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Annapolis Real Estate and Business Litigation Law Blog

Crowdfunding a big hit with real estate investors

Crowdfunding has grown from humble origins to become a multi-billion dollar industry in only a few years, and the online financing marketplace CrowdStreet has carved out a niche matching commercial real estate opportunities with wealthy investors in Maryland and around the country. The Oregon-based company was launched in 2014, and it has developed a reputation for oversubscribing eight figure real estate offers in 30 days or less.

CrowdStreet reports that June and July 2016 have been its best months to date, and one of its solicitations attracted more than new 100 high-net-worth investors. People who are looking for real estate crowdfunding opportunities currently have few choices other than CrowdStreet, but competitors will likely start to emerge if the concept remains popular. The company's co-founder and CEO says that CrowdStreet is successful because it provides investors with a more comprehensive solution.

Banks have transitioned to real estate lending

Maryland residents may be surprised to learn that American banks were once prohibited from making real estate loans of any kind. These restrictions were put into place in 1864 by the National Banking Act, but legislation like the Federal Reserve Act and the McFadden Act eased banking restrictions and mortgages and other real estate loans now make up about half of all bank lending. Mortgage borrowing surged in the months leading up to the 2008 financial crisis, and many financial experts predict that looser underwriting standards and a flood of commercial property borrowing could be creating another bubble.

When the United States economy was based mainly on manufacturing, the financial sector accounted for less than half of the nation's economic output, but that share has now grown to 83 percent of GDP. This growth was made possible by the transition to a service-based economy that has been sustained by an ever increasing amount of consumer spending. Commercial and industrial lending made up more than 40 percent of bank financing in the late-1950s, but it only accounts for about 20 percent of today's loans.

Commercial lease basics for your business

Running a business can be exciting and a little intimidating. One of the most important elements of your business is its location. For some, it can take more than a single try to get it right, and often that means negotiating a commercial lease with a property owner rather than purchasing property. Not every business owner fully understands that negotiating the terms of a commercial lease can be much more complex than renting residential space. Working out the right deal for you business space will likely be one of the most important business deals you make, and getting the details right can sometimes make or break the overall success of your business. Here are some things to remember before embarking on the journey for your business's perfect location.

Not like renting a house or apartment

Residential leases tend to be very standardized; if you've rented one apartment or house, you probably have a good understanding of how it works because there is very little deviation from the standard form. Not so with commercial property. The leases tend to be longer, and can be up to 5-10 years, rents are much higher, as are security deposits, and there is a lot more negotiation necessary when it comes to making modifications to the property as your business needs change, how rent adjustments work, who pays for maintenance and limits on leasing other property in the building to competitors.

Investing in real estate after the recession

There are numerous ways to make money investing in Maryland real estate. An investor could purchase an apartment building and earn rental income, buy a house to fix up and sell for a profit or purchase shares in a real estate investment trust. Whatever route people decide to take, it is important to become educated on real estate investing before jumping into a deal.

Many commercial real estate analysts are talking about the interesting phase that real estate markets are going through right now. Real estate markets have pretty much recovered from the housing crisis that left properties vacant and caused prices to drop in 2008 and 2009, and interest rates are still at historic lows. Investors are now returning to areas that were abandoned during the recession, and billions are being spent on real estate renovations.

Pokémon Go and augmented reality's impact on retail

Many Maryland residents have probably noticed Pokémon Go players walking around playing the augmented reality game. Since it was released on July 6, gamers have been on their feet playing the game all over the country. Some gamers have even become so absorbed in the video game that they have accidentally walked into dangerous off-limit areas.

Commercial real estate investors and retailers have been speculating about the impact that augmented reality games may have on business. The potential to drive customers toward physical locations where PokéStops and Pokémon gyms exist could help to increase revenue for brick-and-mortar retailers. Some retailers may even become sponsored by Pokémon Go and drive customers to their storefronts with lures in the game.

CRE market set for downslope

According to a forecast made by a UCLA economist in July 2016, the bull market that has characterized commercial real estate in Maryland and around the country for almost a decade is coming to an end. Although market segments like multifamily housing have grown since 2011, experts say that fewer tenants are willing to pay high monthly rental rates.

Consumer habits were cited as important factors in the CRE market. Around 20 percent of all department store mall anchors are predicted to close over the next few years. This is contrary to the fact that retail sales have been on the upswing overall, but analysts point to the idea that consumers are beginning to favor online shopping. This same trend may lead to improvements in the industrial CRE market as retailers transition to operating models that rely on warehouse spaces.

The pros and cons to consider before taking your company public

Business is good, but it could definitely be much better. You have some great ideas. The problem is that putting anything major into actions costs a lot of money. You've done the math, and you know that your best bet is getting some outside investors. Now you have a big decision to make. Should you ke the company public or stick to private investors? There are many rationalizations for either choice, so you will want to consider carefully. This is an overview of the pros and cons of going public.

Pros:

More money

A successful IPO will generate more revenue for your company than any other option. You can implement your long-term plans, and you may even do well enough for some business acquisitions that open entire worlds to your potential. There's no other way to put it. Going public has the highest potential to increase your liquid assets.

Finding alternative financing for commercial real estate

Many commercial real estate developers own strip malls or multi-family properties in Maryland that are secured by loans. As a large number of these types of loans are scheduled to mature in 2017, some borrowers will be left scrambling for refinancing.

According to Morgan Stanley, people holding these types of loans may find it difficult to secure financing in order to refinance them when they mature. The problem is that these types of property are ineligible for government-sponsored enterprise financing. This has left many investors to depend on smaller banks in order to secure the funding they need.

Finding ways to work with zoning laws

Maryland municipalities each have their own particular zoning laws and regulations. These rules govern what kind of enterprise may operate in any given area of the town and they are meant to prevent commercial and industrial activities from conflicting with each other or with residential use.

However, neighborhoods evolve rapidly and the zoning regulations set down by the city councils of the past may not be sufficient to today's needs. It may be a good idea to build a new commercial enterprise in an area that had previously been designated residential, or it may happen that a business springs out of a property in a different type of zone and grows to the point where it could conflict with the rules.

Commercial lease negotiations

Maryland business owners are in most cases able to negotiate the terms of any commercial leases for the locations that they are considering. Negotiating the terms of commercial leases is a common practice and is expected by most landlords. It is especially likely that a business owner will be able to secure concessions from a prospective landlord at times when the real estate market is slower.

One area that is ripe for possible negotiation is the monthly rental amount that will be charged. The landlord may be less willing to negotiate on the inclusion or exclusion of other costs.