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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portion of this money is going toward renovating and building new healthcare facilities that are over capacity and outdated for the estimated 9.2 million military personnel.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 …

By Mark Bhasin, Palisades Financial As U.S. policymakers attempt to navigate through America’s greatest financial and banking crisis since the Great Depression, the amount of regulation in America’s financial markets is becoming a major topic of discussion. The current systemic financial crisis is a vicious circle between a contracting real economy and massive credit and financial losses feeding off each other in a downward spiral. This financial crisis will likely imply total credit losses of somewhere between $1 and $2 trillion. Recent governmental intervention in America’s financial markets includes the bailout of the Bear Stearns creditors, the bailout of Fannie Mae and Freddie Mac, the use of the Fed balance sheet — hundreds of billions of safe and liquid U.S. Treasuries swapped for toxic illiquid private securities, the use of the other government sponsored enterprises’ to provide hundreds of billions of dollars of liquidity to distressed, illiquid and insolvent mortgage lenders, the creation of a new set of bailout facilities to prop up and rescue banks. Not to mention bailing out non-bank financial institutions, the bailout of AIG and a $700 billion U.S. rescue package. These actions come from the most ideologically zealot free-market, laissez-faire administration in American history. The …

By Cara Aliek Despite sharing the same name, Hollywood, Florida, is distinguishing itself from its California sister when it comes to making transit-oriented development (TOD) environmentally chic. A new $500 million mixed-use project called Sheridan Station will be located adjacent to Tri-Rail’s train station and will be Broward County’s first TOD. Attracting residents and shoppers alike, the project will feature 1,050 residential units, 300,000 square feet of retail and restaurant space, 299,000 square feet of office space, a 150-room hotel, 2,500 parking spaces, a 6-acre public park, and a dog park. Fort Lauderdale, Fla.-based Ram Development Co. and Miami-based Pinnacle Housing Group are developing the 40 plus acre project, while landscape architecture duties have been named to Hollywood, Fla.-based Witkin Hults Design Group. “The most important part of the project is that it’s going to be a very walkable community,” says Juan Pacheco, senior project manager with Witkin Hults. “It’s very urban — not your typical South Florida architecture project.” Located west of Interstate 95 between Sheridan and Taft streets, the project will be the largest shopping destination between Fort Lauderdale and Miami. Developers hope to attract professionals, who work in either of these cities, to the residential units by …