May 2023

We Want All of Your Companies

Interest Rates Bring Rise in “Subject-To” Purchases

  • The debt markets for commercial real estate have significantly stiffened in the last year.
  • As a result, we have seen a rise in “subject to” acquisitions.
  • While there are benefits, these transactions carry significant risk to the buyer and seller.

I do not have to tell the people who are reading this blog that these are weird times to be in commercial real estate. Debt markets are not quite frozen, but certainly not flowing easily. And equity markets are similar. Of course, much of this is because of the sharp rise in interest rates the last 18 months. Lets hope that the Fed follows through and at least keeps interest rates level, if not lowers them, in the next few months.

All of this has slowed the acquisition markets significantly. But as a result, we are starting to see the rise in a unique acquisition structure – the “subject to” purchases. So that’s what we are going to talk about this week.

What is a Subject-To Real Estate Acquisition?

A subject to real estate acquisition is a unique type of transaction where a buyer purchases a property “subject to” an existing mortgage or loan. In this arrangement, the buyer takes over the property and assumes responsibility for making mortgage payments, while the original loan remains in the seller’s name. It offers both benefits and risks that buyers should carefully consider.

Obviously one significant advantage of a subject to acquisition is that it allows buyers to acquire properties without needing to secure new financing. In today’s commercial real estate environment, with debt as tight at it is, this can be a very welcomed advantage. The debt on the property is already in place.

Another benefit of subject to acquisitions is the potential for consistent, favorable loan terms. As discussed above, interest rates have risen sharply in the last 18 months. Acquiring subject to, the buyer already knows the terms of the debt and it is likely on better terms than the buyer could currently get in the market. Such terms can significantly enhance the buyer’s financial position and increase their return on investment.

Furthermore, subject to acquisitions can present excellent investment opportunities for real estate investors. Investors can acquire properties with minimal upfront costs. They can also potentially close quickly by not having to wait on the lender to secure debt.

There are Significant Risks to Both the Buyer and Seller


However, subject to acquisitions also carry certain risks that buyers should carefully consider before entering into such transactions. One significant risk is the possibility of the lender exercising a due-on-sale clause. Almost all loan agreements include a due-on-sale clause. This clause allows the lender to demand full repayment of the mortgage upon the transfer of ownership of the property. If the buyer fails to satisfy this requirement, they may face foreclosure or legal action. To mitigate this risk, buyers must conduct thorough due diligence on the seller’s mortgage and financial situation to ensure that the lender is unlikely to enforce the due-on-sale clause.

Additionally, subject to acquisitions require buyers to have a high level of trust in the seller. Since the original mortgage remains in the seller’s name, it retains the legal and financial obligation to repay the loan. If the seller violates the loan agreement, the lender could foreclose on the property, leaving the buyer in a very bad position.

The seller is also taking a significant risk. While the buyer will be paying the mortgage after the sale, the seller still has the legal obligation to pay it. As a result, if there is a shortfall after foreclosure, the lender may be able to come after the seller for that shortfall. It is extremely important, therefore, for the buyer and seller to have a very clear purchase agreement that outlines the responsibilities and duties of the parties.

In conclusion, subject to real estate acquisitions offer unique opportunities for buyers to acquire properties without securing new financing and benefit from potentially favorable loan terms. They provide flexibility, allow for quick portfolio expansion, and can be financially advantageous. However, buyers and sellers should both be aware of the risks associated with assuming an existing mortgage, such as the possibility of the lender enforcing a due-on-sale clause and the need for trust and vigilance in monitoring the seller’s mortgage payments. Engaging professional legal counsel and conducting thorough due diligence are essential steps to ensure a successful subject to acquisition.

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Chicago Bean Image

Tribute to a Fallen Legend

  • Last week, the commercial real estate world lost a giant when developer and investor Sam Zell died.
  • Sam could be controversial, but he was a true trendsetter in the real estate world.

This is definitely a different type of article this week. But I think its appropriate. Because last week we lost a giant in the commercial real estate world. And not only was he a giant of the commercial real estate world, but he was also a fellow University of Michigan alum.

Sam Zell was an icon in the real estate world. So lets talk about him this week.

Sam’s Background was Impressive

In the realm of real estate, few names evoke as much admiration and respect as Sam Zell. With an entrepreneurial spirit and an uncanny ability to identify lucrative opportunities, Zell left an indelible mark on the industry.

He was born on September 28, 1941, in Chicago, Illinois, and grew up in a modest family in the Chicago suburbs. His parents were Polish immigrants who instilled in him a strong work ethic and resilience. Zell’s interest in entrepreneurship and finance emerged early on, and he demonstrated his acumen by starting a business at the age of 12, buying and selling bikes. He then attended the greatest university in the history of the world – the University of Michigan. After graduation, he stayed in Ann Arbor and began his real estate career right away. He began by managing the 15 unit apartment building he lived in for free rent. He then won over other management contracts from other apartment communities – all the while going to law school at Michigan. By the time he graduated law school, he and his business partner were managing over 4000 units.

After getting his law degree, in 1968, Zell co-founded Equity Group (EGI), a private investment firm that became the foundation of his success. Zell’s early ventures included purchasing distressed real estate properties and turning them into profitable assets. He understood the value of contrarian investing and possessed a knack for identifying undervalued assets in distressed markets. Indeed, he famously called himself a “Grave Dancer” because of how he searched for underperforming assets to turn around.

It was in the 1970s that Zell made his breakthrough in real estate. Recognizing the potential in the emerging market for commercial real estate, he founded Equity Office Properties Trust (EOPT) in 1976. EOPT became the largest office real estate investment trust (REIT) in the United States, owning and managing a vast portfolio of prime office buildings.

Zell’s Real Estate Climb was Incredible

Sam Zell’s impact on the real estate industry is undeniable. With a shrewd investment strategy and an unwavering belief in contrarian thinking, Zell has built a remarkable legacy of successful real estate investment and development. Let’s explore some of the notable highlights of his career.

Zell’s journey in real estate investment began in the 1970s when he identified a market opportunity in distressed properties. His ability to recognize undervalued assets and turn them into profitable ventures set the stage for his future success. Notably, Zell’s Equity Office Properties Trust (EOPT) became a pioneering force in the office real estate sector, acquiring and managing a vast portfolio of prime office buildings across the United States.

As Zell’s reputation grew, so did his ambition. He expanded his investment horizons beyond office properties and ventured into various real estate sectors, including residential, industrial, and retail. One of his notable acquisitions was the Manufactured Home Communities (MHC), making him a prominent player in the mobile home park industry. Zell’s strategic diversification enabled him to capitalize on emerging trends and seize opportunities in different markets.

Zell’s reach extended beyond the borders of the United States. His investment prowess and entrepreneurial spirit led him to explore international markets. Notably, he invested in real estate projects in Mexico, Brazil, and Europe, further expanding his global footprint. Zell’s ability to navigate unfamiliar territories and adapt to diverse market conditions underscored his versatility and resilience as a real estate investor.

Zell’s career has not been without challenges. The financial crisis of 2008 tested his resolve, but he emerged from the turmoil with notable successes. In 2007, he orchestrated the sale of EOPT, earning a substantial profit and cementing his reputation as a master dealmaker. Despite economic downturns and market fluctuations, Zell’s strategic vision and calculated risk-taking have consistently positioned him as a formidable force in the real estate arena.

Zell was also very philanthropic. He has made large donations to establish programs at the University of Michigan, Northwestern University, and Penn. He also was a large donor to the arts and many causes in Israel.

Sam Zell’s history of real estate investment and development is a testament to his business acumen and entrepreneurial spirit. From distressed properties to global ventures, he has proven time and again his ability to identify opportunities and transform them into profitable ventures, leaving an indelible mark on the real estate industry.

Tribute to a Fallen Legend Read More »

Property tax protest image

Deadline for taxpayers to protest property values May 15, 2023

Click on Play Button to Watch Sean Bukowski Interviewed by CBS News-Austin


Time is running out to protest your property value in hopes of lowering your property taxes. May 15 is the deadline for most homeowners to file their intention to protest. If you haven’t yet, you’ll want to get online and submit your protest by 11:59 p.m. Monday.

Marya Crigler is the Chief Appraiser for the Travis Central Appraisal District.

“Always get in line online, do it early, and then we can get you to have a discussion with an appraiser. If you don’t come to a resolution with the appraiser, you can come back to a formal hearing. You’ll be scheduled for a formal hearing by our appraisal review board,” she explains.

While it may seem like a complicated process, real estate attorney Sean Bukowski, of Bukowski Law Firm, encourages everyone to file protests. He says homeowners should start their protest by checking these boxes, “incorrect appraised value,” and “market value unequal compared with other properties.” In some counties, they’re one box and in others, they’re two separate boxes.

“I don’t think there’s any real negative to protesting,” explains Bukowski, who adds, you can always choose to withdraw your protest if you change your mind. Rarely can you still protest if you miss the initial filing deadline of May 15?

Bukowski’s firm helps commercial property owners with about 250 protests every year. If you ask him what works he’ll tell you—it’s data.

“You’re not going to get very far if you go in and say, ‘My house is older. It’s not in as good of shape as the one next door, so I think it should be lower. What you want to do is say, ‘My house is lower and because of that it should be here’s some analysis that shows it should be 10% of a reduction from the house next door.’ That’s going to influence the appraisal board a lot more,” Bukowski explains.Deadline for taxpayers to protest property values May 15

He says it’s also important to consider how much the real estate market has changed due to interest rates and values going down.

“They might have increased the assessed value of your property, but when you go look at some of the reports for what the market is like—it’s down. It’s down from last year. It’s down from the midpoint of last year. It should not be increasing. It should be holding steady or down,” Bukowski adds.

You might consider hiring a professional to help protest your valuation if you feel the property is significantly overvalued or if you’re in the process of building your home. If you take issue with the actual tax bill, cities counties, and school districts all play a part.

“If you want to protest the amount of taxes that you’re paying, that’s the discussion that happens later in the season with the taxing entities when they start setting their budget and their tax rate,” Crigler explains.

The actual savings come with a homestead limitation which caps taxable value increases at 10 percent, but homeowners are only eligible for that this year if they lived in their home on January 1, 2022. If you have not applied for a homestead exemption for your primary residence, click here to learn more about Travis County and here for the same information from Williamson County.

To learn more about effectively protesting your property’s value, click here. If you choose to submit your protest by mail instead of online you must make sure the protest is postmarked by May 15, 2023. The Travis Central Appraisal District encourages taxpayers to have their envelopes stamped with a postmark inside of the post office because items dropped in a mailbox may not be properly postmarked.

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no parking

No Parking Here

  • The City of Austin has traditionally required developers to include a minimum number of off street parking when they build multifamily housing.
  • Earlier this month, the City Council passed a measure that will eliminate parking requirements city wide.
  • Doing so will help reduce the cost of development and should lead to more affordable housing.

There was some pretty interesting housing news that came out of City Hall here in Austin a couple of weeks ago. And I’m a little behind on talking about it in this blog. But I want to circle back to it this week.

Austin has a lot of requirements and restrictions that are detrimental to increasing the housing supply. We have talked about a lot of them in this blog – lot size, compatibility, etc. The City Council talked about another one of these requirements at a recent meeting. Parking takes up a lot of space that developers could use for other, more beneficial reasons.

So lets talk about what the Austin City Council decided.

Austin Currently has Parking Minimums for Many Multifamily Developments

As you probably know, Austin currently has minimum parking requirements for developers who are building multifamily housing. These requirements specify the number of parking spaces that developers must provide for each unit of housing – depending on the type and location of the development. However, in recent years, there has been increasing debate about the necessity and effectiveness of these minimum parking requirements.

The current minimum parking requirements for multifamily housing in Austin vary depending on the number of bedrooms in each unit and the location of the development. For example, developments located in urban core areas have lower parking requirements than those in suburban or rural areas. The minimum parking requirements also vary depending on the size of the unit. One-bedroom units require 1.5 parking spaces and three-bedroom units require 2 parking spaces.

These minimum parking requirements, though, are a serious impediment to the development of multifamily housing in Austin. Studies have shown that the actual usage of parking spaces in these developments is often much lower than the minimum requirements. This leads to wasted space and increased construction costs that are ultimately passed on to renters.

In 2013, Austin basically eliminated minimum parking requirements for downtown developments. But they are still required in other parts of the city. That’s why the City Council took up the issue two weeks ago.

The City Council Voted to Remove Parking Minimums


The City Council, therefore, on May 4 voted to remove parking minimums for developments citywide. It was passed with only one dissenting vote. This marks a significant and welcomed shift in the city’s approach to parking requirements.

The sponsor of the resolution, new City Councilmember Zo Qadri said the city’s development code was standing in the way of boosting the housing supply and reducing carbon emissions. “I think our priorities should be space for people rather than mandating space for cars,” he said. The resolution instructs the city manager’s staff to draft a code amendment to eliminate parking requirements.* As a result, its not clear when this will be implemented.

The elimination of parking minimums for affordable housing is particularly significant, as it is often cited as a major barrier to the development of more affordable housing in Austin. By removing this requirement, the city hopes to encourage more developers to build affordable housing projects, which could help to alleviate the city’s ongoing housing affordability crisis.

Overall, the recent vote by the Austin City Council to remove parking minimums for multifamily development represents a significant step forward in the city’s efforts to promote more sustainable, equitable, and affordable housing options. While the full impact of these changes remains to be seen, they are likely to spur new innovation in the design and development of multifamily housing in Austin and beyond.

*Thank you to Jack Craver’s daily newsletter – The Austin Politics Newsletter.

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The Deadline is Upon Us

  • Its property tax season in Texas. You should have received your Notice of Appraised Value by now.
  • The deadline to file a protest is most likely May 15.
  • Most property owners, therefore, should file a protest this week with their local appraisal district.

Well, if you are in Texas, you know it. I know it. We all know it. Its that time of year again. The deadline is upon us. It is property tax season. You should have received your notice of assessed value by now from the local appraisal district. And its time to get to fighting it.

I write a version of this article every year. But that’s because its such an important one. The deadline to protest your property taxes is a hard, unforgiving one. If you miss it, there is not a lot we can do. And in Texas, its really important to make sure you protest the property taxes for your commercial real estate. So lets talk about it.

Why Every Property Owner Should Protest Its Property Taxes


Property owners ask me a fair amount if they should protest their property taxes. And I always tell them the same thing – “There’s no reason not to.” And that advice is spot on. Every property owner should protest his or her or its property taxes every year. Because, at worst, you can just drop the protest and stick with the initial assessed value.*

On top of that, this year there is an especially good reason to protest. The commercial real estate market is in flux. It has loosened considerably since last year. Interest rates have increased significantly. And cap rates have followed. Yet, from what we have reviewed, it does not appear that the appraisal districts have taken notice. They have continued to increase the value of commercial real estate – sometimes in drastic amounts. As a result, if you own commercial real estate, you definitely should protest your taxes.

The Process for Protesting Property Taxes in Texas


As you probably know, in Texas, the local county appraisal district sets the appraised value of every property each year. The district sends property owners a notice of appraised value that indicates the estimated market value of their property. If the owner believes the assessed value is too high, they have the right to protest the appraisal. In doing so, the property owner should protest at least the market value and the equal and uniform value of the property.

To protest market value, the property owner must provide evidence that the appraisal district’s estimate is higher than the actual market value of the property. Evidence can include recent sales of comparable properties, income analysis, appraisals, or photographs of the property showing its condition.

To protest equal and uniform appraisal, the property owner must provide evidence that the appraisal district’s assessment is not uniform when compared to other properties. For example, if a property owner discovers that a neighboring property with similar features was appraised lower, he or she can use that information to argue for a lower assessment.

A property owner must file a protest with the appraisal district by the later of May 15 or 30 days after the Notice of Appraised Value is sent. That’s why this week is so important.

Once the protest is filed, the owner may be contacted by the appraisal district to discuss the protest and provide any additional information. If the owner and appraisal district cannot reach an agreement, a hearing will be scheduled before an appraisal review board. At the hearing, the owner will present their evidence and arguments for a lower assessment, and the appraisal district will present its evidence and arguments for a higher assessment.

At the end of the hearing, the appraisal review board will decide what the property’s value should be. The owner may appeal the decision to the district court if he or she disagrees with the appraisal review board’s determination.

It is important to note that property owners must continue to pay their taxes on time, regardless of whether a protest is filed. If the protest is successful, the owner will receive a refund of any overpayment.

In general, therefore, it usually makes a lot of sense for a property owner to protest the assessed value of his or her taxes. But to do so, the protest needs to be filed this week. So please do not delay – and if you need help, give us a call.

The Deadline is Upon Us Read More »


We Can Help Resolve that Dispute

  • Bukowski Law Firm is expanding its focus beyond commercial real estate.
  • Some of the lawyers at BLF have extensive litigation experience.
  • As a result, we will be expanding into general business litigation to help meet our clients’ needs.

A little bit different type of blog entry this week. I try to have two different types of posts in this blog:  a) commentary on some news item that is relevant to the commercial real estate industry or b) a discussion of a legal issue that is relevant to our readers and colleagues.

Well this week I want to use the space to talk about a new development at Bukowski Law Firm. As you probably know, we are primarily a boutique real estate law firm. We handle both real estate transactional and litigation matters, as well as protest property taxes.

We are now, however, expanding beyond just real estate into a complementary area. And want to talk a little about that this week.

BLF Expanding Beyond Real Estate

Since Bukowski Law Firm was founded in 2010, we have primarily practice commercial real estate law – both transactional and litigation. And we have enjoyed that tremendously and hopefully brought a lot of value to our clients.

But I was not always a real estate lawyer. I started my career at Vinson and Elkins in Houston in its litigation section. And for the five years I worked at V&E, I was a litigator. My practice ran the gamut of all types of litigation – not really restricted to anything in particular. I was a general litigator.

Similarly, one of the great associates at Bukowski Law Firm – Aaron Gankofskie – has a strong litigation background. And while he has focused a lot in real estate, he also has a broad litigation background.

As a result, we realize that Bukowski Law Firm can provide our clients with more than just real estate services. We can also provide first rate general business litigation. And that’s what we will be doing from here on out.

What does it Mean that BLF Provides Business Litigation?


So what does that mean? In addition to your commercial real estate needs, if you have any general business issues, Bukowski Law Firm can help you solve those issues. This could include anything from formations, operating agreements, and contract review to business dispute litigation. And it does not have to be limited to the real estate industry.

So next time you have a business dispute, please let us know how we can help.

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