The Dirt Lawyer's Blog Archive

Is this what TIF money is meant for ? Moving Willis, a company that got a great deal at Sears Tower PLUS naming rights, from three downtown locations to one consolidated one? Does anyone seriously think they are moving to Oak Brook or Schaumburg? Or is this a condition to the lease? Are there better ways of spending money? Or is this proposed subsidy a good thing for Chicago and money well spent? I am a fan of good TIFs, but I'm not sure whether this is a good one. Perhaps others have opinions more informed than I.

I'm getting fed up with government hypocrisy. Case in point: companies left and right are being criticized for holding "lavish parties" for key salespeople, or retreats, conventions or other corporate outings. I understand why. But I also know that we could be hurting the hospitality and convention industry more and more by canceling all these events. But if our government officials do it? No, that is a "serious working session." Both parties had trips to nearby resorts, with different sources of money. Republican lawmakers paid for their travel and lodging [at The Homestead], mostly with campaign funds. Staffers' bills and the rest of the tab was picked up by the Congressional Institute, which is funded by 54 "patrons," including General Electric Co. and the National Association of Home Builders. About 45 lobbyists attended a dinner on opening night. A few days later, as the stimulus bill inched forward, Democrats held a two-day issues conf...

That's right. The world's eighth largest economy is out of money and cannot pay its bills: Facing a $42 billion budget deficit, State Controller John Chiang told the Sacramento Bee he has already borrowed $21.5 billion to try to cover the state's checks, but by Feb. 1, there will be no more options left but to simply stop paying some of the bills – including tax refunds, welfare checks, student grants and other payments owned to California citizens. So, if you are owed money, you get an IOU. That's right. An IOU. I don't have much ground info yet on how Californians are feeling, other than perhaps that they want bailout money now. (And no, Chapter 9 does not apply to states, or at least I don't think it does. I am a dirt lawyer, not a BK guru.) Of course, one solution is ugly: raise taxes, especially property taxes. You have a Proposition 13 problem there of course, but I have always been a bit confounded by the fairness of Prop. 13. You can have two pe...

Here's a thought-provoking story nonetheless about a housing slump meaning that state and local government will have less revenue because of, among other things, declining home values. While I would love to see a decline in my property taxes (they went up by, IIRC, 3% this year), let's just say I am not holding my breath. I also have to remember that our local high school district wants to tack on an extra grand to build a new school. Yeah, right.

'I don't trust you guys'

It looks like the Chicago City Council may have the sellers pick up the burden of the big transfer tax increase that will take effect April 1. Much as I don't like to see the tax increase, sellers are often the ones paying the tax (or, as some called it, stripping the equity). What isn't 100% clear from the Tribune's story is whether the seller is only the $3.00/thousand increase or whether the parties will share the cost of the tax equally. The Sun-Times , however, did make it clear: it will be an unequal distribution . "Ald. Pat O’Connor (40th), sponsor of the ordinance, said he wanted to evenly divide the entire $10.50 city tax between buyer and seller, “But state law will not allow that to happen.” So, he opted for “the next fairest thing.”" I'm no expert on the state's transfer tax law, but why can't they divide the tax equally? There are jurisdictions that do (Bolingbrook, for example). That's also my personal preference. All in all, ...

The Tribune reports that the City of Chicago is considering trying to collect a transfer tax from the buyer even when the buyer backs out of a deal to purchase property in the city. What are we going to call this -- the non-transfer tax? The "Never mind, I'm Not Coming to Chicago Tax?" This could have big implications on commercial deals. When would the tax be triggered? Is it due if a buyer does its due diligence on a $100 million office building and walks away penalty-free under the purchase agreement, or only once an earnest money deposit becomes non-refundable? A 1% breakage fee of this sort could have a chilling effect on deals in Chicago. UPDATE AND POSTSCRIPT: remember, unlike most of the world (and most of our area, for that matter), in Chicago the buyer pays the transfer tax. I did not even bring up the issue of how one collects this from, say, a defaulting buyer of a condo at the Spire who lives abroad. Will the city be able to lien the seller's pro...

Hey people, here some news for you: be smart, and don't cheap out when doing your real estate deals. I'm saying this as a lawyer, of course, but it really is crucial sometimes. You want to really blow a deal? You can, and the fault will all be yours. Case in point: the one and only Bawld Guy and I had a lengthy conversation about 1031s today and a conundrum of one of his clients. You can read about his scary scenarios here . (And then do yourself a favor and bookmark his page.) We came to a resolution on his matter, but the chat was a poignant reminder that people who try to do everything themselves are often being set up for a fall, or worse. Listen up, people. And this goes for any deal, not just an exchange. Would you rather pay $300 for some advice and make sure you are dotting the " i" s and crossing the "t" s, or save the $300 and take a chance with the belief that you are 90% (or whatever percentage) sure about something, but in the off chance...

I do not own property in the City of Chicago, but my clients sure do. And they are about to get taxed even more for doing their business of buying and selling property. Yup. We're talking a 40% increase in the real property transfer tax, from $7.50 to a whopping $10.50/$1000. Note that in Chicago the buyer typically pays this tax instead of the seller (in rare cases the tax is split between the parties), thus making a down payment harder to raise. We call it the "Welcome to Chicago Tax." This can have an overall chilling effect on property sales and prices. And why? The money will "be used to finance the restructuring of the CTA's employee pension and retiree health-care plans." Great. We overspent everywhere else, so now we have to tax more to protect the retirees. Let me make one thing clear: I am not anti-pension. My grandmother's companion is a CTA retiree, and I do care about this and about all retirees. I just wish we'd cut somewh...

Work is getting the best of me, so just a few quick items of note this morning: The Tribune has two recent stories on green initiatives that caught my eye. One is about buildings being built or renovated (the Merchandise Mart -- that's big!) with green in mind. The other is about Mayor Daley's own city-wide green initiative that will be published next year. Some of it seems a little pie-in-the-sky at first glance (wind turbines at Sears Tower?), but hey, this is the city of wrought iron too. And, as promised, here's more on the carried interest debacle and some estimated impact on the market. Read it and weep .

I'm going to blog about this proposed disaster until it is dead as a doornail. The Real Estate Roundtable is the latest group denouncing the proposed Temporary Tax Relief Act of 2007 (HR 3996), a/k/a the Let's Make Sure the Economy Goes in the Tank Act. Yep, let's make sure entrepreneurs have another reason not to undertake risk. And then let's see the "pervasive effect on jobs, economic growth and the tax base" that this law will have. I'm almost in pain thinking about it.

I wrote once before about a proposal floating around in Congress to tax carried interest as ordinary income rather than capital gains. I'm writing again because of an excellent op-ed counter to the USA Today editorial board's position in favor of this tax (Thanks to Traffic Court and The Real Estate Bloggers for pointing me to the pages.) People who love taxes are calling this a "hedge fund tax" that will go after billionaires and not harm little guys like you and me. El-wrongo. As Jeffery DeBoer points out , "It would be the first time that the sweat equity of an entrepreneur who is building a business would be taxed as ordinary income....Enacting this proposal would be playing Russian roulette with an economy that appears weak in the knees." If you want recession -- or even worse -- then let's enact this law. It will make sure that entrepreneurs pass on marginal deals or find other things to do. With tax costs doubled and the same as working f...

The Real Estate Bloggers report that the IRS is applying greater scrutiny to tax-deferred exchanges of like-kind property pursuant to Section 1031 of the Internal Revenue Code. This tax-deferment vehicle has become hugely popular in the last ten years as a way of not having to recognize the gain on the sale of property. Because of the rise in popularity, every Tom, Dick or Harry now wants to be an exchange accommodator. And frankly, not every deal is done by the book. One thing to remember: your lawyer, your accountant and your real estate broker , or any entity under their control, cannot be the qualified intermediary. I've seen this more than once (though not on deals in which I was involved directly). No matter how perfectly those people may otherwise be able to handle your 1031, if you take that route you just blew your 1031, and if the IRS audits you, guess what? Taxes, penalties and interest. No thanks.

I had a nice round of golf Friday with a friend who is one of the most seasoned veterans in the commercial title insurance business, and one of my four or five "go to" people that I would call on to do a deal with me if had the choice. He's bailed me out of more than one crisis in my career. As we often do, we spent a little time swapping war stories on transactions, and I heard one that made think that, no matter how long you've been in real estate, you'll never encounter every crazy fact pattern. And this one was really bizarre and a little scary if you are buying land, so much so that I had to share it with you. Here's the basic story: buyer and seller enter into a contract to sell property in Cook County. For you out-of-towners, Chicago is in this county. The property was in a "special service area" (SSA) created in the 1970s, meaning that extra tax levies can be imposed on the land. The title company pulls title and sees the assessment area...

I know my blog is about commercial estate, but I keep hearing about proposed legislation that, if passed, will bring depression to the entire real estate market as a whole. I keep reading about a proposed bill being touted by Rep. John Dingell, a Democrat from Michigan and Chairman of the House Energy and Commerce Committee, is proposing legislation that would phase out the cherished (and previously considered untouchable) home interest deduction on anyone who owns a home with more than 3,000 sf. The ostensible goal of this tax is to promote the environment by building smaller and more efficient homes. Talk about a penalty on not just the rich but also on people who choose to move to the boonies for more home or for large or extended families living together. What a disastrously bad idea. Home sales and prices would plummet. Builders? Out of business, not to mention construction workers. I cannot think of an idea this bad since the Smoot-Hawley Act. Now, ordinarily I would say this is...

A bill has been introduced in Congress ( HB 2834) that would change the way many real estate developers -- most of whom are entrepreneurs -- would be taxed . Okay, you may ask: what is carried interest? Better known in my circles as a "promote," carried interest is the percentage of a deal involving a venture that the developer takes as compensation, usually through a limited amount of capital investment and a lot of sweat equity. Often what happens in a development deal is this: The developer (or "promoter") hooks up with a party with funds to invest (the so-called "money partner"). The parties reach an agreement on how the profits from an investment are to be split. Without boring you with too many details (you can hire me if you want more), when the deal is done (or maybe when there is a financing that allows the members to take cash out), the first dollars go to the money partner, which gets its money back plus a preferred return, after which the prof...