|
|
Below is a brief summary of the key provisions of the
compromise law which is formally entitled The American Taxpayer Relief Act.
·
Income
tax rates: Current income tax rates are extended for families earning $450,000
or less and individuals earning $400,000 or less annually. Taxpayers earning
more than these thresholds will be taxed at 39.6%, up from 35%.
·
Investment
tax rates: The top capital gains and dividend rate remain at 15% for those
below the $450,000/$400,000 income thresholds, and are increased to 20% for
those with incomes above those amounts. Current law remains in place for
carried interest.
·
Estate
tax: The current $5 million per-person estate tax exemption remains (with the
$5 million indexed for inflation) but the rate is increased to 40% from the
current 35%.
·
Tax
extenders: Individual and business tax extenders are extended seamlessly
through 2013.
·
Allows
businesses to recover the cost of certain leasehold improvements and restaurant
and retail property over a 15-year period, rather than over 39 years
·
Bonus
depreciation: The 50% bonus depreciation provision is extended for one year.
·
The Research and Development (R&D)
tax credit was extended through 2013 and made retroactive for 2012
·
Work Opportunity Tax Credit extended one
year; Section 179 – keeps in place the 2010/2011 levels of a maximum amount of
$500k and $2 million phase-out for 2012 and 2013;
·
Accelerated Depreciation —provides for
50 percent expensing for qualifying property purchased and placed in service
before January 1, 2014 (and January 1, 2015 for certain long-term assets and
transportation).
·
Alternative
Minimum Tax (AMT): The individual AMT is patched permanently.
·
PEP
and Pease: The personal exemption phase-out (PEP) and overall limit of itemized
deductions (Pease) is reinstated for families with incomes over $300,000 and
individuals with incomes over $250,000.
·
Other
credits: The American Opportunity Tax Credit, the enhanced Child Tax Credit,
and the enhanced Earned Income Tax Credit from the American Recovery and
Investment Act (the "stimulus") are extended for five years.
·
Doc
fix: The patch on the 29% cut in Medicare provider payments is extended
for one year.
·
Sequester
delay: The $109 billion spending cuts mandated by the Budget Control Act
are averted for two months due to $12 billion in spending cuts split evenly
between defense and non-defense spending and $12 billion of increased revenues
applied as an offset.
·
Extended
unemployment insurance: Federal extended unemployment insurance will
continue for another year.
Additional details may be
found in these two documents.
Ironically, the net result of the compromise is that
President Barrack Obama effectively embraced the preponderance of the Bush tax
cuts.
Looking Forward
Because the deal simply moved
the trigger date for the “sequester” of automatic spending cuts totaling $1.2
trillion over nearly a decade from January 1 to March 1, expect renewed debate
to begin with the start of the 113th Congress on a long-term plan
for deficit reduction. By most estimates, the U.S. government will reach
its $16.4 trillion borrowing limit by the end of February – so wrangling will
also renew the debt ceiling, entitlement reforms, and spending cuts.
Additionally, the current stopgap spending measure expires on March 27, setting
up either an additional catalyst for a broader brinksmanship scenario or yet
another moment in a series of showdowns that continues from last year.
Prospects for comprehensive
tax reform and entitlement reform remain uncertain, with both sides appearing
unwilling to reach meaningful compromises without an imminent deadline with
severe consequences. Since Congress is now likely to be consumed by a series of
short-term budget battles, such partisan wrangling may distract Congress from
the complicated process of achieving comprehensive tax and entitlement reform.
 |
Mark is a specialist in medical office
and national team leader for Sperry Van Ness |
Regardless of how you feel about the Affordable Care Act (ACA), the cloud of uncertainty has been removed. The ACA was passed by Congress and signed into Law by the President on March 23, 2010 and upheld by the Supreme Court on June 28, 2012. This new direction for health care will ensure dramatic change in demand for real estate used by hospitals and doctors. This is especially true locally given the large number of elderly Americans that retire in Florida, combined with our large proportion of poor uninsured and under-insured who will soon be added to the ranks of medically insured.
There are two main segments of medical office real estate: hospital-controlled buildings and doctor-controlled buildings. The problem over the past three uncertain years during health care reform debate was that neither hospitals nor doctors knew how health care reform was going to wind up. Well, now we know.
Hospitals
Health care (HC) systems have been more proactive regarding their real estate needs than doctors over the past three years while the debate raged. While not knowing for sure how reform was going to shake out, most hospitals felt change, was inevitable in one form or another, which would lead to more Americans becoming medically insured. Many HC systems have already taken steps to expand their real estate needs to accommodate this anticipated increased demand for care. Now that the Presidential election is over, eliminating any reasonable speculation about ACA repeal, many hospital systems across the U.S. are accelerating their expansion plans. HC systems are partnering with developers to construct new projects while others are using Sale/leaseback transactions involving existing facilities to self-fund their expansion.
Doctors
Most private practice physicians adopted a “maintain the status quo” attitude over the past three years while hoping for an eventual repeal of ACA. This MD uncertainty fueled today’s pent up demand for medical real estate that is now being released. This is a new environment for doctors and is causing them to change the way they manage their businesses. I find that doctors focus on the bottom line today more than ever before.
For example, over the past twenty years it had become common for doctors that owned their own medical buildings to have their medical practices pay themselves (as Landlord) rent that often exceeded fair market rental rates. This was a popular way for doctors to create exceptional “in-house investments” where their medical office building (MOB) investment returns where often quite remarkable. But this meant their practices often paid very high rental rates that sometimes exceeded fair market rental rates by as much as 200%. When many of these doctor/MOB owner’s decided to sell their buildings prior to retirement, they quickly learned that a sale/leaseback to an investor created much higher sale prices than selling to another doctor or even to their own practice.
The reason for this phenomenon is that owner occupied MOB’s get appraised as though vacant because the appraiser is not allowed to use the existing lease (that would normally drive value higher) because the lease is between related parties and not deemed “arm’s length”. This is great for the acquiring practice but it causes the seller to leave a lot of money on the table.
On the flip side, when the MOB is sold in an arm’s length transaction to an investor and the MOB is then leased back by the medical practice, the appraiser must use the lease to calculate value. The market rent lease steers price much higher and in some cases by as much as 40% higher compared to selling the same MOB to another doctor.
Consequently, over the past 20 years, doctors that understood these advantages employed the sale/leaseback approach, often choosing the highest rental rate possible to set the highest possible sales price. This “pushing the envelope to the top” of fair market rental rates created some eye-popping sale prices and saddled medical practice tenants with very high future rents. While this was not a significant issue under the old way of doing business for doctors over the past twenty years, it is today. Now that ACA is anticipated to bring lower reimbursement rates to doctors in the future, doctors are very concerned and look to keep overhead as low as possible.
Today I see doctors doing the opposite of the past two decades and are either choosing a moderate rental rate for their lease back future; or they pick a below market rent sufficient to retire debt so they can lock in the lowest possible rent to maximize future practice profitability. This is a sound business move as doctors’ incomes are expected to be reduced. This is the fiscally responsible approach, in my view, and it is one example where ACA is helping to reduce the overall cost of health care in America.
Since ACA rewards doctors who work in bigger groups or alliances, there is a trend for single practice doctors to merge with larger medical practices or switch employment to hospital systems. Since stronger tenants are preferred by MOB investors, this trend of smaller groups merging into bigger medical groups is helping the single practice MD get a better price for his MOB than he would have when he was a solo practitioner.
Some forward thinking medical groups were ahead of this curve and started alliances years ago. Others are just getting started. But the trend is clear. Large medical groups are becoming more prevalent.
The Affordable Care Act is not perfect, and most doctors don’t like it because it reduces their future income. But ACA will add millions of individuals to the roles of the medically insured, and this will create higher future demand for health care services. This, in turn, will create higher future demand for medical office space for doctors to treat patients. There are strong, long-term, underlying business fundamentals for medical office building investments.
On June 29, 2012, both the Senate and House passed the Biggert-Waters Flood Insurance Reform Act of 2012 as a part of H.R. 4348, the Surface Transportation Conference Report. The President will sign the measure in a few days. This is the culmination of a successful multi-year REALTOR campaign and a final push at NAR’s Midyear Legislative Rally and Meetings in May 2012. Congress had been extending the National Flood Insurance Program a few months at a time since 2008. Twice this led to shut downs, including one that stalled thousands of real estate sales in June 2010 alone. Passage of this 5-year reauthorization will bring certainty to real estate transactions in more than 21,000 communities nationwide where flood insurance is required for a mortgage. The bill ensures the program will continue long-term for more than 5.6 million business- and homeowners who rely on it, achieves one of NAR’s top priorities for the year, and means taxpayers will spend less on federal assistance for flood disasters over the long run.
CoStar article by: By Randyl Drummer May 16, 2012
Current Lull In Multifamily Fundamentals Expected To Be Overtaken by Demographics, Jump In New Construction
The ongoing recovery of the U.S. apartment market is entering a new phase, one marked by an increasing level of permits and construction starts for multifamily development projects. The upwelling in new development is expected to increase supply across many markets starting in 2013 after years of almost zero growth.
The new phase follows the dramatic vacancy declines and strong apartment rent growth that has occurred in the tightest and more desirable coastal markets, and a rare moment of solid income growth even in vacancy-challenged markets.
The rising supply pipeline, coupled with the gradually improving market for single-family housing, is expected to help bring some equilibrium to an apartment market which experienced strong renter demand and plunging vacancies from late 2009 through middle to late 2011.
Demand has tapered off somewhat since last summer due to slower seasonal leasing -- and perhaps some sticker shock among tenants that have watched asking rents eclipse pre-recession highs in some supply-challenged metros, according to Michael Cohen , head of advisory services for CoStar Group’s economic and market forecasting company, Property and Portfolio Research (PPR).
Cohen, along with PPR’s new director of multifamily research Luis Mejia and senior real estate economist Erica Champion, made the observations during CoStar’s First Quarter 2012 Multifamily Review and Outlook.
"Vacancies have been slipping in the apartment sector for several years due in large part to favorable cyclical demand factors and little-to-no new supply," Cohen said. "But the next chapter in the apartment recovery is going to look pretty different, particularly on the supply front."
Overall, the national apartment vacancy rate has dropped by a precipitous 170 basis points through the first quarter of 2012 since peaking at 8.3% at the end of 2009, with the lion’s share of occupancy gains recorded during the six-quarter period between fourth-quarter 2009 and second-quarter 2011. That's equal to demand for about 270,000 additional units, two-thirds of them occupied in 2010 alone, the single strongest year for multifamily demand since 2005.
Rent Hikes Bring Sticker Shock
But demand has eased in the last six months, with the year-over-year vacancy closing the first quarter at 6.6%, down only 60 bps. Several tight coastal markets have already reached or are approaching pre-recession vacancy lows, however, and it’s likely the seasonally weaker pace of demand over the last two quarters will pick up over the rest of 2012, the analysts said.
Four of the top five rental markets that experienced the sharpest vacancy declines are fast-growing southern metros, led by Charlotte, Austin and Raleigh, NC. Detroit, with its surprising auto industry rally, ranked an impressive fourth place, followed by San Antonio. Apartment vacancies have not dropped as sharply in markets like Washington, D.C. and Seattle, where new supply is already starting to come on line.
The recovery has shifted away from the southern metros and toward West Coast markets in the last six months, much of it driven by strength in technology sector. Los Angeles was ranked first in the nation in the first quarter in year-over-year nominal demand growth with about 12,000 units, followed by Dallas, Chicago, New York and Houston.
Ranked by the percentage rise in demand growth, Richmond, VA, led all markets with a year-over-year gain of over 4%. Charlotte, Raleigh, San Antonio and Houston garnered the other top five spots.
Salt Lake City and the San Francisco Bay Area metros saw the largest declines in vacancy. But at least 30 of the top 54 U.S. metro areas have seen their vacancy rates increase at least slightly over the last six months.
"I’m not suggesting that’s indicative of the health or the trajectory of the market, but it’s not a straight line down in absolute vacancy improvement. There is a little bit of a lull," Cohen said.
Although job losses and the housing collapse are still fresh in the minds of 20-to-34-year-olds who make up the bulk of the renter base, and mortgage underwriting standards are stricter, the math is becoming more appealing for people deciding to buy a home or condominium over renting an apartment, Cohen said.
Those decisions are being influenced by spiking rents that have already pierced their pre-recession highs in such markets as San Jose, Oklahoma City, Denver, East Bay, San Francisco, Chicago, Portland and Pittsburgh.
Apartment Starts Ramping Up
While only 60,000 new apartment units are expected to be added this year, well below longterm average, construction starts and permitting activity are beginning to pick up from historical industry lows not seen since 1993.
"In advising our clients on market selection, we are starting to get calls with concerns about the rate of supply and net completions," Cohen said.
But developers who have delayed decisions to build are seeing the window close as capitalization rates reach record lows.
"2013 will be the first year we’ve seen deliveries above 100,000 units. We need to readjust our perspective on supply for Chapter Two (of the recovery). We haven’t seen 100,000 units come to market since 2009."
CoStar's outlook for supply is moderate through 2015, with between 100,000 and 130,000 units delivered per year, a rate expected to achieve equilibrium between supply and demand, Cohen said.
Homeowner Distress Continues To Help Apt. Investors
Meanwhile, apartment investors continue to reap benefits from the current weak housing market, with the flow of distressed homeowners-turned-renters still above average, while the flow of renters turning into buyers is still quite low, according to Mejia, who recently joined PPR as director of multifamily research.
A comparison of homeownership and foreclosure trends confirms that the homeownership rate could continue to decline -- possibly falling below 65% -- until the delinquencies and foreclosures that have plagued homeowners finally ease.
In the early 2000s, optimism about rising home prices and loose underwriting standards helped push the ownership rate up to almost 70%, leading to a price bubble that began to deflate in 2006, causing a surge in foreclosures and sending the homeownership rate tumbling.
"Apartment markets will continue to see additional demand while the foreclosure rate remains above pre-crisis levels and potential home buyers are cautious about committing to a purchase, even amid all-time low mortgage rates," Mejia said.
Mejia also pointed that as foreclosures remain elevated and renters mull their home-buying decisions, the ownership rate will likely continue to decline, although the extent of the decline depends on the length and strength of the housing recovery.
Shaking off a prolonged impact from the recession, fundamentals are gradually improving in all of the major commercial real estate sectors, according to the National Association of Realtors quarterly commercial real estate forecast. The apartment rental sector has fully recovered and is growing.
The findings also are confirmed in NAR’s recent quarterly Commercial Real Estate Market Survey, which collects data from members about market activity.
Lawrence Yun, NAR chief economist, said new jobs are the key. “Ongoing job creation, which is at a higher level this year, is fueling an underlying demand for commercial real estate space, assisted by a steady increase in consumer spending,” he said. “The pattern shows gradually declining commercial vacancy rates, with consequential but generally modest rent growth.”
Yun expects the economy to add 2 to 2.5 million jobs both this year and in 2013, on the heels of 1.7 million new jobs in 2011, assuming a new federal budget is passed before the end of the year. “Although we need even stronger job growth, by far the greatest impact of job creation is in multifamily housing, where newly formed households striking out on their own have increased demand for apartment rentals – this is the sector with the lowest vacancy rates and strongest rent growth, which is attracting many investors.”
Rising apartment rents also are having a positive impact on home sales because many long-time renters now view homeownership as a better long-term option, Yun noted.
A large problem remains for purchases of commercial property priced under $2.5 million. “Our recent commercial lending survey shows that there is very little capital available for small business, which is significantly impacting commercial real estate transactions, although funding is less restrictive for bigger properties.”
NAR’s latest Commercial Real Estate Outlook1 offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data for metro areas were provided by REIS, Inc.,2 a source of commercial real estate performance information.
Office Markets
Vacancy rates in the office sector are projected to fall from 16.3 percent in the second quarter of this year to 16.0 percent in the second quarter of 2013.
The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.3 percent; New York City, at 10.0 percent; and New Orleans, 12.6 percent.
Office rents should increase 2.0 percent this year and 2.5 percent in 2013. Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is forecast at 24.7 million square feet in 2012 and 48.0 million next year.
Industrial Markets
Industrial vacancy rates are likely to decline from 11.0 percent in the current quarter to 10.7 percent in the second quarter of 2013.
The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 4.7 percent; Los Angeles, 5.0 percent; and Miami at 7.2 percent.
Annual industrial rent is expected to rise 1.6 percent in 2012 and 2.4 percent next year. Net absorption of industrial space nationally is seen at 44.1 million square feet this year and 62.4 million in 2013.
Retail Markets
Retail vacancy rates are forecast to decline from 11.3 percent in the second quarter to 10.7 percent in the second quarter of 2013.
Presently, markets with the lowest retail vacancy rates include San Francisco, 3.7 percent; Fairfield County, Conn., at 4.0 percent; and Long Island, N.Y., at 5.0 percent.
Average retail rent should rise 0.8 percent this year and 1.3 percent in 2013. Net absorption of retail space is projected at 8.0 million square feet this year and 21.9 million in 2013.
Multifamily Markets
The apartment rental market – multifamily housing – is likely to see vacancy rates drop from 4.5 percent in the second quarter to 4.3 percent in the second quarter of 2013; apartment vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents.
Areas with the lowest multifamily vacancy rates currently are New York City, 2.1 percent; Portland, Ore., at 2.3 percent; and Minneapolis at 2.4 percent.
After rising 2.2 percent last year, average apartment rent is expected to increase 4.0 percent in 2012 and another 4.1 percent next year. “Such a rent increase will raise the core consumer inflation rate. The Federal Reserve, in turn, may be forced to raise interest rates, possibly as early as late 2013.”
Multifamily net absorption is forecast at 215,900 units this year and 230,300 in 2013.
The Commercial Real Estate Outlook is published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.
· SVN Forges Strategic Alliance with GreenPoint Partners to Deliver Sustainability Solutions For Commercial Real Estate Owners and Users IRVINE, CA – OCTOBER 14, 2010. Sperry Van Ness International has joined the GreenPoint Network, an alliance of real estate firms dedicated to helping clients achieve profitable sustainability. SVN Advisors in over 150 offices nationwide will receive training and resources to help clients identify energy initiatives that reduce operating expenses, increase building values, and capture financial incentives. GreenPoint’s engineers will perform energy audits and implement energy efficiency projects and solar installations. “In the U.S., commercial buildings account for nearly 40 percent of total energy consumption and over two-thirds of electricity consumption,” said Sperry Van Ness CEO Kevin Maggiacomo. “And over the next decade, energy costs will likely be the fastest-growing component of building operating expenses. If a building consumes more energy than its peers, it will attract fewer tenants and trade at lower valuations. Through our partnership with GreenPoint, SVN Advisors can make an impact that not only increases a client’s bottom line, but is also good for the planet.” Said GreenPoint CEO Dustin Gellman, “Energy efficiency and renewable energy are a real estate play. Green building retrofits impact cash flows, and real estate professionals can help property owners better understand the financial impact of energy initiatives on asset performance. We are delighted to work with Sperry Van Ness, an organization with a legacy of progressive thinking and innovation in the real estate industry.” Sperry Van Ness Advisors will begin offering sustainability services beginning October 2010. The suite of services includes energy audits, competitive procurement, project management, incentives acquisition, and LEED certification. For more information, visit: www.SVNgreen.com About Sperry Van Ness International Founded in 1987, Sperry Van Ness is has approximately 900 advisors in more than 150 locations throughout the U.S. Sperry Van Ness delivers results for clients through a proven business model that provides advanced marketing and technology tools. Based in Irvine, Calif., the firm provides brokerage, consultation, asset management, property management, leasing, accelerated marketing, and auction services. Sperry Van Ness transactions total more than $11 billion annually in office, multifamily, retail, industrial, self-storage, hospitality and land transactions. For more information, please visit www.svn.com
WASHINGTON, D.C. — President Obama unveiled several proposals this week aimed at helping small business owners. The proposals will expand two critical Small Business Administration (SBA) lending programs, one of which could help some in the commercial real estate industry. One of the new SBA initiatives will temporarily allow for the refinancing of owner-occupied properties under the SBA 504 program, which provides guarantees on loans for the development of real estate and other fixed assets but could not be used to refinance maturing debt up until this point. Under the new initiative, businesses with a loan maturing in the next year, and who are current on their loan payments, will be able to refinance up to 70 percent of the current property value, with the SBA helping with the remainder. For less established lenders, the SBA will take on up to 40 percent of the property's value for the refinancing. The program will be funded through additional fees for refinancing projects instead of through a Congressional appropriation. The refinancing proposal will help refinance up to $18.7 billion a year in commercial real estate that would otherwise be foreclosed on or liquidated. In a statement, SBA Administrator Karen Mills said, "Thousands of good, creditworthy businesses find themselves caught by declining real estate values as a result of the recession. With many of them now facing mortgages coming due in the next few years, the ability to refinance into SBA's 504 loan will give them the chance to lock in long-term, stable financing, as well as protect jobs by protecting small businesses from foreclosure."
When I first met David I had invited him to come on my radio show Central Illinois Business to talk about his recent acquisition of Porter Athletic. It was then that I got the opportunity to learn about him and his personal story. I was particularly impressed with his sincerity, his humility and his disarming charm. He started working for Gill Sports in accounting at a very tumultuous time. The company was struggling and even though Gill had a long and storied history in the industry, during that period, it looked like the entire enterprise might not even make it. One day the owner (Vince Atkins) called him into his office. David was sure he would be fired but that's not what happened. Instead Vince made David the president of the company! And he also made him a promise. He told him that if he would do all in his power to make the company work, to turn things around successfully, then at the end of ten years he would sell the company to him. Well it wasn't as easy as it sounds. Those ten years were sometimes harrowing and difficult but this quiet unassuming man exercised all his faculties and his faith and did turn the company around. Today David Hodge with his holding group Litiana Sports, Inc. is a major force in the industry and a significant employer in our community. Take the time to watch his interview I promise if nothing else it will leave you inspired! Watch Now!!
A public adjuster is an insurance expert who is employed exclusively by a business or personal policy holder who has sustained an insured loss. Public adjusters handle every aspect of the claim and work closely with the insured to provide the most equitable and prompt settlement possible. A public adjuster inspects the loss site immediately, analyzes the damages, assembles data supporting the claim, reviews the insured's coverages, determines current replacement costs and negotiates with the insurance company. One of the best in the business is Richard Michaelson. He is a liscenced public adjuster in multiple states and is a sought after speaker on the topic. As a service to my clients I was able to garner some time from Rich and have him stop in Champaign on his way to the SEC conference in Las Vegas where he is to be a keynote speaker for the convention. In just the short time we had together Rich was able to share some very informative and extremely valuable information about how to deal with the myriad of insurance issues that we all face. Public Adjusters work for the commercial or residental property owner, not the insurance company. The highly stressful period following a loss is a difficult time for individuals and businesses. A professional public adjuster can reduce those major headaches, allowing you to get back to what is really important. Public Adjusters negotiate insurance settlements for the benefit and protection of the policy holder. Your insurance company has an adjuster representing them and their interests and so should you! A Public Adjuster can re-examine, re-open and negotiate settled claims for additional money. We had a great turn out in the second presentation in our CLIENT SERIES with Rich Michaelson. Stay tuned for new and continuing presentations for our clients.
Recently the president of our national franchise Kevin Maggiacomo of Sperry Van Ness sent an open letter summing up his thoughts and reflections on 2009 and the coming new year. I thought it would be good to share a few of his comments with you as I greatly value his perspectives. As follows:
The Economy
At the year’s close, it is apparent that our worst fears for the economy and our industry have thankfully not been realized. Instead of a protracted period of economic malaise, the weight of evidence now shows that the economy returned to modest growth in the third quarter. Temporary employment numbers (a leading indicator of permanent employment conditions) have improved and job losses have eased substantially, narrowing to a small fraction of the cuts reported at the beginning of the year. As anxiety over record job losses has subsided, consumer and business confidence has improved. Looking forward, the consensus amongst economists and industry leaders calls for measured growth over the next year. Lagging the stabilization in the health of businesses, and barring any unexpected shocks, sustainable job growth is anticipated towards the end of the 2010. This is, of course, welcome news for the commercial real estate industry, since improvements in demand for space depend critically on new jobs replacing the millions that have been lost.
To read the rest Kevin's article go to : http://www.maggiacomoblog.com/new-years-message
That is a question that I have heard an awful lot lately. Why 1031 exchanges and why now? I would like to share a few thoughts with you on this topic. As many of you know Section 1031 of the IRS tax code contains provisions which allows deferral of taxable gains when the proper conditions are met under the code. I am by no means a tax attorney or an accountant but in layman terms what it amounts to in its simplest form is a tax deferred event when you sell real property, provided that you purchase another property of equal or greater value and you do it according to the rules set forth by IRS to qualify for the deferral. The implications of this are staggering and can mean the difference of thousands of dollars in taxes and possibly millions in equity when even a little planning is done in order to qualify for this aspect of the tax code. Let me be the first to say that this kind of thing is highly technical and the details of any given transaction should properly be reviewed by your tax advisor, your attorney and the other professionals who make it their business to protect your interest and guide you in such matters. Having said that the 1031 rules are something that you may want to learn more about. I see this aspect of the tax code becoming more and more important in the future. For instance, if I were to ask your opinion of the direction of capital gains taxes in the future what would you say? Do you think they will go down? Stay the same? If you are like me you might believe that they have a very good chance of going up. Even if the legislators do nothing the sunset provisions under existing law will take affect within the months ahead and capital gains tax will automatically revert to 20%. I happen to think that there is pressure to drive it higher than that depending on the economy and political climate next year. All the more reason to learn how to use the provisions of Sec. 1031 of the revenue code. I had the privilege of sponsoring a series of webinars for my clients recently hosted by Bill Exeter of EXETER 1031. He did an amazing job of explaining many aspects of the code that allows for tax deferral on all types of transactions not normally thought of as qualifying transactions. If you would like more information about the opportunities provided under this provision of the tax code give me a call I will be happy to make a personal introduction to Bill Exeter, a consummate expert in his field and a man I admire as a true professional.
Reports indicate that 2009 will see one of the highest numbers of bank closings in US history. According to reports the hundredth bank will be closed and taken over by the FDIC next weekend. Just about a week ago the FDIC closed the ninety-ninth bank for the year. California in particular, has been one of the hardest hit states with one of the higher bank failure rates in the country. The FDIC took over the San Joaquin Bank in Bakersfield, California, making it the tenth bank closing in the state. There are reports of more closings to come within the state. Even with this grim news, many believe that 2009 will not have as many bank closings as there were in 1980, which had 534 failures. Reports indicate that 2009 should do better than 1992 as well, which had 181 banks fail. 2009 may not be as bad as previous years, in history, but according to the FDIC, currently there are 416 banks in its “at risk” category. This indicates that there are many more bank failures to come in the months ahead. FDIC does not indicate which banks are in this category, to curb the mass withdrawal of money from the banks at risk of failures. Many bank closings have been caused by the real estate boom of the mid-2000s. It is clear that many banks are still at risk and will continue to be at risk of failure for some time. Written By: Maulik Shah, AVP, Sperry Van Ness | Better Capital Partners.
Welcome to the 4th issue (Volume 1, Issue 4) of the Sperry Van Ness | Better Capital Partners-Capital Market and Interest Rate Update Newsletter. For those readers that missed our first few issues, each week or so we will provide our readers with an overview of the following: National commercial real estate interest rates and underwriting for the major property types, marketplace conditions and how they affect various property types nationwide, insightful capital market analysis with a personal viewpoint and focused subject matter in every newsletter.
Read full article.
Welcome to the inaugural issue (Volume 1, Issue 1) of the Sperry Van Ness | Better Capital Partners-Capital Market and Interest Rate Newsletter. Each week we will provide our readers with an overview of the following: National commercial real estate interest rates and underwriting for the major property types, marketplace conditions and how they affect various property types nationwide, insightful capital market analysis with a personal viewpoint and focused subject matter in every newsletter. You will notice that national interest rates located on page (1) of this newsletter are down into two categories (multi-family and commercial) and provide a sample of our national, regional and local commercial real estate financing programs. These rates are derived from portfolio lenders, life companies, credit unions, agency and exclusive national correspondent relationships. Many of our lenders and exclusive correspondent relationships have the ability to lower these interest rates by 15-30 basis points if a borrower is interested in establishing a business or personal banking relationship.
Let's begin by taking a closer look at the major commercial real estate property types: multi-family, office, industrial, and retail.
Major Property Types...
Multi-Family: Non-recourse adjustable financing programs are still aggressively priced starting at 4.34%. Loan-tovalues (LTV's) can underwrite as high as 80% and underwriting debt service coverage ratios (DSCR) can go as low as a 1.00 breakeven.
Non-recourse fixed 5, 7 and 10 year terms are starting at 5.22%. Loan-tovalues (LTV's) are as high as 80% and debt service coverage ratios (DSCR) are starting at 1.20 for our correspondent small loan permanent- programs and 1.25 for our regular permanent programs.
Please note that Sperry Van Ness | Better Capital Partners offers a Small Loan correspondent program with a fast track option. This program does not require tax returns and can close within 45 days. We also offer nonrecourse multi-family financing programs that do not have any origination fees other than third party expenses (appraisal, environmental etc.) and closing costs.
We are also seeing very aggressive permanent and development underwriting in the senior housing, independent and assisted living sectors. Nonrecourse construction lending for multifamily and healthcare construction with permanent take-out loans is available nationwide for qualified developers.
Be aware that lender underwriting exceptions used to be very common and are quickly disappearing unless a borrower is extremely strong, has a lot of experience owning and possibly managing this property type along with a verifiable historical track record.
Office: Office vacancies are increasing nationwide as large and small businesses shut down or scale back their operating expenses. However, we are starting to see increased acquisition and refinance activity for this property type. Multitenant office properties are the most appealing to lenders, as long as tenant profit and loss statements are available for review and the lease terms extend at least 2 years beyond the loan term for a permanent loan program.
Interest rates are ranging from a low of 5.75% to a high of 7% for a 10 year term. On average a 5 year fixed is around 6.25-6.50% and may be lower. National lenders are offering the lowest fixed, rates for shorter term loans. Two (2) and three (3) year fixed rates have become extremely popular onceagain. Please note that many of these short-term, fixed, low interest rate programs are swap programs that require full recourse with warm body guarantees. Additionally, many lenders are beginning to require borrowers to obtain some sort of rate protection such as a cap or collar, due to the market volatility.
Industrial: The industrial sector has seen tremendous growth over the last decade and lenders still feel it is a favored and stable product type, directly behind multi-family.
You should note that conventional loan-to-values (LTV's) can underwrite as high as 80% and Small Business Administration (SBA) programs can underwrite as high as 90%.
Nationwide, fixed 5, 7 and 10 year terms are starting at 5.75%-6% for permanent owner-user programs and 6.25% to 6.75% for investment properties with 25 and 30 year amortization.
Although the industrial property sector is appealing, it is currently being scrutinized due to low port activity and current economic conditions. Additionally, the Q4 2008 Baird Industrial Distribution survey confirmed that the industrial sector is in a recession. Feedback from over 300 independent distributors confirmed this statement based on their own Q4 2008 financial statements. On a positive note, we are seeing capitalization rates (cap rates) adjust to marketplace conditions.
In summary, industrial properties still appear to be a solid investment vehicle, especially for owner-users. You should note that the new Obama economic bill may provide some Small Business Administration (SBA) lending relief. This would be accomplished by reducing the high fees charged by many of the current SBA programs.
Retail: Retail properties can still be aggressively financed. However, many lenders are beginning to scrutinize tenants and leases. Tenant sales are lagging, national chain stores are cutting expansion plans, shopping center owners are performing fewer transactions and retail developments are taking longer to obtain financing.
In general, it is becoming increasing difficult to fund due to the ever increasing retailer bankruptcy's (BK's) and the reduction in consumer spending. Some lenders are adding an additional 15- 25bps to retail interest rates, some are requiring lender origination fees, and some will not even consider financing retail at all. One of the most difficult properties to finance these days is the single tenant NNN restaurant. Some of the biggest lenders in the nation like GE are out of the market or are offering unfavorable interest rates, amortizations and terms.
Vacancies are increasing every week in the major metros and the burbs. It's not only the mom and pops that are getting hurt out there; it's the national credit tenants as well. Look for lenders to discount second floor retail space or use market rents to underwrite space containing tenants that are paying above market rents ex. Starbucks.
Interest rates for retail are still ranging in the 6% to 7% range with 25 and 30 year amortizations and debt service coverage ratios (DSCR's) in the 1.20- 1.35+ range.
Capital Markets National Lenders
In February 2009, Jones Lang LaSalle surveyed 50 national lenders during the Mortgage Bankers Association's Commercial Real Estate Finance/Multifamily Housing Convention and Expo in San Diego, California. The goal was to obtain a realistic overview on lender loan production figures for 2009. These national lenders included a mix of life insurance companies, commercial mortgage- backed securities dealers (CMBS), private lenders, commercial banks and government agencies. The published findings were very interesting. 53% expect loan production to increase in 2009 versus 2008. However, those who expected increased lending were private equity lenders and government agencies. These groups estimated that loan production would increase by as much as 20% (+/-). In a classic Catch 22, the surveyed banks and life companies all expected a volume decrease in 2009 ranging from 30 to 80 percent. Due to the state of the capital markets, the lack of Commercial Mortgage-Backed Securities (CMBS), and the lack of confidence, many lenders are unable to originate new loans.
Based on the survey results, 80% of the lenders predict that 40% of their loan allocations will be used to refinance maturing loans within their existing portfolios. Another 13 percent expect refinancing of maturities to make up to 80 or even 100 percent of their portfolios.
Although last year's survey predicted that the financial crisis would end or ease in 2009, most feel that 2011 is now the magic number. The lending community feels that financial institutions do currently have limited lending capabilities. However, to turn the financial crisis around some sort of securitized debt needs to re-emerge. Many question whether the government will step in to enable the second coming of the CMBS marketplace. According to the report, 67 percent of nationwide lenders to the commercial real estate sector expect some sort of securitized lending to return to the capital markets by 2011 or beyond. A further breakdown of those surveyed indicates 22 percent predict securitized lending to return to the markets in 2010, while an additional 11 percent said securitized lending will never return to the capital markets.
Lenders responding to this survey predict that when securitized lending appears on the horizon it will take a much different form with more traditional, conservative underwriting, fewer tranches, more disclosure and a structure where originators must hold the first loss piece. Respondents also commented that issuers retaining the b-piece may appear in the near future.
The Jones Lang LaSalle survey also indicated that, as borrowers seek to avoid default, 59 percent of all different lending types will provide forbearance from six to 12 months. A further 18 percent would extend between one and six months, and nearly a quarter (24 percent) would extend beyond a year. Those extensions will not come easily, as 79 percent of lenders will require different terms, such as principal pay-downs, to restructure maturing loans.
"The lending community doesn't want to inherit assets through foreclosure, as most lenders surveyed are willing to provide some form of forbearance, though the level varies case by case."
Sperry Van Ness | Better Capital Partners offer Sperry Van Ness advisors and their nationwide clients a full capital stack which includes debt, equity and joint ventures for all forms of commercial real estate properties nationwide. The firm's services include: Permanent, Bridge, Mezzanine, Construction, and customized financing for acquisition and refinance. For a soft or hard quote, or to refer a client, please visit our corporate website at www.svnbcp.com or contact Eric Better for further information.
|
