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

...by Warren Kirshenbaum

As part of $3.5 million in Brownfields grants that EPA is making available for Massachusetts communities, EPA has provided $600,000 for Somerville to clean up the former Kiley Barrel Property site. The funding is part of more than $76 million in EPA Brownfields investments across the country announced this week by EPA Administrator Lisa Jackson to protect health and the environment, create jobs and promote economic re-development in American communities.

EPA Brownfields grant money assists work to reclaim sites including old textile mills, sites containing hazardous substances and petroleum products and other abandoned industrial and commercial properties.  EPA’s Brownfields program encourages redevelopment of America’s estimated 450,000 abandoned and contaminated waste sites.

 “This EPA funding will help strengthen the economic foundation of these communities,” said Curt Spalding, regional administrator of EPA New England’s office. “Cleaning and revitalizing contaminated sites helps create jobs, providing a solid foundation for a community to create new businesses and neighborhood centers, while making our environment cleaner and the community healthier.”

"These federal funds will help transform the Kiley Barrel site, eliminating old contaminants and revitalizing it so that the land can be used for future development. Brownfields grants have had a tremendous impact here in Somerville and all over the country, giving communities the resources they need to revitalize old industrial sites," stated Congressman Michael Capuano.

The $12.55 million in grant and Revolving Loan Fund money awarded by EPA to a variety of New England communities and organization will provide substantial help around the region.  The EPA funding leverages over $46 million of other money to pursue brownfields cleanup and revitalization work. In New England, these projects have created 98 clean up jobs this year as well as 135 redevelopment jobs.

As of June 2011, EPA’s brownfields assistance has leveraged more than $16.3 billion in cleanup and redevelopment funding, and helped create more than 70,000 jobs in cleanup, construction and redevelopment. These investments and jobs target local, under-served and economically disadvantaged neighborhoods – places where environmental cleanups and new jobs are most needed.

Since the beginning of the Brownfields Program, in New England alone EPA has awarded 268 assessment grants totaling $67.1 million, 61 revolving loan fund grants and supplemental funding totaling $65 million and 174 cleanup grants totaling $39.3 million.  These grant funds have paved the way for more than $1.3 billion in public and private cleanup and redevelopment investment and for 8815 jobs in assessment, cleanup, construction and redevelopment.

Some of the money announced today falls under EPA’s brownfields revolving loan funding.  Since 1995, EPA RLF recipients have provided 53 loans and 63 grants in New England totaling more than $29 million for brownfields cleanup. The loan funds have paved the way for more than $189 million in public and private cleanup and redevelopment investment and for 1034 jobs in cleanup, construction and redevelopment.

...by Warren Kirshenbaum

Just a few years after eliminating a state historic preservation tax credit, Rhode Island lawmakers are considering reviving it as an economic development tool.

Reinstituting the incentive to rehabilitate abandoned mills and empty warehouses would create work for construction companies and trade workers while protecting the state's historic character.

"It will mean jobs for architects, engineers, craftsmen," said Martha Werenfels, a Providence architect who has worked on several historic preservation projects. "Right now projects are not moving forward. They're going to Connecticut and they're going to Massachusetts because there are tax credits available."

The proposal would award tax credits equaling up to 25 percent of the cost of rehabilitating historic buildings for commercial use.

Lawmakers voted to stop giving new credits to commercial preservation projects in 2008. The program cost taxpayers $300 million since it was enacted a decade ago, but supported 237 projects worth more than $1.2 billion, according to the state's Historical Preservation & Heritage Commission.

Local government officials support the tax credit as a way to spur redevelopment in the state's many old mills and commercial buildings. Supporters noted that several companies have turned vacant warehouses and mills into modern corporate headquarters. East Providence Planning Director Jeanne Boyle cited the multimillion-dollar redevelopment of a former industrial site in her city as proof the tax credit works.

"Without the historic tax credit that project never would have happened," she said.

Original article by By David Klepper – Boston.com

...by Warren Kirshenbaum


There are numerous cities across the United States which can be considered "cleantech capitals." With a large array of renewable resources, a dedication by businesses and homeowners to become more energy efficient, and a large hub for research and development, a lot can be accomplished when it comes to creating new, efficient and sustainable clean technologies. There are many factors that make up a "capital for cleantech," and although there are more than ten cities around the nation that are involved in clean technologies, here are six of the top cities.

1) Boston, Massachusetts. Boston is said to enjoy some of the most supportive policies in the United States for energy efficiency and renewable energy. After California, Boston is second in clean technology venture capital investments. With an environment that is ripe for cleantech startups, numerous companies are moving their business to Boston. The MIT Clean Energy Prize is a venture and innovation creation competition that encourages clean energy innovation. Its objective is to provide educational opportunities and supply incentives to ventures demonstrating the clean energy affordability. As well, the development of MIT's cleantech incubator will provide Boston with more access to cleantech flow, increasing the demands for all future building to be constructed in accordance to LEED standards set up by the U.S. Green Building Council.

2) San Jose, California. San Jose, part of California's Silicon Valley, has been very productive in clean technologies. The city has expanded a number of clean technology investments and because of the research and development institutions in the area, many cleantech companies are coming to make their home in San Jose. San Jose's, "Long-time leadership in engineering know-how, combined with semi-conductor, nanotechnology and optics R&D gives it a leg up in renewable energy development, particularly in solar energy applications." San Jose is also home to the Environmental Business Cluster, a non-profit technology commercialization center assisting startup cleantech companies developing goods and services to positively impact the environment.

3) Austin, Texas. Austin has long been Texas' hub for solar, wind, geothermal, and biomass power, as well as fuel cell technologies. Its commitment to the environment and sustainability has made it not only a national cleantech player, but a global one as well. Austin is home to some of the largest cleantech companies on a global level. A large research and development hub, the University of Texas at Austin has created several research expenditures to elevate research into energy efficiency and renewable energy. This includes a project by the College of Natural Sciences to create biofuel from blue-green algae and hybrid-electric automobile programs developed by The Center for Electromechanics.

4) San Francisco, California. California is one of the top cleantech states in the United States and it is cities like San Francisco that makes it happen. Currently, San Francisco is well on its way to becoming the first city to be completely run by renewable energy by the year 2020. With projects like Sunset Reservoir Solar Project, which is the largest municipal solar facility in the state, and a new $250,000 grant to increase renewable energy capabilities.
 
5) Seattle, Washington. Seattle has been leaving its mark in cleantech society by increasing the need for green standards. The Green Building Sustainable Communities Program, for example, creates city projects that meet sustainable outcomes. Tax breaks and loans are provided to businesses and residences that utilize green practices. Seattle has been a leader in using their garbage to get electricity. They have invested into electricity from garbage landfills.
 
6) Chicago, Illinois. Over 20 percent of total power in Chicago is coming from renewable sources. Due to the increase in the need for renewable energy and energy efficiency, Chicago has been able to create numerous job opportunities while, at the same time, increasing solar power and saving on CO2 emissions. Chicago is also becoming one of the major investment locations for international businesses. Chicago also has a number of green initiatives, including the Chicago Green Office Challenge.

Kirshenbaum Law and Cherrytree Group LLC can help you structure your tax credit transaction. Let us guide you through the process of applying for and securing renewable energy tax credits. These transactions typically require a lawyer, a consultant, and a syndicator, and Cherrytree Group and Kirshenbaum law can act in all three capacities, saving you time and money on your transaction.

The original article was written by Shawn Lesser, and can be seen at http://www.reuters.com/article/2011/03 /28/idUS317857292020110328

....by Warren Kirshenbaum

Acquiring capital for real estate investments is a difficult and daunting task in this weak economy.  The uncertainty of the real estate market has become a strong barrier between investors and real estate developers, leaving developers with very few options for obtaining capital.  The absence of eager/willing investors has prompted real estate developers to seek innovative means of financing.  One attractive source of financing is through foreign investment that is generated through the EB-5 Green Card program.  EB-5 is part of the Immigration Act of 1990 established for the purpose of attracting foreign capital to the United States.  Under this program, 10,000 green cards are set aside every year for qualifying candidates.  A qualified candidate must satisfy three basic requirements in order to be considered for approval.  These basic requirements include 1) establishing a U.S. business or investing in an existing business that was created or structured after November 19, 1990, 2) the foreign national must have invested $1 million in the business or $500,000 when investing in targeted employment areas and 3) the newly created business must create full time employment for 10 U.S. workers for a specified amount of time.  Once these requirements are met, the EB-5 investors must also demonstrate that they, their spouses and their children under the age of twenty-one have resided in the U.S. for two years by means of conditional visas.  

The EB-5 Program promotes the infusion of foreign capital into the American economy. This benefits real estate developers seeking additional investment capital for their projects.  The U.S. developer can obtain financing from the foreign investor in order to commence or complete local development projects.  This is a great opportunity for American developers to secure capital for their projects in an economy where banks are denying loans and U.S. investors are reluctant to invest in new endeavors.  The program not only benefits U.S. developers, but also offers incentives to foreign investors desiring to live out the American dream.  In exchange for the investor’s capital being put to work in the U.S., they receive green cards for themselves and their families as long as all of the program requirements are met.  This is a win-win situation for both the U.S. developer and the foreign investor in achieving their goals of real estate investment/development and expedited permanent residency status, respectively.  

EB-5 applicants invest foreign capital through Regional Centers that have varying investments programs.  The Regional Center may be a state government agency, a corporation or a private venture.  Companies or private entities that are approved EB-5 Regional Centers can directly contact foreign investors who are interested in participating in the immigration program. The Regional Center must verify that the investor’s capital was earned through lawful activity; otherwise it cannot be utilized for the program.  Once all of the required elements are met, the Regional Center can begin the application process for the foreign investor.  Don’t know where there is a regional Center? The Cherrytree Group can help you find one in your area.

At the Cherrytree Group we have extensive knowledge in structuring investments to achieve the optimal return on investment. The EB-5 provides valuable investment to new real estate development projects.

The U.S. Treasury Department has awarded Pittsburgh's Urban Redevelopment Authority $35 million in tax credits to stimulate investment in low-income communities.

The URA was one of 99 applicants to receive the New Market Tax Credits; more than 250 government entities, nonprofits and other groups applied.

The tax credits will go to investors in "Community Development Entities," groups formed to undertake projects in low-income neighborhoods. The cedits are designed to draw private investment into those communities.

"This is great news for Pittsburgh," Mayor Luke Ravenstahl said in a statement. "This award will leverage millions of dollars of investment into businesses and real estate projects to create jobs and promote growth in our neighborhoods."

U.S. Sen. Bob Casey, D-Pa., and Rep. Mike Doyle, D-Forest Hills, supported the URA's application.

By Joe Smydo, Pittsburgh Post-Gazette

Rob Bennett for The Wall Street Journal

... By Warren Kirshenbaum

Construction is nearly complete on a $37 million classical music center for Orchestra of St. Luke's slated to open in Hell's Kitchen in March.

Complete with rehearsal and recording space to accommodate a full symphony orchestra and chorus, a music library café and even showers for musicians, the 20,000-square-foot building will be the orchestra's first permanent home since its debut in 1974.

The center will also serve dozens of arts groups that rent space in the city's increasingly crowded rehearsal and performance spaces, including the New York Pops and the American Symphony Orchestra.

Raising money for building projects in the past few years hasn't been easy for the city's nonprofits. Decreases in donations and a tightening grip on public dollars have hurt funding for capital projects by charities in particular. Many donors also have focused their attention on emergency programs for the hungry and homeless.

With traditional funding harder to obtain, the Orchestra of St. Luke's became one of a growing number of nonprofits turning to a federal tax program for capital financing. This week, it will announce it has received a $4.6 million equity infusion from financial institutions including Goldman Sachs Group Inc.'s Urban Investment Group, Solomon Hess and United Fund Advisors through a federal program that provides tax credits to investors putting money into community development projects.
[ORCHEST2] Rob Bennett for The Wall Street Journal

Street view of the center at 450 W. 37th St., which is also home to the Baryshnikov Arts Center.

"We needed these tax credits to ensure the project would happen on time and as planned," says Zev Greenfield, the orchestra's vice president of finance and Operations. "While we received $4.6 million directly, we saved millions more on financing and fund-raising costs."

In 2008, the orchestra and the Baryshnikov Dance Foundation closed on a three-party deal for 450 W. 37th St., which formerly housed a consortium of theaters. The orchestra paid $16.6 million for 20,000 square feet, taking on a $7 million mortgage and a $5 million line of credit from M&T Bank.

To fund the deal, the orchestra had received multimillion-dollar pledges from donors including financiers Joe DiMenna and Victor Elmaleh, and an $8.5 million pledge from the city's Department of Cultural Affairs. However, when the financial crisis deepened, additional fund-raising slowed and donations were delayed.

"Donors were supporting the project but needed to do it over a longer period of time, and that's why the credits became such an essential piece of the puzzle," says Katy Clark, the orchestra's president and executive director.

To fill the funding gaps, the orchestra hired a consultant and applied for the federal New Markets Tax Credit Program, rushing to close on financing before the end of 2010. Created in 2000 to spur economic revitalization through private sector investment, the program allows financial institutions to provide equity to projects in depressed neighborhoods and receive federal tax deductions in return.

The interest in tax credits heightened after the financial crisis hit, leaving cities eager for ways to tap the federal funding faucet to spur economic growth.

The New York City Economic Development Corp. partnered with financial-services company United Fund Advisors in 2008 to stimulate more projects using tax credits in the city.

Since then, they have financed more than $500 million of development costs, utilizing $89 million in New Markets tax credits.

The credits have allowed the city's nonprofits to raise financing for other large capital projects such as a new 75,000 square-foot museum and condo for the Museum for African Art on Fifth Avenue.

Slated to open this year, the museum received $18.8 million in New Markets tax credits. Other projects include a $13 million conversion of warehouse space in Lower Manhattan into a recreational sport facility called Basketball City USA, to be completed this summer.

The city and United Fund Advisors hope to obtain an additional $135 million allocation in tax credits later this year.

Still, nonprofits say qualifying for the tax credits generally requires the use of paid consultants, months of paperwork and complicated financing structures.

"It's an incredibly complex set of processes," Mr. Greenfield says. "You have to really spend the time to delve into the details."

REITs - Real Estate Investing Minus the Headaches

By Warren Kirshenbaum

Real Estate Investment Trusts (REITS) have traditionally offered many advantages to investors looking to the real estate market for diversification and tax advantages.

They generally have higher yields and lower portfolio turnover than stocks or stock funds, plus they have the potential for capital gains.

As real estate bottomed, the rumor was that REITs had come and gone. But more likely, the weak housing market may have opened the door for smaller investors to participate in the short- and long-term gains offered by REITs -- which is especially appealing to the many investors who can't afford to buy a home or who aren't interested in owning physical property.

How REITs Work

REITs are created to hold a pool of managed real estate properties or mortgages. The REIT itself is not actively managed, relying instead on a set portfolio of preselected properties that is maintained for the duration of the trust. When the trust matures, the portfolio is reset according to the REIT's investment objectives. Each trust is considered to be a distinct security, with each unit in the REIT constituting a proportional share of ownership in each asset held within the trust.

REITs tend to focus more on value than growth. Historically, REITs have provided higher yields than other types of fixed-income securities, making them attractive holdings for moderate income investors. They tend to be more immune to market volatility than stocks or stock funds because of their correlation with the real estate sector.

Categories of REITs

There are three basic categories of REITs: equity, mortgage and hybrid.

Equity REITs receive rental income from the properties held within the trust as well as the capital gains from property sales. These three different streams of income make equity REITs the most desirable of the three.

Mortgage REITs are considered to be riskier than equity REITs because of their vulnerability to changes in interest rates. As with all other fixed-income securities, the value of mortgage REITs can drop substantially if interest rates rise.

Hybrid REITs are a combination of equity and mortgage REITs. There are several different varieties of hybrid REITs: some are open-ended securities, while others are closed-ended; some have a limited life span, while others are perpetual. They can also be invested in as little as one property, although they are usually invested in a group of properties.

Taxation of REITs at the Trust Level

The IRS requires REITs to follow specific rules of taxation. First, they are taxed as a trust, and unitholders pay tax on the income they receive. In most cases, little or no income is held at the trust level, and usually 100% of the income is passed on to investors.

The IRS requires that REITs distribute at least 90% of the income generated by the trust’s portfolio to unit holders. However, they must follow the same method of self-assessment that corporations are required to use. This means that REITs have to obey the same valuation and accounting rules as corporations, but pass cash flow (instead of profits) directly through the trust to unitholders.

In most cases, REITs are generally exempt from taxation at the trust level provided they distribute at least 90% of their income to their unit holders. Even some REITs that adhere to this rule will still face corporate taxation on any retained income, depending upon the provisions spelled out in the initial trust indenture.

The taxation of REITs differs from that of other unit investment trusts. Because the government considers them to be the business of managing properties, rental income is treated as business income to REITs. Therefore, all expenses related to rental activities managed by the trust are deductible, just as business expenses can be written off by a corporation.

How Will You be Taxed on Income From a REIT?

Because they are rarely taxed at the trust level, REITs usually pay larger dividends than stocks, which can only pay dividends after being taxed at the corporate level.

For the most part, REIT dividends are taxed to the unitholder as ordinary income just like stock mutual fund dividends. This means that you will pay tax on these dividends at your marginal tax rate.

However, some REIT dividends are classified as “qualified” dividends, which are a special type of dividend taxed at the more favorable capital gain rates. Some of the dividends you receive from your REIT may also be considered a non-taxable return of capital. When this happens, your taxable income from the REIT is reduced accordingly for the year. Return of capital distributions reduce your cost basis and you will not pay tax on return of capital distributions until the REIT matures or you sell it.

by Warren Kirshenbaum

The Community Development Financial Institutions Fund (“CDFI Fund”), a program of the U.S. Department of Treasury released its 2010 Performance and Accountability Report on January 18, 2011, providing key insight into economic revitalization in 2010. The CDFI Fund promotes economic revitalization and community development through investment in, and assistance to community development financial institutions.

The Performance and Accountability Report demonstrated a continued level of interest in investment into low-income communities and showed a substantial increase in rewarded tax credits over 2009. In 2010, the CDFI Fund, which administers the New Markets Tax Credit Program (“NMTC”) distributed all $26 billion in its authority in 495 separate awards.

The NMTC was created as part of the Community Renewal Tax Relief Act of 2000 to provide a tax credit to taxpayers who provide investments to businesses in low-income communities.

Specifically, the NMTC stimulates capital investment in low-income communities by providing tax credits against federal income taxes to taxpayers who make equity investments (referred to as “QEI’s” or “qualified equity investments”) into a designated community development entity (“CDE”). Substantially all of the investments made by the taxpayer must be used to benefit low income communities in order to receive the tax credit, and that determination is made by reference to census tracts. The Performance and Accountability Report of 2010 announced that the demand for the NMTC is increasing. In 2010 over two thousand applications were submitted, containing requests totaling $202.6 billion in tax credit allocation. Accordingly, only 27% of applicants were selected to receive the awards with the average tax credit allocation award being $52.5 million. The tax credit allocations are limited, so they are approved by a competitive application process. This process of approving tax credit allocation is set up so that the most qualified organizations receive first consideration.

This past year also saw another record for investments raised – in the first three quarters of 2010, $3.1 billion in qualified equity investments were raised, surpassing the $2.8 billion raised for all of 2009. Furthermore, tax credit recipients reported making $3.5 billion of loans and investments in Qualified Active Low Income Community Businesseses – 64% of which went into real estate businesses. Lastly, in 2010, recipients also reported making over $168 million in direct investments into other CDE’s, and providing $12 million in financial counseling and other services to 7,139 businesses in low-income communities.

The 2010 report announced by the CDFI Fund shows the growing demand for investment capital in low-income communities. In sum, since the program’s inception, there has been a total of $15.8 billion of cumulative investments made via the New Market Tax Credit Program. If you are interested in how to qualify for these or any other potential tax credits, please call Warren today or fill out a Contact Us form.