Knowledge of federal, state and local law, of the changes to those laws, and of local forms and customs is essential in successfully and efficiently practising real estate law. Alabama land records are handled on a county-by-county basis, and laws are interpreted accordingly.
Many probate offices have implemented technological improvements for better filing, record-keeping and access to recorded documents, though these developments can vary significantly between counties. Successful transactions often involve extensive negotiations. Closing commercial deals involves standard forms and requirements for both state law compliance and title insurance.
All Sections referenced herein are Sections of the Code of Alabama (1975).
Trends in 2024
In 2024, the intersection of several market factors in Alabama – such as interest rates, construction pricing, seller valuation/pricing stickiness (raw land and completed assets), institutional equity return requirements and the lack of permanent refinance credit facilities taking out construction loans – caused a bottleneck of traffic on the commercial real estate highway. Many participants in the commercial real estate industry implemented a “wait-and-see” approach as uncertainty surrounding interest rates remained. As a result, the commercial real estate industry saw a decline in the amount of new construction loans and a resulting decline in new construction starts. Ultimately, the volume of real estate developments decreased from 2023 to 2024, as developers faced the same high interest rates and construction and labour costs.
In the multifamily world, despite a lack of project starts in 2024, rental demand remained high, providing optimism for new investments and construction despite high costs. In the housing market, as a result of high mortgage rates and low inventory, affordability remained an issue for motivated buyers. Meanwhile, while the office sector remains higher risk in certain locations, nearing the end of 2024, many businesses began to implement return-to-office mandates, moving away from full remote schedules and encouraging more in-office or hybrid requirements for workers, a positive trend for those bullish on the office sector.
Within the industrial context, total e-commerce sales increased again in 2024, and the demand for industrial logistics spaces increased to meet America’s ever-growing need for online delivery. Retailers (and other developers, including multifamily) are finding ways to convert old developments such as indoor malls into adaptive reuse projects. A similar creative shift is occurring in a segment of traditional retail, where developers are targeting more experience-based entertainment activities in their projects.
Like other industries, the influence of artificial intelligence (AI) in the real estate market grew in 2024. Nearly 75% of leading brokerage firms in the USA have adopted AI technologies in their daily practice to optimise efficiency. As AI usage expands at a rapid pace, the need for data centres to support the increased AI needs also grew. Many developers have sought states with large rural land area, including Alabama, to accommodate their data centre expansion efforts.
Significant Deals in 2024
Major companies initiated significant developments in Alabama in 2024. In May, Facebook’s Meta announced its plans to increase its footprint in Alabama by introducing a USD800 million data centre, to be built in Montgomery. The following month, Samkee Corporation, a South Korean-based auto parts producer, opened a USD128 million auto parts production facility in Tuskegee, its first in the United States. Near the end of the year, J.M. Smucker’s, well known for its consumer-packaged goods, held a grand opening for its 900,000 square foot plant in McCalla, worth USD1.1 billion.
In Birmingham specifically, many notable projects commenced in 2024. In multifamily, LIV Development neared completion on the Livano Liberty Park and the Filmont in Vestavia Hills, Alabama. Coca-Cola Bottling Company United Inc began construction of its new Coca-Cola UNITED office complex and warehouse, a USD330 million plant and headquarters located near the Avondale community in East Birmingham. The University of Alabama at Birmingham (UAB) broke ground on their USD190 million Biomedical Research and Psychology Building. This facility is expected to enhance UAB’s impact across Alabama and nationwide, with the goal of reaching USD1 billion in research expenditures. Construction also began on the 9,380-capacity amphitheatre at The Star at Uptown. This USD550 million mixed-use development would add another attraction to Birmingham’s Uptown entertainment district, also featuring residential, retail, office and hotel space. These types of projects and large, in-progress construction will likely generate additional real estate investment in 2025.
Broker Legislation (National Association of Realtors)
In the residential real estate market, the National Association of Realtors (NAR) came under fire in 2023, with multiple lawsuits being focused on the commission paid by the homeowner seller in residential transactions, which is divided among brokers for both buyer and seller in such transactions. In March 2024, the NAR settled its antitrust lawsuits, which alleged conspiracy among agents regarding their commissions, and which were assumed to contribute to the rising cost of homes for buyers. Since the new real estate commission rules went into effect in August 2024, buyer-agent commissions have only minimally decreased, and their lasting effect on such commissions remains to be seen.
The Corporate Transparency Act (CTA)
The CTA became effective on 1 January 2024, requiring entities to report information, including specific beneficial ownership information, to FinCEN (the US Department of Treasury’s Financial Crimes Enforcement Network).
The roll-out of the CTA caused many challenges and uncertainties during its first year. Throughout December 2024, the case of Texas Top Cop Shop, Inc et al v Garland et al saw a series of injunctions that paused the enforcement of the CTA and reinstatements that lifted those injunctions, reinstating CTA reporting requirements.
Given the ever-changing nature of the CTA, it is necessary to include a few updates from the current year. In early 2025, the Supreme Court granted a motion to stay the injunction on the enforcement of the CTA. Meanwhile, in Smith v US Department of the Treasury, the US District Court for the Eastern District of Texas issued a nationwide injunction on the reporting rule under the CTA, again pausing the enforcement of the CTA reporting requirements nationally. In March 2025, the US Treasury Department announced it would not enforce the CTA against US citizens, domestic reporting companies or beneficial owners.
Out-of-State Co-Brokerage Agreement
In December of 2024, Alabama passed legislation that allows an out-of-state principal broker to collaborate with a licensed Alabama principal broker without obtaining an Alabama licence. The following requirements must be met by the out-of-state broker to conduct business within the state:
In addition, the Alabama broker is held liable for all acts of the out-of-state broker, as well as their own acts, that arise from the execution for any co-brokerage agreement.
See Section 790-X-1.05(1)-(5).
Alabama’s Uniform Commercial Real Estate Receivership Act
Effective 1 January 2024, Alabama joined 13 other states to adopt its own version of the Uniform Commercial Real Estate Receivership Act. The state had statutes regulating receivers but lacked clarity in areas such as receiver appointments. This Act was enacted to provide clear guidelines and establish order regarding receivership law in Alabama. Some changes that impact how receivership law is practised in Alabama include the following:
See Ala. Code Section 6-6-780 to 6-6-807.
The Act does not replace any pre-existing receivership statutes, which will continue to govern receiverships outside the context of commercial real estate property.
Unless the conveyance specifies otherwise, when real property is conveyed, granted or demised, it is transferred as an absolute fee simple estate (Section 35-4-2). Alabama law also permits life estates, easements and servitudes. A fee simple owner may grant a leasehold estate or licence to permit others to occupy and use the owner’s real property. See 6. Commercial Leases.
A conveyance of real property must generally be written and signed by all parties, with witnesses to the signatures (Section 35-4-20), and must contain a valid property description. Conveyance instruments must:
See also 8.1 VAT and Sales Tax.
Residential conveyances require special disclosures, but generally there are no special laws regarding the transfer of real property based on use. However, the parties to a transaction or locality rules may require additional provisions to be included in the deed or in a separate document recorded with the deed at closing.
Buyers should still take additional precautions to ensure that the property’s proposed use complies with relevant local rules (see 2.8 Permitted Uses of Real Estate Under Zoning and Planning Law).
Transfer of title is generally effectuated by a deed, usually taking the form of a general warranty deed, statutory warranty deed (Section 35-4-271) or quitclaim deed. In commercial transactions, the most common form of deed is the statutory warranty deed. Other forms of conveyancing and/or transfer or occupancy instruments include:
Conveyancing instruments must be recorded in the office of the judge of probate for the county in which the property resides (Section 35-4-50). Alabama uses a hybrid “race-notice” system where a purchaser takes priority over all prior purchasers of which they have no notice at the time they record their conveyance – eg, see Nelson v Barnett Recovery Corp, 652 So 2d 279, 281 (Alabama Court of Civil Appeal 1994) regarding Section 35-4-90.
In commercial transactions, due diligence typically involves:
It may also include an examination of the property’s environmental condition.
Lawyers are typically assigned review and/or cure of title and survey matters, and are often involved in addressing permitting and platting requirements as well as the resolution of environmental matters, if applicable. The allocation of attorney versus client responsibility continues to vary considerably based on the client’s size and needs.
Purchase and sale agreements (PSAs) may vary from those providing for the sale of property in its “as is, where is” condition, with no representations to PSAs containing significant representations and warranties, such as the following:
Alabama law provides for an implied warranty of fitness and habitability for the sale of new residential property; however, the doctrine of caveat emptor generally applies – see Sims v Lewis, 374 So 2d 298, 303 (Alabama 1979).
A buyer’s customary remedies for a seller’s misrepresentation are based on the contract’s terms. The seller’s liability for such a breach can be negotiated and is often capped at a specific dollar amount, which varies.
Foreign companies are not required to register with the state unless they are considered to be transacting business in Alabama (Section 10A-1-7.01). Foreign companies must, however, comply with all federal laws relating to the transfer of property to a foreign investor, including the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), etc. Additionally, foreign investors should consider the tax implications of such a transaction when purchasing real estate (see 8. Tax). Recent changes to Committee on Foreign Investment in the United States (CFIUS) regulations have had some impact in Alabama.
Alabama’s laws generally conform to federal environmental laws. Because environmental statutes often hold the current owner strictly liable for the costs of remediation, commercial real estate buyers and sellers may contractually allocate environmental liability. Buyers and sellers will negotiate the terms of any “as is” language, indemnification for environmental matters, and any release of environmental claims between the parties.
Negotiated terms vary between contracts, with sellers favouring caps on their liability and buyers preferring a complete indemnification from sellers. Additionally, many buyers wish to limit their liability by satisfying the requirements for the “innocent landowner defence” against CERCLA liability (discussed further in 3.8 Lender’s Liability Under Environmental Laws).
An interested buyer can request a zoning verification letter from the applicable jurisdiction’s planning department. Some departments will include statements of compliance or non-compliance, but many counties in Alabama do not have the staff capacity to do so. In those cases, if a buyer or its lender requires a compliance certificate, there are consultants available who will provide such a compliance report or certificate for a fee. Local municipalities may enter into a development agreement to facilitate a specific project use, depending on the municipality and project type.
Governmental taking of property by eminent domain and condemnation actions may occur if the property is taken for a “public use” and payment of “just compensation” is made (Alabama Constitution of 1901, Article XII, Section 235). In addition to state and federal constitutional limitations, Alabama has adopted the Alabama Eminent Domain Code, which sets procedures for eminent domain cases (Section 18-1A-1 to -311). If a landowner rejects an offer to purchase from the state, the state will file a complaint for condemnation with the probate court for the county where the relevant property is located.
The deed tax is triggered by any real estate conveyance and is typically allocated to the purchaser, unless otherwise agreed by the parties. The purchase of an interest in a property-owning company is not considered a conveyance of real estate and, therefore, does not trigger the deed tax. The deed tax is USD0.50 for every USD500 (rounded up) of the conveyed property’s value. If a mortgage is recorded simultaneously with the deed, a credit is provided by statute, such that the deed tax due is calculated on the value of the real property not securing the mortgage only (Section 40-22-1(c)).
For example, if a property is purchased and sold for USD2 million and the deed is recorded simultaneously with a mortgage of USD1.5 million secured by the property, the deed tax would be calculated only against the USD500,000 portion of the property’s value not already subject to the mortgage tax.
Statutory deed tax exemptions exist for certain instruments made for agricultural purposes (Section 40-22-4), farm loans (Section 40-22-5) and certain conveyances by religious organisations (Section 40-22-5.1).
See 1.3 Proposals for Reform regarding the APPA and Section 35-1-1.1.
Under Alabama law (in addition to FIRPTA), upon the sale of any real property, the transferor must withhold 3% (if the buyer is an individual) or 4% (if the buyer is an entity) of the purchase price; or, if the gain recognised on the sale is less than the purchase price and the seller provides the buyer with an Affidavit of Seller’s Gain (see Alabama Department of Revenue (ADOR) Form NR-AF2), the buyer may withhold 3% or 4% of the amount of the gain (Section 40-18-86). Transferors may be exempt from these withholding requirements under Section 40-18-86(d) (see 8. Tax).
The acquisition of commercial real estate is generally financed with indebtedness secured by a mortgage lien on acquired property. Depending on the type of real estate, financing may be available through bank debt, conduit loans or government-sponsored enterprises.
A purchaser or developer of commercial real estate generally grants a mortgage to secure borrowed funds used to acquire and/or develop the real estate. Most commercial lenders also incorporate a security agreement into the mortgage (in addition to separate UCC filings made locally and in the borrower entity’s domicile state) to cover personal property attached to or used in connection with the mortgaged real estate and proceeds. Lenders can also collateralise (with additional agreements and filings) the borrower’s entity interests or stock and/or deposit accounts.
Financial institutions that are not domiciled in Alabama may be required to qualify to do business in Alabama and may be liable for filing tax returns and payment of annual privilege tax (under Sections 40-14A-21 to 40-14A-29) and excise tax (under Sections 40-16-1 to 40-16-8) if the financial institution is doing business in Alabama within the meaning of the laws.
Under Section 40-22-2, mortgage recording tax is generally USD0.15 per USD100 of the loan amount secured by the mortgage. Mortgages with open-end or revolving indebtedness have two options for paying the recording tax, as follows.
There are mechanisms, such as obtaining tax orders from ADOR, for allocating recording tax for mortgages covering property in multiple counties or states. Additionally, a nominal per-page recording fee will be collected upon recording.
Other than general contract law principles and granting a mortgage in proper form for recording, with the required information included in the document, there are no specific legal rules or requirements applicable solely to entities. For most transactions, it is recommended to obtain a lender’s title insurance policy insuring the mortgage.
A mortgage must be recorded to maintain priority over subsequent liens granted on the property. Section 35-10-1 to -98 deals with state requirements for foreclosure. There is a homestead exemption pursuant to Section 6-10-2 and a one-year statutory right of redemption under Section 6-5-248(b).
Existing secured debt can be subordinated to newly created debt if the parties execute and record a subordination agreement.
Unless the lender is deemed to be a partner in the transaction, it cannot be held liable under environmental laws for merely holding security (ie, a mortgage) unless it directly causes the pollution or contamination. Nonetheless, most Alabama lenders typically require an environmental indemnity agreement from the borrower and one or more beneficial owners.
If the lender forecloses and becomes the property owner, the only way to qualify for liability exemptions under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for existing contamination is to conduct all appropriate inquiries (AAI), according to the ASTM E1527-13 standards, in a timely manner prior to the date the loan is made. AAI must be conducted no more than one year prior to the loan closing.
Any report more than one year old is of no value in establishing an innocent purchaser defence under CERCLA. Certain portions of the AAI are only good for 180 days. If AAI is not performed or completed in a timely manner, a lender can be liable once it takes possession of the property for contamination it did not cause.
In addition to AAI, most mortgage lenders in Alabama require the borrower (and other indemnitors) to agree to indemnify the lender against potential environmental liability.
Lenders should consider the general principles of US federal bankruptcy law. Typically, loan documents will include provisions dealing with a borrower’s potential bankruptcy, though such provisions are of limited or no value in a bankruptcy proceeding.
Borrowers Filing Bankruptcy Petitions
When a borrower files a bankruptcy petition, there is an automatic stay of all actions against a borrower’s property, including foreclosure. If a security interest is foreclosed prior to the bankruptcy filing, then, in the absence of some defect in the foreclosure process, the foreclosed property does not become part of the borrower’s bankruptcy estate, and the lender is free to exercise its state law rights regarding the property (including taking possession). Even in that scenario, a lender may be forced to ask the bankruptcy court for permission via a motion for relief from the automatic stay. In addition, the foreclosing lender may have an unsecured claim (a deficiency claim) to assert against the borrower in bankruptcy.
Alternatively, if a secured lender fails to foreclose its lien prior to a borrower’s bankruptcy filing, the lender will be forced to assert its rights in the borrower’s bankruptcy case. Typically, a lender will file a proof of claim and, depending on which bankruptcy chapter the borrower files under (eg, Chapter 7 (liquidation), or Chapter 11 or 13 (business or consumer reorganisation, respectively)), will participate in the confirmation process as to the borrower’s proposed plan of reorganisation. While in bankruptcy, the lender may assert the rights granted to it under the relevant loan documents.
Petitioning the Court
Prior to taking many actions that would otherwise be allowed outside bankruptcy, a lender must petition the court for relief from the automatic stay. In addition, as to non-residential property that is not a borrower’s homestead, a lender’s secured lien can be “valued” – ie, bifurcated into secured and unsecured portions after a valuation hearing with the bankruptcy court. Likewise, a wholly unsecured junior lien may be stripped off the property and treated as completely unsecured in certain circumstances.
Defaults
A borrower’s insolvency will ordinarily lead to a default under the terms of the relevant loan documents and subsequent foreclosure of the secured collateral. In the commercial context, and depending on the commercial loan and property’s size and characteristics, a borrower’s insolvency might lead to a receiver being appointed under Alabama law; see Section 6-6-620 to -628 and See Ala. Code Section 6-6-780 to 6-6-807 (the Alabama Uniform Commercial Real Estate Receivership Act).
There are no taxes related to mezzanine loans besides taxes due on interest and income therefrom.
Alabama law (Title 11, Counties and Municipal Corporations) allows for regulations on property through zoning ordinances or subdivision regulation. See 4.2 Legislative and Governmental Controls Applicable to Design, Appearance and Method of Construction. The property owner/developer should research any applicable planning and zoning regulations to the property by ordering a zoning report and communicating directly with the appropriate municipality(ies). In addition, the Alabama business licence fee can vary depending on the location of the property and the use. See 8.3 Municipal Taxes.
Local municipal corporations (cities and towns) may enact zoning laws and regulations through the creation of a comprehensive zoning ordinance, which must be compatible with the enabling statute (Section 11-52-1 et seq). Zoning laws generally designate areas into business, industrial and residential districts, and control the type, character, kind and use of structures and improvements in such designated zones or districts (Section 11-52-70). County governments may also enact zoning ordinances and building codes for flood-prone areas outside municipalities (Section 11-19-3).
Private restrictive covenants in the property’s chain of title may also create similar controls on the development of property or refurbishment of an existing building.
Local zoning laws are passed by the local municipal planning commission and must be consistent with the local comprehensive plan, in accordance with Section 11-52-3. Zoning laws typically control:
For certain redevelopments, the Alabama Department of Environmental Management may have recorded restrictions on use, development, etc, into the chain of title of a property.
Developers typically begin by engaging consultants, such as architects and civil engineers, and by contacting the local planning department for guidance on the permitting process. Developers should review the applicable zoning laws and obtain approval from the local zoning official/department before applying for a building permit.
Depending on the project, a developer may be required to obtain approval from various municipal departments before obtaining building permits. If a project requires a change to the zoning code, vacation of road, etc, public hearings are held, and third parties are permitted to comment and object. Local professionals, such as civil engineers, may be able to provide guidance on local customs to help navigate this process.
The process of appealing will differ based on the project and jurisdiction, and interested parties should consult the relevant state and local laws.
The process for obtaining permits and approvals varies between different local governmental authorities and utility companies. Planned unit developments are sometimes used or required by a local government to facilitate the development of a project. Interested parties should consult the relevant local authority for further details.
The first governmental enforcement mechanism for restricting development or designated use of a specific property is for a local planning department to refuse to issue a building permit. After issuance of a building permit, restrictions on development or designated use are enforced by an inspector named by the designated zoning official/administrator.
Private parties may also restrict the development or use of real property by creating a restrictive covenant that runs with the land. The Alabama Supreme Court defines a covenant as “an agreement or promise of two or more parties that something is done, will be done, or will not be done. In modern usage, the term covenant generally describes promises relating to real property that are created in conveyances or other instruments”. See Collins v Rodgers, 938 So 2d 379, 385 n 15 (Alabama 2006).
In the real property context, restrictive covenants are generally memorialised by:
Such private restrictive covenants may be enforced by the parties to the covenant or by the successor in title to such a party. However, Alabama does follow a “general rule that restrictive covenants are not favoured in the law and, therefore, that they will be strictly construed, with all doubts resolved in favour of the free and unrestricted use of land and against the covenants”. See Whaley v Harrison, 624 So 2d 516, 518 (Alabama 1993).
Alabama law authorises the formation of corporations, general partnerships (GPs), limited partnerships (LPs), limited liability companies (LLCs) and real estate investment trusts (REITs) for the purpose of holding real estate.
The most frequently used ownership entities in Alabama are LLCs and LPs (including limited liability limited partnerships). Generally, LLCs are preferred to LPs as investment vehicles because none of an LLC’s owners (“members”) is liable for the entity’s debts and obligations, while an LP is required to have at least one partner (the “general partner”) liable for such debts and obligations. LLCs also have a potential tax basis advantage over LPs in qualifying for non-recourse basis treatment for an entity-recourse debt. Alternatively, an LP may be preferable if certain owners are not US citizens and if the requirements of their home country’s tax laws would impose additional tax burdens upon them otherwise.
Both LPs and LLCs are usually preferred over corporations (other than REITs, as described below) because corporate income is taxed at the corporate level, and then the dividends paid to the corporate owners (“shareholders”) are taxed again.
Corporations that own real estate often do so in connection with their trade or business (eg, factories). Other entity types can be used to hold real estate assets as well, such as S corporations and general partnerships, but their use is infrequent due to taxation and liability concerns, respectively.
With respect to LPs and LLCs, almost all features of their operations are negotiated among the partners or members in an LP’s limited partnership agreement or in an LLC’s limited liability company agreement, including how and by whom decisions are made as well as how the economics are divided. Major decisions typically require the consent of the partners or members, and often include:
These agreements also establish the priorities of economic distributions and the payment of agreed-upon fees among the partners or members, providing for how and when additional capital may be called from the partners or members. It is important that these agreements properly address income tax considerations, as the allocation of economic benefits and tax liabilities of ownership must comply with detailed US tax code regulations or risk unintended tax outcomes. Both types of agreement will generally have provisions allowing for certain owners to buy the interests of other owners or to have the assets sold under certain circumstances.
Corporate Statutes and Judicial Decisions
Many activities of corporations, including REITs, are governed by Alabama corporate statutes and judicial decisions. In closely held corporations, the owners (shareholders) may enter into a shareholders’ agreement, which establishes, among other things, how votes are cast and how interests in the corporation may be bought and sold or otherwise transferred.
Economic distributions within corporations are generally less flexible than distributions within LPs and LLCs. Each share in the same class of ownership shares is entitled to the identical economic distribution as each other share in that class. In order to allocate economics in a corporation differently among shareholders, multiple classes of shares must be created with different priorities of payments and claims on a corporation’s distributions.
REITs are corporations or business trusts that elect for REIT status, allowing them to pass income through to their owners, like LPs and LLCs; however, because of the complex qualifications required of REITs under the US tax code, investments in REITs are normally limited to large income-producing assets or portfolios of assets. Many REITs are formed as Maryland corporations.
A REIT must pay the same filing fees as other Alabama entities required under Section 10A-1-4.31. When computing such fees under this Section, a REIT should treat its declaration of trust in the same manner as a certificate of formation. See Section 10A-10-1.13.
REITs organised under Alabama law (Section 10A-10-1.01 to -1.24) should file their declaration of trust in the same manner as the certificate of formation of an Alabama domestic filing entity. Section 10A-10-1.06 identifies the requirements of a declaration of trust, and Section 10A-10-1.07 sets forth the division of classes of REIT shares permitted by Alabama law. REITs should follow Section 10A-10-1.11 regarding annual report requirements and submission requirements to shareholders.
There is no minimum capital requirement, though a nominal amount such as USD100 is common.
LP Governance
The governance structure of an LP is set out in the agreement of limited partnership, and generally provides that most decisions be made by the general partner. Alabama law allows certain voting rights for the limited partners without jeopardising their status as limited partners; however, one reason why limited partners do not have liability for the obligations of an LP is because they generally do not have control of the day-to-day activities of the partnership.
LLC Governance
In an LLC, there are two types of governance structure.
One is the “member-managed” structure, where the members are responsible for managing the LLC, making decisions by majority, supermajority or unanimous vote, depending on the nature of the decision and the relative weight of each member’s vote as set forth in the limited liability company agreement.
The other structure is a “manager-managed” LLC, in which a person or entity is designated as the manager with decision-making rights as set forth in the limited liability company agreement. Members who are not managers often retain the right to consent to certain major decisions. A manager can be one person or several persons each having the ability to act independently or being required to act by majority, supermajority or unanimous vote, depending on the nature of the decision and the relative weight of each member’s vote as set forth in the limited liability company agreement.
Corporation Governance
For corporations, including REITs, governance is set forth in their articles of incorporation and their by-laws. The articles of incorporation are a filed, public document containing certain statutorily required information, such as the name, registered office and registered address of the corporation. The by-laws govern:
In most corporations, all day-to-day decisions are made by the officers without the approval of owners who are not officers. Certain decisions outside the normal course of business will be made by the board of directors, again without input from owners who are not part of the board. Unless an owner is a director or officer, its only governance right is to periodically vote for members of the board or in connection with certain statutorily required matters, such as merger transactions.
Maintenance and costs are variable and will depend on ownership/accounting structure. Certain entities must pay an annual Business Privilege Tax in accordance with Sections 40-14A-21 through -29. The rate will vary depending on taxable income and net worth. See Section 40-14A-22.
A real property’s fee owner may grant a leasehold estate or licence to permit others to occupy and use the owner’s real property for a limited timeframe. Leasehold estates allowing a tenant to occupy and use real estate without buying it outright are generally categorised into the following types.
There are no formal, legal distinctions between different types of commercial leases; however, commercial leases are generally divided between “net” leases and “gross” leases. In a net lease, a landlord charges its tenant a base rent plus additional rent for pass-through items, such as common area maintenance, insurance costs, advertising, etc; such pass-through items will vary based on the terms negotiated by the parties.
In a gross lease, a landlord charges its tenant one flat fee for rent, and the landlord is responsible for the property’s maintenance costs; however, such maintenance costs are typically accounted for in the amount of the gross lease’s base rent. Furthermore, certain categories of commercial leases often contain specialised terms that are unique to the subject matter involved.
There are no restrictions on the type or amount of rent charged under a commercial lease in Alabama. A lease term may not be longer than 99 years (Section 35-4-6). If any portion of a lease term is longer than 20 years, the lease or a lease memorandum must be recorded within one year of signing; otherwise, the portion of the term exceeding 20 years is invalid (Section 35-4-6).
Residential leases are generally more regulated than commercial leases and are subject to the Alabama Uniform Residential Landlord and Tenant Act (Section 35-9A-101 et seq).
Lease terms range from less than one year up to 99 years, depending on the terms of a specific lease.
Landlords typically maintain structural components of leased real estate, while tenants are often required to maintain the leased premises and those systems and improvements serving the leased premises in good working order, although the extent of such maintenance responsibilities varies widely.
Monthly rent payments are typical, but the parties may agree to different terms.
The rent payable may vary between different payment periods during the term, based on the lease’s terms, typically increasing as time passes during the term.
Changes and increases in rent will be determined by the terms negotiated by the parties in the lease.
There is typically no governmental tax collected on rent paid to a landlord. However, transfer taxes are due when a lease (or memorandum of lease) is recorded in the public records in an amount equal to the tax consideration. See 6.20 Registration Requirements.
Costs paid by a tenant at the start of a lease vary by transaction and the parties’ negotiation. Tenants may pay the first month’s rent, a security deposit, broker’s fees or other landlord administrative fees at the start of a lease.
Net commercial leases often pass operating expenses (including common area maintenance and repair) through to the tenant, in accordance with the lease’s terms, typically prorated among the tenants of a specific property based on the amount of square footage leased by each tenant at said property. Gross commercial leases typically require the landlord to pay for common area maintenance and repair, though these costs are also typically priced into the rent paid by the tenant.
For a residential lease, the landlord is required to “keep all common areas of the premises in a clean and safe condition”, along with other requirements for the leased premises’ working order and condition (Section 35-9A-204).
Net commercial leases often include utilities and telecommunications services serving an entire property (not just an individual tenant) in the operating expenses that are charged to tenants on a pro rata basis, while gross commercial leases may include the costs of such services, utilities and telecommunications in the rent charged to the tenant. If such utilities or services are separately metered and service only a single tenant’s leased premises, that tenant is often responsible for the payment for such utilities or services.
The tenant is not obligated to pay real estate taxes and assessments unless the lease provides for the tenant to pay or contribute to such costs.
Payment of insurance premiums insuring leased real estate is typically done by a landlord, but such costs are often passed through to tenants as an operating expense in net commercial leases. Insurance coverages vary by property, but many commercial landlords carry general liability, casualty, flood and fire insurance, as well as coverage for bodily injury, property damage, lost rents, etc.
Landlords may limit the way commercial tenants use leased real estate and often prohibit tenants from using the leased premises for certain exclusive uses negotiated with other parties. Applicable zoning laws and private restrictive covenants in the property’s chain of title may impose further restrictions on tenant uses.
The terms of a lease will dictate whether a tenant is permitted to alter or add improvements. Often, tenants may receive a tenant improvement allowance to induce signing the lease, requiring that a landlord either installs certain improvements on the premises or reimburses the tenant for its costs.
Often, a lease requires a tenant to obtain the landlord’s written approval for materials, plans, contractors, etc, involved in such improvements before starting the construction or installation of such improvements. Furthermore, trade fixtures may generally be removed by a tenant, though the tenant may be held liable if they damage the underlying real property in the process of removal. See LaFarge Bldg Materials, Inc v Stribling, 880 So 2d 415, 419 and 424 (Alabama 2003).
The Alabama Uniform Residential Landlord Tenant Act (Section 35-9A-101 et seq) governs any rental agreement (“all agreements, written or oral, and valid rules and regulations adopted under Section 35-9A-302 embodying the terms and conditions concerning the use and occupancy of a dwelling unit and premises”) related to the rental of any dwelling unit (a “structure or the part of a structure, including a manufactured home, that is rented as a home, residence or sleeping place by one or more persons”) to a tenant (“a person entitled under a rental agreement to occupy a dwelling unit to the exclusion of others”); Section 35-9A-141.
This statute includes additional rules and regulations for both landlords and tenants in the residential context. Non-residential real estate leases may include specific restrictions related to the category or use of the leased premises, but such leases are generally not subject to specific regulations or laws due to the use or category of the underlying leased premises.
Leases often contain language stating that a tenant’s insolvency or the filing of any bankruptcy petition, voluntary or involuntary, constitutes a default under the lease. However, if the lease remained in force at the filing of a bankruptcy petition, the leasehold estate is considered an asset of the tenant, which is protected by the Bankruptcy Code’s automatic stay.
Generally, a tenant does not have the right to continue to occupy the leased premises after the expiry or termination of a commercial lease. When a tenancy is for a certain period of time and the term expires under the lease, the tenant is bound to surrender possession without the landlord providing notice to quit or demanding possession (Section 35-9-8).
If a landlord has terminated the lease for a breach or default, the landlord must give the tenant notice of termination at least ten days prior to terminating a commercial lease, unless the lease provides for additional time (Section 35-9-6).
If the tenant does not deliver possession of the leased premises after demand, as described above, the landlord may pursue an unlawful detainer action in the district court of the county where the premises are located (Section 6-6-330). The landlord’s complaint must be served on the tenant at least six days before the hearing date (Section 6-6-332).
If the district judge rules in favour of the landlord, the court will file a writ of execution, which requires the sheriff to restore the premises to the landlord (Section 6-6-337). The tenant may file an appeal of the judge’s ruling within seven days, and a trial on the appeal is scheduled within 60 days of the date of the appeal (Section 6-6-350).
The landlord’s right to possession will not be delayed by a tenant’s appeal, and can only be prevented if the tenant pays all rent payable before the landlord regains possession by a writ of possession (Section 6-6-351).
Typically, the ability to assign the lease or sublease the premises is restricted to a certain extent in the lease, but a tenant generally has the right to sublease the property or assign the lease without the landlord’s consent if the lease is silent about subleases and assignments. If the lease requires the landlord’s consent before subleasing or assigning the lease, the landlord cannot “unreasonably and capriciously” withhold consent (Homa-Goff Interiors, Inc v Cowden, 350 So 2d 1035, 1038 (Alabama 1977)).
In Alabama, provided the remedy is included in the commercial lease, a landlord is typically allowed to terminate the lease for:
For residential leases in Alabama, by statute, a landlord may terminate a lease by delivering written notice to the tenant specifying the acts or omissions causing the breach in the following cases:
If the breach arises from unpaid rent or other curable breaches, the lease shall terminate within seven business days of receiving the notice if not remedied by the tenant. Other breaches are not curable, including intentional misrepresentation of a material fact and certain acts on the premises (eg, possession of illegal drugs or criminal assault). See Section 35-9A-421(a), (b) and (d).
A lease must be either:
See Sections 35-4-20 and 35-4-23.
If a lease term is 20 years or less, including options to extend, a memorandum of lease is not required to be recorded to be enforceable against a third party, if that third party had actual or constructive knowledge of the lease. Leases for more than 20 years, including options to extend, are void for the period of time over 20 years, unless, within one year of the lease’s execution, the lease or a memorandum of the lease is recorded with the probate office in the county where the leased property is situated. See Section 35-4-6.
Transfer taxes are due when the lease (or a memorandum of lease) is recorded in the public records (Section 40-22-1(a)). Transfer taxes are USD1 multiplied by the tax consideration.
The tax consideration is calculated as follows: term of lease (in months) multiplied by monthly rent multiplied by percentage from a lease percentage chart kept by the probate court of the county where the property is located (which is based on the term of the lease), divided by 1,000. See Section 40-22-1(c).
To obtain the proper lease percentage table, attorneys should contact the probate court of the county where the property is located. The tax consideration is rounded up to the nearest USD500 (Section 40-22-1(c)).
Residential Lease
For a residential lease, the landlord must give the tenant seven business days’ notice of default; if the default is not cured, the landlord may file an unlawful detainer action, notice of which must be posted at the leased premises. The tenant then has seven days from the posting of notice to file an answer. Assuming the tenant does not answer, the landlord may file for a writ of execution with the district court for the county where the leased premises are located, which will be issued to the county sheriff, and it may take several weeks to actually serve and evict the tenant.
In total, the process can take several months or longer, based on the case’s specific circumstances; see Section 35-9A-461.
Commercial Lease
For a commercial lease, the landlord must give the tenant ten days’ notice of default (or more, if required under the lease); if the default is not cured, the landlord may file an unlawful detainer action, notice of which must be posted at the leased premises. The tenant then has 14 days from the posting of notice to file an answer. Assuming the tenant does not answer, the landlord may file for a writ of execution with the district court for the county where the leased premises are located, which will be issued to the county sheriff, and it may take several weeks to actually serve and evict the tenant.
In total, the process can take several months or longer, based on the case’s specific circumstances; see Section 6-6-310 to -353.
Pursuant to its terms, a lease may be terminated by a third party in the case of condemnation or foreclosure on the part of a lender that pre-dated the lease. In the event that the leased premises are condemned, “the lessee is entitled to share in the total award only in proportion to [its] interest” (State Highway Department v Lawford, 611 So 2d 285, 288 (Alabama 1992)); and, if the fee owner is satisfied with the award for its interest in the property, but the leasehold owner is not, the circuit court can order a separate trial for the leaseholder on appeal (State v SouthTrust Bank of Baldwin City, 634 So 2d 561, 563-564 (Alabama Civil Appeal 1994)). Payment is based on the fair market value of the leasehold interest.
An Alabama landlord may only accelerate rent in a commercial lease if the lease expressly permits this. A landlord may only pursue self-help to retake possession of the premises after a default if the lease permits re-entry on default. Alabama law does not impose on a landlord a duty to mitigate damages in the absence of an express obligation in the lease to do so (Bowdoin Square, LLC v Winn-Dixie Montgomery, Inc, 873 So 2d 1091 (Alabama 2003)). The typical form of an eviction proceeding involving commercial leases is an action for an unlawful detainer. See Section 35-9-1 to -100 and Section 6-6-310 to -353.
The type of pricing structure used for projects depends on several factors, including:
In commercial construction projects, there are typically more guaranteed maximum or fixed-price contracts than open-ended cost-plus contracts, while fixed-price contracts are used almost exclusively in the public works sector.
Alabama law requires a registered architect to sign off on plans for the design and construction of a project (Section 34-2-32). For projects of USD50,000 or more, a contractor must be licensed by the Alabama Licensing Board for General Contractors (Section 34-8-9).
If there are engineering requirements, a licensed engineer must be consulted and approve the plans. In addition, most trades are required to be licensed by their respective governing authority, such as plumbers/gas fitters and electrical contractors (Sections 34-37-1 and 34-36-1 et seq). The project’s owner will typically employ an architect and engineer to work with a general contractor to conceptualise the project; the general contractor then delegates subcontracts as necessary, often without being subject to owner approval, unless the owner contractually retains that right.
Owners and general contractors frequently utilise insurance policies and indemnification agreements in their contracts with each other, and in particular with their subcontractors. Since contribution among joint tortfeasors is unavailable, the only method for obtaining contribution is to contractually oblige the counterparty to indemnification. Waivers are generally acceptable, and interim and final lien waivers are highly recommended.
Each payment on a pay application should be accompanied by an interim lien waiver, and the final payment (including retainage) should be accompanied by a final, unconditional lien waiver and hold harmless agreement. Furthermore, limitations or caps on liability can be negotiated into the contract, in addition to provisions requiring the contractor to post payment and performance bonds from a reasonably acceptable surety.
Delays in construction should always be addressed in the contracting documents. While a penalty is not available, the contract can provide for an agreed-upon “liquidated damages” provision for a certain amount to be allocated for each day, week or month that the project is behind schedule or for each milestone missed. Delay damages can be accounted for as a back charge to the contractor to be deducted from payments due.
As additional security for paying material suppliers or remedying defects and delays in construction, owners and general contractors are entitled to hold back retainage; see Section 8-29-3. An owner or general contractor may retain 10% of payments to the general contractor or subcontractor, respectively; see Section 8-29-3(i) and (j).
The retainage may only be taken from the first 50% of the payments for completion, after which “no further retainage shall be withheld”; see again Section 8-29-3(i) and (j).
Depending on the project’s size, payment and performance bonds are the most common form of security to guarantee a contractor’s performance on a project. As a general rule, the larger the project, the more likely it is for an owner to require more expensive security on a project. Public works are required to be bonded (see Section 39-1-1), but there is no requirement for any security or bonding to be posted by a contractor on private work.
The most common method is for the owner to require both a payment and a performance bond from a reputable surety. Other layers of security may be negotiated into the relevant contract if risk is increased.
Any party who contributes work to the property that improves the property is eligible for a materialman’s lien (Section 35-11-210 et seq). The work provided must be a lasting improvement, not temporary. For example, an architect’s work in providing plans would be lienable, whereas a surveyor’s work would not; Wilkinson v Rowe, 98 So 2d 435 (Alabama1957).
If the lienor’s work is commenced prior to the “creation” of a mortgage on the property, the lien will take priority over the mortgage; otherwise, the lien will be junior to the mortgage (Section 35-11-211). Liens may be removed from the property by transferring the lien to a bond using the statutory framework found in Section 35-11-233.
Each governmental jurisdiction has a building inspector’s office, which must issue a certificate of occupancy prior to the project being inhabited, and which establishes standards for construction in its respective jurisdiction. Inspections are typically required to be conducted, and passed, prior to each phase of the work.
Recording Tax
Alabama imposes a recording tax upon the filing of a deed or similar instrument conveying an interest in real estate with the county probate court where the real property is located (Section 40-22-1 et seq); the tax is USD0.50 per USD500 (rounded up) of value for the property conveyed. The obligation to pay the recording tax is on the buyer.
However, the parties do commonly negotiate the economic burden in real estate sales contracts. Under Alabama law, a deed or other instrument conveying such property must include a Real Estate Sales Validation Form (RT-1) provided to the county probate court at the time the instrument is presented to the probate court for recording. This form must include either proof of the actual purchase price (if the property is being sold) or the actual value of the property (which may be evidenced by a licensed appraisal or the assessor’s current value for the property).
Income Tax
Alabama imposes an income tax that is similar to the federal income tax system (Section 40-18-1 et seq). The maximum Alabama marginal income tax rate on taxpayers other than C corporations is 5%. The maximum Alabama marginal income tax rate on C corporations is 6.5%. The seller must report the gain on the sale of the real property in its annual income tax return. Unlike federal income tax law, Alabama’s income tax law does not contain a preferential rate for long-term capital gains.
Withholding of Income Tax
Alabama imposes a withholding of income tax in connection with sales by non-Alabama resident taxpayers (Section 40-18-86). No withholding is required if the seller is an Alabama resident or a “deemed” resident, provided the seller provides a duly completed affidavit confirming such residency (AL Form NR-AF1).
Certain limited types of transactions are exempt from non-resident withholding under Section 40-18-86 (AL Form NR-AF3). If the seller is not an Alabama resident, and if the transaction is not an exempt transaction, the buyer is generally required to withhold either 3% (where the buyer is an individual) or 4% (where the buyer is an entity) of the purchase price.
However, if the gain recognised on the sale is less than the purchase price, and the seller provides the buyer with an Affidavit of Seller’s Gain (see AL Form NR-AF2), the buyer may withhold 3% or 4% of the amount of the gain. If the amount to be withheld, as based on the purchase price or the gain, is greater than the net proceeds of the transfer, then only the net proceeds need to be withheld and remitted by the purchaser. Generally, the net proceeds of the sale are the net payments to the transferor as shown on the closing statement, though “net proceeds” may be calculated in other statutorily prescribed manners.
See 5.6 Annual Entity Maintenance and Accounting Compliance regarding Business Privilege Tax.
If the property being conveyed is located in more than one county in Alabama, there is a procedure for obtaining an order from ADOR to allocate the value of the property being conveyed among the relevant counties, so that the proper recording tax in each county can be determined.
Each municipality is permitted to impose an annual business licence tax on business conducted within its taxing jurisdiction, including leasing real estate.
Alabama has two withholding regimes related to income taxes attributable to non-Alabama resident taxpayers, including non-US taxpayers.
Income Tax Withholding Regime
See 8.1 VAT and Sales Tax regarding withholding of income tax. In addition, non-Alabama resident owners of pass-through entities, such as partnerships or S corporations, are subject to a composite payment regime under Section 40-18-24.2 (relating to partnerships and other “Subchapter K entities”) and Section 40-18-176 (relating to S corporations).
Composite Payment Regime
Under the composite payment regime, the pass-through entity files and directly remits taxes to ADOR with respect to the allocable pass-through income of the non-Alabama resident taxpayer, including the share of gain from the sale of real estate by the pass-through entity.
Income tax benefits are provided under Alabama’s income tax law, which is generally consistent with the federal income tax system.
In certain circumstances, Alabama law provides for tax incentives with respect to certain qualifying investments in the state, such as:
The potential incentives may include abatements related to:
To qualify for such incentives, the taxpayer must file the required applications and reports, and must be approved by the proper governmental authorities; the approved investment must also comply with additional compliance requirements. A summary of Alabama’s taxes and tax incentives can be found on the ADOR website.
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Although the USA’s real gross domestic product (GDP) increased at an annual rate of 2.8% last year, and Alabama’s economy remained stable, hesitation in real estate sectors continued in 2024 due to several different factors challenging development and transactions. Stubborn inflation caused rate hikes and a delay in rate decreases, making debt more expensive. As debt rose in cost, equity followed suit, including completion requirements, returns and more stringent market selections. Higher rates also slowed permanent refinancing of construction debt, causing more construction debt on lender books and less appetite for new construction loans. As a result, many in the real estate industry found themselves in a waiting game for more favourable rates as the year progressed.
The office sector continued to face high vacancy rates throughout the year, with those in the industry hoping that positive net absorption in the fourth quarter of 2024 was a sign of things to come, largely due to the steady upturn in return-to-office mandates by major companies. In comparison, multifamily endured, remaining desirable in certain markets even with a decline in new project starts, which was due in part to a record supply of completed projects hitting the market in 2024. Retail and industrial assets continued to evolve as well, facing challenges of the new normal, which includes increased online shopping and a greater desire from consumers for physical retail to incorporate experiential activities with traditional shopping.
Further, while construction materials costs stabilised, labour costs generally did not, and construction costs ultimately remained relatively high in 2024. Joint venture equity agreements continued to be common, with developer completion guaranties becoming more strenuous as many deals and projects were delayed throughout the year.
Across all sectors, the above-referenced economic factors slowed and bottle-necked sales and refinance traffic except for certain, limited metropolitan statistical areas that were “popular” among institutional debt and equity participants, or where rent-growth or other economic/market factors were able to overcome challenges (or both). This chapter will summarise how the past year’s general real estate trends will shape the market in Alabama for the future.
The Housing Market
Due to high mortgage rates and incredibly low inventory availability, the housing market remained very competitive for new buyers. During the COVID-19 pandemic, homes that skyrocketed in price were still affordable for many buyers due to low interest rates. Now, home prices and interest rates are high, and sellers who purchased homes under low mortgage rates are not motivated to sell, thus locking up supply and driving home prices even higher. The median sale price of a home as of the fourth quarter of 2024 was USD419,500. As home prices have undergone significant increases, and homes on the market are sold far above listing price, the result is a competitive market with sparse inventory, leaving many hopeful homeowners turning to renting.
However, in one of the fastest-growing areas in Alabama, Huntsville’s major establishments (such as Google, NASA, Boeing, Toyota and the federal government) continue to bring educated workers into the local real estate market. This demographic has held home ownership rates steady, especially for those with household incomes greater than USD100,000. Also, areas in Baldwin County grew, offering attractive locations near the state’s desired beaches.
There were multiple lawsuits against the National Association of Realtors (NAR) in 2023 focused on the commissions paid by homeowner sellers in residential transactions, with these commissions generally being divided among brokers for both buyer and seller in such transactions. In early 2024, the NAR agreed to a settlement resulting in the elimination of these commissions, with over USD400 million in damages being paid to groups of homeowner sellers. However, Redfin reported in early 2025 that buyer-agent commissions have barely changed since August 2024, when the real estate commission rules took effect. It remains to be seen if a noticeable decrease will take place the longer the commission rules are in effect.
Multifamily
Most markets have seen a record supply of multifamily projects and units as new construction projects – which started 18 months to two years ago during a peak in multifamily development – are now being completed and delivered. This supply also coincides with the end of a span of several years of aggressive rent growth, causing that rent growth to stall and, in some cases, recede. This has subsequently triggered a slowdown in project starts in 2024, which is expected to impact early 2025, especially with high interest rates. These high interest rates have also affected investor offers purchasing newly completed assets, triggering a slowdown of multifamily transactions. Regardless, and as a testament to the multifamily sector’s ability to withstand various economic factors, rental demand in certain metropolitan statistical areas and markets continues to be on the rise, with pressure on rent rates to decrease due to increased volume. This is likely connected to what is happening on the home ownership front. As shown in previous years, multifamily properties have proven to be resilient assets despite high construction costs, with many industry experts expecting eventual rate decreases to lead to more projects getting into the pipeline, transacting first in the limited markets referenced above and then expanding to more metropolitan statistical areas as these start to see rent growth.
Throughout Alabama (and nationally), certain markets and sub-markets remained active in multifamily. Huntsville remained a target for multifamily investment and is commonly identified as a great market for rental property. Huntsville’s population continued to grow, in part driven by the technology and aerospace sectors attracting large employers to the state. One of the many reasons for such growth is the movement of FBI employees to its facility in the Redstone Arsenal. This, among other large projects, has created a competitive and fast-paced market in the Huntsville-Madison area.
Repurposing retail properties into multifamily and mixed-use projects continued through 2024. This can be challenging, however, due to construction costs and many zoning laws that lack provisions contemplating adaptive reuse, coupled with a push to prioritise multifamily housing with moderate tier rents. These redevelopments have triggered an uptick in zoning/entitlements work, disputes (or threatened disputes) with neighbours and municipalities, and private title declarations and easement agreements.
Lending
The transition from the London Interbank Offered Rate (LIBOR) finalised in September 2024, when the final synthetic USD LIBOR was published. The Secured Overnight Financing Rate (SOFR) remains the preferred replacement for lenders. Being based on overnight transactions, SOFR relies entirely on transaction data, whereas LIBOR was based partially on expert estimations. 2024 has seen rates stay consistently high, causing the cost of construction and permanent financing to be a big challenge for commercial real estate transactions. Overall, the US direct lending volume doubled in 2024, with refinancings making up 44%. Ultimately, many construction loans were not paid off (exercising extensions or amending loans to provide them), and there was less desire in the market for construction loans in general.
Suburbs
In general, suburban, garden-style development (for multifamily, office and retail) continues to be the leading commercial real estate development trend. In 2024, the seller’s market maintained its momentum, especially in the suburbs. Home prices remained high due to a combination of low supply and high demand in popular suburban areas. Meanwhile, mortgage rates finally began to slowly steady to an average of 6.66% after seeing some of the highest rates in decades during 2023; however, for many, rates are still not low enough compared to wages, and even homes that have been listed for sale are remaining on the market for long periods of time due to affordability.
Even as Gen Z joins the workforce, millennials are still considered a vital source of talent and remain the focus of HR professionals. They also remain the largest group in the workplace, with the power to set and maintain trends and to request change, particularly accommodation for work-from-home flexibility and co-working solutions. Millennials’ homebuying decisions are disproportionately based on convenience and proximity to work; in other words, the decision on where to purchase a home relates directly to the job location.
Office
Alabama’s office market remains slow, as expected, but not as troubled as other markets across the USA (especially those with large cities). Since Alabama’s “peaks” for office development are not very high, the “valleys” are not as low (compared to other markets). Alabama’s job growth and corporate attractions are modest, ergo many new office developments (and re-tenanting of existing office projects) require pulling existing employer-tenants from other buildings, with new, suburban offices being the most successful sub-markets. The movement of office properties on the market in 2024 continued to be fairly minimal throughout the year, and nationally, office buildings as assets were still higher risk. However, while reaching pre- pandemic norms is unlikely any time soon, towards the end of 2024 a steady movement back to the office began, due largely to many major corporations implementing return-to-office policies. JPMorgan, Apple, BlackRock, Dell, Starbucks, Amazon, AT&T, Goldman Sachs and many more have turned away from permanent remote work as a general policy, and many remote and hybrid workers are feeling the pressure to return to office as other companies enact these policies.
In Alabama, many workers have fully returned to the office ahead of the trend in the national landscape, and organisations and companies moving to Alabama cities such as Huntsville and Birmingham suggest that entities, not just individuals, may be looking to transition to more affordable places for central hubs. Even so, Birmingham continues to be an attractive destination for businesses. Brasfield & Gorrie announced plans to invest USD18.9 million to expand its national headquarters in the Lakeview District of Birmingham, and in November, The J.M. Smucker Company held a grand opening for its new USD1.1 billion plant 19 miles from Birmingham.
Suburbs and Office Space
The US suburbs continue to hold a large percentage of total office space inventory and occupancy. Though vacancy has historically been higher in the suburbs, the gap between the central business district (CBD) and suburbs shrunk to a mere 35 basis points just prior to the pandemic. Annual growth rates for the suburbs have held steadier than the rates for the CBD over the past few years.
The Birmingham office market ended Q4 of 2024 with an improved overall negative absorption from the previous year according to Cushman & Wakefield’s MarketBeat report, and vacancies are holding steady at the end of the year at around 20%. Considering these factors, owners are continuing to raise rents but at a slower pace. Commercial leasing remained steady, and multiple multi-tenant office redevelopments are ongoing in the CBD and Midtown supermarkets.
Guidance for Businesses and Employers From a Real Estate Perspective
In general, all the major asset classes are experiencing and undergoing evolution in design and use. Efficient, higher quality and often smaller rentable square-foot office spaces are in demand to help attract tenants and keep finish-out costs affordable in a high construction cost environment. Multifamily projects are transforming from simple complexes to luxury-oriented locations with a focus on extensive amenities, and retail continues to evolve with an increased focus on experiences tied with food and other activities, in addition to shopping.
With office spaces open and generally fully functional, building owners and managers should stay up to date on the newest regulations to avoid potential liabilities. Specifically, the CDC has directed building owners to review the guidance from the Building Owners and Managers Association (BOMA), which assembled a task group from across North America to develop best practices for owners and managers. BOMA recommends that owners meet with their risk managers and insurance brokers to review policies and coverage, and to assess new and ongoing liability risks.
Owners of commercial real estate in all asset classes are and should continue to be laser-focused on costs of operations, leaning on property management to be efficient and creative, and to monitor debt markets for the right financing opportunities (to manage cost of credit).
The Corporate Transparency Act
The Corporate Transparency Act (CTA) became effective 1 January 2024, requiring entities to report information, including specific beneficial ownership information, to FinCEN (the US Department of Treasury’s Financial Crimes Enforcement Network). However, the CTA faced many legal challenges over the course of the year, with the Fifth Circuit reinstating a nationwide preliminary injunction enjoining enforcement of the CTA and its Reporting Rule. Business owners and those forming businesses should stay up to date as this development unfolds. A lot of time and energy was directed towards compliance; however, in March 2025, the Treasury Department announced that it would limit the scope of the rule to foreign reporting companies only and not enforce any fines or penalties against US citizens, domestic reporting companies or their beneficial owners.
Data Centres
The impact of advancing AI can be felt in the real estate world, too, with technology companies turning their attention to developing data centres at a rapid pace in order to keep up with the speed of AI innovation. These operation facilities, known as global data centres, have become the hallmark intersection between the worlds of technology and real estate, with North American data centre inventory growing by 24.4% year-over-year in Q1 of 2024. Many southern states, including Alabama, have risen to the forefront as targeted, desirable real estate for developments to help meet the growing worldwide power and storage demands. The authors are seeing an uptick in developers assembling sites and working with Alabama Power Company for data centre developments throughout the state. Based on the current pacing of AI adoptions and development, the data centre market has become and will continue to be a growing and integral part of the real estate market in the coming years.
Industrial
Total e-commerce sales in the USA increased 8.1% from 2023, and e-commerce sales accounted for 16.1% of total sales in 2024. The authors believe that Alabama experienced similar trends. Consequently, the acceleration in online sales has boosted the demand for industrial logistics spaces. Amazon accounted for nearly 40.4% of all US e-commerce in 2024. With the opening of its most recent distribution centre in Dothan, Alabama in 2024, the online giant directly employs roughly 7,500 people within the state.
Demand for industrial spaces held relatively steady in 2024. A notable trend during this time has been an uptick in legal work related to the rezoning and development of new warehouse and industrial projects, with sale-leasebacks being used as a financing vehicle. With the inflated cost of building supplies and labour shortages, construction continued, but at a slower pace than usual.
Traditional Retail
Alabama’s real GDP retail trade grew by 3.4% and 6.0% during the second and third quarters of 2024, which grossed USD254.4 billion for the state. The primary thriving end users are grocery stores, home improvement stores and dollar stores, as well as outparcel-like fast-casual and fast-food restaurants. While inflation rates have hit consumers hard, there is still strong evidence of successful growth in the retail space.
There have been strong demands in the area from budget retailers who can more easily slide into suburban spaces. In the larger cities in Alabama, adaptive reuse projects have reimagined spaces into office and mixed-use spaces. Furthermore, a segment of traditional retail development has transformed into more experience-oriented entertainment for activities such as Top Golf, arcades and breweries/distilleries (with food and games) venues featuring putt-putt courses (eg, the new PopStroke location in Tuscaloosa, Alabama), and new eateries that include family and group activities for all ages to enjoy.
Birmingham boasts a vibrant and diverse fine dining restaurant scene, offering a rich blend of innovative cuisine and Southern classics. These restaurant spaces have reinvented buildings all over the city, from warehouses to office buildings, houses and gas stations. Even with smaller retailers facing economic uncertainty, there has been continued success in the food industry in the metropolitan areas of Birmingham and Huntsville, proving the resilient nature of consumers today.
In 2024, Alabama became the second state in the USA to ban lab-grown meat (including the use of commercial real estate for this). With the hope that it will strengthen the poultry and livestock industry in the state, this ban is applicable to industrial properties in Alabama as well as agricultural, retail and storage.
Tourism and Entertainment
Tourism is an important industry in Alabama. With close to 29 million visitors last year, tourism for the state generated nearly USD4.3 billion in direct earnings. Gulf Shores, Alabama attracts many vacationers and was ranked the fifth best beach in the United States for 2024 by US News. Baldwin County alone saw around 8.3 million tourists in 2024, similar to 2023, and such consistency has had a ripple effect on many businesses and individuals in that part of the state.
Alabama set a record for tourism dollars in 2024, with travellers spending over USD23.5 billion. The Space and Rocket Center in Huntsville, being the top paid attraction in Alabama, draws roughly 650,000 visitors a year. Mobile County is home to the USS Alabama Battleship Memorial Park created to honour all Alabama residents who served in the US military, hosting over 300,000 visitors annually. In Birmingham, new restaurants, shopping areas and other exciting projects are ongoing, including the Star Amphitheater in Uptown, which will seat 9,000 for concerts and large events in downtown Birmingham. In total, Governor Kay Ivey states that approximately 245,500 jobs are generated from tourism in the state, and that number is expected to grow.
Construction
In 2024, the construction industry continued to face challenges from rising interest rates, high construction costs and persistent inflation. These factors combined led to a noticeable decline in the number of new construction projects. Many developers adopted a “wait-and-see” approach before starting construction projects in hopes of a cost decline. By October 2024, multifamily construction starts in the USA had dropped to 242,263 units, a sharp decrease compared to previous years.
In addition, tariffs on key construction materials are causing concern among developers and contractors. Though not implemented in 2024, companies are paying attention as the tariffs could greatly impact supply chains, slowing the timelines of construction projects as well as affecting cost structure and budgeting.
In practice, real estate owners will need to continue considering safety compliance and prompt payment of contractors, emphasising regular communications between all involved on a building project and co-ordinating with material suppliers to avoid unnecessary delays, all of which create additional work and stress for owners. The authors have seen a recent increase in contractors incorporating arbitration clauses into their contracts to streamline conflict resolution, and construction disputes may be resolved more through mediation and arbitration as contractors seek to avoid the lengthy and often more costly litigation process.
In 2024, Alabama passed a law that companies accepting economic incentives (which often connect to commercial real estate development with property tax abatement), cannot voluntarily recognise unions. Instead, development companies must have workers decide by vote, specifically a vote in private. Recognising a union “solely and exclusively on the basis of signed labour organisation authorisation cards” rather than by secret ballot would cause the company to lose its economic incentives (Ala. Code Section 25-7-37).
Conclusion: Looking Ahead in 2025
The commercial real estate market in 2024 was marked by challenges but demonstrated growth and resiliency across many sectors. Rising construction pricing and interest rates slowed new project acquisitions and debt/equity closings, and stricter loan-to-cost and loan-to-value requirements have dampened transaction flow. For private equity, dictated by equity investors, there continues to be a surge towards preferred equity over common equity with more sponsor guaranties being required. While preferred equity offers investors return opportunities with fewer downsides than common equity, a developer’s/sponsor’s other source of funds (equity) has also become more challenging in today’s environment.
These factors are affecting all market segments of development, including multifamily, industrial and retail. Alabama has felt the effects but has showed resiliency through the periods of extremely high interest rates, and has maintained its above-average status in the homeownership market and its below-average unemployment rate. The Alabama Commercial Real Estate Index is a quarterly survey of brokers, lenders, developers, owners, investors and other professionals in real estate to measure expectations in the market for the next quarter. The survey for the first quarter of 2025 registered its highest score since the third quarter of 2023. While there are still headwinds in the sector, the professionals surveyed expressed a confidence not shown through all of 2024 that the state’s real estate market would expand and grow to start the year.
While the Federal Reserve still claims to provide several more rate decreases in 2025, there is still concern about whether such decreases will occur and when. Many in the industry anticipate a large number of transactions towards the end of the year in 2025 due to this delay in market participation. When rates do go down and permanent refinancing goes up, the authors believe that construction credit will become more available, and this will drive further development going forward.
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