Sale-leasebacks seem to be dominating commercial/investment real estate news these days.
Consider the following:
- HSBC Holdings -- the parent of mortgage giant HSBC -- is selling its New York City office tower for $330 million and leasing back space there.
- Retailer Tesco, the UK behemoth that owns stores around the globe, including the U.S., is conducting sale-leasebacks of a number of its stores.
Even government is getting into the act: The state of Arizona has approved a plan to auction its “State Capitol Executive Tower” in a 20 year sale-leaseback. The tower houses the offices of the secretary of state, state treasurer and governor and has an estimated value of $40 million. Why? The state's current budget shortfall, approximately $3.2 billion. Further, California has announced it plans to sell $2 billion (or 62% of Arizona’s budget deficit) worth of government real estate in a similar sale-leaseback. GlobeStreet.com reports that the City of Alexandria, VA, is contemplating a simliar plan with a large portfolio of its properties. In the Midwest, the city of Chicago has already made some moves. Several sale-leasebacks with the Skyway toll road, downtown parking garages and downtown parking meter system for $3 billion.
For investors, sale-leasebacks can be lucrative for both sides. They make sense for governments because they allow them to get cash now to pay off their debts while retaining the option to buy back the property in 20 years or so. Buyers like them (I have investors looking for buildings that house U.S. post offices) because the renters are the government (i.e. taxpayers), a tenant with a strong credit rating. In some cases, the return can be twice what the investor pays, say Globe Street analysts.
Interestingly, news reports also say international investors are "heavily intrigued" by these sale-leasebacks. This creates a bit of an irony, says Globe Street, because in theory, "you could have a U.S. State Capitol building owned by China."
Hmmmm.....
Tuesday, October 6, 2009
Thursday, October 1, 2009
Shameless Self Promotion Follow Up
So here is the announcement that went out from the powers-that-be about my inclusion in a newly created Executive Advisory Council in the Prudential Commercial Columbus office.
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PRUDENTIAL COMMERCIAL REAL ESTATE ESTABLISHES COLUMBUS EXECUTIVE ADVISORY COUNCIL
(9/23/2009) COLUMBUS, Ohio – Prudential Commercial Real Estate today announced it has established a three-person Executive Advisory Council to oversee the activities of its Columbus, Ohio office.
“The Columbus office, with 21 agents, is one of the largest in our regional network,” says owner and managing broker David Mussari. “Agents Jack Turner, Tim Mehan and Brent Greer have emerged as office leaders, have proven track records, and provided wise counsel for the business on operations and personnel. These individuals will provide additional leadership to help guide our enterprise to the next level. I am extremely pleased with their selection and know they will provide outstanding counsel as we continue to grow our business.”
Turner, Mehan and Greer are charged with executing corporate directives within the office, working as a liaison with Blue Rock Midwest’s headquarters office in Cincinnati, helping manage and grow the office, allocating resources, helping resolve conflicts, and ensuring that Prudential Commercial remains compliant with real estate laws and company policy
Jack Turner is an investment and development specialist who chairs the Columbus office’s Investment Marketing Group. He has more than 35 years experience that runs the gamut: corporate real estate services: office, multi-family, retail and industrial properties, sale/leasebacks, buyer/tenant representations, market/feasibility analysis, and development services. Jack joined Prudential Commercial in 2008.
Tim Mehan has more than 30 years of comprehensive, in-depth experience in the real estate and development industry. His expertise covers site selection and acquisition, sales, leasing, contract negotiation and administration, budgets, cost containment, value engineering, contractor selection, compliance, zoning, and quality assurance. Tim is a Certified BOCA Inspector and an expert in energy efficient (green) buildings and energy efficient techniques. The chair of the Columbus office’s Industrial Marketing Group, Tim joined Prudential Commercial in 2008.
Brent Greer is a commercial/investment specialist with experience in multiple disciplines, but with particular emphasis on multifamily, office/retail and land. He is the immediate past president of Columbus Real Estate Exchangors (CREE), an organization of brokers and agents specializing in IRS 1031 tax-deferred exchanges, and sits on the City of Columbus Property Maintenance Appeals Board. Brent joined Prudential Commercial in 2006.
Prudential Commercial Real Estate is the fastest growing commercial network in the U.S., and a leading provider of commercial real estate services. Blue Rock Midwest has offices and agents in Columbus, Lancaster, Cincinnati, Dayton and Cleveland, Ohio, and in Lexington, Ky.
Visit the Prudential Columbus website at: http://www.prucomrecol.com/
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And so there it is. I'm honored to be one of three chosen by my peers to guide the office, and our continued growth.
************
PRUDENTIAL COMMERCIAL REAL ESTATE ESTABLISHES COLUMBUS EXECUTIVE ADVISORY COUNCIL
(9/23/2009) COLUMBUS, Ohio – Prudential Commercial Real Estate today announced it has established a three-person Executive Advisory Council to oversee the activities of its Columbus, Ohio office.
“The Columbus office, with 21 agents, is one of the largest in our regional network,” says owner and managing broker David Mussari. “Agents Jack Turner, Tim Mehan and Brent Greer have emerged as office leaders, have proven track records, and provided wise counsel for the business on operations and personnel. These individuals will provide additional leadership to help guide our enterprise to the next level. I am extremely pleased with their selection and know they will provide outstanding counsel as we continue to grow our business.”
Turner, Mehan and Greer are charged with executing corporate directives within the office, working as a liaison with Blue Rock Midwest’s headquarters office in Cincinnati, helping manage and grow the office, allocating resources, helping resolve conflicts, and ensuring that Prudential Commercial remains compliant with real estate laws and company policy
Jack Turner is an investment and development specialist who chairs the Columbus office’s Investment Marketing Group. He has more than 35 years experience that runs the gamut: corporate real estate services: office, multi-family, retail and industrial properties, sale/leasebacks, buyer/tenant representations, market/feasibility analysis, and development services. Jack joined Prudential Commercial in 2008.
Tim Mehan has more than 30 years of comprehensive, in-depth experience in the real estate and development industry. His expertise covers site selection and acquisition, sales, leasing, contract negotiation and administration, budgets, cost containment, value engineering, contractor selection, compliance, zoning, and quality assurance. Tim is a Certified BOCA Inspector and an expert in energy efficient (green) buildings and energy efficient techniques. The chair of the Columbus office’s Industrial Marketing Group, Tim joined Prudential Commercial in 2008.
Brent Greer is a commercial/investment specialist with experience in multiple disciplines, but with particular emphasis on multifamily, office/retail and land. He is the immediate past president of Columbus Real Estate Exchangors (CREE), an organization of brokers and agents specializing in IRS 1031 tax-deferred exchanges, and sits on the City of Columbus Property Maintenance Appeals Board. Brent joined Prudential Commercial in 2006.
Prudential Commercial Real Estate is the fastest growing commercial network in the U.S., and a leading provider of commercial real estate services. Blue Rock Midwest has offices and agents in Columbus, Lancaster, Cincinnati, Dayton and Cleveland, Ohio, and in Lexington, Ky.
Visit the Prudential Columbus website at: http://www.prucomrecol.com/
************
And so there it is. I'm honored to be one of three chosen by my peers to guide the office, and our continued growth.
Tuesday, September 29, 2009
New Bank Owned Properties Discussion Group on LinkedIn
Yesterday, I created a new discussion group on LinkedIn, the social networking site for business. The group is called: Bank Owned Properties Marketing Group.
The intent of this online forum is to facilitate discussions and problem-solving regarding bank-owned commercial/investment properties. The number of properties coming into the pipeline is increasing, as banks are being forced by federal authoritities to keep more cash on hand. That is causing debt to equity ratios to be changed, and lenders are telling borrowers, "wow you've been a great credit risk and we really enjoy having you as our customer, and your credit rating is still high and you've never missed a payment.....but we need $100,000 in the next two weeks or we have to call your note."
....Which it turning the commercial/investment real estate market on its ear. As a result, more investment properties are coming available, labeled as distressed even though it is an artificial tag foisted on them by rules that were changed even though owners were playing by the rules all along. Of course there are also properties coming available by way of foreclosure that were not properly managed, or because over-eager buyers jumped into the market not knowing what they were doing, or by borrowing funds at high interest rates.
Who's in charge now? Buyers, that's who. And more and more buyers are asking for info on distressed properties. At Prudential Commercial we are working to find buyers for bank owned properties (REOs). Which jump-starts lots of discussions.
...Which is why I created the new discussion/marketing/problem solving forum on LinkedIn. It will be a place where principals, as well as agents, can kick thoughts around.
Stop by if you have a chance and join in the discussion!
The intent of this online forum is to facilitate discussions and problem-solving regarding bank-owned commercial/investment properties. The number of properties coming into the pipeline is increasing, as banks are being forced by federal authoritities to keep more cash on hand. That is causing debt to equity ratios to be changed, and lenders are telling borrowers, "wow you've been a great credit risk and we really enjoy having you as our customer, and your credit rating is still high and you've never missed a payment.....but we need $100,000 in the next two weeks or we have to call your note."
....Which it turning the commercial/investment real estate market on its ear. As a result, more investment properties are coming available, labeled as distressed even though it is an artificial tag foisted on them by rules that were changed even though owners were playing by the rules all along. Of course there are also properties coming available by way of foreclosure that were not properly managed, or because over-eager buyers jumped into the market not knowing what they were doing, or by borrowing funds at high interest rates.
Who's in charge now? Buyers, that's who. And more and more buyers are asking for info on distressed properties. At Prudential Commercial we are working to find buyers for bank owned properties (REOs). Which jump-starts lots of discussions.
...Which is why I created the new discussion/marketing/problem solving forum on LinkedIn. It will be a place where principals, as well as agents, can kick thoughts around.
Stop by if you have a chance and join in the discussion!
Wednesday, September 16, 2009
Ready Or Not: Here Come Green Tenants
A lot of property owners, particularly in office, for a long time scoffed at the idea that tenants would drive the changeover to buildings that are more energy efficient. Smart business owners have long focused on making their properties as efficient as possible, but when it made economic sense (mostly).
Today, with the adoption of the Energy Independence and Security Act of 2007, which requires that all new federal government leases be in Energy Star buildings, and renewals undergo energy-efficiency upgrades starting in 2010, building owners understand now more than ever that the "green" momentum continues. Similarly, many cities have green bilding and/or green lease requirements in place.
Which leads to an interesting observation by some experts -- that in some markets there will not be adequate inventory to meet the demand for green space as these conditions and interests kick in across the United States.
Stimulus finding from the Obama White House is supporting a variety of ventures related to commercial real estaet, including energy audits, retrofits, dvelopment and implementation of advance building codes, inspections and financial incentives for energy efficiency improvements.
Some of these requirements, in my opinion, are heavy-handed and designed to inflate the bureaucracy. But they are there. And even more interestingly, just as the employees of many companies will drive -- or nudge -- their employers to get involved in community programming, so is there growing interest in nudging firms to look at green initiatives as a way to do something for the community.
In fact, the New York Times in march 2009 reported on the growing trend of chief sustainability officers being added to exec rosters at numerous large corporations, including Sun Microsystems, Georgia Pacific and Dupont.
Whats next??????
Today, with the adoption of the Energy Independence and Security Act of 2007, which requires that all new federal government leases be in Energy Star buildings, and renewals undergo energy-efficiency upgrades starting in 2010, building owners understand now more than ever that the "green" momentum continues. Similarly, many cities have green bilding and/or green lease requirements in place.
Which leads to an interesting observation by some experts -- that in some markets there will not be adequate inventory to meet the demand for green space as these conditions and interests kick in across the United States.
Stimulus finding from the Obama White House is supporting a variety of ventures related to commercial real estaet, including energy audits, retrofits, dvelopment and implementation of advance building codes, inspections and financial incentives for energy efficiency improvements.
Some of these requirements, in my opinion, are heavy-handed and designed to inflate the bureaucracy. But they are there. And even more interestingly, just as the employees of many companies will drive -- or nudge -- their employers to get involved in community programming, so is there growing interest in nudging firms to look at green initiatives as a way to do something for the community.
In fact, the New York Times in march 2009 reported on the growing trend of chief sustainability officers being added to exec rosters at numerous large corporations, including Sun Microsystems, Georgia Pacific and Dupont.
Whats next??????
Monday, September 14, 2009
Strategic Management of Tax Liability
In these pages I have talked much about IR 1031 tax deferred exchanges. A new vehicle on the market this year, approved by the Internal Revenue Service in a private letter of approval, is going to prove a valuable strategic option for owners of commercial/investment real estate.
Occasionally, an investor wants to divest of properties but knows their equity is so significant, that their appreciation is so significant, that they end up holding on and continue to trade up to avoid capital gains. Long the legal way to build significant wealth with investment grade real estate, there still was always that stumbling block of what to do if you decide to get out "before your estate is activated."
If you need a translation of what I wrote in quotations above, email me and I'll clarify.
Anyway, investors worry that they will get killed with taxes and have thought, "well I may as well just let my kids inherit my assets as stepped up value when I pass away."
A new product, The Deferred Sales Trust(tm), is providing a new exit strategy for those who wonder what to do down the road. On March 10 of this year, the Internal Revenue Service issued a highly anticipated Private Letter Ruling that addresses this new tax deferral strategy.
Deferred Sales Trusts provide you with another tax-deferred strategy to defer the payment of your capital gain income tax liabilities when you sell highly appreciated real estate, personal property, business interests or other assets. The Deferred Sales Trust gives you one more tax deferred strategy to choose from when planning the sale of a highly appreciated property or asset. The Deferred Sales Trust is a legal method that allows the seller of the property to defer capital gains taxes due at the time of sale, but over a period of time, even beyond that investor's lifetime. This trust is drafted pursuant to Section 453 of the IR code, just like an installment sale note.
Here is how it works: The investor/seller, "grantor," sells his or her commercial/investment property to a dedicated trust, which in turn sells the property to a buyer. An annuity is created and the seller receives income over time, and is taxed only on that income received during a taxable year. And just as the income is dribbled in, capital gains taxes are not charged to the investor/seller all at once, but also over time. There are no taxes to the trust on the sale since the trust "purchased" the property for what it sold it for to a third party. Best of all, from what I understand in my research, there is no interest or penalty on these deferred payments of the tax. An investor's capital gain is recognized, but it is deferred over a pre-determined period of time that the investor chooses in advance. Everybody wins.
As always, if you get involved in this type of transaction, beyond your experienced real estate investment agent, you should also consult with your attorney and tax professional to make sure you are covered on all bases.
The trust can make a cash sale, also. Sometimes, in order to spread out tax liability, an investor/seller will set up a payment schedule with the buyer ( particularly if the seller finances the transaction). The Deferred Sales Trust appears to be a strong option because invstors never know whether the outside buyer will make all the payments on an installment sale. And trust payments are designed by the investor/seller, or grantor. The investor designs the payment schedule, the payment start date, and amounts to be received, depending on their needs.
Best of all, my research is showing that whatever is left in the trust at the time of the grantor's death appears to passe to the beneficiaries free of estate and gift taxes. Secondly, this transaction does not appear to triger any gift tax consequences, no matter how much trust assets are worth. And third, as is usual, trust assets do not need to go through probate when the grantor dies.
If your commercial real estate agent, CPA or tax adviser go to look up this new tool in the IR code, they will not find the name Deferred Sales Trust, or DST. Those are trademarked names from Exeter Fiduciary Holdings. . However, all of the legal and tax authority used in this type of trust are in the tax code. This is not a loophole. There has been a provision for installment sales for many years in the tax code.
Finally, once the trust is set up, additional commercial/investment property can be sold to the trust.
For some really strong Q&A on the subject, go to http://www.exeter1031.com/. This company is one of the strongest qualified intermediary firms for executing 1031 tax-deferred exchanges. In fact, Exeter is the company that has trademarked the name "Deferred Sales Trust" and asked for this ruling on this new product. They are the company I would recommend if I had a client who wanted to go this route.
Thanks go to Jim Wootten of Standard Realtors for bringing this to my attention during a recent meeting. It really got me thinking about possibilities. For those investors who don't plan to let their existing trusts that hold real estate outlive them, and want to cash out now, this approach offers many strategic possibilities well worth exploring.
Occasionally, an investor wants to divest of properties but knows their equity is so significant, that their appreciation is so significant, that they end up holding on and continue to trade up to avoid capital gains. Long the legal way to build significant wealth with investment grade real estate, there still was always that stumbling block of what to do if you decide to get out "before your estate is activated."
If you need a translation of what I wrote in quotations above, email me and I'll clarify.
Anyway, investors worry that they will get killed with taxes and have thought, "well I may as well just let my kids inherit my assets as stepped up value when I pass away."
A new product, The Deferred Sales Trust(tm), is providing a new exit strategy for those who wonder what to do down the road. On March 10 of this year, the Internal Revenue Service issued a highly anticipated Private Letter Ruling that addresses this new tax deferral strategy.
Deferred Sales Trusts provide you with another tax-deferred strategy to defer the payment of your capital gain income tax liabilities when you sell highly appreciated real estate, personal property, business interests or other assets. The Deferred Sales Trust gives you one more tax deferred strategy to choose from when planning the sale of a highly appreciated property or asset. The Deferred Sales Trust is a legal method that allows the seller of the property to defer capital gains taxes due at the time of sale, but over a period of time, even beyond that investor's lifetime. This trust is drafted pursuant to Section 453 of the IR code, just like an installment sale note.
Here is how it works: The investor/seller, "grantor," sells his or her commercial/investment property to a dedicated trust, which in turn sells the property to a buyer. An annuity is created and the seller receives income over time, and is taxed only on that income received during a taxable year. And just as the income is dribbled in, capital gains taxes are not charged to the investor/seller all at once, but also over time. There are no taxes to the trust on the sale since the trust "purchased" the property for what it sold it for to a third party. Best of all, from what I understand in my research, there is no interest or penalty on these deferred payments of the tax. An investor's capital gain is recognized, but it is deferred over a pre-determined period of time that the investor chooses in advance. Everybody wins.
As always, if you get involved in this type of transaction, beyond your experienced real estate investment agent, you should also consult with your attorney and tax professional to make sure you are covered on all bases.
The trust can make a cash sale, also. Sometimes, in order to spread out tax liability, an investor/seller will set up a payment schedule with the buyer ( particularly if the seller finances the transaction). The Deferred Sales Trust appears to be a strong option because invstors never know whether the outside buyer will make all the payments on an installment sale. And trust payments are designed by the investor/seller, or grantor. The investor designs the payment schedule, the payment start date, and amounts to be received, depending on their needs.
Best of all, my research is showing that whatever is left in the trust at the time of the grantor's death appears to passe to the beneficiaries free of estate and gift taxes. Secondly, this transaction does not appear to triger any gift tax consequences, no matter how much trust assets are worth. And third, as is usual, trust assets do not need to go through probate when the grantor dies.
If your commercial real estate agent, CPA or tax adviser go to look up this new tool in the IR code, they will not find the name Deferred Sales Trust, or DST. Those are trademarked names from Exeter Fiduciary Holdings. . However, all of the legal and tax authority used in this type of trust are in the tax code. This is not a loophole. There has been a provision for installment sales for many years in the tax code.
Finally, once the trust is set up, additional commercial/investment property can be sold to the trust.
For some really strong Q&A on the subject, go to http://www.exeter1031.com/. This company is one of the strongest qualified intermediary firms for executing 1031 tax-deferred exchanges. In fact, Exeter is the company that has trademarked the name "Deferred Sales Trust" and asked for this ruling on this new product. They are the company I would recommend if I had a client who wanted to go this route.
Thanks go to Jim Wootten of Standard Realtors for bringing this to my attention during a recent meeting. It really got me thinking about possibilities. For those investors who don't plan to let their existing trusts that hold real estate outlive them, and want to cash out now, this approach offers many strategic possibilities well worth exploring.
Friday, September 4, 2009
Coming Up
The latest tool for investors, a powerful approach for those who exploit the power of 1031 exchanges -- the Deferred Sale Trust.
An overview and its implications in the next few days. STAY TUNED!
An overview and its implications in the next few days. STAY TUNED!
Wednesday, August 26, 2009
Buy And Hold Strategy Is Nothing New
The biggest money, the largest portfolios, the greatest concentrations of wealth that have been built in real estate have come via "buy and hold" strategies.
This is hardly a new concept, and I have written about it at length. By buying "right," and holding, you take advantage of numerous positives: income, cost recovery/depreciation, equity buildup, appreciation, and leverage. And you have the further advantage of being able to utilize tax-deferred exchanges, indefinitely deferring payment of capital gains, as you move up into larger properties.
The idea of grabbing a building, or house, cheap, appeals to a segment of the buying community that, frankly, thinks smaller. They want to "flip" properties in order to pocket (hopefully) some quick cash. But they are unable to take advantage of any tax incentives that come with holding investments. Which is why, as I have said ad infinitum, this approach is not investing. It is gambling. Enough said.
But buying and holding is something that works in the stock market, as well. And interestingly, the authors of a story published at TheStreet.com (again) seem amazed that the returns are so much higher for shareholders when they buy and hold. Rather than buy and sell.
No kidding!
Unless your stock is in free fall and in danger of becoming worthless, and not just off by a quarter or a third, you should hold on to it. In most cases it will come back. Dollar averaging . . . buying some shares at this price, and then buying some more at that price, comes back in a positive way in most instances.
There is, however, one difference in the focus on investing in stocks and holding, vs investing in commercial/investment real estate and holding. Can you guess? Yes, its the tax-deferred exchange. I think everyone should have some money in stocks -- its part of that diversification. Eventually, even in a buy and hold strategy in the market, you will divest and re-invest. BUT, you cannot sell your stocks, and re-invest in another company's shares and avoid capital gains taxes. You will pay either short-term or long-term capital gains. Not so with income producing commercial/investment real estate.
Anyway, check out the story. Its a good one regardless.
This is hardly a new concept, and I have written about it at length. By buying "right," and holding, you take advantage of numerous positives: income, cost recovery/depreciation, equity buildup, appreciation, and leverage. And you have the further advantage of being able to utilize tax-deferred exchanges, indefinitely deferring payment of capital gains, as you move up into larger properties.
The idea of grabbing a building, or house, cheap, appeals to a segment of the buying community that, frankly, thinks smaller. They want to "flip" properties in order to pocket (hopefully) some quick cash. But they are unable to take advantage of any tax incentives that come with holding investments. Which is why, as I have said ad infinitum, this approach is not investing. It is gambling. Enough said.
But buying and holding is something that works in the stock market, as well. And interestingly, the authors of a story published at TheStreet.com (again) seem amazed that the returns are so much higher for shareholders when they buy and hold. Rather than buy and sell.
No kidding!
Unless your stock is in free fall and in danger of becoming worthless, and not just off by a quarter or a third, you should hold on to it. In most cases it will come back. Dollar averaging . . . buying some shares at this price, and then buying some more at that price, comes back in a positive way in most instances.
There is, however, one difference in the focus on investing in stocks and holding, vs investing in commercial/investment real estate and holding. Can you guess? Yes, its the tax-deferred exchange. I think everyone should have some money in stocks -- its part of that diversification. Eventually, even in a buy and hold strategy in the market, you will divest and re-invest. BUT, you cannot sell your stocks, and re-invest in another company's shares and avoid capital gains taxes. You will pay either short-term or long-term capital gains. Not so with income producing commercial/investment real estate.
Anyway, check out the story. Its a good one regardless.
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