EisnerAmper Blog

Building Success: An EisnerAmper Real Estate Blog

Lisa Knee Moderates Session on Secondary and Tertiary Markets

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August 6, 2015

By Morgan Piscitelli

IMN held its 16th annual U.S. Real Estate Opportunity & Private Fund Investing Forum in New York City on June 15.  EisnerAmper tax partner Lisa Knee moderated a discussion between Clarion Partners director and head of investment research Tim Wang, Treesdale Real Estate Partners managing partner Oliver Swan, True North Management Group CFO Desmond McGowan, EVOLVE President Chris Fraley, and Yardi Systems VP of Matrix Products Jeffrey Adler. The panel focused on insights regarding secondary and tertiary markets. 

Knee was curious to find out where the investors thought the next hot markets would be. Throughout the session, she asked them questions about the types of asset classes they are targeting, what kind of competition they are experiencing, if they were running into more real estate funds in the secondary and tertiary markets, what type of capital is available in these markets, and why certain regions attract investor interest and others don’t.

This informative panel revealed that most real estate investors love secondary and tertiary markets due to their positive effect on the real estate industry over the last few years. They credit employment growth and the improved economy for commercial real estate’s increased transaction volume and leasing activity in most major cities.

Find out about the panelists’ responses in our article “Forget the Sexy Six: Why These Investors Love Secondary and Tertiary Markets.”

Landlord Recovers Big Dollars Thanks to Auditors

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July 28, 2015

Mansoura_IsaacBy Isaac Mansoura, CPA

Here’s a real-life auditing story. This past busy season, we performed our first-time audits for a new real estate client. Our engagement was, as usual, simply to audit the financial statements. As part of our initial audit procedures, we performed extensive revenue testing specifically related to operating expense reimbursements and escalation charges to determine whether all revenue had been billed/accrued pursuant to the various tenant leases.

Due to incorrect interpretation of lease clauses and miscalculations, this is an area rife with the potential for error (or even fraud). As such, we devote significant attention to it. Our procedures included a thorough review of various tenant leases focusing on, among other things, base years, base amounts, inclusions and exclusions to operating expense pools, etc.; as well as examination and recalculation of expense pools all the way down to specific tenant billings.

During the year, this particular client performed substantial Local Law 11 work (brick pointing required under NYC law). After careful and thorough review of various leases and numerous discussions with the client, it was determined that the Local Law 11 expenditures clearly fell within the definitions as repair and maintenance cost includible in the operating expense pools used to determine escalation billings.

There was just one problem: These expenditures had not been included in the expense pools for the property. Accordingly, we had the client update their calculations and the result was an excess of $1 million of additional billings to tenants — just from that one particular property. It was material to the financial statements, but more importantly, it represented real cash that the landlord would be able to recover. Needless to say, our client was very pleased. 

So, to all you landlords out there, our advice is to pay extra attention to your billing/rental department and provide the training so your staff understands the nuances of various lease clauses applicable to operating expense escalations and reimbursements. Be sure to understand the various lease terms and definitions and when in doubt, speak with your auditors. As this situation clearly demonstrates, there can be unexpected benefits from a financial statement audit beyond the compliance aspect.


Regulation A+

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June 25, 2015

Fleres DonnaBy Donna Fleres, CPA

The Securities and Exchange Commission (“SEC”) adopted rules (Release No. 33-9741) in March 2015 which allow smaller companies to offer up to $50 million of securities in a one year period. The rules, commonly referred to as “Regulation A+,” update and expand Regulation A and are mandated by Title IV of the Jumpstart Our Business Startups (“JOBS”) Act. Smaller companies can now file these offerings subject to eligibility and reporting requirements, without having to comply with the SEC’s general registration requirements under the Securities Act of 1933. This rule gives investors more investment choices while giving smaller companies access to raise capital.  While the rules apply to all issuers that qualify, the real estate investment and development market is one sector that can take advantage of the new funding opportunities for acquisitions and developmental projects. 

There are two tiers for offerings and both tiers are subject to basic requirements under the current provisions of Regulation A: Tier 1, for securities offerings of up to $20 million, and Tier 2, for offerings of up to $50 million. Companies conducting Tier 2 offerings would be subject to other requirements including audited financial statements and the filing of annual, semiannual, and current event reports. The Tier 2 rules preempt state blue sky laws.


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