Pension Fund and Tax Exempt Investments

Sutherland is one of the most qualified and experienced law firms in the country in representing pension funds and other tax exempt investors in connection with all aspects of real estate investment.

Experience Representing Tax Exempt Investors

Sutherland provides significant legal representation to the tax-exempt investment community. Specifically, we represent a large number of public and private pension funds, college and university endowment funds and various foundations in connection with the real estate investments. In addition to the normal legal and business challenges involved in any investment in commercial real estate, the representation of these tax-exempt investors presents special challenges and requires the application of special expertise in the following areas:

Analysis of property operations to determine if the investment will cause the otherwise tax-exempt investor to recognize unrelated business taxable income (UBTI) and advice on how to structure transactions and operations to minimize UBTI to the greatest extent possible.
Analysis of financing structures to assure that leverage will not result in taxable debt financed income.
Analysis of the prohibited transaction rules under both ERISA and the Internal Revenue Code.
Analysis of the plan asset rules and structuring transactions and ownership to allow ownership entities to qualify as real estate operating companies or venture capital operating companies, as appropriate.
Organization of title holding entities and title holding entity structures that comply with the applicable provisions of the Internal Revenue Code, especially Section 501(c)(2) and Section 501(c)(25), relating to title holding organizations and holding company structures.
Application for and obtaining of determination letters (IRS acknowledgement of tax-exempt qualification) for title holding entities.
In the case of co-investment with taxable entities, analysis of proposed venture arrangements to assure compliance with the so-called “fractions rule” that must be met by ventures comprised of both tax exempts and taxable entities to avoid debt financed income.
Analysis of state and local laws imposing taxes or transaction fees to assure that the investor realizes the full benefit under state and local laws, if any, of its tax-exempt status.

Representation of Pension Funds and Large-scale Investors in Real Estate Transactions

We regularly represent both public and private pension funds and other large-scale investors in sophisticated, equity real-estate transactions. Our pension fund clients and co-investors with clients include the Florida State Board of Administration in its capacity as the administrator of the Florida state public employees pension fund (the fifth largest in the world), the Dow Chemical employees pension fund, Dallas Police and Fire pension system, Kansas employees pension fund, NYSTERS and several others. We work closely with a number of pension fund advisors and investment managers, including Heitman Capital, L&B Realty, Morgan Stanley Real Estate Advisors, UBS Realty Investors, Lincoln Properties Advisory Group and Urban Investments Advisors.

Programmatic Joint Ventures

We represent institutional investors who form programmatic joint ventures with large private and publicly-traded REITs to acquire and develop specific asset classes. These transactions often involve the acquisition and development of portfolios valued in excess of one billion dollars in business and have included the following programmatic joint venture transactions:

A joint venture between a public employee pension fund and a large regional multi-family developer, owner and operator to develop and/or acquire a portfolio of apartment and condominium projects.
A joint venture between a major insurance company and a national hotel developer to develop a portfolio of up to 20 or more hotels in core markets throughout the United States.
A joint venture between a large public employee pension fund and a publicly traded REIT to acquire a portfolio of retail shopping centers.
A joint venture between a large insurance company and Cozad/Westchester to acquire a large international portfolio of agribusiness properties.
A joint venture between a large public pension fund and a publicly traded REIT to acquire a portfolio of health care properties.
A joint venture between a large public pension fund and a regional office building owner and developer to acquire a portfolio of office buildings in the Philadelphia metro area.

Representation of Pension Funds and Other Lenders in Mortgage-lending Transactions

We regularly advise both lenders and borrowers in connection with all types of real estate financings, including construction and permanent loans, multi-state financings, leasehold financing, sale/leaseback transactions, short-term variable rate financing, participating mortgages and subordinate and wrap-around financing. We represent a number of mortgage conduits and CMBS loan correspondents engaged in nationwide lending and the resale of mortgages into REMICs and to other sponsors of CMBS offerings. Our extensive experience representing the servicers of securitized loans provides us with unique insight into the post-securitization hurdles faced by borrowers, including partial releases of collateral, transfers of beneficial interests, loan assumptions, major lease approvals and subsequent secondary financing. We regularly advise public and private pension funds in connection with the negotiation of loan documents for leveraged real estate transactions involving securitized debt financing. We are particularly sensitive to the tensions that are often created by the conflicts between many "standard" securitized lending practices and the statutory, fiduciary and other legal standards imposed upon pension funds. In addition to debt financing, we regularly handle major equity formation transactions through joint ventures, syndicated partnerships, private placements and stock offerings. We also advise pension funds and institutional investors in connection with loan restructurings, bankruptcies and workouts.

Litigation

We have handled a number of litigation matters for pension fund investor clients, including substantial claims for latent defects and construction-related deficiencies, claims for refunds of state and local taxes and other litigation matters.

ERISA Experience

For over 30 years, we have advised pension plan sponsors and funds on compliance with applicable Department of Labor legal requirements. Our experience began as a natural outgrowth of the firm's nationally recognized tax practice. As the regulation of employee benefits evolved from largely a matter of tax compliance to the present overlay of tax, ERISA, securities and other regulation, we developed additional comprehensive expertise. We currently provide experienced counsel on the full range of legal issues raised by pension investments, management and other arrangements for over 100 private employers, including Fortune 100 and 500 companies, as well as major public plans.

One of our partners, Bill Walderman, was employed for over 13 years with the Office of the Solicitor, United States Department of Labor, where he was involved in the development of the Department of Labor’s “plan asset” regulations and virtually every aspect of ERISA enforcement.

Since the enactment of ERISA in 1974, we have assisted our clients in addressing the complex fiduciary and prohibited transaction requirements of the act, including the following:

Structuring of investment management relationships and allocation of fiduciary responsibilities.
Compliance with the conditions of the prohibited transaction class exemptions, particularly those related to plan investment activities.
Compliance with the Plan Asset Rules.
Structure Real Estate Operating companies and Venture Capital Operating companies.
Securities lending by a plan.
Allocation of voting responsibility for stocks owned by a plan.
Joint investment by a plan and a party in interest.

We have also worked extensively with financial institutions to design and review with plan fiduciaries all applicable ERISA fiduciary and prohibited transaction rules, as well as other applicable legal requirements, in connection with:

Mortgage and other loans made by plans.
Timber investment and financing transactions.
Pooled real estate investment vehicles in various forms, including vehicles for tax-effective participation in project partnerships and leveraged real estate.
Fixed return products, including GICs, synthetic GICs and general account insurance contracts with market value adjustment.
Bank collective trust funds, variable insurance products and mutual funds, including products not registered under the Investment Company Act of 1940.

Derivatives

Investment management, advisory and asset allocation arrangements, including investment advisory agreements and other portfolio management agreements.
Establishment of "real estate operating companies" and "venture capital operating companies."
Assessing the applicability of various class exemptions under applicable DOL Regulations. We have extensive experience with the QPAM class exemption.
Arrangements and disclosures designed to reflect the ERISA section 404(c) regulations.
We have the expertise and staffing depth to provide timely and cost efficient advice on all of these issues.

Tax Experience - Federal

Early in its development, Sutherland attained a national reputation in the tax field. One of our senior partners, Randolph Thrower, served as Commissioner of the Internal Revenue Service. Jerry Cohen served as Chief Counsel of the IRS. Five of our partners have chaired the Section of Taxation of the American Bar Association and one has served as Chair of the Real Property, Probate, Trusts and Estates section of the America Bar Association. Former Sutherland partner Margaret Richardson served as IRS Commissioner during the Clinton Administration. A number of our other partners and associates have held responsible positions in the Internal Revenue Service or the Tax Division of the Department of Justice.

We serve as tax counsel to a number of major corporations, including Aetna Life and Casualty, Altria, Coca-Cola Enterprises, General Motors, Capmark Finance Inc., Hallmark Cards, Hershey Foods, Hospital Corporation of America, McDonald's, Northern Telecom, Procter & Gamble, Tenneco and others. We also represent many medium-sized and small corporations and their shareholders, as well as cooperatives, partnerships, joint ventures, tax-exempt organizations, trusts, estates and individuals. The scope of our representations vary from planning the most tax advantageous method of accomplishing a complex transaction to representing individuals and entities before the IRS.

We regularly provide advice on the tax consequences of real estate financings, equity participation loans and debt restructurings for both borrowers and lenders. Also, we have extensive experience in resolving issues relating to workouts of real estate loans, including original issue discount and cancellation of indebtedness problems. Our practice also includes advising clients with respect to gain deferral mechanisms such as like-kind exchanges and installment sales and with respect to the formation, operation and dissolution of partnerships and joint ventures.

As noted, we maintain an extensive practice representing tax-exempt organizations, including public and private pension funds, charitable trusts and foundations and college and university endowment funds in planning to minimize tax liabilities on UBTI. Most frequently, we advise on the UBTI consequences of leveraged and other investments proposed for pension funds, including mortgaged real estate investments and energy project partnerships. We have also made extensive use of sophisticated variable annuity contracts to mitigate UBTI recognition and have thoroughly considered the tax, ERISA, securities and other legal issues arising from those contracts.

We regularly represent public and private pension fund investors in organizing various tax-exempt title holding entities under Sections 501(c)(2) and 501(c)(25) of the Internal Revenue Code. As part of this process, we assist, when requested, in the due diligence process to review the anticipated sources of income to be realized by the title holding entity and to advise the investor with respect to strategies to avoid or minimize anticipated UBTI. We regularly submit requests to the IRS for the issuance of Determination Letters recognizing formally the tax-exempt status of the title holding entities we organize. We also advise our pension fund clients with respect to corporate administration and periodic review of income that might give rise to the recognition of unrelated business taxable income.

We regularly analyze and give advice in connection with leveraged real estate transactions involving both public and private pension funds, particularly with respect to the availability of the favorable treatment afforded to qualified plans under Section 514(c)(9) of the Internal Revenue Code. We structure co-investment partnerships and limited liability companies to comply with the "fractions rule" and assure that all allocations have the required substantial economic effect.

We also analyze and give advice to public pension funds regarding the general applicability of federal UBTI rules to them and the degree to which they may be protected from such rules by either Section 115 of the Internal Revenue Code or the non-statutory inter-governmental immunities doctrine.

Tax-Experience - State and Local

In addition to federal tax issues (primarily those pertaining to UBTI), we regularly provide advice pertaining to state and local tax issues, including state income, excise and franchise taxes and issues pertaining to liability for a variety of other state and local taxes and fees. Our goal is always to assure that the tax-exempt investor will realize the full benefit of its tax-exempt status. In this regard, we have assisted a major public fund in obtaining several million dollars in transfer tax exemptions and refunds for transfer taxes previously paid in several states.

Legal Opinions

As part of its legal representation of tax exempt investors, Sutherland often renders legal opinions in connection with tax exempt investment transactions on a broad range of issues, including UBTI, status as a REOC or VCOC and other tax and ERISA related issues.