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Annapolis Real Estate and Business Litigation Law Blog

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.

Hotels and industrial real estate could benefit investors

Maryland commercial real estate investors will likely find some profitable opportunities in hotels and industrial real estate. Analysts have identified support for revenue growth in both of these sectors.

As of July 2016, 1,305 hotel projects were underway nationwide according to researchers. These new hotels or hotel expansions will increase available rooms by 171,276. Although forecasters expect room supply to outpace demand in 2017, current growth in average daily rates and revenue per rooms will insulate investors from slightly lower occupancy in the future.

Evaluating online lenders before investing

Online lenders have popped up in order to fill in the gaps in traditional lending enterprises. Opportunities that were once only available to a select group of investors are now becoming more accessible. Being able to carefully evaluate the strengths and differences between these lenders can help Maryland investors and others make prudent decisions.

One significant way that online lenders have changed the scope of investing is by providing greater access to commercial real estate investment opportunities through debt investments. Typically, this option was only available through investments in mortgage REITs. This type of investment provides a number of benefits to investors, including providing a steady stream of fixed income as well as greater security in the investment.

Benefits and drawbacks of food trucks as investments

A food truck might be a good first-time commercial real estate investment for people in Maryland who have experience in the industry, but potential investors who are not interested in participating in the day-to-day aspects of running the business might want to look elsewhere. Running them can be time-consuming and may require an understanding of the food and restaurant business.

Food trucks can generate anywhere from $50,000 to upwards of $200,000 yearly, and around half of them make more than $200,000. Furthermore, their startup costs are low relative to a restaurant. It costs around $250,000 to $500,000 to start a restaurant. Starting up a food truck requires purchasing the truck itself, hiring staff, and paying for insurance and licensing fees along with a commissary and initial inventory. This all adds up to about $25,000 to $115,000.

Hard money commercial real estate loans

Home buyers in Maryland and around the country often have little trouble finding a mortgage lender, but obtaining financing can be extremely difficult for commercial real estate investors and developers. Homeowners tend to stay in their properties for many years, and their mortgages are generally based on their credit history and earning potential. The ownership of commercial properties is often far more fleeting, and hard money lenders frequently make their decisions knowing that the property in question may be sold within a matter of months.

This type of commercial real estate financing is inherently risky for lenders, and hard money loans often feature higher interest rates and may require large amounts to be paid upfront. However, they can be an attractive option to developers or investors who are working with tight schedules because decisions are generally made quickly. These loans are most often made by private groups rather than traditional banks, and they rarely advance more than 75 percent of the property's appraised value.

Top 9 "dos" when starting a business

Search the internet for startup business "do's and don'ts" and you may find more than two million results. Much of the advice from other entrepreneurs or business gurus is valuable, although some may be specific to a particular business or trade. When it comes to starting a business, there are some common steps to take to ensure your legal structure is sound. Here are some top "dos" to keep in mind if you are considering whether to start a business.

Limit your liability

Create a corporate entity to get your business going. Doing so limits your own financial liability to the amount of your initial investment. Your attorney will advise you on whether to incorporate or form your business as a limited liability company, depending on your needs and goals.

Stock indices change real estate designation

On Sept. 1, 2016, two major stock indices set aside a separate class for real estate. Investors in Maryland and other states may be interested to discover that the new class includes all non-mortgage real estate investment trusts, real estate operating companies and other real estate products that were formerly grouped within the financial sector. Although experts say that the transition has generated understandable concern among some, the new eleventh sector was initially predicted to offer improvements for real estate investors.

Real estate's removal to a new category in the Global Industry Classification Structure, or GICS, is the result of indices like the MSCI and S&P Dow Jones acting on recommendations from analysts and investors. Industry observers suggest that this separation could minimize the perceived risk some investors have associated with real estate since the 2008 crash.