Features

Charles Swain Everyone’s pressured by the economy, but current conditions place third-party leasing and property management pros in a unique position. With the continued deterioration of the commercial real estate market, third-party leasing and management companies face greater challenges in their day-to-day responsibilities and must learn to delicately balance a high-wire act by managing the needs of property owners, tenants and vendors, which requires creativity, sensitivity, passion, determination and long hours. Additionally, working with lenders on foreclosed assets has generated the greatest growth in new business and demands an understanding of how to make assets perform. During this challenging period, property owners want to stabilize rental streams and minimize the bombardment of requests for rent reductions, retain tenants and cut overall costs without jeopardizing performance. Tenants are seeking rent reductions and lower operation-expense charges and requesting to downsize. The property vendors – landscapers, cleaning services and others – are just trying to hang on to their business. The situation is likely to get worse before it gets better. Over the next few years, the foreclosure scenario will be on the rise due to the high volume of commercial property loans originated in 2005 to 2007 that carry risky terms. We …

Richard C. Ward, CRE, AICP, CEcD Early last year, Downtown St. Louis was steeling itself for a commercial development boomlet, with Centene poised for the construction launch of a 27-story, 700,000-square-foot office building to anchor Phase I of Ballpark Village and Pyramid Construction set to embark on the re-make of five full city blocks in its $450 million Mercantile Exchange venture. Also in full swing was the loft dweller migration — a movement that was putting a growing legion of socially diverse people back on downtown streets and rendering productive use to antiquated buildings that would have otherwise remained vacant or under-used. Today we see that Centene is clearing ground — but it is in Clayton. Its plans for Ballpark Village are in the recycle bin. Meanwhile, Pyramid Construction collapsed abruptly, its grand plan to revitalize a handful of former landmark downtown buildings, Mercantile Exchange, flattened beneath the weight of bankruptcy. Just as disheartening, scores of smaller scale developments once set to launch in 2008 will not go vertical this year. While the natural inclination is to surmise that the re-birth of Downtown St. Louis is in danger of being stillborn, I suggest otherwise. As the old saw goes, “Hindsight …

Michael Donohue Savvy hotel owners may end up paying Uncle Sam a lot less on their 2008 taxes if they explore cost segregation. They can start by requesting a no-charge preliminary analysis from a competent cost segregation firm. This report will show them and their tax preparers an estimate of the after-tax dollars hidden in their properties as well as the cost of commissioning the actual cost segregation study. Under provisions in the 2009 American Recovery and Reinvestment Act, property owners who decide to commission a paid engineering-based cost segregation study (based on that free preliminary analysis), could possibly receive a refund on taxes paid over the last 5 years. The popular myth is that only big multinational firms can afford these studies, but really it’s available, and cost effective, for the little guy too. Therefore, if an owner has purchased, built or renovated a property within the last 15 years, the following article outlines the possible eligibility for significant tax savings. What is Cost Segregation? In typical accounting practice, 100 percent of a building’s costs are depreciated on a straight line basis over 39 years. Yet, according to the IRS, many components of a building — and all land …

David Pinson The United States military construction budget grew by 20 percent this year, demonstrating that this sector continues to be strong. A significant portion of this money is going toward renovating and building new healthcare facilities that are over capacity and outdated for the estimated 9.2 million military personnel. For those in the construction industry, these medical military projects offer a silver lining in an otherwise dark sky. However, breaking into this sector can be difficult. Experience in military and healthcare projects is required, since these projects offer a wealth of challenges unlike those of other construction projects. THE RIGHT MEDICINE The U.S. government has the funds to renovate and build these medical facilities due in large part to the Base Realignment and Closure Act (BRAC), which came from the Department of Defense’s (DOD) decision to restructure military bases following the Cold War. According to a Congressional Research Service Report, 35 percent of the medical facilities providing treatment in 1987 were closed by 1997, even though beneficiaries of medical care had only declined by 9 percent. In 2005, the DOD decided again to realign and close bases, including several medical facilities, for economic reasons. This included closing and realigning …

Michael and Robert Schimmel Real estate markets across the nation have come to a grinding halt, and foreclosure rates of properties have skyrocketed to unprecedented levels. Many developers, lenders and commercial investors are now in the process of analyzing loan documents to determine their respective rights and obligations. With partially-completed development projects on hold, tenants defaulting on leases and property values getting hit hard by the market correction, the cash flow necessary to support many of these commercial properties has disappeared. Borrowers are having a difficult time complying with obligations under their existing mortgages. Consequently, borrowers and lenders are evaluating the terms and provisions of these mortgages. This article explores mortgage and foreclosure law, specifically examining the appropriateness and effect of including provisions into the mortgage, addressing the appointment of a receiver in the event of a default, and the necessity of a foreclosure proceeding. In most major real estate transactions, a mortgage is required to finance the deal. In the commercial context, many institutional lenders work from form documents containing multiple terms and provisions that are negotiated on a case-by-case basis. These terms depend on the lender’s relationship with the borrower and the asset’s property type. The failure to …

Lawrence J. Friedman, Esq. Pick up any newspaper or magazine, navigate to any online news site, or click to any TV news station, and the number one topic is the economy and the nation-wide recession. This recession has hit all sectors, not only in real estate and banking, but now in energy, manufacturing, and high-tech as well. Lenders have become reluctant to lend any money for fear that any existing loans they renew or any new loans they extend will go bad. Therefore, the country has found itself frozen in a state where every existing loan is a distressed loan. WHAT IS A DISTRESSED LOAN? A loan is distressed when a borrower does not have the capacity to pay according to its terms, and when either one or both of the following circumstances are present: the borrower is demonstrating adverse financial and repayment trends; or, the loan is delinquent or past due under the loan contract. Either of these circumstances, together with inadequate collateralization, presents a high probability of loss to the lender. Today, loans are becoming distressed loans in a variety of ways. For example, a loan can become distressed if the lender stops funding the loan proceeds under …

Rich Shavell In tough economic times it is important to maintain positive cash flow. One of the best ways to do this is by paying less money in taxes to the IRS. Below are seven strategies that can help the commercial property developer save tax dollars right now. 1. Accelerate Your Depreciation Deductions Commercial real property must be depreciated over 39 years. To accelerate these tax deductions, consider the benefits of a Cost Segregation Study (CSS). With a qualified CSS you can reclassify items such as tangible personal property to shorten their depreciation period for taxation purposes. Certain costs such as portions of the electrical system, and exterior improvements such as sidewalks and landscaping, can be depreciated over 5, 7 and/or 15 years. Moreover, for 2008 there is bonus depreciation that may be applicable to new construction resulting in immediate tax savings up to 50 percent of the cost of some of the segregated items. 2. Delay Paying Tax When Selling Real Property If you own a building that has appreciated in value, then selling it may subject you to a substantial tax liability. If you plan on buying a new building after selling the “old” one, then you’ll want …

By Cara Aliek Despite the ups and downs everyone is feeling in the current economic slump, one thing remains the constant in this storm: we’re all getting older. According to the American Association of Retired Persons (AARP), the number of persons age 65 and older is expected to grow to 70 million by 2030. With this tidal wave of emerging baby boomers (age 45-64), new trends are emerging in the senior housing sector, which is likely to be commercial real estate’s silver lining in 2009. Debt Metrics The National Investment Center for the Seniors Housing & Care Industry (NIC), reports loan volume and performance remained strong for the senior housing and care industry during second quarter 2008. Loan volume placed was $1.55 billion, up 68 percent from first quarter 2008. Loan performance was tracked at 99.5 percent, with just 0.5 percent restructured or delinquent. Robert Kramer, president of NIC, says this loan performance matched the all-time high, which was recorded in fourth quarter 2007. “Similar to other commercial real estate asset classes, senior housing had not yet seen any significant deterioration in loan performance,” says Kramer. “In terms of loan volume, one must remember that these data results predate the …

Mark Zurlini, Palisades Financial The current credit crunch and recession most of the world is experiencing will continue to erode real estate values for the foreseeable future. At some point the theory of supply and demand will prevail resulting in a positive effect on real estate values in the long run. We need to take a step back, to the fundamentals of real estate where properties are purchased with low to moderate leverage and held as long-term investments and not traded as if it were a short-term commodity. Higher equity requirements by lenders will impact the quality of investor. Recessions are known to “weed out” the amateurs who were able to enter the real estate game through access to cheap capital and were able to profit through artificially inflated values driven by a buying frenzy. As property values continue to drop there are numerous buying opportunities for those disciplined investors who have maintained manageable leverage on their real estate holdings and have accumulated cash and/or have access to patient capital. Those able to buy at the “right price” and hold onto the investment until values increase will make a fortune. The right price is different for each investor gauged by …

By Paul Kiernan, Holland & Knight Being happy may be a little harder than it was 20 years ago when Bobby McFerrin sang that tune. Worrying? It’s back in style. Our current credit/financial/economic/kitchen-sink crisis is so worrisome because no one wants to bet his own dollars on how long the crisis is going to last or who it’s going to whack next. Just like a good horror movie where you hear “The Nameless Beast” and you sense it’s out there in the dark, but you never quite see its exact shape. That’s much scarier than seeing “The Beast” face-to-face. The autumn-into-winter freeze on productive activity is showing up in court. Deals that were a lock are falling apart. Sterling lenders are tarnishing. And household names are being posted on the docket down at the bankruptcy court. Things that pundits said just a year ago “would never happen” seem to happen on a weekly basis. For the commercial and retail landlord, the issue is timing. As you see your tenant’s problems multiplying — or you are worried that the problems may be snowballing — at what point do you think about litigation? The first late check? The first request to offset …