EisnerAmper Blog

Building Success: An EisnerAmper Real Estate Blog

Reading a Hard Market: Insights from James Nelson of Massey Knakal

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September 16, 2014

By Michael Benison, CPA, MST

James Nelson, partner at Massey Knakal Realty Services, knows a thing or two about the New York real estate market. He’s been involved in the sale of over 300 properties valuing over $2.5 billion, and has a wide breadth of knowledge when it comes to successful investment approaches. We asked James to share some of his insights on current market trends with us.

Waning Interest in Traditional Investments

In 2014, New York City saw the highest sales volume and pricing levels since 2007. According to Mr. Nelson, that sales activity can be directly attributed to low interest rates and the ever-increasing demand from the international community.  This year, we are seeing limited core opportunities (new construction, multi-family, office) in New York City and most developments are primarily focused on condo development, not rentals built for resale. There also haven’t been any new trades of newly constructed apartment buildings in Manhattan, compared to last year when both The Olivia and New Gotham apartments sold for $386 million and $170 million, respectively.

Real Estate Trends Setting the Stage

Retail has had massive cap rate compression citywide but there may not be any further compression unless rates drop or rents climb to even more unprecedented levels. According to Mr. Nelson, buyers are not willing to take on negative leverage like they did back in 2006 and 2007 and know they need to put in more equity to secure new deals.

The outer boroughs of Manhattan are gaining traction and institutional capitalization is rising in these markets. With the recent purchase of the Watchtower building in Brooklyn, institutional buyers have opened the floodgates and commercial space in Brooklyn is now more expensive than Downtown Manhattan.  Mr. Nelson believes Queens will be next!

James Nelson is a panelist at the upcoming Real Estate Private Equity Summit on October 1, where he will be sharing more insights on value-added strategies and market trends.

From NFL Stardom to Real Estate Success

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September 5, 2014

By Leonard Lee, CPA

Over his 13-year career in the NFL, Howard Cross played in a total of 207 games as a Giant, more games than any other player in the Giants’ team history, and was instrumental in helping the team win Super Bowl XXV. After retiring from a successful NFL career, Howard found another niche in New York Real Estate.

We caught up with Howard Cross, now a Principal at CRESA, the largest tenant representation firm in North America, to discuss the Real Estate trend he’s been keeping a close eye on.

Where is the biggest change happening right now?

One word: Technology! While some businesses are scaling back, it’s been the opposite for technology companies and tech startups, especially here in New York City. NYC’s Silicon Alley continues to grow at a rapid pace and the demand for prime real estate space in these areas — Soho, Flatiron, Chelsea, and Meatpacking district — keeps soaring. Companies are looking for top talent and want to tap into the NYC culture.

How is the technology industry impacting the NYC landscape?

The Big Apple’s tech bubble will continue to grow and I see tech companies and startups potentially becoming one of the largest employers in Manhattan, and expanding beyond Silicon Alley into surrounding boroughs. Job creation and hiring in the tech sector is moving at a rapid pace and it’s becoming a driving force behind growth in those neighborhoods. 

Where do you see the real estate market in the next 5 years?

In 2012, the tech sector represented 25% of the leasing activity in New York and that number is going to climb drastically. New York City will continue to emerge as a technology hub but its impact will go beyond real estate and Silicon Alley — it will have social and cultural implications.

With over 9 years of real estate experience, Howard knows firsthand that ‘keeping your head in the game’ is crucial to maintaining success. Howard will be sharing more of his insights and business strategies at our upcoming Real Estate Private Equity Summit on October 1! 

The Time is Now to Obtain Information for Your Multi-Employer Pension Disclosure

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August 26, 2014

By Ed Opall, CPA

Opall, EdAll contractors (“employers”) utilizing union labor must participate in multi-employer pension programs.  Employers pay monthly contributions based on hours worked by each covered employee at the contractual rate.  Beyond making their required payments, employers have no control over the financial management of the union plans that affect its funding status.  Many union plans are severely underfunded, and the general public has concerns that employers have contingent exposure for these obligations.   In response to this concern, the Financial Accounting Standards Board (“FASB”) issued a pronouncement for years beginning in 2012 requiring certain financial statement disclosures, including information to be obtained from each union. 

The Pension Protection Act of 2006 requires unions to certify the funding status of the plan annually.   Funding notices are required to be released 120 days after the end of the plan year and designate vital information on its funding status, whether the plan is endangered or at a critical status, and if surcharges are imposed by the Pension Benefit Guarantee Corp.  The funding status is defined as follows:

  • Green – 80% or more funded
  • Yellow – more than 65% and less than 80% funded
  • Red – less than 65% funded

Companies are required to disclosure the information in its financial statements in a tabular format for all plans that are considered to be significant. That information includes:

  • The legal name of each plan
  • Each plan’s employer identification number and plan number
  • The most recently available certified zone status provided by each plan (see above)
  • The expiration date of each union’s current collective bargaining agreement
  • Whether a funding improvement plan has been implemented, the employer paid a surcharge, and whether there are minimum contributions required for future periods
  • For each period presented in the financial statements, the amount of employer contributions to each plan and whether the company provided more than 5% of total contributions to any plan 

The FASB pronouncement notes that companies shall disclose each plan’s information based on its most recent public filings.  During 2012 and 2013, companies have gotten familiar with the requirements and have adopted processes to obtain this information timely.

Rather than wait until the year-end reporting season to obtain this information, we recommend that companies begin gathering the information as soon as possible. The unions’ business offices are required by law to release this information to participating employers upon request; however, they are not required to release it quickly.  A process should begin each fall to request and follow up on requested information well before company financial reporting deadlines.

The FASB pronouncement has also enhanced disclosure requirements for significant changes in employer contributions from year to year for business combinations and divestitures, changes in contractual employer contribution rate, and significant changes in the number of employees in a plan.  We recommend that the disclosure requirements be considered as early as possible in the financial reporting plan during the coming year. In addition, employers must disclose the amount of contributions to multi-employer plans that provide postretirement benefits other than pensions.

With FASB requiring more information reliant on third-parties in your disclosures, the best course of action is to prepare now. Create a process to collect the required information well ahead of the year-end, and your company will be well-positioned for meeting financial reporting deadlines.

EisnerAmper is an independent member of PKF North America.
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