TO CUE: To position in readiness; to signal or prompt
August 2014 | Volume 1 - Issue 3
St. Louis Association of
REALTORS速
Commercial Division
12777 Olive Blvd., St. Louis, MO, 63141 314.576.0033 - phone 314.576.7143 - fax www.stlcr.org communications@stlrealtors.com
...
About this magazine... Editorial Director Dawn M. Kennedy
4
CEO Update
6
The Power of the R
10
What do 90 municipalities cost?
13
Legislative Update
14
Office Update
16
Market Stats
Managing Editor Laura DeVries Associate Editor Becca Grober For editorial inquiries contact Laura DeVries at ldevries@stlrealtors.com. For delivery or distribution questions contact Becca Grober at bgrober@stlrealtors.com.
JULY
SEPTEMBER
July 29 - CREW 18th Annual Golf Classic
September 4 - Commercial Board Meeting
AUGUST
September 8 - Board of Directors - Voting Closes
August 7 - Commercial Board Meeting
September 10 - CBRE Annual Real Estate Strategies Summit
August 17 - NAR Commercial Roundtables
September 11 - MGA 22nd Annual Fall Networking Event
August 19 - Board of Directors - Voting Opens
September 17 - CCIM Building Crawl
August 21 - IREM 2014 Focus on Friends August 26 - Commercial Broker Luncheon
Download our FREE mobile app and stay up to date on everything Commercial. Search STLCR in the app store now. **As a member you can submit your events and open houses to be featured on our website and mobile app calendars. Visit http://bit.ly/NNPZE5 to submit your event today.**
Now you can access five of the calculators that you need to do business - Land, Duration, Cap Rate, Amortization, and NPV/IRR directly on your mobile device. If you have an Apple or Android smart phone, you can download our FREE app from your device’s app store. Search for it on your phone by typing in STLCR.
CEO’s Commercial Update see the recognition of SLAR’s value to the commercial real estate community.
Commercial CE
This quarter we saw great success with our new commercial CE classes. Expect even more new courses in the 2016 CE cycle. One of the key goals for 2016 is to ensure that our classes fulfill Missouri as well as Illinois renewal requirements.
Share It
My commitment to the success of the commercial division is strong but commitment alone does not guarantee success. If you like the calendars on the website and mobile app, if you like what you read in the CUE, please share it by clicking the share icons throughout our media.
New and Improved
by, Dawn M. Kennedy, MSPM, RCE, e-PRO, Green CEO, St. Louis Association of REALTORS®
Welcome to Our Newest Members
I would like to personally welcome Balke Brown Transwestern to SLAR’s Commercial Division! It is very exciting to
SLAR online contracts and forms will be releasing a new triple net lease this coming quarter. Just in case you did not attend the Heavy Hitters Awards Banquet, which by the way was very entertaining, you may not know that the new STLCR mobile app has calculators and conversions. Calculate NOI, IRR, NPV, convert acreage to price per square foot, bring up an amoritization table; it’s all there for you along with other helpful features. Just search STLCR and download the free app from Google Play or the iTunes store.
Happy Selling!
Promote your business or property
Sponsor or Host a Commercial Luncheon When you host or sponsor an event SLAR will: »» Market the event to more than 700 members and non-members »» Coordinate speakers »» Manage registration from beginning to end »» Set up and tear down the event »» Assemble the PowerPoint presentation »» Feature you in the next Broker Bytes
Host Colliers International; Sponsors: Regus & Wells Fargo
Upcoming Sponsorship Opportunities. We’re looking for both property and event hosts: • September 23, 2014 • October 28, 2014 If you are interested in sponsoring or hosting an upcoming luncheon please contact Susan Wagner at 314.590.2305 or swagner@stlrealtors.com. Host and Sponsor: Balke Brown Transwestern & Cortona at Forest Park
Commercial Report by, Susan Wagner Vice President of Professional Specialties & Standards, SLAR
Sometimes the Golden Rule Needs a Little Assistance The Preamble to the Code of Ethics concludes with, “Accepting this standard of their own, REALTORS® pledge to observe its spirit in all of their activities whether conducted personally, through associates or others, or via technological means, and to conduct their business in accordance.” In essence, it states: “Do unto others, as you would have others do unto you.” As the commercial real estate industry becomes more active, vacancies decrease and business increases, members may find themselves in situations where there is a question about a commission and who is paying what to whom. The Professional Standards committee of the St. Louis Association of REALTORS® was established to assist members in finding solutions to ethical issues and to provide mediation and arbitration services as a valuable dispute resolution tool. SLAR has available commercial members who have participated in the arbitration and mediation training and are able to sit on a panel.
How does the arbitration/mediation process work? The points below outline key factors to remember when filing an Arbitration/ Mediation:
◊ The first step is to file a Request for Arbitration Form: A-1e. ◊ Arbitration are filed as broker vs. broker, not agent vs. agent. ◊ A $500 deposit is required on all arbitration filings, and is submitted by both parties. ◊ SLAR mandates mediation prior to an
arbitration hearing. If the case is resolved in mediation, both deposits are returned. If the case goes to an arbitration panel, the deposits are forfeited. ◊ If you are a complainant - you are requesting the arbitration - it is your responsibility to research and prepare your case. ◊ W hile the respondent does not have to present his or her case - the respondent is assumed to be the rightful owner of the commission - it is still recommended that they present to the panel. The complainant must prove their case. ◊ SLAR mandates mediation prior to a case being sent to the Grievance Committee or an Arbitration panel. ◊ Arbitration panels consist of 3-5 REALTOR® members who will hear both sides, ask questions, and make a finding of fact on the arbitration filing. ◊ The arbitration findings are disbursed 100% to one side or the other, they are not split. All arbitration awards are FINAL. All mediators offered through SLAR have successfully completed a 2.5 day training through the National Association of REALTORS®. This training includes one full day of perosnalized coaching and role play from some of the country’s foremost mediation experts. The Commercial Division has (4) approved mediators who are active in commercial real estate and have successfully completed the training. This brief look into the REALTOR® arbitration/mediation process should be helpful as the commercial real estate market continues to strengthen and members become busier. Don’t hesitate to reach out to SLAR with any questions you may have about the process or filing. y
Network and share commercial listings at the:
Commercial Luncheon Tuesday, August 26th 11:30am-1:00pm Olivette Building 9715 Olive Blvd. St. Louis, MO 63132 Click here for brochure. Members - FREE! Non-Members - $20 Lunch included!
Standard cancellation policy applies.
Thank You to Our Host and Sponsors:
ALTERNATIVE MINIMUM TAX
Dodd-Frank PCCRA Rules & QCRE
COMMERCIAL LEAD-BASED PAINT 179D ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION
CARRIED INTEREST
What do 90 municipalities cost?
DEPRECIATION
EB-5 PROGRAM
BASEL III
LEASEHOLD IMPROVEMENTS
CAPITAL GAINS RATE ON RECAPTURED DEPRECIATION
National Flood Insurance Program (NFIP)
GSE REFORM
LEASE ACCOUNTING
ESTATE TAX
MARKETPLACE FAIRNESS
THE
POWER OF THE
R
What does being a REALTOR® mean? Where do REALTORS® stand politically? Every day new legislation is brought about to help or hinder the commercial real state industry. How can the power of the R help? Very rarely do you hear about the Power of one. There are cases where one vote made the difference. But what if one vote was supported by one million? The Power of the R is that one vote.
communications, grassroots advocacy, the nation’s largest contributor of direct contributions to federal candidates. Current commercial issues are listed and described on subsequent pages.
involved in the behind-the-scenes movements of our area. One person may not be able to make a difference, but that one person can communicate and utilize the resources of the R.
On a national level, NAR works to develop, advance, and implement the federal legislative objectives of the REALTOR® Party. They work with Congress and the Executive Branch through lobbying, policy development, political field representatives, political
On a local level, SLAR’s governmental affairs department works daily to moniotr local legislation and regulatory policy for the impact it may have on the commercial industry.
St. Louis is continuously evolving and for the commercial real estate industry to succeed we must advocate for it. The Power of the R can change St. Louis. It already has.
Beyond that, there are individual members
&
I ssues Actions Alternative Minium Tax (AMT)
On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act, providing a permanent “patch” that prevents tens of millions of taxpayers from being subject to the alternative minimum tax (AMT), starting with the 2012 tax year. Specifically, the measure sets the exemption amounts (i.e., the income not subject to taxes under the AMT) at $50,600 for individuals and $78,750 for couples filing joinly, then adjusts these amounts yearly for inflation. It also allows various nonrefundable personal credits to be claimed against the AMT. The AMT was created by the Tax Reform Act of 1986 to prevent higher-income taxpayers from using credits and deductions to completely offset their federal income tax liability. NAR successfully worked with Congress to ensure a permanent patch to the AMT.
Basel III The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of Currency (OCC) have finalized a new risk-based capital category - High Volatility Commercial Real Estate Exposures (HVCRE) for commercial acquisition, development, and construction (ADC) loans. Specifically, the new changes raise the risk-weight for an ADC loan from 100% to 150%. In response to the final changes, it is highly likely that banks would substantially change their current lending practices and reduce the amount of available credit in order to avoid the higher capital charges asscoiated with ADC loans. After several letters to bank regulators and lawmakers, including comments sent to the Federal Reserve, FDIC, and OCC, NAR continues to meet with Congress and the Administration to modify the final rule in order to prevent a reduction in commercial real estate lending as well as an increase in borrowing costs.
Bonus Depreciation In 2013, President Obama signed into law the American Taxpayer Relief Act, which extended the 50% bonus depreciation rule for qualifying property purchased and placed in service before January 1, 2014 (before January 1, 2015 for certain longerlived and transportation assets). This provision allows buinesses to take a deduction of 50% of the value of that property in addition to amounts that they can otherwise claim under the depreciation rules. Bonus depreciation is allowed against both the regular tax system and the AMT. In addition, businesses could elect to accelerate some AMT credits in lieu of bonus depreciation. Bonus depreciation rules have once again expired (although they are still in effect through 2014 for certain transportation property, as well as certain longer-lived items). NAR is urging Members of Congress to extend this provision as it considers the extension of other important tax provisions that also expired at the end of 2013.
Carried Interest Proposals to modify the existing carried interest rules could have a severely negative impact on real estate partnerships. The carried interst mechanism for real estate partnerships is a standard operating practice not historically treated as a “loophole,” but rather as a reward for entrepreneurs who take risks inherent in new projects and in making capital investments. No legislation has been considered in the 113th Congress that would change the tax treatment of carried interests. However, Senator Carl Levin (D-MI) has introduced a bill designed to eliminate a number of so-called tax “loopholes,” including changing the current tax treatment of carried interest. This bill has no bipartisan support, nor any cosponsors on the Senate Finance Committee. NAR consistently opposes any6 proposal that would eliminate capital gains treatment for any carried interest of a real estate partnership. NAR has written to Congress regarding its strong opposition to modifying the current tax treatment of carried interest income.
Commercial Lead-Based Paint The Environmental Protection Agency (EPA) continues to consider federal rules that may regulate renovation and remodeling activities in public and commercial buildings to address possible lead-based paint hazards. EPA is now estimating the release of a proposed rule for both the interior and exterior of commercial buildings in the summer of 2015. Currently, EPA is collecting information in an effort to get a better understanding of the existence of lead paint in public and commercial buildings, and the extent of renovation and remodeling activities in these structures. In March 2013, Senator James Inhofe (R-OK) introduced the “Lead Exposure Reducation Amendments Act of
2013,” which includes a provision directing the EPA to collect requisite helath data for a commercial lead paint rule. Through a coalition of industry and contracting groups, NAR has met with EPA and other federal departments to discuss the lead-based paint issue. Additionally, NAR submitted a statement for the record at a hearing on regulatory fairness for small business addressing lead paint regulations, and in July 2012 sent a letter to Rep. Graves (R-MO), the Chairman of the House Small Business Committee, thanking him for holding a hearing on the EPA’s compliance with the Regulatory Flexibility Act. On June 26, 2013, REALTOR® Harold Huggins testified on behalf of NAR at the EPA’s public hearing on renovation, repair and painting activities in public and commercial buildings. NAR successfully encouraged 51 members of Congress to sign onto a coalition letter to Acting Administrator of the EPA Robert Perciasepe, raising concerns over the EPA’s procedure for ensuring that a rule on lead paint in commercial buildings is necessary.
EB-5 Program On September 28, 2012, President Obama signed into law S. 3245 (Sens. Leahy (D-VT) and Grassley (R-IA)), which authorized the EB-5 Regional Center program for 3 years. Regional centers help identify Amreican business needs in the community and help direct foreign investor funds to those projects. In return for investing and creating American jobs, these foreign investors are eligible for visas that allow them to live in the United States. The Regional Centers began as a pilot program in 1992, but have been extended several times. Authority for these centers had been set to expire on Semptember 30, 2012. The Senate has approved S. 744, the Border Security, Economic Opportunity, and Immigration Modernization Act, which includes permanent authority for the EB-5 regional center program. S. 744 was sent to the House for consideration, but has not been taken up and is not expected to be considered. NAR sent several letters to the U.S. House and Sentate as well as to the Director of the U.S. Citizenship and Immigration Services in support of the permanent authorization of the EB-5 Regional Center program.
Energy Deduction 179D The Section 179D deduction in the Internal Revenue Code encourages greater energy efficiency in our nation’s commercial and larger multifamily buildings, by allowing for cost recovery of energy efficient windows, roofs, lighting, and heating and cooling systems meeting certain energy savings performance targets. Without section 179D, the same energy efficient property would be depreciated over 39 years (nonresidential) or 27.5 years (residential). Section 179D allows for the accelerated depreciation of high performance equipment that achieves significant energy savings. This provision expired at the end of 2013, but on April
3, 2014, the Senate Finance Committee voted to approve a two-year extension of tax provisions that expired at the end of 2013, including the 179D deduction, which was also updated to reflect higher efficiency standards. The extender package, called the EXPIRE Act, can now move to the Senate floor for debate; the House Ways and Means Committee is scheduled to hold a hearing on business-related tax extenders in April.
NAR, in coalition with other industry partners, has sent letters to the relevant House and Senate Committees expressing support for the extension and enhancement of the 179D deduction by providing a sliding scale of incentives that correlate to actual and verifiable improvements in a retrofitted building’s energy performance.
Estate Tax The American Taxpayer Relief Act permanently extended the $5 million per-person estate tax exemption (for 2014, the amount is $5.34 million -- indexed for inflation), but the rate was increased to 40% from 35% for taxable estates above the exemption amount. Without action, the estate tax would have reverted to pre-2001 levels of a 55% top rate and just $1 million in estate value being exempt from the tax. Should tax reform efforts continue to gain momentum, the estate tax could come into play as part of a larger tax reform measure. NAR wrote to Congress and met with key decision-makers to ensure the estate tax did not revert to pre-2001 levels.
GSE Reform In the 113th Congress, two bills were introduced that address GSE reform - H.R. 2767, the “Protecting American Taxpayers and Homeowners Act” (PATH Act) and S. 563, the “Jumpstart GSE Reform Act.” The PATH Act includes provisions that would create a covered bond market to address ongoing commercial real estate refinance challenges as the market struggles to rebound. Covered bonds allow banks to raise funds by issuing a pool of high-quality assets (typically real estate loans) to investors, which are backed both by the bank’s promise to repay and by the assets pledged as collateral. The dual recourse nature is attractive to investors, and the banks who issue bonds have a stake
PCCRA Rules
NAR is concerned with the six banking agencies’ risk retention proposal, which contains a requirement that securiterz set aside the profits from sales of securities in “premium capture cash reserve accounts: (PCCRAs). This provision would greatly reduce the securitzation market for many asset classes, thereby reducing a vital source of capital for the commercial real estate industry. Given this potential negative economic consequence, NAR believes the banking agencies need to provide Congress with a cost-benefit analysis of their PCCRA proposed rule.
QCRE
The Dodd-Frank Act requires entities that securitize mortgage loans to retain 5% of the credit risk. However, the law gives federal banking agencies broad authority to identify the acceptable types, forms, and amounts of risk retention for “low credit risk” or Qualified CommercialReal Estate (QCRE) loans that meet a series of extremely rigid underwriting standards. NAR believes the six federal regulators need to withdraw, revise, and republish the rule for public comment because the rule: »» Violates congressional intent of the Dodd-Frank Act »» Unnecessarily defines the QCRE exemption from the risk retention requirements to include only a narrow slice of the mortgage market, and »» Jeopardizes the fragile commercial real estate market.
Dodd-Frank
NAR Action
NAR has sent multiple letters to the U.S. House and Senate committees along with comments to regulators in support of policies that enhance the flow of credit to the commercial real estate industry. In addition, NAR testified at three Congressional hearings in teh 112th Congress before the U.S. House Financial Services Committee on the requirements of Dodd-Frank.
in assuring the long-term viability of the mortgages underlying the bond. A talking point during the 2012 NAR Mid-Year Meetings. NAR has orchestrated fly-ins with large-firm executives, testified multiple times, written several letters and submitted statements to Congress, and held countless meetings with key lawmakers to help decision makers understand the importance of ensuring reforms provide for the adequate flow of credit to the multifamily sector. While supportive of the covered bond concept, NAR President Gary Thomas submitted a July 2013 statement to the House Financial Services Committee for a hearing on the PATH Act detailing NAR’s concerns with the bill’s impact on the residencial financing markets. In September 2013, NAR sent a letter to the full House of Representatives explicitly opposing the bill on the basis of its residential mortgage market impacts, and signed onto a coalition letter to the House again opposing its passage.
Lease Accounting The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have proposed new accounting rules that would force many companies to capitalize commercial leases onto their balance sheets, by requiring them to use a “right-of-use” accounting model. This change would force lessees to shorten lease terms to minimize costs. Since lessors raise financing by using the leases and the value of the property as collateral, the amounts they can borrow in the future could be reduced if lease terms are shortened. FASB and IASB expect to have their joint proposal finished in 2014. The effective date of this proposal would likely be in 2017, when virtually all new and outstanding leases would be subject to the new accounting standard. NAR has written letters and added its voice to coalitions to express concern the new lease accounting proposal will be detrimental to our nation’s economy by reducing the overall borrowing capacity of many commercial real estate lessees and lessors. In 2013, NAR uged 13 lawmakers to send a “Dear Colleague” letter to the FASB, expressing concern that the accounting board was preparing to release the latest exposure draft on leases, but had still not released a cost-benefit analysis of the lease accounting proposal. NAR submitted a comment letter to the FASB in September 2013 on the proposed lease accounting rules. These efforts build upon the earlier 2012 efforts of a coalition of several leading nonprofit and commercial real estate organizations, including NAR, that included the release of a report examining the economic impact of the IASB and FASB’s proposed lease account standard, calling on the accounting boards to co conduct a comprehensive examination of the costs and benefits of their lease proposal. NAR continues to work with FASB/IASB and other stakeholders to ensure that any modifications to lease accounting rules will not negatively impact commercial real estate practitioners.
continued on page 12
What do 90 municipalities cost? St. Louis County is entertaining the idea of adding the City of St. Louis to its list of incorporated municipalities. All legal opinions firmly show that the County will absorb NONE of the City’s financial responsibilities. If this were to happen the City of St. Louis will be no different than municipalities such as Clayton, Ellisville, or Chesterfield. It would simply be another city located in St. Louis County. I am an advocate for this move. The City needs to cease County functions and turn them over to the County. Currently, practices and city functions run at inefficient levels.
are frustrated every day by 90+ sets of differents rules and approval processes. A central approval process would promote economic development.
If the city were to join the St. Louis County roster then we would have about 91 municipalities in the County. It should be noted though that 23 of them have less than 1,000 in population. Why does that make sense for a few blocks of St. Louis County to incorporate? If you ask them, they want to control their neighborhood, perhaps a worthy endeavor. However, we then have 90+ City Administrations for a population of 1.3 million (City and County). Some may suggest that that is very inefficient and a misuse of funds. But how inefficient is it really?
Some municipalities claim the excess costs are because of the city, when in fact, adding the 300,000 plus city residents helps the numbers. The insistence of micro-control costs the area over $778 million per year, and inhibits development and stymies population growth.
Better Together is a local group attempting to gather information regarding how this area compares with other areas. The private sector regularly compares its operations to its “Peer Group” in the hopes of discovering best practices. It would be hard to argue that the public sector should be exempt from this process of improving operations. Preliminary data from Better Together compared the cost of municipal governments for St. Louis, Indianapolis, and Louisville. St. Louis is the largest, with a population of 1.3 million. Louisville sits at 750,000 and Indianapolis has a population of about 820,000. Better Together broke down government functions per capita. The data follows: County
Per Capita Cost
Indianapolis-Marion County
$1,328.40
Louisville-Jefferson County
$887.63
St. Louis (City and County)
$1,917.34
How striking is that? St. Louis operations cost $590.53 per person, per year, more than Indianapolis! That means that St. Louis spends $778 million more per year on municipal system functions than our peer in Indianapolis. It costs St. Louis $2.528 billion to run our municipal system, nearly $778 million of which is potential waste. That number is an even bigger difference when compared to Louisville. Both Indianapolis and Louisville have consolidated into County wide operations. They appear to be efficient and are currently experiencing signficant growth, both in population and economic vitality. It is easier to get permits, licensing, etc. approved by both Indianapolis and Louisville municipal governments. Those of us in Commercial RE Development
So, if it costs St. Louis over $778 million per year of extra tax dollars to keep the current structure running, what do we get for that tax payer money? Clarkson Valley can oversee a resident’s deck permit; Town and County can control the amount of brick that is used on a new house being built; and Creve Coeur can keep out drive thrus on Olive Blvd.
Some may wonder why this excess spending is allowed. A portion of the blame can be attributed to phenomena such as NIMBY (not in my back yard) and the CAVE (citizens against virtually everything) people. These groups remain a vocal, political force all due to silence on others’ parts. A large portion of these 90 municipalities cannot support themselves financially. They receive funding from the “pooled city sales tax” process, feeding off of sales tax from municipalities that have seen growth and continue to promote economic development. St. Louis has a lot of work to do to attain efficiency: 1. The city needs to stop assuming the roles of a county and merge with St. Louis County. 2. Many of the 90 municipalities must consolidate into a much more efficient, smaller number of cities. 3. Regional initiatives are needed to keep St. Louis’ younger talent here. This will also help to recruit new businesses which will in turn lead to a growth and diversification of our area. If St. Louis can accomplish some of this, a large portion of wasted funds can be redeployed to worthy infrastructure, such as the Rams dome, convention business, and other initiatives that promote real economic vitality. So St. Louis, what are are we waiting for?
Mike Hejna is a 60-year resident of the St. Louis area, a CCIM and President of Gundaker Commercial Group
Leasehold Improvements The American Taxpayer Relief Act (signed into law on Jan. 2, 2013) extended the 15-year straight-line cost recovery for qualified leasehold improvements on commercial properties through 2013 and made retroactive to cover 2012. Unfortunately, that provision was then allowed to expire at the end of 2013. Many observers believe that expiring provisions, including the leasehold improvement provision, may not be addressed by Congress until the fall of 2014. However, it is quite likely that when Congress extends this provision, it will do so on a retroactive basis, back to the beginning of 2014. Otherwise, leasehold improvements placed in service on or after January 1, 2014, will need to be recovered over a 39-year period. In July 2013 NAR joined other industry groups in sending a coalition letter to the Senate urging that tax reform should ensure that depreciation tax rules match the economic life assets by taking into account natural wear and tear and technological obsolescence. In addition, NAR continues to meet with key Members of Congress to urge that the leasehold improvements provision be extended as quickly as possible and on a retroactive basis.
Marketplace Fairness In February 2013, S. 743, the Marketplace Fairness Act a bipartisan bill, was introduced in the Senate and its companion bill, H.R. 684, was introduced in the House. In May 2013 the Senate passed S. 743. This legislation would create authority for state governments to collect sales taxes on Internet sales for goods that are delivered to their states, which would level the playing field between brick-and-mortar and e-commerce retail businesses while assisting the states in collecting billions of uncollected state sales taxes. Action in the House is less certain, but in March 2014 the House Judiciary Committee held a hearing on the internet sales tax issue, and key Members of the Committee have indicated a desire to move this legislation in 2014. NAR participates in the Marketplace Fairness Coalition, and has submitted several letters to Congress urging lawmakers to pass the Marketplace Fairness Act. NAR sent a letter to the House Judiciary Committee ahead of its March 2014 hearing on the topix expressing strong support for this legislation.
National Flood Insurance Program (NFIP) In 2012, Congress passed the Biggert-Waters Act, which extends the National Flood Insurance Program (NFIP) for five years. Biggert-Waters also phases out subsidized flood insurance rates for many commercial properties but severe implementation problems have threatened to undermine real estate transactions where flood insurance is required to obtain a mortgage. On January 16, 2014, Congress passed the Omnibus
Appropriations Bill (H.R. 3547) which prevents FEMA from raising the grandfatheredrates through the end of 2014 but not those triggered by the sale of a commercial property that is responsible for the most excessive increaes. On January 30, 2014, the Senate passed the “Homeowner Flood Insurance Affordability Act,” (S. 1926), which calls for a 4-year “time out” on rate increases triggered by the sale of property, including commercial sales; on March 4, the House approved its version (HR 3370) of the bill with amendments, which was then passed by the Senate on March 13. The president signed the bill into law on March 21, 2014. The new law, among other things, restores the grandfathering of properties under low risk rates upon remapping, reduces the increased rates of non-grandfathered properties, and repeals rate premium increases at the sale of properties (including refunding increases to those who have already paid them). For more information on the law, see NAR’s “National Flood Insurance Program” issue page here. NAR successfully worked with Senators Menendez (DNJ) and Isakson (R-GA) to draft and move the Homeowner Flood Insurance Affordability Bill through the Senate. We helped build a broad coalition of industry groups and sent letters in support, and initiated a Call for Action that achieved an impressive response rate among our membership. We also worked with members of the Banking Subcommittee to hold a hearing on the affordability of NFIP rate changes, and submitted a statement and questions illustrating the hardships they can cause. NAR sent multiple letters to the House and Senate in support of the Homeowners Flood Insurance Bill thorughout its course to becoming law, and is continuing the work of ensuring that it is enacted correctly, by sending a letter to Rep. Susan Brooks (R-IN), Chair of the House Subcommittee on Emergency Preparedness, Response, and Communications, and Administrator Fugate of FEMA with comments on FEMA’s implementation of several key provisions.
Terrorism Insurance Following the 9/11 attacks private insurers backed out of hte terrorism insurance maretplace prompting Congress to enact the “Terrorism Risk Insurance Act of 2002” (TRIA), a federal insurance backstop that allows the federal government and private insurance companies to share losses in the event of a major terrorist attack. TRIA helped stabilize commercial real estate markets by making terrorism coverage available and more affordable over time. The program has been reauthorized by Congress twice - in 2005 and 2007 - and is currently set to expire December 31, 2014. As indicated by some commercial property owners and practitioners, the program’s looming expiration next year is already beginning to affect the availability of loans to commercial real estate. Opponents believe terrorism insurnace should be fully privatized and that the federal government should have no financial exposure in the event of future terrorist evnts. Proponents counter that terrorism is an uninsurable risk, and,
as a result, requires some form of government backing. Both the House Financial Services Comittee and the Senate Banking Committee held hearings on the issue in late 2013/early 2014. Several members of Congress have introduced bills which would reauthorize the Terrorism Risk Insurance Program for five years or more, and in April 2014 Senator Schumer (D-NY) introduced S. 2244, a bipartisan reauthorization bill. THere is cautious optimism that a reauthorization measure may be passed by early summer 2014, as House Financial Services Chairman Jeb Hensarling (R-TX) has indicated it is one of his top priorities, and House leadership has been vocal in their support as well. NAR partcipates in the Coalition to Insure Against Terrorism (CIAT), and as part of that has met with many key offices in the House and Senate regarding TRIA reauthorization. NAR has also communicated with both the House Financial Services Committee and the Senate Banking Committee in advance of their hearings, stressing the importance of the Terrorism Risk Insurance Program to commercial real estate and the economy.
Data Privacy and Security In June 2013, legislation was introduced in the Senate that would require covered entities to take “reasonable measures to protect and secure data in electronic form containing ‘personal information.’” In August 2013, the House launched a bipartisan privacy working group to examine online privacy issues and determine whether legislation is necessary to address concerns over the way companies are handling their client’s data. With the recent data breaches of Target and other retailers, we can expect that additional privacy and data security bills will be introduced in the 113th Congress as public concern about the confidentiality of personal medical, financial and consumer data has put pressure on policy makers to increase regulation on the uses of this information. NAR staff has presented at several events for REALTORS® to educate members on what they need to know about privacy and data security, in addition to beginning production on an online training course on the topic which is estimated to be available in 2014. In February 2013, NAR sent a letter to the House and Senate Commerce and Judiciary Committees outlining its technology and telecommunication policy priorities, including its support of legislation that allows flexibility for industry specific responses in order to prevent policies from being created that are outdated before they even become law. NAR Legal has developed a toolkit to assist members in developing data privacy and security policies and procedures. The toolkit is available here.
Health Insurance Reform The Affordable Care Act (ACA) was signed into law in 2010, and
in June of 2012 the Supreme Court upheld its constitutionality. Thus far, the Department of Health and Human Services has issued a number of rules, including those for the new health insurance Exchanges (which opened Oct. 1, 2013), grandfathered insurance plans, and defining the types of benefits that will be required to be in compliance with the ACA’s essential coverage provisions. The IRS has issued guidelines for the small employer tax credits available now to small firms that provide coverage to their employees, and proposed rules to govern the law’s requirement that large employers (those with more than 50 full time employees) provide health insurance coverage for salaried employees. The ACA’s underwriting and rating reforms, along with the individual and employer mandate, were implemented in January 2014. The law’s employer mandate (the requirement that large employers provide health insurance covereage for salaried employees) will take effect in 2015. NAR submitted comments on the proposed rules for the Exchanges and grandfathered plans, and signed onto a business coalition comment letter on the design of benefits and coverage summaries (SBC) required for all employer insurance plans. Since independent contractors were not defined as employees for purposes of the ACA, NAR also recommended to the IRS that the agency’s final rules detailing the employer mandate requirements explicitly reference existing federal laws that defines qualified real estate professionals and direct sellers as “non-employees.” NAR Legal has also provided information on a notice of the new health exchanges required of employers with one employee and receipts greater than $500,000 annuality; that notice is available here.
Tax Reform Both of Congress’s tax-writing committees (House Ways and Means and Senate Finance) have been active in holding hearings and developing draft tax reform plans over the past two years; thus far these draft plans have not moved beyond the discussion stage though. In late November 2013, Senator Baucus, then Chairman of the Senate Finance Committee, released a series of discussion drafts on tax reform. These drafts included proposals to increase the depreciable lives of real property used in business or held for investment to 43 years (from the current periods of 39, 27.5 and 15 years); to raise the tax rate on gaim from depreciation from the current 25% to ordinary income tax rate (now as high as 39.6%) and to repeal the tax rules that allow taxpayers to exchange like-kind real estate on a tax deferred basis. On February 26, 2014, House Ways and Means Chairman Rep. David Camp released his discussion draft for tax reform, which included provisions repealing the rules allowing for deferral of gain on like-kind exchanges, raising the depreciable life for non-resdential real estate from 39 to 40 years, raising the tax on gaim from depreciation as ordinary income, and characterizing a portion of any capital gains as ordinary income. With Chairman Camp not seeking relelection at the end of this term and Senator
Baucus being replaced as Chairman of hte Senate Finance Committee by Senator Ron Wyden, it is unlikely that tax reform will occur by the end of 2014. However, it is still possible that reform could happen, and it is likely that much of what we have seen develop so far will emerge in a different form in 2015 or later years. In April 2014, the Senate Finance Committee voted to approve an extenders package - the EXPIRE Act - which would extend for two years many of the tax provisions that expired at the end of 2013, including the energy efficient tax incentives for commercial buildings under tax code Section 179D, for two years. For more information on tax reform efforts in the 113th Congress, see NAR’s “Tax Reform” issue page here. NAR has advocated for responsible tax reform that provides the best opportunities for economic growth and job creation, submitting a statement to the House Ways and Means Tax Reform Working Group on Real Estate in April 2013 outlining its principles for tax reform, including preserving the current law incentives for real estate investment and homeownership. In
July 2013, NAR, in coalition with other industry groups, sent a letter to the full Senate urging that many provisions affecting commercial real estate be preserved as “vital to the economy.” NAR views the proposals in the staff discussions draft released in November of 2013 as a significant threat to commercial real estate, and, together with many other groups, sent a detailed letter to the Finance Committee in January 2014 outlining the many reasons why adoption of those proposals would be a major step in the wrong direction for the nation’s economy, for job growth, and for tax reform. NAR also sent a letter to the full House of Representatives in February 2014 outlining its priorities for tax reform - including enhancing depreciation of real estate, and deferral of gain on like-kind exchanges. NAR continues to watch these proposals very carefully, and meets regularly with key lawmakers on the U.S. House and Senate Tax writing committees to discuss reform efforts. y Copyright NATIONAL ASSOCIATION OF REALTORS®. Reprinted with permission.
Legislative Update expanded Accela solution will provide operations costs sharing for St. Louis County and the Metropolitan St. Louis Sewer District (MSD), electronic plan submissions, mobile inspections, citizen web access, and documents tracking and workflow. Phase I of the new system is expected to be operational by the end of Q1 2015.
by, Maureen McDonnell, Director of Government & Public Affairs, SLAR
The Permitting Collaborative is Off and Running! On May 28th, the permitting collaborative announced a large step towards a uniform system when St. Louis area officials announced a collaborative permitting process for area building projects. The process will leverage new technologies, share common data, and provide single source web access to permitting for the St. Louis development community. The newly
The St. Louis Association of REALTORS® has been involved in the permitting collaborative since its inception and continues to advocate for a streamlined, uniform permitting process throughout the region as it will promote development, business, and growth.
Assessor Zimmerman Comes to Speak with the Commercial Division Board Over the past few weeks, several commercial tenants received questionnaires from the St. Louis County Assessor regarding the terms of their leases. There were serious concerns regarding what the information would be used for, who would have access to it, and if the information would be accurate. In addition, while the questionnaire was
voluntary, it was not clearly stated and led many tenants to believe that participation was mandatory. Due to the concerns of the Commercial Division Board, Assessor Zimmerman agreed to come address the Board and explain the purpose of the survey and his process moving forward. Over the course of an hour, the Assessor explained that mass distribution of th esurvey was an error and that generally, information of that sort is only collected when as assessor is sent to a site. The Assessor apologized for the confusion and state that there will not be further communications from his office of the same nature. In addition, Speaker John Diehl sponsored leglislation that requires communication similar to the questionairre sent out by the Assessor state clearly that participation is voluntary. Given the clarification on the part of the Assessor and the work of Speaker Diehl, the Association believes that this issue is moving towards resolution. y
2nd Quarter Industrial Market Trends Market Highlights
Vacancy & Absorption Trends
◊ The St. Louis industrial market finished the first half of the year on a high note as the market absorbed over 1.5 million SF of space. Six 100,000+ SF transactions helped fuel the momentum, let by three user sales that accounted for nearly 900,000 SF. ◊ Space options for 100,000+ SF tenants seeking modern distribution buildings with at least 28’ clear heights are becoming more extinct by the day. This shortage of inventory is most pronounced in the Northwest and St. Charles areas. ◊ Speculative construction has begun on the Illinois side of the market as the 1.3 million SF Gateway Commerce Center project recently broke ground. On the Missouri side, Panattoni is expected to begin construction on their Aviator Distribution Center project in August and Duke’s Premier 370 project looks to be resolving their bond issues for a 2015 delivery. ◊ Although activity remains healthy, market experts are estimating the market will end the year with roughly 2.5 million SF of positive absorption. ◊ While landlords continue to push asking rates in the 100,000+ SF properties, rent concessions coupled with stabilized lease rates remain within the small product. Landlords are continuing to play it safe by minimizing their vacancy exposure by encouraging tenants to renew.
# of Bldgs
Investory (SF)
Total Available (SF)
Total Vacant (SF)
Total Vacancy Rate (%)
Direct Vacant (SF)
Direct Vacancy Rate (%)
Available Sublease (SF)
Qtrly Net Absorption (SF)
Flex/R&D
288
12,647,127
1,910,693
1,484,989
11.7%
1,435,769
11.4%
69,220
71,806
Light Industrial
1,612
34,854,235
2,551,021
1,910,226
5.5%
1,910,226
5.5%
8,912
63,099
Manufacturing
440
39,693,369
3,045,722
2,653,240
6.7%
2,442,680
6.2%
210,560
(192,403)
Truck Terminal
44
1,840,047
99,745
99,745
5.4%
99,745
5.4%
0
0
Whse- Distribution
1,640
137,183,872
18,655,879
15,196,509
11.1%
15,112,357
11.0%
516,106
1,537,757
Grand Total
4,024
226,218,650
26,263,060
21,344,709
9.4%
21,000,777
9.3%
804,798
1,480,259
Notable Transactions Property Name
SF Leased or Sold
Company Name
Market
Type
Lease/Sale
Gateway Dist. Center 1
216,279
Unilever
Illinois North
Whse/Dist
Lease
1659 Sauget Industrial
202,019
Stellar Manufacturing
Illinois South
Whse/Dist
Lease
5221 Natural Bridge Ave
181,000
5221 Natural Bridge LLC
St. Louis County
Whse/Dist
Sale
*This report provided courtesy of Xceligent.
2nd Quarter Office Market Trends Market Highlights
Vacancy & Absorption Trends
◊ Slow and steady positive movement is having significant impact. ◊ Positive absorption in the past four quarters totals +818,635 square feet, an average of +204,659 square feet per quarter. ◊ The total vacancy rate currently stands at 7.5 million square feet. This is a reduction of 9.8% in one calendar year. ◊ With vacancy rates at 15.3% there is still product available to support continued growth. The gap between rental rates and replacement costs needs to be reduced prior to speculative construction.
# of Bldgs
Investory (SF)
Total Available (SF)
Total Vacant (SF)
Total Vacancy Rate (%)
Direct Vacant (SF)
Direct Vacancy Rate (%)
Available Sublease (SF)
Qtrly Net Absorption (SF)
YTD Net Absorption (SF)
A
136
20,515,113
3,943,494
2,737,544
13.3%
2,670,144
13.0%
244,092
-79,223
12,451
B
359
22,577,279
4,784,809
3,920,152
17.4%
3,885,191
17.2%
94,703
175,254
118,288
C
88
5,428,051
841,571
787,709
14.5%
282,709
14.5%
0
57.791
47,979
Grand Total
583
48,520,443
9,569,874
7,445,405
15.3%
7,343,044
15.1%
338,795
153,822
178,718
Notable Transactions Property Name
SF Leased or Sold
Company Name
Market
Building Class
Lease/ Sale
Woodcrest Center
143,649
Bamboo Woodcrest LLC
West St. Louis County
B
Sale
4100 Lindell Blvd.
36,895
Eagle Bank & Trust Co. of MO
St. Louis City
B
Sale
Sanford Brown Building
17,553
Lindenwood University
Illinois North
B
Lease
Maryland Place
16,600
Risk Consulting Partners
Mid St. Louis County
A
Lease
Gold Tower-Office Space
14,487
Metal Exchange
North St. Louis County
B
Lease
*This report provided courtesy of Xceligent.
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