CRE Groups, Analysts Offer Initial Reaction to Republican Tax Reform Framework

Initial reactions of real estate groups and analysts to the tax-reform framework released on September 27th by GOP leaders in Congress ranged from outright support to opposition of a proposal included in the framework to limit or ban the deductibility of interest on business debt. 

The real estate community has been on edge over rumors the tax plan advanced by Congressional leaders would do away with some of the industry's favored tax treatments. Different reports noted that discussions included possibly eliminating 1031 tax-free exchanges and reducing the deduction for interest on debt and reducing the tax rate for pass-through business income. 

The 27th was supposed to be the big reveal of the new framework from the "Big Six" in tax reform - House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Treasury Secretary Steve Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch and House Ways and Means Committee Chairman Kevin Brady. 

Despite general surprise at the limited amount of detail included in the framework, real estate's chief advocate in Washington, Real Estate Roundtable President and CEO Jeffrey DeBoer, hailed the framework released this week as "another significant step toward pro-growth tax reform." 

"As envisioned in the framework, reducing the tax on business income, encouraging capital formation and maintaining the strength of our capital markets will spur economic investment and job creation," DeBoer said. "Critical issues and details certainly are ahead and we intend to work closely with Congressional tax-writers as they take tax reform forward." 

DeBoer testified on September 19th before the U.S. Senate Finance Committee on business tax reform - encouraging modest changes for the current taxation of commercial real estate that would promote economic growth while cautioning policymakers on specific business tax reform concepts that could cause severe market dislocation. 

Other groups, including Businesses United for Interest and Loan Deductibility, or the BUILD Coalition, voiced sharp criticism of the proposed new tax targeting interest deductions as "simply not reform." 

"True reform works to improve the U.S. economy and create jobs rather than raise costs on businesses. Interest deductibility is critical to the U.S. economy," the coalition said in a statement. 

"The BUILD Coalition opposes the proposal from the ‘Big Six’ to limit interest deductibility as part of tax reform, spokesman Mac O’Brien said. “This action would effectively create a new tax on business investment, which runs counter to pro-growth tax." 

Short on Details, Framework Facing Long Road to Approval

Morgan Stanley equity analyst Richard Hill cautioned in a note to investors that the tax package faces "a long road ahead." 

"There are likely hundreds of 'billion dollar' fights to wage before anything is passed," Hill said, noting the potential for specific carve outs for REITs and other CRE owners. After noting that the proposed elimination of 1031 tax exchanges was not addressed at all in the framework, Morgan Stanley's Hill commented on two other provisions that were included. 

The potential elimination of the reduction in the interest deduction for c-corporations would remove one of the two primary benefits of owning commercial real estate, with depreciation being the other. Under current tax law, building owners may deduct interest on money borrowed to purchase or improve property. 

Hill said eliminating that deduction would have negative implications for commercial property valuations to varying degrees. Morgan Stanley's sensitivity analysis estimated a 0.1% to 14.8% reduction in property prices depending on the reduction in the interest deduction under various tax rates. 

However, he noted the proposed 20% tax rate would help to mitigate some of the impact from a reduction in the interest deduction. 

The framework also calls for allowing businesses to immediately write off or expense the cost of new investments in depreciable assets (other than structures made after Sept. 27, 2017) for at least five years. 

Hill noted that allowing the immediate expensing of capital investment would likely help to mitigate some of the impacts of a reduction in the interest deduction. In addition, he said such a change could incentivize selling of properties to purchase a new property that can be fully expensed up front, a situation that could pose challenges if there isn’t corresponding demand. 

Morgan Stanley also noted it's entirely possible there could ultimately be specific carve-outs for commercial real estate, or REITs specifically, as negotiations get started.


National Home Prices Continue to Rise

S&P Dow Jones Indices released the latest results for the S&P CoreLogic Case-Shiller Indices, the leading measure of U.S. home prices. Data released for July 2017 shows that home prices continued their rise across the country over the last 12 months.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.9% annual gain in July, up from 5.8% the previous month. The 10-City Composite annual increase came in at 5.2%, up from 4.9% the previous month. The 20-City Composite posted a 5.8% year-over-year gain, up from 5.6% the previous month.

Seattle, Portland, and Las Vegas reported the highest year-over-year gains among the 20 cities. In July, Seattle led the way with a 13.5% year-over-year price increase, followed by Portland with a 7.6% increase, and Las Vegas with a 7.4% increase. Twelve cities reported greater price increases in the year ending July 2017 versus the year ending June 2017. 

The below charts compare year-over-year returns for Seattle and Portland with different ranges of housing prices (tiers). Upon tier level analysis from 2011 to present, both Seattle and Portland's year-over-year returns show housing prices in the highest tier to be the most stable while housing prices in the low tier are the most volatile.

Before seasonal adjustment, the National Index posted a month-over-month gain of 0.7% in July. The 10-City and 20-City Composites reported increases of 0.8% and 0.7% respectively in July. After seasonal adjustment, the National Index recorded a 0.5% month-over-month increase. The 10-City Composite posted a 0.4% month-over-month increase. The 20-City Composite posted a 0.3% month-over-month increase. All 20 cities reported increases in July before seasonal adjustment; after seasonal adjustment, 17 cities saw prices rise.

"Home prices over the past year rose at a 5.9% annual rate," says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "Consumers, through home buying and other spending, are the driving force in the current economic expansion. While the gains in home prices in recent months have been in the Pacific Northwest, the leadership continues to shift among regions and cities across the country. Dallas and Denver are also experiencing rapid price growth. Las Vegas, one of the hardest hit cities in the housing collapse, saw the third fastest increase in the year through July 2017.

"While home prices continue to rise, other housing indicators may be leveling off. Sales of both new and existing homes have slipped since last March. The Builders Sentiment Index published by the National Association of Home Builders also leveled off after March. Automobiles are the second largest consumer purchase most people make after houses. Auto sales peaked last November and have been flat to slightly lower since. The housing market will face two contradicting challenges during the rest of 2017 and into 2018. First, rebuilding following hurricanes across Texas, Florida and other parts of the south will lead to further supply pressures. Second, the Fed's recent move to shrink its balance sheet could push mortgage rates upward."**


HUD Reiterates HAP Effective Date Flexibility as Busy 4th Quarter Begins

In January of this year, HUD’s revision 3 of the RAD Notice adds flexibility for HAP effective dates, allowing an owner to choose either the first day of the month after closing, or the first day of the second month after closing. Given the historically large number of RAD closings ever November, HUD has suggested to owners closing in October to consider a December 1 HAP effective date rather than November 1.***


Senior Housing Finance Activity

CBRE Arranges Acquisition Financing for CA Ventures, Construction Financing for Belmont Village 

Houston-based CBRE Capital Markets has arranged a portfolio acquisition financing on behalf of a joint venture between Chicago-based real estate investment holding company CA Ventures and a global investment manager for the CA Senior Living portfolio.

The portfolio consists of four senior housing communities totaling 440 units located in Chicago and Kansas City, of which 285 are assisted living and 155 are memory care. All four senior housing communities were developed by CA Ventures, and are newly built and delivered between 2016 and 2017.

Aron Will, vice chairman of CBRE National Senior Housing, arranged the loan. The company was able to secure a non-recourse, three-year floating rate loan with 36 months of interest only.

Similarly, Will also arranged construction financing on behalf of a joint venture between Houston-based senior housing operator Belmont Village Senior Living and Boston-based real estate investment advisory firm Blue Moon Capital Partners.

The financing will be used for Belmont Village Aliso Viejo, a to-be-built, Class A, 157-unit assisted living and memory care community that will be located in Aliso Viejo, California.

CBRE secured a non-recourse, four-year floating rate loan from a regional bank. Upon completion, the property will be operated by Belmont Village. 

Grandbridge Closes $14.5 Million Loan for Senior Housing Community in Kansas City, Missouri

Charlotte, North Carolina-based Grandbridge Real Estate Capital’s Seniors Housing and Healthcare Finance Group has facilitated the closing of a $14.5 million first mortgage loan secured by McCrite Plaza at Briarcliff, a 163-unit senior housing community in Kansas City, Missouri. 

The refinance, funded through one of Grandbridge’s insurance company relationships, was originated by Grandbridge’s Kansas City-based Senior Vice President Joseph Platt, and Seniors Housing and Healthcare Finance Team Senior Vice President Richard Thomas and Vice President Meredith Davis.

Ziegler Closes $67 Million Financing for Vermont Life Plan Community

Ziegler, a Chicago-based specialty investment bank, has closed on the $67.09 million Series 2017A-C financing for Wake Robin Corporation, a Shelburne, Vermont-based life plan community, consisting of 212 independent living units as well as a health care center consisting of 51 skilled nursing units and 31 residential care units.

The proceeds of the Series 2017A fixed rate bonds, together with other available funds, were used to: refinance all of Wake Robin’s Series 2006B Bonds; finance a portion of the expansion of Wake Robin; pay the costs of issuing the Series 2017A Bonds; and fund a debt service reserve fund for the Series 2017A Bonds.

The proceeds of the Series 2017B&C Bank Direct Placement Bonds, together with other available funds, were used to finance the remaining portion of the expansion of Wake Robin, as well as pay the costs of issuing the Series 2017B&C Bonds. M&T Bank was the purchaser of the Series 2017B&C Bonds, and Greenbrier Development acted as development consultant on the project.

The new money portion of the financing will be used for the construction of 38 independent living units, the renovation of the common areas and the existing skilled nursing facility and the construction of 10 new residential care units as well as six new skilled nursing units at Wake Robin. 

Brookhaven IDA Approves Economic Benefits Package for New York Assisted Living Community 

Frederick C. Braun, III, chairman of the Town of Brookhaven Industrial Development Agency (IDA) based in Farmingville, New York, has approved a package of economic incentives for an affiliate of Yonkers, New York-based AVR Realty Co. for a $27 million assisted living community at the company’s mixed-use development in Yaphank, New York, known as The Reserve at the Boulevard.

The benefits package for Yaphank AVR Boulevard Chelsea LLC, supported by the Longwood Central School District, was approved by the IDA in June and ground was recently broken for the project.

The 118-bed facility will be housed in two buildings totaling 99,492 square feet including a 77-bed unit for special needs and memory care and a 41-bed supportive care unit. It will employ 40 full-time workers and 20 part-time workers. Construction of the Yaphank facility is expected to generate 125 construction jobs.****




Events (2017)

  • Gill Group plans to attend NCSHA’s Annual Conference & Showplace October 14th – 17th in Denver, CO.
  • Gill Group plans to attend NH&RA’s and NCHMA’s Affordable Housing Finance, Development, and Policy Exchange October 12th – 13th in Washington, DC.
  • Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting September 19th – 20th in Jefferson City, MO.
  • Gill Group attended NH&RA’s Summer Institute July 19th – 23rd in Quebec City, Canada.
  • Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting June 12th – 13th in Jefferson City, MO.
  • Gill Group attended CARH’s Annual Meeting June 19 - 21st in Washington, DC.
  • Gill Group attended NCSHA’s Housing Credit Connect Conference and Tradeshow June 21st – 23rd in Atlanta, GA.
    • Cash Gill, of Gill Group, spoke on a panel June 22nd entitled Using Market Studies for Site Selection
  • Gill Group attended the 2017 PK Management Trade Show and Awards Dinner May 16th – 17th in Cleveland, OH.
  • Gill Group attended AHF Live’s Housing Developer’s Forum April 26th – 28th in New Orleans, LA.
  • Cash Gill, of Gill Group, gave a training session to the staff at MFA (New Mexico’s HFA) to further their knowledge on appraisal and market study processes April 20th in Albuquerque, NM.
  • Gill Group attended MHC’s Annual Meeting April 11th – 13th in Biloxi, MS.
  • Gill Group attended the Crittenden Multifamily Conference March 15th – 17th in Dallas, TX.
  • Gill Group attended the MACO Companies’ Annual Meeting March 16th – 19th in Biloxi, MS.
  • Gill Group attended the Bank of Advance’s Annual Meeting March 16th – 19th in Norfork, AR.
  • Cash Gill attended the Missouri Real Estate Appraisers Commission Quarterly Commission Meeting March 7th in Jefferson City, MO.
  • Gill Group attended National Housing & Rehabilitation Association’s Annual Meeting February 22nd – 26th in Bonita Springs, FL.
  • Gill Group attended the National Leased Housing Associations’ Mid-Year Meeting February 1st – 3rd in Naples, FL.
  • Gill Group and National Title & Escrow attended the Council for Affordable Rural Housing’s (CARH’s) Midyear Meeting (Strengthening Rural Housing with Valued Partnerships) January 23rd – 25th in Sarasota, FL.

Events (2016)

  • In 2016, Gill Group attended over 75 meetings and conferences across the entire United States.

GROWTH (2016 - Highlights):

  • Gill Group added over 20 staff members throughout our 15 national and regional offices including MAIs, General Certified Appraisers, PE Engineers and AIA Architects.
  • Gill Group’s subsidiary, National Title & Escrow (NTE), added two new underwriters: Fidelity National Title Insurance Company and Stewart Title Guaranty Company.
  • NTE also added a new sales representative, Jimmy Crace, bringing 20+ years of experience and well over 100 national relationships in commercial and multifamily title.

Events (2015)

  • In 2015, Gill Group attended over 50 meetings and conferences from California to New York, and just about everyone in between.

GROWTH (2015 - Highlights):

  • Gill Group added two offices in Michigan and one in Wisconsin, further expanding our staff of architects and engineers.
  • Gill Group and Greystone formed a Joint Venture to provide a full line of consulting and development services for Rental Assistance Demonstration (RAD) transactions. Gill Group and Greystone are utilizing each of our areas of expertise in a collaborative effort, with a mission to partner with PHAs across the nation in preserving and expanding the affordable housing inventory under the HUD RAD program. Our team fully understands the intricacies of the real estate and affordable housing industries, and our services are provided by professionals who are fully immersed in LIHTC executions, construction management, project accounting, regulatory compliance, real estate transactions, and opportunity development. We sit on national and state boards and have in-depth knowledge of industry trends and best practices. As a developer team, we operate as three individual entities, each with a unique set of previous transaction experiences that add value to the project at hand. As a collaborative unit, we draw upon those experiences to bring to the table creativity, fresh ideas and unsurpassable development advisory services.
  • Gill Group’s subsidiary, National Title & Escrow, added two new offices in Missouri and Arkansas, further expanding our ability to service our nationwide base of customers.

Events (2014)

  • Gill Group attended 40+ meetings and conferences throughout the United States in 2014.

GROWTH (2014 - Highlights):

  • Gill Group began the process of working with owners of affordable housing to develop a web-based program that will work hand-in-hand with our services. It will give the users of our appraisals, market studies, capital needs assessments and many other services easy access and real time usage.
  • Gill Group added 2 offices with appraisers, market analysts, engineers and architects.
    • Within the offices are 11 architects, one MAI appraiser, one general certified appraiser, four market analysts and 12 additional support staff. 

  Gill Group has published the following:

  • New York Real Estate Journal - How can low-income housing facilities translate into high profits?
  • New York Real Estate Journal - Up, up and away: Home mortgage interest rates and gasoline prices continue ascending.
  • Tax Credit Advisor - Boston MSA Market Snapshot
  • Tax Credit Advisor - Seattle MSA Market Snapshot
  • Northeast Industrial Development Resource Guide - What Appraisers Know About Investing.
  • Affordable Housing Finance – Urban and Rural Market Studies.
  • Tax Credit Advisor – LIHTC Appraisals 101
  • Affordable Housing Finance – Five Ways to Optimize a Market Study

Cash Gill, MAI has had the opportunity to speak on the following topics:

  • (Indianapolis, IN) National Council of Affordable Housing Market Analysts - Maximize Your Market: Understanding the Methodology Behind Market Studies.
  • (Reno, NV) Nevada Council of Affordable and Rural Housing - Don't Get Caught in the Red. New Guidelines for Audits and Inspections.
  • (Washington, DC) The Institute for Professional and Executive Development - Nonrecourse HUD Deals - So You Closed Your Nonrecourse HUD Deal. Now What? And Is It Really Nonrecourse?
  • (Arlington, VA) Council for Affordable and Rural Housing - Property Valuation: The Correct Way to Value Properties.
  • (New Orleans, LA) National Council of Affordable Housing Market Analysts - Affordable Housing Site Analysis
  • (Las Vegas, NV) Nevada Council of Affordable and Rural Housing - Auditing and Accounting Guidelines for Section 42 Low Income Housing Tax Credits.
  • (Washington, DC) Council for Affordable and Rural Housing - Rural Development Appraisals and Market Studies
  • (Miami, FL) Council for Affordable and Rural Housing - The Equity Market - Impact on Rural Housing
  • (Washington, DC) Council for Affordable and Rural Housing - How to Foster Affordable Green and Rural Housing Needs Assessments
  • (Indianapolis, IN) Affordable Housing Association of Indiana - Market Analysis – Best Ways Use Market Studies to Ensure Application Points
  • (Portland, ME) Enterprise Buyer/Seller Conference for RRH 515 Properties – Valuing the Product. What Is My Development Worth?
  • (Washington, DC) National Housing and Rehabilitation Association – Financing and Underwriting Special Needs Housing.
  • (Atlanta, GA) National Council of State Housing Agencies – Comprehensive Market Analysis.
  • (Chicago, IL) AHF Live – Strategies for Rural Deals.
  • (Dallas, TX) Crittenden Multifamily – Financing Special Use Properties.
  • (Washington, DC) Council for Affordable Rural Housing – Rural Housing Preservation
  • (Denver, CO) National Council of State Housing Agencies – Rural Housing Strategies
  • (Denver, CO) National Council of State Housing Agencies – Y15: Preservation and Disposition Seminar
  • (San Antonio, TX) Rural Rental Housing Association – LIHTC Legislative Update
  • (Key Largo, FL) Council for Affordable Rural Housing – How National Appraisal Practices Impact USDA Assisted Properties
  • (San Francisco, CA) National Council of State Housing Agencies – Changes and Challenges in Rural Housing Development
  • (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
  • (Franklin, TN) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
  • (Columbus, OH) Council for Rural Housing & Development of Ohio – Rural Housing Market Research
  •  (South Bend, IN) Great Lakes Capital Fund’s University of Affordable Housing – Valuation Risks Using Financing for RAD Deals
  • (Chicago, IL) National Council of State Housing Agencies – Rural Development Opportunities
  • (Orlando, FL) National Association of Housing and Redevelopment Officials – Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies
  • (Alexandria, LA) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
  • (Ft. Lauderdale, FL) Southeastern Affordable Housing Management Association (SAHMA) – Rent Comparability Studies 101
  • (Indianapolis, IN) Midwest Buyer/Seller Conference – CNAs and Appraisals
  • (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities (2014)
  • (St. Pete Beach, FL) CARH – Preservation Challenges and Opportunities
  • (Nashville, TN) TAHRA – Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies for LIHTC and RAD Transactions
  • (Los Angeles, CA) NCSHA – Successful Development in Challenging Markets
  • (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities
  • (Seattle, WA) NCSHA – Rural and Native American Development Strategies
  • (French Lick, IN) AHAIN – Appraisals and CNAs
  • (French Lick, IN) AHAIN – Pulling it All Together
  • (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
  • (Albuquerque, NM) MFA – Appraisals 101 (personal training for HFA staff)
  • (Atlanta, GA) NCSHA – Using Market Studies to Inform Site Selection

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