New Blog Site!

Warren’s blog can now be found on his new website: http://kirshenbaumrealestate.com/_blog/Cherrytree_Group_LLC_Blog . Please visit us there.

Frustration against BP is hurting small business owners

Frustration towards BP in wake of oil spill

Above is a link to a video about on a case that I am working on that appeared on NECN on its 5pm new’s broadcast last night, June 4, 2010.  The focus of the news media has been how consumers are boycotting BP gas stations because of the oil spill in the Gulf of Mexico and BP’s handling of the cleanup.  The issues that  I am working on show the difficulty of the small business owners, and the effects that the public sentiment against BP is having on independent gas station owners.

There is also a link to an article published on June 4, 2010 in the Patriot Ledger and the Brockton Enterprise.

http://www.enterprisenews.com/business/x1834542120/Local-BP-stations-protest-threaten-lawsuit-over-high-prices

Please let me know what you think!

The Mechanics and Specifics of How LSPs Can Assist Clients in Monetizing Brownfields Tax Credits

This post is a reprint of an article that I wrote for the LSPA (Licensed Site Professionals Association), published on April 20, 2010.

This article is intended to serve as a follow-up to an article that appeared in the February 2010 Newsletter in which Ned Abelson, a prominent Boston environmental attorney, discussed the Brownfields Tax Credit (the “BTC”), and detailed how the BTC may be helpful for LSPs and their clients. However, further explanation of how the BTC may be fashioned to operate as an instrument of reimbursement for remediation expenses becomes necessary once a client concentrates on exploring its eligibility for the BTC. This month’s article will therefore focus on how your clients can obtain and sell the BTC, thereby obtaining a cash reimbursement for a large part of their remediation expenses.

The Statutes
As you are aware, Massachusetts General Laws Chapter 21E (“21E”) forces clients that own or operate a site that has environmental contamination to clean up the site, which is a risky, time consuming, and very expensive process. The law generally considers the current owner or operator as one of the parties responsible for the cleanup, but if the current owner or operator is an “eligible person,” as defined in Chapter 206 of the Acts of 1998 (the “Brownfields Act”), under certain conditions he or she can be absolved of liability, and, once the cleanup is completed M.G.L. Chapter 63 §38Q (i.e. the BTC) provides for a tax credit of 25% (for a site closed with an AUL or with ROS status) or 50% (for a site closed without the need for an AUL) of the eligible costs incurred to clean up the site. The owner can then monetize the credits by transfer to a buyer.

The Economic Environment
We are in an era in which more and more sites being considered by developers will be Brownfields sites, and in order to continue to foster economic growth, the creation of jobs, increase tax revenue by stimulating the production of housing, commercial, and retail spaces for our workforce and citizens, the Commonwealth has a decided interest in ensuring that Brownfields sites be remediated, and the BTC is an effective tool to achieve that goal. Since the 1986 Internal Revenue Code first created tax credits for low income housing, such tax based incentives have been utilized very effectively by government to outsource to the private sector a public function and allow the development of a competitive marketplace to fashion an economic solution to a societal need. Since 1986, government has created historic tax credits, new markets tax credits, renewable energy tax credits, motion picture tax credits, and the BTC.

Brownfields Tax Credits (“BTC”)
The BTC is available to certain taxpayers in Economically Distressed Areas who commence and diligently pursue a response action and maintain a permanent solution or remedy operation status in compliance with 21E and the Massachusetts Contingency Plan. The BTC Program acts as a direct or dollar-for-dollar credit against a taxpayer’s tax liability to the Commonwealth of Massachusetts. The tax credits may be used all at once in a given tax year, or the buyer can use as much as they can in the current year and then carry excess credits over to a subsequent tax year for a period of five (5) years. Because the tax credits are certificated (as opposed to other tax credits where a buyer needs to be part of the ownership entity), they are attractive to Buyers and may be transferred by application to the Massachusetts Department of Revenue (the “DOR”). Once issued, each certificate has a unique number and is associated with the certificate holder by tax identification number, so upon transfer the certificate is redeemed and a new certificate is reissued to the buyer. The buyer attaches the certificate to its tax return and claims the credit, or a part of it, for 5 years.

BTC Procedure
Many times, once a cleanup has been achieved and the LSP’s engagement is concluded, the client moves forward with their development of the site without consideration of the BTC. To effectively obtain and utilize the BTC, a client will have to engage one or more firms to help apply for and obtain the BTC, secure a buyer for the BTC, and execute the purchase transaction. The risk of the RAO being invalidated by DEP is effectively a risk of recapture of the tax credits by the Dept of Revenue. A buyer will usually require that the seller indemnify the Buyer from this in the purchase agreement. Depending on the dollars involved, bonding against recapture is an option, but usually the indemnification will be based upon the seller’s financial ability. In terms of the risk of recapture from this type of recurrence, it is actually very low.

The Buyers
The market for the BTC is growing and stabilizing, and, being a certificated tax credit, the BTC is attractive to an increasing pool of buyers due to its dollar-for-dollar credit against Massachusetts taxes, low risk of recapture by the DOR (as the environmental solution precedes the BTC’s issuance), and the statutory language that allows buyers to not be affiliated or connected with the project in any manner whatsoever.

Conclusion
Philosophically, the BTC is no different from other tax credits, but practically speaking, it is a “certificated” credit which makes transfer more efficient, the risk of recapture is low, and there are no ongoing compliance and accounting requirements, all of which are elements that are prevalent in, and serve to complicate, other types of tax credits. As LSPs working on remediating Brownfields sites, expanding your focus to advocate that your clients utilize and take advantage of the BTC amounts to the performance of an important industry service. You will be assisting in the development of an efficient marketplace, a market that can trade and monetize these credits, and you will be sustaining and assisting the development process which creates our employment opportunities, while allowing the field of environmental remediation to continue beyond LSP involvement, thereby raising the tide for all boats.

The New Normal

I was meeting with a commercial tenant representative today over coffee, and during our discussion about what trends he was noticing in business, he said that he had been accumulating leads more rapidly over the past few months.  His view was that people were starting to consume more, or at least entertain thoughts of consumption and expansion efforts in business.  They’re not feeling more confident because the economy is on an upward trajectory, they’re just tired of being depressed.  I think he’s absolutely correct.  When you get hammered by a lot of bad news, eventually you don’t care anymore.  It gets to a point that you become sensitized toward bad news, and you just start moving forward with plans, and loosening the purse strings for no other reason than you become tired of the ways things are. 

This is the new normal.

Thinking about this, I realized that, although my set of circumstances differ, and my perspective is shaped by the view from my seat, my conclusion is the same.  

Things changed in the Fall of ’07, and have not been the same since.  2009 was an improvement, challenging but good.  Business in 2010 is different to the way it was in 2009 — things are changing rapidly.  There’s more activity, but not greater volume; clients are focused on cost cutting, do not have the ability to risk their remaining resources, are being smarter about their spending, and are less likely to ride with a project for as long as they had done in earlier years.  These factors are pressuring the market for services to change from the a la carte delivery of specific services to a more all-encompassing pre fixe.  Clients are demanding the delivery of those services in a way that adds value to their projects.  This is leading to more price stability for buyers of services, more specialization and niche building by sellers of services, and a movement away from the traditional ways in which services were priced and delivered. 

Once again, a new normal.  

Naturally, the question of whether we “are at the bottom” and “when is the economy going to return to normal” will be asked.  Well it isn’t going to — there’s a new normal. 

Our economy has lost millions of jobs during this recession, and even if we could replace them, it would take many years to do so.  Current business conditions, however, discourage small businesses from adding new workers.  Specifically,  health care costs, taxes, data privacy concerns, payroll costs and employee benefits are a major discouragement to hiring new employees.  At the same time, new technology has made it easier to outsource job functions than to hire more employees.  A company that needed 8 employees 10 years ago, can now achieve the same output with only 3 employees.   It’s possible now to bank online and make deposits from the office; bookkeeping  and accounting are easily outsourced as online software programs download banking, billing, revenue and expense data and process the data into registers and reports; billing and accounting information can be accessed from the internet by an outsourced independent contractor; printing, copying, marketing, advertising, internet strategy, as well as informational technology are all outsourced, and administrative and secretarial services are shared between companies that have co-located in larger office space, with any excess services needed being handled by virtual assistants. 

My point being that the old jobs lost are not going to come back, big companies will shrink, and small companies will try to remain small.  Jobs are being created, and will continue to be created but they are being created by new businesses, not existing businesses.  The new jobs are in different fields, and workers will need new skills. 

Once again, this will be the new normal. The new normal is to adapt or die.  Adaptation will need to be done quickly, and will require one to be nimble.  Large entities are by their nature not nimble and cannot adapt quickly enough to create significant opportunities in the new normal.  It’s up to us little guys to do that.  I’m up to the challenge, are you?

Politics and Personality

You would have to be a complete loser to not be able to hold on to the democratic senate seat held for the past half century by the late Ted Kennedy in liberal Massachusetts.  Turns out, all you had to be was Martha Coakley.  Nothing against Scott Brown, who proved to be an astute politician, tapping into a disgruntled blue-state electorate with the right message at the right time, but the odds were against being the first Republican to be elected as a Senator from Massachusetts since 1972.  The election of Brown was fueled by an electorate that is disillusioned by the direction that the country is taking at the helm of our Democratic leaders in Washington. While the prior Republican Administration has been rightly blamed for the policies, deregulation, actions, and positions that created our current economic turmoil, the current Democratic Administration now owns the problem, as usually happens when you take over in the middle of a mess.  The current leaders in Washington have been in charge for a year now, and they have not engendered confidence and support for their agenda of  “change”.  Against that backdrop, Democratic Senate candidate Martha Coakley faced a restless electorate, and snatched defeat from the jaws of victory. Hers was one of the most listless, uninspiring, and misguided campaigns that I have had the displeasure of watching.  Martha Coakley, the Attorney General, clearly showed that she has very limited political skills. Hers was a botched campaign of massive proportions, a complete and utter failure to read the political landscape, the will of the people, and to energize an overwhelmingly democratic electorate that were still prepared to hold their noses and vote for her if she could have even showed one ounce of personality, one iota of a spark, one tiny inkling of political leadership.  She, however, showed nothing. Even a glimmer of personality would have shown she could interact on an inter-personal level with the other Senators in Washington, and represent us adequately in Congress.  She couldn’t figure out that the youthful, dynamic, vibrant and personable Scott Brown could beat her during this time of disillusionment with government, so she spent the Holidays with her family.  No need to run a campaign. 

My point being that politics and personality are inextricably mixed, and that even in one of the most liberal states in the nation, a democratic candidate with the personality of a Martha Coakley could lose a Senate seat held by her party for almost fifty years. 

From a business perspective, this, once again, is proof positive that we are in unchartered waters.  People are not confident in the path we are travelling, so they are holding back, whether it be from consumer purchases, investments, or on the institutional side, banks are holding onto, rather than lending money.  Taken together, these factors are more evidence of the point that I have made in many previous posts that we are nowhere nearly out of the recession woods yet, and that for the majority of the populace these remain treacherously difficult times.  From difficulty, we must, however, make opportunity, and to me it looks like 2010 will continue to present us with investment opportunities in the distressed asset marketplace.

Holidays 2009: Distressed Asset Investment Letter

Dear Friends:

With year-end traditionally being a time to slow down and reflect, this post is intended to be a review of the past year, and a prognosis of sorts for what the transactional deal marketplace may show us in 2010.

However, slowing down and reflecting on this year only gives me that post-roller coaster sickness feeling. This was one of the most challenging years in business for most of us. Although it ended up being a positive year from a business standpoint, it required a wholesale reinvention of what we do, as most of our business models were affected by many polar opposite, sometimes unintended and varied influences that converged in a dizzying array of confusion. It was humorous to read that many prognosticators declared that the end of the recession was near, or even that the recession was behind us, because, contrary to the statistical reports showing declines in unemployment figures and upticks in consumer confidence, in reality the fundamental problems that grounded the economy in 2007 are not significantly different from those prevalent now. Other than runaway bank profits and the gilded age of Wall Street bonuses, our world is now as it has been for the past 2 years. We have made forward progress, but what the economic landscape has in store for us in 2010 will prove to be a mixing pot of small explosions that together will concoct a distressed asset stew full of nutritional values that we may only be able to sample if we have the coupons. Well, friends, we are the manufacturer of those coupons.

Let me try and catch you up on all that has happened in this busy year! Continue reading

Preserving Affordable Housing

 

The Boston Globe, on November 26, 2009 reported that Governor Deval Patrick had signed into law a recently enacted statute dubbed the “expiring use” bill.  This new law will have the effect of preserving as affordable, thousands of units of housing in Massachusetts intended to be used by low-income residents.  In a November 30, 2009 press release announcing the new law, the Patrick Administration stated that the bill “creates a regulatory framework to keep affordable rents in properties where long-term publicly subsidized mortgages are paid off and affordability restrictions can then expire.”  The press release also claims that as many as 90,000 housing units in Massachusetts could be affected by expiring affordability restrictions, with about 17,000″ of those units at risk of losing their affordability through expiring use over the next three years.”  These numbers are simply staggering, so, understandably, this new law, if it does what they say it does, could be a very significant arrow in our quiver of affordable housing preservation tools, and may even present distressed asset investment opportunities. Continue reading