MEREDA’s Morning Menu – The Office Environment Today and Tomorrow

Join us in person on October 22 as our Moderator, Craig Young, Partner & Broker at the Boulos Company, and MEREDA Vice President, discusses the current status of the office environment with two leaders in the office market, Paul Larkins, AVP, Real Estate Strategy and Projects of UNUM and Rick McKenney , Vice President of Sales at Creative Office Pavilion

October 22, 2021 – 7:30 – 9:00 AM
In-Person – Masks are Required

REGISTRATION IS REQUIRED!  No walk-ins will be allowed. 

Holiday Inn By the Bay
88 Spring Street
Portland, ME

About the Event:

MASKS ARE REQUIRED: Due to the uncertainty with the Coronavirus Delta variant, and to protect the health and safety of our attendees and presenters, we request that ALL ATTENDEES wear a mask for the duration of the event, unless eating or drinking, and strongly encourage ALL ATTENDEES to be vaccinated.

A buffet breakfast will be available with the Holiday Inn By the Bay staff serving each guest. Upon arrival, please check in, proceed to the buffet while maintaining 6’ between other guests, and go directly to your table. Coffee will be located on each table.

We will continue to follow all State & Federal CDC guidelines and suggested protocols, and will respond accordingly. Updates will be posted on our website.

Buffet Breakfast: 7:30-8:00 am
Program: 8:00-9:00 am

Join us in person on October 22nd as our Moderator, Craig Young, Partner & Broker at the Boulos Company, and MEREDA Vice President, discusses the current status of the office environment with two leaders in the office market, Paul Larkins, AVP, Real Estate Strategy and Projects of UNUM and Rick McKenney , Vice President of Sales at Creative Office Pavilion

We will explore UNUM’s recent re-development of its Portland campus and how UNUM intends to have its workforce return to work – or not.  We will also hear about new trends in office space design, furniture and work-from-home office arrangement.

Are we all ready to return to the office?  Join us and let’s hear what the expects have to say.

Registering for this Event:

Members: $45 each | Non-Members: $55 each
Prices increase by $10 after October 15

Your RSVP is requested by October 15 . Payment is expected at the time of registration. No refunds will be granted to anyone who registers, but fails to attend or who cancels after October 15 . 

For more information and to register, visit  http://www.mereda.org

This Morning Menu Breakfast Event is Sponsored by Norway Savings Bank and UNUM.

Meet our Panelists:

Paul Larkins has more than 25 years of leadership experience guiding corporate real estate strategy and direction. As an Architect, he has successfully combined his education and construction background to provide overall insight and knowledge to large corporations. As the leader of corporate real estate strategy, Paul has provided long range vision and overview of real estate requirements while balancing the needs of the business to achieve the optimal space solutions. Paul has performed wide range of management activities for the Unum ensuring the successful delivery of complex interrelated projects across the company for the past 15 years. He has been an instrumental advocate for integrating information and corporate best practices to achieve cost restructuring to deliver best of class customer service.

Paul’s exceptional track record of facility and capital improvements has refocused management’s views of the real estate impact to profitability and importance of metric reporting and scorecard measurements for facility performance and efficiency. Paul has previously worked for a large number of Fortune 500 companies and since with Unum has expanded his role to include heading up the corporate strategy involving our future workplace portfolio and overseeing all transaction management including becoming a self imposed landlord and tenant management.

Paul currently resides in Chattanooga, TN as Unum headquarters, who is the nations’ largest disability insurer, with offices in over 40 cities and 3 countries with 10,000 employees and a portfolio of almost 3.0 million square feet of space. Paul grew up in Chicago and spend 10 years in the Real Estate industry prior to relocation out east to Portland, ME. He holds an MBA from the University of Tennessee, BA of Architecture from Illinois Institute of Technology and retains architecture licensure in 5 states, a Certified Commercial Investment Manager (CCIM), a Certified Facility Manage and Sustainable Facility Profession from IFMA as a member for 20 years, and has Master of Corporate Real Estate and Workplace Strategy from CoreNET.

Rick McKenney is the Vice President of Sales for Creative Office Pavilion(COP) in Portland and part of the leadership team that spans New England. COP is a Certified Herman Miller Dealer with offices in ME, MA, NH, VT, RI and NY.

Hired in 1991 to help build a team in Maine, Rick has focused on partnering with clients throughout the state to create inspiring environments that best support the needs of their employees. Rick’s involvement with Herman Miller, their Workplace Strategy team, and their distribution network throughout the US gives him access to valuable research and information, which in today’s rapidly changing environment, is extremely valuable.

As a lifelong Mainer and graduate of the UMaine system, Rick knows the value of a strong community and the importance of giving back. Rick has volunteered and/or participated as a board member for the Big Brothers/Big Sisters, United Way of Greater Portland, Junior Achievement and many other Maine organizations.

Outside of the office, he enjoys the best that Maine has to offer in hiking, fishing, skiing and all things outdoors. He resides in Cumberland with his wife Leslie and dog Rizzo.

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Stabilizing Long-Term Housing Costs and Creating Permanent Workforce Housing

On June 17, 2021, MEREDA presented a virtual presentation  titled, “Creating New Affordable Housing through Limited Equity Housing Cooperatives”.  Below is an article focusing on this same topic.

By Harry Zehner, National Co-op Coordinator, Urban Homesteading Assistance Board (UHAB)

Availability and affordability of workforce housing is becoming a serious problem across Maine – particularly in coastal communities, not just cities, affecting communities of all sizes. Working people who keep the restaurants and shops running are being priced out by folks moving to Maine and vacationers’ second homes. Meanwhile, businesses and local institutions are having trouble recruiting employees. “I have spoken with senior executives at MaineHealth who universally cite housing shortages as their primary housing challenge. MaineHealth has over 2,000 job openings currently statewide. Nurses from outside of Maine have accepted job offers only to later rescind those offers when they cannot find housing.”

Luckily, some here in Maine have looked around and found a solution to this budding problem. One solution which has been successful in stabilizing long-term housing costs and creating permanent workforce housing is limited-equity cooperative housing. These affordable co-ops are collectively owned and operated by their residents. Instead of rent, limited-equity co-op members pay a monthly maintenance fee. Members democratically elect a board of directors and use the monthly fees to operate and maintain the building they live in. By removing profit and speculation on housing, and by giving residents full democratic control of their buildings, affordable co-ops can form an important, community-centered bulwark against rising housing costs.

In places like New York City, limited-equity cooperatives have been one of the most successful models of affordable, workforce housing for nearly a century. However, affordable co-ops are not reserved for the largest cities — from Portland to Spokane to Kansas City and many places in between, limited equity housing cooperatives are being looked to as a permanent solution to the now often heard refrain: “Nobody can afford to live here anymore.” The national spread of interest in limited-equity co-ops would be extremely helpful to investment in cooperatives here in Maine. Organizations like the Urban Homesteading Assistance Board (UHAB) — which has worked to fund, organize and manage affordable housing cooperatives across New York City for decades — have a wealth of knowledge and technical know-how to share.

Of course, funding will always be a primary concern with any new project like this. But we should also consider the benefits of investing in affordable, community-controlled workforce housing. Investing in cooperatives will help keep our small cities thriving, by both supporting the working people that make them tick and ensuring that our communities are dynamic and socio-economically diverse. The people are what make our towns and cities, and we would be remiss to prioritize second vacation homes over affordable housing for the people who live, breathe, eat (and spend) year-round.

Funding is still an important issue. Luckily, we can look to the burgeoning cooperative movement in Portland for direction. Over the past two years in Portland, multiple co-op housing developers have worked with the city to fund new construction using tax increment financing, Community Development Block Grants and Brownfield funds. Although critics have pointed out that cooperative housing projects are sometimes marginally more expensive to support than traditional housing development, unlike traditional market-rate housing, they guarantee a source of permanently affordable housing far into the future.

Maine is relatively new to cooperative housing, but the homes which do exist are already bearing fruit. For example, the Raise-Op housing cooperative in Lewiston successfully kept its tenants housed and debt-free during the COVID-19 pandemic, even as the economic downturn affected residents. In addition, as rents skyrocketed up by 35% in the Lewiston area from 2014-2017, Raise-Op only experienced a 5% increase in costs, saving residents thousands of dollars a year.

“Portland’s elected officials and city staff have worked hard to make city-owned land and tools like tax-increment financing available to address the housing shortage. At the state level, elected officials and staff are also engaging the issue head on. The Department of Economic Development has identified workforce housing as a strategic priority. The Legislature has formed a commission to study zoning and land use restrictions. The Governor has created and filled a new senior advisor role for housing policy” – Brian Eng

Working people are what make or break our communities. As they slowly get priced out of Maine’s cities, we need to take proactive steps to create more affordable workforce housing. One part of our plan should be investing in building democratic limited equity co-ops.

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The Faulty Workmanship Exclusion in Builder’s Risk Insurance Measure Thrice, Cut Once

By George F. Burns, Shareholder, Bernstein Shur

Builder’s risk insurance is perhaps the least understood insurance product in the construction world. Even sophisticated construction participants are not quite sure what a builder’s risk insurance policy covers, who has rights to recovery, or how builder’s risk coverage dovetails with other insurance like comprehensive general liability and worker’s compensation insurance.[i] Many insureds have a vague notion that the product covers damage to work on a project, but that is about all they know.

A full education on these questions is more than this article will undertake. Rather, the focus here is on an important exclusion in most builder’s risk policies: the exclusion for faulty workmanship. A brief examination of case law regarding this exclusion is a good vehicle for showing the complexity of builder’s risk analysis. The message here is to be careful before jumping to conclusions either in favor or against coverage: faulty workmanship may have been a factor in a loss but that alone does not necessarily destroy coverage. On the other hand, factors contributing to the loss other than faulty workmanship do not in and of themselves guarantee coverage. Best to measure thrice and cut once in this area. The three “measurement” steps are the same here as for any insurance policy: is there coverage, is there an exclusion, and is there an exception to the exclusion? As disappointed insureds might tell you, it is better to ask these questions before you buy the product rather than after a loss.

Measurement No. 1: Is There Coverage in the First Place?

Speaking generally, builder’s risk insurance policies cover damage to the work of the project, and items related to that work, often arising out of extraneous causes like fire, collapse, or other physical calamities. There are some losses that simply do not qualify for coverage right out of the gate. E.g., Builders Concrete Services, LLC v. Westfield National Insurance Company[ii], no coverage for parts of the structure or building not involved with the work; Bergeron v. State Farm Fire and Cas. Co.[iii] , a dam not a structure covered by the policy; and Tocci Building Corp. v. Zurich American Ins. Co.[iv] grouting and patching a wall to meet municipal ordinance requirements was not covered physical damage.

Builder’s risk insurance is more accurately viewed as a first-party policy, protecting the insured from property damage rather than a third policy that provides defense and indemnification to the insured from claims of third parties. In everyday terms it is more like auto collision insurance than auto liability insurance. See, e.g., 689 Charles River, LLC v. American Zurich Insurance Company[v] (condo contractor not entitled to defense and indemnification from a poor workmanship claim).

There are all sorts of variations of builder’s risk insurance policies, and typically the prospective insured is presented with a varied menu of possible coverages. Not until a loss occurs do many insureds realize to their surprise that a loss is covered or not covered.

Measurement No. 2: Is There an Exclusion?

Assuming there is coverage to begin with, is there an exclusion that takes coverage away? The damaged property may be the kind of property the policy protects but an exclusion may apply. A common exclusion is the faulty workmanship exclusion. Here is a sample from a Zurich policy: “We will not pay for a loss caused by or resulting from any of the following. But if loss by a Covered Loss results, we will pay for the resulting loss caused by that Covered Cause of Loss.

Faulty, inadequate, or defective:

Planning, zoning, development, surveying, siting;
Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
Materials used in repair, construction, renovation, or remodeling; or
Maintenance; of all or any part of any Covered Property wherever located.”
A similar clause was at issue in Rocky Mountain Prestress, LLC v. Liberty Mutual Fire Insurance Company[vi] The whole claim was based on the faulty workmanship itself. The distinction to keep in mind is between the bad work versus the consequences of bad work. In Rocky Mountain, the contractor sprayed windows with the wrong product leading directly to damage to the windows. Simply stated, there was no coverage that would fund making poor work right.

Measurement No. 3: Is There an Exception to the Exclusion?

Just as an exclusion can punch a hole in coverage, an exception to that exclusion can fill that hole. Such is the case with the “resulting loss” exception to the faulty workmanship exclusion.

In Joseph J Henderson & Sons Inc. v. Travelers Property Casualty Insurance Company of America[vii] , an Iowa case, the issue was whether the faulty workmanship exclusion was fatal to a claim for roof damage caused by both a windstorm and faulty workmanship. The insurer argued that there was no coverage for the windstorm because that cause of loss was subject to an “anticoncurrent-cause,” a clause that essentially destroyed coverage if any other event contributed to the loss, in this case faulty workmanship. The faulty workmanship exclusion contained an exception similar to the resulting loss exception in the Zurich policy quoted earlier in this article and, unlike the windstorm-triggered clause, did not contain an anticoncurrent-cause clause. The insured prevailed. Had the faulty workmanship exclusion contained an anti-concurrence provision, as there was for the windstorm clause, the insured may have not prevailed. There was no such clause.

What to Do?

Owners and contracts should take these three “measurements” before buying the policy and not proceed blindly until there is a loss: coverage, exclusions, and exceptions. In both timeframes, before policy purchase and after a loss, it is best to simply read the policy, better yet with the assistance of a seasoned insurance agent, with the particular challenges and risks of each project in mind.

[i] For an analysis of the interrelationship of builder’s risk with other kinds of insurance products, such as a comprehensive general liability insurance see General Electric versus Zürich American Insurance D. Maine | September 27, 1996 | 952 F. Supp. 18
[ii] Builders Concrete Services, LLC v. Westfield National Insurance Company N.D.Ill. | September 14, 2020 | 486 F.Supp.3d 1225
[iii] Bergeron v. State Farm Fire and Cas. Co. N.H. | November 15, 2000 | 145 N.H. 391
[iv] Tocci Building Corp. v. Zurich American Ins. Co. D.Mass. | September 25, 2009 | 659 F.Supp.2d 251
[v] 689 Charles River, LLC v. American Zurich Insurance Company D.Mass. | September 04, 2018 | Not Reported in Fed. Supp.
[vi] Rocky Mountain Prestress, LLC v. Liberty Mutual Fire Insurance Company C.A.10 (Colo.) | June 02, 2020 | 960 F.3d 1255
[vii] Joseph J. Henderson & Sons, Inc. v. Travelers Property Casualty Insurance Company of America C.A.8 (Iowa) | April 20, 2020 | 956 F.3d 992

Article originally published by Bernstein Shur on May 11, 2021, https://www.bernsteinshur.com/what/publications/the-construction-advantage-the-faulty-workmanship-exclusion-in-builders-risk-insurance-measure-thrice-cut-once-and-maines-home-construction-contracts-act-maines-unfair-trade-practices/ 

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The Right Equation for Responsible Development: Spotlight on One Merchants Plaza

Each year, the Maine Real Estate & Development Association (MEREDA) recognizes some of the state’s most “noteworthy and significant” real estate projects, completed in the previous year. The exemplary projects from across the state, completed in 2020, not only embody MEREDA’s belief in responsible real estate development, but also exemplify best practices in the industry, contributing to Maine’s economic growth by significant investment of resources and job creation statewide.

This year, MEREDA honored projects from Portland to Pittsfield to Bangor, with each receiving special recognition at MEREDA’s 2021 Virtual Spring Conference on May 20th.

In a multi-part series exclusive to the Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation. MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, difficulty of the development, uniqueness, social impact and job creation.

MEREDA’s 2020 Top 6 recipients include:

Rock Row Phase 1 Retail Center, Waterstone Properties Group (Westbrook)
82 Hanover Street, Port Property Management (Portland)
Hospice of Southern Maine, Zachau Construction / SMRT (Scarborough)
Solterra, Portland Housing Authority (Portland)
One Merchants Plaza, Sky Villa Properties (Bangor)
Puritan Medical COVID –Building Expansion (P2), Puritan Medical Products (Pittsfield)

Please join us this week in celebrating One Merchants Plaza.

MEREDA:  Describe the building and project.

Sky Villa Properties:  One Merchants Plaza, a seven story Class A office building, was the first all concrete building of its kind in the Bangor area. Built in 1972, the new building was set in the heart of the Bangor business district, with iconic views of the Kenduskeag Stream and the Penobscot River. It was designed by Eaton Tarbell, a well-known Bangor architect.

Working with Bev Uhlenhake of Epstein Commercial Real Estate, David St. Germain of Sky Villa Properties. purchased the One Merchants Plaza property for $1.85 million, with a plan to invest approximately $2.2 million in renovations. In 2020 after a lot of good decisions and hard work, the building became the new headquarters to Haley Ward, Inc., formerly CES, Inc., after extensive renovations by David and his team.

Other tenants include the Bangor Daily News, UBS, and Wabanaki Public Health.

MEREDA:  What was the impetus for this project? 

Waterstone:  Growing Sky Villa Properties beyond its initial focus on residential properties within the Bangor, Brewer and Hampden areas was always a priority of David’s. After a few successful commercial endeavors in the area, he set his sights on One Merchants Plaza, with a desire to realize the building’s full potential by drawing new tenants through HVAC, aesthetics, and energy improvements.

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Waterstone:  Business owners and entrepreneurs in Bangor are fortunate to have the City of Bangor’s Economic Development department as a resource and partner to help keep projects progressing. Tanya Emery and her team at the City recognized the importance of the having this building fully occupied and guided the permitting process so there were no surprises. The total time was around three – six months from the purchase and signed lease agreements to permitting and demolition.

MEREDA:  Tell us about the most challenging aspect of getting this project completed.

Waterstone:  Once David set his mind to purchasing One Merchants Plaza and committed to the extensive renovations, the pieces clicked into place. “The success of One Merchants Plaza could not have happened without the right people in place for things to work smoothly,” said St. Germain. “Our team of Haley Ward, Inc. (formerly CES), Bowman Constructors, Bowerbird Design Collaborative worked together throughout the construction process for a seamless project.”

MEREDA:  Something unexpected you learned along the way was….

Waterstone:  As a part of the due diligence with the property, St. Germain estimated that he could save significantly on energy costs through HVAC and lighting upgrades but was able to expound on the savings by tinting the windows. Denis St. Peter of Haley Ward did the legwork and investigated window tints that proved to be a tremendous savings in the efficiency of the building given the floor to ceiling windows. Speaking of Haley Ward another unexcepted surprise and very welcome was the growth of the company in 2020 and their leasing additional space on the fifth floor. They currently occupy 24600 sq ft out of the building total which is 54300 sq ft.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable? 

Waterstone:  Over the last 10-15 years, Downtown Bangor has seen remarkable growth and revitalization. Adding over 100 employees to a business building that was not at maximum capacity prior to the purchase and returning it to the significant economic development catalyst helps highlight Bangor’s economic vitality. As St. Germain said, “This unique structure stands out in the City and helps the Queen City sparkle.”

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Like-Kind Exchanges Present a Number of Tax Deferral Options Part 2 of 3

By S. Andrew Smith, CPA, Principal, Baker Newman Noyes

This article is the second in a 3-part series on the mechanics and tax benefits of Like Kind Exchanges

In Part I of our series of articles we discussed some of the recent legislative changes to the §1031 rules and explained the simplest form of a like-kind exchange, the simultaneous exchange. In Parts II and III, we will talk about the more common and more complex types of exchanges used in the real estate world.

Delayed Exchange

Delayed exchanges involve at least 3 parties and are undertaken when a simultaneous exchange is not feasible. One of the parties is the qualified intermediary, who is introduced for one reason: To hold the cash on behalf of one or more of the primary parties, and take title to the replacement property before transferring it to that primary party. The QI serves in this role because if the cash instead were received by the primary party, even if held only for an instant, it would constitute taxable boot and defeat the intent (tax deferral) of the §1031 transaction.

The QI must be an arm’s length 3rd party and choosing a reputable one is important because the QI ensures the rules of §1031 are adhered to and it often holds large sums of others’ money.

Many delayed exchanges begin almost by accident. Taxpayer A is approached about selling an asset (Property A) but is uninterested in paying the taxes on the gain. Recall that Taxpayer A cannot receive the proceeds from the sale. Instead, Taxpayer A must arrange for the QI to take possession of the proceeds. That sale of Property A starts the clock ticking towards two crucial deadlines:

  1. 45 day rule: The first deadline occurs 45 days after the sale. Within this period, Taxpayer A must identify a suitable replacement property for Property A. There are very detailed rules regarding identification procedures and among the alternatives, Taxpayer A may identify at least 3 specific, potential properties, and close on at least 1 of them.
  2. 180 day rule: The acquisition itself must occur within 180 days from the sale date of the relinquished property. However, that 180 day window may be shortened (but not lengthened): If the taxpayer files its income tax return for the period that includes the sale, the date the return is filed represents the last day to make the acquisition. This is an extremely important point to remember and may require taxpayers to file extensions for their tax returns in order to avail themselves of the full 180 days.

During both the identification period and the closing period, the cash received from the sale of Property A is held by the QI and is inaccessible by Taxpayer A. If Taxpayer A fails to identify any replacement properties within the 45 window, the exchange fails and the money will be transferred from the QI to Taxpayer A, thus triggering the gain. If Taxpayer A makes a valid identification, the cash must then be either spent directly by the QI to acquire the property, or held by the QI until the expiration of the entire 180 day period, even if the taxpayer later realizes the acquisition will not occur. Some would consider the potential “tying up” of the cash for 180 days a serious drawback and therefore should weigh the likelihood of closing on a suitable replacement property before starting the exchange process.

Sometimes failed exchanges can produce tax deferrals unrelated to §1031. If a sale that legitimately starts the 45 and 180 day clock occurs late in one year, and the §1031 exchange fails early in the second year, the gain will be fully taxable. However, because proceeds are received in a year following the sale (the QI held the proceeds until that point), gain may be deferred into the second year because the transaction likely qualifies under §453 as an installment sale.

Taxpayers often engage a QI just prior to a sale and only then begin looking for a replacement property. This can create a great deal of urgency and stress on the seller as they only have 45 days in which to identify a potential replacement property. Once the 45 day window closes, the taxpayer may only complete a valid exchange by acquiring one of the identified properties. There are no substitutions allowed beyond the 45 day time frame. For this reason, many exchanges fail, but the fees to keep the §1031 option open, even if only for 45 days, may be quite modest compared to the potential tax savings.

S. Andrew Smith is a Tax Principal at Baker Newman Noyes specializing in closely held business and real estate transactions. He has advised on numerous Section 1031 transactions. If you think a like-kind exchange is something that could benefit you, please contact Andy at asmith@bnncpa.com.

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The Right Equation for Responsible Development: Spotlight on Solterra

Each year, the Maine Real Estate & Development Association (MEREDA) recognizes some of the state’s most “noteworthy and significant” real estate projects, completed in the previous year. The exemplary projects from across the state, completed in 2020, not only embody MEREDA’s belief in responsible real estate development, but also exemplify best practices in the industry, contributing to Maine’s economic growth by significant investment of resources and job creation statewide.

This year, MEREDA honored projects from Portland to Pittsfield to Bangor, with each receiving special recognition at MEREDA’s 2021 Virtual Spring Conference on May 20th.

In a multi-part series exclusive to the Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation. MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, difficulty of the development, uniqueness, social impact and job creation.

MEREDA’s 2020 Top 6 recipients include:

Rock Row Phase 1 Retail Center, Waterstone Properties Group (Westbrook)
82 Hanover Street, Port Property Management (Portland)
Hospice of Southern Maine, Zachau Construction / SMRT (Scarborough)
Solterra, Portland Housing Authority (Portland)
One Merchants Plaza, Sky Villa Properties (Bangor)
Puritan Medical COVID –Building Expansion (P2), Puritan Medical Products (Pittsfield)

Please join us this week in celebrating Solterra.

MEREDA:  Describe the building and project.

Portland Housing Authority: Located at 58 Boyd Street in East Bayside and aptly named for the nearby urban gardens and Italian community which was once there, Solterra (“sun and earth” in Italian) is a mixed-income, six-story building featuring 23 efficiency, ten (10) one-bedroom, thirteen (13) two-bedroom and nine (9) three-bedroom apartments. Solterra features a rooftop solar array, a community space (The Harvest Room) adjacent to the Boyd Street Urban Gardens, free WiFi service for residents, 23 automobile parking spaces, 28 secure bicycle spaces within the building, a laundry room, recycling and trash services, and, eventually, composting services. Solterra was modeled at 34% more energy efficient than a building meeting code requirement.

Solterra was one of two projects in Maine to receive a competitive grant from Efficiency Maine to install 145 rooftop solar panels. The 50-Kilowatt system allows enough savings to cover all common area electricity and free WiFi for all residents. 80% of the units are affordable to households earning below 60% of the Area Median Income (AMI). 20% of the units have no income restrictions. Rents range from $788 for an efficiency to $1,810 for a three-bedroom. 28 units have project-based rental assistance, meaning the resident only pays 30% of their income for the unit and the federal Housing Choice Voucher program covers the difference.

Solterra was able to safely provide needed employment for all those involved during its final phase of construction during the COVID-19 pandemic, when unemployment in Maine and nationally was at record highs. The $10 Million contract awarded to construction manager Wright-Ryan Construction kept dozens of Maine subcontractors employed during a challenging time. The larger economic impact will be helping the families that will only pay no more than 30% of their income toward housing costs, considered a benchmark of affordable housing. All utilities are included in the Solterra rent. The affordability allows residents a better chance at avoiding food insecurity, and health problems, both major issues in Maine today.

While the full social impact of Solterra remains to be seen, the project has already had a positive impact on the character of the East Bayside neighborhood. It has provided hope for many families who are seeking affordable rental housing in the City of Portland. And, Solterra has hopefully inspired trust in the city’s commitment to build forward-thinking, environmentally sustainable, energy efficient, accessible and beautiful affordable housing.

MEREDA:  What was the impetus for this project? 

Portland Housing Authority:  Solterra was designed to contribute critically-needed affordable units to the City of Portland’s housing stock, while also accommodating the local community’s social, physical and environmental needs, with accessibility, quality of life, durability and environmental sustainability as keystones to the design process. For example, the rooftop solar installation not only reduces the building’s environmental footprint, but also provides a crucial cost-savings, which partly subsidizes building-wide WiFi Internet so residents can remotely access work, educational resources, and a variety of support services. This includes telehealth services, which are provided through a partnership between Greater Portland Health and the Portland Housing Authority, but also early childhood education resources, literacy training, after-school activities, employment services and workforce training.

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Portland Housing Authority:  Planning for Solterra was quite involved, in part so the project could capitalize on grant funding from Efficiency Maine’s Energy Community Demonstration Projects in Affordable Housing program and incorporate design elements to achieve high energy efficiency. Additionally, the site required extensive remediation of contaminated soil and ground stabilization with piles. The project was in the pre-construction phase of planning, design and securing financing for over two years.

MEREDA:  Tell us about the most challenging aspect of getting this project completed.

Portland Housing Authority:  We knew from the outset that the site was a Brownfield given the history of the Great Fire of 1869 in Portland. Removing contaminated soils on a site for future family housing was of critical importance. Through additional funding sources and careful coordination, the project closed on its construction loan after the site remediation was complete.

What made this especially challenging was the fact that the project had done geotechnical test pits and test borings, but the marine clay soils and depth to bedrock surprised our design and construction team. We needed to drill the piles that support the foundation up to 115 feet below grade versus the 75 feet that we had been expecting. This used up a large portion of our construction contingency fund.

MEREDA:  Something unexpected you learned along the way was….

Portland Housing Authority:  As mentioned, we learned an important lesson about the variability of Portland’s geology when it comes to foundation-setting. The actual depth to bedrock versus our expectations surprised our design and construction team, but ultimately this did not disrupt the project.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable? 

Portland Housing Authority:  Maine has hundreds of urban Brownfield sites, contaminated from a past with less environmental regulations. Solterra is an example of Portland Housing Authority’s commitment to cleaning up and re-using sites within its portfolio that are under-utilized in order to create more rental housing during an affordable housing crisis. With assistance from City of Portland EPA Brownfields funding, there is one more clean, healthy site in Portland’s urban core.

Solterra not only provides safe, affordable housing, but also provides an indoor environment that is healthy for its residents. The building is designed with healthy building materials that have low-VOC or no-VOC (harmful chemicals). There is abundant continuous fresh air to each unit that is pre-heated with a Heat Recovery Ventilation system to save energy. These features, coupled with a robust services program, including a telehealth program through Greater Portland Health, makes the health of our residents a top priority.

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MEREDA’s Morning Menu Breakfast Event – Southern Maine Development Trends: If you Build it, Will They Come?

Make plans to join us in person on September 14, 2021 at the Holiday Inn By the Bay in Portland as we discuss recent and changing development trends for commercial and multi-family housing in York County with developers Tom Watson of Port Property Development and Amy Cullen of The Szanton Company.

About our Panelists:

Tom Watson founded Port Property Management with his father, Jack, in 1993. The company manages and maintains approximately 100 unique properties in Portland, South Portland and Biddeford. Through his acquisition and development company, Bush-Watson, and numerous partnerships, Tom also works tirelessly to develop, rehabilitate, and acquire properties and currently owns over 2,200 units between Wilmington, North Carolina, Providence, Rhode Island, Lowell, Massachusetts, and Portland, Maine. His portfolio also includes 47 commercial spaces as he seeks to catalyze economic development and strengthen workforce communities with 24/7 vibrancy.

Tom was recently named to the Mainebiz 2020 Next List for his contribution to the state’s economy and workforce. When asked about his dream project, Watson shared his passion for creating apartment homes—thoughtful spaces where people feel comfortable, safe and happy. His redevelopment of a former Portland public works maintenance building at 82 Hanover Street in Portland was selected by MEREDA as a 2020 Notable Project and also won a 2020 GrowSmart Maine Outstanding Project smart growth award. The project was noted for redeveloping “a brownfield site in a state of blight and disrepair,” into a “vibrant, pedestrian-oriented, mixed-use commercial center.”

Other recent and ongoing projects include the reconfiguration of 132 Marginal Way in West Bayside into 196 workforce units (The Linden), the renovation of a historic mill complex in Biddeford into a 71-unit residential community (Riverdam), a proposed 171-unit community at 52 Hanover Street, and an affordable condominium project at 104 Grant Street in Portland (The Goodwin).

Tom grew up in Acton, Massachusetts and graduated from Stanford University and later from Boston University with an MBA. He lives in Portland with his wife Judy. They have three children.

Amy Cullen is a partner and Vice President of The Szanton Company, a Portland-based mixed-income housing developer. In her 15 years of development experience, Amy has worked on the creation of 493 new units in 9 apartment buildings across Maine and New Hampshire. Among the projects Amy has managed are the Mill at Saco Falls and the Lofts at Saco Falls, two of the earliest residential redevelopments in the Biddeford-Saco Mills Historic District. In addition to her development work, Amy is the President of Saco Falls Management, an affiliate of the Szanton Company. Under Amy’s leadership since its inception in 2013, Saco Falls Management has quadrupled its gross annual revenues and now operates a growing portfolio of 11 properties. Amy also serves on the board of directors of Maine Real Estate Managers Association and Maine Affordable Housing Coalition. She previously served on South Portland Planning Board. Amy is an Army veteran of 12 years, and holds a Bachelor’s of Science Degree in Accounting from Husson University.

About the Event:

Holiday Inn By the Bay
88 Spring Street
Portland, ME

Breakfast: 7:30 – 8:00 AM
Program: 8:00 – 9:00 AM

Registering for this Event:

Members: $45 each | Non-Members: $55 each
Prices increase by $10 after September 7

Your RSVP is requested by September 7. Payment is expected at the time of registration. No refunds will be granted to anyone who registers, but fails to attend or who cancels after September 7. 

For more information and to register, visit  http://www.mereda.org

MEREDA’s Morning Menu Breakfast Series is Sponsored by Norway Savings Bank

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Escalation Clause: An Escape from the Price-Spike Trap

By Jason G. Howe, Partner, Preti Flaherty

Anyone in real estate development would have to be living under a rock not to know about skyrocketing lumber and material prices in the “post”-pandemic world. Pre-pandemic, the average cost for 1,000 board feet of was $200-$400 per 1,000 bd ft. As of this past May, that price jumped to $1,600 per 1,000 bd ft.

For context, the same 50,000 bd ft delivery that would have built just over 10 average single homes in May 2020 (or nearly 15 homes in 2015), will only build just over 2 of the same homes as of May 2021.1

It’s great for lumber yards (and traders in the lumber futures market), but a potential death blow for anyone owners and builders alike operating nearly any form of contract.

Builders themselves can’t get lumber, or if they can, they are lucky not to take a loss on the contract. Owners and/or General Contractors find themselves with builders either unable, or unwilling, to perform – and in many cases, demanding change-orders, contract modifications, or in some cases, outright litigation.

Prices have eased in the past few months, but are still well above pre-pandemic (or even early-pandemic) levels.

So what is the answer? One solution is to dust off that oft-neglected price escalation clause. Owners often reject the clause outright (otherwise, why enter into a GMP or fixed-price contract), but a carefully negotiated price escalation clause can help spread the pain without crushing any one party to the agreement.2

Rather than look at “cost plus,” or “lump sum” contracts (which lie at the ends of the spectrum), we are going to look at the currently popular “Guaranteed Maximum Price” agreement – which should in theory land somewhere in between.

In many GMP contracts, owners are generally protected from material price increases due to the cap on total construction costs, while builders often build allowances or contingencies into their pricing structures to protect against, among other things, unexpected material cost escalations. In both cases, however, the key question is whether the contract specifically addresses the risk of material price escalations via the “escalation clause.” These escalation clauses usually fall into two common categories.

First up is the “event” or “delay” form of escalation clause, which allows the contractor to seek additional funds when delays in material procurement extend past a pre-determined period of days. Once the clock runs, a contractor can seek additional compensation for increased material costs, or is permitted to cease performance. This gives the owner a chance to make the call on paying more to finish on time, or potentially delaying completion. In essence, a contractor is agreeing to stand by its material prices for a certain period of time, but after that time, the contractor will look to the owner to pick a path forward – faster but more expensive, or slower and potentially less so.

Second up – and probably the most useful in today’s – is often referred to a “percentage-based” or “threshold” escalation clause. Such clauses provide that once material prices on the open market have increased by a certain percentage beyond what the contractor estimated at the time that the contract was signed, the owner and contractor will adjust the contract sum to account for the excess, in the form of either full or partial additional compensation to the contractor for the cost increases. This can mean the owner absorbing the cost, or the builder absorbing the cost up to the % threshold, after which, the owner bears the cost, or the owner and builder have a pre-determined split once the triggering price threshold is crossed.

As with any contract clause, both the “delay” based and “percentage” based escalation clauses require a nuanced review of the construction agreement at the outset. Owners, GCs, and subs should all be reviewing their contracts for – and negotiating in – clauses which spell out how sudden or unexpected pricing or supply changes will be handled. It is also worth recalling that both of these price escalation clauses presume delays or increased costs are not related to the contractor’s or owners (or sub’s) failure to perform, or other material breach, under the agreement.

Crafted correctly, these escalation clauses can provide predictable cost sharing (or as I call it these days, pain sharing), which in turn allows the parties to overcome supply price spikes without resorting to a sternly worded notice of breach, or worse, a visit from the sheriff’s process servers.

Article originally published July 7, 2021, https://www.preti.com/jason-g-howe/publications/escalation-clause-an-escape-from-the-price-spike-trap/ 

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1 Data pulled from Census Bureau Home Preservation Manual Insider, referring to a “Single Family Unit as being 2,301 square feet, and requiring on average 14,496 board feet (or ~6.3 bd ft per sq ft).

2 Note that this doesn’t really apply to “cost-plus” or “time and materials” contracts, which already build in flexibility and simply pass the price of materials back to the owner, plus the built-in margin … although owners and builders alike should be aware of setting caps on the margin in regards to supply, or in some cases, phasing out the margin if supply costs increase beyond some pre-determined percentage.

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Highlighting the Construction Component of the 2021 MEREDA Index

On May 20, Drew Sigfridson, SIOR, Managing Director at The Boulos Company, was a commentator for the Maine Real Estate & Development Association’s (MEREDA’s) 2021 MEREDA Index. Drew’s comments on the Construction Sector follow Economist Charles Colgan’s analysis for 2020. 

The MEREDA Index is a measure of real estate activity designed to track changes in Maine’s real estate markets. The Index is a composite of nine seasonally adjusted measures reflecting both new development and transactions involving existing properties and it covers both the commercial and residential markets statewide. The most recent edition covers the year 2020 and provides commentary on the Commercial, Residential, and Construction sectors. The MEREDA Index for 2020 is 113.3

THE CONSTRUCTION COMPONENT:  95.6

[Charles Colgan Analysis] “The construction employment Index was up 0.6% in 2020 over 2019. There was a sharp dip in the second quarter as the shutdowns took hold and the rules about safe working were being worked out. But employment quickly recovered in the second half of the year to pre-pandemic levels. Construction employment has shown relative stability to slight growth for several years, which the pandemic briefly, but only briefly interrupted.”

[Drew Sigfridson, SIOR, Managing Director]  “2020 was certainly a year for the history books, but it wasn’t all bad. We expected residential and industrial to be hot markets, and they were. And while things are selling, they’re going at a premium.  2020 drove the costs up for building materials, lease rates, and purchase prices across all sectors. But the unexpected twist during the pandemic was that the industrial market remained hotter-than-ever, with very little pause. This was driven by the need for shipping, warehousing, and manufacturing space. This need created a trend in new construction as well, which was a bit unpredicted. For years, southern Maine has had record low inventories of industrial space – yet, costs for new construction were always far greater than being able to purchase an existing building. With limited supply and increased demand, the delta between new construction and existing industrial properties has closed enough to move the needle for this sector. Buyers realized that if you’re going to pay a premium to buy and retrofit, you might as well just build something new and customized. If we use The Downs as an example, we have 80% of the lots committed in Phase 1 and Phase 2 of our industrial district (Innovation District), which all will result in newly constructed buildings.

When the pandemic hit, The Downs was a ‘blank canvas’ so we were already poised to meet market demand in the expected sectors of industrial and residential. Interest has been high, and despite uncertainty regarding Covid, companies are still making decisions relatively quickly. The same pace continues in the residential sector with units selling faster than we can build them. The entire country is now looking to places like Maine to balance out their home and work lives. Fortunately for us, The Downs’ master plan included all of the amenities needed to live, work, and play – which proved to be a coveted community trifecta during the pandemic.

It’s tough to say exactly what will happen with the construction industry moving forward; there is demand, macroeconomic factors, and interest rates to consider. With construction costs being high, if interest rates go up, it becomes even more difficult to make a project work. It is hard to predict how long all the variables will stay aligned. But if 2020 has taught us anything, it’s that regardless of what industry you’re in, we are more resilient than we could have ever imagined, which is perhaps the most valuable lesson on the table.”

Roccy Risbara, Managing Partner at The Downs, contributed to this commentary.

Click here to view the 2021 MEREDA Index video and access the full report.

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The Right Equation for Responsible Development: Spotlight on Rock Row Phase 1 Retail Center

Each year, the Maine Real Estate & Development Association (MEREDA) recognizes some of the state’s most “noteworthy and significant” real estate projects, completed in the previous year. The exemplary projects from across the state, completed in 2020, not only embody MEREDA’s belief in responsible real estate development, but also exemplify best practices in the industry, contributing to Maine’s economic growth by significant investment of resources and job creation statewide.

This year, MEREDA honored projects from Portland to Pittsfield to Bangor, with each receiving special recognition at MEREDA’s 2021 Virtual Spring Conference on May 20th.

In a multi-part series exclusive to the Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation. MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, difficulty of the development, uniqueness, social impact and job creation.

MEREDA’s 2020 Top 6 recipients include:

Rock Row Phase 1 Retail Center, Waterstone Properties Group (Westbrook)
82 Hanover Street, Port Property Management (Portland)
Hospice of Southern Maine, Zachau Construction / SMRT (Scarborough)
Solterra, Portland Housing Authority (Portland)
One Merchants Plaza, Sky Villa Properties (Bangor)
Puritan Medical COVID –Building Expansion (P2), Puritan Medical Products (Pittsfield)

Please join us this week in celebrating Rock Row, Phase 1 Retail Center.

MEREDA:  Describe the building and project.

Waterstone: Rock Row is unlike any other development in the world. Situated on 110-acres, the $600 million Rock Row development in Greater Portland features more than two million square feet of mixed-use office, medical and research, retail, food hall, restaurants and residential space—all designed around a magnificent, 400-foot-wide natural stone quarry that is filled with water.

When complete, Rock Row will be the second largest retail and mixed-use development in New England. Highlights include:

• 400,000 sq. ft. of Modern Class-A Office Space, including Maine’s first Cross-Laminated-Timber (CLT) Office Tower
• 200,000 sq. ft. Medical & Research Campus anchored by New England Cancer Specialists
• 300,000 sq. ft. of Retail, Dining, Entertainment & Services featuring local, regional and national brands in an open-air, downtown-block shopping district
• 20,000 sq. ft. Food Hall featuring 550 seats, 15 stations, 7 spirit tasting rooms, live music, onsite brews and exciting events
• 20+ Restaurants ranging from cool-casual to chef driven
• 750 Distinctive Studio, One- & Two-Bedroom Residences

With more than six million guests expected to visit Rock Row each year, a key element of the project is Maine’s First CLT Office Tower—a stunning, 200,000 sq. ft., six-floor, cross-laminated-timber tower that promises to be one of the top office location in the Northeast, fueled by Rock Row’s modern mix of amenities and assets that drive talent acquisition and retention.

The tower’s unique CLT attributes promote workplace health and productivity while delivering 66% less energy costs, greater sound absorption/noise cancellation and unobstructed site lines to the quarry via 12’ floor-to-ceiling windows that cascade streams of natural light to nearly every work area.

““It’s not an overstatement to say that 100 Rock Row will be the most innovative, collaborative, and healthiest work environment in all of New England,” said Josh Levy, co-founding principal of Waterstone, the owners and developers of Rock Row. “More than an office address, 100 Rock Row is a business advantage that promotes business success. Bright places spark bright people. Fresh air promotes fresh thinking. Add the unobstructed quarry views, unmatched amenities and thought-sharing events at Rock Row and you get a place that people want to be at long after the workday is done.”

Another top attraction at Rock Row will be Maine’s Largest Meeting & Convention Center—an 8,200-person capacity, state-of-the-art venue that’s sub-dividable to host more than 200 public and private events year round, including performances from A-list artists through a partnership with LiveNation.

MEREDA:  What was the impetus for this project? 

Waterstone:  While factors like location and market-need certainly came into play, the quarry was an impetus for the project.

When Waterstone purchased the former quarry in 2017, it was being permitted for a big-box retail store by developers. Completing that process and taking “the easy route” was never an option for Waterstone. It was quickly determined that the natural features of the quarry should be leveraged to create a gathering place for all that was exciting and memorable; a destination that would make a positive impact on the lives of everyone who live, work, shop and visit in the region.

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Waterstone: Unlike most developments where you get approval and build, this is a dynamic project that is unfolding in multiple phases. While that in itself poses challenges, it also offers great opportunities. For example, an area that was originally targeted for office and residential turned out to be the perfect location for the integrated Medical & Research Campus that is starting construction this fall. The City of Westbrook could not be better to work with as we navigate through the development design. We work with the mayor and city leaders very closely and have a tremendous amount of respect for the project, and each other.

MEREDA:  Tell us about the most challenging aspect of getting this project completed.

Waterstone: Having more than two-million square feet of mixed-use space available at Rock Row, we are absolutely obsessed with using each square foot the right way and fitting each square foot with the right tenant. Our goal isn’t to fill space, but to create amazing, unexpected and ongoing experiences at every turn. We want this to be an extension and elevation of life for all who work, live, shop and play here. So far, our efforts are paying off.

Phase One of Rock Row, which is community-retail focused, started in 2017and is nearing completion. This phase is reaching 100% lease capacity with tenants that include an 80,000 sq. ft. state-of-the-art Market Basket supermarket (open), REI, Firehouse Subs, Big Fin Poke, The Paper Store (open), Chase (under construction), Chick-fil-A and Starbucks.

Other announced Rock Row tenants include a 122-room boutique Element Hotel by Westin, 12-screen Cinemark Theater, LIVE NATION Maine Savings Pavilion (open) and the previously-mentioned 200,000 sq. ft. fully-integrated Rock Row Medical & Research Campus, anchored by renowned New England Cancer Specialists/Dana Farber Cancer Institute (scheduled opening in late 2023).

MEREDA:  Something unexpected you learned along the way was….

Waterstone: From a community standpoint, we are continually amazed at how excited people are about Rock Row. Many of our social media posts have received several thousand likes and we are constantly fielding questions of interest, such as “when is REI opening” and “how much office space is available in the CLT tower”. Seeing our community get excited about Rock Row is something that excites us.

From a development standpoint, we discovered that Maine offers so much more than lobster rolls and natural beauty. This is a state that fosters innovative companies and breakthrough thinkers and has a rich history of leadership in commerce and industry. With more residents, workers and businesses leaving big cities and embracing the beauty and lifestyle of Maine, Maine is poised to flourish as an emerging business hub.

As Maine’s premier Innovation District, Rock Row will play a key role in supporting the state’s focus on emerging industries and economic growth by creating a supportive environment that helps people and businesses grow and succeed in every way. Rock Row’s rich mix of physical and networking assets—from educational events that spark growth and innovation, to public gathering spaces that invite collaboration—will combine to create a 24/7 community full of ideas, creativity, risk taking and enriched living. Rock Row will be the shining model of Maine’s new outreach as a “State of Innovation”.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable? 

Waterstone:  We like to say there is “discovery at every turn” at Rock Row, so it’s hard to choose one notable element of the two-million-plus-square-feet development. Certainly, the quarry will be the most notable and memorable physical feature. Beyond the jaw-dropping “‘wow” of looking at it, guests will come from far and near to see the light and laser quarry spectacular that will be similar in quality to Super Bowl and Olympic ceremonies.

What’s also notable is the human energy that Rock Row sparks. This is a destination that excites all senses and invites interaction, from passively looking at art to more actively climbing rock walls. All lines between work, life, learning and play will be blurred at Rock Row, intentionally. People will come here to drop kids off at day care in the morning…work during the day…interact with colleagues at a sponsored event…shop during lunch…go to a restaurant after work…attend a concert on the weekend…bring the kids to skate or go sailing on the quarry…and so much more.

Our hope is that everyone will have a favorite element of Rock Row that will change from season to season. We want people to connect with each other, and with nature at Rock Row in a way that makes life fuller and better. That’s a big task, we know. But we want every member of the family to always want to be at Rock Row. And to think there’s no place in the world like Rock Row.

Visit www.rockrow.com for more information.

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