Archives for January 2017

Workers are building a new community of micro-apartments in Austin, Texas. The 138 units at Indie Apartments will range from 350-sq.-ft. studios to 520-sq.-ft. two-bedroom apartments.
“Micro-units are spreading to secondary markets, but I would say slowly,” says Ty Puckett, executive vice president at Transwestern Development Co. Transwestern is currently building the Indie Apartments in Austin and a second micro-unit development in Phoenix.
Micro-units are much smaller than traditional apartments—often containing less than 500 sq. ft. per unit. For many decades, few developers thought to build apartments that small, except as single-room occupancy properties for very low-income people. Today, however, with a apartment vacancies in the low single digits in many metros, developers are investing in such properties, often including fancy amenity spaces to offset the very small living spaces.
“The building activity in this product niche is mostly in the most expensive coastal markets. It appears to us that Seattle has the most of these units, over San Francisco or New York,” says Greg Willett, chief economist for RealPage Inc., a provider of property management software and solutions.

Micro-units perform well

So far, these tiny apartments have performed more or less in line with conventional apartments nearby. “The micro units delivered to date have leased well,” says Willett. “But performances aren’t notably different than for same-neighborhood properties with somewhat larger units.”
However, the micro units seem to serve a different purpose than conventional units. Renters don’t stay as long, so they have higher turnover than conventional apartments. “There’s a lower propensity to renew expiring leases in micro units than in more conventional product. If renters can afford more space, most appear to prefer that option,” says Willett.
For example, Indie Apartments’ gross monthly rent is expected to be 20 percent below that of class-A apartments, making it a good choice for anyone undergoing a life transition, according to the developer.
Developers are now trying to replicate the success of micro-apartment projects in smaller markets. “The demand in secondary markets is somewhat unproven, but with good locations and competitive prices the projects are compelling,” says Puckett.
The trend towards micro apartments is part of a much larger trend as more households live in smaller spaces in urban areas. Developer are building smaller apartments overall.
“The average unit size in this construction cycle has come down a little bit, about 50 square feet,” says Willett. This is largely because developers are building a larger share of their new projects in urban areas than in previous construction cycles. To make these projects pencil out, developers typically need to squeeze more apartments onto expensive urban sites. That will tend to push down typical unit size a little, says Willet.
The average size of new apartments may rise again soon. But that will also be the result of the popularity of urban areas. In this case, a number of Baby Boomers are expected to downsize from single-family houses and move into rental apartments.
“Developers are starting to think about downsizing Baby Boomers as a growing portion of the renter audience,” says Willett. Developers like the Bozzuto Group, based in Greenbelt, Md., are now planning to build larger apartments to attract these older renters.
In all of these cases, households are willing to squeeze into smaller living spaces than they may have been used to in exchange for amenities like a great location.
By: Bendix Anderson (National Real Estate Investor)
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Not all investments work for everyone. For example, investing in wines or baseball cards should only be done if you have the interest and experience in wines or cards. Similarly, most buyers of real estate shy away from sites that are environmentally contaminated or are known brownfields. To many who own them, these sites are non-performing assets. They suck up reserves for the potential future problems with regulators and neighbors.
However, in the last few years, a small group of savvy investors have actually pursued these sites, seeing them as offering a unique opportunity to create a win-win proposition. These buyers can take the properties and successfully address the environmental liabilities that have historically plagued others. They can turn an unprofitable site into a productive asset. In turn, the seller can rid itself of a non-producing asset that may have required significant reserves and attracted environmental agency interest.
Selling these properties to the right company is essential. As a seller, you want to be sure that you can redirect the significant reserves you have kept on the balance sheets for that property on to other profitable uses. So you want to be sure that when you sell the asset, you don’t have to address it again.
There are several basic issues that you should consider when offering to sell these properties to a buyer. The number of truly sophisticated, experienced buyers is small. The buyers you want to look for are those who have an extensive track record turning these properties into profitable redevelopments that yield jobs and ratables in their communities.
Your first hurdle is looking for an experienced redeveloper. A candidate buyer must demonstrate the ability to close out these transactions so that the historical liability is resolved and will never come back to haunt you. A seller should focus on buyers that openly show their successes and have the ability to raise the capital needed to assure that the sites they buy are remediated and redeveloped. A bona-fide buyer will have successfully redeveloped dozens of brownfields across the country. The buyer should also be able to demonstrate that none of their acquired former brownfield properties have come back to plague their former owners. Finally, the ideal buyer should have experience with complex clean-ups that have addressed all manner of hazardous substances, including asbestos, metals, hydrocarbons and chlorinated contaminants—often all at the same property.
Next, you want to be sure that you are protected if the buyer of the property does not finish the planned remediation. Environmental agencies can come back against prior owners for an aborted clean-up, but will not unless any remediation is unfinished.
One way to be sure that the property will be finished is to understand what the ultimate re-use will be. With a potential re-use in mind, investors will be able to expeditiously finish the redevelopment of the formerly contaminated property. For example, Viridian starts with a brownfields redevelopment model that shows a targeted re-use to maximize the value of the redeveloped asset. The remediation plan is designed in tandem with that redevelopment plan. The Viridian team has historically redeveloped these assets into all types of developments. However, it has found that warehouse/distribution most effectively completes the final element of the remediation plan by capping any residual contamination.
You also want to be sure that the buyer is not going to sue others who may have liability. Under most environmental statutes, companies that remediate can recover shares of liability from prior owners or companies who released substances on a site. If your buyer sues another party, you will likely be named as a third party, ending up in litigation. You need to insure that you do not end up in litigation over the old property.
Also look to be sure that the buyer/investor team is a good one. Any brownfield clean-up has two primary components—government-approved contaminant source material removal or in-situ neutralization followed by capping. This takes a team of attorneys, engineers, designers and insurers with experience doing just that.
Our experience is that, especially in hot markets, government agencies embrace someone who is willing to take these often eyesore properties and make them productive, tax-generating sites. Smart investors realize that a formerly contaminated property has the potential for a dramatic increase in value if the job is done correctly.
The end game is to take that non-productive asset off the debit balance of the company and free up the reserves for something that will generate income for your company business line.
By: William P. Lynott (National Real Estate Investor)
Click here to view source article.

Learn about the legal issues that a real estate professional may encounter as marijuana becomes legal for both medical and recreational use in many U.S. jurisdictions.

https://youtu.be/p0oYzDObOeU
Marijuana is an illegal drug under federal law, however, over the last 20 years, usage of medical marijuana has become legal in most U.S. jurisdictions.
In this edition of Window to the Law, we will discuss how legalization of marijuana impacts real estate professionals and brokerages.  I am Finley Maxson, NAR Senior Counsel.
While marijuana remains illegal under federal law, 30 states and the District of Columbia have passed laws providing for the legal use of medical marijuana. Eight of these states also allow for the recreational use of marijuana. Additional states are considering legislation legalizing marijuana for recreation use or allowing for medical usage.
Legal marijuana poses a challenge for real estate professionals and brokerages in two instances: property management and employment law.
When a real estate professional serves as a property manager, tenants may request an accommodation under the federal fair housing act or state law to allow the tenant to smoke or grow marijuana on the premises.
Property managers can prepare for requests to smoke on premise by using a lease that bans all forms of smoking on the property. Instead of permitting the tenant to smoke marijuana, the landlord could permit use of other forms of marijuana, such as lotions or food products.
A landlord could choose to prohibit tenants from growing marijuana on premise by citing concerns about resident safety or potential damage to the property. The presence of marijuana plants could encourage criminal activity on the premises because of the plants’ value. Growing can also damage the property because of the high humidity levels required by large growing operations. Also, the excessive levels of electricity required to grow marijuana could pose a potential fire risk to the property.
Since requests for accommodation are factual determinations, every accommodation request should be considered separately. Therefore, different solutions may be needed for different accommodation requests.
Real estate professionals should work closely with the property owner and the owner’s attorneys to determine the proper course of action when addressing accommodation requests to use or grow marijuana. Note that federally-owned housing and property covered by federal housing programs will not require an accommodation for new tenants, but state laws may require the landlord or property manager to accommodate theses requests on other properties. Because it is unclear how the conflict between state and federal law should be resolved, real estate professionals should be careful to work under the direction of the property owner and to receive all instructions in writing.
The legalization of marijuana also raises employment law issues such as use during work hours and use at the workplace.  Because marijuana remains illegal under federal law, federal law does not require an employer to make an accommodation for marijuana usage by an employee.  Most state laws carve out an exception that allows employers to discipline employees for otherwise legal marijuana use on the premises or intoxication [SLIDE #10]. However, some states do not allow employers to discriminate against employees who may have a medical marijuana registration card. So, real estate brokerages should be familiar with how their state laws address legal marijuana usage by their employees.
Brokerages may also want to address legal marijuana usage by independent contractor salespeople.  While independent contractors are allowed the freedom to conduct their business activities as they choose, a brokerage could include guidelines in its independent contractor agreement on the salesperson’s usage of legal marijuana. Just like the brokerage encourages salespeople to maintain a certain level of professionalism during their association with the brokerage, the guidelines would set forth the firm’s expectations for its independent contractors.  Of course, the brokerage needs to be careful to not exercise too much control over its independent contractors to avoid having them classified as employees.
Thank you for joining us for this edition of Window to the Law.
View the slide presentation
By: National Association of REALTORS®
Click here to view source article.