The trend towards forming real estate partnerships is back on the rise, according to Jeff Bruns, partner at the law firm Mayer Brown LLP.
"In the last year or year and a half, we've really see a lot more partnerships being formed," Bruns said in a video interview last month with REIT.com at REITWise 2012: NAREIT's Law, Accounting and Finance Conference in Hollywood, Fla.
Bruns said some investors are looking at joint venture partnerships as an alternative to real estate fund. The benefit in that case is a greater degree of control over assets and how their capital is being spent.
Bruns noted that partnerships with REITs present a unique set of issues.
"One interesting aspect when you form a partnership with a REIT is who's going to be responsible for managing that property in a way that is REIT-compliant and generates good income and you're not going to be subjected to a prohibitive transaction if you sell too quickly in a development deal," Bruns said. "That's always something that needs to be negotiated, particularly with operators and developers who aren't necessarily used to the REIT rules."
Bruns also offered his thoughts on the need for reform of the rules laid out by the Foreign Investment in Real Property Act (FIRPTA). Bruns said easing the regulations surrounding cross-border investment in U.S. real estate would bring an infusion of much-needed capital into the market.
"We're still trying to work our way out of valuations being less than outstanding loans, and there has been some work on the loans side through extending loans and working loans out," Bruns said. "But the fundamental problem is still that values are too low relative to the amounts owed. To the extent you can get foreign investors who are interested in properties to help bring those valuations up, that would be a great thing. But FIRPTA right now is a huge disincentive for a lessor coming in who's looking at FIRPTA potentially imposing a U.S. tax obligation. In some respects, even more important for a lot of investors is the obligation to file U.S. tax returns, which is a huge turn-off to a lot of foreign investors."