November Federal Advocacy Alert: Historic Tax Credit Provision

Update courtesy of Greater Portland Landmarks

Historic Tax Credit Provisions REMOVED from bill!

Last week, a new iteration of the reconciliation infrastructure bill was released and was significantly reduced in scope, excluding the Historic Tax Credit (HTC) enhancements and many other community development incentives that were in a prior bill.

With a very limited amount of time to influence the legislation and knowledge that the HTC is currently “out” of the bill, now is the time to tell your federal legislators how much HTC improvements mean to you. As we’re seeing in the national news, Congress is poised to move forward on infrastructure legislation, including a vehicle that could carry HTC provisions, as early as next week.

For months, Greater Portland Landmarks has joined preservation supporters across the country to advocate for improvements to the federal Historic Tax Credit program. It’s critically important that our members of Congress hear from YOU!

HOW YOU CAN HELP

Sign the National Trust Sign-on Letter

The National Trust for Historic Preservation has organized a National Sign-on letter to encourage congressional leadership to include the HTC enhancement provisions in the final bill. Click here to sign the letter.

Continue to Reach Out to Maine’s Members of Congress

Please ask for Historic Tax Credit enhancement provisions, not included in the “Build Back Better” framework, to be included back in the final reconciliation bill.

Call the Capitol Switchboard to connect with Maine’s Members of Congress: 202.224.3121

• Introduce yourself as a constituent and provide our legislators with a message like:

“The Historic Tax Credit is the single most important tool for historic preservation. Though the HTC provisions were included in the Ways and Means bill in September, HTC provisions were not included in the recent “Build Back Better” bill. Please make sure to include the HTC provisions in the final reconciliation bill. These provisions would benefit projects from Main Street revitalizations to large-scale rehabilitation while also supporting community revitalization and climate change mitigation.”

For more information: https://www.portlandlandmarks.org/blog/federal-tax-credits-reconciliation-h25dz

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How Contractors Can Avoid 10 Common Exit Planning Mistakes

By David Jean, Principal at Albin Randall & Bennett

Exiting your business requires long-term, comprehensive planning, whether you plan to pass your company to family members, sell your interest to a partner, or sell the company to an employee group or outside buyer. As with any major planning endeavor, the path to a successful exit can present you with some roadblocks along the way. In the construction industry, planning an exit comes with its own inherent risks and potential hazards. But, with the right plan in place, you can turn things around before the hazard takes its toll. Here’s a look at how you can avoid 10 common mistakes contractors make in exiting their business.

1. Start planning early, so you can maximize your company’s transferable value.

As a contractor, the day-to-day grind can make it easy to place business matters that don’t feel urgent on the back burner. While it may feel like you have plenty of time, later often comes around sooner than you think. From planning to implementation, exiting a construction business generally takes around three to five years. One of the reasons it’s helpful to begin planning for your exit as early as possible is to increase transferable value and ensure the company’s ongoing financial health. If your company has transferable value, it means company success is not dependent on you as the owner, and a transition would cause minimal disruption to cash flow.

2. Perform a gap analysis to ensure you can meet your post-exit financial needs.

You need assurance that you will receive the amount of income you need to live comfortably after your exit, independent from future business cash flow. As you begin to prepare yourself and your business for what comes next, one of the first things you need to know is your business’s current value. By weighing that value against your projected post-exit expenses, you can calculate a baseline on which to set your growth goals ahead of your exit. And consider your options based on the type of transfer. For example, most family transfers are financed or executed over a more extended timeframe than typical third-party sales because of cash flow and liquidity needs. Depending on your financial needs, you could bridge the gap by maintaining ongoing involvement in the business or participating in profits as an owner until you receive the money you need to exit.

3. Start with in-house opportunities to increase business value.

It probably goes without saying that maximizing cash flow and minimizing costs will help you increase your company’s value. However, there are more ways to increase business value that go beyond monitoring receivables and cutting spending. Start by reviewing your existing operations for opportunities to improve efficiency and productivity. You might consider analyzing the cost against the projected time savings, revenue increases, and ultimate hike in business value you may experience by utilizing automation and efficiency-promoting software, such as job costing, project management, or customer relationship management programs. Having effective financial controls, a realistic strategic growth plan, and formally documented systems and procedures in place will also increase the value of your business.

4. Don’t underestimate the value of your key players.

Key employees hold significant responsibility for maintaining (and increasing!) your cash flow, customer and employee relationships, and day-to-day operations. Finding good help can be challenging, and maintaining a team that works in harmony is even more challenging. Key employees push several business value drivers in a successful direction, which means they play a critical role in ensuring you receive the highest possible sale price for your business. Incentive plans, such as those for non-qualified deferred compensation, stock appreciation rights, phantom stock, stock bonus, stock option, and stock purchase, go a long way in keeping employees motivated and happy, as do current and deferred cash bonuses.

5. Search for value drivers outside of the box.

For some, now may be an ideal time to acquire customer lists, inventory, equipment, or experienced staff from smaller, less adaptable companies struggling to continue since the pandemic. Obtaining these assets may lead to significant growth. Others may benefit from expanding their geographic footprint, whether on their own or as part of a joint venture or partnership. Weighing fixed costs against the capital needed and looking at market studies and area competition can help you assess your options as well as the risks involved. Advancements in technology have also provided new opportunities for vertically integrated services. Customer diversification or adding service work to supplement your contract work may be good options. Moving manufacturing, distribution, or labor management in-house or implementing prefabrication and modular construction may reduce cost, boost efficiency in resource allocation, and maximize job profitability.

6. Ensure the sale or transfer will be a “balance-sheet friendly” transaction.

All of your open jobs and contractual obligations must be met or reassigned, and the transaction that occurs when you exit your business has to be financially feasible for both you and the new owner. There are a lot of moving parts involved in making all of that happen successfully. Your plan needs to protect your assets and account for your ability to maintain appropriate liquidity leading up to and through the transfer. Business owners also want to keep any potential effects on surety, banking, and credit capacity at the forefront of their exit planning efforts. If you use debt, for example, how will that affect your loan covenants? Debt does not always fall to the new owner. It depends on whether the transfer is made through a stock or an asset sale. In addition to “traditional” debt-transfer matters, there are new ownership transfer considerations for business owners that are Paycheck Protection Program (PPP) loan borrowers as well.

7. Tax planning is a critical part of the process.

Careful tax planning is needed to minimize certain liabilities throughout the ownership transfer, and it’s an ongoing process. For example, in a family transfer, you need a plan to leverage opportunities over time and balance taxes from income, capital gains, gifts, and your estate. Since there is a tax rate increase on the horizon for all of those rates for high-income individuals, timing has become an integral part of minimizing tax liability as well.

8. Don’t lose your focus.

It’s too easy to let distractions or fear of the unknown lead you astray from your goals. There may be some recalibration needed as your exit plan progresses, but that doesn’t mean you should abandon your exit plan. Business owners have to reevaluate their current exit timeline and make adjustments as necessary. If, for example, you have experienced changes in your business value, investments outside of your business, or other areas of personal or family financial stability, timing adjustments may be needed to maintain a feasible and successful exit.

9. Even the most solid plans require a backup.

Even an exit plan needs a backup plan to ensure appropriate wealth distribution and business continuity. There’s always room for unforeseen circumstances to offset any plan. What if your child does not possess the drive or interest to carry the business? What if something happens to you before the plan comes to fruition? What if the deal you were counting on falls through? It pays off to be prepared with Plan B, no matter how confident you are in Plan A.

10. Find the right professional team.

Exit planning is a multifaceted process, to say the least. Business owners exiting their companies need access to trusted guidance on everything from business valuation, organizational development, profitability improvement, and strategic planning to asset protection, business continuity, and tax minimization. Since no one person can be a specialist in everything, business owners really need a collaborative team.

As Certified Public Accountants, the Altus Exit Strategies team members bring the financial consulting and tax expertise of a public accounting firm to the exit planning process. As a Certified Exit Planner, I bring together and lead exit planning teams that include lawyers and other financial and professional advisors. Together, we help business owners create comprehensive exit plans that help them ensure strong legacies and reach successful exits. Contact me today to start your exit plan.

Article originally published on June 29, 2021, https://arbcpa.com/how-contractors-can-avoid-10-common-exit-planning-mistakes/ 

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MEREDA’s Morning Menu – Third Quarter Residential Market Check-In

November 16, 2021 – 7:30 – 9:00 AM
In-Person – Masks are Required

To say it’s been a crazy year for the residential market is a bit of an understatement. Make plans to join us in person on November 16, 2021 at the Holiday Inn By the Bay in Portland for a look back at what transpired in this sizzling hot market this past year, and hear some predictions for the close of 2021.

Joining us are Chris Lynch, President & Designated Broker of Legacy Properties Sotheby’s International Realty, Mike LePage, Managing Broker at Portside Real Estate Group, and Debra Abbondanza, VP, Regional Sales Manager at Bangor Savings Bank.

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

Registering for this Event:

Members: $45 each | Non-Members: $55 each
Prices increase by $10 after November 9

Your RSVP is requested by November 9 . 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 November 9 . 

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

This Morning Menu Breakfast Event is Sponsored by Norway Savings Bank

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Capital Markets: Where do we stand and where are we going?

By Jon Rizzo, Partner, The Boulos Company

As we stand today, investment properties are in high demand, which is a result of low interest rates and pent-up demand from the investment community. With prime investment opportunities moving quickly, staying aware of what product is available, knowing how to get creative to find deals, and keeping ahead of the market’s trajectory can all make the difference between procuring your next project or missing out on it entirely.

Product

It’s all about finding product. By that, I mean the right properties for your clients looking for investment deals. Solid investment properties are extremely hard to come by in the New England market at this time. Even if a property hits the market at a low capitalization rate (“cap rate”), money is still cheap to borrow and investors can live with the spread between money borrowed and income received from the property. It isn’t uncommon to see properties trade consistently at a sub-7% cap rate. We are seeing solid industrial and multi-family deals trade in the sub-6% cap rate range. There are clearly exceptions to this, but supply is tight and demand is high.  For these competitive situations, looking at value add to “juice the yield” is what can be a tipping point for an investor to pursue a property or pass on it.

Property owners who know they are sitting on a great property are also shooting for record high sale prices.  If a buyer is willing to pay the asking price, the issue for the seller now becomes one of where to exchange the proceeds.  With the potential of 1031 tax-deferred exchanges being eliminated, this may accelerate the decision to sell the property now – but the challenge remains in finding an appropriate exchange property.  That is where getting creative can help.

Getting Creative

So what can we do as advisors to help our clients find the right opportunities?  It’s about being creative.  We are seeing properties sell in certain sectors at record pricing (think industrial and multi-family).  With rents being pushed to record numbers as well, these sale prices seem justifiable.  Understanding building and market fundamentals is extremely important to ensure that the investment is still sound if we were to see a dip in the market or activity.

Can an underutilized building be prime for a conversion into a different product type?  Think office to industrial or office to multi-family.  The property may check off all of the boxes as it relates to location, access, construction type, etc., but because we are seeing limited office demand, can we reposition this building to meet the demand in these two sectors.  Having a grasp on construction costs, zoning, permitting, approval timeframes, and demographic information is what The Boulos Company can advise on and assist with during this process.

Mark-to-Market

Additionally, if a property is currently rented at an under-market price point, is there a chance to mark-to-market once the lease expires?  Can a property that has a short lease term remaining be overlooked by most buyers and be a diamond-in-the-rough type opportunity?

Understanding inventory that is coming available, market rents, tenants in the market, and competitive buildings is key to taking advantage of an underutilized or under-rented opportunity in the market.  Working with an advisor can give clients a leg up, as this is the space we live in daily.

Where are we going?

It seems as though we have been singing the same tune for the last few years.  “Interest rates have to go up soon.” “The market can’t keep pushing record highs for this long.”  However, unless interest rates increase fairly significantly or property owners start feeling some pressure in underperforming sectors, we will likely continue on this trend of limited supply with increased demand.  We, as advisors, will need to continue to get creative to find those solutions for our clients.  Our clients will likely have to take on a bit more risk than they’d like to take on in order to win deals.  Again, it falls back to having a strategy in place to “check the boxes” for their investment criteria and sticking to that plan.

Article originally published on September 30, 2021 – https://boulos.com/capital-markets-where-do-we-stand-and-where-are-we-going/

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

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

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

In Part I of our series of articles we covered some of the recent legislative changes to the §1031 rules and discussed the simplest form of a like-kind exchange, which is the rare simultaneous exchange. In Part II of our series, we highlighted the most common type of exchange used in the real estate world: the delayed exchange. In Part III below, we conclude the series by addressing the “reverse exchange.”

Reverse Exchange

Until now we have discussed simultaneous exchanges and acquisitions that follow sales. The last type of exchange involves acquisitions that precede sales.

With reverse exchanges, taxpayers have identified assets they wish to acquire but the acquisition will make other assets they own redundant. A §1031 transaction can be used in this case, but will require both a qualified intermediary (“QI”) and an exchange accommodation titleholder (“EAT”). The EAT is used to acquire (and sometimes operate) the replacement property until the exchange can be completed following the sale of the other property. Often, the EAT consists of a single-member LLC established and owned by the QI solely for that transaction.

To qualify as reverse exchange, the relinquished property generally must be sold within 180 days of the EAT acquiring the replacement property (the “safe harbor” method). Sometimes a party will engage a QI/EAT to acquire the property and the taxpayer simply cannot sell its own property during that window. Under certain circumstances, §1031 treatment may still apply, but only if a “burdens and benefits” test outlined in Revenue Procedure 2000-37 is met. Build to suit construction projects sometimes meet this criterion, and thereby qualify without the need for the safe harbor method.

Delayed reverse exchanges can be extremely complicated and as a result are quite costly to administer – particularly those falling outside the safe harbor. They require the QI, accountants, attorneys, and often lenders to work together on the taxpayer’s behalf to ensure the transaction is successful. Therefore, they tend to be utilized only when the tax benefits are significant or when other types of exchanges are unavailable.

Application/Conclusion

The §1031 like-kind exchange provisions can defer gain and taxes under a number of scenarios. This series of articles has highlighted the various types of §1031 transactions available to taxpayers. A taxpayer’s goal to defer the taxes resulting from a sale usually can be accomplished with advance planning and proper expert advice. Where there is a will, there is a way, but it often requires some trade-offs and concessions.

To defer 100% of the gain, receipt of boot cannot accompany the exchange property. That means a taxpayer is unable to defer all of the gain AND pull some cash or equity out of the sale. To avoid boot, the value of the replacement property must exceed that of the relinquished property. Perfect matching is uncommon, so taxpayers often seek like-kind exchanges only when “trading up.” However, the presence of boot does not prevent application of §1031, and partial deferral can still be of value. There is no limit to the number of properties allowed to be relinquished or acquired as part of the exchange, and recall that nearly all business, investment or rental real estate, developed or not, generally will be considered of like kind one to another – including real estate located in separate states. Savvy taxpayers and their advisors who think creatively may be able to exchange a warehouse for a beachfront condo or a retail strip mall for a multi-unit residential building. Changing locales, industries, or usage types can allow taxpayers to diversify and reduce risk without paying a tax “toll charge.”

These variables, applied to the different methods of deferral explained above, give a property owner many opportunities to defer taxes, and the astute taxpayer or real estate professional will not overlook them.

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 Puritan Medical COVID –Building Expansion (P2)

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 Puritan Medical COVID – Building Expansion (P2).

MEREDA:  Describe the building and project.

Puritan Medical Products:  As we approached April 2020, the COVID-19 pandemic was beginning to escalate in the United States, and it became clear that there was a massive demand for more testing swabs.

Our goal was to double the production of foam-tipped COVID-19 testing swabs, so we reached out to Cianbro, who quickly developed a proposal for us. They provided fast-track, design-build services to convert a portion of a vacant mill building in Pittsfield, Maine, into a state-of-the-art medical device manufacturing facility in less than 10 weeks. Construction teams worked around the clock, seven days a week, to execute the delivery of the facility and meet the aggressive timelines.

However, as the project progressed, demands for testing swabs grew tremendously with no end in sight. After the start of production, we reached out to Cianbro for additional production space to meet demand. As a result, an additional 6,000-square-foot production expansion was completed in combination with customizing the previously completed expansion. This allowed us to install six additional automated machines, increasing our production capacity to 90 million foam-tipped swabs per month.

Project elements included:
• An ISO-8 cleanroom production space
• Office areas
• Locker room facilities
• Quality control laboratories
• Replacement of all HVAC, electrical and fire systems
• Low voltage wiring
• Site improvements

MEREDA:  What was the impetus for this project? 

Puritan Medical Products: Being one of only two major manufacturers of COVID-19 testing swabs in the United States, in April, we were tasked to develop a plan to double production to 20 million swabs per month by July 1. That was an aggressive timeline that required a significant expansion, and we knew how important it was that we meet that goal to help prevent the spread of COVID-19.

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

Puritan Medical Products: Because of the quick turnaround time, we had to move through the planning stages swiftly. We initially reached out to Cianbro on April 19, 2020, and work began on the project on May 1. However, as the project grew, we had to revisit plans throughout the stages of the expansion to accommodate new goals as the number of COVID-19 cases continued to climb.

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

Puritan Medical Products:  Beyond the tight timeline, the COVID-19 pandemic presented both the mission for the project and one of the biggest challenges. First, as the COVID-19 pandemic grew across the United States, new precautions and guidelines were developing daily. The project needed to continue to move forward to meet the production schedule, and we also had to ensure that the project’s team members remained healthy both on the job and at home.

Advancing the facility’s construction also required tremendous coordination, including sectioning off the building into work zones. As teams completed their work in one zone, they moved on to the next, enabling other teams to follow behind them. This sequential process allowed different work phases to be completed simultaneously in various zones throughout the building.

Though it was an expected variable as COVID-19 numbers rapidly increased, the increasing demand for swab production and corresponding scope growth forced us to stay flexible and adjust the plan to meet new demands.

The Cianbro team did an excellent job of overcoming all of these challenges, and we are continuing our partnership with Cianbro as we renovate a new manufacturing facility in Tennessee.

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

Puritan Medical Products: That it’s essential to be able to adapt. It’s something that businesses and organizations across the globe have learned throughout the pandemic, but manufacturing a product that has such a direct impact on healthcare during one of the most significant events in our lifetime has made adapting even more necessary for us at Puritan.

Also, while it wasn’t unexpected, something that undoubtedly exceeded all expectations was just how much this team accomplished in such a short amount of time. Their dedication and commitment to meeting the timeline while maintaining the highest level of quality were truly exceptional.

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

Puritan Medical Products: While the modernized manufacturing space is top-of-the-line, and we couldn’t meet our goals without it, the most notable feature of the project is the result itself. Nothing compares to producing 90 million swabs every month to help save lives during a global pandemic. It reinforces the importance of the work that we’re doing, and it feels good to be part of the solution to help our country – our world – get back to normal.

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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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