Occasional visitors to Seattle may be surprised to discover that their favorite route from the airport to downtown has changed. State Highway 99 no longer links to the Alaskan Way Viaduct into downtown Seattle. The waterfront viaduct has been closed and demolition has begun. The Battery Street tunnel that connected viaduct traffic to Aurora Avenue
Avoiding Development Disasters: Land Inventory and 1031 Exchanges
The ability to defer taxes through a 1031 Exchange can make or break a real estate transaction. But federal tax law does not treat all real estate owners equally. Under IRC Section 1031(a)(2), real property held “primarily for sale” in the ordinary course of a trade or business is excluded from Section 1031 and may be subject to ordinary income taxes in the event of a sale.
Generally, land held for investment purposes can be swapped for “like kind” property without triggering taxable gain. However, certain property is excluded from 1031 because, under IRC Section 1221(a)(1), it is not a capital asset, including:
(i) Stock in trade of the taxpayer
(ii) Inventory; or
(iii) Property held by the taxpayer primarily for sale to customers in the ordinary course of a trade or business.
Such property, including any real estate which qualifies as inventory, is excluded from 1031 treatment and, upon sale, is taxed at ordinary income rates. This means that active developers dealing in subdivided property for sale in the ordinary course of business may be excluded from capital gains tax treatment.
Doing It Differently: Portland’s Plan to Redevelop the U.S. Post Office Site and Broadway Corridor
Portland real estate is booming and Portland is now on the map for many national and international developers for the first time. This success, while enviable, is not without some negative consequences, as evidenced by increasing housing costs and congestion.
As Portland anticipates the arrival of even more people, it is trying to figure out where to put those new arrivals and how to preserve and enhance quality of life for both new and existing residents. Large-scale City planning efforts such as the 2012 Portland Plan and 2017 Comprehensive Plan reflect a recognition that not everyone has enjoyed the benefits of past prosperity and public investment, and that the City will seek to be more intentional and inclusive going forward.
An emerging redevelopment area offers an opportunity to try new things and develop differently this time. The Broadway Corridor redevelopment area is 24 acres located between the Pearl District and Old Town/Chinatown. The area is centrally located in downtown Portland, has freeway access and is served both by Amtrak, via historic Union Station, and by TriMet’s light rail. The “pearl” of this redevelopment area is the 14-acre U.S. Post Office site, bordered by NW 9th Avenue, NW Hoyt Street, NW Broadway and NW Lovejoy and purchased by the City of Portland in 2016.
The City purchased the Post Office site for almost $90,000,000 and understandably is carefully shepherding this public investment. The City’s Broadway Corridor Framework Plan provides a conceptual “framework” for future development of a 24-acre area including the Post Office site, but actual development will require a new type of public-private partnership and substantial further refinement of the plan, with the City committed to recovering its financial investment.
Public Private Partnerships Provide an Opportunity to Leverage Private Sector Expertise and Financing for Public Benefit
Creative solutions will likely be required to bridge the gap between the cost of addressing growing infrastructure needs in the U.S., currently estimated at $4 trillion, and the amount of available public funding. One increasingly popular possibility involves supplementing public funds with private financing through agreements that allow for greater private sector participation in the
Alter Ego: The $5MM personal danger of neglecting corporate formalities and utilizing substandard building materials
Many building developers utilize a single purpose entity limited liability company (an “LLC”) to purchase and develop property, such as an apartment complex, a subdivision, or a shopping center. Generally, an LLC’s debts, whether incurred or judicially imposed, belong only to the LLC, not to its members. However, an LLC’s individual member may be subject to personal liability under the doctrine of alter ego liability if (1) the individual and the LLC share a unity of interest and ownership such that the separate personalities of the two no longer exist, and (2) treating the debts as the LLC’s alone would impose an inequitable result that rewards the bad faith of the individual. A recent legal decision from Southern California highlights the dangers of disregarding an LLC’s corporate formalities during any construction project.
Design-Build Certification
One should never stop learning, so next week I will attend a three-day seminar presented by the Design-Build Institute of America. If I complete the seminar and pass a test, I will become a Designated Design-Build Professional. The DBIA has an informative page about certification on its website.
In preparation for the seminar, I completed
When “Non-Binding” LOIs Become Binding
A letter of intent (“LOI”) is often the first document in a proposed deal – a summary of a range of key terms or concepts for negotiation toward entering into a final, formal agreement. But what seems like a simple document can be much more than a mere list of possible terms to be discussed by the parties, and might just result in a final agreement in one side’s sole discretion. In some cases, an LOI can be an enforceable agreement to negotiate in good faith toward a final agreement based, at least in part, on its stated terms. Even those LOIs that specifically say they are non-binding may, in fact, be binding. For instance, an LOI could be enforceable in its own right if all material terms of a final agreement are set out in the LOI and the parties’ conduct suggests they treated the LOI as a final agreement. Rather than being a “safe haven” that can be terminated at will without liability, an LOI can present great risk and unintended consequences to the parties if not recognized and handled with care. Missteps in documentation and/or subsequent conduct of the parties along the way could result in blown deals and damages. Even an otherwise carefully and clearly drafted LOI may not be free from risk or unintended consequences.
“All Risk” Coverage Is Not Equal to “All Loss” Coverage Under Customary Provisions in California Builder’s Risk Policies
A common insurance question asked by our owner/developer clients when they discover that their completed project has defects is whether their own insurance will cover the cost to fix the defect or any damage from the defect. While trying hard not to sound like the proverbial lawyer, we often have to say “it depends.” What
Considerations Before and After the Government Comes Knocking (or Preparing for Condemnation)
The status of infrastructure throughout the United States, and the need to expand and rebuild facilities, is often in the news. Funding these improvements remains a challenge, but when funding is identified, the government often has to acquire private property. If the government and the property owner are unable to reach agreement, the acquisition may
Going Green in a Big Way.
As the new State Route 520 floating bridge nears completion in Seattle, the 31 original bridge pontoons are ready for removal. Rather than breaking them up, the Washington Department of Transportation (WSDOT) will tow them through the Seattle ship canal and Ballard Locks to Puget Sound. In an epic display of recycling, they will be