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Welcome to our 1st Quarter 2017 Newsletter , highlighting the recent work of the firm, trends in commercial real estate, some history in the form of old railroad land grants, conservation easements, the controversial EB-5 program and failure risk, as well as some golfing tips.  

Anytime we can provide you with market research information, consulting, or simply answering a question, just let us know; we are happy to be of help.  That is why we are here.

Sincerely,


Steven R. Norris, MAI, CRE

Norris Realty Advisors
Not In the Middle of Nowhere
But You Can See It From There....

For more than a decade, Norris Realty Advisors has specialized in the valuation of remote desert land.  We often wonder if this somewhat eccentric component of our practice is an interesting sidelight to our more conventional work in urban settings, or perhaps some kind of cosmic punishment.

Over the past several years, we have undertaken a number of these remote desert oddities, including:
  • The valuation study of over 100 remote desert parcels as a part of a large right-of-way project by a major regional utility provider
  • Analysis of numerous old local power line easements, neglected in the initial development of a large solar farm
  • Thousands of acres of remote desert land, originally part of the railroad land grants of the late 1800s
  • Estimation of fair market rent for hundreds of acres of desert land - proposed to be part of a massive commercial grade solar power effort...that never came to fruition. 
This work has often found our team in "interesting" situations, such as confrontations with gun-wielding property occupants, loose dogs bent on having us for lunch, and waiting alone at desolate windblown roadside stops for our escorts to hopefully pick us up for a property inspection in off-road vehicles.

While some might consider standing in a remote desolate location in the early morning a bit frightening - we enjoy this chang e from the daily routine.  Our work is never boring.


 
Conservation Easements and the IRS
It's Not Nice to Mess with the IRS!

Our friends in the tax collecting arm of the government are always looking to make sure that people do not take unfair advantage of the tax benefits that accrue to a property holder for conservation and historic fa├žade easements.  For the last several years there has been increased scrutiny of these easements - some easements real, and others hypothetical.  

More recently there is increased interest in conservation easements, as it appears there are groups that are trying to syndicate these easements - and are soliciting investors for transactions that purport to give buyers the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount originally invested.

It works like this: Investors receive promotional materials that offer a pass-through entity the possibility of a charitable contribution deduction that is a factorial of the original amount of the investment. The investor purchases an interest, directly or indirectly, in the pass-through entity that holds real property. The pass-through entity that holds the real property contributes a conservation easement encumbering the property to a tax-exempt entity and allocates, directly or through one or more tiers of pass-through entities, a charitable contribution deduction to the investor. Following that contribution, the investor reports on his or her federal income tax return a charitable contribution deduction with respect to the conservation easement.  More information can be found here .

The Treasury Department and the IRS recognize that some taxpayers may have filed tax returns taking the position that they were entitled to the purported tax benefits of the type of transaction described above. These taxpayers may need to take appropriate and significant corrective action to ensure that their transactions are disclosed properly.  A good place to start would be valuation of the real estate assets in question from a reputable firm with experience in this property type.

Suffice it to mention that penalties for this form of behavior may be significant.  
EB-5 - Give Me Your Tired, Your Poor, Your Huddled Masses 
Investment Program to Assist Citizenship 
Caries Unforeseen Risk

Pursuit of American citizenship has been the dream of immigrants to the US for more than 200 years.  In recent years, legislation was developed that provided citizenship to those willing to invest a minimum of $500,000 in commercial real estate development in the US.

However, the management and due diligence of some of these investments is coming under increasing scrutiny.

Recently, our firm has been involved in consultation and analysis of more than one poorly planned EB-5 development effort.  These developments are sometimes riddled with series of poor decisions, which range from a lack of market research prior to commencement, bad architecture, incompetent leasing efforts, poor property management, and a lack of funding to complete tenant improvements.  

The resulting effect of this careless planning has been financial disaster, with the value of the assets plunging well below the loan amount related to the original construction costs.  

The fallout of these problems is currently underway in Congress, with recent news  suggesting major changes may be in the works for the EB-5 investment program.
 
Miniature Golf, Massive Issues
Recently Norris Realty Advisors has had the opportunity to embark on an interesting and, as typical for us, slightly unique journey in valuation, involving the review of a portfolio of miniature golf centers throughout Southern California. 

These operating recreational fun centers include go-cart tracks, ponds, batting cages, indoor arcades, dining, and of course, championship level mini-golf.  

However, part of the fun was an unforeseen complication; one property in the portfolio was designated under three different types of industrial zoning and  turned out to be the site of six former and now abandoned oil well drilling sites. Our initial field inspection of the site did not reveal any evidence of this condition.
  
This actually is a more common occurrence than expected, particularly in Southern California.   In order to gauge how these abandoned well heads would affect the value of the subject property, we researched and obtained actual costs of similar well head environmental remediation. Capping each abandoned well was significant, and was then deducted from the total derived value indication for the property.  For more data on well sites in California, check out the Doggr web site.

The moral of the story: putting through that giant windmill may not be the greatest handicap on the course!

Thank you for taking the time to review our Newsletter.  We greatly value our relationship with clients, peers, and friends of the firm.  Contact us directly with any questions.

Steven R. Norris, MAI, CRE View our profile on LinkedIn
Norris Realty Advisors
626-405-9922
steve@norrisadvisors.com