On Friday, Governor Rick Scott signed the Revised Florida Limited Liability Company Act into law. This new Act, codified in Chapter 605 of the Florida Statutes, will be effective for all new Florida LLCs that are formed beginning July 1, 2014; on a voluntary basis for those formed prior to July 1, 2014 and mandatory for all LLCs whenever formed beginning January 1, 2015. 

In previous posts, I discussed the ways in which the Revised Florida LLC Act, the first major overhaul of the Act in 14 years, may affect operating agreements. Please click on the links below to read my previous posts:

Florida Legislature Passes New Revised Limited Liability Company (LLC) Act

A New LLC Act for New Miami (and the Rest of Florida) 

Suzanne M. Amaducci-Adams, Head of Bilzin Sumberg’s Hospitality Practice

The Miami hotel market is one of the hottest in the country and beyond. As a recent article in Law360 reports, downtown Miami in particular is playing a big part in the resurgence of the market. The city’s urban core, an area that was once overlooked and saw little development during the economic downturn,  is now being transformed with a slate of ambitious large-scale projects planned. With almost 7,000 rooms across 31 properties in downtown, including the just opened b2 Miami and an Aloft outpost that will open this month, the once under-utilized downtown area of Miami is coming to life.

Ten years ago, it was a ghost town at night. It’s not like that anymore,” said Bilzin Sumberg partner and head of the firm’s Hospitality Group, Suzanne Amaducci-Adams. “Miami has now become one of the top hotel markets in the country, if not the world.”

Please click here to read the full article on Law360 (subscription required).

Bienvenue! Bienvenido! Bem-vindos! Welcome to Miami – where cash is king

Buyers from across the globe continue to hone in on South Florida as a hot market for real estate investment. Canadians, Brazilians, and now the French are investing heavily in the South Florida market. And, as the New York Times reported this past weekend, all-cash deals are on the rise. In fact, the Times reported that in Miami, a whopping 65 percent of homes sold were cash deals, as compared to 16 percent only six years ago.  This cash influx is thought to be largely the result of international investors and retirees with cash available after selling their homes elsewhere.  And these international investors continue to look in South Florida.

Thursday, June 13, 2013
8:00 AM – 10:00 AM
1450 Brickell Avenue, 23rd Floor
Miami, FL 33131

Thank you for joining us for the second installment of the
New Miami Breakfast Series.

Hospitality: A Bird’s Eye View of Miami and Beyond

Miami is one of the most active hotel investment markets in the country and is seemingly getting hotter every month. Today, hotels are considered to be among the region’s most sought-after assets as foreign and domestic buyers look for high-performing, quality projects.

At yesterday’s session, we took a look at some of the projects that are currently transforming the Miami market and those that are in the pipeline raising the temperature in New Miami. We also discussed how Miami compares to the rest of the country as we recapped key findings from the NYU Hospitality Conference as well as, examined renewed interest in the Caribbean.

Moderator

  Suzanne Amaducci-Adams,
  Partner and Hospitality Group Leader, Bilzin Sumberg

Panelists

  Christian Charre, 
  Senior Vice President, CBRE Hotels

  Max Comess,
  Director, HFF

   Michael Tillman, 
   Director, The LeFrak Organization

To download the complete presentation, please click here.

Although it may come as a surprise to many, it is no secret that South Florida property values are on the rise. Over the past few years, wealthy Latin Americans and other foreign investors have turned their investment focus to the depressed real estate market in South Florida.  Once a market that was flooded with thousands of unsold condominium units, South Florida is now running low on inventory and there are at least 80 announced plans for new residential projects in South Florida.

Increased Demand for Land

With the increased demand for new residential projects comes an increased demand for the underlying land on which the projects can be built.  Many land owners who weathered the storm during the recent economic crisis and those who were able to acquire land at depressed values may now be able to reap the benefits of this recent boom of development activity.

Unique Tax Opportunity for Certain Property Owners

What should not come as a surprise to anyone, however, is the increase in federal income tax rates that took effect on January 1, 2013.  With the increased rates for ordinary income (i.e., 39.6%) and capital gains (i.e., 20%), and the imposition of new taxes on certain investment income, proper tax planning is as important as ever.  The spike in real estate values and residential development activity presents a unique opportunity for certain property owners in South Florida to capture the appreciation in their real estate holdings as long-term capital gains before any development activity begins on the property.

In most circumstances, the treatment of gain from the sale of real property will depend on the seller’s status as either a “dealer” or an “investor”.  Gain or loss on property held for sale by a dealer is generally treated as ordinary income, whereas sales of capital assets that are held for investment purposes generally receive capital gain treatment.  If sales by a taxpayer are frequent or substantial, if the property has been improved too much by the seller, or if the buyer is merely an agent of the seller, then the IRS will often attempt to deny capital gains treatment.

Tax Planning Technique to Obtain Capital Gains Treatment Pre-development

Many land developers use partnerships or limited liability companies to buy and hold property for investment while planning the development of the property.  One tax planning technique that is often used is for the partnership (or LLC) to sell the property to a related corporation before physical development of the property is ready to commence. The concept behind this technique is to obtain capital gains treatment for the appreciation inherent in the land pre-development, followed by ordinary income treatment on the property development and ultimate sale to outside parties.

For property owners seeking to participate in the development of the property, the choice of entity used to acquire the property from the partnership before development is important.  A property owner that holds land for investment as a capital asset ordinarily will recognize capital gain on the sale of such property to a third party.  However, current tax laws provide certain rules that recharacterize such gain as ordinary income when the sale is between related partnerships.  Therefore, when structuring the sale of property between related entities, it is often important to structure the purchasing development entity as a corporation for federal income tax purposes.  In addition, it is also important that the activities of the investment entity and the development entity remain separate so that the development activities do not taint the characterization of the land as held for investment in the hands of the investment entity.

Despite the economic crisis of recent years, many South Florida land owners recognize the unique opportunities presented by the current spike in development activity and are planning ahead with their advisors accordingly.

HB 87, a controversial foreclosure bill that passed the Legislature, was signed into law by Governor Rick Scott on June 7, 2013 to become Chapter 2013-137 of Florida laws.

The most significant portion of this law refines the use of an order to show cause as an alternative to a traditional foreclosure procedure and extends its applicability to foreclosure of condominium and association liens. It is expected that, as a result of this statute, the order to show cause procedure will be more commonly employed as an alternative to traditional foreclosures.

The statute allows a judge, without participation of the litigants, to set a hearing on the order to show cause as early as the later of 20 days after the order is served on the defendant or 45 days after a complaint is served upon the defendant. Unless the defendant raises a “genuine issue of material fact which would preclude summary judgment” the judge may thereafter render a foreclosure judgment at such hearing. Conceivably, the statute could reduce the time to complete a foreclosure from a minimum of 6 months to less than 60 days.

For foreclosures on residential property, the statute reduces the period in which a lender can seek a deficiency against the borrower to one year following issuance of a certificate of title or delivery of a deed in lieu of foreclosure. It also contains certain required allegations relating to ownership of the note and authority to bring the foreclosure action.

Middle-market M&A had a great fourth quarter in 2012.  Dealmakers were busy closing deals ahead of the then-anticipated increase in taxes.  While the first quarter of 2013 has been relatively less active as compared to the end of 2012, there are signs that deal activity, especially in middle market, will pick up in the second half of 2013. 

What is middle-market? 

Middle-market commonly refers to M&A deals, such as private equity (PE) buyouts, between $25 million and $1 billion; this wide range in turn gets broken down to 3 sublevels:  lower ($25 million to $100 million), core ($100 million to $500 million) and upper ($500 million to $1 billion), with the lower most active in 2012. 

This area represents a lion’s share of M&A activity in the United States.  According to PitchBook, the middle-market expanded by the end of 2012 to 71.4% of total buy-out activity volume—its highest share in the last decade.  The U.S. private equity industry’s fortunes are made predominantly in the middle-market area.

What is in store for the rest of 2013? 

The fundamentals have improved nicely from 2009 and 2010 and are in the area on average from a 5X to 8X EBITDA multiple (depending on the industry and the quality of assets; it is a seller’s market for high quality assets).  Valuations are improving.  Sellers have become more realistic when it comes to the price for their business.  Financing is flowing again to the assets generating reasonably good cash flow.   Company debt levels are historically low (about 50% average, as compared to between 60 to 70% in 2003-2006).  The private equity funds fundraising activity has continued to increase.  Thus, it is reasonable to expect a spike in middle market PE activity, especially in such popular sectors as B2B, consumer products, technology, financial services and healthcare.  The buyers will hunt for quality assets to deploy capital. Also, exit activity (dispositions of middle-market companies by way of strategic acquisitions, secondary private equity buyouts or going public) is bound to increase as the market stabilizes and private equity funds who have held certain investments longer than expected because of the downturn seek to liquidate those investments, other private equity funds seek to invest their capital and strategic and additional buyers seek to expand their market share and geographic reach. 

Florida: the nation’s most innovative state

While historically Silicon Valley and Boston areas were the “happening” places for PE activity, things are quickly changing.  According to PitchBook, the South was the most active region in 2012.  Florida in particular, which was ranked as the nation’s most innovative state by  Fast Company magazine, is well- positioned to be an important part of this growing market, particularly in the fields of technology, financial services and healthcare.

Indeed, at the Association for Corporate Growth’s  recent InterGrowth conference in Florida, the Florida campus of The Scripps Research Institute, a state-of-the-art biomedical research facility that is widely expected to be a great incubator of innovation, generated a lot of interest. With over 2,000 attendees from across the United States and 150 private equity firms in attendance at the conference, we experienced firsthand a great deal-making energy in the air and strong interest among middle-market buyers and lenders in Florida, as a premier business growth destination.

Warm weather and great events seemed to lure visitors this spring as Miami ranked #1 in March among the top 25 markets nationally for Average Daily Rate (ADR) at $238.12, Revenue Per Available Hotel Room (REV PAR) at $212.20 and Hotel Room Occupancy at a high 89.1%.  Even more telling, the ADR increased 14.4% and REV PAR, 19.1% over 2012.  These significant jumps over other popular locale such as Hawaii and New York demonstrate our competing edge in top markets. 

No doubt Ultra Music Festival, the Sony Open Tennis and the South Beach Food and Wine Festival were key factors in generating such high occupancy.  One more bonus was the number of passengers through PortMiami from January through March – 1,369,071 (a surge of 14% above 2012 numbers).  

The positive net effect of steady travel to Miami in January and February includes surges in tourist-related tax collections.  The first months’ comparisons to 2012 reveal the strong benefit to our local economy and the difference a year can make.  In Miami-Dade County (which excludes Miami Beach, Bal Harbour, and Surfside), the 2% Hotel Food and Beverage Tax Collections from hotels increased 11.5% over 2012, generating $1,449,130.  Even better, the 2% Hotel Food and Beverage Tax Collections from hotels on Miami Beach generated $5,084,544, up 13.3% from last year.  The high occupancy also positively impacts resort taxes – as reflected in the City of Miami Beach 3% Resort Tax Collections which increased 15.0% from last year.    

Miami Boasts Five-Star Status

These encouraging numbers are only boosted by the presence of two five-star hotels, Aqualina Resort & Spa in Sunny Isles and Mandarin Oriental Hotel  on Brickell Key each earning an upgrade from their prior four-star status. These coveted ratings help to cultivate Miami’s reputation as a luxury destination, which will encourage travel year-round.   

Miami is obviously growing in popularity and status and we anticipate that this remarkable first quarter is indicative of a fantastic year.

Exterior of InterContinental Miami

This is a guest post by Robert Hill, General Manager of the InterContinental Miami, one of the city’s longest standing hotels in the heart of its urban core.

With ties to international trade and commerce, increased sophistication, entertainment and culinary excellence, and its renewal as a domestic and international tourist destination, Miami’s hospitality market is outperforming national averages and standing out as one of the top hotel markets in the country.  

More than just Nightlife and Beaches

Miami has a number of things going for it that other cities simply can’t offer: a thriving business sector, diversity of marketplace, proximity to Latin America, and a vibrancy of cultural amenities – all against the backdrop of a breathtaking tropical waterfront. Combined, this is creating a formidable force for investors looking to tap into strong, high-performing assets, and visitors looking for an unforgettable experience.

The Gateway to the Americas

With Miami’s emergence as an international hub for travel in full swing, the InterContinental Miami is keeping pace with a recently completed $30 million renovation, defined by an infusion of art, technology and entertainment, including digital screens and interactive platforms, designs by Venus Williams, and the first stateside location of Toro Toro by Chef Richard Sandoval. 

Given downtown Miami’s emergence as a major international destination for commerce and tourism, now was the perfect time to undertake this investment. The InterContinental Miami has been a fixture of the Miami skyline for decades and has taken steps to keep pace with Miami’s changing brand – from a sand-and-surf only city to one that exudes international style, arts and culture, luxury, and urban sophistication.

Miami’s cache is growing at an unprecedented rate, with Miami International Airport setting a record for passenger traffic in 2012.  According to the Greater Miami Convention & Visitors Bureau, the number of international passengers has grown by more than 5% in the past year to 19.4 million.

The Miami market is among the most competitive in the country, particularly as new hotels come into the market and older hotels re-establish their brands.  A high tide lifts all ships and the large concentration of four and five star hotels available only enhances our region’s attractiveness as a destination.

Lobby Pod with Touchscreen Table

Entrance to InterContinental Miami

Jumbo loans (loans above conforming loan limit of $417,000 in Miami-Dade and Broward Counties) increased by 31% year-over-year in 2011 to 3,782 jumbo loans originated in South Florida.  This accounted for nearly half of the overall home loan growth according to Compliance Technologies’ database of Home Mortgage Disclosure Act (HMDA) filings. 

Jumbo Loans More Appealing

Although jumbo loans aren’t close to the peak numbers of 2005, they have recovered faster than conforming loans.  Judith Baker, the incoming president of the Broward Council of the Miami Association of Realtors and the manager of two Prudential Florida Realty offices in Fort Lauderdale, believes that this is because there are fewer defaults in jumbo loans and they are more profitable for banks.  Additionally, jumbo loans are increasingly attractive to homeowners and investors because the difference between conforming and jumbo loan rates is shrinking. 

Below are the largest jumbo home mortgage lenders in South Florida

With the year- over- year median sales price in Miami for luxury properties (the top 10% of all sales) rising in fourth quarter of 2012 by 32.6 % for condominiums and 30.1% for single-family homes, the forecast for jumbo loans in 2013 looks very promising.  Guy Cecala, the publisher of Inside Mortgage Finance, believes that the national jumbo market may fare better than the overall mortgage market in 2013.  Only time will tell.