a safe-harbor construction exchange will not work if the tax-payer owned the replacement property within 180 days of the start of the exchange. [Rev. Proc. 2004-51.] What if the replacement property is owned by a related party, such as a multi-member LLC that the taxpayer controls? There has been some concern that such an exchange might fail to qualify as a safe-harbor construction exchange because ownership of the replacement property by the related party would be viewed by the IRS as the equivalent of ownership by the taxpayer himself/herself. IRS Private Letter Ruling 201408019, issued February 21, 2014, addressed this precise issue. Continue reading

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Five Things Every Real Estate Investor Should Know About Crowd Funding

By: Danny Wechsler

The market place for real estate investments is moving to your PC or tablet. Developments in crowd funding platforms are changing the way commercial real estate deals are financed. In the past, crowd funding has been utilized to secure funds for schools and social services, political campaigns, financing start up companies, and other ventures.

Crowd funding is now being used as a market place for accredited investors to pool money online and buy shares of pre-screened real estate investments. Keeping up with the developing trend, here are five things every real estate investor should know about crowd funding. Continue reading

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Appeals Court Addresses Insurer’s Duty to Defend

By: Debra Smith, Esq., Associate General Counsel, MCRES

In a recent case, K2 Investment Group, LLC, et al. v., American Guarantee & Liability Insurance Company, 21 N.Y. 3d 384, 993 N.E. 2d 1249, 917 N.Y.S. 2d 229 (N.Y. Ct. App. 2013), the New York Court of Appeals addressed the duty of an insurer to defend its insured. Even though this case did not involve title insurance, it will likely be cited in title and other insurance litigation involving the duty an insurance company has to its insured.
In this case, the plaintiffs made loans to be secured by mortgages. Following default, the plaintiffs commenced an action against various parties, including Jeffrey Daniels, a lawyer, for legal malpractice. The insured tendered the claim to his malpractice carrier, American Guarantee & Liability Insurance Company. The complaint contained allegations that the insured was a principal of the borrower. The plaintiffs alleged that the insured failed to record the mortgages and obtain title insurance. American Guarantee denied the claim and did not tender a defense based on a policy exclusion for claims arising out of an insured’s actions undertaken in his capacity as a member or owner of a business enterprise.
Here is the Court’s decision. Continue reading

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