Commercial Real Estate Blog by Madison

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Real Estate Trends

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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Title Guys in Cars talking Hockey… and Prescriptive Easements

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

As a young boy, there were three things I enjoyed most… hockey, cars and title insurance. Even to this day, I keep myself busy with these same interests. In the spirit of Jerry Seinfeld’s melding his interests into a web-only show, “Comedians in Cars Getting Coffee”, I thought I would take a shot at blogging about these three loves of mine.

I was about eight years old when hockey became my passion. It started with collecting hockey cards, playing road hockey and becoming a fan of the three-time Avco Cup champion Winnipeg Jets. (That’s right. Google it!) All the while I was studying the intricacies of title insurance while obsessing over my very first love, the automobile.

One day in the fall of 1977, my buddies and I were playing a game of street hockey in a nearby public park we frequented quite often. As was the norm, an angry neighbor came to protest for the umpteenth time that our puck (read tennis ball) landed on his property. Needless to say, I could think of only one thing: the recent decision in the matter of MacDonald Properties, Inc. v. Bel-Air Country Club , 72 Cal.App.3d 693 [Civ. No. 49715. Court of Appeals of California, Second Appellate District, Division Two. August 15, 1977.] The case involved prescriptive easements… Continue reading

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Right on the Money: It's in the Landlord and Tenant's Best Interests for CAM Calculations to be 100% Accurate.

By David I. Tesler, Esq., CEO, LeaseProbe / Real Diligence

The landlord/tenant relationship can be fraught with difficulties. As in any business relationship, it is important for both the tenant and the landlord to set clear expectations and guidelines. While real estate leases are intended to establish the rights and obligations of each side, they are often lengthy and complex documents, with unique and individual provisions as well as numerous addendums which can override previous lease language. Such complexity can lead to mistakes and misunderstandings.

One area that is fraught with errors is Common Area Maintenance (CAM) charges. Errors and mistakes between the obligations spelled out in the lease agreements and the CAM amounts billed are typical. But ultimately it is in every both the landlord and tenant’s best interests to ensure that CAM bills are 100% accurate. Here’s why. Continue reading

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Mortgage Fraud: Beware of Illegal Schemes

By: Elliot Zaks, Principal, Madison Commercial Real Estate Services

Mortgage fraud is a growing threat to the real estate industry. Although most people involved are honest, there are some borrowers, loan officers, title agents and attorneys engaging in criminal activity in order to make a quick buck. The real estate market is still suffering from the aftermath of the industry meltdown. Suspicious activity reports for mortgage-related fraud is climbing steadily each year, reaching 93,508 in 2011, versus the 46,717 reported in 2007.* While reporting suspicious activity is up, new technology has also made fraud easier than ever. Computer systems leave a window open for enterprising and technology-savvy criminals. All it takes is an Internet connection and a copy machine to produce a false Satisfaction of Mortgage document.

In a recent seminar hosted by the Madison Learning Center, the Vice President and Claims Director at one of the nation’s major title insurance underwriters discussed the various ramifications of mortgage fraud. Here are some of the most common scams now and some of the warning signs to spot potential fraud. Continue reading

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The Tax Benefits and Spread of Conservation Easements, Part 2

By: Terence P. Guerriere, Esq., Senior Vice President, MCRES

For some, conservation easements may represent an opportunity to emulate Henry David Thoreau, “I went to the woods because I wished to live deliberately, to front only the essential facts of life” (Walden). Conservation goes a long way towards protecting the natural world for future generations, by preserving species and their habitats.

Conservation easements also offer a significant benefit to taxpayers. After last week’s discussion on meeting the IRS requirements in order to qualify for conservation easement, let’s evaluate how a conservation easement impacts the property owner’s bottom line. The benefits may explain why conservation easements are growing. Continue reading

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Qualifying for Conservation Easements, Part 1

By: Terence P. Guerriere, Esq., Senior Vice President, MCRES

In the world of commercial real estate, conserving nature goes beyond protecting environmental resources. When structured correctly, conservation easements can ensure renewable resources for future generations, and provide some monetary advantages for the here and now. Under certain conditions, conservation easements are recognized by the U.S. Internal Revenue Service (IRS). If IRS requirements are met, the landowner may qualify for certain tax incentives.

Just exactly what is a ‘conservation easement’ and what are the IRS requirements for a
parcel of land to qualify for conservation easement? Continue reading

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Impressions from the ICSC NY National Conference: Cold and Crowded but There is a Bright Future Ahead.

By: Danny Wechsler

According to ICSC, the New York National Conference is “A great opportunity for owners, developers, retailers, brokers, lenders, municipalities, property asset managers and product and service providers to gather under one roof to exhibit, make deals and form successful business partnerships.” But the description “under one roof” is a misnomer. The convention actually takes place at the Hilton Conference Center in midtown Manhattan, with overflow crowds spilling into the Sheraton across the street. The set up is far from perfect. Although the venue was not ideal, the overall mood of the 7,000 plus attendees was positive. There was a definite uptick in traffic. Continue reading

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NYC Hotel Boom: If You Build Them, They Will Come

By Mark Faham

As I take my daily walk from the subway to my office in midtown Manhattan, I am continually amazed by the amount of hotel construction that is underway on the west side of 5th Avenue between 35th and 39th streets. Developers have discovered that they can take narrow 40-80 ft-wide properties in the middle of a side street and build a 100-200 room hotel. These new hotels have, on average, smaller-sized rooms and fewer frills but their rates are about $200 per night or less, which is much lower than the average NYC room rate of $300 per night.

Hotel development in NYC is not limited to the area just mentioned. All over the city and the outer boroughs, hotels are literally going up. Hotel room supply continues to gain, with increases of 3.5% in 2012, and 4.1% projected in 2013. If you wonder what is driving all that construction, here are some interesting stats about the NYC hotel boom. Continue reading

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