Let’s take a quick look at the four most common types of commercial leases: gross, modified gross, triple net, and bond lease. Which one is right for the deal you’re trying to complete?
Common especially for office buildings, in a gross lease, expenses in the operating category such as trash collection, janitorial, utilities, landscaping or management fees are typically picked up by the landlord. While operating expenses under a gross lease are often picked up by the landlord, beware of terms such as an expense stop, aka a limit imposed on the amount of such expenses paid by the landlord and that sends any costs over that stop to the tenant. This “stop” can be calculated in a variety of ways, but often you’ll see terms that use the historical expense profile of the property in previous years (sometimes called “base year”) used as the amount that the landlord will be paying — and no more than that.
Modified Gross Lease
Often this type zeroes in on utilities and janitorial expenses and passes them to the tenant. This type of lease is often used for businesses with extreme needs for electrical power or for tenant operations that require direct control and/or exclusive use of HVAC, and so tenants will accept the maintenance costs for HVAC. Expense categories are by no means boilerplate, meaning what constitutes tenant costs vs what constitutes landlord costs are subject to negotiation. Concepts like CAM (common area maintenance) charges are fungible: they might be broken out into sub-categories for the purpose of isolating costs so that they can be assigned to specific tenants.
Triple Net Lease
In gross leases, the tenant pays its share of operating expenses usually calculated by a “base year” calculation, with payment limited to certain operating costs. The triple net is where the tenant is on the hook for 100% of operating expense of the tenant’s share of the space. Costs commonly include the big three (aka the “triple” in “triple net”): property taxes, insurance and common area maintenance (CAM). Commonly used in retail centers, the triple net lease can result in lower rent payments but with operating expense charges added in, comparisons to gross leases on comparable properties can result in similar total payments. Sometimes called the “hell or high water” lease, the triple net still usually doesn’t send 100% of building costs toward the tenant: very commonly, the responsibility for rooftop maintenance and the structural integrity of the building are the responsibility of the landlord.
The most unusual of the four lease types, bond leases go further than triple net in assigning costs to tenants. The responsibility for maintenance and replacement if necessary, of building systems, roofing, exterior and structural components of the building can be assigned to the tenant under a bond lease, in addition to the obligations under a triple net lease. Even further, a bond lease can assign to tenant capital expenses and tenant improvement costs. Under a bond lease, if the building falls down, the tenant is likely on the hook for rebuilding it. Bond leases are typically used for single-tenant properties and situations where financialization of the lease is a priority — the tenant being responsible for nearly everything associated with the property’s operation and continued existence means the lessor’s position is about as liquid as it gets in commercial real estate.
(Reference: SIOR Glossary of Real Estate Terms)
Read Up On Commercial
We’re one day away from a “revolution of the global real estate market,” promises LiquidBricks, a bleeding-edge technology based startup with very interesting financial engineering ambitions.
I first learned of LiquidBricks while reading Commercial Observer’s coverage of Wall Street’s most recent efforts to securitize commercial property leases.
Some quick background: securitization is the name for the act of taking an illiquid asset, or a group of them, and packaging them for sale and resale as a security, usually a bond.
Mortgage-backed securities are a classic example of securitization, and in the residential real estate space, have earned a terrible reputation as a means to mix bad credit in with good credit, with the potential to bring the global economy to its knees, as was done in 2007-2008.
In the commercial space, securitization of mortgage debt hasn’t earned the same lousy reputation, and commercial mortgage-backed securities are not associated with scorched earth in the way their residential cousins have been.
In that light, Wall Street has been working on applying securitization principles to commercial real estate. One of today’s goals for the Street’s “financial engineers” is to apply securitization not just to debt incurred in the financing of commercial property, but to commercial leases themselves.
The idea is to create pools of like-kind leases and treat them like bonds – putting the combined leases up for sale on the open market packaged as one instrument.
Leases Aren’t Mortgages, So How…?
The big problem with this is the fact that commercial leases are far more than just payment schedules. They are not financial instruments as much as they are sets of conditions and rules that underpin a living, working, productive business. One lease does not fit all retailers, one set of clauses that works for one warehouse project is completely inappropriate for another, et cetera. Some experts say that efforts to securitize assets in commercial property belong under the umbrella of CMBS and not lease securitization.
“The CMBS market is very hot. I’m not sure why now would be the right time to” securitize leases, said Stijn Van Nieuwerburgh, director of the Stern Center for Real Estate Finance Research at New York University.
Mr. Van Nieuwerburgh said that while securitizing commercial leases is theoretically possible, he fails to see the “business logic” behind it and questions the appetite for these exotic investments.
“Why on earth would they invest in these commercial lease securities if they could invest in CMBS instead?” he said. “I don’t see what kind of need this addresses that CMBS does not.”
Enter The Blockchain and “Smart Contracts”
At a technical level, the problems posed by the marked differences between commercial leases are problems of standardization. Commercial rent income flows are conducted according to a schedule and are often variable subject to the terms of the lease. What if there was a way to make the rent flows as well as the rules embedded in the lease part of the same automated financial system, creating predictability and transparency in sufficient amounts so that the lease could be packaged as an investment vehicle?
This seems to be the key idea behind LiquidBricks. In the same Commercial Observer article, LiquidBricks (founder: Luigi Boschin) Chief Technology Officer Dan Doney talks about using the “blockchain“, a kind of public and irrevocable digital ledger, to create self-executing or “smart” contracts. If a commercial property’s lease arrangements are conducted in a currency that uses the public blockchain as a ledger and can define its rules in a programmatic way so that when X condition is met, Y adjustment is applied to the income flow (also automated), it becomes possible to introduce liquidity where there was none before. Fast transference of ownership and similarly fast alterations of income flow become possible. Lease terms that are unlike can, in theory, be treated as similar terms, clearing the way for packaging and resale.
“Liquid bricks”, indeed.
When LiquidBricks launches, we should expect hype, skepticism, and confusion. We should expect a lot of caution surrounding the carefully-crafted leases that the industry runs on. The blockchain technology proposed to be used here is the same that powers the alternative currency Bitcoin, and Bitcoin is still not ready for prime time.
But also expect the bleeding edge of financial engineering to call upon us to challenge our imaginations and question long-held assumptions. The only thing we shouldn’t expect in the long run is for commercial real estate’s financial instruments to escape the evolutionary pressures of technology or financial engineering. The only constant is change.
Riding a grocery cart to riches, a $1 trillion milestone in multifamily, a Japanese history lesson, and Fannie likes green. All this and more in the Commercial Real Estate News Roundup for September 28, 2015.
- It’s Supply, Not Demand, Slowing Deal Flow, GlobeSt.com, September 25, 2015 – Colliers claims RCA research showing decline in national deal volume is due to tenants being all dressed up with nowhere to go.
- Lenders Prefer Multifamily and Industrial Over Retail, National Real Estate Investor, September 24, 2015 – Is capital avoiding retail in favor of other property types?
- Tech Leads Office While Ports Dominate Industrial, GlobeSt.com, September 22, 2015 – SF, SV, Phoenix and Austin are leading the tech office boom.
- Economy Watch: The Scoop on Upper-End CRE, Commercial Property Executive, September 21, 2015 – Almost as if in response to the Fed’s recent decision to keep money as cheap as possible, CoStar’s national numbers show obstacles to investors finding the best properties in the best markets.
- UK Is Safe Haven for International Investors, GlobeSt.com, September 24, 2015 – Low supply in London exposed by a flood of inbound investment capital.
- Everything You Need to Know About the Last Asian Real Estate Crash, BISNOW, September 23, 2015 – A history lesson compares the Japanese buying spree and bubble of the 1980s compared to the Chinese buying spree of today.
- Two-Tower Paris Office Gets Go-Ahead, GlobeSt.com, September 22, 2015 – The Jean Nouvel design might inspire seasickness, but the Paris office tower project is a go.
- Law Firms Adopting Collaborative Offices, GlobeSt.com, September 24, 2015 – The west coast open-office style may be coming to a white-shoe law firm near you.
- 1 WTC’s first tenant looks to shrink its space by 85%, Crain’s New York, September 23, 2015 – China’s stock market blamed for big WTC tenant’s wish to be much less big.
- New York’s Rising Office-Condo Market, WSJ, September 20, 2015 – Manhattan prices continue to soar like a pigeon.
- Industrial Plants Getting a Re-Design, GlobeSt.com, September 24, 2015 – SIOR and industrial property experts launch study on rehabs for the 20th century’s still-standing building stock to make it useful again.
- What’s In Industrial’s Future? GlobeSt.com, September 23, 2015 – JLL’s Managing Director of Ports and Airports talks the future of ports.
- Monmouth Sells North Carolina Industrial Property for $9M, Commercial Property Executive, September 21, 2015 – Tenant buys 160K sq.ft. industrial home. Seller says proceeds are headed to built-to-suit projects.
- CBRE Selected to Manage Large Industrial Portfolio, Commercial Property Executive, September 21, 2015 – A big industrial property deal in Tampa/St. Pete ends with CBRE snagging a plum management contract.
- Grocery, Most Active Sector in Retail, GlobeSt.com, September 24, 2015 – Retail without grocery anchor is not catching the imaginations of investors in the retail sector.
- What Gap Could Do to Make Itself Fashionable Again, The Street, September 24, 2015 – Fighting off the off-price competition has Gap struggling and retail pundits offering ideas on how to win.
- After Layoffs and Shuttering its Flagship Store, DKNY will Move to Smaller HQ, Crain’s New York Business, September 21, 2015 – First Donna Karan left DKNY, now DKNY leaves its flagship store.
- Largest-Ever South Beach MF Portfolio Selling, GlobeSt.com, September 25, 2015 – One-stop shopping for highly rented out apartments as a key portfolio hits the market.
- Multifamily Permits Fall Back, Multifamily Executive, September 23, 2015 – Is it a slowdown in new construction permits nationally, or is it just NYC hitting the wall, allowing the national numbers to normalize?
- Multifamily Mortgage Debt Tops $1T in 2Q, Housing Wire, September 22, 2015 – Lots of capital out there financing multifamily property.
- More Loans Available for Green Multifamily, National Real Estate Investor, September 22, 2015 – Fannie Mae will lend you more green if your building is green.
- No Sign of Slowdown in Vancouver Commercial Real Estate Sales, Vancouver Sun, September 24, 2015 – Western Canada may be slowing down, but Vancouver has had its best quarter in five years.
In the multifamily building, operational problems can go hidden for a very long time, affecting performance for owners and managers as well as quality of life for tenants. If there’s one thing technology has done to commercial real estate, it has been to expand the amount and variety of information that can be captured about a property, all with the idea of revealing such problems. A significant portion of the new tools and techniques for information collection are there for the use of managers and owners — capabilities ranging from smart meters for water and electricity usage to using software to shape the ideal mix of amenities.
To get a great update on the state of building data collection sensors and other items that fall under the “Internet of things”, check out this excellent free webinar from Chad Curry, Managing Director of NAR’s Center for REALTOR® Technology.
Technology’s giant impact on the commercial property industry means government is also in the business of collecting information on property performance. As various governmental departments of New York City have recently demonstrated, it’s a task at which they can excel.
NYC Does Numbers
City agencies in NYC compile a great deal of information about commercial properties of all kinds, and in the multifamily sphere, they tend to focus less on economic performance and more on health and safety concerns. What’s worth noticing here is the degree to which these previously far-flung agencies are now actively sharing data, leading to new categorizations that affect, or potentially affect, landlords and managers.
Tenant complaints, court outcomes, code violations, liens, foreclosures — in the past, all were collected separately and stayed in separate piles. That era is over.
Knitting together these categories of information under a single governmental warehouse is the Mayor’s Office Of Data Analytics (MODA) and the Department of Housing Preservation and Development (HPD). One key result of all this collection and focus on the entire profile of a multifamily property is the notion of “building distress”.
An eye-opening blog post about this process and about “building distress” was published at DataLook’s blog, The fundamental takeaway should be a wakeup call to owners and operators of multifamily property. The technologies and techniques being used in NYC are in no way solely the domain of huge cities. Which means that no matter where you own, your relationships with local government could soon enter a phase where scrutiny of your property is going to be informed by more history of that property than has ever been mustered at any one time.
Trump does Bali, the Fed hits the snooze button, European commercial investment levels are dropping jaws, and just what does three hundred bucks a square foot get you in Manhattan? It’s all here at the Commercial Real Estate News Roundup for September 22, 2015
- The Verdict on Higher Interest Rates, Commercial Property Executive, September 17, 2015 – Inflation refuses to rear its head, and the Fed doesn’t want to tug on the dragon’s tail. But last week’s vote to keep rates where they were was the first in recent memory that wasn’t unanimous.
- What’s Driving a 25% Increase in Commercial Construction, BISNOW, September 17, 2015 – A construction giant announces nonresidential starts are exceeding those of housing.
- The $1 Trillion Idea, Commercial Observer, September 16, 2015 – Read this all the way through for an update on the state of securitization of commercial RE. Spoiler alert: Uh oh, Wall Street’s getting “innovative” again.
- Moody’s Report Is Raising Concerns Over Lending, BISNOW, September 16, 2015 – Ratings agency tut-tuts over declining standards in a time marked by crazily high liquidity levels.
- European Commercial Property Markets Sees 30% Growth Year on Year, Property Wire, September 18, 2015 – There’s growth, and then there’s 30% year-over-year growth. The eye-popping stats from across the Atlantic — and the effect on yield numbers.
- Trump Rolls Out Welcome Mat in Asia, Commercial Property Executive, September 15, 2015 – The presidential candidate and a partner are getting going on a new luxury development in Bali.
- Brace Yourself Landlords: There are More Obsolete Offices Than You Realize, GlobeSt.com, September 17, 2015 – Researcher finds that up to 1B sq. ft of US office space — mainly in the suburbs — is obsolete. Parking ratio and floor plate are among the big factors.
- 7 Things You Need to Know About DC’s Office Market, BISNOW, September 16, 2015 – Apartment amenities in the nation’s capital should, according to some, include indoor hydroponic gardens and dog day care. In other words, more San Francisco and less Chevy Chase.
- Texas Real Estate Investor Bets Big on O.C. Office Space, Orange County Register, September 13, 2015 – A Texas player looks at Irvine CA’s recession wreckage and sees conference space investment gold.
- Citadel to Pay Priciest Rent in City History, If Not the World, Crain’s New York Business, September 13, 2015 – 300 bucks per square foot. It happened. And you know it had to happen in Manhattan.
- Lucky Tenants Finds 200,000SF Industrial Build, GlobeSt.com, September 18, 2015 – With low vacancies and a big expansion in its business, Giant Bicycle shifts gears and picks up a 200K worth of new digs in Cerritos, CA.
- Logistics’ Continuing Impact on Industrial, GlobeSt.com, September 17, 2015 – A CBRE managing director and peers speak up on the mix of supply chain needs, flexibility and the economics of warehousing.
- Bklyn Industrial Getting “Unheard Of” Rents, GlobeSt.com, September 16, 2015 – What happens when industrial tenants have to step aside so that demand for residential live/work space, retail and hotel can be satisfied?
- Simon Reveals Tulsa Premium Outlets Location, Commercial Property Executive, September 16, 2015 – Jenks, OK snags a 300K+ retail development promising 8-90 stores, thanks in part to an Indianapolis REIT.
- Report: Chico’s Considers Private Equity Sale, Chain Store Age, September 14, 2015 – Activist shareholders are waving their pom-poms for a sale of the women’s clothing and accessories chain to a PE shop.
- ‘The worst storm in retail history’ is heading straight for Walmart, Kroger, and Whole Foods, Business Insider, September 11, 2015 – German invaders Aldi and Lidl are coming to start price wars, says industry analysts. Bad news for upscale (Whole Foods) and budget (Wal-Mart) brands.
- Are EB-5s the Answer to Affordable Housing?, GlobeSt.com, September 17, 2015 – The visa-for-investment program turns its attention to affordable housing. But does EB-5’s requirement to create jobs mesh with the development of affordable housing?
- Why This Old MF Sold for Such a High Price, GlobeSt.com, September 17, 2015 – Cheaper to buy than to build in Magic City, suggests one pricey multifamily deal.
- Solar Power Is Within Reach for Multifamily Owners, Developers, National Real Estate Investor, September 14, 2015 – What’s newest here is the willingness of banks to lend based on projected income from solar panel-generated power.
Catch a critical webinar on real estate tax topics and snag a special rate from CCIM for REALTORS®! The seminar runs one week from tomorrow, on Sept 25 from 1-2:30PM CST. Don’t miss this key presentation on the latest tax issues! Register today at the link below:
Current Topics in Real Estate Tax
The Robert L Ward Center for Real Estate Studies presents Current Topics in Real Estate Tax. This 90-minute webinar to will provide information on trending real estate topics in U.S. tax structure and their potential impact in how real estate professionals do business. Hot topics include the outlook for expired tax provisions and 1031 Like-Kind exchanges. Evan Liddiard, Senior Policy Representative – Federal Taxation from the National Association of REALTORS® and former tax advisor to Senator Orrin G. Hatch, current chairman of the U. S. Senate Finance Committee, will be our facilitator. The session will be held on next Friday, September 25, 2015 from 1:00 – 2:30 pm (central time.)
The fee for non-members is $95. CCIM Institute is happy to offer our REALTOR® partners a special rate of $30.00.
Register now – space is limited: http://www.ccim.com/education/course/TOPIC/TOPIC002
Drone testimony from NAR’s President, 50M new square feet of industrial comes online, and apartment tenants controlling thermostats and window shades with their smart phones — it’s all here in the Commercial Real Estate News Roundup for September 14, 2015.
- NAR President Testifies Before House Judiciary Subcommittee in Support of Responsible Commercial Drone Use, National Association of Realtors, Sept. 10, 2015 – NAR President Chris Polychron visits the House Judiciary Committee on the matter of drones — and on Congress continuing to issue waivers to allow real estate professionals to operate them.
- Net Lease Buyers Consider Multi-Tenant Properties, GlobeSt.com, Sept. 9, 2015 – Packing maintenance and insurance into apartment building numbers – a new trend?
- Office buildings with the best tenants? They boast healthy living amenities, REJournals.com, Sept. 11, 2015 – Healthy tenants are happy tenants, says the experience of office property managers fielding demand for bike storage.
- Why Decision Makers Are Crossing Their Fingers, GlobeSt.com, Sept. 10, 2015 – A cloudy crystal ball in Miami has professionals taking a wait and see attitude to transactions.
- St. Louis Offices Bring in Big Money, GlobeSt.com, Sept. 10, 2015 – $36M office acquisition by a REIT prompts a broader look at the office market under the arch.
- Q2 North American Industrial Report, Colliers International, Sept. 9, 2015 – Colliers 2Q report on industrial highlights talks up the sector’s cap rates against today’s low-yield national market.
- Strong Demand Leads Developers to Pursue New Industrial Projects, National Real Estate Investor, Sept. 11, 2015 – 50M sq ft. of new industrial space came online in 2Q.
- Right Location, Right Mission Are Paramount, GlobeSt.com, Sept. 10, 2015 – From business continuity planning to good old location-finding, valuing industrial property strategically is about finding the right mix of drivers.
- Self-Storage Owners Gaining Access to Credit, GlobeSt.com, Sept. 8, 2015 – Aries Capital joins the Self Storage Association, bringing that industry greater access than ever to capital to fuel its growth.
- Forever 21 Evaluates the Size of its Store Prototype, National Real Estate Investor, Sept. 9, 2015 – Nation’s fifth largest specialty retailer puts its space model back on the drawing board. Is smaller better?
- New Center More Than Just Outlets, GlobeSt.com, Sept. 11, 2015 – The latest retail transaction of note in Orange County’s San Clemente promises a little more than the tried and true outlet formula.
- Capital One Makes $89M Loan for Miami Multifamily, GlobeSt.com, Sept. 11, 2015 – Credit card giant puts eight figures on the table to add to the multifamily picture in Magic City.
- High-Tech Multifamily Gets Big Results, GlobeSt.com, Sept. 11, 2015 – Window shades and thermostats controlled by smartphone app, and the tenants couldn’t be more thrilled
Fine & Company auctioning nearly completed 150-unit apartment building in Joplin, REJournals.com, Sept. 11, 2015 – Joplin, MO’s 150-unit development, almost done and now under auction.
Nationally speaking, the finance of owner-occupied commercial real estate seems to never get significantly easier. Our current national economic conditions of recovery have not yet heated up the average enthusiasm of bankers for financing sub-$2M expansions in most real estate sectors, which ensures a more or less permanent lending gap affecting small business that Congress has recognized and addressed with the creation of the Small Business Administration.
Dating back to the Herbert Hoover administration, what eventually became the SBA was established by Congress to help businesses hurt by the Great Depression of 1929-39. Shepherded along by Franklin Roosevelt, the program evolved during World War II to assist smaller suppliers with loans in competing against huge corporations for manufacture of war materiel. The SBA we know today was created in 1952 by Congress and signed into law the next year by Dwight Eisenhower, spinning it off from the US Department of Commerce into the standalone agency “under the general direction and supervision of the President”.
7(a) – The SBA’s Keystone Loan Program
SBA’s lending and programs are many, but the biggest and most used is called 7(a) Loan Guaranty, where loans up to $5M are available to business for a wide range of purposes including real estate financing. Terms can reach as long as 25 years while most loan repayments are shorter than that.
Fixed-rate 504 loans
While SBA offerings under its 7(a) program are fairly well known, less widely known is the 504 Certified Development Company loan program. Offering long-term fixed-rate loans for purchases of real estate or equipment, 504 is lauded for lower costs because the fixed interest rates tend to be below-market.
Intermediaries called Certified Development Companies commonly secure 40% of such loans, with 10% coming from borrowers and the remaining 50% coming from a private lender under SBA guarantee. According to the most recently published SBA Quarterly Lending Bulletin, the aggregated number of small business loans outstanding reached almost $600 billion, reflecting a rise year-over-year of 1.7%.
Both commercial industrial (C&I) and commercial real estate (CRE) loans make up small business loans.1 A careful look at these loans shows that they continue to indicate progress in capital availability for small businesses. For example, C&I continues to maintain a positive uneven growth (Figure 2). In addition, the decline in the small business share of CRE loans has slowed. C&I loan standards changed little in the first quarter of 2015, but bankers reported easing standards and terms on loans secured by nonfarm nonresidential borrowing (Federal Reserve’s Board Senior Loan Officer Opinion Survey). While there was not a significant change in demand for C&I loans, respondents reported that the demand was stronger for all CRE loan size categories.
The reminder is that SBA financing is a heavily-used option for the commercial real estate deals that are in the reach of professionals in secondary and tertiary markets. As the recovery struggles to spread itself evenly across all the scales of local market in the US, 7(a) and 504 programs are there to make that recovery felt in every corner of the economy.
Big mergers, global buyers desire one-stop-shopping, industrial pricing may be at its peak, Wal-Mart shrinking, Apple’s fresh look, booming multi-family market — and more. It’s all here at the Commercial Real Estate National News Roundup for September 8, 2015.
- Cushman & Wakefield Takes Historic Leap Forward, Commercial Property Executive, September 3, 2015 – Consolidation continues to shake up the CRE industry.
- The Cloud’s Impact on CRE is Clear, GlobeSt.com, September 1, 2015 – Construction pipeline for data centers surges.
- How the Global Economy is Affecting US CRE, GlobeSt.com, August 31, 2015 – Lower oil prices coupled with few jobs overseas cause investors to continue to be bullish on the US property market.
- Top Tech Cities in U.S. Commanding Hefty Office Rent Premiums, World Property Journal, September 2, 2015 – Opportunities for CRE investment trending way up in markets that command up to an 87% rental premium.
- It’s Not About Where You Do the Work, GlobeSt.com, September 2, 2015 – Productivity trumps location for many in today’s office market.
- The Most Dominant Office Market Trend, GlobeSt.com, August 31, 2015 – Tenants are expanding and bringing out of state divisions to the Tampa office market.
- Hot Baltimore-Washington Corridor Industrial Market Sees Another Sale, Commercial Property Executive, September 4, 2015 – Investors rush to buy property in industrial “promised land”.
- NY Investor Grabs East Baltimore Industrial Site, Commercial Property Executive, September 2, 2015 – Existing tenants make acquisition very attractive.
- Industrial Pricing Heads Toward Peak, GlobeSt.com, September 1, 2015 – Sales activity for industrial properties approaches 2007 high.
- Can Wal-Mart Support 5,200 Stores?, 24/7 Wall St., September 4, 2015 – Will Wal-Mart’s empire expand or decrease in 2016?
- Apple Stores are About to Change in this Huge Way, Fortune, September 2, 2015 – Apple stores to get a fresh new look soon.
- Retail Development Picks Up in Louisville, GlobeSt.com, September 2, 2015 – National retailers flock to the I-65 corridor in Louisville’s metro area.
- High Walk Score Makes MF Stand Out, GlobeSt.com, September 4, 2015 – Value-added properties that offer high walkability and family fun are very desirable in suburban areas.
- The Latest on Rent Growth, Commercial Property Executive, September 1, 2015 – Multi-family rent growth holding strong, but volatile international stock market may trigger a cooling soon.
- Steady Hiring Favors Multifamily, GlobeSt.com, August 31, 2015 – Consumer confidence and a record number of 20 somethings in the market drive multifamily income opportunities.
- The Largest Company in Each State (247wallst.com)
- ‘Game-changing’ $2B deal to merge Cushman & Wakefield, DTZ complete (bizjournals.com)
- Commercial Real Estate News Roundup For August 31, 2015 (commercialsource.com)
Since 1990, the EB-5 visa program has been a tool for converting international capital flows into local economic development and employment, creating jobs in targeted areas and offering foreign investors visas for doing so. Funds from foreign investors are often channeled into capital for commercial development projects and a cottage industry around the process has arisen in the years since it first came online. Commercial brokers and developers across the country have participated in projects funded in part by EB-5 investors, and the interest level is on a steady rise.
Since the time when I published a large list of EB-5 Regional Centers, we’ve seen the program in the news, backing interesting and sometimes even exciting projects all over the U.S.
With Finance Sometimes Comes Allegations Of Fraud
Along with this spike in interest and EB-5 participation has come charges of fraud and abuse from the SEC, such as the recent case of two commercial property developments that allegedly weren’t, both in Seattle. Using private placement memos and subscriptions that, according to prosecutors, did not accurately reflect the project to investors, has landed one developer in hot water. While non-EB-5 proposals are just as susceptible to fraud as those under the program, other cases abound, and concerns about lack of transparency as to the program’s effectiveness have been raised.
Report Cites Successes, Challenges, Provides Perspective
A recent Report by the Brookings Institution cites EB-5’s increased utilization despite a “dearth of reliable and publicly available data [on] the economic impacts of regional center investments.
An hour spent with the Brookings report will very well serve the reader interested in understanding the broad shape of the EB-5 program. It’s invaluable for parsing out the network of intermediaries in the program, understanding compliance requirements and learning the history of successful partnerships between regional centers, investors and the communities they serve.