July 2023

cover Lake Mi pic

Michigan’s Great Lake “HOMES”

  • Last week, like many Texans, I escaped the heat and left Austin for Michigan.
  • I was lucky enough to spend a week on beautiful Lake Michigan.
  • Lake Michigan is a terrific place to spend a summer vacation.

This is going to be a little bit different article this week. But I thought it’d be fun to introduce some Texas folks to the wonders of Michigan in the summer. In case you are unaware.

It’s a brutal time in Texas. This summer has been punishingly hot. I don’t know how many 100-degree days in a row we have had – but it’s a lot. And the thing about Texas in the summer is – a lot of people leave. They go to cooler places where they can bypass the hot Texas sun. Especially now that remote work has become so much more convenient.

Well last week I was one of those that fled our Lone Star state. I went back to the place I grew up (sort of) and spent some time on Lake Michigan. And it was fantastic.

Vacationing in Michigan is Terrific

As we all learned in grade school – Michigan is surrounded by the Great Lakes. Remember HOMES? Huron, Ontario, Michigan, Erie, Superior. Maybe that’s just a thing you learn growing up in Michigan.

Anyway, Lake Huron is on the east side of the state, Superior to the north, and beautiful Lake Michigan is on the west side. If you have not been up there before, the lakes are called Great for a reason. They are enormous. And have white sand beaches. As a result, they are very popular in the summer for vacationers.

Lake Mi


Lake Michigan is especially popular because it is on the west side. And, as a result, you get to see the sunset while looking out over the water. It really is beautiful. And on top of that, the weather is terrific. For example, when I was there last week, it hovered in the mid 70s during the day and low 60s in the evening.

Lake Mi


It is a Very Popular Destination

All of the factors above combine to make Lake Michigan a very popular vacation destination. In the summer. The winters stink.

But because this area is so popular in the summers, small towns have formed all up and down the coast. From New Buffalo in the south along the Indiana border to beautiful Petoskey just south of the Mackinac Bridge, there are lots of small towns for shopping, dining, and drinking.

beautiful Petoskey just south of the Mackinac Bridge

This trip, we were just outside of Saugatuck, Michigan – which is a small lakeside town an hour west of Grand Rapids. Its known for its art and social life. And it’s a very fun place to spend a few days.

Of course, as a real estate guy I couldn’t help but look at what the homes along Lake Michigan sell for. And they are, unsurprisingly, fairly expensive. I mean, it obviously varies depending on where along the coast you are. But you can likely expect to pay $500 per square foot at least. And often far more than that, depending on the condition of the house. As a result, my family and I use Airbnb Lake Michigan House Suggestions and just stick to the rental markets.

Anyway, this post probably sounds more like an advertisement for the Michigan Tourism Board. And maybe they will throw a few bucks my way. Its Pure Michigan.

But for those who haven’t been up there, I hope you enjoyed this quick look at a great place to take a vacation – in the summer.

Michigan’s Great Lake “HOMES” Read More »


The Potential Coming Commercial Real Estate Crisis

  • Dallas REIT Ashford Hospitability is giving back 19 hotels to lenders.
  • We are likely to see more of this type of voluntary surrender to lenders in the next couple of years.
  • But that could provide opportunities to investors.

Like many of you, it seems like all we talk about these days in work circles is the likely and looming commercial real estate crisis. It is a very hot topic around the water cooler. Indeed, a week ago I did a presentation to a group in Dallas about this very topic. And after I was done, I figured it would make a good blog topic.

And then, some pretty unfortunate news came out of Dallas that furthered my interest in this topic. So that’s what we are going to talk about this week – where are we headed in the next 18 to 24 months in commercial real estate? Does anyone know?

Dallas REIT Gives Back Hotels

It is a nervous time in the commercial real estate world for developers, investors, lenders – just about everyone. There are a lot of articles written and conversations had about a potential collapse on the horizon.

Last week came news out of Dallas that is sure to further entrench that position. Dallas REIT Ashford Hospitality announced that it was giving back 19 hotels across the United State to its various CMBS lenders.

This decision comes after the hotels failed to reach their debt yield ratios. And apparently when it marketed them for sale, Ashford was unable to get any offers that were above the debt. As a result, it makes more sense for it to return the properties to the lenders rather than keep the properties and get them in good standing. Indeed, that would have required Ashford to pay down approximately $255 in debt on the 19 properties.


We Could See a lot More Commercial Real Estate Properties in Trouble

The trouble that these Ashford properties are in is exactly the type of trouble we have expected to see coming in the commercial real estate industry. There seems to be a combination of bad factors that could lead to an avalanche of failures.

First is the oncoming expiration of debt. There is approximately $1.5 trillion in commercial real estate debt coming due by the end of 2025. Approximately $270 billion of that will come due in 2023. Much of this is the result of a lot of short-term debt that was used to purchase properties in the boom times of the mid to late 2010s. Now a lot of that is about to come due.

The problem, of course, is that the are not a lot of choices for refinancing that debt. A lot of lenders have left the market and are not looking to take on any more commercial real estate debt. And, as you know, the fed has increased the interest rates continuously for the last 18 months. Thus even if owners can find a lender willing to lend, the interest rates are likely to be significantly higher than the original debt was. And these higher rates can potentially kill the economics of a deal.

In addition, some of the market dynamics for commercial real estate have shifted. I wrote last week about the decrease in multifamily rental rates in the Austin market. Obviously lower rates have a negative effect on the viability of a deal.

In addition, the office market has changed significantly since the start of COVID. Remote work has taken the US by storm. And while many companies want their employees to come back to work, there is no guarantee that is going to happen. As a result, companies appear to be requiring less space and office vacancies have increased. According to a friend at CBRE, in Dallas at the end of the first quarter of this year, office vacancy was up to 24.5%. And office sublease space has increased significantly.

So what does this all mean? What does it say for the near future of commercial real estate? I’m not sure I’m completely qualified to answer that question. But it does not look great. It sure seems like we are in for a rough couple of years.

But that’s not all bad, of course. Downturns also present significant investment opportunities. So if you can weather the storm, there may just be some great prospects out there to uncover.

The Potential Coming Commercial Real Estate Crisis Read More »

construction site

Multifamily Units in the Pipeline

  • There are a lot of new multifamily units in the greater Austin pipeline.
  • The multifamily industry has already seen lower rents in the last year.
  • And while this may not be great for developers, it does help make our community a little more affordable.

I was browsing twitter earlier this week (or was it Threads? Who can tell?) and saw an interesting headline. Unfortunately, though, I did not have time to read the article. But the tweet (or Thread) said that there are at least 14,000 multifamily units in the Austin development pipeline for 2023.

That seemed like a lot to me. So I definitely wanted to come back and do a little investigation into the issue – what is the future of Austin multifamily? Are there a lot more units on deck? Well that’s what we are writing about this week.

The Austin Multifamily Pipeline is Very Large

We have talked a lot about how interesting these times are in commercial real estate. And reading through the multifamily industry outlooks – well there is a lot of uncertainty on the horizon. I have also obviously written a lot in this blog about our need for more and denser housing. And, despite what I will write in this entry, there’s no question we still need more and denser housing. Because housing is still unaffordable to so much of our population. And the best way to resolve that issue is to build more units.

Well developers in Austin are certainly taking that challenge seriously. In 2022, there were over 12,000 new multifamily units added to the Austin metro area. While that seems like a large number, according to one report, there are over 42,000 new units still currently under development. That makes Austin one of the fastest growing multifamily industries in the country.

That does not mean, of course, that all of those units are going to be delivered in 2023. Emily Blair, from the Austin Apartment Association, said she expects about 20,000 new units to come online in 2023. That would be a one year record for the area.

What These New Units Mean for the Future of the Market


Again, that is, obviously, a lot of units. But there is also a lot of demand. In the last few years, Austin has averaged about 33,000 new residents per year – or about 90 per day. And that number does not seem to be slowing down as Austin remains popular for both individuals and companies. As a result, we can absorb a lot of new multifamily units.

But does a lot mean 42,000 new ones? Maybe not.

Over the last year, multifamily rents have decreased approximately 3.4% across the board. Average occupancy is still at 93% – so the communities are mostly full. But to keep them full, owners have had to lower the asking rents. In addition, unsurprisingly rent concessions are increasing across the spectrum.

So we have people and companies moving to Austin but maybe not as fast as new multifamily units are going up. What does that mean? It appears to mean that rents are going to continue to decrease in the Austin metro area.

And isn’t that what we need to happen? Look, I realize we represent a lot of multifamily investors and developers. Heck, I am one myself. Lower rents are not necessarily good news for us.

But I have written a lot of words in this blog about how Austin is completely unaffordable to a large percentage of its population. And the way to solve that is through building more. And now by doing so, we are seeing rents come down.

This is a weird time for commercial real estate. And I suspect we will see a lot fewer starts in the next year or two. But for now, all of the new multifamily units coming online means Austin is a little more affordable than it was last year.

Multifamily Units in the Pipeline Read More »


You Want to Exchange that Property?

  • 1031 exchanges can be very beneficial for investors to defer capital gains taxes.
  • There are, however, specific rules you have to follow to qualify for 1031 treatment.
  • If you want to sell a foreign property in a 1031 exchange, you likely have to purchase a property in that same country.

I hope everyone had a great Fourth of July. Its my favorite holiday. Part of that is growing up in Michigan, I longed for any occasion where it would be above 50 degrees outside. And – usually – in July we could expect it to be above that in Michigan.

But, more importantly, lets get to this week’s topic. I had a friend ask me a legal question about a specific 1031 exchange she is contemplating. It was a fun question and I didn’t know the answer right of the top of my head. I thought it would make a great blog discussion. So let’s talk about it.

How Can a 1031 Exchange Help a Property Owner

A 1031 exchange, also known as a like-kind exchange, is a powerful tax deferral strategy that allows real estate investors to defer capital gains taxes on the sale of an investment property by reinvesting the proceeds into a similar property.

One of the primary benefits of a 1031 exchange is the ability to defer capital gains taxes. By reinvesting the proceeds from the sale of a property into a like-kind property, investors can defer paying taxes on the capital gains until they eventually sell the replacement property. This provides investors with an opportunity to preserve and reinvest more of their capital, allowing for potential growth and increased cash flow.

Additionally, a 1031 exchange offers the potential for portfolio diversification. Investors can exchange properties in different locations or property types, thereby spreading their risk and taking advantage of market opportunities. Furthermore, the ability to consolidate multiple properties into a single property, or vice versa, can provide operational and management efficiencies.

While a 1031 exchange offers numerous benefits, it is important to be aware of its drawbacks. One key drawback is the requirement to reinvest all the proceeds from the sale into the replacement property or properties. Failure to do so may result in the recognition of a portion of the taxable gain. Additionally, the exchange process can be complex and requires meticulous planning and coordination with qualified intermediaries and tax professionals, which can incur additional costs.

To qualify for a 1031 exchange, certain timing requirements must be met. The investor has 45 days from the sale of the relinquished property to identify potential replacement properties. The identification must be in writing and submitted to a qualified intermediary. Subsequently, the investor has a total of 180 days from the sale of the relinquished property to close on the purchase of the replacement property or properties. These timelines are strict and must be adhered to in order to qualify for tax deferral.

To qualify for a 1031 exchange, the investor must also directly own the properties bought and sold. This means that the investor cannot own an interest in an entity that owns a property. They have to own the properties directly. The properties involved in the exchange must be held for investment or used in a trade or business. Personal residences or properties primarily held for resale, such as fix-and-flip properties, do not qualify for a 1031 exchange. Additionally, both the relinquished and replacement properties must be of like-kind, meaning they are of the same nature or character, regardless of differences in quality or grade.

Can the Property You Sell be a Foreign Property


We see 1031 exchanges all the time and are familiar with how they work in a commercial transaction. But the next step from my friend was what made the exchange even more interesting. She asked if she could sell foreign property and still be able to defer capital gains under Section 1031. I’m not a tax expert so I didn’t know for sure. After doing some research, though, the answer emerged.

The bottom line is that to qualify for 1031 deferment, property must be exchanged for “like kind” property. And the IRS only considers the property to be like kind if it is in the same country as the property sold. In other words, if you are selling foreign real estate, you have to purchase foreign real estate to get the 1031 deferment. It does not appear that you can sell a property in a foreign country and buy a US property in a 1031 exchange.

Having said that, while Bukowski Law Firm is a great real estate firm – we are not tax lawyers. So if you want to know the specifics, I highly recommend you contact a tax lawyer or cpa. And if you don’t know one of those, give me a call. I can introduce you.

You Want to Exchange that Property? Read More »