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thE EXTENDED STAY HOTELS DEAL

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					          Madison
          CommerCial real estate serviCes™
mADison titLE AgEncy, LLc • mADison ExchAngE, LLc • LEAsEprobE, LLc • mADison spEcs, LLc • mADison ExEcutivEs, LLc

                                      when you Think real eSTaTe, Think MadiSon.          volume #1           issue #4




thE EXTENDED
  STAY HOTELS DEAL                                A case study in transaction management

                                                     n April 17, 2007 the Lightstone Group announced that
                                                one of its affiliates had reached an agreement with an affiliate
                                                of the Blackstone Group to purchase the Extended Stay Hotel
                                                chain for a record $8 billion, making it one of the largest non-
                                                casino hotel deals in U.S. history. The chain operates under
                                                the Extended Stay Deluxe, Extended Stay America, Homestead
                                                Studio Suites, StudioPlus and Crossland brands and includes
                                                684 hotels (76,000 units) in 44 states and Canada. Subject to the
                                                standard conditions of sale, the parties wanted to close the deal
                                                in two months.
                                                Madison Mahwah, one of Madison Title’s affiliates, took the lead
                                                in coordinating the title work for this transaction, which due to
     Madison Mahwah, LLC                        its scope, involved all of the nation’s major title underwriters.
                                                Needless to say, this was an exciting opportunity for Madison
                                                and one that we hope will open up a whole new level of service
                                                for us and our clients.
                                                This case study outlines the methods we used to manage
                                                the transaction.

                                                The Challenge
                                                Madison faced several significant challenges in this transaction:
                                                  •	 The sheer volume of properties—all 684 sites had to
                                                     be tracked individually. That meant ordering municipal
                                                                                                             cont. pg #2
    thE EXTENDED
      STAY HOTELS DEAL                   A case study in transaction management



                                                     Madison Mahwah, LLC

           cont. from cover

           and tax searches, compiling search reports, resolving title issues (if any),
           tracking commitments, policies and all underlying documents for each
           individual property.
       •	 The geographic scope—laws and conventions for transferring property
          title vary not only by state, but often by county as well. Some states, for
          example, set premium rates. Others allow the carriers to set their own rates.
          Within any given state, each county may have different fees and requirements
          for recording mortgages, transfer taxes, etc. Multiply these variations by 44
          states and two countries and you’ve got a lot of facts to manage.
       •	 The coordination with the underwriters— given the size and geo-
          graphic scope of this transaction, no single underwriter would undertake
          the entire risk. Although Stewart Title and Guaranty Company led the
          way, almost every major title underwriter was involved.
       •	 The Timeframe —two months is plenty of time for most closings, but for
          a transaction of this magnitude it is an extremely tight deadline.
       •	 Maintenance of other business—we were committed to other clients and
          other transactions at the same time. We had to be certain that these transac-
          tions got the attention and service they deserved.

     The Team
     Madison put together a team of ten of our most experienced title officers, led by
     Sam Shiel Esq., whose national expertise was invaluable on this project. This team
     dedicated itself exclusively to the ESH transaction. We created an ESH command
     center in our corporate headquarters so the team could share information im-
     mediately, work together more easily and have exclusive access to the office equip-
     ment they needed. We also assigned 45 paralegals from our Citybook affiliate to
     support the team by producing the actual commitments and policies.



2
One of the largest
non-casino hotel
deals in US history.


The Customized website
Within a day and half of having been awarded this
assignment, Madison built a customized website that
was the key to managing the transaction. All interested
parties—buyer, seller, lenders and their representatives—
had access to the data and relevant documents. Not
only could they see how things were progressing, but
they could use our site to manage or facilitate their own
related activities.
These are just a few of the key features built
into the site:
•	 The Status report
    •	   Lists the individual sites by state and by site
         number (using a numbering system the seller
         had in place)
    •	   Indicates the dates the searches were ordered

                                                 cont. pg #4


                                                               3
    thE EXTENDED
      STAY HOTELS DEAL       A case study in transaction management




                                                                                           Madison Mahwah, LLC

      cont. from pg #3                                                documents to review. Our team spent the first two days
                and completed for each site and the corre-            reviewing the seller’s documents and the next day and a
                sponding dates for the commitments.                   half reviewing the buyer’s documents. The funding took
           •	   Shows totals under each category so you can           place, of course, on the fourth and final day—Monday,
                see at a glance how many sites had completed          June 11, 2007.
                searches and commitments.                             Simpson Thacher & Bartlett LLP represented Black-
      Plus, with a simple click on the site number, users             stone and Extended Stay Hotels. Herrick Feinstein
      can bring up the relevant documents—survey,                     LLP represented Lightstone and Cadwalader. Wick-
      commitment, attachments, any liens, back title and              ersham & Taft, LLP represented the lenders. The
      policies.                                                       closing went smoothly, and the transaction was com-
      •	 Master Issues                                                pleted nearly a week before the two-month deadline
                                                                      set by the principals.
      Basically this feature serves as a spreadsheet that lists
      all the sites that have any title issues and tracks the         what we learned
      resolution of those issues. The seller used this feature
      to track releases by site.
                                                                      along the way
                                                                      According to Miriam Stern, one of the senior
      •	 Search Function
                                                                      title officers on the team, “It’s more a question of
      This document search feature proved of particular               reinforcing the importance of some of the basic things
      value to the lenders, but also helped our own team and          that we all know but sometimes take for granted,
      the seller. By listing a document type (e.g., survey) you       like really putting yourself in the client’s shoes. Just
      pull up all the documents of that type on file and sort         as an example, a simple thing like using the client’s
      by date. So, the parties could get daily updates on the         numbering system to identify the sites instead of our
      documents of interest to them.                                  own made a huge difference.”
      In the post closing phase, we use the site to keep              Madison’s CEO, Joseph I. Rosenbaum, said, “Our
      track of mortgages as they are recorded. And, as they           philosophy has always been that you should keep
      become available, we will add the records for transfer          a strong infrastructure in place regardless of
      tax payments and zoning letters.                                fluctuations in the market. That way you are prepared
                                                                      to act when opportunities arise. And that’s been
      The Closing                                                     born out in this situation. We had the resources to
      Using several experienced closers, Madison orches-              jump on this transaction—despite its scope and tight
      trated the closing for this transaction which took place        turnaround time. I am extremely pleased with the
      over a four-day period. There were literally thousands of       outcome and proud of our team.”


4
in the
meantime . . .
While the Esh transaction was in progress
so were many others. During this same
period we handled several hundred
residential closings plus a number of
commercial deals including:

•	 $131 million purchase in pA
•	 13-property purchase in nJ
•	 $13 million construction purchase
    in Lakewood, nJ
•	 $22 million purchase in pA




tExAs officE
WELcomEs
Deborah P. Everett, Esq.
We are pleased to announce that Deborah P. Ev-
erett, Esq. is joining our Texas office as the Chief
Title Officer. She will handle all compliance and
regulatory matters for Madison and manage the
day-to-day title operation—hiring & training staff,
supervising the process from initial orders through
post closing, overseeing underwriting operations
and all other office management functions.
Ms. Everett has years of title and real estate expe-
rience and, most recently, served as Senior Vice
President and Counsel for Fidelity National Agency
Solutions in Texas, a division of the Fidelity Na-
tional Title Group. She brings a lot to the table
and will be an excellent resource for our clients.
You can contact her by phone at (972) 381-2865 or
email her at deverett@madisontitle.com.



                                                       5
                   Madison Exchange, LLC




    Don’t
    stray                                                  Into
                                                           EnEMy tErrItory
                                                           By: lee david Medinets, esq.
                                                           certified Exchange specialist®
                                                           senior counsel, madison Exchange, LLc




       he border between investing in real estate and         been losses from the sale of property, taxpayers
    dealing in real estate is muddy. It is also packed        have argued that the property was inventory, so
    with landmines. Investors should know the border          that they could offset their losses against regular
    and give it a wide birth when possible. When that         income. If the property is an investment, only
    is not possible, following the few well marked local      $3,000 in capital losses per year in excess of capital
    roads may be an option. When traveling off road           gains can be claimed, and the excess capital losses
    is the only option, take a local guide. Unwary            will have to be carried over from one year to the
    investors who strayed briefly on the wrong side of        next until they can finally be used to offset gains.
    this border have had their tax deferrals shot down        However, in the overwhelming majority of cases,
    by auditors at the IRS.                                   for the ordinary investor – especially for the
                                                              successful investor – it is a huge advantage when
    which side of the border do                               property qualifies as an investment and not as
    you want to be on?                                        stock in trade.
    There are actually a few circumstances when
    taxpayers have argued (with varying degrees               This is true for two
    of success) that they are dealers in real estate,         principal reasons:
    not investors, and that the property they sold            First, as every real estate investor knows, profits
    was stock in trade (a/k/a “inventory”) and not a          from real estate investments held for one year or
    capital investment. For example, when there have          more are generally taxed at the maximum federal



8
6
capital gains rate of 15% (or 25% to the extent         rather all of the factors taken as a whole govern.”
that depreciation is being recaptured), while           [maddux, supra., at 1284 citing W. t. thrift, sr., 15 t.c. 366
                                                        (u.s. tax court 1950).]
profits from the sale of stock in trade are taxed at
substantially higher regular federal tax rates of up    Most investors should have no trouble steering
to 35%.                                                 clear of the grey areas when they understand the
                                                        issues in advance. Sometimes, however, they may
Second, tax on gains from the sale of investment
                                                        find themselves inching closer to the border.
property can be deferred through a like-kind
exchange pursuant to IRC §1031, while gains from        For example:
the sale of stock in trade cannot be deferred at all.
Therefore, the difference between stock in trade        •	   The buyer may require extensive renovations
and investment is often the difference between               as a condition of sale.
tax and no tax.                                         •	   Just before an offer to purchase is received, the
A test has been used by the courts on many occasions         taxpayer may have completed renovations in
in order to distinguish between investments and stock        order to accommodate a tenant or in order for
in trade.                                                    the taxpayer, himself, to use the property for
                                                             his own business.
Seven factors are examined:                             •	   The buyer may be a real estate developer who
   (1) [t]he nature and purpose of the acquisition           wants to subdivide the property and to begin
   of the property and the duration of the                   construction – or even to complete construction
   ownership; (2) the extent and nature of the               – prior to taking title.
   taxpayer’s efforts to sell the property; (3) the
                                                        •	   While the taxpayer’s contract to purchase
   number, extent, continuity and substantiality
   of the sales; (4) the extent of subdividing,              property is still pending, she may receive an
   developing and advertising to increase                    offer to purchase the property as a “flip.”
   sales; (5) the use of a business office for the      •	   The taxpayer may have a substantial portfolio
   sale of the property; (6) the character and
   degree of supervision or control exercised by
                                                             that needs to be liquidated.
   the taxpayer over any representative selling         In all of these cases and in hundreds of others,
   the property; and (7) the time and effort the
                                                        the border is near at hand. If the taxpayer wants
   taxpayer habitually devoted to the sales. [u.s.
   v Winthrop, 417 f2d. 905 (u.s.c.A 5th cir., 1969)    to reinvest the proceeds of sale in a tax deferred
   at 909-910; paulus v. cir, t.c. memo 1996-           exchange or if the taxpayer simply wants to pay
   419 (u.s. tax court, 1996), quoting Winthrop,        capital gains taxes, rather than regular income
   supra.; Klarkowski v. cir, t.c. memo 1965-328,       taxes on the profits, it is essential to know the lay
   (u.s. tax court, 1965), affirmed at 385 f.2d 398
                                                        of the land as soon as possible in order to avoid
   (u.s.c.A. 7th cir., 1967); maddux construction
   co. v. commissioner, 54 t.c. 1278, 1284 (u.s.        unintentional actions that could place the taxpayer
   tax court, 1970).]                                   into an unfriendly territory where the natives take
“This question is purely a factual question, the        no prisoners.
burden of proof being upon petitioner…. None of         In this and all other complex transactions, please
the above factors are conclusive standing alone, but    seek expert tax and legal advice.




                                                                                                                         7
    WHat PrICE a
    GrIzzLy
    BEar?
    C     ost segregation may sound like a fairly tame
    discipline, but a recent assignment put the SPECS
                                                                For example, the decorative items included:
                                                                •	   Dozens of stuffed animals—heads and hides of
    team nose-to-nose with grizzly bears, moose (or, is it           bears, deer, elk, foxes, Canada geese, turkeys, ducks
    meese?), deer, elk, fish and fowl of all kinds.                  and other furry and feathered creatures
                                                                •	   A custom-made 22,000 gallon fish tank
    Situation:                                                  •	   Indoor and outdoor waterfalls.
    Madison SPECS was called in to do a cost segregation
    study for a shopping mall and its land improvements.        The Solution:
    The anchor store was a well-known fish & game sup-          To price the stuffed animals accurately, the SPECS team
    plier. The previous landlord had granted the tenant         spent hours combing the web and speaking to taxider-
    an allowance of approximately $10 million to deco-          mists across the country. In the process, they learned a
    rate and build out its space.                               great deal about this unusual art. The value of a stuffed
                                                                duck, for example, depends largely on its position. Is the
    The Challenge:                                              duck sitting? Standing? About to take flight? To deter-
    The primary challenge of this assignment was the un-        mine the value of a stuffed bear, you need to know not
    usual nature of the eligible assets. The decorative items   only exactly what kind of bear it is, but also whether the
    in both the mall and certain anchor tenants were eli-       mouth is open or closed and whether it’s crouching or
    gible for 5-year depreciation—a tax benefit not to be       standing on its hind legs. These and other issues affect
    missed. But, finding a reliable, objective source for       the determination of the cost of the item and, in turn, the
    pricing these items was quite an undertaking.               outcome of the cost segregation study.


8
                             Madison SPECS, LLC

                                                             Esther
                                                             silberberg
                                                             Awarded
                                                             CeS® deSignaTion
                                                             E    sther Silberberg, Director of Operations
                                                             for Madison Exchange, has achieved the
                                                             Certified Exchange Specialist ® (CES)
                                                             designation from The Federation of
                                                             Exchange Accommodators (FEA). The
                                                             CES® designation recognizes the recipient’s
                                                             expert knowledge of §1031 exchange laws
                                                             and procedures. To be eligible for this
                                                             professional designation, candidates must
                                                             have at least three years experience in the
                                                             field and pass a written examination.
                                                             “Madison Exchange is extremely pleased that
To price the custom-made fish tank they first devel-         Ms. Silberberg has been awarded the CES®
oped detailed specifications for the tank, and then          designation,” said Eliot Zaks, Executive Vice
shopped around to see what it would cost to duplicate        President of Madison Exchange. “In its short
it. Ultimately, they were able to value the tank at ap-      history, Madison Exchange has become one
proximately $500,000. As for the indoor and outdoor          of the most trusted and reliable companies
waterfalls we were able to price the water features in       in the industry and Ms. Silberberg has been
Marshall and Swift, one of our standard sources. But,        a vital part of our success. This designation
the structures themselves had to be priced by survey-        is a testament not only to the high quality
ing commercial dealers.                                      of Ms. Silberberg’s work, but to that of our
                                                             entire organization.”
results:
As we go to print, the final report is still in the draft
stage. But, SPECS’ Eli Loebenberg estimates the study
will generate a net present value tax benefit for the cli-
ent of close to $1 million.


for more information on cost segregation—
or taxidermy—contact Eli Loebenberg at
845.634.4454 or visit the spEcs web site at
www.madisonspecs.com.


                                                                                                             9
                 Madison Exchange, LLC




     today’s Exchange clients
     more sophisticated
     an Interview with Esther Silberberg,
     Director of operations for Madison Exchange, LLC

     Esther Silberberg, a Certified Exchange Specialist®, is the driving force
     behind Madison Exchange, LLC. She oversees the day-to-day operation of
     the company, supervises the staff—exchange officers and administrators—
     And works closely with our in-house attorneys. Here’s her take on the
     evolution of the industry.




     Q.        Have you seen any significant changes
     in the industry since you’ve been involved with
                                                             Today our exchange clients have a fairly
                                                             sophisticated understanding of the §1031 exchange
     §1031 exchanges?                                        process. They no longer ask, “What is a 1031


     A.
                                                             exchange?” Now they want to know how to
                                                             structure their exchange for maximum advantage.
               Yes. The industry has grown considerably.


                                                             Q.
     More people are aware of the tax benefits of doing an
     exchange, so there’s greater demand. What’s more,
     the clients have become more sophisticated.                       Has your client base changed since
                                                             you’ve been in the industry?


     Q.         In what way?                                 A.         Yes and no. We have always dealt with


     A.        When I started here most of our clients
     knew very little about the exchange process. The
                                                             both individual investors and large commercial
                                                             clients. That hasn’t changed. But, what is different
                                                             is that commercial clients who might have
     majority of the calls we got were from curious          held large properties, rather than sell and face
     investors who had heard something about 1031            substantial capital gains taxes, are now more likely
     exchanges and were looking for more information.        to turn those properties over by using a §1031
     So, we spent a good deal of time educating              exchange. In fact most of the commercial deals
     investors on the opportunities available to them        that come through our sister company, Madison
     under IRC Section 1031.                                 Title, are done as an exchange.



10
Q.        What’s the most common question you
hear from clients and prospects?


A.        The issue that comes up over and over
again is how to handle breakups of partnerships and
LLCs—where some partners want to cash out, while
others want to make an exchange or when partners
want to buy different replacement properties.



Q.         How do you handle that?


A.        Actually, there are a number of different
ways we can structure the exchange so that all
the partners get what they want. In each case,
we try to help our clients balance the safety
of their exchange against about a dozen other
considerations that include the time we have until
closing, the relationship between the parties, real       and full disclosure on all transactions. Naturally,
estate transfer taxes, the need to avoid litigation       Madison Exchange is exemplary in this area. We
hazards, and so forth. What works for one                 have an unblemished reputation for integrity,
exchange may be too risky or too complicated or           security and sound financial management.
too expensive the next time. Each client and each


                                                          Q.
transaction is unique, and we treat them that way.

                                                                   Any parting words of advice for those

Q.                                                        contemplating an exchange?


                                                          A.
          What’s the biggest issue in the industry
right now?
                                                                    Look into it. If there’s any possibility

A.         The security of exchange funds is an issue
that’s getting a lot of attention right now. After all,
                                                          that you will qualify for an exchange, you should
                                                          explore it—the financial benefits can be significant.
                                                          Of course, as a representative of Madison
your Qualified Intermediary holds and distributes         Exchange, I would encourage you to call us.
your exchange funds. A savvy investor will choose a
Qualified Intermediary that follows the best practices    For more information about §1031
                                                          exchanges contact Esther Silberberg at
in the financial industry regarding the security of       732.333.2327 or visit the Madison Exchange web
clients’ funds, liquidity, appropriate rates of return    site www.madison1031.com.



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