Nonrecourse loans are popular among commercial real estate owners because the Lender agrees only to seek recourse against the real estate and other collateral securing the loan in a default or loss situation. Unless the loss is caused by a “bad boy act”, the borrower and/or principal will not be held personally liable. Bad boy acts, also known as nonrecourse carveouts, are actions or inactions by the borrower or principal that are fraudulent and/or that cause detriment to the property (e.g. environmental contamination, failure to insure the property, waste, transfer of the property, etc.). In nonrecourse loans, borrowers and principals agree to be personally liable for the lender’s loss arising from nonrecourse carveout events.

 

A new law went into effect on March 27, 2013 which impacts one type of nonrecourse carveout. New Ohio Revised Code sections 1319.07 through 1319.09 make invalid and unenforceable any “postclosing solvency covenant” as a nonrecourse carveout. New Section 1319.07(D) of the Ohio Revised Code defines a “postclosing solvency covenant” as:

 

“any provision of the loan documents for a nonrecourse loan…that relates solely to the solvency of the borrower, including without limitation, a provision requiring that the borrower maintain adequate capital or have the ability to pay the borrower’s debts, with respect to any period of time after the date the loan is initially funded.”

 

This new law is a response to the result in a 2011 Michigan appellate court case, Wells Fargo Bank, NA v. Cherryland Mall Limited Partnership, which made a nonrecourse guarantor personally liable for a $2.1 million loan deficiency because the borrower’s insolvency violated a postclosing solvency covenant. The Ohio legislature, like some other jurisdictions, including Michigan, didn’t agree with the Cherryland result and therefore legislated accordingly. Many in the industry believe making a borrower or guarantor liable for a postclosing insolvency in a nonrecourse loan – based solely on economics or market circumstances – is the exception that swallows the whole (nonrecourse) rule. The Ohio General Assembly’s position is that the lender should take the risk of insolvency and postclosing solvency covenants are not only unfair but also a deceptive business practice that should be against public policy.

 

There are a couple important side notes regarding this new law. A voluntary bankruptcy filing or other voluntary insolvency proceeding is still a permitted nonrecourse carveout. In addition, this new law only affects nonrecourse commercial loans secured by Ohio real estate and it does not change the lender’s ability to realize on the collateral given to secure the loan. A solvency type covenant is still permitted in traditional recourse loans.

 

While this new law does provide some “big brother” legislative protection to commercial real estate borrowers, it still remains important for borrowers and their attorneys to review the nonrecourse carveouts as these are the events for which one may unintentionally find themselves personally liable on the loan or for the lender’s losses. This new law only makes one type of carveout unenforceable; many carveouts still remain valid and enforceable. Lastly, and equally as important, is for lenders and their attorneys to review the lender’s standard nonrecourse carveouts in light of this new law to make their documents are in compliance.

http://www.youtube.com/watch?v=ycVkJRy1b44

Recently, at a conference in Santiago, Chile, I had the opportunity to meet Fernado Fishmann, founder of Crystal Lagoons, and to learn about how Crystal Lagoons is transforming real estate projects around the globe.  The concept came to Mr. Fishmann, a biologist turned real estate developer,  when trying to come up with a solution to turn around a troubled real estate project. Mr. Fishmann reasoned that if you can not bring the project to the beach, bring the beach to the project. Through the use of propriatary technology and algorythems, Mr. Fishmann has been able to enhance the value of real estate projects where previously a poor location could have dictated poor returns. A crystal lagoon is not a large swimming pool; it is a man-made ecosystem managed telemetrically from a central control center operated by Crystal Lagoons.

Imagine, transforming a stalled real estate project in the Midwest into a regional vacation destination by just adding water; or developing a functional beach for the residents of a residential subdivision in the middle of corn fields.  The idea is to bring recreational beaches to real estate projects anywhere.  If the project is subject to temperatures below freezing during the winter months, the lagoon can be transformed for skating and other winter recreational purposes.  

Mr. Fishmann and Crystal Lagoons have created and operate or are in the process of creating lagoons for real estate developments around the globe.  The applications are not just for real estate developments.  Lagoons can be used to provide cooling water for industrial purposes of many types.  The applications are endless.

With the first quarter coming to an end we have gathered a short list of what we believe are the Real Estate Industry Trends for 2013.  Let us know if you agree, disagree or see other issues which we missed.  Our list is not in any particular order and not intended to be comprehensive, just provocative.

  1. Urban development will be lead by projects utilizing tax credit financing as a project component;
  2. Healthcare and medical office space will be a desired investment;
  3. Existing home sales will tick up (5-7%);
  4. Retail leasing will remain strong as regional power centers continue to improve their tenant mix and tenant’s lock in rental rates ahead of the market;
  5. Adaptive reuse of former retail strip centers and empty big box retail space will continue to change the complextion of the suburbs;
  6. Infill in the urban cores will continue;
  7. Foreign buyers will continue to see U.S. real estate as a safe haven given the relative stability of the U.S. real estate market; and
  8. The regions of the country where shale gas and oil are being found will continue to explode with opportunitise in drilling, road construction, housing, services and more (south eastern Ohio; West Virginia, Pennsylvania, the Dakotas, New York).   

As we all know all real estate is local.  Market behavior in one market will not guaranty market behavior in other markets.

 

 

The Clean Ohio Fund, Ohio’s brownfield redevelopment program is still alive and being administered by the JobsOhio . 

According to the JobsOhio website, the Clean Ohio Fund is accepting applications for the redevelopment of Ohio brownfield sites. See below for a summary.

 

Clean Ohio funding requests are now being accepted by JobsOhio and the JobsOhio Network. To make a request, please contact the network partner in your region.

Requests will be evaluated on a project’s job creation and economic benefits. JobsOhio will refer its recommendations to the Director of the Ohio Developmental Services Agency or Clean Ohio Council for

review and potential approval.

Clean Ohio funding assists public agencies in acquiring property, demolishing structures, conducting environmental cleanup, and improving infrastructure.

The JobsOhio Network

NORTHWEST REGION

Regional Growth Partnership (419) 252-2700

WESTERN REGION

Dayton Development Coalition

(800) 241-2469

SOUTHWEST REGION

Cincinnati USA Partnership (513) 579-3100

NORTHEAST REGION

Team NEO/Cleveland+ (216) 363-5400

CENTRAL REGION

Columbus 2020 (614) 225-6063

SOUTHEAST REGION

Appalachian Partnership for Economic Growth

(740) 753-5359

Patricia (Pat) Beard

Clean Ohio Brownfield liaison

614-300-1363

 

 

 

Unmanned drones have been in the news lately.  First we saw them used in national security situations outside the United States.  Recently, there has been debate relating to the use of unmanned drones as a law enforcement and national security tool within the United States. 

What about a less sinister use as a selling tool for showing and inspecting real estate ?  Why not inspect the roof and grounds prior to making an offer?  Why not get an overall perspective of the area surrounding the subject property ?  The videos which can be made through the use of unmanned drones are ideal for the showing of property to potential buyers/investors who are out of town.  Keep it fresh and keep inovating !

Small fuel effiecient cars are nothing new.  In fact many of the major car manufacturers are now offering a variety of options which achieve 40+ miles per gallon.  However, what we have not seen until now is a highly fuel efficient car which is highly affordable.  Introducing the Elio to be produced in Louisiana by Elio Motors.  This 3 wheel car is expected to achieve 84 miles per gallon and cost under $7,000.  Given the price point and the convincing argument that small cars make great commuters how can the Real Estate Industry encourage the development and use of this segment of transportation ?

Both cities and private parking owners and operators need to reconsider the structures, pricing and parking options for smaller more fuel effiecient transportation vehicles.  Either lower the price for these less-impacting vehicles or raise the price of bigger heavier vehicles to park.  Just like the gasoline tax is essentially a user fee, parking rates can be structured to encourage good behavior and support of lighter, smaller, more fuel efficient vehicles.  Parking operators should partner with vehicle manufacturers and municipalities to make such vehicles more common.  What a great way to cross market !!

http://www.youtube.com/watch?v=w-SawjhfwQk

There has been much written of late about how Central Business Districts (CBDs) are the key to regional economic health, growth and sustainability.   We have written in the past about new urbanism concepts and concerns such as walkability and density. We have also written about the benefits of practical public transportation.   As I walk through the Cincinnati CBD I cannot help but notice that there is a gap in the use/tenant mix: the areas’ most high profile universities do not have a presence in the CBD. 

Let’s examine the example Chicago presents. In the Chicago CBD there is Northwestern University School of Law, University of Chicago Graduate School of Business, DePaul University, DePaul University School of Law, Loyola University School of Law, John Marshall School of Law, Roosevelt University, Columbia College, School of the Art Institute, Harold Washington College, Spertus Institute for Jewish Studies and Rush Medical College.  I am sure that I have missed a few, but the list is impressive regardless.

 

What is the benefit of having institutions of higher learning located in the CBD ? An influx of students, professors, administrators and all of the commercial activity they bring each day all year long. They create a need for housing, food and dining services and transportation services.

Institutions of higher learning and their students and staff being located in the CBD are within easy access of the businesses and professional service firms which draw upon their talent pool.  

 

So, Cincinnati, why not here ??? 

 

Why not relocate the University of Cincinnati School of Law and Graduate School of Business in the Cincinnati CBD ? Why not relocate the Xavier University School of Business in the CBD ? Why not relocate The Chase School of Law in the CBD ?  

 

The major regional corporations are in the CBD; the majority of the regions law firms are in the CBD. Having easy access to students eager and willing to work full and part time, intern and  perform case studies could only create more collaboration for both the respective universities and the region’s businesses; while at the same time opening up valuable space in land locked campuses for other uses. 

 

Holes in the CBD would quickly fill up with the needed office buildings and housing projects; not to mention the food and dining needs. One project will create the need for another and create a 24/7 community which is vibrant and complimentary to the successful effort which is transforming Over the Rhine, the Banks, Pendleton and other near in neighborhoods.

 

With the coming of a street car system the ease of moving about the CBD, and eventually connecting to the Clifton area, can only help the CBD become an ideal location for universities.

 

Cincinnati, think outside your own borders; come together as an integrated community where the institutions of higher learning affect more areas than their traditional campuses and put their talent pool in front of the businesses which are the likely employers for many of the students enrolled in your programs. 

TRANSPORTATION, LOGISTICTS, SUPPLY CHAIN MANAGMENT,  INTERMODEL, TRUCKING, TRAINS, SHIPPING ok, you get it.  As the economy wakes up goods being moved around the country need to make their way to ports, factories and consumers.  Opportunities abound for projects and developers if they are poised to take advantage of the logistics and supply chain sectors of the Real Estate Industry.