We completed and started renting Parkview Mountain House in Park City, Utah about a year ago. Construction took slightly longer than we had initially scheduled, but we finished construction under budget, which is always a good thing. Getting our building permits was easier than expected (thank you, Summit County) and closing them out involved as much back and forth as you would expect for a challenging mountain site. I would happily build another project in Park City.
Some of our greatest challenges happened on the legal and financing side. When we acquired the site, we formed a single-purpose Limited Partnership in Utah that was initially owned by one of Globizen's Canadian corporations, and later with two other partners (another Canadian corporation and a New York LLC).
Limited Liability Companies (LLCs) are very common in the US. They offer a kind of hybrid "sweet spot." They offer the limited liability that comes with corporations, but with the option of having the pass-through taxation you get with Limited Partnerships. However, they don't exist in Canada, and so the legal and tax advice we got was to instead form a Limited Partnership. I'll come back to this later.
The first challenge we had was the seemingly simple task of opening up a bank account for the project LP. Wells Fargo, Chase, and others would not accept a Utah LP owned by a Canadian corporation. Too foreign. Too complicated. We finally managed to get one opened with US Bank, and they've been great, but being Canadian still poses challenges. For example, I can't use their mobile app in Canada. And I can't deposit cheques/checks online without first verifying my mobile number. But I can't verify my mobile number because their system won't send codes to Canadian numbers.
The next hurdle was construction financing. It was frustrating to learn about all of the simple and cost-effective "one-close solutions" available to US entities, but not available to foreign nationals. We could have gotten a great rate, and a construction loan that automatically converts to a permanent facility at substantial completion. Instead, we had to finance construction through a combination of equity, lines of credit, and a private loan. Not ideal, but at least the draws were flexible and easy.
Then came our take-out loan at completion. This proved to be impossible with our legal structure and foreignness. So much so that we ended up having to convert our Utah Limited Partnership to a Limited Liability Company, and become "members" of the LLC personally. This is a clean, common, and widely accepted structure for real estate ownership in the US. But in order to do this, we had to have KPMG advise us on how we could do this without triggering a massive tax liability. We were able to figure that out and close the facility. But our year-end tax filings are going to be a little more complicated this year.
In the end, we overcame the obstacles. But it was certainly challenging, more so than the actual building part I'd say. Every time I mentioned that I was Canadian, I came to expect a pause, where the other person would then need to start processing what to do next. As international as the US is, it feels paradoxically insular when it comes to the things I described in this post. But this is how you gain experience. Now we'll be slightly better prepared for our next US project, whatever that might be.
Note: Nothing in this post should be viewed as legal or financial advice. I'm just sharing our experiences.
Real estate may be local, but a lot of markets appear to be correlated. I felt that way this past summer when I was meeting with developers in Paris and I continue to feel this way when I read articles about other markets. Here's a recent one from Building Salt Lake talking about the state of Utah's multi-family market.
Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:
Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.
“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.
This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.
Rents and values coming down also doesn't help:
Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”
Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.
What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.
The state of Utah is trying to build 35,000 starter homes over the next five years. Last year, $300 million was allocated to something known as the Utah Homes Investment Program (UHIP). The initial idea was that these funds would be provided as low-cost deposits to financial institutions so that they could, in turn, offer low-interest loans to homebuilders who committed to building single-family starter homes.
But this didn’t go as planned. Apparently, the low-cost deposits weren’t low enough to compensate for the perceived lending risk. So Governor Cox asked if the funds could instead be directed to the Utah Housing Corporation. Enter the Condominium Construction Loan Program. The way this newly created program works is that UHC can now provide low-cost loans — up to 100% LTC — directly to developers.
However, there are some stipulations:
Warrantable projects: The projects must be warrantable to the Federal Home Loan Mortgage Corporation, meaning the property and the individual condominium units need to be eligible for conventional mortgage financing.
Owner-occupancy requirement: The individual condominium units must be sold to an owner-occupant, with a recorded deed restriction in place for a period of not less than five years. This is obviously to stop investors from buying and reselling.
Equity sharing: The equity appreciation on the condominium unit is shared between UHC and the first owner-occupant. The homeowner earns 75% of the equity appreciation (15% per full year of occupancy, through five years), with the balance going to UHC upon sale of the unit.
So it’s a trade-off: buyers get access to new homes at below-market pricing (because the developer’s cost structure is reduced), and in exchange, they give up some of the potential upside. Will it work and help Utah achieve its starter home goal by 2030? I don’t know. But it’s clear recognition that if you want to deliver below-market housing, you need to provide subsidies.
We completed and started renting Parkview Mountain House in Park City, Utah about a year ago. Construction took slightly longer than we had initially scheduled, but we finished construction under budget, which is always a good thing. Getting our building permits was easier than expected (thank you, Summit County) and closing them out involved as much back and forth as you would expect for a challenging mountain site. I would happily build another project in Park City.
Some of our greatest challenges happened on the legal and financing side. When we acquired the site, we formed a single-purpose Limited Partnership in Utah that was initially owned by one of Globizen's Canadian corporations, and later with two other partners (another Canadian corporation and a New York LLC).
Limited Liability Companies (LLCs) are very common in the US. They offer a kind of hybrid "sweet spot." They offer the limited liability that comes with corporations, but with the option of having the pass-through taxation you get with Limited Partnerships. However, they don't exist in Canada, and so the legal and tax advice we got was to instead form a Limited Partnership. I'll come back to this later.
The first challenge we had was the seemingly simple task of opening up a bank account for the project LP. Wells Fargo, Chase, and others would not accept a Utah LP owned by a Canadian corporation. Too foreign. Too complicated. We finally managed to get one opened with US Bank, and they've been great, but being Canadian still poses challenges. For example, I can't use their mobile app in Canada. And I can't deposit cheques/checks online without first verifying my mobile number. But I can't verify my mobile number because their system won't send codes to Canadian numbers.
The next hurdle was construction financing. It was frustrating to learn about all of the simple and cost-effective "one-close solutions" available to US entities, but not available to foreign nationals. We could have gotten a great rate, and a construction loan that automatically converts to a permanent facility at substantial completion. Instead, we had to finance construction through a combination of equity, lines of credit, and a private loan. Not ideal, but at least the draws were flexible and easy.
Then came our take-out loan at completion. This proved to be impossible with our legal structure and foreignness. So much so that we ended up having to convert our Utah Limited Partnership to a Limited Liability Company, and become "members" of the LLC personally. This is a clean, common, and widely accepted structure for real estate ownership in the US. But in order to do this, we had to have KPMG advise us on how we could do this without triggering a massive tax liability. We were able to figure that out and close the facility. But our year-end tax filings are going to be a little more complicated this year.
In the end, we overcame the obstacles. But it was certainly challenging, more so than the actual building part I'd say. Every time I mentioned that I was Canadian, I came to expect a pause, where the other person would then need to start processing what to do next. As international as the US is, it feels paradoxically insular when it comes to the things I described in this post. But this is how you gain experience. Now we'll be slightly better prepared for our next US project, whatever that might be.
Note: Nothing in this post should be viewed as legal or financial advice. I'm just sharing our experiences.
Real estate may be local, but a lot of markets appear to be correlated. I felt that way this past summer when I was meeting with developers in Paris and I continue to feel this way when I read articles about other markets. Here's a recent one from Building Salt Lake talking about the state of Utah's multi-family market.
Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:
Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.
“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.
This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.
Rents and values coming down also doesn't help:
Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”
Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.
What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.
The state of Utah is trying to build 35,000 starter homes over the next five years. Last year, $300 million was allocated to something known as the Utah Homes Investment Program (UHIP). The initial idea was that these funds would be provided as low-cost deposits to financial institutions so that they could, in turn, offer low-interest loans to homebuilders who committed to building single-family starter homes.
But this didn’t go as planned. Apparently, the low-cost deposits weren’t low enough to compensate for the perceived lending risk. So Governor Cox asked if the funds could instead be directed to the Utah Housing Corporation. Enter the Condominium Construction Loan Program. The way this newly created program works is that UHC can now provide low-cost loans — up to 100% LTC — directly to developers.
However, there are some stipulations:
Warrantable projects: The projects must be warrantable to the Federal Home Loan Mortgage Corporation, meaning the property and the individual condominium units need to be eligible for conventional mortgage financing.
Owner-occupancy requirement: The individual condominium units must be sold to an owner-occupant, with a recorded deed restriction in place for a period of not less than five years. This is obviously to stop investors from buying and reselling.
Equity sharing: The equity appreciation on the condominium unit is shared between UHC and the first owner-occupant. The homeowner earns 75% of the equity appreciation (15% per full year of occupancy, through five years), with the balance going to UHC upon sale of the unit.
So it’s a trade-off: buyers get access to new homes at below-market pricing (because the developer’s cost structure is reduced), and in exchange, they give up some of the potential upside. Will it work and help Utah achieve its starter home goal by 2030? I don’t know. But it’s clear recognition that if you want to deliver below-market housing, you need to provide subsidies.
Cover photo by Saul Flores on Unsplash
Cover photo by Saul Flores on Unsplash
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