03/25/2013 | by
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Lawyer Says More Public Purchases of Private Real Estate Coming

Les Loffman, partner with Proskauer Rose LLP, joined REIT.com for a video interview at REITWise 2013: NAREIT’s Law, Accounting and Finance Conference in La Quinta, Calif.

Loffman discussed some of the potential changes being mulled for bottom loss guarantees in partnerships. He said the changes could impact partnerships “rather dramatically,” although he noted that no changes are official yet.

“We understand that the Treasury [Department] and the IRS are considering two things,” Loffman said. “They may not allow bottom guarantees to be treated as obligations that are recourse and allocated to the partner who bears the risk of loss with respect to those liabilities. Instead, they will treat them like non-recourse indebtedness and they will allocate them among all the partners, even though that partner has more risk of loss. Also, we are hearing that they’re only going to allow guarantees to the extent of the fair market value of the assets of the guarantor, which is a whole departure from what we’ve had over the last period of time.”

Loffman offered his opinion on proposals contained in a recent tax reform discussion draft issued by the House Ways & Means Committee on passthrough entities.

“If these got enacted, it would be a major disaster,” he said.

Loffman said the chances that large, privately held portfolios of real estate will likely become part of the public market are good.

“I would say that on industrial-grade properties, about 15 percent of them are in the hands of REITs,” he noted. “REITs can only increase that number and increase, in general, the acquisition of properties everywhere, because REITs have access to cheap capital. They are growing in size. I suspect there will be much more this year.”