Office Building Classifications

I was poking around for a definition of Class A buildings and had a hard time finding a solid definition.In BOMA's Building Class Definitions, buildings are grouped into Class A, Class B and Class C. But BOMA does not recommend the publishing of a classification rating for individual properties.Metropolitan Base DefinitionsClass A. Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence.Class B. Buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price.Class C. Buildings competing for tenants requiring functional space at rents below the average for the area.BOMA goes further with International definitions:International Base DefinitionsInvestment. Investment quality properties are those that are unique in their location in the best metropolitan markets in the world, their design and construction quality, the solidity of the tenants and the tenant markets that they serve and the outstanding building management that is responsible for operating and maintaining them. These properties stand out as leaders not only within their own metropolitan areas but also within the international investment community. Investment properties usually contain state of the art mechanical, electrical, life safety, elevator and communications systems. Their finishes are of the highest standards and they often provide the occupants with a mix of amenities - in variety and quality - that is exceptional. Often they house a lead tenant for whom the property is named and usually they are located in a premier metropolitan area. Investment grade properties need not be considered to be "trophy" material but trophy properties are usually investment grade.Institutional. Institutional grade properties are those of sufficient size and stature that they merit attention by large national or international investors, hence the name. These properties are of good design and construction, although they are rarely monumental in design or the use of construction materials. They are typically large. They may be located in secondary metropolitan areas, but invariably they will have a very stable tenant base.Speculative. Speculative properties usually will conform to popular design conventions (at the time that they are constructed), but without the use of exceptional materials or construction methods. The design and construction of these properties emphasizes functionality, in contrast with aesthetics or image and the design rarely reflects the image of any particular tenant or occupant. To attract national or international attention, speculative properties must be relatively large, although minimum size requirements are lower for properties located in premier office markets. They are often occupied by multiple tenants. Of course, Wikipedia has an entry: Wikipedia's Class A Office SpaceAlthough the US seems to be lacking objective classification of buildings, the Moscow office market has laid out some objective standards for classifying buildings: Office Building Classification. According to the Moscow Office of Jones Lang LaSalle:The new classification aims to divide the office stock into three classes according to a number of objective criteria. The classification was developed with the participation of professionals from the Construction, Property Management and Office Service industries.  The principal difference of the new classification from the previous one is the division of stock into А, В+ and В- classes. The major difference is also in giving a more structured criteria for modern office building classification. Leading real estate consultants: CB Richard Ellis Noble Gibbons, Colliers International, Cushman and Wakefield, Stiles and Riabokobylko and Jones Lang LaSalle have prepared a new classification of office buildings, dividing modern quality office stock  into 3 classes: A, B+ and B-. Square Feet started this with his (or her) Guide to Office Building Classifications.Disclaimers

New Law Liberalizes REIT Provisions

Last week, President Bush signed the Housing and Economic Recovery Act of 2008 [html] [pdf] into law. You have heard about all of the programs designed to stimulate the housing market and to deal with Fannie Mae and Freddie Mac. Summary of the “Housing and Economic Recovery Act of 2008" [.pdf] from the Senate Banking Committee.The Act also contained some changes to the REIT limitations. From Goodwin Procter's Client Alert, New Law Liberalizes REIT Provisions [.pdf]:The Act shortens the prohibited transactions safe harbor holding period from four years to two. Unless the safe harbor applies, a REIT is potentially subject to a tax equal to 100% of the net income derived from a prohibited transaction (i.e., a sale of property held primarily for sale to customers in the ordinary course of business, or “dealer property”). The prohibited transaction safe harbor used to apply to a sale of real property if, among other requirements, (i) the REIT held the property for at least four years for the production of rental income, and (ii) the aggregate expenditures made by the REIT during the four-year period preceding the date of sale that were includible in the basis of the property (i.e., capital expenditures) did not exceed 30% of the net selling price of the property. The Act shortens both the minimum holding period under the safe harbor and the period during which the limit on capital expenditures applies from four years to two. This provides REITs with significantly more flexibility to dispose of properties without risk of the 100% tax being imposed, provided the other requirements of the safe harbor are met.An additional requirement for a sale to qualify for the prohibited transactions safe harbor was that the REIT must not have made more than seven sales of property during the applicable tax year, or, that the aggregate tax bases of the properties sold during the taxable year must not have exceeded 10% of the aggregate tax bases of all of the assets of the REIT as of the beginning of the taxable year. The Act changes the 10% limitation so that a REIT can measure its sales based on either tax basis or fair market value, at the REIT’s annual election. This change also applies to sales made on or after July 31, 2008, although IRS guidance will be required to implement this change for 2008.The Act increases the REIT asset test limitation with respect to securities of taxable REIT subsidiaries from 20% to 25% of the REIT’s assets.The Act extends the “related party rent” exception that permits leases between REITs and their TRSs for lodging facilities to qualify as “rents from real property” to cover healthcare facilities. Now, a TRS can rent a healthcare facility from its parent REIT without disqualifying the rents paid to the parent REIT for purposes of the 75% and 95% income tests, provided that the healthcare facility is managed and operated by an independent contractor and not the TRS itself.The Act broadens the REIT income tests with respect to foreign currency exchange gain. Under existing IRS guidance, certain foreign currency gain was treated as qualified income in certain circumstances. Effective July 31, 2008, certain foreign currency gain attributable to real estate income, real estate assets or to certain indebtedness attributable to the REIT’s real estate assets is excluded from the 75% and 95% income tests, and other passive foreign currency gain is excluded from the 95% income test.Disclaimers

Massachusetts City and Town ByLaws

Here is collection of bylaws and ordinances available online for Massachusetts:AbingtonActon AdamsAgawam Amesbury (Zoning)AmherstAndoverArlingtonAshburnhamAshby Ashby (Zoning)AshlandAttleboro (Zoning) Auburn BarnstableBarnstable (Zoning) BarreBecket Becket (Zoning)Bedford Bedford (Zoning)BelchertownBellinghamBellingham (Zoning)BelmontBelmont (Zoning) BillericaBillerica (Zoning)Blackstone (Zoning)BoltonBoston Boston (Zoning)Bourne Bourne (Zoning)Boxborough Boxborough (Zoning)BoxfordBoxford (Zoning)Brewster Brewster (Zoning)Bridgewater (Zoning)BrooklineBurlington Burlington (Zoning)CambridgeCanton Canton (Zoning)CarlisleCarverCarver (Zoning)CharltonCharlton (Zoning)ChathamChelmsfordChelsea Chelsea (Zoning) Chester (Zoning)ChicopeeChilmarkClintonCohassetConcord Concord (Zoning)CummingtonCummington (Zoning)Danvers Dartmouth Dartmouth (Wetland)Dartmouth (Zoning)DedhamDeerfield DennisDighton DouglasDoverDudleyDunstableDunstable (Zoning)Duxbury Eastham (Zoning)Easton (Zoning)Essex EverettFairhaven (Zoning)Fall RiverFalmouthFitchburgFoxborough (Zoning)FraminghamFramingham (Zoning)FranklinGardner (Zoning)Gill Gill (Zoning)Georgetown Gloucester Gloucester (Zoning)Goshen (Zoning)Grafton (Zoning)Great BarringtonGreat Barrington (Zoning)Greenfield (Zoning)GrotonHamilton (Zoning)Hampden Hampden (Zoning)Hanover Hanover (Zoning)Hanson Hanson (Zoning)HarvardHatfield Haverhill HinghamHoldenHollandHollistonHolyokeHopedaleHopkintonHudsonHull (Zoning) Ipswich (Zoning)KingstonKingston (Zoning)Lancaster (Zoning)Lanesborough (Zoning)Lee (Zoning)LenoxLeominsterLexingtonLincolnLittletonLongmeadowLowell (Zoning)Ludlow Ludlow (Zoning)Lynnfield (Zoning)MaldenManchester-by-the SeaManchester-by-the-Sea (Zoning)Marblehead MarionMarlborough (Zoning) MarshfieldMashpee Mashpee (Zoning)MattapoisettMaynard Maynard (Zoning) Medfield MedfordMedway Medway (Zoning)MelroseMendon MiddletonMilford (Zoning)Millbury Millbury (Zoning)MillisMillis (Zoning)MillvilleMilton (Zoning) Monson (Zoning)Montague (Zoning) NahantNantucketNatickNatick (Zoning) NeedhamNew BedfordNew Bedford (Zoning)New MarlboroughNewburyNewbury (Zoning)NewburyportNewtonNorfolkNorth Andover North Andover (Zoning)North Attleborough North Reading (Zoning)Northampton NorthboroughNorthborough (Zoning) Northbridge Northbridge (Zoning) NorthfieldNorwell (Zoning) Norwood Norwood (Zoning)Oak Bluffs (Zoning)Orange OrleansOtisPalmerPalmer (Zoning)PaxtonPeabodyPeabody (Zoning)PelhamPepperell (Zoning)PetershamPhillipstonPhillipston (Zoning)PittsfieldPlymouthPlympton Plympton (Zoning)PrincetonPrinceton (Zoning)ProvincetownQuincyRandolphRaynham (Zoning)Reading RehobothRevereRichmondRochester (Zoning) RocklandRockport Rockport (Zoning)RowleyRowley (Zoning)RoyalstonSalemSalisburySalisbury (Zoning)Sandwich SaugusScituateSeekonkSharon Sharon (Zoning)Sheffield Sheffield (Zoning)ShelburneShelburne (Zoning)Sherborn (Zoning) Shirley (Zoning)Shrewsbury Shutesbury (Zoning)SomervilleSouthamptonSouthboroughSouthborough (Zoning)SouthbridgeSouthwickSpencerSpencer (Zoning)Springfield Sterling Sterling (Zoning)Stockbridge Stockbridge (Zoning) StonehamStow Stow (Zoning)SturbridgeSudburySunderland (Zoning)Sutton Sutton (Zoning)SwampscottTaunton (Zoning)TempletonTewksbury (Zoning)Tisbury Tisbury (Zoning)TollandTopsfieldTopsfield (Zoning)TownsendTruroTruro (Zoning)Tyringham Upton (Zoning)UxbridgeWalpole (Zoning)WalthamWarehamWatertown (Zoning)WaylandWellesley Wellesley (Zoning) WellfleetWendell (Zoning)West BoylstonWest NewburyWest Springfield West Springfield (Zoning)West Tisbury (Zoning)Westborough (Zoning)Westfield Westfield (Zoning)WestfordWestminsterWestonWestwoodWestwood (Zoning)WeymouthWilbrahamWilbraham (Zoning)Williamsburg Williamsburg (Zoning)WilliamstownWilmington Wilmington (Zoning)WinchendonWinchesterWinthropWoburnWorcesterWorthingtonWrentham (Zoning)YarmouthYarmouth (Zoning) From Massachusetts Law Updates, produced by the Massachusetts Trial Court Libraries: Massachusetts Town and City Bylaws. Disclaimers

Floor Area Ratio and Residential Property

Floor Area Ratio has longed been used as a way regulate building density under zoning laws.  The owner of the property can choose to build a short building on most of the property or a taller building on less of the property.Although Floor Area Ratio has been used to regulate commercial properties, there was some uncertainty as to whether you could use it for single family residential property in Massachusetts. Floor Area Ratio restrictions is one way to limit McMansions.In the case of 81 Spooner Road LLC v. Town of Brookline (SJC-10104), the Massachusetts Supreme Judicial Court ruled that towns and cities can use Floor Area Ratio to regulate the density of single-family residential properties.The uncertainty comes from M.G.L. c.40A, §3 that provides in part: "No zoning ordinance or by-law shall regulate or restrict the interior area of a single family residential building . . . provided, however, that such . . . structures may be subject to reasonable regulations concerning the bulk and height of structures and determining yard sizes, lot area, setbacks, open space, parking and building coverage requirements. . . ."A property owner challenged the Town of Brookline's imposition of a 0.3 Floor Area Ratio on a single family house the owner proposed to build on a vacant lot.The Massachusetts Supreme Judicial Court ruled in part:"that regulation of single-family residences pursuant to the authority in the proviso of G. L. c. 40A, § 3, second par., including bulk regulation by floor-to-area ratio, is a proper exercise of the zoning power, provided the effect of such regulation on the interior area of such structures is incidental.  Although the town's bylaw requires consideration of gross floor area of single-family residences for purposes of calculating floor-to-area ratio, this is not a prohibited direct regulation of interior area.  Its effect is only incidental."It looks like Massachusetts cities and towns can use Floor Area Ratio to limit McMansions from sprouting up, with over-sized houses growing in existing neighborhoods.Disclaimers

Blockshopper

Blockshopper.com is trying to make news out of residential transactions. The site has launched in Chicago, St. Louis, South Florida and Las Vegas, trolling the listing services and registries of deed to find what notable people are doing with their real estate.According to Law.com, some lawyers at Jones Day are not happy that their real estate purchases are making headlines: Lawyers Shrink From Web Real Estate Spotlight. They have sued Blockshopper. Of course, that is just more publicity for Blockshopper. Not free publicity since they will need to pay the lawyers.Will the suit go anywhere? I thought real estate records were public documents and open for anyone to see. So what is the problem?Disclaimers

Opportunity Funds Overfloweth

National Real Estate Investor published a story by Joe Gose on the flow of capital into distressed property funds: Opportunity Funds OVERFLOWETH."Opportunity funds concentrating on distress intend to take advantage of the seized-up debt markets in a few different ways. Many funds are buying debt at a discount from investment banks stuck with billions of dollars of loans they can't securitize. Other investors believe loose underwriting and over-leveraged properties will soon lead to maturity defaults, essentially defaults that occur when a landlord can't refinance a property because it isn't worth the loan coming due or because a landlord can't come up with a slug of equity that lenders want. Those funds intend to buy up that real estate, or at least gain a position in the assets."It will be interesting to see if the capital markets come back into time to avoid a commercial real estate crash.  The loose underwriting standards we saw eighteen months ago are gone (for the foreseeable future). But most commercial property owners have enough cash flow to pay the monthly debt payments.The problem will come at maturity. Commercial property owners may have a hard time rounding mortgage debt to replace the maturing debt. It was the short maturity on Mr. Macklowe's debt that forced him to sell the GM Building. More commercial property owners are going to be faced with mortgage debt maturity. Will there be mortgage debt there to replace it?Disclaimers

When Life Hands You Lehman, Make Lehman-Aid

Over the weekend, Lehman Brothers lost its interested buyers and got ready to file for bankruptcy. According to the New York Times, interested buyers wanted the federal backstop that was put into place for JP Morgan Chase purchase of Bear Stearns: 2 Wall St. Banks Falter; Markets Shaken.According to the Wall Street Journal, the lack of a backstop scared off Bank of America and Barclays PLC: Ultimatum by Paulson Sparked Frantic End. Most people think various buyers will swoop in and buy individual pieces of Lehman.On Sunday afternoon, a trading session was opened to allow firms to try to unwind their derivatives transactions with Lehman by finding other parties to step into Lehman's shoes: Lehman Risk Reduction Trading Session and Protocol Agreement.It should be an interesting Monday and an interesting week.Thanks to Rob Hyndman for coming up with this blog post title. I stole it from one of his Twitter Post (@rhh)DisclaimersAll of these companies are clients of The Firm, but I am not aware of The Firm's participation in any of the weekend's events. If The Firm was involved, I was not.