Commercial and Investment Real Estate News
Written by Scott on July 3rd, 20091031 Exchanges on Vineyards
Written by Scott on January 27th, 2012Thanks to Steve Rosansky, a tax and 1031 exchange specialist attorney in Southern California, for bringing this to our attention. This post is more for my Central and Northern California readers.
Cost segregation can apply to many components in a vineyard and qualify for 10 year straight line depreciation. Although, this provides a nice tax advantage during the period of ownership, when the property is sold, the 25% depreciation recapture would apply creating a higher tax liability upon sale. Plus that 25% recapture is added to the current capital gains rate of 15%. One can imagine what would happen should the Democrats win everything in November 2012 and the capital gains rate goes to 30%.
By doing a 1031 exchange, however, the property owner can dispose of the vineyard and defer some or all of the capital gain and depreciation recapture taxes.
Can fee simple water rights also be exchanged? Water Rights
If there’s an owner occupied residence on the property, the residence portion may qualify for exclusion of the capital gain taxes per IRC Section 121. IRC Section 1031 only applies to property held for investment or used in a business. For more detail, see the attachment. 1031 Primary Residence Rules
Section 1031 also permits personal property held for in investment or used in a business to be exchange for ‘like kind’ personal property. Personal Property Rules
Office Market Recovering Nicely
Written by Scott on January 26th, 2012Randyl Drummer from CoStar News reports that office space absorption doubled in 2011. Vacancies declined in nearly 2/3rds of the markets as the office using job base has expanded. Existing tenants are looking to lock in today’s low rental rates for a longer period of time plus new users are coming into the market. Coupled with the fact new construction has been almost nonexistent over the last three years, we’ll see absorbtion of existing supply putting upward pressure on rents.
Sales increased throughout 2011 as investors are getting back in as the market recovers. A boom follows every bust and the investment community knows it’s time. Investor interest is spreading beyond the safer well leased investment grade buildings in primary markets to smaller properties in secondary markets such as Columbus, Seattle and Atlanta.
By the way, total commercial real estate sales in 2011 spread across all property types, is estimated at nearly $300 billion, which is the highest since the previous peak of the real estate boom in 2007, and well above the historical average of around $220 billion since 2000.
CoStar News – News Article – Landlords Poised to Regain Upper Hand In Recovering Office Market
Columbus and Central Ohio Retail Market Report 2011
Written by Scott on January 25th, 2012Positive net absorption has continued for the last eight consecutive quarters. The first half of the year was strong then third quarter weakened due to the uncertainly caused by the U.S. debt ceiling increase negotiations. Fourth quarter picked back up to make for a decent if not a stellar year.
“Retail Markets throughout the country are generally continuing to recover from the 2008 spiral,” said Randy Best, chair of the Central Ohio Commercial Information Exchange (COCIE) and President of Best Corporate Real Estate. “Owners of retail properties have discounted their rents enough and made concessions to attract a variety of national and independent retailers.”
“The indication is that many markets are becoming slowly and cautiously optimistic,” adds Best. “As older centers begin to fill back up and fewer new centers are on the horizon, absorption is beginning to happen.”
“Locally we have had a strong retail presence, and we feel that this will only continue to improve over the next couple of years.”
http://columbusrealtors.com/Uploads/Documents/COCIEStats/COCIE_RET4q11.pdf
Columbus and Central Ohio December 2011 Residential Homes Sales Report
Written by Scott on January 25th, 2012Columbus and Central Ohio had 19,956 single family and condo home sales during the year 2011. There were 19,700 residential home sales in 2010. 2011 was only 1.3 percent behind 2010 according to the Columbus Board of REALTORS®. Remember that we had the Home Buyer Tax Credit in affect for the first six months of 2010, which artificial inflated home sales. The average sales price in 2011 was $156,428, which is down 2.2% from the average of $160,020.
“We were neck and neck with 2010 home sales going in to December,” said Jim Coridan, 2012 President of the Columbus Board of REALTORS®. “But sales fell flat during the holidays so we ended the year just over one percent below the previous year.”
December, however, was a dud with homes sales in Central Ohio were 1,347 for the month and that’s down by 8.9% from December 2010.
Unsold inventory continues to fall with 11,398 homes on the market. That’s about 6.6 months of unsold inventory, which is about ideal for a balanced market. Homes spent about a 100 days on the market. Unsold inventory had hit as high as 12.5 months in November 2008.
I can’t find the numbers regarding homes going into contract, but that number is somewhat misleading due to the relatively high number falling out of contact due to appraisal and lending issues.
If we don’t have gas prices rocket up due to an expected military conflict with Iran or some other catastrophic event, we should see a healthy balanced market as we go into 2012.
http://www.10kresearch.com/sortable/Columbus-OH/2011-12/Main.htm
http://www.10kresearch.com/sortable/Columbus-OH/2011-12/Entire-MLS.pdf
If You Refinance and Cash Out Prior to 1031 – is it Boot?
Written by Scott on January 20th, 2012This came up twice this morning while talking with clients so I thought maybe I should try to bring a little clarity to this again since it’s about 50 posts back.
Under IRS Section 1031, cash or other non-like kind property actually or constructively received by the taxpayer in a tax deferred exchange (commonly referred to as “boot”) causes the taxpayer to recognize gain to the extent of such boot. Loan proceeds received by the taxpayer generally aren’t considered boot unless its determined that the primary purpose of a cash out refinancing is to avoid recognition of the gain.
The tax result is the only significant difference between taking boot out of the sale and borrowing on the property before the exchange. The IRS however, has instituted the “step transaction doctrine” to combine the proceeds of the pre exchange refinancing with the exchange if the steps in the transaction are interrelated. The issue being if the steps should be viewed as separate steps for tax purposes or they should be rolled together into an integrated transaction for taxes purposes.
If this sounds like the fast track to tax court with your tax attorney, it is. So with that in mind, I’ll turn the podium over to 1031 Expert, Steve Rosansky for more.
Refi prior to 1031 – is it boot?
Southern California Home Sales for December 2011
Written by Scott on January 19th, 2012DQ News reported that 19,247 new and resale homes sold last month. That was up for December from November by 14% but down 1.4% from December 2010. Normally, sales are up from November to December because investors frequently want to close before year end.
Distressed properties accounted for 52.5 percent of the Southern California residential activity last month, up from 51.2 percent in November but down from 53.8 percent a year earlier. Almost one out of three homes resold last month was a foreclosure and about one in five was a short sale.
Median price at $270,000 for December 2011 was down 1.8% from $275,000 in November 2011 and down from 6.9% from November 2010.
The year over year median has fallen for the last ten months. December median was 9.3 percent higher than the median’s low point in the current real estate cycle – $247,000 in April 2009, but it was 46.5 percent lower than the peak $505,000 median in mid 2007.
http://dqnews.com/Articles/2012/News/California/Southern-CA/RRSCA120117.aspx
http://dqnews.com/Charts/Monthly-Charts/LA-Times-Charts/ZIPLAT.aspx
http://dqnews.com/Charts/Monthly-Charts/CA-City-Charts/ZIPCAR.aspx
| Sales Volume | Median Price | |||||
| All homes | Dec-10 | Dec-11 | %Chng | Dec-10 | Dec-11 | %Chng |
| Los Angeles | 6,536 | 6,591 | 0.80% | $330,000 | $305,000 | -7.60% |
| Orange | 2,739 | 2,572 | -6.10% | $410,000 | $400,000 | -2.40% |
| Riverside | 3,696 | 3,584 | -3.00% | $200,000 | $194,000 | -3.00% |
| San Bernardino | 2,605 | 2,418 | -7.20% | $152,000 | $150,000 | -1.30% |
| San Diego | 3,191 | 3,311 | 3.80% | $333,000 | $315,000 | -5.40% |
| Ventura | 761 | 771 | 1.30% | $355,000 | $325,000 | -8.50% |
| SoCal | 19,528 | 19,247 | -1.40% | $290,000 | $270,000 | -6.90% |
Monthly Commercial Real Estate Property Closed Sales Results
Written by Scott on January 19th, 2012
CoStar’s monthly National Composite Index of Commercial Real Estate increased for the seventh consecutive month in November 2011. I know its January 19, 2012, but it takes them around 45 days to get the numbers out to us.
Leading the price recovery again has been investment grade property. There’s nothing new there as I’ve been writing about this for months. Plus, anyone who has been with me for the last several months while we’re shopping for just that ‘perfect’ single tenant, triple net or absolute net long corporate leased retail has discovered this first hand.
The investments grade index achieved a 2.2% increase in November versus the previous month and 6.4% over the same period last year. Growth has been strong since March 2011.
The General Commercial Index rose 1.4% in November from same period last year. That’s the seventh consecutive monthly increase, reversing a 32 month decline.
Distress sales decreased from 53% of all sales in March 2011 o 22% in November 2011. We’ve also had the second consecutive monthly year over year increase of 2.2% in the composite index from the same period last year. Needless to say, this is a good sign of a broad base recovery in the commercial real estate market and easing of downward pressure on pricing. .
The recovery is not as strong yet as previous recoveries yet with the composite index 31.8% below the August 2007 peak of the previous boom. I do think we’re off to a modest, steady recovery that’s sustainable. Please remember that an overheated market only gets us to the next bust quicker. It’s just the way free markets work. However, in every boom / bust cycle, the next peak is higher than the previous peak.
Sales volume is still down primarily because we have so little inventory of just that ‘perfect’ property. So again, developers, sellers and owners, if you have new triple net or absolute net single tenant retail coming out of the ground or newer already tenanted property, I’d be real interested. In spite of being substantially below the all time sales volume peak, transaction volume is about average.
What we’re seeing is a broad based recovery. Barring something cataclysmic happening internationally, we’re on our way to good six or seven years before the next downturn. Absolutely, it will happen again.
CoStar – News – Article – Commercial Real Estate Price Index Rises for Seventh Consecutive Month
National Retail Federation – Forecasts 3.4% Growth for 2012
Written by Scott on January 18th, 2012America’s largest retail trade organization forecasts a healthy 3.4% growth for 2012. That’s below the 4.7% of 2011, but the rate of growth for 2012 is sustainable at least until the next bust and there will be one in seven or eight years. Nothing is going to make the boom bust cycles go away.
The average rate of growth over ten years has been 3.1% and sales are expected to reach $2.53 Billion in 2012. Still though, the rate of growth is well under what rate is typical in a recovery of 5.5%. It’s heading in the right direction and should provide stability to net lease, triple net and absolute net, single tenant, retail buyers and owners.
Retail Group Forecasts 3.4percent Growth for 2012
2012 Forecast – Triple Net Leased, Single Tenant, National Credit Retail Getting Hotter
Written by Scott on January 16th, 2012
I think 2012 will be a considerably better year for commercial real estate and an improved year for single family residential.
I’m working with out of state retail buyers looking for out of state, single tenant, triple net leased or preferably absolute net leased with a long corporate lease, so in this manner, business is getting back to normal.
If it’s after Thanksgiving, many sellers will wait until after the New Year to list. That’s been the case this year, and I’ve seen better quality opportunities in the last two weeks become available than I’ve seen in that last six months. However, there’s lots of competition with REITs, institutional investors such as pension funds and foreign investors competing for these. If you see something that fits, by all means, go for it. If you think the opportunity is a good, you’ll have plenty of company out there that feels the same way for the same reasons.
If you, as an individual investor, wait too long to make an offer, you’ll be up against REITs and institutional investors and you know whose offer will get accepted. It takes the big investors several days to get moving so if you, an individual investor, can get moving faster, that give you a better chance of an accepted offer. If you snooze you lose.
Lenders have their new allocations for this year so financing is almost like it was in 2005 and 2006. We’re generally 200 basis point above 10 year treasuries so that can be in the low 4s for the right property.
The one caveat is that you’ll never find anything that’s absolutely perfect and you’ll never find anything totally without risk. The free market is also the great equalizer in that it income is commensurate with risk. The free market gives you the opportunity to lose your butt and also makes sure you don’t make too much money. The only way to avoid this is to do nothing and then your return is guaranteed.
The one problem is that inventory is still very tight on the type of product just about everyone seems to want and that is single tenant, single parcel, long corporate backed triple net or absolute net lease, national credit of S&P BBB+ or better, retail. Reverse 1031 exchange are a viable alternative with inventories this tight.
As always, I’m here to help, either on the acquisition or sell side.
Scott Harris at (310) 473-4789 or (614) 905-6614
S&P Downgrade of Banks
Written by Scott on January 15th, 2012
This is old news that this was coming given what the banking industry has been through over the last 3 ½ years. However, since I have several clients looking at buying bank branches with some of these folks as tenants, I thought it would be a good idea to put this out there.
S&P has revised its rating criteria and as a result almost all the world’s banks were downgraded excepted for two in China. Even the renowned Rabobank from Netherlands that was the only remaining bank with an AAA rating was downgraded. It still has the highest S&P rating of a bank and is considered the 6th safest bank in the world. The top U.S. bank was NY Bank / Mellon at 27th and the JP Morgan / Chase at 40th and Wells Fargo at 42nd.
They’re still safe as retail tenants in single tenant retail opportunities and are almost always absolute net or triple net with long leases. They’ve been fine, trouble tenants where we have them and still near the top of my recommended list. For folks in 1031 exchanges it’s still one of the very best bets.
Money / CNN – News – Bank Ratings Downgrades S&P
And for ratings search at Standard and Poors.com
Standard and Poors.com /banks/ratings/list
Columbus and Central Ohio Office Absorption Positive in 4th Quarter 2011
Written by Scott on January 14th, 2012Even the the office market is picking up around Columbus and Central Ohio with a positive absorption of 303,207 square feet for the fourth quarter of 2011. Major tenants leasing space last year were Alcatel – Lucent moving into 128,541 square feet at Atrium II North Tower; JP Morgan Chase moving into 72,588 square feet at Polaris and Cigna. Taking 54,615 square feet at Office Center I.
There’s no question that the market is getting better.
CoStar News-Trend Net Absorption Was Positive for Columbuss Office Market in-Q4 2011
New Data Shows Broad Gains in Commercial Real Estate Construction
Written by Scott on January 5th, 2012According to Randyl Drummer at CoStar News, non residential commercial construction posted a 4.5% gain in November over same month last year. All segments showed solid gains.
Residential commercial construction starts for apartments resulted in the strongest monthly performance in 18 months.
According to Randyl, manufacturing expenditures on new construction was up 12.6% over last year, including retail, warehouse, and farm, was up 12% over a year ago. Private educational facilities were up 10%, private transportation 9.2% and power 8.4% projects were all well above last year levels.
“Several segments of construction appear to be climbing out of a hole,” said Associated General Contractors of America Chief Economist Ken Simonson. “The new year should reinforce recent year-over-year gains in apartment, power, manufacturing, and private transportation construction.”
Associated Builders and Contractors Chief Economist Anirban Basu agreed that recovery in the nonresidential construction sector was solid and broad based in November, encompassing both private and public construction.
Basu pointed out that the data is seasonally adjusted and part of the improvement may be attributable to the relatively mild weather across the nation in November and extending through December rather than to economic factors. So far in January the weather appears to remaining mild.
Despite the recent good news, commercial construction faces plenty of economic and financial hurdles, with tight underwriting for construction lending and continued stress on federal, state and local government budgets — “not a good combination to push the nonresidential construction industry out of the doldrums,” Basu said.
CoStar News – Article – New Data Shows Broad Gains in Commercial Construction
Sellers / Owners – Need Single Tenant Net Corporate Leased Retail
Written by Scott on January 3rd, 2012
Owners and potential sellers – we have a need for single tenant, triple net NNN leased or better yet, absolute net, long corporate leased retail. We have 1031 exchange uplegs and we need property. There hasn’t been a better time to sell in years. See the attached list for the retail tenants that are of interest. We prefer or maybe I should include the lenders in this requirement, S&P BBB and better. I can get S&P BBB- financed, but below that it’s still difficult. If you have any questions, owners/sellers, please contact me, Scott Harris, at 310-473-4789.
Investors See Commercial Real Estate as Good Investment
Written by Scott on January 3rd, 2012According to Roger Vincent with the LA Times. “As 2011 came to a close, some commercial real estate experts found promising signs in often troubled markets.”
I agree, but that’s quite an understatement in certain segments. In certain market segments, it’s getting real competitive and in others, it’s still lagging. Primary markets are doing much better in just about all segments and caps rates are showing it. Secondary and tertiary markets are doing better in retail and multiunit residential. Single tenant, corporate backed, long lease, triple net or absolute net retail is hot all over the country. National brand retail, triple net leased by large franchisees are gaining strength because the corporate leased NNN product is so hard to find. Multi tenant retail is still lagging and it still can be a PITA.
The office market is coming back slowing due to gaining interest from investors amid mixed economic and job growth news. We still need solid job growth numbers before we’re going to see major recovery here.
Commercial real estate continues to offer attractive yields compared with alternative investments, said respondents to a quarterly poll by consulting firm PricewaterhouseCoopers.
“Despite a sluggish U.S. economic outlook, the majority of surveyed investors view commercial real estate as favorably priced and a good play,” said Mitch Roschelle, the U.S. real estate advisory practice leader at PwC, as the firm brands itself.
Investors are bullish for 2012 and expected this year to gain some strength. Office districts that have abundant tenants in technology or energy businesses are set for growth.
Rent growth is expected to be highest in San Francisco, New York and the Pacific Northwest. Los Angeles ranked ninth among 51 markets as a desirable place to invest.
The apartment, multi unit residential segment continues to be strong as it did throughout most of 2011. This is due to what has happened in owner occupied single family over the last several years, limited new construction because of the lack of construction financing and stiff lender requirements for mortgage financing.
Provided that we don’t have some massive international geopolitical disaster (Iran) that sends gas prices through the roof, we should be off to a greatly improved 2012
LA Times – Business – LA – Commercial Real Estate Recovery
Retailer Needs Local Franchisee for the Columbus / Central Ohio MSA
Written by Scott on January 3rd, 2012International Retailer seeks Central Ohio franchisee for entire Columbus MSA. They are not interested in individual store franchisees, but a franchisee for entire market on an exclusive basis. Specialty food experience needed. Great newer brand that has never been here before. Potential of seven to ten stores. It makes no difference whether the real estate is owned or leased. There are qualifying requirements of minimum $400k liquid and $800k net worth. $45k franchisee fee per location.
Needless to say, I would like to handle the real estate acquisitions for the franchisee. Great potential with this one.
Call me, Scott Harris, 614-905-6614 or 310-473-4789.
Top Ten Franchises of 2011
Written by Scott on January 3rd, 2012Since this should be much stronger year for retail I thought this would be of interest to a few folks considering a franchise.
There were 13,725 new units added and a 16 percent growth over 2010 so there’s no question that retail is coming back and franchising is gaining again in popularity for franchisors and franchisees alike.
Locally, here in Columbus / Central Ohio, I have a newer West Coast franchisor that is interested in a franchisee who could have a metro wide exclusive in Central Ohio. I’ll go into more detail in the next post.
http://www.huffingtonpost.com/2011/12/16/top-10-franchises-of-2011_n_1153798.html
EPA Clears Second Kingsdale Upper Arlington Site for Redevelopment
Written by Scott on January 2nd, 2012
The Ohio EPA has agreed not to impede the redevopment of the 6 ½ acre second site of the plan at Kingsdale Shopping Center at 1760 – 1800 Zollinger Road in Upper Arlington. The site is the home of the former Giant Eagle, city building and medical building. The city and developer removed asbestos, lead sheeting, and fluorescent lights from the site. Phase 2 testing of soil and ground water showed low level of contaminants. Commercial retail and office will be constructed at the site.
The developer has a $13.5 million redevelopment plan for the site, including 104,000 square feet of multistory office space and 15,000 square feet of retail space, according to the Clean Ohio Assistance Fund. Ace Hardware affiliate Arlington Hardware already has committed to leasing more than 9,800 square feet at the center.
Phase one was 90% leased before construction began. If any of my readers are interested in the remaining 5,200 sq. ft. of retail or remaining office space, please contact me at 614-905-6614.
http://www.bizjournals.com/columbus/news/2011/12/29/epa-clears-kingsdale-site-for.html
Ohio Pending Home Sales Are Up
Written by Scott on December 30th, 2011The residential market is coming back across the state of Ohio so says Ohio Association of Realtors. The number of single family homes and condos put under contract brought the Pending Home Sales Index up to 135.9, up 33% from October. November marks the seventh consecutive month that pending homes sales rose.
November saw 7,415 home sales in Ohio, which is a 11.1% increase over the 6,772 in November 2010.
I think unless something catastrophic happens, we’ll be off to a healthy 2012 statewide.
Columbus Bizjournals – News – Pending Home Sales Up in Ohio
Columbus Ohio Development – 2011 Year in Review.
Written by Scott on December 26th, 2011As Columbus begins celebration of its bicentennial year in 2012, many major projects are complete or in progress. Completed includes two new major downtown parks, Columbus Commons and Scioto Mile, plus condos, and apartments. In progress are a new Hilton for downtown, I-70 and I-71 redesign, more new apartments and condos. In progress for the west side are the new Hollywood Casino and controversial Cooper Park Racetrack. Columbus has desperately needed something for the I-270 / I-70 area for several decades and finally it’s happening.
I’ll now turn it over to Walker at Columbus Underground for more detail
Columbus Underground – 2011 Year in Review Urban Development
