Cherrytree Group LLC Blog

How is a Distressed Asset Investment Fund set up? First, you need legal advice and consultation throughout the entire process. The laws, disclosure requirements, and particulars of each Fund are different. However, here is a legal guide. This is only a guide and should not be considered legal counsel.

This Legal Guide is meant to be educational and informative and discusses general legal principles; however, it should be used for informational purposes only.

Many assets have become distressed due to high vacancy rates, inability to refinance existing debt, depletion of reserves, and disrepair. This, along with the decline in the real estate market, have made these assets more affordable. But the capital funding needed to acquire, rehabilitate and reposition these assets is more difficult to obtain. Here are the basic steps and principles involved in the set-up of a Distressed Asset Investment Fund.

Step 1: Know your purpose.

In the current credit market environment, the traditional means of financing an acquisition of distressed assets have become difficult. Consider a strategy that includes successfully completing a private equity offering into a fund-type entity that will utilize its assets to acquire, rehabilitate and reposition distressed assets for cash flow (rentals) and residual proceeds (sales). These ownership entities have a greater chance of obtaining financing than individual or corporate borrowers, and are also able to occupy a better position as a buyer of distressed assets due to the fund's capitalization.

Step 2: Create a Set of Offering Documents.

What needs to be achieved is a private equity offering that meets the requirements of the 1993 Securities Act, and the applicable state securities statutes, also referred to as the Blue Sky laws. These are the "securities laws", that require you to prepare a set of offering documents that clearly lay out your plan, the risks involved, your financial assumptions, and the projected returns investors could achieve. They should also included a series of full and adequate precautions ensuring that the investment is appropriate for the investors, and that the investors are appropriate for the particular investment, given their financial sophistication, net worth or earnings capacity, size of investment, and the relativity of the risk to their tolerance for such risk. This is where you separate investors as either "accredited" or "non-accredited" as that term is defined in the Statute. You should also create a corporate structure that will receive the funds, and hold the investments.

Step 3: Raise Capital.

This is easier said than done. You need a full and legally adequate set of offering documents that will present the investment to accredited investors so  that have a clear understanding of the investment, your business plan, the risks involved, and whether or not they will be able to have access to their capital. Your business plan needs to be well thought out and detailed.  It is also helpful to have identified, and secured the commitments of the people who are to act as your management team.

Step 4: Identify appropriate investment opportunities.

Stick to the parameters that you identified in your business plan and the asset investment requirements that you committed to in your offering documents. Use industry sources, and other such information to source and identify appropriate investment opportunities for your fund.

Step 5: Make sure that you are capable of rehabilitating the assets and repositioning them in the marketplace.

Most distressed assets are deteriorated and will need rehabilitation. You will need to have access to a general contractor and construction related expertise, and an attorney to draft contracts that define the process, the payments, and the job. Eventually, you will either be holding the property for rental and will need a property manager, and a leasing staff, including your business attorney to draft leasing documentation; or you will be looking to sell the property and reinvest the proceeds in another appropriate asset, which will require finding a buyer and closing the sale.

Step 6: Keep your investors informed and create a compliance/administrative operation.

You will need to manage investor disbursements if this was promised in your offering documents, investor and property tax considerations, ensure you have adequate working capital for property repair, management, and additional capital investment, and ensure that you are in compliance with property management requirements, tax payments, investor questions and reports. This will require adequate management and compliance skills, as well as professional accounting and legal assistance, for both purchases and sales of assets, as well as for leasing, eviction issues, disputes, insurance issues, injuries, and other daily property management concerns.

Wind power is facing a make-or-break moment in Congress, with renewable-energy firms' projects on hold as lawmakers debate whether to extend subsidies for new wind farms this month.

Currently U.S. tax credits are available only for facilities that come online before the end of 2012. Iberdrola Renewables, the second-largest U.S. wind operator, has suspended work on new U.S. projects for "anything we can't build in 2012," said Rich Glick, vice president of government affairs for the unit of Spain's Iberdrola SA.

Industry players see two main chances for Congress to act this year. One comes in February, when the wind subsidies could be tacked on to an extension of payroll-tax cuts. The other would come in the lame-duck session after November elections, when lawmakers must address the expiration of tax cuts from 2001.

The tax credit has helped bring down the cost of wind power, making it more competitive with rival producers, but wind's backers say they need a few more years to build out a U.S. supply chain. The sharp fall in U.S. natural-gas prices has made this a particularly sensitive moment for wind energy by giving gas-fired power plants an extra cost advantage.

Previous delays in extending the wind-farm tax credit have led to drop-off in wind installations. The credit, designed to help level the playing field with coal and other fossil fuels, is worth 2.2 cents per kilowatt-hour of electricity produced during the first 10 years a wind farm is in operation.

A delay could also stunt efforts to bring down the cost of wind-power technology. "We face the loss of domestic expertise and the momentum to build a strong domestic supply base," said Luis Miguel Fernandez, chief corporate officer for the North American arm of Spain's Gamesa Corp., which has a factory in Pennsylvania.

Last month, Vestas Wind Systems said it will cut 1,600 U.S. workers if the tax credit isn't renewed, on top of 2,300 jobs it is already shedding world-wide. An industry-backed study by Navigant Consulting said in December that thousands of additional job cuts could occur if the credit expires.

About 6.8 gigawatts of wind power were installed in the U.S. in 2011, bringing the total nationwide capacity to nearly 47 gigawatts, enough to power about 12 million homes at any given time, according to the American Wind Energy Association. That is about 3% of total U.S. generating capacity.
 
Without the wind tax credit in place, Navigant said, about two additional gigawatts of wind capacity would be installed in 2013, as opposed to more than eight gigawatts expected to be added in 2012, when the tax credit will still be in place.
 
Other predictions are more dire. Iberdrola's Mr. Glick said there would be "close to zero" gigawatts of wind capacity installed next year without an extension soon.

Some in Congress say it is time to end subsidies for renewable energy. The wind industry "simply cannot continue to rely on the American taxpayer," said Rep. Mike Pompeo (R., Kan.), who has a bill that would cut many energy-related credits from the tax code. "Each time it comes up to a year of expiration, they say, 'If we just get a few more years our technology will mature and we will become more competitive.' It's time for them to figure out how to do that."

The industry's supporters argue that Chinese manufacturers also get government support, and they say companies need more time to build a U.S. supply chain and drive down costs.

Denise Bode, president of the American Wind Energy Association, said that in several years' time "we will not need" the tax credit but losing it now could stunt efforts to attract new investment.

Some U.S. facilities may keep going without the credit, thanks to foreign demand and mandates in many states for utilities to buy increasing amounts of renewable power.

Twenty-three governors have backed a bill that would extend the tax credit by four years. Senate Majority Leader Harry Reid (D., Nev.) said late last month the credit is "extremely important" and suggested it should be included with the extension of the payroll-tax break.

Some House Republicans have supported the four-year extension. But Rep. Dave Camp, a Michigan Republican and lead House negotiator on the payroll-tax bill, has said energy tax credits shouldn't be part of the payroll-tax discussions.

Original Article – Wall Street Journal

Apartment construction is the place to turn for developers and contractors as the lukewarm housing market continues to tilt against home ownership.

Where you do not want to be is in the custom-home market. So many McMansions are available and they are available at half-price. But the apartment market is hot right now.

Multi-family housing is a good bet for area builders and developers, due to packed apartment buildings, low labor costs, easier financing and demographic trends indicating that there are more young people and empty nesters who can't or won't buy a house or condo right now all.

There's definitely growing demand for rentals.  In the past, a lot of (the new renters) might have been buyers of entry-level condos. But things have changed, and to some degree maybe permanently.

So, while construction activity in the building market still is weak overall, there has been an uptick in investing in apartment projects.  The numbers are still of from years gone by, there was more activity in the first half of 2011, and a general improvement.

'Mood and attitude'

Timing in this mini-surge may be a key factor as well.

Many companies hope to get new rental housing on the market rapidly, in order to capture available customers before the tide turns and more people want their own homes again.  Therefore, mood and attitude has so much to do with the trends that get going.

Home sales remain historically weak and seem likely to stay that way for some time as high unemployment, a foreclosure backlog and weak home prices keep many potential buyers from signing contracts.

In the meantime, apartments have become more popular.

For help and assistance in developing Real Estate in Massachusetts, contact the Cherrytree Group.

Original article – Wisconsin State Journal

The United States will remain the top choice of most global commercial real estate investors in 2012. While the United States offers the most stable and secure option for commercial real estate investment, investors say that improvements in rent and occupancy growth, as well as the repeal of a 1980 foreign investment tax have had the strongest impact on their investment decisions, according to the 20th annual survey of Association of Foreign Investors in Real Estate (AFIRE) members.

For the past year, investors in U.S. commercial real estate have focused on gateway cities such as New York, Washington, Boston, San Francisco and Los Angeles, and such activity has had the effect of driving prices up and yields down in those cities.

The United States is still very desirable, and was second behind the UK in attracting cross border investment in 2011, according to Real Capital Analytics preliminary figures.

60% of respondents said they plan to increase their investment in U.S. real estate in 2012, while 42.2% said they believed the United States in 2012 offers the best opportunity to see increases in the value of their commercial real estate investments.

Europe's sovereign debt problems and looming recession eliminated most of the countries there (except for Switzerland and Poland) from the radar of real estate investors. Germany lost about half its support among respondents in terms of stability and price appreciation.  Accordingly, survey respondents said they would invest more in U.S. commercial property if the fundamentals of rent and occupancy growth were stronger than in their own countries.

As for the types of U.S. commercial real estate that investors favor, respondents said that this year they would most likely invest in apartment buildings, the fourth consecutive year that multifamily real estate has topped the list. Of all the types of U.S. commercial real estate, the multifamily sector has not only recovered from the post-2007 real estate slump, but rents and occupancy are even stronger than pre=recession.

Warehouse and distribution centers ranked second, up from No. 5 last year. Office properties were third, up a notch from No. 4. Retail properties - shopping centers and malls - slipped to No. 4 from No. 2. Hotels ranked No. 5, down from No. 3 last year.

The survey was conducted in the fourth quarter by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.

In the years since the real estate bubble collapsed, developers  have looked long and hard at what projects they have in the pipeline in an attempt to bring online those products for which there is a current market demand.

One segment of the real estate market that is starting to show signs of revitalization are high-end rental apartment buildings in urban downtown areas, particularly those near public transportation, with extensive amenities. New projects or permit applications are beginning to crop up in popular towns throughout the state.

To a degree, developing real estate in Massachusetts has changed. Some projects that were originally slated to be condos have been converted to rentals because of these shifting market dynamics. Developers point to the "renters by choice" theory, that is those people who can afford to buy, yet are instead opting to rent because of the flexibility and ease of being a renter.
 
Moreover, as there has been very little new real estate development in recent years, there is pent-up demand for rental. Furthermore, banks are far more comfortable financing the development of rental properties than “for sale” properties because the rental market isn’t as volatile as condos.

What we are seeing is the perfect storm of demand, opportunity and capital. There is the demand for the populace to relocate to downtown areas; the opportunity (because) the local government/municipalities are really encouraging growth of rental properties; and there is debt (bank) financing and equity waiting to be deployed into such developments.

The average rental rate has rebounded upward by 3.1% since its trough in early 2010, and Massachusetts landlords are receiving very high average rents.  Consequently, vacancy rates have been falling since the first quarter of 2010.

There is significantly more demand for rentals than there are for the “for-sale [properties]", said Carl Goldberg, managing partner of Roseland Property Company, one of the state’s leading high-end residential developers. "Today’s market is skeptical about the wisdom of purchasing a home for a variety of reasons, including the availability of mortgages, the perception that for-sale housing is not going to enjoy the appreciation potential it did in generations past, and rental communities provide more flexibility and more liquidity and more mobility."

There are also development incentives that are available, despite the improved market conditions, and developers are still applying for financial incentives to help offset construction costs.  Economic Redevelopment and Growth Grants, as well as tax credits for pending projects are just some of the incentives developers can go after.

While there is still the possibility the market could shift back toward condos, developers are betting residents will want to rent as long as it is difficult to obtain a mortgage and job security stays rocky.

Original article – NJ.com

The sale of certain Massachusetts state tax credits from the original recipient to a third party creates a taxable event for both the Taxpayer and the Recipient. While the Memorandum only applies to Massachusetts state tax credits, the precedent that Chief Counsel relied upon could be applied to other state tax credit programs.
   
Massachusetts offers a number of state tax credits similar to those found throughout the United States, specifically, Brownfields Tax Credits, Motion Picture Tax Credits, Historic Rehabilitation Tax Credits, Low-Income Housing Tax Credits, and Medical Device Tax Credits.

In the Memorandum, the IRS found that the Taxpayer that qualifies for and receives the tax credit does not realize gross income.  Instead, for federal income tax purposes, the receipt of the tax credit itself should simply be treated as a reduction or potential reduction in the recipient’s state tax liability.  

However, in the event the tax credit is transferred to a third party for value, the Taxpayer must recognize a gain because the transaction is treated as a sale. The amount of the gain recognized by the Taxpayer is equal to the sale price of the tax credits, and because each of the nonrefundable Massachusetts tax credits qualifies as a “capital asset” the gain is deemed a capital gain.

For information and assistance on buying or selling Tax Credits, contact the Cherrytree Group.

Original article - Lexology

Generating electrical power from natural resources is both desirable as a power source, and beneficial in protecting the environment and economy by shrinking our carbon footprint, and lessening our dependence on foreign sources of energy. Solar power development is currently supported by incentives, grants, and credits that subsidize system installation. However the shelf-life of these incentives is limited, expiring as of December 31, 2011.

Solar installations, which can be freestanding, mobile, or rooftop mounted systems on both commercial and residential property are subject to few, if any, permitting requirements than other renewable sources. Rooftop solar panel installations, in particular, have become viable as a renewable energy source.

Three important renewable energy incentives are

(a) Federal Grant -- The Section 1603 Treasury Grant Program allows the Federal government to provide a grant of 30% of the cost of a solar installation if construction begins by 12/31/11.

(b) State Incentives -- In Massachusetts, an owner of solar equipment earns Solar Renewable Energy Credits (SREC's) for each megawatt-hour of electricity produced. In January 2010, MA approved an SREC market and set a renewables portfolio standard requiring that, by December 2020, electricity suppliers that serve retail customers include 15% renewable energy in the electricity they sell. Electrical suppliers can provide renewable energy or buy SREC's to meet these standards. The market has established a price range of $285-$600 for each SREC.

(c) Depreciation -- the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 allows 100% depreciation in a single year for commercial solar installations, but this depreciation allowance expires on December 31, 2011.
These incentives, when structured correctly can offset almost 60% of the cost of installing a solar system. Additionally, the production of electricity provides revenue from the sale of the electricity produced and/or the reduction in electricity usage charges for power supplied to the grid.

Consequently, for owners of property looking to install a solar system, there are several options for financing:

(i) Self finance the installation of the system and capture the 1603 grant, SREC's, depreciation, and income/savings from the production of electricity to offset the capital investment;

(ii) Contract with a company that will pay for the system and installation in return for the rights to the 1603 grant, SREC's, depreciation, and income from the power generated by the system at a favorable cost; or

(iii) Contract with a company that will pay for the system and installation, and then lease the system back from them. Rights to the 1603 grant, SREC's, depreciation, and income may be negotiable.

As with any deal, the structure, agreements, and terms are paramount. However, current political support and incentives have made this an optimal time to be structuring, installing and financing solar installations. Contact the Cherrytree Group regarding your solar development endeavor.

Aritcle in NEREJ

If you are looking to commercial real estate for an investment opportunity, parking lots maybe worth a look.

If you can find one to bid on, and if the price is not already well out of your range.

A surface parking lot offers a good rate of return and its rewards are as close to being recession-proof as you’re going to get,” says Ross Moore, chief economist for Boston commercial real estate firm, Colliers International.

The older ones are nice little cash cows with relatively little maintenance,” adds Moore.

Investors are beginning to realize that a well-located urban parking facility offers stable, long-term revenue growth and that this asset class is becoming an important part of any diversified real estate portfolio.

The numbers overwhelmingly favor the US parking industry, which grosses some $25–30 billion annually, according to the International Parking Institute. There are nearly a quarter-billion registered U.S. passenger vehicles, which remain parked 96 percent of the time, IPI says.

But two problems loom for the average commercial real estate investor wanting to get into the parking business, says John Roy, co-author of The Ultimate Parking Business Buyer’s Guide.

Not many show up in real estate listings, and the ones that do are very expensive and usually out of reach for smaller investors," says Roy.

But the recession is pummeling the price of almost all real-estate assets, “This is the best time to get into parking market," he says.

Do an online search for the term “parking lot for sale,” and maybe add the city you’re eyeing.

Commercial Brokers

Another, more traditional approach is to find commercial brokers who specialize in parking lots. A commercial real estate lawyer can help you locate lots that may not be advertised.

There are a limited number of surface parking lots out there, but as with any real estate, sometimes people don’t know they want to sell until you present them with an offer. Other times, an illness, a pending move or a financial reversal may trigger a sale.

While $100,000 might get you a small lot “on the periphery of downtown,” a million-dollar lot will net a profit stream of at least $45,000 a year after taxes, insurance, debt service and on-site operation services, he says. That's a 4.5-percent annual return.

It is not a complicated business, they are pretty easy to run, relative to a lot of other commercial real estate products.

Even today, with many lots offering payment by credit card or even cell phone, Van Horn estimates the parking business is still 60 percent cash-driven.

Do Your Homework First

Anyone interested in buying a lot “take the time to do the research, and learn how to manage revenue, construction and design.

Attend a parking industry convention and ask a lot of questions. IPI is holding one next June in Phoenix, while Parking Today has another salted for March in Chicago.

Any new owner should operate the lot ”hands-on” for a year or two before turning it over to a third-party operator.

It will give them the ability to learn the industry — the ins and outs, peak hours, what works and doesn’t, what labor they’ll need. Then, if they decide to turn it over to an operator, they’ll be able to spot leakage and there’ll be no surprises.

Look for opportunities in your area; if you hear or read about a significant new development, start looking for raw land near it.

Know your area, listen to the news. If something big is going to get built, they’re going to need parking. You get to where everything you read about is a potential parking opportunity. It’s amazing how you look at things differently.

Original article CNBC

State’s construction industry gets a little lift from 14 projects

Minnesota’s Historic Rehabilitation Tax Credit appears to be producing construction jobs.

14 projects had preliminary approval to take advantage of the tax credit, according to a report released Monday. Developers expect the projects to create 1,808 construction jobs — and a total of 2,948 jobs when indirect and induced jobs are counted.

That’s in line with the 1,500 to 3,000 construction jobs a year that the Minnesota Historical Society and the Preservation Alliance of Minnesota predicted would be created when former Gov. Tim Pawlenty signed the tax credit into law in 2010.

The tax credit is creating construction jobs at the same time that the industry appears to be improving after years of decline. Last month, Minnesota posted its first 12-month gain in construction jobs since April 2006.

The credit covers up to 20% of qualifying rehabilitation expenses; that’s on top of a federal tax credit that can cover another 20%. Supporters say job creation is reason enough for the state Legislature to keep the state tax credit going.

Minnesota’s construction industry remains in a state of “depression,” with more than 50,000 jobs lost between 2006 and 2011, so every bit helps.

Developers plan to spend an estimated $343 million on the 14 projects, with $250 million going toward rehabilitation expenses that qualify for the tax credit. Total economic impact is expected to be $451 million — about $9.20 for every dollar of the $49.1 million of tax credits going toward the 14 projects.

Besides the 14 projects mentioned, there are an additional 14 that have since applied and another handful of developments are considering it, the Minnesota Historical Society. Contrast that with 2009, when only two Minnesota developments were seeking the federal tax credit.

Steve Elliott, the Historical Society’s director and chief executive officer, described the state historic rehabilitation tax credit program as a “resounding success” during a Monday morning news conference.

Original article Finance & Commerce

In a Hertford County field where rows of corn once grew, rows of solar panels now stand - 20,000 panels that will soon convert sunshine into enough electricity to power a small town.

When finished next month, Duke Energy Renewables' project on 37 acres will be one of the state's largest.

About 40 miles to the southeast, on a 100-acre field in Perquimans County, a Charlotte company plans to build another solar farm, this one consisting of 83,000 panels. It would stand out as the largest in North Carolina.

With the two solar farms and at least three major wind farms in development, northeastern North Carolina has become a hot bed for renewable energy.

The region has plenty of open land, and a sunny, breezy coastal climate. It also has a major power transmission line running through it with ties to the PJM Interconnection, the largest competitive wholesale electricity market in the world.

"Alternative energy is one of our main economic niches now," said Vann Rogerson, president of North Carolina's Northeast Commission, which recruits industry to the region. "The big players know where northeastern North Carolina is now."

Rogerson is working on additional renewable energy development projects with at least two other green-energy companies.

Much of the surge in green energy ventures stems from North Carolina's 2007 mandate requiring utility companies to produce 12.5% of their power from renewable resources by 2021, said Julie Robinson, spokeswoman for the North Carolina Sustainable Energy Association. Utilities are actually ahead of schedule, especially in the solar field, she said.

"Solar energy in North Carolina has grown dramatically over the last few years," she said.

The more capacity in megawatts that a green project has, the closer that utilities get to reaching the state mandate, and the bigger the reputation gets within the industry.

Duke Energy Renewable's Murfreesboro Solar Project is expected to carry a 6.4 megawatt capacity and be able to power 700 homes. The North Carolina Electric Membership Corp. will buy the electricity.

The Perquimans project, built by Solar Green Development of Charlotte, plans to have a capacity of 20 megawatts, enough to provide electricity to nearly 3,000 homes - more than half of all the households in the county. It is expected to connect to Dominion Power.

The solar projects would complement the wind farms that have found their way to the region.

Iberdrola Renewables plans to build a wind farm with 150 turbines on 20,000 acres. In Camden County, Invenergy is seeking permits to erect 100 turbines on thousands of acres of open farmland. Together, the projects could power about 100,000 homes. Each wind farm is projected to involve a $600 million investment and would be among the largest in the nation.

Down in Beaufort County, Invenergy has announced plans to build a wind farm valued at $160 million that would power about 15,000 homes.

The northeastern corner of the state has plenty of inexpensive, open land, a sparse population, and officials who are receptive. The proximity of the major transmission line is also a big draw.

"When that wind is really blowing, then there is a lot of power coming out of those turbines, and you need a place to send it," Ellis said.

The Perquimans County solar farm will have a capital investment of $85 million.

Given that kind of investment, tax breaks are a major motivator. Among other state and federal tax breaks, North Carolina allows local governments to collect 20% of the property tax value from land on which renewable-energy projects are built.

"Twenty percent of $85 million is a good-sized tax boost," said Bobby Darden, Perquimans County manager.

Original article – Hamptonroads.com