Posted on Jun 2, 2016

Builder's Risk Insurance:

Builder’s risk insurance provides protection for a structure that is damaged during construction. These policies are usually broad. In fact, the coverage is generally extensive enough to include construction equipment and machinery, as well as materials, fixtures and appliances – all vital parts of a completed structure. It can also cover temporary structures, such as office trailers, on a project site.

If a loss occurs, the insurance company will pay to repair the damaged property. However, keep in mind that the coverage is limited to losses that are clearly specified. Claims must fall within the policy’s definition of “covered property.”

Here are some basic features of a typical builder’s risk insurance policy:

  • Most buildings can be underwritten including condominiums, dwellings, warehouses, office buildings, shopping centers and farm structures.
  • A policy can be issued to the building owner, the contractor, or the owner and contractor jointly.
  • The coverage continues until the insured party’s interest in the property ends, the building is sold, or the policy expires, whichever happens first.
  • For an additional premium, some policies extend coverage beyond the expiration date. However, the general rule is that unless the policy expressly states otherwise, coverage ends when the building is either wholly or partially occupied, it has been put to its intended use, or 90 days after construction is completed.

This type of extensive coverage can be expensive, but there are factors that can mitigate the premiums. Here is a rundown of how the rate for a project is typically determined:

  • The carrier begins with the type and quality of the construction. Although any kind of building can be covered, those made of concrete and steel receive a lower rate because they have greater resistance to damage.
  • The carrier considers the type of materials the builder intends to use and the overall quality of the final product. These factors are matched against computerized rate tables to determine the premiums.

Your company can qualify for further discounts by providing security measures such as good lighting and fences around construction sites. If the property is in a particularly high crime area, the carrier may require that your company provide a security guard and possibly a guard dog before a policy is issued.

Premiums can also be affected by whether there are sprinklers in the building and there is sufficient access for fire fighting equipment to reach the site. The insurer may even look at adjoining properties: Do they pose a risk to your structure? And are there natural risks involved, such as high wind or brush close to the building?

Although a great deal of consideration is placed on tangible factors, such as those listed above, there are also intangible concerns that can affect how an insurer determines premiums. The experience, training and supervision of personnel, the builder’s expertise, and the subcontractors might be taken into account, especially when the policy is for a large-scale construction project.

Posted on Dec 4, 2015

RE WP Download-01Welcome to uncertainty. The age of information has brought an unprecedented requirement for people, processes and technology to evolve quickly. Real estate must provide the same level of flexibility to adapt to or even anticipate the next big economic or social change. Therefore, investors as well as developers are attracted to opportunities that cover as many variables as possible.

Dallas was ranked among the best cities to work in technology in 2015, according to data on 200 locations by financial advice tech start-up SmartAsset. Cost of living is reasonable and the city’s three tech incubator organizations that emerged post-recession have accelerated tech start-ups and acquisitions. According to data analyst CB Insights, Texas had 22 tech companies in the IPO pipeline in addition to acquisition activity.

Nationally, firms employing fewer than 50 people are showing job growth outpacing larger firms by nearly five to one, according to the Urban Land Institute. Many of those firms are in the TAMI industry, defined as technology, advertising, media and information. Tech industry employees, about 4 percent of the workforce in Dallas, make 73 percent higher wages than the city’s average compensation, which bodes well for housing investment.


Smart Buildings Go Beyond ‘Nice to Have’

As consumers grow more technologically savvy (or dependent?), expecting to connect wherever they are, the building infrastructure and envelope itself needs to flex and accommodate next-generation technologies. Beyond that, the need to conserve resources is at play. Analysts are already recommending that technology and sustainability be factored into current asset valuations. A bad sustainability rating could result in valuation “brown discounts” for things like energy inefficiency or technology obsolescence.

With energy and water demands increasing globally, The Global Smart Building Market 2015-2019 report noted that the smart building market is expected to grow from $7 billion in 2015 to $36 billion by 2020, at a CAGR of 38% from 2015 to 2020.

Tied into the smart systems of buildings is the prediction that devices and platforms begin to learn the preferences of people and create a preferred “experience” for users…whether real or virtual. The potential for speaking to your home or office to get what you want — and having it speak back intelligently — is no longer just science fiction.  

In the short term, developers of both residential and commercial real estate can anticipate continued requests for features and affiliated services that include physical and data security, multi-channel communications capabilities, climate controls and similar automated options. Real estate technologies must deliver on higher expectations for safety, efficiency and productivity.


Want more real estate trends? Download the full Whitepaper or read this post: Low Debt Supports Positive Cycle of Development

If you would like to learn more about how this topic might affect your business, please contact Gary Jackson, CPA at or call 972.202.8000. 

Posted on Dec 3, 2015

Developers and investors are looking for opportunities to get the most flexible bang for their buck, either in real estate zoning and use or in location aligned with a variety of amenities and attractions. They are steering clear of developments that focus on just one class or type in order to reduce volatility long-term.

The Dallas/Fort Worth area is part of this flexible multi-use communities trend. The Central Business District population is predicted to grow to 59,337 by 2030. Young people and some Baby Boomers are choosing city cores in Dallas, Atlanta, Charlotte, Nashville and Portland, according to a 2016 report co-published by the Urban Land Institute and PwC US. Young people are waiting longer to get married and have families. Boomers want an active cultural and social life. Both lend themselves to vibrant, downtown or uptown neighborhoods with smaller, maintenance-free residences. They want to be close to work, dining, recreation and shopping with the option to walk, bike or use public transit. Housing types tailored to demographics are becoming a necessity to match these evolving lifestyle and environmental demands.

NAIOP, the national commercial real estate association, considers what they call walkable mixed use or flexible multi-use communities as “the future of commercial real estate development.” In a spring 2015 article, NAIOP defined “walkability” as a relationship between people and the streetscape. It must be inviting, comfortable, fun and safe, which means that the buildings aren’t the main focal point, but are instead designed to shape the pedestrian experience.

NAIOP predicts this type of mixed use will be in high demand with “appreciation in land values and rents.” You may see this playing out in West Dallas at Trinity Groves, where 1,000 new apartments are in development in the midst of a foodie’s haven of restaurants along the Trinity River.

Large corporate clients are re-imagining the amenities and design of large-scale campuses, too, moving away from traditionally closed and secure fortresses to a still-secure design that makes the campus look like part of a community. CityLine’s deal with State Farm makes it an anchor tenant for 186 acres of development in Richardson that includes retail, grocery, a movie theater, restaurants and upscale apartments.

In Frisco, plans for a new headquarters and training facility for the Dallas Cowboys has prompted investment interest from around the world. Estimates are more than $5 billion in development along a one-mile stretch between Warren Parkway and Lebanon Road. The area will be a community in itself with entertainment, retail, restaurants, hotels, industrial and office complexes and residential options.

And finally, the industrial market has grown legs, thanks in no small part to e-commerce and retail distribution trends. Foreign investors are very keen on retail-affiliated industrial real estate for distribution of perishable and non-perishable goods. All you have to do is look at consumer options for two-day or same-day delivery through e-commerce sites to realize the potential for distribution center development. NAIOP even cites expansion of the Panama Canal in 2016 as a key indicator of service delivery shaping real estate development.

Fort Worth is home to an Amazon distribution center with another center opening in Dallas, the fourth in the state. The 500,000-square-foot Dallas distribution center will handle small retail items and is slated to open in 2016 along Interstates 45 and 20.

Interiors Must Be Flexible, Too

Focusing on how people work rather than title or tenure at a company is also influencing the layout of interior spaces for collaboration, private focus time and “touching down.” Remote office workers who only visit the office occasionally, for example, as well as the speedy expansion/contraction of labor pools dictate this move toward flexible space.

The traditional big box office space lined with private offices and filled in the center with cubicle workspaces is losing its attraction in favor of open concept and loft interiors that combine work and “play” areas. Employers recognize the need for collaboration as well as focus time throughout the day among different work groups that a traditional office setting no longer accommodates.

Quality pre-builds that anticipate the desires of tech-minded, collaborative tenants are still a valuable investment. This is especially true if they are willing to bank on high-end finishes that attract tenants who prefer move-in-ready, modern spaces.

In residential spaces, city dwellers are opting for less square footage in favor of more amenities, ranging from pool houses and workout facilities to on-site bike repair and community rooms.

The sharing economy is influencing an interest in communal spaces that encourage face-to-face interaction as well as fewer individual parking spaces and more secure bike storage and proximity to transit.

These trends pose a challenge for remote real estate management arrangements. Management companies anticipate not only a move toward on-site management in some cases, but also new methods of staff training and oversight for building exterior and amenity maintenance.

Want more real estate trends? Download the full Whitepaper or read this post: Techy Options Go Beyond ‘Nice to Have’ to ‘Must Have’

If you would like to learn more about how this topic might affect your business, please contact Gary Jackson, CPA or call 972.202.8000.

Posted on Dec 2, 2015

RE WP Download-01For the last five years, experts in real estate accounting and commercial real estate investment have encouraged people and institutions to buy. Now we are starting to hear whispers as to how long a real estate bull market will last. Are we headed for a bust?

Not so fast. The U.S. economy is in a far different place than it was 10 years ago. Real estate developers, lenders and private equity investors have adopted a more cautious mindset that is demonstrated by bullishness on mixed use and re-use and a focus on mainstream methods of financing.

The Federal Reserve is expected to hold the line on already historically low interest rates. Plus, developers as well as their tenants are keeping more “rainy day” cash reserves for reinvestment. For these reasons and others, private equity investors and real estate analysts are predicting an extended positive cycle of growth in the Dallas/Fort Worth area and elsewhere.

 Neither developers nor investors are interested in extending financing any longer than necessary. They also are cautious about higher risk financing. Post-Recession, vehicles such as mezzanine financing are rare for mid-size to large enterprises. In fact, a new version of financing known as “unitranche” is combining senior and subordinated debt into one financing vehicle, making it more attractive and cost-effective for developers and less risky for investors.

Mezzanine’s one sweet spot appears to be among small deals where traditional bank financing comes up short and private equity can’t make up the gap. But the number of dedicated mezzanine players has also dwindled as they adapt their investment strategy to market demand.

There is also more competition. Real estate investment trusts (REITs) are sustaining popularity as a way to fund and invest in real estate while mitigating risk. Since 2009, investors have replaced bonds with investment in REITs and realized returns of 4-6% each year in dividends, according to CNN Money. Although any announcement of raised interest rates affects REIT prices — signaling investment volatility in 2015 right along with the stock market — long-term pragmatists are advising clients to hold onto their REITs and even add to them because a stronger economy equals a stronger real estate market.

The newest form of investment, crowdfunding, is also taking a small portion of the market. Vehicles for crowdfunding satisfy the DIY developer and investor who wants more options and more transparency. With minimum investments of $5,000, more individual investors have access to real estate investments, and can use it as a form of portfolio diversification. More access to cash from diverse sources can support a more stable real estate market, coupled with strategic development. Laws regarding crowdfunding investment vehicles are still evolving with the technology itself, so investors and developers alike need to thoroughly review the pros and cons.


Cautious About ‘Overbuilding’

With interest rates remaining fairly steady and reduction in inventory in both the commercial and residential markets, the National Association of Realtors projected $500 billion in commercial real estate investment closings by the end of 2015. Properties are trading at 6.6 percent higher average prices compared to second quarter 2014.

In the Dallas/Fort Worth area, one of the hotbeds for commercial real estate development is Uptown. Investors are contributing millions for new office development and remodeling, the first of which to open next year is the new $225 million McKinney & Olive office tower. It will connect to The Crescent and Ritz-Carlson Hotel with plans for a major pedestrian area and park as part of Crescent Real Estate’s bullish push in Uptown.

As for the five or six other competing projects planned in Uptown, it makes sense long-term, but may take a while to fill them with tenants. Investors and developers are expected to shy away from projects that focus too much on one type or class of commercial development in order to keep their portfolios properly diversified.


Want more real estate accounting trends? Download the full Whitepaper or read our next blog post:  Dallas Developers Focus on Flexible, Multi-Use “Communities”

If you would like to learn more about how this topic might affect your business, please contact Gary Jackson, CPA at or call 972.202.8000.

Posted on Jul 10, 2015

The Supreme Court of the United States recently ruled on a case that may have a profound impact on a number of Americans.  No, not that one, or that one.  We’re talking about the case Texas Department of Housing and Community Affairs v. The Inclusive Communities Project (ICP).  Not quite the sizzle of other recent cases, but the effect it could have on businesses involved in real estate and mortgage lending is significant.  The ruling in this case held that disparate impact claims are recognized under the Fair Housing Act.  Unless you’ve been following this case closely, you probably don’t know what disparate impact is or what the significance of it is (until recently I counted myself in that group as well).  Let’s start by defining disparate impact and understanding how it applies to housing.

What is Disparate Impact?

The Fair Housing Act “prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions based on race, color, national origin, religion, sex, familial status, and disability”.  The simple interpretation of this is that it is illegal to intentionally discriminate against (or have policies that discriminate against) a person when it comes to housing.  Disparate impact is the idea that a policy can have a discriminatory effect even if it wasn’t created with an intent to discriminate.  Simply, it is the theory that an individual or organization can be held liable for unintentional discrimination when it comes to housing or mortgage lending.  This means that if someone can show statistical evidence of discrimination against a protected class, they can bring an anti-discrimination lawsuit against your business.  You then have to prove in a court of law that there is an important business objective to the policy that is causing the disparate impact.  If that sounds like guilty until proven innocent to you, then you have a good understanding of the new ruling.

Can you give me an example?
Laurie Goodman, director of the Housing Finance Policy Center gives a good explanation as it relates to the mortgage industry:

“You can only hold a business responsible for what they can control. For example, if a lender applies uniform underwriting standards to all applicants, it will likely result in more mortgage denials for black and Hispanic applicants than for white applicants, because there is a difference in income, wealth and credit experience between the groups. Businesses certainly have a responsibility to support, and at the minimum, not to stand in the way of government programs that push for greater equality of opportunity. But that is different than the disparate impact doctrine, which could hold the private sector guilty of discrimination if their policies resulted in a differential impact on different racial and ethnic groups, despite the fact that these groups have differences in income, wealth and credit experience.”

So let’s be reasonable.

If someone brought a disparate impact suit for the above reason, the mortgage lender could show that there is an important business objective to requiring a minimum credit score in determining whether an applicant is eligible for a loan.  It would be easy to show historical data proving a higher rate of default for customers with lower credit scores which negatively affects the profitability of the business.  The business could feel confident they would win this suit, but the issue is the fact that they would have to defend that suit in the first place, and that is what has business owners nervous.  One more example is the case of Magner v. Gallagher.  In this case, Multi-family property owners in the city of St. Paul argued that the city’s housing code which requires that landlords to maintain minimum maintenance standards for all structures and premises for basic equipment and facilities for light, ventilation, heating and sanitation; for safety from fire; for crime prevention; for space, use and location; and for safe and sanitary maintenance of all structures and premises caused them to raise rents and decrease the number of units available to African-American tenants (which were the majority of people renting their properties currently).  A district court granted a summary judgement for the City (Magner), but the Eighth Circuit held the respondents (Gallagher) should be allowed to proceed to trial because they presented sufficient evidence of a disparate impact on African-Americans.  Yes, the court just ruled that policies put in place to require landlords to maintain adequate living standards in their apartments in St. Paul were discriminatory under disparate impact.  This case was later settled, but it just goes to show how crazy disparate impact cases could be.  A policy whose sole goal was to provide better and safer living conditions for tenants could be made illegal because it theoretically discriminated against the tenants it was trying to help.

So now what?

No one is really sure.  It could turn out to not really be that big of a deal, or we could see a flood of lawsuits.  It is possible that if you own an apartment complex in a neighborhood that is 20% African-American, and only 5% of your tenants are African-American, then you could be slapped with a disparate impact lawsuit.  In the case that was before the Supreme Court, it was concluded that disparate impact was established based on the fact that the Housing Department approved low-income housing credits for 49.7% of units in neighborhoods that were 90 – 100% non-Caucasian while it only approved credits for 37.4% of units in neighborhoods that were 90 – 100% Caucasian.  The ICP asserted that the allocation of these credits caused “continued segregated housing patterns by its disproportionate allocation of tax credits, granting too many credits for housing in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods”.  You can’t be sued on statistics alone, there has to be some evidence to suggest that the statistical discrepancy is caused by a policy you have in place.  That being said, the lack of evidence does not preclude someone from filing a disparate impact suit, it just means the case will be dismissed if the party bringing the suit can’t prove that “a challenged practice caused or predictably will cause a discriminatory effect”.  All we know for sure is that the boundaries of this law and its definitions will most likely be tested in the courts over the next few years.  If anything, it should be interesting.

If you would like to learn more about how this topic might affect your business, please contact Gary Jackson, CPA at or call 972.202.8000.