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Annapolis Real Estate and Business Litigation Law Blog

How drone use may affect commercial real estate

Experts on robotics say that the drone revolution is coming to Maryland, and it will bring both enormous benefits and serious legal conundrums. The number of drones in the skies over the state is expected to grow dramatically in the next few years. Drones will be delivering packages, monitoring traffic, helping to respond to emergencies, assisting with construction crews and handling other tasks as well. Unfortunately, there is no way to predict precisely what usage American citizens will begin to make of their sky, and this requires serious thought from the legal point of view.

For example, it is unclear precisely what kind of zoning would be necessary for a commercial tenant who wishes to engage in substantial drone activity. If the flight path of a tenant's drones were to disturb another tenant or an adjacent property, then it has yet to be determined precisely what rights the aggrieved occupants have to prevent and interdict air traffic. Zoning ordinances could have tremendous impact on these issues, but in many cases these ordinances have yet to be deliberated.

Tips for commercial real estate novices

Maryland business owners interested in purchasing in commercial real estate for the first time may want to know what to look out for before they do so. It is important that they make their decision carefully.

It is important to completely understand the risk associated with purchasing commercial real estate. Being aware of market trends may help in avoiding properties that seem like a desirable location, but that eventually loses value. It is also essential to understand that cash may not be immediately available if business assets are invested in real estate.

Small business succession planning 101

You have put so much into your business to get it to this point, and now that you have found success, you worry about the future. Who will run things when you retire? Succession planning is often difficult to think about, as the implications can be scary, but it is one of the most important decisions to make for any business owner. Before you write it off as another perpetual "to do" item, consider some of the reasons it's so important to plan ahead.

Why succession planning matters

It is important to understand that succession often comes unexpectedly. When age, illness or other factors make it difficult for you to operate your business, someone else has to fill your shoes, and while some business owners get to transition smoothly to retirement, that isn't always the case. Since you don't know what the future will hold, a solid plan is necessary.

Interval funds offer investors expanded opportunities

Interval funds are a form of a mutual fund that grant individual investors in Maryland and elsewhere access to real estate investments normally only available to institutions. Their low minimum investment allow people to seek the potentially lucrative returns associated with commercial real estate credit, private real estate debt and private equity.

These assets within interval funds could produce returns higher than publicly traded REITs or other funds. Investors, however, trade the hope of better returns for reduced liquidity. Unlike other investments that have daily liquidity, interval funds normally restrict distributions to a quarterly schedule. This feature enables fund managers to control risk while pursuing opportunities without the demand for daily payouts.

Commercial real estate markets may show steady growth

Maryland commercial real estate investors and developers may be interested in the opinions of 51 experts who say that the U.S. market will remain strong over the next three years although there will be some changes. The survey, which was conducted by the Urban Land Institute Center for Capital Markets and Real Estate, found that respondents predicted that vacancy rates would continue to drop. The vacancy rate for apartments is already close to its historic low, and it is expected to remain near there. Office, retail and industrial sectors should see even fewer vacancies. Job growth is a significant factory in the drop in vacancy and rise in rent prices.

It is expected that there will be fewer commercial mortgage-backed securities issued and a lower commercial real estate transaction volume. In 2015, there was a post-recession high of $545 billion, and that is expected to drop to $428 billion by 2018

Pension funds not put off by CRE warning signs

Institutional investors like insurance companies and hedge funds are major players in the commercial real estate sector in Maryland and around the country, and pension funds have been particularly bullish in the past several years. The market's financial giants tend to become far more cautious when commercial property prices come under pressure, but a Pension Real Estate Association representative has stated that pension funds are expected to continue buying well into 2017 despite signs indicating that the market may be maturing.

Commercial real estate now accounts for about 7.3 percent of the assets managed by U.S. pension funds, and that figure grows to 8.8 percent when foreign pension funds are taken into consideration. Commercial property offers these funds a way to spread their risks while earning healthy returns, and real estate has now become a fairly standard part of most institutional portfolios.

CRE investing after the JOBS Act

Since the Jumpstart Our Business Startups Act was passed in 2012, it has been easier for commercial real estate developers in Maryland to solicit investors. Now, opportunities can be advertised to accredited investors through online channels, opening up the door to a lot more potential participants. The Securities and Exchange Commission has reported that there are now over 12 million households that could qualify as accredited investors in the United States.

Many people in the commercial real estate industry are noticing how much the JOBS Act and modern technology like online investment platforms have changed commercial real estate investing. In the past, obtaining financing was a business that required a lot of face-to-face meetings and years of cultivating a network of business relationships. Now, developers can reach potential investors in minutes, and business partnerships can be formed online.

Changing banking interests in commercial real estate

Maryland developers may find that there are fewer financing choices in commercial real estate as smaller banks face regulatory challenges in this sector. Federal regulation of this type of lending has recently resulted in greater scrutiny, which has caused many small banks to move away from these financing options. Small banks have begun to sell the commercial real estate loans that they hold, and they are reducing their future lending in this area as well.

Larger banks have also been affected in the commercial real estate industry because they are less likely to be able to sell new loans to smaller banks in light of the regulatory changes. The reduction of banks making these loans has also caused a reduction in competition for new loans. In response, foreign banks are increasing their activity in this sector. Overall, foreign banks represent nearly $52 billion in commercial loans. Although many U.S. banks have pulled back in lending for commercial properties, there are still some small banks that continue to actively lend in this sector.

Four tips to ensure your business purchase goes well

Things are going great, and you are ready to expand. Whether you are adding business assets to your own or looking to break into something new, purchasing an existing business can be an excellent and exciting opportunity. Before you jump head-first into a major purchase, there are some things you need to know. These four tips will ensure that you do your due diligence and make a savvy investment rather than a reckless purchase.

Know what you are buying

When it comes to purchasing an existing business, there are generally two types of purchases. You might be buying a whole business, including the assets and intellectual property, or you may just be purchasing assets. The difference between these two purchases determines everything about how you inspect the investment. What is the legal status of the company? Are they a corporation, LLC or other entity? Answering these questions first will inform the rest of your research.

Global trends and effects on commercial real estate

People in Maryland who invest in commercial real estate may be interested in five global trends likely to affect that market. One of those revolves around political and economic uncertainties with the Brexit vote in the United Kingdom. However, this is likely to be positive for commercial real estate in the United States as the market there is more attractive to foreign investors as a result of being more stable. According to The International Monetary Fund, there will be economic growth throughout the world.

Another factor is cap rate environment and low interest rates. Any rise in interest rates before the end of 2016 is predicted to be a minor one. It is unlikely that cap rates will surge, but indicators show that they might begin to show upward movement. Foreign investment in the U.S. is a third factor. Even if Chinese and European investors are dealing with slower growth and less income, there are still plenty of other investors throughout the world with capital.