Shari

MARKET HIGHLIGHTS – OFFICE

• Office building sales continued to improve in 2013, with the number of sale transactions up 28% over 2012.. Over 1.12 millions square feet of office space was sold in 2013, with the majority of buildings sold less 20,000 square feet.

• Sales dollar volume of office properties reflected the market trend of the sale of smaller sized properties. $117,255,092 in office space was sold in 2012, compared to $36,458,680 in 2013. The vast change is attributed to the large turnover in downtown office building ownership in 2012.  While the 2012 market represented several out-of-state investors, 2013 sales showed more local owner-user activity.

• Office leasing activity is up in both downtown and the suburbs.  Average gross rent rates for suburban office space range from $10 – $18 per square foot, while the average gross rent rates for downtown space is $15 – $22 for class A space.  Large office construction projects such as the planned Arena Place, and renovation of buildings show exciting activity in the office market.  The cost of parking is a consideration of potential owners or tenants, who are seeking buildings that can provide low–to-no cost parking options.

• Buildings formerly considered office space are being converted to residential – apartments or condominiums – which have decreased the availability of downtown office space.

MARKET HIGHLIGHTS – INDUSTRIAL

• Market conditions continued to improve in 2013, with over 2.74 million square feet of industrial space sold, compared to 2.5 million square feet sold in 2012.  Available prime industrial space is scarce, as the inventory of quality industrial properties becomes smaller.

• Sales dollar volume of industrial properties also increased substantially over 2012.  $56,337,030 in industrial sales were reported in 2013, compared to $42,791,475 in 2012, representing an increase of nearly 32%.

• Industrial property values have recovered much of their losses, and are approaching levels not seen since before the recession.

• Lease rates vary greatly, depending on the type, size, location, quality, and condition of the industrial property.  Overall, lease rates are rising. “The availability of quality industrial properties is significantly reduced from just a few years ago,” stated Stu Kingma, SIOR, an industrial specialist with NAI Wisinski of West Michigan. “The continued expansion of the market, and the resulting lack of quality industrial properties for sale, has translated into higher demand for lease space.  As a consequence, lease rates have risen noticeably in various sectors with landlords beginning to enjoy a much more favorable leasing market.”

MARKET HIGHLIGHTS – RETAIL

¨ Market conditions improved significantly in 2013, particularly in the prime retail corridors (East Beltline, 28th Street SE, and the Grandville/Rivertown area).   The Grandville/Rivertown area is poised to add several new retailers planning to open in early 2014.  Shoe Carnival, ArtVan Pure Sleep, and  Gordman’s soon be operational.  Planet Fitness has opened  in the Rivertown/Grandville area and the 28^th St. SE area, within recently renovated Centerpointe.  The completion of the Centerpointe project has resulted in a large volume of leasing activity in the area.  Another retailer new to the West Michigan area, Garden Ridge, is renovating space in Jenison, in the building formerly used by Target .  A Walmart supercenter is under construction near 54^th St. and 131, and expansions of the Grandville and 28^th St. Walmart stores to supercenters is nearly complete. The Tanger Outlet in Byron Center is on track to open in 2015, capping a large volume of retail growth in the southern part of Kent County.

¨ Sales volume of retail properties increased by 37% in 2013 over 2012 and prices stabilized due to increased demand and quality supply being  absorbed in the main corridors. Landlords are starting to regain control and increase rents.  As competition for space grows, consumer confidence slowly elevates, and vacancy rates drop.

¨ The number of retail sale transactions increased 13% in 2013. The shrinking of the gap between list and sale price shows that values are rising and buyers are willing to pay more for properties than last year because greater opportunity is present in the market.

¨ Retail leasing activity is up.  In the primary retail corridors, vacancy rates have fallen and “class A” available space is limited.  Lease rates are slowly increasing, and there are fewer landlord concessions being incorporated into lease transactions. Secondary and tertiary markets are improving, but the pressure on pricing and concessions continues.

¨  A marked increase in new retail construction in the prime retail corridors shows a continuing of  increased demand for business expansion and new business entering the West Michigan area.

DETROIT LIONS FOOTBALL AND PROPERTY TAX “UNCAPPING”
MICHIGAN COURT MAKES THE CALL
By Steven K. Stawski, Esq.
For football fans, the term “uncapping” may have a different meaning than in a new legal opinion that is binding on Michigan courts.
This play-by-play review provides a “coaching moment” for property owners and related industry professionals, especially appraisers, accountants, realtors, bankers, trustees, business
brokers, and other participants in commercial real estate transactions. An unplanned“uncapping event” can significantly increase property taxes.

The “Play Under Review”: The sale and transfer of the Detroit Lion’s practice facility in 2004 for $44 million for 232.25 acres of land, a two-story office building, a practice building with an
indoor football field, an outdoor football field, a par-three golf course, and certain outbuildings.
It was originally billed as “no uncapping” because the seller and the buyer entities claimed that they fit within a certain exception that protects against increased in property taxes.
The Tribunal’s Initial Ruling on the Field—literally. The Michigan Tax Tribunal found no “uncapping event” occurred—the property’s taxable value stayed relatively low for the new owner. (The court abstained from comment on the par-three golf course within the football facility and possibilities of linemen yielding drivers.)
The “undisputable evidence” needed to overturn the call is whether the transaction fits within a legal exception that insulates a “transfers of ownership” from uncapping and increased property taxes.
Refresher on the “Rules of the Game”. Every current Michigan property owner benefits from a 1994 referendum that capped increases in a property’s taxable value to 5% or the rate of inflation, whichever is less. When a property has a “transfer of ownership,” however, an “uncapping” occurs and the taxable value increases to 50% of the fair market value.

Key Plays. The “transfers of ownership” that trigger “uncapping” events fall within three broad categories:
1) Commonly-recognized conveyances by certain instruments, including deeds, land contracts, and certain leases that are characterized as a conveyance;
2) Certain estate-planning conveyances such as those that are made to trusts or as distributions from trusts or for certain beneficiaries; and
3) Certain transactions that, because of a substantial change in the owner’s shareholders and members, are effectively constitute a legal “transfer” of the underlying property.

Legislative Exceptions that Prevent Uncapping. Michigan law provides 19 exceptions that prevent “uncapping” for tax purposes, such as transfers between spouses and certain estate planning situations and the “commonly controlled” exception at issue here.

Decision after Review. Upon a not-so-instant review of the 2004 transaction, the Michigan Court of Appeals ruled in October of 2013 to reverse the initial call.
The “Play-by-Play” in Slow Motion. Winding the tape back to 2000, the Michigan Court of Appeals reviewed the matter in slow motion and found that there were actually three elements
to the play at issue. Like a quarterback option play, the Lions’ practice field included a purchase option that was never exercised.
The Ford Motor Land Development Corporation (“Ford Land”) quarterbacked the deal by constructing and owning the practice facility in 2000-01; the Detroit Lions (owned by William Clay Ford Sr. and his wife and children) held leasehold interest with an option to purchase; and WCF Land, LLC (a single member LLC with William Clay Ford Sr. as its sole member) was the direct receiver after the lease option was not exercised.
Because the Detroit Lions never exercised the option to buy, the Court found a direct forward pass between Ford Land directly to WCF Land—two entities that did not meet the common control test and could not fit within the exception to uncapping.

Forward Progress. For purposes of forward progress, if the buyer and seller entities appear to be related by common ownership or otherwise, then verify with legal counsel whether the actual ownership interests fit within the specific statutory requirements for “commonly -controlled”—if not, an uncapping event will occur. Especially because the term “commonly controlled” is not defined by the Legislature—or the new published opinion—proposed “transfers of ownership” should be, evaluated individually in context with legal, tax, and related professional advisors.

Steve Stawski, Esq. a former Princeton football player, serves on the Education Committees of the Commercial Alliance of Realtors and the Michigan Land Title Association. He practices real estate law, business law, and commercial litigation and can be reached at (616) 307-1200.
SHRR 2743451v2