Changes to Valuation Guidelines for Unlisted REITs and Direct Participation Programs

by Bryant Asset Advisors on 01/09/15

On October 10, 2014, the SEC approved FINRA’s proposed changes to NASD Rule 2340 and FINRA Rule 2310 regarding valuations and customer statements.

Read more here:

http://www.thediwire.com/news/changes-to-valuation-guidelines-for-unlisted-reits-and-direct-participation

New IPA Guidelines Set New Appraisal Standards

by Bryant Asset Advisors on 05/31/13

IPA Guidelines and FINRA Regulations ask REITs to rethink their valuation/appraisal and disclosure processes.

 

In late April 2013, the Investment Program Association (IPA) unanimously passed a new IPA Practice Guideline outlining new standards for valuing publicly registered, Non-Listed Real Estate Investment Trusts (REITs). These new industry-wide recommendations have been in the works for two years and, according to IPA CEO Kevin M. Hogan, aim “to bring a higher level of uniformity, consistency, and transparency to the financial reporting for Non-Listed REITs.”

 

Why Are There New IPA Practice Guidelines?

The IPA passed the new Guideline in order to bring more transparency to the industry. The new guidelines will standardize valuation approaches and give investors a lot more information about Non-Listed REIT valuations and investment performance. This new transparency is key to proving Non-Listed REITs’ investment results, which in turn enhances the American public’s trust and confidence in the industry (two qualities which have been sorely lacking as of late).

 

The IPA embarked on the journey to creating the Practice Guidelines two years ago because they wanted to create standards for providing objective valuation information about publicly registered Non-Listed REITs. According to the IPA, the more detailed information would confirm the benefits of Non-Listed REITs and would help investors understand their real role in a diversified portfolio. Without this standard, detailed information, investors have been making uneducated investment decisions.

 

Why Invest in REITs?

Investors have been attracted to REITs for years, especially after the financial collapse in 2007-2008. REITs have yielded results. So, even though there has been a recent decline in many Sponsor portfolios (in some cases, a 25% or even 75% decline in asset values or share prices), asset flows into REITs have remained strong.

 

With just under $100 billion in total assets invested in REITs, the industry should continue to capture a growing share of investor capital. And now, with the new IPA regulations and the FINRA valuation/disclosure requirements, there is a chance that investors will feel more confident in these vehicles and we could see a substantial increase in investment.

 

The Impact on Appraisals/Valuations

The new FINRA requirements and the IPA industry-imposed guidelines are positive steps towards a more transparent investment landscape. In order to comply with the IPA guidelines, Non-Listed REITs must follow several important rules in the valuation process:

 

1. Non-Listed REITs must establish a committee of independent directors (a “Valuation Committee”) to oversee the valuation process and recommend a final valuation.
2. Non-Listed REITs must engage third-party valuation experts and appraisers (firms like Bryant Asset Advisors, LLC) to determine the REIT’s investments’ value in the initial year of valuation and then at least once every year thereafter.
3. Non-Listed REITs must provide valuations within approximately 9 months after the closing of the REIT’s offering.

 

These new guidelines require REITs to engage third parties to value and appraise their investments annually, and much faster after closing of the offering. REITs are now at a turning point. To comply with the guidelines (and therefore continue to attract valuable investors), REITs must establish strong Valuation Committees and choose outside appraisers that can act as long-term, unbiased experts in the valuation and appraisal process.

 

This trend of increased transparency and improved disclosure in the investment arena is not exclusive to the Public Non-Traded REIT space and has largely been driven by pressure from shareholders, limited partners, etc.  Increasingly, sponsors of a variety of smaller Regulation D investment offerings are airing on the side of caution and following the lead of their registered counterparts by engaging appraisal advisory firms to conduct full portfolio valuations, third party reviews, or confirmation of the sponsor’s valuation assumptions as applied to individual assets and/or at the fund level.  

 

Not every appraisal firm can handle the volume, or complexity of appraising Non-Listed REIT or similar fund investment assets. Most commercial appraisers can handle appraising a 7-Eleven or McDonald’s restaurant, but not every firm has the knowledge and experience to handle these more complicated assignments. The REIT or Regulation D fund’s underlying real property assets are typically Class A or B in quality and require an appraisal firm with extensive and varied experience.

 

Bryant Asset Advisors’ Principals and Strategic Partners have decades of experience with valuation and advisory services relating to the appraisal of high profile and value-added assets. From commercial real estate to personal property, Bryant Asset Advisors has the capability to deliver a multitude of property related services throughout the United States.  We have offices in California and the Midwest and are licensed in CA, IN, OH, MI and PA.  In certain situations, depending on the needs of our clients, we are able to service all parts of the continental U.S.  Please contact us today to discuss your immediate or future valuation needs.

 

CA, OH, IN, MI, PA Inquiries: 858-243-8724

Email: chris@bryantassetadvisors.com

 

Learn More

Learn more about the IPA’s new guidelines here: http://globenewswire.com/news-release/2013/04/29/542526/10030431/en/IPA-Board-of-Directors-Approves-First-Industry-Wide-Valuation-Guideline-for-Non-Listed-REITs.html

Andrew Bryant Earns ASA Designation

by Bryant Asset Advisors on 05/29/13

Andrew J. Bryant was recently awarded his ASA designation by the American Society of Appraisers.

 

The American Society of Appraisers is an international organization of appraisal professionals and others interested in the appraisal profession. ASA is the oldest and only major appraisal organization representing all of the disciplines of appraisal specialists.

 

The American Society of Appraisers (ASA) confers two designations upon qualified candidates – the Accredited Member (AM) designation and the more prestigious Accredited Senior Appraiser (ASA) designation.

 

To qualify for Accredited Senior Appraiser (ASA) status, an individual must have substantial full-time appraisal experience, and a four-year college degree (or its equivalent). Most ASA disciplines also require the Candidate to pass a set of four (4) Principles of Valuation courses, which lay the foundation for the remainder of the accreditation process. In addition, candidates must pass a comprehensive exam before a designation is awarded to evaluate the technical appraisal proficiency of the Candidate and their acquaintance with the society's ethics, principles and basic precepts. The submission of demonstration appraisal reports is also a significant factor in the evaluation of the total accreditation application and should support and define the experience, education and appraisal qualifications of each applicant.

 

Accreditation is awarded to those candidates who demonstrate proficiency in performing complex appraisal assignments. ASA's International Board of Examiners issues a final decision on all accreditation applications after all factors (experience, education, examination and appraisal reports) have been considered.

 

Bryant Asset Advisors is committed to excellence, and we take pride in our profession as appraisers of both real property and personal property. Our professional memberships and designations assure our clients that we are not only among the top appraisers in our respective markets, but that we continually strive to be at the forefront of our profession, learning the most up to date valuation techniques, maintaining the highest standard of ethics, and earning the respect of our peers.

Why Vineyards Might Make Great Investments

by Bryant Asset Advisors on 05/28/13

Investing in vineyards and agricultural assets may be low risk with the potential for high yield returns.

When the market crashed in 2007-2008, many institutional and high net worth investors turned to quality agricultural assets, including farmland and vineyards. These agricultural properties yielded attractive returns and had the added benefit of providing tax benefits and shelter from the market’s volatility.

 

Why Invest in Vineyards & Agricultural Properties?

Historically, vineyards and other productive agricultural assets have been resilient, despite the equity market’s ups and downs. Agricultural properties have immediate cash flow, making them extremely attractive in a weak economy. Plus, increased quality and quantity of crop yields, commodity supply, and demand forces create excellent potential for capital appreciation.

 

Agricultural assets located near major metropolitan markets often do even better than their rural counterparts. Over time, agricultural assets located in desirable locations (such as vineyards in Napa and Sonoma, CA, just an hour away from the San Francisco Bay Area) may experience a transition to higher and better land uses. Operational vineyards could be converted into resorts, restaurants, and other luxury destinations that bring in a steady flow of revenue and offer greater ROI. Plus, if the market crashes again causing people to decrease spending on luxury vacations and expensive dinners, the asset is still attractive because it has the ability to yield crops (continual cash flow).

 

In addition to the protection from the overall equity  markets, the U.S. government and banking systems also look favorably on working agricultural properties. Investors looking to purchase working agricultural assets can expect attractive financing options in the form of historically low interest rates as well as special tax incentives from the IRS and in some cases, the local taxing authorities.

 

Why Right Now May Be A Great Time to Invest

While agricultural assets haven’t always been considered as attractive as other real estate assets, the market right now may be especially favorable for those considering investment. Western consumer culture is moving towards organic, local food and consumers are interested in being economically and socially responsible. From the middle class to the high net worth individuals, customers everywhere are interested in purchasing local food and organic food that’s both good for their family and for the environment. That type of sustainable, cause-based marketing is an added bonus for would-be vineyard owners or agribusiness investors.

 

If managed properly and with the luck of Mother Nature, agricultural assets like vineyards can make solid investments, despite the broad economy’s twists and turns. Right now, the market offers a very favorable climate for small agricultural assets like vineyards and boutique farms. Consumers are continuing to become more selective, and investing in the right agricultural asset (particularly one near a major metropolitan area) might prove to be an incredibly smart move.

 

What Are the Tax Advantages of Investing in a Vineyard?

Vineyards and other agricultural assets are one of the best real property investments under today’s tax climate. Vineyards, orchards, and groves enjoy all of the benefits of traditional, row-crop farmland ownership. And, the current tax code is especially kind to these types of assets.

 

Vineyards (including orchards and groves) can capture expense method depreciation (I.R.C. 179) of the property’s “permanent plantings” (for example: grape vines, citrus and nuts). The expense method of depreciation can be a useful tool for any investors’ tax planning, as it can allow the investor to deduct the capital cost of the property on their income taxes as an expense rather than depreciating over time.

 

Demand for vineyard assets, especially lifestyle and boutique properties, may only increase as investors come to realize the tax-benefits, potential for cashflow and satisfaction provided by this type of investment. Americans are buying more and more wine, and, much like the craft brewing industry, they’re interested in wines from boutique and small-scale family vineyards.

 

And, as the Baby Boomers age and retire, more people are likely to seek out attractive retirement destinations that allow them to live out lifelong passions (such as making wine). In addition to the romantic love for vineyards and wine making, the favorable tax code could encourage many savvy Boomers to live out their golden years on a strategically located, productive vineyard property.

 

How to Invest in a Vineyard

If you are interested in investing in a vineyard or other agricultural property such as an orchard, a grove, or farmland, contact Bryant Asset Advisors. Our years of experience in both appraising and investing in quality real estate assets will ensure you find the right property at the best possible price. As brokers and appraisers, we have extensive knowledge of the current market, and experience in proper valuation, we can help make sure your next purchase is a sound investment decision.

 

CA, OH, IN, MI Inquiries: 858-243-8724

 

Email: chris@bryantassetadvisors.com

Further Reading

Robert Aldrich’s article “Beyond the Bottle: Vineyard Investment in California” in April’s National Real Estate Investor sheds even more light on the California vineyard market.

 

http://m.nreionline.com/california/beyond-bottle-vineyard-investment-california

Donating Real Estate To Charity

by Bryant Asset Advisors on 04/18/13

What donors and charities need to know

As planning begins for 2013 taxes, individuals and corporations might consider making a real estate donation to a charity in order to claim that property’s value as a deduction. Donating real estate to charity has numerous benefits for the charity and donor, but it remains one of the most underutilized donations in the U.S. Only 3% of the $300,000 billion in assets given to charities each year involve real estate equity. Yet, 43% of the $64 trillion in U.S. capital involves real estate.

 

Why Donate Real Estate?

Obviously, a gift to a worthy charity that serves your community in times of need is a great reason to donate your real estate asset. But, donating real estate can also benefit the individual or corporate donor. Whether it’s relieving the burden of property ownership or claiming a tax exemption, donating real estate can prove very lucrative for the donor.

 

Real estate donations or gifts are great options for individuals or corporations sitting on assets that are difficult to sell. Instead of continuing to attempt to sell the asset for market value, the individual or corporation can donate the asset to charity and gain tax benefits while expediting transfer of the property. Additionally, for corporations, gifting difficult-to-move real estate could prove the best option from an economic, timing, and public relations standpoint.

 

How to Donate Real Estate to Charity

There are a few options to consider when donating real estate assets to a charity. The strategies outlined, below, are detailed along with their benefits

 

1. An outright donation. By donating the real estate outright, the donor can claim a full tax exemption for the appraised value of the real estate holding. In this scenario, the donor also has full control over the timing of the asset disposal and title transfer.

 

2. Bargain sale. A person selling a real estate asset can sell it to a charity for a much lower cost than its appraised value. The difference between the market price and the actual sales price can then be claimed as a tax-deductible gift.

 

3. Charitable remainder trust. This tax-exempt, irrevocable trust can be used by a donor transferring a real estate asset. The charitable remainder trust can be used as a funding source, as the donor will receive an income stream from the trust. And when the trust is terminated, the charity receives the remaining assets. It’s a win-win for both parties. The donor receives an income stream, is exempt for capital gains taxes, and receives a tax donation. The charity in turn receives a valuable donation.

 

The most important part of the donation process is performing proper & thorough due-diligence. 80% of real estate donations are turned down by charities, and for good reason, as CCIM’s Duncan Patterson observes. Take the infamous Boy Scouts of America case. The Boy Scouts accepted a real estate donation of an environmentally impacted tract of land outside of Chicago. Ultimately, the land ended up costing the BSA millions of dollars.

 

This type of debacle can be avoided by enacting proper procedures on both sides. Gifting of real estate is not like a standard real estate transaction. Basic legal representation is not enough. Donors should enlist a team that includes an attorney, an accountant, a financial planner, and a certified appraiser. The gift recipient organization should also retain the same professionals, as well as engineers and other specialists that can help to fairly assess the real estate’s value and possible liabilities.

 

Often, charities do not have the time or resources to devote to such a major transaction. In situations like this one, the CCIM Institute can act as a third-party resource representing the best interests of the charity. The CCIM is itself a 501(c)(3) and can manage all aspects of the donation for the charity.

 

Regardless of the donation method, an accurate and thorough appraisal by a certified appraiser is vital to ensuring a fair, low-risk donation. With offices in Indiana and California, Bryant Asset Advisors is equipped to assist charities and donors in Indiana, California, Michigan, and Ohio. Contact us today for a free consultation.

 

CA, OH, IN Inquiries: 858-243-8724

IN, MI, OH Inquiries: 317-730-2423

Email: info@bryantassetadvisors.com