March-April You don t ever want a crisis to go to waste; it s an opportunity to do important things that you would otherwise avoid.

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1 Thank You Southern Nevada Mayors... CCIM Luncheons Page 5... Mayor Jim Gibson Mayor Oscar Goodman Mayor Michael Montandon March-April 2009 You don t ever want a crisis to go to waste; it s an opportunity to do important things that you would otherwise avoid. - Rahm Emanuel ot being certain who originally authored this quotation, I found this message a good one to ponder. Do we seek to make the most out of a bad situation? As humans, it seems we need the proverbial push to the brink before we act in our own self-interest to produce the best results. Under pressure, some people fold, but others focus. A crisis presents a unique opportunity if viewed correctly. Except for the dot-com era, more billionaires were created as a result of the Great Depression than in any other period of history. The opportunities before us now seem blurred in the haze of bad news and economic forecasts. But surely some will come through this period better off than before. Certain industries will prosper, as they learn to operate at higher efficiencies and ultimately reduce their competition. Then they will really thrive when the economy improves. They are using this time to re-tool, re-think their old business models and pare waste. An economic cleansing is healthy in the long run, but definitely painful in the short run. Honestly, I am not certain any of the programs our government is proposing and enacting will be the savior of this country. But action is needed now. Like any good investment, the financial rewards cannot always be measured in the short term. A certain maturity of the investment is needed. The same holds true for people. We shouldn t measure our progress on a daily basis, but the long-term rewards that comes down the line. Confidence is one of the key ingredients to getting that reward. Without it we are lost. Other factors like knowledge, passion, skill and even luck play a vital part as well. But confidence plays a special role. It is infectious. We can t always share luck, or even wisdom, but we can spread and restore confidence. Today, we at times lack that trait because we are constantly besieged by bad news which affects our level of confidence. If you believe the stock market will continue to decline, you won t invest. If you feel real estate values will plummet, you will stay on the sidelines. But if you were confident, in time (maybe even a few years from now) the markets will regain their vitality and you will jump back in. So, we as humans actually control that destiny. We will return to the markets when we are confident in the health of those markets. It is always the darkest before dawn. Those that take the bold steps to jump in a little earlier, not waiting for the crowd, will likely reap the largest benefits. They will not let a good crisis go to waste. It s time to focus.

2 2009 CCIM Officers Tedd Rosenstein, CCIM President (702) Carol Cline-Ong, CCIM, RPA President-Elect (702) Cathy Jones, CCIM Secretary/Treasurer (702) Devin Lee, CCIM Immediate Past President Wine Event Chair (702) CCIM Directors Gary Banner, CCIM Newsletter Chair Legislative Chair (702) Miriam Campos-Root, CCIM LEED AP (702) Garry Cuff, CCIM Candidate Guidance Chair (702) Christie Daugherty, CCIM Designation Promotion Chair (702) Sandy Fink, CCIM Membership Co-Chair (702) Andy Hantges, CCIM Membership Co-Chair Web Site Chair (702) Jan Hoback, CCIM Social Activities Chair Scholarship Liaison (702) Soozi Jones Walker, CCIM, SIOR Scholarship Chair (702) Ryan Martin, CCIM Programs Chair (702) Bobbi Miracle, CCIM Education Chair (702) Kathy Stubbs, CCIM, CPM Sponsorship Chair (702) The CCIM Perspective is a bimonthly publication, (excluding November), of the Southern Nevada CCIM Chapter, Eric Tischler, Editor. All rights reserved. To submit an editorial, please contact Eric Tischler at erictisch@yahoo.com. The CCIM Perspective may contain controversial or unsubstantiated information by the authors. The contents herein are not necessarily the views of the Southern Nevada CCIM Chapter. The Southern Nevada CCIM Chapter cannot be held responsible for opinions, views, or facts expressed. 2 CCIM NEWS MARCH-APRIL 2009 Chapter Address Southern Nevada CCIM PO Box Las Vegas, NV Phone: (702) Fax: (702) snccim@alternativemanagement.net Management Company Alternative Management Katrina Bruce Katrina@alternativemanagement.net Bradi Gianti, Coordinator Bradi@alternativemanagement.net 6725 Via Austi Pky Ste 250 Las Vegas, NV CCIM Institute 430 N. Michigan Ave Ste 800 Chicago, IL Phone: (312) Fax: (312) Customer Service: (800)

3 LEGISLATIVE UPDATE THE TREATMENT OF CARRIED INTEREST OUR NEED FOR CALL-TO-ACTION By Gary Banner, CCIM Commerce CRG Cushman & Wakefield Alliance e, as professionals in commercial and investment real estate should collectively voice our objections regarding the Administration s proposed 2010 budget tax provision that would increase the tax rate on carried interest created by entrepreneur real estate partnerships. On page 122 of the budget there is a single line item: Tax carried interest as ordinary income, with projections of $2,742 million in 2011, $4,347 million in 2012 and an overall $23,894 million for the ten year period. This tax proposal has been broadly written to cover other partnerships like hedgefunds in securities. However, there has been no interest from Treasury officials to carve-out real estate partnerships. Under existing law carried interest are generally taxed at the capital gain rate of 15 percent versus ordinary income rates (as high as 35%). Forty five percent of investment partnerships subject to this proposal are real estate partnerships. There are over 2.5 million real estate partnerships which could see their taxes increased by at least 133% under the proposed 2010 budget if passed. Virtually every real estate partnership, from the smallest apartment venture to the largest investment fund, has a carried interest component. Through these structures, many CCIMs create future capital assets by matching their ideas, skills and efforts with equity investors. The CCIM-Institute is earnestly lobbying both chambers in efforts to rout this particular part of the legislation. What s at Stake? A number of local real estate ventures are organized as limited liability companies (LLC) here in the State of Nevada. If a real estate partnership is formed. Qualified Investors become equity members in the company and CONT D ON PAGE 9 CCIM NEWS MARCH-APRIL

4 LEGAL BRIEFS DON T SKIP THE SMALL STUFF: UNDERSTANDING SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT CLAUSES SNDA CLAUSES ARE ACTUALLY A PACKAGE OF THREE AGREEMENTS: AN AGREEMENT BY TENANT TO SUBORDINATE AND ATTORN TO LENDER, AND AN AGREEMENT BY LENDER NOT TO DISTURB TENANT S POSSESSION OF THE LEASED PREMISES. hen negotiating commercial leases, it s tempting for landlords and tenants, as well as their respective attorneys and real estate brokers, to negotiate hard on the deal points which will have immediate consequences - such as the amount of rent, and which party will pay for insurance and repairs. However, a well-drafted lease must address the rights of landlord and tenant in the event that something goes wrong or circumstances change such as a sale or refinancing by landlord, or a foreclosure on the property. The vehicles for addressing these issues are subordination, non-disturbance and attornment provisions or, alternatively, a separate SNDA agreement. SNDA clauses are actually a package of three agreements: an agreement by tenant to subordinate and attorn to lender, and an agreement by lender not to disturb tenant s possession of the leased premises. In order to properly advise your commercial landlord or commercial tenant during negotiations for a new lease, consider what the three components of SNDA clauses seek to achieve for the landlord, the lender and the tenant. Subordination: a subordination clause is an agreement by tenant to subordinate its interest in the lease to the security interests of all existing and future lenders. This clause appeases both the lender and the landlord as, otherwise, a deed of trust from landlord to lender would be subordinate to an existing lease of the property, and a lender foreclosing on such deed of trust would take title to the property subject to this lease. Such a situation renders the property less marketable, and acts as a deterrent to lenders to loan money secured by the CONT D ON PAGE 7 4 CCIM NEWS MARCH-APRIL 2009

5 2009 CCIM LUNCHEONS CCIM NEWS MARCH-APRIL

6 CONGRATULATIONS SARA LENN AWARDED SCHOLARSHIP BY EDUCATION FOUNDATION ara Lenn was the sole recipient of a full scholarship awarded by the CCIM Education Foundation for Region-2, which includes the western states of Nevada, Arizona, California and Hawaii. The Education Foundation awards only one scholarship to each of the 12 regions around the country. Our chapter is extremely proud of her selection amongst all the eligible applicants in our region. Congratulations Sara! 6 CCIM NEWS MARCH-APRIL 2009

7 LEGAL BRIEFS CONT D FROM PAGE 4 property in question, thus restricting the landlord from selling or refinancing the property in the future. Non-Disturbance: Subordination clauses are quite common and, although even the strongest anchor tenant can do little to negotiate them out of a lease, it is reasonable that a tenant get something in return for having provided these assurances to the landlord and tenant; this is where the non-disturbance agreement comes in. A nondisturbance agreement typically provides that, in the event that lender takes title to the leased premises by a foreclosure, a tenant need only recognize the lender as a new landlord so long as the lender agrees to assume and abide by all terms of the existing lease. Such an agreement by lender provides a tenant the peace of mind that it will continue to do business on the leased premises as is, notwithstanding the occurrence of any foreclosure. A tenant will be well-advised to insist that all existing, as well as future, lien holders execute such a non-disturbance agreement before entering into the lease. Attornment: When evaluating whether or not to lend money secured by a particular property, the existence of a steady stream of rental income on the property in question goes a long way to increase the creditworthiness the of the landlord. As such, the lender is going to want some CONT D ON PAGE 8 CCIM NEWS MARCH-APRIL

8 LEGAL BRIEFS CONT D FROM PAGE 7 assurance that this rental income will continue in the event that the lender forecloses on the loan and takes title to the property, such that the current tenant suddenly becomes the tenant of the lender. With this in mind, it is commonplace for lenders to require that the lease entered into between a landlord and tenant contain a provision by which the tenant promises to attorn to the lender as the new landlord under the lease in the event of a foreclosure. This attornment provision binds the tenant to recognize the lender as the new landlord under the lease, and precludes the tenant from arguing that the lease, as subordinate to lender s deed of trust, was extinguished upon the foreclosure of the loan. An additional point: be wary of a lease that merely contains general language binding the tenant sign SNDA agreements as reasonably required by the landlord. Such language leaves the terms of a SNDA agreement to be negotiated once the lease has already been signed. From a tenant s perspective, this creates the risk that the lender will require certain terms be contained in the SNDA agreement in an effort to increase the value of lender s collateral, such as a waiver of the right to a purchase option contained in the underlying lease, or an agreement to indemnify lender for any environmental contamination caused by tenant. Further, from a landlord s perspective, a general covenant by tenant to sign future SNDA agreements provides an opening for a tenant to argue that a required SNDA agreement is unreasonable and to attempt to terminate the lease. Such a risk would be of particular concern in circumstances where the tenant has entered into an unfavorable lease, and has a motivation to terminate. In conclusion, SNDA provisions are a valuable tool in determining how the rights of a lender, landlord and tenant intersect in the event of a sale, refinance or foreclosure of a property. Although it is tempting to dismiss such provisions as boiler-plate and move on, the terms of SNDA provisions should be reviewed and negotiated carefully to ensure that your client is protected. Erin Barnett, Esq. is an associate with the Las Vegas law firm of Marquis & Aurbach. She can be reached at (702) or visit the firm s web site at www marquisaurbach.com 8 CCIM NEWS MARCH-APRIL 2009

9 LEGISLATIVE UPDATE CONT D FROM PAGE 3 commit capital to the venture. The members as limited partners contribute 90 to 97% of the equity used to acquire the real estate. You as the sponsor, a CCIM, become the general partner (GP) and may provide the remaining 3 to 10% of equity and manages the limited liability company in exchange for an annual management fee. The CCIM-GP, may receive an additional share of any future profits; this profit-sharing right is often the promote, carry, or carry-interest, in the real estate venture, which builds future wealth like assets in a 401 (K) says my CPA. Carried interest is just another name for the way partnerships divide the rewards of a joint venture between the partners who provide capital and the CCIM-GP who provided the sweat equity and expertise to the deal. In sum, carried interest has come to be used as equity incentives for CCIM s managing a commercial real estate partnership and the carried interest share of net gains realized by the disposition of those assets is taxed on a pass-through basis as capital gain. CONT D ON PAGE 10 CCIM NEWS MARCH-APRIL

10 LEGISLATIVE UPDATE CONT D FROM PAGE 9 The present-law tax treatment of carried interest is founded on two sound and settled tax policies. The first is that capital gains are designed to reward entrepreneurial investment of labor and skill, as well as capital. The second is that partnership profits should be taxed on a passthrough basis. The carried interest provides the CCIM-GP with upside potential similar to those afforded to the equity members, and serves to align his or her interests with the equity members. If the deal goes well, the CCIM-GP shares in the gains; if the deal goes poorly, he or she may receive nothing. Our argument is this in private real estate partnerships, the CCIM-GP carried interest economically represents a share of the gains and losses of the deal. Unlike fixed compensation which is taxed as ordinary income, the carried interest rewards the CCIM-GP only if the deal actually has net gains over its entire term. Because the carried interest is actually based on the partnership s gains and losses, the current tax treatment of carried interest on a pass-through basis properly expresses the underlying premise of partnership taxation. Additionally, the President s budget proposal would limit capital gain treatment to only taxpayers who have actual cash to invest; handicapping those who contribute entrepreneur skill and expertise to a venture. For the CCIM-GP who leverages their intellect and sweat equity would no longer receive capital gain treatment. This tax provision will discourage future entrepreneurship and may reduce future real estate transactions and ultimately property values. Gary Banner, CCIM is Senior Director of Commerce CRG/ Cushman & Wakefield Alliance, Las Vegas; and RCA-National Legislation / Regulation Committee Member. He can be reached at (702) or gbanner@commercecrg.com. COMMERCIAL LENDING Adam Gregory, CCIM & Devin Lee, CCIM of Access Commercial Mortgage procured financing for LV Quanta Investments, LLC in a 5-year fixed loan with a 25-year amortization for a 5,556 square foot office located at 6064 South Durango Drive, Las Vegas, NV for $700, TO MAKE A DEALMAKERS SUBMISSION: *Publications are limited to designees who are Chapter and Institute members in good standing. Announcements are for publication in The Perspective, but submissions may also appear on the website. All parties are aware that space is limited and are accepted and published by largest dollar volume within each submission session. Please contact Tedd Rosenstein, CCIM for the submission form at trndr@msn.com or CCIM NEWS MARCH-APRIL 2009 LEASES Monty Montierth, CCIM of Commerce CRG, represented PAR Springer Miller Systems in an office lease of 12,000 square feet located at Green Valley Corporate Center South, Henderson, NV with a value of $1,619, Monty Montierth, CCIM & Mike Dunn, CCIM, SIOR of Commerce CRG, represented the landlord in an office lease of 4,012 square feet located at 8329 West Sunset Road, Suite 260, Las Vegas, NV with a value of $205, Liz Clare, CCIM of Commerce CRG, represented the tenant in an office lease of 4,140 square feet located at 4840 West University Avenue, Suites A2 & A3, Las Vegas, NV with a value of $361, Soozi Jones Walker, CCIM, SIOR & Bobbi Miracle, CCIM of Commercial Executives, represented QB Properties, LLC in an office lease, for a software development company, for 3,134 square feet located at 375 North Stephanie Street, Suite 1612, Henderson, NV with a value of $183, SALES Bridget Richards, CCIM & Jason T. Lesley, CCIM of New- Growth Commercial Real Estate Co., represented Hedley Henderson, LLC in a sale of 5,232 square feet of flex space located at 1859 Whitney Mesa Drive, Henderson, NV with a value of $674, Bridget Richards, CCIM & Jason T. Lesley, CCIM of New- Growth Commercial Real Estate Co., represented FFPW, LLC in a sale of 5,000 square feet of medical office space located at 9020 West Cheyenne Avenue, Las Vegas, NV with a value of $1,175, Soozi Jones Walker, CCIM, SIOR & Bobbi Miracle, CCIM of Commercial Executives, represented T & J Fallon Family Trust in an office lease, for an association management company, for 1,731 square feet located at 5575 South Durango Drive, Suite 106, Las Vegas, NV with a value of $90, Soozi Jones Walker, CCIM, SIOR & Bobbi Miracle, CCIM of Commercial Executives, represented Corley, LLC in an office lease, for a credit processing company company, for 2,029 square feet located at 1700 West Horizon Ridge Parkway, Suite 102, Henderson, NV with a value of $84, Cathy Jones, CCIM of Sun Commercial Real Estate, Inc., represented the landlord, RBD-SH, LLC, in a retail lease, for 12,700 square feet located at 2150 South Rainbow Boulevard, Las Vegas, NV with a value of $1,058, Cathy Jones, CCIM of Sun Commercial Real Estate, Inc., represented the landlord, KRRE Camino, LLC, in a office lease, for 6,600 square feet located at 5135 Camino al Norte, North Las Vegas, NV with a value of $418, Cathy Jones, CCIM of Sun Commercial Real Estate, Inc., represented the buyer, MRK Properties, LLC, in a sale of a 12,148 square foot, fully-leased, medical office building, located at North 51st Avenue, Phoenix, AZ with a value of $4,150, Cathy Jones, CCIM of Sun Commercial Real Estate, Inc., represented the buyer, Morelli Family Trust, in a sale of a 17,979 square foot, fully-leased, medical office building, located at 337 East Coronado Road, Phoenix, AZ with a value of $6,058,

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12 Southern Nevada CCIM Chapter P.O. Box Las Vegas, Nevada Southern Nevada CCIM Chapter Mission Statement Position the Chapter as the premier commercial real estate organization for Southern Nevada by enhancing the value of the CCIM designation and increasing the number designees and candidates through professionalism and educational excellence. The Commercial Real Estate Voice for Southern Nevada