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Annapolis Real Estate Law Blog

Changes in the commercial real estate market

Commercial real estate investors in Maryland are becoming much more sophisticated as new investment structures emerge. While real estate used to be thought of as an old-fashioned asset class that was ignored by institutional investors, it now makes up almost 10 percent of institutional investment portfolios. Now, institutional investors own about $6.7 trillion worth of commercial real estate properties.

Institutional investors are now turning to commercial real estate and managing complex global portfolios. Despite the changes in commercial real estate investment strategies, there is still a lack of up-to-date technology platforms to help investors manage their global portfolios. Capitalizing on this void, commercial real estate tech companies raised $90 million in investments during the first half of 2015.

Hospital construction still going strong

According to recent reports, hospital construction continues to boom across the United States. Healthcare Finance News reports that there are around 1,340 hospital projects under construction or in the planning stage. Meanwhile, Revista, a health care real estate research firm based in Maryland, reports that current hospital construction projects underway are valued at $97 billion.

Experts say the aging baby boomer generation and an influx of cash from the Affordable Care Act are driving the upswing in construction, which has been steadily increasing for several years. New demand for luxury hospital amenities is also behind some of the projects, such as a new upscale facility for Johns Hopkins in Baltimore. Other high-value projects currently underway include the $2 billion expansion of Tisch Hospital in New York City and the $1.5 billion construction of the University of Pennsylvania Hospital.

Housing price appreciation uneven across the country

Maryland residents may have read headlines detailing the country's recovery from the recession. One of the metrics to which these studies point is the rebound of housing prices. Nationally, they have increased by 17 percent in just the last three years.

However, people should look beyond the national numbers and instead at those of local and hyperlocal real estate marketplaces to get a true picture. Many of the smaller markets have housing prices that are significantly more affordable. The five most expensive residential real estate markets are all in California. Four of those are in Silicon Valley. Average listing prices for houses in those areas range from $1,569,615 to $2,291,764, keeping home ownership out of the reach of many.

Death in a home may not have to be disclosed

While Maryland home buyers must receive disclosures about material defects to the homes they are interested in purchasing, nothing requires a seller to disclose if a death or violent murder occurred in a home. People who are concerned about homes in which someone died may thus want to check other sources of information to find out.

Courts have held that a death inside of a home is not a material defect but is rather a psychological one. The National Association of Realtors indicates that as many as 15 percent of people would not be willing to pay the asking price of a home in which a death occurred. Known stigmatized properties in which deaths have occurred have been demonstrated to sit on the market without selling for as much as 45 percent longer as other homes.

Nuns don't want to sell their estate to Katy Perry

Maryland residents may be interested to learn about a real estate dispute involving pop star Katy Perry. The singer is attempting to purchase an eight-acre estate from the Los Angeles Catholic Archbishop for $14.5 million. However, a group of elderly nuns who lived on the estate for four decades argue that they control the deed. After learning about anti-religious statements that Katy Perry has made, the nuns say that selling to her would violate their canonical vows.

The Los Angeles estate that is at the heart of the real estate dispute was built in 1927 and features 30,000 square feet of living space. Until they were told to leave four years ago, the California Institute of the Sisters of the Most Holy and Immaculate Heart of the Blessed Virgin Mary called the estate their home. The sisters purchased the estate in 1971 for $600,000 and paid for its upkeep through investments, donations and property rental fees.

Understanding the complexities of commercial real estate

Many people in Maryland would like to invest in commercial real estate. Some have backgrounds in investing in residential real estate and believe crossing over into the commercial market will be similar. There are a number of differences between commercial real estate and residential real estate investing that are important to understand, however.

Unlike residential real estate, which is largely valued based on neighboring property sales, commercial real estate is looked at differently. For commercial properties, the important consideration is the cash flow offered by the building. Even if buildings are located in the same area and have similar square feet, they may differ in their value. This largely depends on how the property can be used and the money it will generate.

REITs may offer diverse investment opportunities

In 1960, Congress passed legislation that created a form of specialty investment vehicle known as the real estate investment trust. REITs allow people to purchase interests in different classes of commercial property, like retail centers, apartments, industrial spaces and health care facilities. By eliminating the need to manage such properties on a day-to-day basis and lowering the cost of entry, REITs might provide passive income for Maryland investors who lack the resources to make outright purchases.

According to real estate analysts, investors use REITs to fulfill numerous objectives, such as portfolio diversification or long-term return generation. While the majority of these trusts concentrate on equity, about 10 percent are devoted to the debt side, purchasing mortgages or mortgage-backed securities. Regardless of their specific nature, all REITs must distribute their income in the form of dividends, and investors can purchase shares in stock markets.

U.S. real estate projections

According to RealtyTrac, Maryland may be hosting one of the most attractive markets for real estate investors interested in flipping homes right now. During the second quarter of 2015, Central Florida, Detroit and Baltimore were the most popular destinations for home flippers in the United States. During the first quarter, Baltimore was the metropolitan area with the most home flips completed in the entire country.

Even though economists expectations concerning stability and growth have been lowered over the past six months, the data indicates that the real estate market should improve over time, and that the United States should be free of any significant downturns for another three years, at minimum. Real estate economists from around the country were recently polled on the direction of the market and the country as a whole. These experts expect commercial real estate prices to increase 6.8 percent year for the next three years.

Analysts say hotel market is bullish

According to real estate experts, the hospitality market is growing in Maryland and across the country. The upswing is driven by a stronger economy, demographic shifts, international demand and changes in consumers needs and expectations.

Improving corporate profits have translated into strong business group demand at hotels. Group bookings, which are defined as blocks of 10 or more rooms, currently make up one-third of hotel occupancy. This drives up the industry's revenue per available room, known as RevPAR. Industry forecasts expect 2015 occupancy rates to hit 64.9 percent, which is the highest since 1984. RevPAR is projected to jump approximately 7.4 percent.

Online-only real estate transactions

Maryland homeowners thinking of selling their homes without a real estate agent may have more options than in previous times. Online-only agents are a quickly growing trend in the U.K. market that could be coming to the United States. The National Association of Realtors advises against this practice, explaining that realtors have valuable local information and insights to offer homeowners. Since buying a home is a major financial decision, a National Association of Realtors spokesperson cautioned home buyers against making such a major decision online.

Real estate concerns aside, online-only real estate companies such as Tepilo, HouseSimple and eMoov have seen success overseas. Not only do the firms offer lower fees for selling homes and streamlined systems, they cut costs by a lack of retail presence a well. A traditional real estate transaction in the United Kingdom may result in significant fees that are 10 times higher than what an online-only agent would charge.