Gallery Approval of Ohio State University Retail and Residential Development at 16th and High

The first major segment of the long awaited renewal of the east side of High Street across from the OSU main campus entrance received approval from the University Area Review Board. The new development encompass the entire block bordered by 16th on the south and 17th on the north with Pearl Street on the east and will require the demolition of eight existing buildings. The building that housed the former Bernie’s Bagels & Deli and Johnny Go’s House of Music (The Wellington Building) will be one of them. The Sigma Nu building at 22 East 16th is another.

The much revised plan got unanimous approval of the University Area Review Board and board members were satisfied with the architectural changes made over many months of meetings.

The redeveloped block will include 50,000 square feet of net lease retail and restaurant space, which will make potential tenants who have been looking for space for years and Columbus commercial real estate agents very happy. We’ve had virtually nothing new come on the market for years in the OSU retail and restaurant areas.

There will be 164 new apartments with a total of 448 new beds and a 171 space parking garage.

There will be existing tenants who will want to relocate into the new building so no one is certain at this time how much truly new space will be available for additional new net lease retail and restaurant tenants. I’m staying closely in touch with all involved so if you have interest, give me, Scott Harris Realtor a call at 614-905-6614.

I expect the process to be quite competitive so it’s best to start early. Occupancy will be the start of fall semester 2018 so you have plenty of time to prepare, but the triple net retail and restaurant spaces will long be leased up. So again, start now.Columbus OSU retail restaurant development

1031 Exchanges – The Four Basic Rules

1031 Exchanges

Given the glut of triple net retail, single tenant, S&P BBB rated or higher, replacement properties that have come on market over the last couple of weeks, we have plenty of net leased Walmarts, Walgreens, CVSs, 7-11s, etc. available, and at decent cap rates with long 10+ year leases.

These are as perfect a 1031 replacement (upleg) property as we find so I thought it might be a good time to go over the four primary 1031 rules.

  • Rule # 1 Both the relinquished property and replacement property must be held for investment purposes or used in a business and be ‘like kind’.
  • Rule # 2 The IRS requires the investor to identify the replacement property or properties within the 45 ‘identification period’. The identification period begins the day of closing of the relinquished property. The replacement properties must be properly identified by the Exchanger.

There are two more identification rules under Rule #2. The exchanger may identify up to three replacement properties regardless of market value (Three Property Rule). Or they may identify unlimited number of properties provided that the total value not exceed 200% of the relinquished property (200% Rule). The minimum requirement is 95% of the value of the relinquished property

  • Rule #3 You must close on the replacement property the earliest of within 180 days of the closing of the relinquished property or the due date of the tax return or file an extension. And this is 180 calendar days … no time off for weekends or holidays.
  • Rule #4 On a delayed exchange, you must work with an IRS approved Qualified Intermediary.

For more detail regarding a 1031 exchange replacement properties, or referral to a Qualified Intermediary, contact me, Scott Harris, 310.473.4789 or 614.905.6614

Searching For a Single Tenant, Triple Net Retail, Credit Tenant 1031 Upleg?

There is a real bumper crop of new opportunities on the market right now for net leased retail 1031 uplegs. These are all new opportunities that have come on market in the last week.

It’s not unusual to see many triple net retail single tenant properties come on the market at this time of the year, but this year it’s unusually strong. Plus, it’s very high quality net lease properties as we’re talking Walmart, Walgreens, CVS, all credit tenants, S&P BBB or above.

Are you in your 45 day identification period? Have you closed your down leg yet?  If you have a 1031 downleg about to close and you need a replacement property, now is a great time.

If you have any questions, you can reach me, Scott Harris, at 310-473-4789 or 614-905-6614

California Franchise Tax Board Denies 1031 Exchange

The California FTB (Franchise Tax Board) has gotten more aggressive challenging 1031 exchanges.

A practice that has been and is commonplace has just caused a taxpayer to have his exchange disallowed.  It used to be that a partial distribution of funds held by the QI (qualified intermediary) was considered boot with resultant capital gains taxes due on the boot.

The FTB held that the ability of the taxpayer to direct the closer to distribute a portion of the proceeds from the relinquished property to her constituted ‘constructive receipt’ thereby disallowing the entire exchange.  The FTB also held that the taxpayer expressly assigned all of the proceed to the qualified intermediary thereby relinquished her right to receive any of the proceeds.

If the tax payer wants to received a portion of the 1031 proceeds from the relinquished property it the must be expressly stated in the exchange agreement upfront and disclosed to the closer in order for the taxpayer to receive this amount at closing.

There’s also a second ruling in the link below that might be of interest, but I don’t think it’s not much surprise at the result in that one.

http://www.1031-exchange-news.com/?utm_source=newsletter-june-2014&utm_medium=newsletter&utm_content=link-icon&utm_campaign=past-newsletters

Will IRS Section 1031 be Repealed?

Section 1031 has been around since 1921, but will it make it to 2021?  There are serious moves in congress underway to dramatically scale back or repeal the section on like kind 1031 exchanges and not just from Democrats.

As many folks know, IRS section 1031 allows an investor to defer the recognition of capital gains and resultant taxes on a relinquished property for another like kind replacement property.  Section 1031 is not a loophole.  It is merely a vehicle to defer capital gains tax until the property is cashed out or exchanged for a non like kind property.

The logic is that the investor by exchanging the capital gain for another like kind property has not realized the gain, but only changed the form of his investment

IRS section 1031 exchanges today are coordinated transaction in that the investor uses a qualified intermediary to facilitate the sale of the relinquished (down leg) to one party and replaces it with the replacement property (up leg) from another party.  The capital gain in the transaction is not taxed until the investor cashes out at some point in the future or trades for a non like kind property.   Since the basis for the relinquished property is still there, it is transferred to the replacement property to be taxed at some point in the future.

The above sounds great, but reality is that IRS Section 1031 is under threat.  There are currently three proposals to reduce or eliminate the benefits under section 1031 in Washington DC.

Former senator Max Baucus (D-Montana) proposed lengthening the depreciation schedules from 27.5 years for multiunit residential and 39 years for commercial property to 43 years for both and treating gains from real estate as ordinary income instead of capital gains.

Representative  Rep Dave Camp (R-Michigan) chair of the House Ways and Means committee has proposed eliminating all section 1031 exchanges, period, beginning January 1, 2015,

The President proposes limiting  the amount of capital gain deferred in a 1031 exchange to $1 million per tax payer.

The motivation of course is increased tax revenue.  However, that well could be offset by markedly reduced transaction activity, which is already taxed at ordinary income rates such as reduced commissions for commercial brokers, but would also have a negative impact on jobs across a wide array of ancillary services that are also involved in exchange transactions.

Banks and commercial lenders would see reduced activity, as would title companies, escrow agents, appraisers, environmental companies, and many other services typically involved in commercial real estate transactions.

Repealing section 1031 would have a negative impact extending far beyond the commercial real estate industry resulting in reduced property values due to dramatically reduced transaction volume caused by properties becoming less liquid.  Also imagine what this could do to property taxes, which benefit local schools.

Legislators must be educated that the 1031 exchanges promotes transactional activity, which creates jobs helping small and medium sized businesses and as a result increased tax revenue.

To help, contact your congress person and/or senator to express support for Section 1031 as it is, and the powerful economic engine that section 1031 is.

Net Lease Retail Cap Rate Compression for First Quarter 2014

Cap rates fell 40 basis points and net lease retail product quality also falls in the first quarter of 2014.

We’re thinking retail right about now as the national ICSC Global Retail Real Estate Convention is just around the corner running through May 18-20 and over 30,000 net lease retail professionals converge on Las Vegas. This is the biggest event of the year for the retail industry and while the mood at the 2013 could be described as optimistic, 2014 is expected to be better yet due to increasing retail sales and lower cap rates.

Consumer retail sales are the most important indicator of the health of the retail segment of the overall economy and drives nearly every retail commercial real estate decision in the sector. According to Abigail Rosenbaum, a senior economist at CBRE Econometric Advisors, Total sales using total annualized percentage change was up 14.5 percent in March to $434 billion. This is a 3.8 percent increase year over year. This sounds great, but sales are only now approaching historical averages.

Overall, the figures indicate that consumers are shopping with increased confidence and higher retail consumer sales will lead to higher rents from net leased retail tenants to landlords.

The national retail availability rate is now under 12% according to CBRE, the best since 2009 and 60 basis points lower than last year. Only the Chicago retail market has softened a bit with the availability rate rising to over 14 percent last quarter. Nationally, space availability is trending lower despite the trends toward online and smaller store formats.

A big problem for those of us in the retail commercial real estate brokerage industry is triple net retail product availability, especially for those of us who do a large volume of 1031s. A 1031 exchanger comes out of a relinquished property that they bought a few years ago at a 8 CAP and then are forced to go to a more expensive property with possibly a lower quality tenant at lower caps to maintain their NOI. There are plenty of buyers and debt is readily available, but there’s so little to buy.

I primarily work two markets: Central Ohio including the Columbus commercial real estate for sale and lease market and the Southern California including the Los Angeles triple net retail market and I’m certainly seeing the above in both of these markets. Further, I see the above situation for buyers in almost all of the American markets.

If 2014 proves to be a difficult year, it won’t be for lack of buyers or net leased retail tenants.  If you have off market or pocket listings, I would be happy to hear from you

1031 Exchange – Retail – Client Requirement $1.6 to $3.2 Million

IRS Section 1031 need for replacement property. Exchanger in day 4 of 45 day identification period from closing relinquished property looking for triple net retail or absolute net retail, $1.6 mil to $3.2 mil.

Exchanger prefers California triple net commercial real estate for sale , but will consider out of state. Must be credit tenant, preferably single tenant, NNN, triple net leased retail with at least seven years unexpired left on net lease. The further the property is from West LA the stronger the preference for absolute net. Corporate leased, triple net, single tenant 7 Eleven, Circle K, KFC, Chipotle, Panera, Taco Bell, Walgreen, CVS, Tractor Supply, Auto Zone, NAPA, Advanced Auto, etc. is fine. Fast food and fast casual fine if corporate lease or large franchisee.

Again relinquished property closed 4 days ago so have 41 days left in the 1031 45 day identification period.  As always, pocket listing or off market would be most welcome

California, Los Angeles or Santa Monica commercial broker / agent /principal with product that meets above requirement call me, Scott Harris at 310-473-4789 or better yet, email to scottharrisrealtor@gmail.com.

Client Need for Net Leased Retail – 1031 exchange – 45 Identification Period

IRS 1031 Exchanger in 45 Identification period looking for $3.5 to $5 million, national credit, preferably single tenant, NNN, triple net retail with at least seven unexpired years left on net lease.  Prefer absolute net.  No gas or 7 Eleven.  Fast food and fast casual fine if corporate lease or large franchise.

Looking West Los Angeles, west of the Harbor Freeway, preferably west of the San Diego, north of the Century Freeway and south of Mulholland in Santa Monica, Malibu, Westwood, Pacific Palisades, Culver City, West LA, El Segundo, Venice, Marina Del Rey, Rancho Park, Palms, Mar Vista, Playa Del Rey, Beverly Hills, West Hollywood, Belair, or Brentwood.

Have 30 days left in 1031 45 day identification period.

Los Angeles or Santa Monica commercial broker / agent /principal with product that meets above requirement call me, Scott Harris at 310-473-4789

Los Angeles Commercial Real Estate for sale or Lease

It probably goes without saying, if you’re interested in Santa Monica or Los Angeles commercial real estate for lease, especially in the project I just posted, contact me because the net leased commercial retail space available will be leased up quickly.

I’ll be happy to be your Los Angeles commercial real estate agent.  Good Los Angeles commercial Realtors are difficult to find and I’ll happily take great care of you and your needs.   Same applies if you’re looking for Santa Monica or Los Angeles commercial real estate for sale.  Whether you’re planning on a 1031 exchange, buying for investment, or interested in a Los Angeles commercial net lease,  I’m here to help.

Contact Scott Harris Realtor at 310-473-4789

1031 Exchange Rules

Rule # 1 Both the relinquished property and replacement property must be held for investment purposes or used in a business and be ‘like kind’.

Rule # 2 The IRS requires the investor to identify the replacement property or properties within the 45 day ‘identification period’. The identification period begins the day of closing of the relinquished property. The replacement properties much be properly identified by the Exchanger.

They may identify up to three replacement properties regardless of market value (Three Property Rule). Or they may identify unlimited number of properties provided that the total value not exceed 200% of the relinquished property (200% Rule. The minimum requirement is 95% of the value of the relinquished property

Rule #3 You must close on the replacement property the earliest of within 180 days of the closing of the relinquished property or the due date of the tax return or file an extension. And this is 180 calendar days … no time off for weekends or holidays.

Rule #4 On a delayed exchange, you must work with an IRS approved Qualified Intermediary.

For more detail

Four Basic Rules of a 1031 Exchange

IRS Section 1031 Exchange Basics

Since we’re getting into tax season, I’m getting more calls over the last few days regarding the basics of a 1031 delayed or reverse exchange so I thought it best to review some of the most important aspects of  a 1031.

This allows investors to use all of the sale proceeds to leverage into more valuable real estate, increase cash flow, diversify into other properties, reduce management or consolidate holdings. And notice that I wrote “all of the sales proceeds”. If that rule is not followed, then you would have to pay ‘boot’ on the proceeds taken out of the 1031. This isn’t tax fraud, but does seem to invite an audit.

I get a number of question regarding what type of property qualifies for a §1031 tax deferred exchange. The Internal Revenue Code Section 1031 states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” “Like-kind” property can include, but is not limited to, any of the following, provided it is held for investment:

  • Single Family Home Used as a Rental
  • Duplex
  • Apartment
  • Commercial Property
  • Undeveloped Land

For example, raw land can be exchanged for a single family rental, or apartments or a commercial building. Properties can be exchanged anywhere within the United States.

Another question I get from sellers new to this process is “does the 1031 exchange need to simultaneous”? No, contrary to what some property owners envision, a §1031 tax deferred exchange is rarely a simultaneous two-party swap. In fact, I’ve never done one.  Most exchanges are delayed exchanges, whereby the Exchanger has 180 days between the sale of the relinquished property and the closing of the replacement property. They must identify the potential replacement property (or properties) within 45 calendar days from closing on the relinquished property.

When can you use section 1031 exchange? It is applicable whenever a property owner intends to sell any property that is not their primary residence, and falls under the definition of “like-kind” and plans to BUY another ‘like-kind’ ‘replacement’ property within 180 calendar days following the closing of the relinquished property.

Paramount to any exchange is a competent and experienced Qualified Intermediary. A few intermediaries filed for bankruptcy during the last crash and left the exchanger contractually obligated to complete the purchase plus they owed the capital gains taxes and without the funds held by the bankrupted intermediary. I sure there are bigger disasters that one can encounter, but that’s up there.

1031 Exchanges and the 3.8% Net Investment Tax – IRS Section 1411 regs

1031 tax deferred exchanges under IRS section 1031 of the Internal Revenue Code allow real estate investors to defer taxes that would be due if the property was sold instead of exchanged.

If the investor decides not to participate in a 1031 exchange, the taxes potentially and likely owed would include the following:

A) depreciation recapture at 25%;

B)  the applicable Federal capital gain tax rate.  If the tax payer falls within the 10% or 15% marginal income tax brackets, then the long-term capital gains tax rate is 0%.  At the 25%, 28%, 33%, or 35% marginal income tax brackets, the long-term capital gains tax rate is 15%.  At the 39.6% marginal income tax bracket, the long-term capital gains tax rate is 20%.

C) The applicable state tax rate (0% – 13.3% depending upon the state tax rate)

D ) In addition, the capital gains of high-income earners are subject to a net investment income tax of 3.8%, above and beyond that capital gains tax rate. Those rates kick in at $125,000 if the taxpayer is married filing separately, $200,000 if single or as a head of household, or at $250,000 if married filing jointly or a qualifying widow(er) with a dependent child. (Recaptured depreciation is taxed at a maximum of 25%.)

The new and higher tax rates in 2013 resulted in an approximate 50% increase in 1031 exchange activity. Late last year, on November 27, 2013, the IRS issued final and proposed regulations giving guidance on the application and computation of the 3.8% net investment income tax imposed by Section 1411.

To read the final regulations, click on T.D. 9644 and REG-130843-13

1031 Exchange – Due Diligence Selecting a Qualified Intermediary

I haven’t written much about 1031s over the last year or so, but given the 50% increase in capital gains taxes in many circumstances and the 3.8% Net Investment Tax, there’s been a 50% increase in 1031 exchanges over the last year.  I think the number would be even higher if it weren’t the fact that suitable replacement properties are so rare.

Just like the last boom and bust cycle and every one before that, we’ll get to bubble pricing again and then an eventual bust.  If you’re going to try to time the peak of the market and sell and replace via a 1031 exchange, be very careful to do your due diligence on the 1031 Qualified Intermediary you choose.

There were several 1031 intermediaries that failed during the last crash and if the one you choose fails you not only risk losing all of the cash you had with the qualified intermediary, but could be contractually obligated to complete the purchase of your replacement property.  In addition, you’re likely to be held responsible for the capital gains due to the IRS.

“On June 6, 2008, the Office of Chief Counsel at the IRS responded that taxpayers are not able to defer gain in a 1031 exchange if they do not buy replacement property within the 180-day exchange period, even if the reason for the failure to buy replacement property within the 180-day period is due to the bankruptcy of the intermediary. In other words, the IRS does not give any special treatment to investors who have lost their money because of a failed exchange company”

There’s a lot riding on you doing your 1031 exchange correctly with a reliable, proven and safe intermediary.

Due Diligence When Recommending a QI (173)

2013 Commercial Real Estate Review

It’s that time of the year again when everyone and their mother posts their yearend review for 2013 and/or forecast for next year, 2014.  I’m not going to do that, but instead linked is Deloitte’s 2014 commercial real estate forecast, which is long, detailed and usually fairly accurate.  I will summarize and editorialize a bit though.

Since I’m licensed in California and Ohio and have reciprocity in 11 other states, I read this report thoroughly as I find it helpful for the segments I work with – triple net, single tenant, retail and industrial / distribution / warehouse.  Plus medical office.  Columbus commercial real estate for sale or lease, and Los Angeles commercial real estate for sale or lease are my primary markets, but I’ll go anywhere.

Commercial Real Estate Fundamentals

The fundamentals have strengthened somewhat during 2013, especially in multifamily and hospitality.  Triple net leased, single tenant, national credit retail has also done very well.  Other segments have trended below historical averages when coming out of a downturn.  Multifamily is expected to peak and moderate as much new supply comes on line.   There’s still little new supply for single tenant, net leased retail and office so expect some tightening there for the foreseeable future.  Additionally, lending standards for construction loans remain stringent so that will contribute to restrained development.

GDP Growth

Forecasts for 4th quarter GDP growth are in the 2 percent to 2.5 percent at the high end, and around 2 percent for 1st quarter 2014.  This is still a very lackluster recovery and remains the weakest recovery since WW II.

What is not known yet is the effect that the increased out of pocket premiums for the ACA will have on growth in 2014.

Unemployment

While the commonly U3  reported unemployment rate has fallen to 7 percent,  the more important U6 rate remain exceeding high at 13.8% as of the end of November.  The labor participation rate is at a post 1978 low of 63.2.  The high structural unemployment is still a drag on the overall economy.

While the employment situation appears to be moving in the right direction, threats for 2014 include the fed backing off on the stimulus and the impact of sharply higher ACA health care premiums as a drag on the economy.

Retail

I generally work the national credit, net lease, single tenant market with Columbus triple net properties and Los Angeles triple net properties for sale or lease so the retail properties segment is of great interest to me.

For a quick summary, the vacancy rate overall is down 60 basis points year over year compared to 2012.  Effective rents actually dropped slightly at 0.3 percent year over year.  Net absorption was 8.1 million square feet year 2nd quarter 2013 over year as compared to 4.5 2nd quarter 2012.

New retail development is at a record low which should provide for some net increase in rents due to restrained supply tempered by a steady increase in online shopping.

Westerville, Worthington, Dublin, Powell, New Albany and Columbus triple net retail area markets have tightened considerably for the desirable properties plus we are seeing some new development in the East Broad Street, Columbus Commons, Olentangy River Road and Grandview Yard markets.   Most of this product is ground leased and not for sale.

The coastal Los Angeles market, including West LA, Santa Monica, Venice, Marina Del Rey, Beverly Hills has also gotten much tighter with major rent increases over the last year.  Most of this market is not ground leased so you’ll see Los Angeles retail properties for lease and sale.

Office

The office vacancy rate has declined to 15.2 percent from 15.8 percent a year earlier and rent growth up to 2.1 percent versus 3 percent a year earlier.  As with net leased retail, new development is just about nil.

Industrial

Vacancy has improved to 12 percent from 13.1 percent a year earlier and net absorption was a very strong 45 million square feet in 2nd quarter 2013 versus 24.2 million in 2nd quarter 2012.

Remember that even online retailers need warehouse, shipping and distribution space.

The link to the 32 page Deloitte report is below:

Deloitte 2014 Commercial Real Estate Outlook

Single Tenant Triple Net Retail Investment Property Becoming More Available

As interest rates climb just a bit and cap rates are at what’s likely to be a cycle low, I’m seeing more new or newer developer owned, single tenant, triple net retail or absolute net, national credit, leased investment properties coming on the market.  The availability of construction funding and newly built property coming on the market is also of benefit to buyers and investors.

I think we’ll see more product, and sitting slightly longer on the market until asking caps come back up 50 to 75 basis points. Seller expectations will readjust to the new higher interest rate reality.  I don’t think this present an end to the current up cycle at all, but just some readjustment going forward.

I’m definitely seeing more corporate leased 7-Elevens and Circle Ks on the market for my C-store buyers plus an adequate supply of Walgreens and CVSs available as a favorite for 1031 buyers adding up to a little more balanced market.

In fact I think a little more balance will give some safety to 1031 buyers in that they will be able to find a replacement property within the 45 day identification period,  which hasn’t always been the case over the last year to 18 months.

Locally, I’m sure not seeing a big increase in Westerville commercial property for sale and certainly not Westerville commercial real estate for lease.  I could use some in the historic Uptown District in Westerville.

Newer Columbus commercial real estate for sale is generally on ground leases and bunch of investors have a problem with that.  Notwithstanding the depreciation advantage, I understand that concern of owning the building, but not owning the land underneath.

1031 Exchanges and Fair Market Rent

A U.S. Tax Court decision from earlier this year, Adams v. Commissioner, T.C. Memo 2013-7, illustrates the importance of the investor / tax payer receiving a fair market rent for their investment property.  In the above case the tax payer exchanged into a replacement property that was rented at slightly below market rents to the tax payer’s son. The IRS challenged this 1031 exchange declaring it a ‘family residence’ because the son was paying below market rent.

In this case the replacement property was in poor condition at the time of the 1031 exchange, and the son, a contractor, personally made substantial repairs at his own expense and continued to live in the property for four years.

The court decided that the rent plus improvements to the property constituted ‘fair market rent’.  Be warned though as it could have easily gone the other way and would have in many instances that I personally am aware of.

In Revenue Procedure 2008-16 , notice That the dwelling must be rented “at a fair rental.” Insection 4 ‘Fair Rent’ for 1031 echnage purposes is defined.

1031 Fair Market Rent

1031 Exchanges – October 18 to December 31 2012

This is review and reminder to a post earlier in the year.

A 1031 exchanger must complete the acquisition of a replacement property in a 1031 exchange before midnight on the earlier of the 180th day after the date the relinquished property was transferred, or the due date (including extensions) for the income tax return for the taxable year in which the transfer of the relinquished property occurs. (U.S. Treasury Regulations section 1.1031(k)-1(b)(2)).

Even though an exchanger may be entitled to a tax extension, they must actually file IRS Form 4868 with the IRS to obtain the tax extension. Consequently, some exchangers closing late in 2012 may need to file for an extension to have the benefit of the entire 180-day exchange period. As a general rule, exchangers should not file a 2012 Federal Income Tax return until the 1031 exchange is complete.

More specifically, if the 180th day following the closing of the first relinquished property falls after the due date for filing the 2012 tax return (generally April 15, 2013 for individuals), an exchanger must file IRS Form 4868 with the IRS to actually extend the filing date. If a 1031 exchanger does not file for such an extension, they will not be able to acquire any replacement property in an exchange after the tax return due date.

NAR Commercial Real Estate Outlook for August 2012

The National Association of Realtors sums it up pretty well in the attached August 2012 Commercial Real Estate Outlook when they opine that the economy has gone on vacation.  That’s pretty much how I would describe it too.  True, the triple net or absolute net, single tenant, national investment grade credit tenant retail is still doing well trading with cap rates in the mid 5s to low 6s in most areas of the country.  Multifamily is still hot, but the economy has slowed considerable from fourth quarter 2011.

Uncertainly over the upcoming election is a big part of it in my opinion.  I think most of us are rightfully very concerned about Obama in a second term when he cannot run for reelection and absolute petrified of the thought of the democrats winning the House back and holding the senate plus the White House.  This is the primary reason I think we’ll just muddle long for the third quarter.

GDP growth has fallen from a revised 4.1% in the 4th quarter of 2011 to 1.5% in Q2 2012.  This is not going in the correct direction and growth is about 1/3rd as strong as the recovery from the equally deep 1980 to 1982 recession.  We can fix this November 6th, but Intrade puts the odds at about 55 – 45 against.  Incumbents rarely lose, thinking only 1980 and 1992 regarding the second half of the 20th century.  We need predictability and certainty to make investment for a period of seven years or more and I’ve never seen more uncertain times.   You see confirmation of that in the business investment numbers, down from 14.6% in 2012 and 2010 to 5.4% this year.

I think we’ll see multifamily remain strong and the same goes for single tenant, triple net leased or absolute net leased retail at least until there’s far more new construction that what we’ve seen in this ‘recovery’.

CRE Outlook August 2012

Commercial Real Estate Pricing Recovery Continues

Walmart Market CenterI’m not saying that we’re quite back to pre crash levels of pricing but we’re getting there.  Given the general malaise in the American economy with job growth, GDP growth and most other indicators, it’s surprising that the commercial real estate recovery has been as strong and broad based as it has.

It didn’t start out this way as it was the triple net and absolute net retail and multifamily housing segments that lead the way.  As the pricing on the investment grade, single tenant, long corporate lease, triple net retail segment got stupid and there’s really no place else to park your money, it started pulling up the secondary and tertiary markets.

Another factor that’s helping greatly is that the percentage of properties selling at distressed pricing is at the lowest level since mid 2009, due of course to rising rents and rising occupancies in most markets.

CoStar’s U.S. Value-Weighted Composite Index and the U.S. Equal-Weighted Composite Index both posted year over year gains in May 2012, which is a pretty good sign that the recovery is reaching most markets and most segments of the market.  .

CoStar’s U.S. Value-Weighted Composite Index weights each repeat sale by transaction size or value and is heavily influenced by larger transactions. The index has hit a three year high, reflecting the focus of investors for high-end assets, especially within primary coastal metro markets and for high quality multifamily assets.

The 6.6% increase in the Equal Weighted Composite index in May over May last year is the largest increase since the beginning of the great recession in 2007.  Pricing shows the uptick in general quality commercial properties in just about all markets.

By the way, I always need single tenant, triple net and absolute net, long corporate lease, investment quality retail properties for sale for 1031 exchanges.