Cherrytree Group LLC Blog

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