CREJ - Journal

Page 18 —

COLORADO REAL ESTATE JOURNAL

— April 1-April 14, 2015

experience

perspective

BKD National Construction & Real Estate Group

What are you reflecting on?

Expanding your footprint? New

revenue sources? In an industry where each project is unique, your

list is likely a long one. You need guidance.

BKD brings 90 years

of experience to the table,

and the advisors of BKD National

Construction & Real Estate Group possess the perspective to help

you manage change, make wise decisions and stay compliant.

Experience how

our expertise can give you a better vantage point.

years

Colorado Springs

719.471.4290

Denver

303.861.4545

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Law & Accounting

nce again, the annual

West Coast Informa-

tion

Management

Network Winter Forum was

attended by hundreds of senior

real estate executives repre-

senting fund sponsors, inves-

tors and lenders as well as an

array of professionals serving

the real estate opportunity and

private fund investing space in

the U.S. and abroad. Here are

a few key takeaways from talk-

ing with forum attendees and

attending sessions and panel-

ist discussions about a range

of current trends and economic

issues affecting real estate devel-

opments, fund sponsors and

private investing.

Investment sources.

appears the U.S. real estate

market is enjoying a period of

increasing valuations across the

board, fueled by a strengthening

economy and a flood of general-

ly positive economic indicators

for employment, wages, con-

sumer spending, inflation and

continued availability of cash in

the queue, awaiting deployment

through lenders and equity pro-

viders. The Federal Reserve’s

official end to its quantitative

easing program hasn’t affected

the outlook in the near term.

Declining oil prices, while buoy-

ing consumer spending, could

impact real estate valuations in

certain markets in Texas, Okla-

homa, the Dakotas and Wyo-

ming if low prices are sustained

for any significant length of time

– and many believe oil’s short-

term declines could be with us

for a while.

In addition, a poll of U.S. and

foreign fund managers showed

confidence in raising capital

for closing the equity needs of

new funds in the pipeline is

high, at least through the next

12 to 24 months. Beyond 24

months, however, the crystal

balls became cloudy and expec-

tations were far less clear.

Of particular note was strong

sentiment with respect to Asian

investments in U.S. real estate,

especially for established mar-

kets in larger U.S. cities. High-

quality real estate with desir-

able locations is attracting the

most attention from both U.S.

and Asian capital. Panelists

noted Asian capital is seeking

security in U.S. real estate and,

depending on which of nine

Asian regions

capital

or i g ina t ing

from, expec-

tations

for

cash returns

are down in

the 4 percent

to 6 percent

range. Based

on comments

from a panel-

ist working

in the Asian

niche, Asian

capital has few alternatives at

home with the perceived safety

of U.S. real estate. Capital from

U.S. counterparts, on the other

hand, is seeking returns at least

200 basis points higher – and

in many markets, expectations

are much higher. Equity trans-

actions dominate funding from

U.S. capital sources while Asian

sources are seeking a blend of

equity and debt transactions.

Asian capital is at the beginning

of a cycle of deployment into the

U.S. – capital from these regions

is being amassed by Asia’s

emerging economies. As these

economies develop, an accelera-

tion of capital inflow to the U.S.

is expected.

By and large, U.S. capital seek-

ing real estate is sticking close

to home. Assembling European

real estate requires knowledge

of more than 50 niche markets –

unless U.S. investors have expe-

rienced local knowledge and

feet on the ground, it’s difficult

to manage the risk in Europe.

While the Fed ended U.S. mon-

etary easing, the European Cen-

tral Bank launched its govern-

ment bond-buying program,

which is expected to pump hun-

dreds of billions in new money

into the eurozone. There likely

will be more to come regarding

Europe.

Real estate fund trends.

The overall sentiment is there’s

not much U.S. tax or regulatory

headwind impeding real estate

fund development, syndication

and investment, except in states

like California, Illinois, New

York and Pennsylvania, which

go after taxes on fund manage-

ment fee income by sourcing

the income based upon the state

of residence or domicile of fund

investors. The IRS also contin-

ues its crackdown on companies

set up as limited partnerships to

avoid self-employment tax on

net-cash-flow distributions to

limited partners, making it risky

to continue structuring manage-

ment companies in this manner.

Finally, the U.S. Department

of Treasury has issued proposed

regulations on the allocation of

partnership liabilities and dis-

guised sales. The proposed reg-

ulations cover four major provi-

sions:

• Changes to the allocation of

recourse partnership liabilities

under Section 752 that could

cause many obligations that

would be recourse under the

current regulations to be treated

as nonrecourse obligations;

• Changes to provisions relat-

ed to the allocation of excess

nonrecourse obligations under

Section 752 that would change

the current profit-based alloca-

tion to one based on a liquida-

tion value percentage;

• Clarifying changes to Sec-

tion 707 disguised sale regula-

tions regarding the exception

for debt-financed distributions

of preformation expenditures;

and

• Effective date provisions,

including the seven-year tran-

sitional rule applicable to the

allocation of recourse partner-

ship liabilities.

If made final, these proposed

regulations could affect funds

that make certain debt-financed

distributions as well as partners

relying on the current regula-

tions for partnership liability

allocation.

Additional topics.

Panel-

ists view the Foreign Account

Tax Compliance Act as the new

Y2K – although it was initially

seen as problematic from a com-

pliance perspective, it’s now

seen as having few significant

implications other than docu-

mentation and timely filings.

Compliance with U.S. Securities

and Exchange Commission reg-

istration requirements for fund

managers providing investment

advice with respect to securities

with $100 million or more under

management was covered again

this year. Those planning to

raise capital by selling limited

partnership interests in funds

holding real estate exceed-

ing $100 million should seek

legal counsel. Those required to

Forum highlights real estate market, confidence in raising equity

John Cook

Partner, BKD LLP,

Springfield, Missouri

Please see Forum, Page 19

Our national real estate practice

is focused on the evolving

needs of clients.

We advise on current positions,

opportunities, and complex

transactions in:

• Acquisition

• Development

• Financing

• Leasing

Phoenix | Salt Lake City | San Diego | Washington, DC | Wilmington

| www.ballardspahr.com

For more information, please call

Beverly Quail at 303.292.2400

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