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September 26, 2023 at 6:00 am · · Comments Off on Downtown Portland Class A Office 2023 Mid-Year Update

Downtown Portland Class A Office 2023 Mid-Year Update

By Samantha Marinko | Associate, The Boulos Company

This time last year, I made reference to “the current stalemate in the market,” referring to the minuscule variance in the vacancy rate for downtown, Class A office buildings in the six months prior.

This year, I have a similar report.

In January of each year, The Boulos Company compiles data in order to develop a comprehensive analysis of the vacancy rates of office buildings. In particular, we focus on the 25 Class A office buildings in downtown Portland, which include over 2.4 million square feet of space.

At the time that report was published, the vacancy rate for space on the market for direct lease was 3.75% or 90,527+/- SF. That square footage was derived from five 10,000+ SF spaces and a handful of smaller vacancies.

Currently, the vacancy rate is 3.45% or 83,391+/- SF, and still, that is attributed largely to five 10,000+ SF vacancies.

Though at only 0.3% there hasn’t been a change of much significance with the direct vacancy, the sublease rate reflects a bigger shift, and likely a greater trend that we will continue to see in the coming months and years. The sublease vacancy rate in January was 4.59%; the current rate is 6.37%. Although that’s still relatively low and could be considered healthy, the 1.78% increase in just six months is suggestive of a trend we are likely to see more of.

The lack of a shift in the direct rate is a relatively clearcut story – no absorption of much significance, no new vacancies of much significance.

However, there is even more to the sublease story than the number alone can reflect, because there was in fact some absorption of the sublease vacancy reported in January. 100 Fore Street, for example, had 15,458+/- SF available for sublease as reported six months ago. That space has been leased by a new tenant, therefore removing that SF from the updated total, and yet, the number has still increased quite significantly. That means that the new sublease availabilities are even more substantial than the increased rate reflects.

This will be something to keep an eye on. As the dust from the pandemic continues to settle and leases begin to roll, tenants will be forced to make a decision as to how they consider their space needs and we will see those decisions reflected in the vacancy rates moving forward.

Original article posted July 28, 2023, https://boulos.com/downtown-portland-class-a-office-2023-mid-year-update/?mc_cid=e91f4d71a2&mc_eid=87a9b15008 

July 25, 2023 at 6:00 am · · Comments Off on Maximizing energy tax credits for RE developers

Maximizing energy tax credits for RE developers

By Anita S. Mahamed, Dannielle Lewis, Teri Samples | Partners at Wipfli

The real estate industry can greatly benefit from energy tax credits and the changes made in the Inflation Reduction Act. As sustainability and environmental responsibility become increasingly important priorities, incorporating energy-efficient features into real estate projects not only reduces operating costs but also enhances the property’s value by helping the project stay green.

These recommendations can help real estate developers take advantage of energy tax credits to maximize their returns while contributing to a greener future.

Integrate renewable energy systems
Incorporating renewable energy systems into real estate projects is a great way to leverage energy tax credits. Installations such as solar panels, geothermal heating and cooling systems, wind turbines and energy storage solutions can qualify for significant tax credits. By integrating these systems, developers and real estate owners can reduce utility costs and generate additional revenue through excess energy production.

Additionally, they may be able to sell the tax credits to provide additional equity for their deals. But the requirements for obtaining the credit are complex.

Here is an example of how the credit is calculated: A taxpayer develops a building and has solar units installed on the roof. The cost of the solar panels is $260,000. The solar panels were installed to meet the prevailing wage and apprenticeship requirements. In this situation, the taxpayer will be eligible for a $78,000 tax credit and the solar panels basis that is eligible for bonus depreciation is $221,000.

Explore energy-efficient upgrades and retrofits
Designing energy-efficient buildings can allow for substantial tax benefits. Energy tax credits are available for structures that meet certain energy performance standards and use energy-efficient technologies. Developers should focus on optimizing insulation, lighting systems, HVAC and building envelope components to enhance energy efficiency. By implementing energy modeling and using high-efficiency materials and systems, developers can qualify for tax incentives.

The incentives aren’t limited to new construction. Real estate developers can take advantage of energy tax credits through retrofits and upgrades. Upgrading existing buildings with energy-efficient windows, lighting, HVAC systems and insulation can make them eligible for tax credits.

These particular improvements may allow developers and real estate owners to take advantage of either a Sec. 179D tax deduction or a Sec. 45L credit. As an example, in July 2023, a developer created a new, four-story, 208-unit apartment complex. During 2023, it reached full occupancy and the property leased each unit. The apartment building also qualified for the federal Zero Energy Ready Home program and met the prevailing wage requirements. This means that they are eligible for a Sec. 45L credit of $5,000 per unit, equaling a total of $1,040,000.

How Wipfli can help
Navigating the energy tax credits may require the assistance of tax professionals and sustainability consultants. Wipfli advisors can provide guidance on eligibility criteria, documentation requirements and optimal strategies to maximize tax benefits. We can also help with energy modeling, project certification and ensuring compliance with applicable regulations. Most importantly, we can help you determine the best use of your equity for your deal before you spend it, bringing our specialized tax knowledge to help guide your decision-making to support your business through changing environmental policies.

Learn more about our tax services supporting the construction and real estate industries.

Sign up to receive additional tax and legislative content in your inbox.

 

Original article posted on June 8, 2023: https://www.wipfli.com/insights/articles/cre-real-estate-developers-take-advantage-of-energy-tax-credits

June 27, 2023 at 6:00 am · · Comments Off on Maine’s Housing Shortage Conundrum

Maine’s Housing Shortage Conundrum

By John Finegan | Associate Broker, The Boulos Company

Like many states across the country, Maine has a housing crisis. The ripple effects of COVID and the needs of asylum seekers have created an influx of people coming to Maine. Simultaneously, the average number of people per household is shrinking, and this exacerbates the demand for additional housing units. New construction is not going to solve the problem quickly, as construction hard costs are at all-time highs and developers find themselves quickly buried in complex bureaucratic processes and the attendant soft costs, which make construction harder and more expensive. Meanwhile, interest rates are the highest they’ve been since 2002, both increasing the cost of construction and decreasing what a buyer can pay for a home.

The housing crisis is a supply and demand issue. We have a lot of demand and not enough supply, and when that happens prices go up. MaineHousing has estimated that Maine needs 20,000 – 25,000 new housing units to meet demand, 9,000 in the Portland area. Until supply and demand are in equilibrium, we will continue to see housing prices increase.

The only way to end our housing crisis is to build more housing.

HOW DO WE BUILD MORE HOUSING?
Housing is built by for-profit developers (FPDs) and nonprofit developers (NPDs). NPDs finance their developments by leveraging federal, state, and local funds, including the low-income housing tax credit program. NPDs typically build affordable housing, creating housing for some of the most vulnerable people in our community. NPDs are limited, however, both by the amount of available funding and because the process for receiving those funds and tax credits is complex and requires a sophisticated developer.

To build more affordable housing, voters need to support policies and politicians that allocate more funds to NPDs as they did this past November across the country.

For profit developers typically do not take advantage of public funds. FPDs assess whether a project is worthwhile based on construction inputs and projected revenue. Construction inputs include hard costs (such as raw materials, labor, and land) as well as soft costs (such as engineering, permitting, legal, and accounting fees). Projected revenue is determined by estimating what a project will sell or lease for once completed. FPDs put these numbers into a proforma to estimate a return on investment for the project.

FPDs are constrained by the realities of the marketplace. They need to be able to give their financiers—banks, pension funds, private equity investors—an adequate return on their investment based on the risk profile and other investment alternatives. If they can’t, the project “doesn’t pencil,” they can’t get funding, and the project doesn’t get built.

To build more housing by FPDs, construction costs need to go down and/or projected revenue needs to go up.

HARD COSTS OF CONSTRUCTION
On average, the hard costs of construction increased 35% from January 2020 to September 2022. The increase in the cost of housing in new developments can be traced directly to this. Additionally, the volatility in hard costs has created a great deal of risk for developers, contractors, and sub-contractors who make decisions based on quoted prices with little assurance that those quote prices will be accurate once the costs are incurred. A labor shortage has also made staffing construction sites difficult. The unknowns of future construction prices and hard costs, coupled with uncertainty of labor, adds risk to any development which have killed several projects in Southern Maine over the past two years.

CONSTRUCTION HARD COSTS OVER TIME

The only way to lower these hard costs—or reduce their escalation—is for supply chains to normalize. In Q3 of 2022, hard cost escalations slowed and a recent study found that escalation should stabilize to 2–4% annual increases by 2023–2024. There is not much that we as individuals or as a community can do to control construction hard costs.

SOFT COSTS OF CONSTRUCTION
Soft costs are construction costs that are not related to raw materials, labor, or the physical building of the project. They include architectural drawings, environmental certifications, engineering studies, financing, legal fees, and any regulatory costs. Many of these soft costs are necessary. You can’t build a building without architectural plans, for example. However, some soft costs can be altered through policy. Fee-in-lieu costs, permitting fees, impact fees, etc. are government imposed costs that can be reduced or altogether removed to lower construction costs and allow more developments to be built. The June 2022 report by the National Multifamily Housing Council found that regulations imposed by all levels of government account for an average of 40.6% of multifamily development soft costs. None of this goes into actually constructing the units.

In Portland, a mandatory inclusionary zoning ordinance requires developers to make 25% of units in any 10+-unit development affordable, or pay a fee-In-lieu of $162,339 per affordable unit. This is effectively a tax of $40,585 per unit when the 25% requirement is spread across the entire project. It’s a prime example of how unnecessary regulatory costs can kill a housing project and discourage development.

The recent increase in interest rates also plays a substantial role. Higher interest rates increase the rates on construction loans, reduce the affordability of homes for buyers, and drive up the rents required to support a project.

LESS STICK
Developing housing is a numbers game, and projects must pencil to be built. Hard costs have gotten more expensive, but those are market realities and out of our control. Some soft costs, on the other hand, are unnecessary costs associated with regulations. Reducing or removing them can make housing creation less expensive and trigger new construction in the market.

Portland, Brunswick, Yarmouth, Freeport, Scarborough, South Portland, and Falmouth all have some form of housing regulation, either in place or being discussed. These policies have traceable, quantitative consequences, which make soft costs more expensive, killing projects. They also have a qualitative impact. Nationally, 47.9% of developers said they won’t even consider projects in jurisdictions with inclusionary zoning requirements, while 87.5% avoid working in jurisdictions with rent control.

MORE CARROT
Liberalization of zoning laws to allow for more density, taller height restrictions, smaller off-street parking restrictions, smaller impervious surface restrictions, and smaller setbacks allow developers to get more units onto the same amount of land. More units mean more revenue, and that means a greater likelihood that a project will make economic sense and be built. The Boston Fed’s New England Policy Center said that allowing more density, combined with relaxing height restrictions is the “most fruitful policy reform for increasing supply and reducing multifamily rents.” Economists from UCLA and the Legislative Analyst’s Office of California found that building new market rate housing lowers the cost of housing in cities for everyone.

In April 2022, Maine passed LD 2003 which will go into effect in July 2023. Once in effect, the bill will allow property owners to build accessory dwelling units in residential areas and allow up to two units on a lot zoned for single-family housing. For larger communities with designated “growth areas,” up to four units could be allowed. Additionally, the bill allows for a 2.5x density bonus for developers who hit affordability requirements.

It will be interesting to see how LD 2003 plays out in 2023. It may encourage developers to reevaluate developments based on the new density, and those developments may prove economically feasible and get built.

CONCLUSION
Westbrook, a town that has been welcoming towards developers, currently has 1,301 housing units in planning review. As of November, 2022, in Portland, where the fee-in-lieu effectively taxes 10+-unit developments, there are under 300 housing units in planning review. A clear slowdown has occurred since Portland increased its inclusionary zoning requirement in 2020. What does this tell us? Housing creators go where they’re wanted and where there are fewer economic barriers. If we want to be proactive in ending our housing crisis, local governments need to enact policies that incentivize development, not make it more expensive.

To end the housing crisis, more housing must be constructed. For more housing to be constructed, many things have to fall in line for projects to start making financial sense. Many of these factors are out of our control, but enacting policies that incentivize development is not.

Original article posted March 3, 2023, https://boulos.com/maine-housing-shortage-conundrum/

May 9, 2023 at 6:00 am · · Comments Off on Listen Up! The May 2023 Episode of the “MEREDA Matters” Podcast is Now Available!

Listen Up! The May 2023 Episode of the “MEREDA Matters” Podcast is Now Available!

A Conversation with Brit Vitalius, Vitalius Real Estate Group and Jessica James, Longfellow Communications

Brit Vitalius, President of Rental Housing Alliance (RHA) and Principal at Vitalius Real Estate Group, and Jessica James, Principal at Longfellow Communications, sit down with MEREDA Board Member Gary Vogel and MEREDA President Craig Young for the fifth episode of MEREDA Matters – the podcast that puts you in the room with the people who are driving responsible development in Maine.

Vitalius and James discuss the RHA’s Rent Control Amendment, a grassroots effort to enact a critical change to Portland’s rent control that would allow landlords to reset the rent in vacant units to market rate. The pair discusses how the amendment, which is on the upcoming June 13th ballot, would have a significant positive impact on both existing tenants and rental housing providers. Vitalius shares the history of the Rent Control ordinance in Portland’s elections and outlines some of its unintended consequences. For example, since the ordinance passed in 2020, many tenants have seen more rent increases as landlords try to keep pace with the market. James discusses the issue of having voters trying to parse complex policy and the burden it places on rental housing providers. Vitalius explains how the Rent Control Amendment will maintain all the current protections for tenants and argues it is what’s best for housing development in Portland. The group discusses the problems with the referendum process in Portland and finishes the discussion by urging people to get out and vote on June 13th.

Is it Brit or Jessica who enjoys a dirty vodka martini at the end of a busy day? Listen to the conversation to find out! https://mereda-matters.simplecast.com/

Catch up on past episodes while you’re there!

 

The MEREDA Matters podcast is sponsored by NBT Bank and Landry French Construction. Additional sponsors include Bangor Savings Bank, Clark Insurance, and The Boulos Company. A new episode will be released each month and each will feature new voices from the real estate and development industry.

Eager listeners can find the MEREDA Matters podcast episodes on Apple, Spotify, or their regular podcast source. The episodes can also be found on MEREDA’s website www.mereda.org.

May 2, 2023 at 6:00 am · · Comments Off on The 2023 Maine Capital Markets Outlook

The 2023 Maine Capital Markets Outlook

By Chris Paszyc, CCIM, SIOR | The Boulos Company – Partner, Broker

2022 was the tale of two halves.

I harken back to the 2017 Superbowl where the Patriots were down 28–3 in the first half. Unfortunately, in this analogy, we CRE professionals are Atlanta, and we all know how that story ends.

The first half of 2022 was red-hot: investment sale volume tripled, compared to the first half of 2021. These phenomenal results in Maine mirrored a national trend. However, just as in the storied Falcons/Pats game, this unexpected trend did not continue, and eventually fate, in the form of rising interest rates and recession fears, flipped the game, just like the Pats.

In this report, I’ll provide some quantitative and qualitative analysis to explain why this happened and offer some predictions on what the future holds. Let’s hope this article has some shelf life, and that these observations age better than the proclamations by the pundits who said the game was over at halftime.

For perspective, interest rates in the United States averaged 5.43% from 1971 until 2022, reaching an all-time high of 20% in March of 1980 and a record low of 0.25% in December of 2008. In September 2022, The Fed raised the federal funds rate by 75 bps to 3.0%–3.25%, the third straight three-quarter point increase, pushing borrowing costs to the highest since early 2008.

 

THE GLORY DAYS:
In case you need a reminder that you should have refinanced or sold in 2021 (courtesy of NorthMarq).

According to TradingEconomics.com, the federal funds interest rate in the United States is expected to be 4.50% by the end of Q4 2022. In the long-term, the United States Fed Funds Rate is projected to trend around 4.75% in 2023 and 4.00% in 2024.

The cost of debt has risen 18–23% in 2022, with another 5–7% increase in 2023, for good measure, before rates are projected to drop in 2024. Assuming investors will demand similar returns, we see downward pricing pressure reach 10–15% over the next two years from the peak of 2021.

There will continue to be availability of investment product in 2023, assuming sellers accept the new market realities. We expect steady activity, with investors capitalizing on an opportunistic environment. In summary, if you’re a commercial real estate owner or investor, it’s time to consult with us to obtain an updated opinion and finetune your approach. The Boulos Company looks forward to working with you to develop and execute your real estate strategy in 2023.

 

Original article published February 28, 2023, https://boulos.com/2023-capital-markets-update/

July 14, 2020 at 8:37 am · · Comments Off on The Outstanding Seven: MEREDA’s 2019 Notable Project Recipients

The Outstanding Seven: MEREDA’s 2019 Notable Project Recipients

PORTLAND, ME – July 13, 2020 –  Every spring, MEREDA recognizes the most noteworthy and significant Maine commercial development projects from the previous year, all of which embody the Association’s mission to support responsible development.

In keeping with tradition, MEREDA’s Board intended to honor the award recipients at the 35th Anniversary Gala. Originally scheduled for the end of March 2020, the Gala was postponed indefinitely due to COVID-19. Though they may have their formal award delayed, these projects have only gained practical significance as they serve their communities–especially under additional strain and stress of these unprecedented times.

In 2019, these seven projects distinguished themselves in design, construction, land-use, and added benefit to their communities.

Hannaford Center, Good Shepherd Food Bank (Hampden) which renovated the former Bangor Daily News printing press building, allowing the Food Bank to purchase and distribute more food, more frequently and efficiently to northern, central, and Downeast Maine.

Cape Arundel Cottage Preserve, Arundel-Kennebunkport Cottage Preserve LLC (Arundel) for creating an overwhelming sense of place and cohesive design on a 300-acre project, using sustainable practices and natural landscapes.

62 Spring Street, Auburn Housing & Anew Development (Auburn), for its diversity and vibrancy, epitomizing the “Smart Growth” concept which successfully connects the dots between affordable housing, city walkability, economic energy, and downtown growth.

Founders Place Campus, Bangor Savings Bank and CJ Developers (Bangor), for the creative and extensive implementation of environmental systems and capacity to spur talented business growth to Bangor.

Southgate Avesta Housing (Scarborough), for the preservation and creative renovation of a 215 year-old farmhouse as a vibrant community of 38 safe, quality, and affordable homes through the incredible support of partners and donors.

Station Square, Great Falls Construction (Gorham), for the thoughtful and intentional preservation of Gorham’s historic identity as a railroad village, with equal emphasis on the community invitation to work, live, and play while employing Mainers.

WEX Global Corporate Headquarters, Jonathan S. Cohen & 0 Hancock Street LLC (Portland), for a statement of responsible development, innovation, and modernity, using lean construction principles kept work flowing and the project on track, and continuously emphasizing sustainability and energy efficiency.

MEREDA thanks its Membership for their continued commitment to responsible development in Maine, and looks forward to formally and tangibly recognizing these Notable Projects when it is safe to do so. In the meantime, each project will be recognized with its own article in the Maine Real Estate Insider e-newsletter published by Mainebiz, running Summer of 2020.

For more information on these impressive projects, please click here.

 

 

 

 

 

 

 

 

 

June 30, 2020 at 10:07 am · · Comments Off on Maine Issues COVID-19 Guidance for Town Meetings

Maine Issues COVID-19 Guidance for Town Meetings

Throughout the pandemic, MEREDA members have navigated participating in various town public proceedings conducted virtually. Now, with the opening of municipal buildings and the need to accommodate municipal matters requiring a public vote by town residents, Governor Mills and the Maine Department of Economic and Community Development (DECD) have released guidelines for holding town and public meetings during COVID-19, consistent with the Governor’s Executive Order 56 (Order 56).

For developers with projects that require ordinance amendments or contract zone approvals at town meeting, these provisions will affect how the town conducts the debate and vote on those matters.

The DECD guidance offers three options to allow towns to hold public meetings safely and effectively. The key requirements of each option are:

  1. Indoor or outdoor town meetings of 50 or fewer individuals. Under this option, town officials must limit the number of individuals that gather in a shared space. The town must have a backup plan to ensure that voters are not turned away in the event that the total number of participants exceeds 50, including voters, clerks, and town officials. Microphones should not be passed from person to person, and ballots should be collected by a ballot clerk with a collection receptacle rather than passed from hand to hand.
  1. Drive-in town meetings. If the number of attendees is anticipated to exceed 50 individuals, the DECD recommends organizing a drive-in meeting where individuals can remain inside their vehicles in an outdoor space where vehicles can be spaced a minimum of six feet apart. The outdoor space should have a clear entrance where voters check in upon arrival for voting, and voting should occur by distributing colored cards of sufficient size to allow “show of hands” voting through vehicle windows. Towns should ensure that there are appropriate social distancing procedures in place if an individual needs to exit their vehicle to use shared public facilities, such as restrooms, or to offer public comment.
  1. Indoor town meetings using multiple rooms within one facility. If the number of attendees exceeds 50 individuals, towns may choose to hold a meeting in different rooms within one facility, such as a school. Organizers should utilize technology to maintain the continuous ability for all voters in attendance to hear all discussions and motions, and to allow real-time voting in each meeting room. A deputy moderator should be present in each meeting room to facilitate voting. Gathering in common areas prior to or after the meeting should be discouraged.

The DECD also highlights a number of common practices that municipalities should follow across all three options described above, including:

  • All individuals should maintain six feet of distance at all times.
  • All individuals should wear face coverings at all times, but at a minimum during any interaction with an individual outside of their household group, such as during check-in. While the use of face coverings is strongly encouraged, officials may not turn away participants for failing to comply with the face-covering recommendation.
  • Individuals checking in voters and collecting and distributing ballots should wear a face shield in addition to a face covering.
  • Towns must provide a separate location for non-voters or members of the public to view and listen to the proceedings.
  • Towns should consider putting restrictions in place so that individuals who are at a higher risk of illness-e.g., those over age 65 or those with underlying medical conditions-are not responsible for checking in voters and/or collecting ballots. Towns should also train election workers on hand hygiene, social distancing guidelines, proper use of personal protective equipment (PPE), and cleaning protocols.
  • If a town hosts a meeting indoors, then it must provide a separate space for isolating an individual who becomes ill during the meeting. Towns should also take steps to improve indoor air ventilation and prop open doors where possible to decrease the spread of germs.
  • In general, meeting organizers should take steps to notify the public of all policies and procedures through signage and other means of communication, modify traffic flows and eliminate lines, and provide adequate supplies for personal hygiene, including hand sanitizer and disinfecting soap.

If a municipality cannot comply with the gathering protocols outlined in the DECD guidance, the governor’s executive order also authorizes municipal officials to hold a vote on a matter at the ballot box instead of at an in-person town meeting.

June 10, 2020 at 11:15 am · · Comments Off on The 2020 MEREDA Index: A Look at the 2019 Data and a Review of Current Conditions

The 2020 MEREDA Index: A Look at the 2019 Data and a Review of Current Conditions

On Thursday, June 4th, MEREDA unveiled its 2020 MEREDA Index, at a free-to-attend virtual event to discuss the 2019 data, and apply that knowledge to today’s constantly-shifting landscape and unpredictable future.  The event had nearly 150 registrants. In case you missed it, you can watch, or watch it again, here! 

This most recent release provides a review of 2019’s full calendar year. However, with the COVID-19 pandemic striking right before the 2019 Index unveiling, even recent history lost importance as global focus shifted instantly to the uncertain future. Insightfully, MEREDA leadership pivoted just as quickly, adding a preview of 2020 based on first quarter data.
This year marks the first year that we have revised the timing of the Index so that an entire calendar year is presented when the Index is unveiled.   The current MEREDA Index contains a measurement and presentation of the real estate market in Maine, and its various components for all of 2019.   Rather than presenting the Index through the third quarter of the preceding year at our annual January Forecast Conference, and then producing a second edition with a full calendar year of data, the Index is now presented once a year in the spring, with an entire year of data.

Because of the great changes that have occurred in a very short period of time beginning in March 2020, and because of the relevance of the 2020 data showing the initial impact of the virus, we asked Dr. Charles Colgan, the economist who prepares the Index, to include some first quarter 2020 data in a supplement to the Index that is included in the index presentation.

We have many people to thank!  Firstly, thank you to those involved in providing commentary found in our Print Edition and accompanying Video, which can be accessed on our website.  Providing insights into the residential sector was Mark Small of Landmark Realty, Jessica Estes of The Boulos Company spoke about the commercial sector, and Patrick Ducas of Ducas Construction spoke on construction.

Thank you also to those folks participating in our June 4th webinar.  In an effort to broaden the discussion even further, we asked additional MEREDA members to provide supplementary perspectives on the residential, commercial, and construction sectors. The webinar included Tim Soley of East Brown Cow discussing the commercial sector, Dava Davin of Portside Real Estate Group covered the residential sector, and the construction sector was covered by Kevin French of Landry/French Construction.

Many thanks also, to MEREDA president Gary Vogel, for taking the lead on the June 4th webinar as moderator, and to Dr. Charles Colgan, for always providing an incisive analysis for our members.

May 12, 2020 at 9:44 am · · Comments Off on Construction Businesses: Navigating State and Federal COVID-19 Workplace Safety Requirements

Construction Businesses: Navigating State and Federal COVID-19 Workplace Safety Requirements

On April 28, Governor Mills released Restarting Maine’s Economy, which lays out a plan for re-opening non-essential businesses. Businesses that were previously deemed essential, including construction businesses, may continue operations – the Governor’s new plan does not impact them.

However, as the pandemic evolves, the State is shifting its attention to COVID-19 prevention and workplace safety. In light of this, this is a good time for construction businesses to review their workplace safety protocols to ensure compliance with the latest state and federal guidance on COVID-19 prevention.

Below are the compliance checklists and guidance documents that construction businesses need to follow as they continue operations and begin the summer construction season.

Maine

  • Department of Labor: Guidance for Construction Employers in Maine for Addressing COVID-19. This Department of Labor (DOL) guidance document provides recommendations and suggestions for construction businesses to implement COVID-19 prevention measures, including those in the DECD checklist. This DOL guidance includes, and overlaps with, much of the federal Occupational Safety and Health Administration (OSHA) recommendations for COVID-19, discussed below.

Federal

  • OSHA General Guidance: Preparing the Workplace for COVID-19. This comprehensive general guidance document covers OSHA recommendations for COVID-19 prevention for all business types.
  • This document classifies all job types for risk of COVID-19 infection. Most construction workers will fall under the low-risk category. OSHA has provided a useful one-page reference guide to understand worker classifications.  Construction businesses are expected to review the classifications and implement risk-appropriate controls and prevention measures.
  • OSHA Construction Business Guidance: COVID-19 Guidance for the Construction Workforce. This one-page guidance document provides an overview of the prevention controls and measures that all construction businesses need to implement based on the general guidance above.

To ensure full compliance, construction businesses are advised to refer to all four sets of guidance.  While there are overlaps among them, each one of them contains information that pertains to reducing workers’ risks of contracting COVID-19 on the worksite.

April 21, 2020 at 6:45 am · · Comments Off on Pandemic Leaves Landlords in a Difficult Position

Pandemic Leaves Landlords in a Difficult Position

by: Gary D. Vogel, Attorney, Drummond Woodsum, MEREDA President

The coronavirus pandemic is affecting everyone.  Many businesses are shut down, or are minimally operating.  The CARES Act recently adopted by Congress with over two trillion dollars of emergency funding will provide a lifeline for many businesses.   Especially important is the SBA Payroll Protection Program (PPP) loans that provide forgivable loans for an amount of up to 8 weeks payroll for qualifying businesses.   The program has proven so popular that as of April 16th, applications for the entire $349 Billion of PPP funding have been made and the SBA announced that it would not accept any more applications, unless Congress approves additional funding.    While the PPP loan program is enabling many business to survive, and to pay their staff, for many companies the PPP isn’t a good fit, because their business is too big, may not have enough payroll, compared to other essential expenses or may need more than 8 weeks of payroll covered in order for them to survive.

Left out of the discussion at Congress is the impact the shutdown is having on landlords.   MEREDA members include many residential and commercial landlords, and MEREDA has both heard from and reached out to members to be able to understand what is happening to landlords in this pandemic.    Property owners are businesses that are frankly essential to our economy, providing the real estate for businesses to operate.  Most property owners will not qualify for PPP loans, since they tend to not have employees, or if they do, the payroll cost is a very small percentage of their operating expense, when compared to taxes, mortgage payments, utility charges, insurance and the like.   The impact of the PPP loans and the ability of businesses receiving those loans to keep employees paid, as well as the impact of enhanced unemployment benefits for unemployed workers has enabled most residential tenants to pay their rent, and residential landlords in Maine in an informal survey report receiving 80 to 90% of April rent.   Commercial landlords report lesser amounts of April rent payments.   In addition, on April 16, Governor Mills issued an executive order prohibiting or limiting evictions for a period extending until 30 days after the expiration of the Covid-19 State of Emergency.     While few if any landlords will want to be evicting tenants who cannot pay rent due to disruptions caused by the coronavirus, many landlords are concerned that the prohibition on evictions may be viewed by tenants as a basis for not paying rent.    While the Governor’s executive order makes it clear that the order does not relieve tenants of their obligation to pay rent while the tenant continues to occupy the real estate, it does not address what constitutes “occupation of the real estate” in this circumstance and leaves several questions unanswered.

What should landlords be doing when faced with nonpayment of rent by tenants?  

  1. First and foremost, landlords should talk to their tenants to find out what tenants can do and what relief tenants need so that the landlord can understand what rent payments they can expect during this period.  Every situation is somewhat different, and there is typically no “one size fits all” solution.   Tenants need to understand that the rent obligation doesn’t go away just because they are unable to operate, unless the lease so provides, and that is highly unusual.   Tenants also need to understand that the rent obligation doesn’t go away during the period of time that evictions are limited.     Landlords have fixed expenses that don’t stop just because a business is temporarily closed.   If a tenant says that they are giving up and going out of business that is very different from a tenant who is just trying to weather the storm and to reopen when they are able.   If a tenant is going to close up for good, the Landlord should get the tenant to surrender the space back to the landlord, so that the landlord does not need to evict the tenant to be able to have the space available to rent to others.  This is especially important while the courts are closed to evictions.
  1. Landlords should find out what federal resources the tenants have been able to obtain, and whether the tenants plan on using some of those funds to pay rent.   Under the PPP, businesses can use 25% of the funds to pay rent, utilities, debt service payments and some other expenses while still having 100% of the loan remain forgivable.   For tenants that have not applied for PPP loans, the tenants should be alerted to do so if and when more funding is available.
  1. Once the Landlord understands the shortfalls in rent payments that the tenant anticipates, the landlord should talk to its lenders and explain the situation that the landlord is in.   Some landlords may have enough tenants who are paying rent to enable them to pay their mortgages; others may not.   Lenders understand what is happening and will work with borrowers.    Lenders will Lenders need current information in order to help.  That is part of the reason why getting good information from tenants is important.
  1. If necessary, Landlords can also apply for Loans using the SBA or FAME loan programs.    These loans are not forgivable, and landlords will not want to take on additional debt to provide support to their tenants, but for some there may be no other options.
  1. If Landlords know that Tenants will be unable to pay rent for the duration of a shutdown, the landlord may want to enter into a lease amendment with the tenant to provide when the unpaid rent will be due, which may have the unpaid rent payable over a period of months together with the rent due for those months.  For example, the deferred rent could be repayable 1/12 each month for a period of 12 Months once the shutdown ends, or 30 days after the shutdown ends, with the current rent for that month.  It is better to have an enforceable agreement that everyone can live with, rather than just leaving unpaid rent with a tenant in default.  This is better for the landlord, and it is also better for the tenant, so that the tenant can have an arrangement that is workable from a cash flow perspective.

In summary, landlords are placed in a difficult situation as a result of the impact of the coronavirus.   While more PPP funding may be available to tenants who may be able to use those funds to pay rent, the ability and willingness of tenants to use these funds for rent payments may vary widely, and landlords may not see a great deal of relief, directly or indirectly, from the CARES Act or from future federal relief.    Landlords need to work proactively with tenants and lenders to make sure that they can weather the storm.  If the coronavirus causes the real estate market to suffer greatly, that will only make recovery more difficult for everyone, including property owners.

Join MEREDA for a Virtual Event focusing on this topic on Friday, April 24, 2020 beginning at 9:00 AM.  The event is FREE of Charge, but registration is required.  For more information visit our Events Page at www.mereda.org. 

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