Washington DC

News & Notes From Inside The Beltway: A Land Legislation Update From The Hill

Despite the rancor and polarization in Washington, D.C. these days, there is good news coming out of the nation’s capital. The following two issues show that positive developments can still happen to encourage economic development and protect property rights.

Qualified Opportunity Zones

The Qualified Opportunity Zones (“QOZ”) program was enacted in the 2017 Tax Cuts and Jobs Act to encourage economic growth in underserved communities through tax incentives for investors. Along with those tax benefits, it presents opportunities for real estate investment and development in those communities. American states and territories, including Washington, D.C., nominated areas (by census tract) to be designated as QOZs in 2018, and the IRS and Treasury finalized the designations that year. This temporary program (set to expire on December 31, 2047) presents opportunities for real estate investment and development in distressed communities. There are several potential tax benefits to investors who invest in a QOZ, if all requirements are met:

  • First, capital gains reinvested (within 180 days of a sale to a nonrelated person) into a QOZ are tax-free as long as they are held in the program, through 2026.
  • If held for five years, the tax ultimately paid on the reinvested gains is reduced by 10%; if held for seven years, that reduction is increased to 15%.
  • In addition, gains accrued on deferred gains funds while invested in a QOZ are tax-free if they are held for at least ten years.

Investments in “Opportunity Funds” (O Funds) may be gains from a previous sale (within 180 days) and/or non-gains funds, but only reinvested capital gains are eligible for the tax benefits. If both gains and non-gains funds are invested, they are treated as separate investments and will receive different tax treatments.

  • To qualify for the tax benefits, investments into a QOZ must be made through an O Fund, which may be a partnership or corporation organized for the purpose of investing in QOZ property. The requirements for an O Fund are:
    • Must hold at least 90% of the assets in QOZ property (which can be stock, partnership interests, and/or tangible property used in a trade or business within a QOZ, such as real estate);
    • Must certify with the Treasury and IRS, via a self-certification filed with federal tax returns (Form 8996).

Finally, the “QOZ business property” that an O Fund invests in must be “substantially all” in a QOZ, which under the proposed rules is met if 70% or more of the property is in a QOZ. The statute also requires that after an O Fund acquires QOZ business property that it be either “original use” (new) or “substantially improved,” which means investing at least as much on the improvement as was paid for the used asset. “Original use” commences with depreciation, so an unfinished asset purchase by an O Fund in a QOZ can qualify for original use as long as it has not been depreciated yet. In addition, vacant or abandoned property can be considered original use if it has been in that state for at least five years. The proposed rules state that the basis of the land a business sits on does not need to be included for the substantial improvement requirement, thus reducing the required investment amounts.

On December 12, 2018, the White House issued an Executive Order establishing the White House Opportunity and Revitalization Council, chaired by Housing and Urban Development (HUD) Secretary Ben Carson and comprised of 13 Federal agencies. The Council will focus on ways to revitalize low-income communities, through streamlining coordinating existing Federal programs to economically distressed areas, including Opportunity Zones. In May 2019, U.S. Department of Housing and Urban Development (HUD) released a notice that it will be offering new incentives for multifamily property owners to invest in Opportunity Zones.

Knick v. Scott Township, PA Supreme Court Case

The Supreme Court of the United States (SCOTUS) issued a landmark property rights decision on June 21, ruling that the federal courts are open to decide landowners’ claims for a Fifth Amendment “taking” of property by local regulatory agencies. In Knick v. Township of Scott, the nation’s highest court reversed a 1985 precedent that had forced property owners to first bring takings lawsuits in state courts, which acted as “gatekeepers” to block the claims from ultimately getting to federal court.

The 5-4 ruling in Knick holds that suits arising under the Takings Clause can be brought as an initial matter in U.S. trial courts, and then appealed as of right in U.S. circuit courts – just like any other alleged grievance to vindicate protections in the Constitution’s Bill of Rights. Such matters are no longer relegated to state judges for resolution. Federal courts are now proper venues to test the constitutionality of aggressive land-use decisions by local regulators, and can decide whether landowners are owed “just compensation” for a property taking.

Chief Justice Roberts’s majority opinion corrected the litigation dilemma for property owners trapped between the state and federal judiciaries. “The takings plaintiff thus finds himself in a Catch-22: He cannot go to federal court without going to state court first; but if he goes to state court and loses, his claim will be barred in federal court,” Roberts wrote. “The federal claim dies aborning.”

Roberts added, “Takings claims against local governments should be handled the same as other claims under the Bill of Rights. We now conclude that the state litigation requirement imposes an unjustifiable burden on takings plaintiffs, conflicts with the rest of our takings jurisprudence, and must be overruled.” The attorney representing the property owners before SCOTUS remarked that Knick “reject[s] barriers that unfairly deny property owners their day in court [and] sends a message that property rights are just as sacred as all other rights.”

Russell RiggsAbout the Author: Russell Riggs is a Senior Policy Representative with the National Association of Realtors in Washington, DC. For the past 23 years, Russell has advocated on behalf of Realtors on energy, environment, property rights, immigration and natural resource issues before Congress and federal regulatory agencies.

Russell also serves as the Advocacy Liaison to the REALTORS Land Institute, NAR‘s Global and Business Affairs Group, and NAR’s Resort and Second Home Group. Prior to his position with NAR, Russell held positions with the U.S. Department of Energy, the Council of State Governments, the National Governors Association and the New Jersey Department of Environmental Protection. Russell holds a Bachelors degree from Virginia Commonwealth University, and Masters Degrees from Tufts University and New York University.

land market outlook

Seeing 2020: Land Market Current Conditions & Outlook

The longest economic expansion in U.S. history continues to churn out more output and job additions with each passing month. November 2019 marks 125 consecutive months of growth and the momentum factors hint at the trend continuing into at least spring of 2020. Then what? A recession? Not likely, except for one policy error.

Though the populace is intensely polarized politically, as related to the economy, U.S. consumers are indicating high confidence. The consumer confidence index was 125 in September, well above the 100 neutral mark seen throughout 2019. For reference, the index has been under 100 for nearly a decade starting from 2007. The solid expression of confidence about the economy is without a doubt due to the very low unemployment rate of 2.7%, an all-time high in total household wealth in the country as the stock market boomed, and record high real estate values. The prior peak in the net worth of all households was $70 trillion in 2007 right before the last recession, sunk to $60 trillion at the depths of the foreclosure crisis, and then rose to $113 trillion as of mid-2019. Quite an incredible feat, though we should be reminded that wealth holdings have become much more concentrated at the top. All this could mean good things for the land market outlook in 2020.

Consumers consequently are opening up their wallets. Consumer spending rose 2.6% in the second quarter of 2019, after adjusting for inflation, and has been the prime engine for GDP growth over the past few years. Spending on consumer durable goods – with a long product life span – has been even stronger at 4.4%, attesting to the longer- term positive assessment of the direction of the economy. There is no over-borrowing to fuel personal consumption. Finances are coming from an employment growth of 2.15 million net new jobs, rising wages from $27.30 per hour to $28.09 over one year, and higher wealth by a few trillion dollars. Miraculously, there are more job openings today (7 million in August 2019) than the number of unemployed (5.7 million workers).

However, there is not as happy a story for businesses. Corporate profits are indeed very high, especially after cuts to the corporate tax rates a few years ago, rising from $1 trillion in 2008 to nearly $2 trillion now.

This partly justifies why the stock market is near record highs. But even with healthy financial conditions, companies have been less aggressive in spending the cash for machinery, factory expansion, and other investments.

Business investment spending contracted in the second quarter of 2019. Spending on equipment barely changed, but spending on commercial building fell by 4.7% from a year ago. Though assuring no oversupply of commercial real estate construction, the fact that businesses are pulling back is concerning and raising the question as to why.

gdp growth land market outlook

The timing of businesses getting cautious is directly related to the raising of tariffs and hostile rhetoric towards international trade. In fact, many companies in their public statements during quarterly earnings calls say they are cautious because of uncertainty related to trade prospects. REALTORS® specializing in commercial real estate have witnessed that trend as leasing activity markedly slowed in the second quarter to only 3.1% growth compared to better than 10% gains in 2016 and 2017, and 5% gains in 2018. Moreover, even business travel has weakened, as evidenced by falling occupancy rates at hotels, which is now at 72.4%, a full 100 basis points lower than from a year earlier.

The most troubling aspect is the actual slowdown in global trade. U.S. exports fell 1.7% recently while U.S. imports grew by only 2.6%. When both exports and imports decline for a few straight quarters, then a recession is near certain with job cuts. In a growing economy, both exports and imports should be rising by at least 5% per year. This slowdown in trade has had repercussions elsewhere. Just about every notable economy is experiencing slower economic activity in 2019 compared to recent prior years. The International Monetary Fund (IMF) cut its global growth estimate to 3.2% for 2019 after having forecasted 3.6% earlier in the year. The economies of the world appear to move in sync, like a rising tide lifting most boats — and the movement reverses when trade restrictions are put in place. The stock market has nearly always cheered at the promise of a trade agreement and sunk following the rhetoric of a trade war and retaliations of more tariffs. More positively, it is becoming clear that both the U.S. and China are looking for a deal. In such a case, business spending could boom.

One promising sector that could help with future economic growth is real estate construction. America is facing an acute housing shortage – for both single- family owner occupancy and for multifamily apartments. Home prices and rents have been rising far in excess of wage growth for five straight years.

Vacancy rates are at historic lows. The underproduction of new homes over the past decade has cumulatively resulted in around five to six million housing units that are needed today. Even in a normal year, only around 1.5 million new homes can be constructed. Therefore, increased construction needs to occur for multiple years. In 2020, specifically, housing supply is expected to improve, with housing starts expected to hit 1.4 to 1.5 million, up from 1.275 million in 2019.

With home builders still likely to be constrained by what they call the 5Ls — labor, land (lots), lending (financing), lumber (raw materials), and restrictive laws (regulation) — housing starts will still not match the demand from household formation (1.2 million), or the replacements for demolished or obsolete housing (about 450,000). All that means more demand for land and lots.

“…more demand for land and lots.”

In the commercial market space, industrial properties have outperformed retail spaces, arising from the stronger growth in online shopping and quick distribution warehouse needs. Investors are paying much more for industrial flex/warehouse properties on account of low rental vacancy rates and the sustained demand for e-commerce sales. Given that warehouses can be built in off- center sites far away from downtowns and population centers, the demand for land will grow in outlying regions.

In the meantime, the interest rates will be at near historically favorable conditions. The Federal Reserve will more likely cut its fed funds rate a notch in 2020 rather than increasing. It just means that 10- year Treasury yields will remain low at around 1.6% and the longer term borrowing rate at under 4%. In future years, watch what happens to the federal deficit, which is expected to be near $1 trillion in 2019 and projected to surpass $1 trillion in 2020. The total federal debt level, adding of all past deficits, will reach 100% of GDP in a few years, well above the 60% that many economists consider as manageable.

The bottom line summary is that while the economy is experiencing the longest running growth period in U.S. history, there is no reason why it has to falter. The economy is expected to finish 2019 with only moderate growth of 2% due to soft business spending activity, after having notched up a solid 2.9% in 2018. For 2020, a recession is not in the cards, but this assumes some type of truce in the trade war. A trade agreement will be better still and will lift business spending.

“…expect continued job creation, income growth, and rising demand for land.”

Construction spending has to rise to relieve housing shortages and low vacancy rates in commercial real estate. Therefore, expect continued job creation, income growth, and rising demand for land.

Lawrence Yun NARAbout the author: Dr. Lawrence Yun is chief economist and senior vice president of Research at the National Association of REALTORS®. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1.4 million REALTOR® members.

forest

Digging Up the Dirt on Land Contracts and Seller Financing

I sell LAND for a living, and I am often asked if the seller is willing to finance the property. Many times the answer is YES. Financing land can be problematic unless you are working with a lender who specializes in these type loans, for example, Farm Credit Banks. So, for the most part, the buyer has two options:

1) finance through a bank or lending institute

2) Seller/Owner Financing

A land contract (also known as Contract for Deed) is a contract between the buyer and seller of real property in which the seller provides the buyer financing in the purchase, and the buyer repays the resulting loan in installments.

Advantage Seller – Speed because no bank is involved. Sellers in some cases can get a higher price for their property and the principal and interest payments go to the owner instead of the bank. This can make your Return on Investment (ROI) look very appealing. If the buyer fails to make payments, the seller/owner takes back the property and keeps the payments made by the buyer.

Advantage Buyer –  Speed because no bank is involved. Having your credit checked repeatedly can negatively affect your credit score. Some buyers have marginal credit and financing through the seller makes lots of sense and saving fees related to a conventional loan such as appraisals, origination fees, etc.

When closing, the attorney will prepare documents (promissory note) that state the terms of the loan such as down payments, interest rates, term or length of the loan, due date for payments, and penalties for non-payment. If payments are not made, the seller/owner will begin foreclosure on the property. There are two types of foreclosures and the type will depend on the state you live in.

Judicial Foreclosure – Foreclosure by judicial sale, commonly called judicial foreclosure, involves the sale of the mortgaged property under the supervision of a court. The proceeds go first to satisfy the mortgage, then other lien holders, and finally the mortgagor/borrower if any proceeds are left. Judicial foreclosure is available in every US state and required in many (Florida requires judicial foreclosure). The lender initiates judicial foreclosure by filing a lawsuit against the borrower. As with all other legal actions, all parties must be notified of the foreclosure, but notification requirements vary significantly from state to state in the US. A judicial decision is announced after the exchange of pleadings at a (usually short) hearing in a state or local court in the US. In some rather rare instances, foreclosures are filed in US Federal Courts.

Non-Judicial Foreclosure – Foreclosure by power of sale, also called non-judicial foreclosure, and is authorized by many states if a power of sale clause is included in the mortgage or if a deed of trust with such a clause was used, instead of an actual mortgage. In some US states, like California and Texas, nearly all so-called mortgages are actually deeds of trust. This process involves the sale of the property by the mortgage holder without court supervision (as elaborated upon below). This process is generally much faster and cheaper than foreclosure by judicial sale. As in judicial sale, the mortgage holder and other lien holders are respectively first and second claimants to the proceeds from the sale.

This arrangement can be a win-win for both the seller and buyer. This is just another vehicle to help a buyer get into the property they want and help the seller achieve their goal of moving some property at a great price!!

This post was originally published on The Dirt Blog.

Kent Morris, ALC, is a Registered Forester and Associate Broker who has experience in fields such as timber appraisals, harvesting, thinnings, and timber sales.

land evaluation checklist

A Checklist For Evaluating Land To Purchase

I was recently reading an article about tasks to perform after buying a tract of land. I decided to develop a list of topics to consider for those evaluating land to purchase before buying any land to help when comparing properties to ensure you buy the best property. We have all heard about buyer’s remorse, so it is important to consider the following before you make that important purchase.

1. Access – How is the property accessed? You may have road frontage or an easement. Is the easement prescriptive or deeded? I would not be comfortable buying a tract with a prescriptive easement and long term verbal agreements are often forgotten about by inheriting heirs.  These prescriptive easements can be converted to a legal or deeded easement, but be prepared for a court battle and legal fees.

I work in a county where there are a lot of transitional properties, so access is key. The county requires that each parcel of land have at least 50 feet of road frontage on a county road or state highway. If you are buying for investment purposes and are planning to subdivide the property, lots of road frontage is important. Check with the local county planning and zoning folks beforehand.

flood plain

2. Flood Plain – These are soils that typically flood after a huge rain event and it affects the utility of the property. I used to manage 85,000 acres of land for a timber company. We categorized property by inoperable and operable acres. The inoperable property was generally Streamside Management Zones and Flood Plains. The utility of the property affects the value. This information is readily available and your real estate agent should provide this information.

Also these areas will not support a conventional septic system. If you are buying land to build a house or cabin, know where these flood prone areas are prior to your purchase.

3. Topography – I have written a blog post about Topographic Maps. Like flood plains, topography can affect the utility of the property. Very steep property is not conducive to farming and logging. Be sure to look at topo maps of the property and nothing can substitute walking the property. Take a close look before you make that important purchase.

4.  Neighbors – With all the technology out there, it is pretty easy to determine who your neighbors are. I can access this information from the tax assessor website. You might be interested to know if they live on the property or if they are absentee landowners. Could you imagine buying a tract of land to learn later that a waste management company owns the property next door? A little work up front can save you lots of heart ache later on.

5. Property lines – I have written a blog post about maintaining your property lines. All landowners should mark and walk your property lines on a regular basis. It is a good idea to know where they are, especially before you buy. If a neighbor is encroaching on the property you need to alleviate the problem. Property lines that are maintained and painted provide a visual aid to your neighbors so everyone is on the same page and knows where the property lines are!

soil type

6.  Soils – In certain areas of the country, soils and soil productivity drive price. Farming (tillable acres) land is evaluated on the productivity of the soils. Most of the property in West Central Georgia is timberland and this can be evaluated based on Site Index. When buying timberland, operable acres and site index should be considered.

7.  Survey – This is huge! I will tell you about two tracts of land I have been involved with recently. These are real life stories. I was contacted by a landowner who had property in Harris County, GA. They solicited my help on a timber sale and later contacted me to sell the property. The tax assessor showed 170 acres and I told them they had more and suggested having the property surveyed before selling. The survey yielded 213 acres…advantage Seller!

In another situation, I was contacted by a Family Limited Partnership. The property had been in the family for 3 generations. The property was beautiful and the timber was over 60 years old. The family had an old plat from the 1920s from Columbus Power and Electric who built Lake Harding. The lake is now owned by Georgia Power and they own up to the 525 foot elevation. They were paying taxes on 236 acres. I estimated about 185 acres and arranged to have the property surveyed. The survey yielded 176.6 acres.

If you buy or inherit property, have a survey, you need to know what you own. These are both also a great examples of why it is important to work with a real estate agent that specializes in land transactions in your area.

8.  Timber Cruise – Timber cruises are important when buying timberland. First of all the amount and type of timber helps when valuing the property. Secondly, the timber cruise will help when conducting cost allocation on the property. This is the process where you assign value to the timber and the dirt. Cost allocation will save you lots of money when the time comes to thin or harvest your trees. You will pay taxes on the capital gain (revenue less depletion).

Interested in purchasing a land property? Land transactions require specialized expertise from an agent, like an Accredited Land Consultant (ALC), with experience and education in the industry! Find A Land Consultant near you for expert advice.

This post was originally published on The Dirt Blog.

Kent Morris, ALC, is a Registered Forester and Associate Broker who has experience in fields such as timber appraisals, harvesting, thinnings, and timber sales.

CCIM ALC Fast Track

Accredited Land Consultant Designation Approved for CCIM Fast Track

October 22, 2019 (Chicago, Ill) – The Realtors® Land Institute and CCIM Institute, both commercial affiliates of the National Association of Realtors®, are working together to elevate the prestige of their designees with the approval of the Accredited Land Consultant (ALC) Designation into the CCIM Fast Track criteria. With its approval, real estate professionals who hold RLI’s elite ALC Designation can now earn the esteemed CCIM designation at an accelerated pace as a Fast Track Institute Candidate member. Given their proven expertise and experience in commercial transactions, an ALC can now earn the CCIM designation without needing to meet the traditional elective credit and portfolio requirements.

“Our organization could not be more excited to see the acceptance of our elite designation into the CCIM Fast Track. This mutually beneficial move is a great show of the credibility each designation offers to those who earn them. We truly value the partnership between our organizations and the benefit it brings to commercial real estate agents across the industry,” stated RLI CEO Aubrie Kobernus, MBA, RCE.

“The ALC designation is a welcome addition to CCIM Institute’s Fast Track Membership program,” stated CCIM Institute CEO Gregory J. Fine, FASAE, CAE. “If an ALC is looking to expand their already impressive wealth of knowledge and experience, a CCIM designation in commercial investment real estate is the perfect complement. We look forward to sharing the good news with the RLI community.”

The CCIM designation has long been an approved certification for RLI’s ALC Designation Fast Track. As part of the ALC Fast Track, real estate professionals holding the CCIM designation can earn the ALC without needing to meet the full 104 credit hours of the education requirement. Commercial real estate professionals seeking more information about these two organizations are encouraged to visit their respective websites at rliland.com or ccim.com

About the REALTORS® Land Institute
The Realtors® Land Institute, The Voice of Land, continually strives to maintain its status as the acknowledged leader for all matters pertaining to the land real estate profession. RLI endeavors to remain the essential membership organization for the extraordinary real estate professionals who broker, lease, sell, develop, and manage our most precious resource: the land. The Realtors® Land Institute provides the expertise, camaraderie, and valuable resources that are the foundation for all land real estate professionals to become the best in the business. For more information, visit rliland.com

About CCIM Institute
CCIM Institute created the language of global real estate investment. Our courses and worldwide community deploy commercial real estate investment methodologies and tools that speed the pathway between opportunity, a go/no-go decision and success for an asset, taught by instructors who are themselves industry leaders. Today, the organization, through its 50-plus chapters, continues to innovate best practices and elevate the commercial real estate professional through its core designation program to earn the CCIM pin— real estate’s most coveted credential — and its topical education courses offered through the Ward Center for Real Estate Studies. In addition, membership in CCIM includes the industry’s best technology and operational platform, allowing entrepreneurial and mid-sized businesses to compete with the largest multinational providers.

Today, almost 70 percent of designees hold the title of owner, partner, principal, or president, representing an exclusive worldwide referral network of 13,000 members in 30 countries. Ultimately, CCIM represents a larger vision of the commercial real estate provider, leveraging investment analysis, opinions of value, and underwriting to become a leader in sourcing capital, building a cash-flow vehicle, and ultimately creating value. Information at www.ccim.com

beach house coastal land

Selling And Buying Coastal Land By The Sea Shore

According to research by National Oceanic and Atmospheric Administration (NOAA), coastal counties of the US are home to over 126 million people, or 40 percent of the nation’s total population. However, the coastal land accounts for less than 10 percent of the nation’s land mass (excluding Alaska). As an Accredited Land Consultant in coastal North Carolina, I’ve experienced the unique challenges of land transactions near the water, and I’d like to share with you four main areas of consideration for anyone selling, buying, or investing in coastal properties.

1) Waterfront Property Considerations

Whether you are talking about ocean front, sound side, mainland water front, or on a river, you should know about the riparian rights and where exactly the title shows the property’s boundaries fall. This differs in each state, so double check your state laws for exact definitions and restrictions.

Verify that the water is indeed navigable, whether that’s by boat, kayak, canoe, or yacht. There is no such thing as deep water, what is deep to me, may not be deep to you, so there is room for misinterpretation. Determine the depth needed for its intended use(s) and, if possible, the owner should take the boat/vessel to the property as a test to make certain it will serve its purpose.

It’s common along the ocean for there to be an easement recorded for public enjoyment, public use, or for local governmental authorities to perform activities like beach re-nourishment, sand pushing, etc. Since you may own the section of the beach in front of your home to the high tide mark, the public and municipality probably still has the right to use and enjoy that space.  Any homes or buildings that are waterfront may NOT be re-buildable. If a storm damages the structure to a certain extent (determined by local codes and ordinances), you may not be able to rebuild that structure to its original state. You also may find, especially with older buildings, that new setback requirements could affect your buildable space on the land. Always check with local governmental authorities to determine the local rules and requirements.

beach house coastal land

2) Wetlands and Areas of Environmental Concern (AEC)

Due to the sensitivity of coastal watershed areas and wetlands, any proposed development should give consideration to any designated wetlands and how storm water flow and erosion may impact them. There are many types of flora, fauna, and animals that only thrive in wetlands, therefore, regulations exist to protect them. Find ways your plans can incorporate these areas into your design and you’ll probably score some brownie points with the planning department.

If there are wetlands on your survey or plans, you’ll likely need to get the Army Corps of Engineers to come on site for an evaluation to determine exactly where and what kind of wetlands you have. This can take some time, so plan for that during your due diligence examination of the property. There will likely be restrictions on development near wetlands such as additional setback requirements, erosion control measures, and storm water runoff plans. Knowing a good coastal engineer and surveyor will greatly help you get a plan together more efficiently that can be easily approved. If you must disturb wetlands, mitigation banks and conservation easements may be an alternative to achieve your goals. Your engineer should have contacts at a local mitigation bank to work through those challenges.

sunset coastal land

3) Insurance Considerations

Investigate if the county/city/municipality/town is part of the National Flood Insurance Program (NFIP). The NFIP’s Community Rating System (CRS) is a voluntary incentive program that recognizes and encourages community floodplain management activities that exceed the minimum NFIP requirements. Participation in this program provides discounts to flood insurance policy holders because their community is working to reduce flooding damage to properties, strengthening and supporting the insurance aspects of the NFIP, and encouraging a comprehensive approach to floodplain management.

Not all communities are part of the NFIP, therefore, property owners won’t be able to purchase Federal Emergency Management Agency backed flood insurance. The only option otherwise is a private flood policy for your structures, which can actually be more affordable and provide better coverage. Compare both types of policies anyway and make sure the coverage works for your intended use, you may be surprised at the extras a private policy offers. This is a great reason to use a local insurance company near your property who understands flood insurance.  Most people forget about the other insurance policy you will probably need, which is wind and hail. Wind driven rain and hail can create damage that isn’t always apparent, but can create a lot of problems. Mortgage companies will likely require it, and proximity to the ocean is a factor, so be prepared. Properties that are 30 miles inland can still be in a wind zone, requiring the additional coverage.

beach coastal property

4) Highest and Best Use 

People love to live near the water, but a land practitioner must remember that not all land is meant to be a housing development. With all of the challenges we’ve covered, you can imagine there are tracts of land that some think are just unusable, which is not the case. Alternative options such as solar, wind, and organic farming are showing up near the water on properties without suitable soils for septic. Depending on your seller’s financial goals, maybe conservation easements or putting land into a mitigation bank would bring a higher sales price. Think outside the box, there’s a buyer for every parcel. Affordable housing options are limited in coastal communities because the higher land prices won’t support a lower-priced product. Zoning restrictions controlling density near Areas of Environment Concern could further limit a developer. Talk to your local planning or zoning office to find creative ways to be able to offer affordable, workforce housing options in your community.  Approximately 446 people per square mile live in coastal counties, and they need goods, services, and retail options. Getting the right mix between tourism in coastal areas creating a short term economic boost and providing year-round jobs and industry is the key to having a robust, year-round economy.

Christina Asbury, ALCAbout The Author: Christina Asbury, ALC, is with Coldwell Banker Sea Coast Advantage in Sneads Ferry, NC. She serves has been a member of RLI since 2007 and earned her ALC Designation shortly after in 2008. She has served on RLI’s Future Leaders, Education and Government Affairs Committees over the years and is active in her local RLI Carolinas Chapter.

New Data and Market Analysis for Land Brokerage Site Selection and Feasibility

Today, technology and data are changing more rapidly than ever before, transforming the commercial real estate practice at every iteration. Far removed are the days of fold-out discounted cash flow analysis reports, maps plastered with rub-off decals, and microfilm-powered due diligence. Likewise, disruptive companies such as Amazon, WeWork, and Airbnb are changing the way we use, analyze, and value property.

Due to unprecedented advances in data and technology, the tools, devices, techniques, and resources we relied upon decades ago – or even last year – can quickly become obsolete. Whether you’ve been in the business three years or 30, a tune-up may be necessary to stay abreast of the latest data sets and metrics available to commercial real estate land professionals for analyses and site selection.

New Economic Metrics and Resources for Site Selection

We have been conditioned in our training that job growth drives demand for commercial real estate and that the government’s Bureau of Labor Statistics (BLS) is the resource to consult. Due to dated methods, the BLS often struggles to accurately estimate employment growth. For more reliable data, look no further than ADP’s National Employment Report (NER), produced jointly with Moody’s Analytics, and LinkedIn’s Workforce Report with Skills-Gap Analysis.

ADP processes the payrolls for approximately one-fifth of the nation’s private payroll employment, and its monthly employ- ment data is a credible estimate of private employment activity.

LinkedIn’s Workforce Report is a powerful supplement to ADP’s National Employment Report. The report draws on employment data from the more than 190 million workers in the U.S. who have LinkedIn accounts. LinkedIn’s monthly jobs report also includes invaluable skills-gap analyses at an MSA level stratified across 50,000 employment sectors, from brokers to welders. If you are engaged in land brokerage site selection or advise companies on site selection decisions, LinkedIn Workforce Reports are a must- have in your toolkit. Had Amazon utilized the LinkedIn Workforce Report with Skill-Gap Analysis before making its HQ2 split decision, it would have known that New York ranked worst for available skilled workforce – below even Seattle or San Francisco.

It’s also prudent to seek out non-government sources for critical economic measures like gross domestic product and small business activity. These will come in handy during a government shutdown or natural disaster. The government does not produce data during a shutdown, and the data it produces during times of emergency, like hurricanes or wildfires, is often delayed. As a result, you may need to supplement with additional sources of on-demand data.

So where should commercial real estate professionals turn for this business intelligence? A good global resource is Trading Economics. Leveraging official sources, the site offers verifiable data from 196 countries including “historical data for more than 20 million economic indicators, exchange rates, stock market indexes, government bond yields, and commodity prices.”

train tracks commercial real estate

In addition, a great proxy for GDP is the rail traffic data produced by the Association of American Railroads. The Rail Time Indicators report is an invaluable economic resource that anyone engaged in industrial real estate should have – and never leave home without. Weekly and monthly rail traffic data and the more comprehensive RTI report tell us what commodities and goods are moving, where they’re headed, and at what volumes – solid, reliable data to ascertain a true measure of economic growth.

For a powerful one-two punch of construction data and insights, check out the Association of General Contractors (AGC) and the Engineering News-Record (ENR). AGC produces a monthly survey that provides a thorough understanding of what general contractors are experiencing and forecasting, including construction materials, spending, and employment.

A perfect pairing with AGC, ENR offers a monthly periodical with a construction economics section and a 20-city index that details current and historical data on actual material and labor costs.

Rethinking Development for the Modern E-Commerce Supply

The following section of the report contains adapted excerpts from the Alabama Center for Real Estate’s report, “Logistics Infrastructure: Transformational Opportunities.”

The horseless-carriage supply chain from the 1950s cannot support a modern e-commerce supply chain that is growing at a rate of 25 to 30 percent per year. The state of the country’s aging infrastructure is not only inhibiting future economic and real estate development, it also forces existing industry to relocate to destinations that have modern logistics infrastructures. In 2019, logistics infrastructure adequacy is as important a consideration in site selection as workforce.

Take a look at the locations of new fulfillment centers for Amazon, Walmart, Target, and home improvement retailers. They are all near intermodal hubs – places like Bessemer and Mobile, Ala.; Columbus, Ohio; Polk County, Fla.; Greenville, S.C.; Atlanta; Dallas; Denver; and even Tucson, Ariz. One can also look to the locations for new aircraft, auto, and machinery manufacturing plants in Alabama, Georgia, South Carolina, and Texas. Logistics infrastructure analysis – roads, rail, intermodal, port connectivity, utility costs, and workforce – is now integral to site selection studies and investment analyses.

Commercial Real Estate warehouse industrial

E-commerce also continues to drive demand for industrial warehouse space, with another 800 million to 1 billion square feet of new development expected across the U.S. over the next three years. Are your logistics site selection and investment analysis skills up to speed to aid in this explosion? Are you familiar with modern design specifications that call for higher clear ceiling heights or expanded truck courtyards to accommodate more double-trailer trucks as a result of the implementation of electronic logs for truck drivers?

And what about the feasibility of tent warehouses, which Amazon is testing in Memphis, Tenn.? These innovative warehouse designs have no columns, cost one-third of conventional masonry warehouses, and can provide clear ceiling heights of 30 feet or more.

What’s more, the ongoing innovation in traditional construction design and materials for all property types challenges our cost estimation and market feasibility skills, much like modular did in housing decades ago.

Are price or rent per square foot and traffic counts no longer the appropriate units of measure for determining price or market feasibility? Should cubic volume be a consideration, particularly in industrial? What about traffic and online versus in- store sales allocation in retail, especially with the pervasiveness of e-commerce? Consider the changes in retail real estate.

Same-store comparable sales and percentage rent clauses are nearly as extinct as branch banks.

Parking ratios also are changing. While they may be declining for office due to ride-sharing and the promise of autonomous vehicles, they are rising for retail as more space is repurposed from transactional to experiential, where parking demand is higher for restaurant and service uses (gyms, spas, etc.).

People stay longer at an experiential-use site compared to a traditional store, where people run in and out to purchase goods. In the industrial space, warehouses require larger sites and more parking to accommodate double-trailer truck hauls as well as employee parking in the fulfillment portions of these locations. The opposite trend is occurring for hotels and many types of multifamily, such as student housing. Universities – and the towns in which they are located – are realizing that fewer students own and use cars like previous generations. They use scooters and ride-sharing, or they rent electronic vehicles available on campus. Hotels are realizing a 25- to 40-percent reduction in patrons requiring overnight parking as they pivot from rental cars to ride-sharing.

The point is, traditional measures are changing. If historical data sources fail to adapt, then those measures will become be less relevant as users move toward new metrics. This adaptation is critical in that it allows commercial real estate practitioners to translate these historical measures into meaningful current data for analysis and valuation.

Moreover, the new tools and data resources developed to meet these challenges are coming from unlikely sources. Instead of using car traffic counts as a proxy for retail sales at a shopping center, telecom companies like Verizon have developed their own index to analyze online shopping traffic and patterns.

There’s clear value in looking at mobile phone traffic for retail and comparing same-store online and in-store sales. With the current ever-evolving landscape, it’s hard to separate technology from the retail industry; sources like Verizon are helping bridge that gap to provide a more accurate picture for commercial real estate analysis.

Recently, Develop LLC, an opportunity zone REIT, created the first opportunity zone index that evaluates each of the 8,700 opportunity zones based on a variety of metrics, including population density, employment, and infrastructure.

Which traditional property measures require rethinking? The short answer: all of them.

A Way Forward

For all these advances to translate into vibrant economic growth, local governments need to recalibrate, but it will take a joint effort by government and industry professionals. To this day, for example, many municipalities have yet to adopt adaptive reuse ordinances to support the repurposing of existing vacant retail buildings while preparing for the new opportunity zone program. Local governments are behind in understanding changing parking trends, revenue loss from online retail growth, and how tax assessments are impacted for real estate that is increasingly a going concern.

phone screen

The secret to enduring success in commercial real estate is simple – never stop learning, never become complacent. Proactively adapting to the latest data sources and technology in valuation and financial and market analyses is vital. It’s a matter of keeping your career engine purring or being left behind by your competitors, stalled roadside.

KC ConwayAbout the author: K.C. Conway, MAI, CRE, is the Chief Economist for CCIM. Conway is also the Director of Research and Corporate Engagement at the Alabama Center for Real Estate. With more than 30 years of experience in commercial real estate, Conway is a nationally recognized expert and speaker in the industry.

A New Development Matrix for Today’s CRE Industry

By Mark Van Ark, CCIM, SIOR

CRE industrial commercial building

Many commercial real estate land professionals may be familiar with James Graaskamp, Ph.D., SREA, CRE, and his early work on real estate development, “The Fundamentals of Real Estate Development,” published nearly 40 years ago. In it, he created a rather intricate workflow and description of the development process outlining the political, social and enterprise components. The process was so involved, however, that most needed classroom guidance from Dr.

Graaskamp to fully understand the process and its many nuances.

Fast forward to 2012. Daniel Kohlhepp, Ph.D., MAI, with Johns Hopkins Carey Business School’s Edward St. John Real Estate Program decided to take Graaskamp’s work one step further and make the whole process more accessible. Kohlhepp incorporated his own personal development experience to create a new, more comprehensive real estate development matrix, expanding Graaskamp’s three stages to seven. As a result, the new development matrix provides a clear roadmap of the entire real estate development process from the land banking stage to the redevelopment stage: land banking, land packaging, land development, building development, building operation, building renovation, and site redevelopment. It’s a new matrix for today’s commercial real estate professional. Much like employment data and the other metrics and data sets discussed in the article, a new matrix was needed to reflect the advances and sophistication of today’s development process.

Three years ago, CCIM Institute leveraged Kohlhepp’s matrix as the linchpin in the CCIM Development Specialty Track series, which takes a deep dive into all seven stages – from the land banking stage to the redevelopment stage – and incorporates real-world application every step along the way. There are four stages of Kohlhepp’s matrix that are of particular interest to the land brokerage practice – Land Banking, Land Packaging, Land Development and Building Development. Gaining clarity and a greater understanding of the language, workflow, goals and hurdles of developers helps create value and deepens relationships with the development community.

Editor’s Note: This article is an adapted excerpt from CCIM Institute’s 1Q2019 Commercial Real Estate Insights report titled “Long May You Run: An Essential Commercial Real Estate Tuneup.” For the full report, visit www.ccim.com/insights.

This article was originally published in the Summer 2019 Terra Firma magazine.

new land agent

New Land Agents: Overcome These Barriers and Get to Work

Overcoming Expertise Barriers

Decide on your specialty – We believe the best foundation for finding your niche is to go with what comes naturally to you and what you have plenty of life experience with. It’s imperative that you have confidence in your ability to market and represent the real estate and the clients you choose to work with.

mentor

Find your mentorFind someone that does what you want to do, really well, and join them. Rural real estate will throw you a new curve on a weekly and, sometimes, even daily basis.  If you can align yourself with a solid team and/or an experienced Broker within your specialty, you’ll remove the majority of the risk factor and frustration for everyone involved just from their experience and willingness to help.  Nothing is more exhausting than having an inexperienced Broker floundering on one side of a land deal that doesn’t know how to troubleshoot, problem solve, and keep everyone moving in a positive direction, causing one side to do most of the work in the best interest of their own clients.

Take Courses – Organizations like RLI provide courses, like those part of their LANDU Education Program, that can give new agents the expertise they need to get started and thrive in the land industry as an agent. Make sure to seek out these opportunities and to continue learning throughout your career.

Overcoming Cost Barriers

Vehicle/Fuel costs – If you choose a niche that you’re already living, chances are you have the appropriate vehicle.  Just clean it up and make it presentable. Again, if you join a team, they may have a company UTV available for showing properties. Fuels costs can be somewhat alleviated by having a plan in place to pre-qualify your buyers as far as their wants and needs and their ability to finance. Don’t waste your time in a truck with someone that doesn’t have the stack to purchase the properties they’re asking to see.

Marketing costs within a team can be shared and the experienced Broker can advise a new agent on what works and what doesn’t saving a lot of unnecessary output. Your team or established Broker will usually have a marketing plan in place with appropriate websites and subscriptions that come with no added cost to their Brokers.

Land real estate allows us to make a living at something we’re made of.  It gives us the ability to spend our work days with people that love the same way of life as we do.  It’s absolutely rewarding and can sometimes be brutally hard. Just be prepared to gather more lifelong friends than you could ever imagine, and be sure you protect and treat every one of them like they’re family.  Submerse yourself in education and always do the right thing and you’ll have an amazing career in land real estate!

Clint Flowers, ALCAbout The Author: Clint Flowers, ALC, is the top producer nationwide at National Land Realty, a member of the REALTORS® Land Institute, their RLI Alabama Chapter, and the Chair of their 2019 Future Leaders Committee. He was the NLR Top Producer Nationwide in 2016, 2017, and 2018. He also won the 2017 APEX National Broker of the Year award for Timberland and was in the 2018 APEX Producers Club.

Lisa JohnsonAbout The Author: Lisa Johnson, ALC, is the Owner/Principal Broker at Horsepower Real Estate. Specializing in Farms, Ranches, and Equestrian Properties in Western Oregon, her and her team of land Brokers are among the top rural agents in the area. Lisa is a member of the RLI Pacific Northwest Chapter, and a 2019 Future Leaders Committee member.

timberland agent

A Day In The Life Of A Timberland Agent

One of the reasons consulting forestry, and now land focused real estate brokerage, has been so appealing to me is that the job is not monotonous. Each day presents new challenges and, while experience helps navigate those challenges, timberland agents are constantly learning and coming across new things. It is hard to describe a typical day because each one is unique. There are certain characteristics that make timberland brokerage a unique specialty.

I worked as consulting forester early in my career before transitioning into land agency. These early experiences prepared me for the more technical aspects of timberland brokerage. Brokers need a strong knowledge to help them allocate value among the component parts of properties. The value in timberland can be thought of as comprising two major components: the underlying or bare land and the timber growing on the land (there may also be improvement value). The agent must be able to quantify the timber portion separately from the bare land in order to form an accurate purchase or selling price.

timberland agent in forest

The first step in this process is accurately describing the timber on the property. This usually starts with a current forest stand map that details the acreages associated with each unique stand. A forest stand is an area of similar species composition and age. We prepare for the initial tract visit with an aerial photograph of the tract, and the first visit involves touring the property to identify the stands and stand boundaries. We then describe those stands in terms of species composition, age, site quality, silvicultural treatments, and any other relevant features. We take this field information back to the office and, using our GIS system, create an accurate and up-to-date stand map with associated acreages.

We then decide if the property requires a full timber inventory (cruise) to accurately value the merchantable timber. Ideally, all merchantable stands of timber will be inventoried prior to a purchase or sell. This gives either the buyer or the seller confidence in the timber value of the asset. If this is not possible, or the party does not want to incur the expense, an experienced forester or broker can provide estimates of the per acre value based on a thorough inspection of the property. Walk through or “ocular” estimates are not as accurate but are significantly lower cost, and may be sufficient depending on the goals of the buyer/seller.

The timber inventory should detail all of the species, forest products, and volumes in each timber category. If the agent is not a forester, they should seek to establish relationships with local consulting foresters in their work area, so that he or she can be engaged to perform timber inventory and appraisal services clients when needed. Pre-merchantable stands, those too young for commercial sale, have value that should be estimated as well. These can be valued if the agent can determine the age, species, and site preparation invested in planted stands or natural stands of timber.

timber forest

Agents specializing in this area of the land business need to have a strong knowledge of timber markets in their work area. They should know the area mills, what products they purchase, how the trees are merchandised (cut up when harvested), and current market pricing of all forest products for the market. In my area of North and South Carolina, I work in five unique timber markets within a 200-mile radius, and the values for the same forest products can vary greatly between each of these markets. If you are going to advise investors on where to purchase land, and help them forecast future timber markets, it is imperative to be networked with consulting foresters, procurement foresters, timber dealers, and mill representatives. These relationships will keep you updated so you can help your clients make good decisions. Armed with a deep understanding of the markets and forest product pricing in the area, a broker can use the timber inventory data to estimate the value of the timber on the property with a reasonable amount of certainty.

Equally important is the ability of the broker to value the underlying land on the timber investment. There are two primary approaches timberland brokers can use to value the land:

  1. Comparable sales. The sales comparison approach is the primary method used for smaller acreages that have less potential for regular (annual) cash flows. The broker should have a strong understanding of recent timberland transactions in their work area with as much detail as possible to estimate the bare land price realized in each sale (the allocation). This allows the agent to make an apples-to-apples comparison of sold tracts to the subject property. Land focused real estate brokers and local rural appraisers can help agents obtain comparable sale information. Professionals are usually willing to share information with other professionals, so be sure you return the favor to those who assist you.
  2. Land Expectation Value (LEV). The Land Expectation Value (LEV) approach involves using discounted cash flow analysis (DCF) to derive the net present value (NPV) of the net income stream produced by a property over time. The LEV approach does require some specific knowledge to complete accurately – primarily a way to project timber growth into the future. Generally, this approach is reserved for larger transactions with many acres and forest stands involved, those likely to generate annual or at least semi-regular cash flows through frequent harvest events. To complete this approach, the analyst will need to understand the client’s investment parameters as well, including likely holding period and required return. Specialized training and knowledge is required to value a property using the LEV approach.

Timberland is a specialty, and this is a very high level overview of the types of task a timberland agent might work on in a given day. The REALTORS Land Institute offers and excellent introductory class, Timberland Real Estate, as part of their LANDU Education Program. I recommend this course as a first step for those who seek expertise in timberland.

Chris Miller, ALCChris Miller, ALC, is a land broker and consulting forester for American Forest Management, Inc. in Charlotte, North Carolina.

prospecting phone calls

Prospecting Scripts For Land Professionals

Not all REALTORS® love cold calling, but most of those that are successful in the business have learned to do so effectively while making it an integral part of their daily prospecting. Dedicating a portion of your day to cold calling will ensure that you stay sharp on market trends and connected with the owners in your region. There is no better way to keep a pulse on landowner perspectives than by talking with landowners on a regular basis.

A few things to remember before picking up the phone:

  • Plan what you want from the call. Is your goal to get a meeting and/or listing, submit an unsolicited offer, confirm contact info, etc.?
  • Empathize, put yourself in their shoes. What type of land are you calling on and what type of owner are they? What is important to them? You will have a higher success rate if you are able to speak to a landowner about activity in the market and/or topics that are relevant to them.
  • Preparation will lead to confidence. Know the market and data – but, don’t be afraid to tell an owner you don’t know something in response to a question. It is better to let them know you will research it and get back to them, than to guess and get it wrong. This will help to establish trust with the owner while simultaneously giving you a reason to follow up.
  • Enthusiasm is contagious. Nobody wants to have a depressing conversation. You should be excited about what you do. But also, try to mirror the pace and tone of the person you are speaking with. This doesn’t mean copying them, but rather speaking to them how they are speaking to you.
  • Personalize your approach. We are better when we are being ourselves. This could mean adjusting any cold calling script to play to your individual strengths.

prospecting phone and note pad

Below is an example cold call prospecting script for land professionals along with a few variations depending on the nature of the conversation.

Introduction

Good evening/afternoon, this is (name) with (company/firm). May I speak with (owner’s name), the owner of the (land asset) located in (name of city/area)?

The reason for my call is:

Approach 1 (We have buyers)

We have been active in the market and are in contact with several motivated buyers looking for property similar to yours. Would you be interested in considering an offer if one of these prospects would like to submit on your property?

(Wait for response)

  • If they are receptive – Great, it would be helpful to meet and discuss your goals in more detail so that we are able to guide the prospects toward a deal structure that best achieves your desired outcome. What is your availability in the next few days?
  • If they are moderately receptive – I understand this is a big decision and you haven’t had the chance to think about it. At a minimum, could we schedule a quick meeting in the next few days to discuss the market and any specific goals that you have regarding your property?
  • If they are not interested – I appreciate the consideration. Would you like to be kept apprised of market data and see similar properties that we are bringing to market? Is there a reasonable time frame for me to follow up and see if things have changed, perhaps 12 months?

Closing – Going forward, is this the best number to reach you? Would you prefer email? Thank you for your time and I look forward to speaking with you again.

Approach 2 (Recent sale)

We recently sold (name or location of property you recently sold) at a price of (price/acre or another applicable unit) which represented a record value in the market (Alternative – Or use another data point – like the number of offers, quickness of the process, etc. – that may be a motivating factor for another owner) and was shown substantial buyer interest.

Have you considered listing your property to take advantage of the current demand and strong values?

(wait for response)

  • If they are receptive – Great, it would be helpful to meet and discuss your goals, as well as tour the property so that we may provide you with our estimate of value. What is your availability in the next few days?
  • If they are moderately receptive – I understand this is a big decision and you haven’t had the chance to think about it. At a minimum, could we schedule a quick meeting in the next few days to discuss the market and any specific goals that you have regarding your property?
  • If they are not interested – I appreciate the consideration. Would you like to be kept apprised of market data and see similar properties that we are bringing to market? Is there a reasonable time frame for me to follow up and see if things have changed, perhaps 12 months?

Closing – Going forward, is this the best number to reach you? Would you prefer email? Thank you for your time and I look forward to speaking with you again.

Approach 3 (General)

We are active in (your region, specific location of the land, specific land type, etc.) and are reaching out to owners to learn about their goals and so we are able to speak generally about each asset in the market. Do you have a few moments to discuss your property or is there a better time to speak?

(wait for response)

  • If they are receptive(Start asking questions.) Given how strong the values are at this time, have you considered selling? Would it be helpful to your estate planning if we were to provide a broker’s price opinion? Have you considered purchasing more land to increase the scale of your operation? How is everything going with your operation? Would you like us to send you information about activity to keep you informed about market trends? (have several potential questions to ask based on the type of property, specific market trends, and type of ownership).
  • If they are moderately receptive(get to the point) I understand you are busy. I wanted to quickly understand if you have considering selling, buying or are simply holding at this time…. Any information we could provide or questions about the market we could answer to assist you with your planning?
  • If they are not interested(ask to follow up with questions via email. If they don’t want to talk and won’t give you their email, MOVE ON.)

Closing  Going forward, is this the best number to reach you? Would you prefer email? Thank you for your time and I look forward to speaking with you again.

Through the practice of cold calling, you will become more comfortable and capable at gauging the conversation and guiding it in the direction you would like it to go. The bottom line is to pick up the phone and remember, an imperfect cold call is far better than no cold call. Happy calling!

Matt DavisAbout the author: Matt Davis is a real estate broker with Cushman & Wakefield. He is based in San Diego, CA, and assists clients with the disposition and acquisition of investment grade agricultural and transitional land assets. He is also founding member of the company’s Land Advisory Group and Agribusiness Solutions Team. Matt is a member of RLI and has served on their Future Leaders Committee.