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Michael Donohue Commercial property owners may end up paying Uncle Sam a lot less in taxes if they explore cost segregation. They can begin to realize those tax reductions and the resultant increased cash flow as soon as their next quarterly estimated tax payment. Under provisions in the 2009 American Recovery and Reinvestment Act, property owners who decide to commission a paid, engineering-based cost segregation study could possibly receive a refund on taxes paid during the last 5 years. Your tax preparers may now apply the net operating loss created by the cost segregation study to past tax bills and get a refund on taxes paid as far back as 2003. What is Cost Segregation? In typical accounting practice, 100 percent of a building’s costs are depreciated on a straight-line basis in 39 years. Yet, according to the IRS, many components of a building — and most land improvements — have shorter depreciation lives. Cost segregation allows property owners to reduce their current tax bills by identifying and correctly depreciating those assets more rapidly. Industrial buildings, from warehouses to manufacturing plants, whether purchased or constructed, will have different percentages of construction-related costs that can be reclassified from 39-year depreciation to …

As many investors know, a diverse portfolio is the cornerstone of success. And today, even in a down market, commercial real estate is an important component for many investors. Recently in Atlanta, Interface Conference Group brought financial planners and real estate experts together to discuss the state of the commercial real estate market and investing today. The conference — Real Estate’s Place in Wealth Management and Financial Planning — began with a frank, informative keynote address from Zachary Taylor, group chairman and managing partner of global wealth management firm Taylor, Fréres & Cie, a multinational concern with businesses spanning the commodities, asset management, and investment banking sectors. Taylor’s initially set out to identify the role of commercial real estate in the crafting and management a modern portfolio — it should comprise between 20 and 30 percent in total — noting that the act of doing so has changed considerably over the past 3 years. “Financial planners need to step back and understand where capital is and what is driving it, in order to keep the wealth management business moving forward,” he noted. Taylor, Fréres & Cie’s philosophy ensured that Taylor was particularly suited to address the crowd of nearly 200 …

Brian A. Mills Commercial real estate brokers received some assistance from the New Jersey Supreme Court protecting their right to lease renewal commissions following a sale of the property for which the broker had a listing agreement. This is an important decision because following a sale, brokers no longer have privity, a legal prerequisite to enforcing a contract right, with the owner. The new decision relaxes the privity requirement and provides direction for brokers who wish to protect their right to the valuable income provided by renewal commissions. This decision, Pagano Company v. 48 South Franklin Turnpike, LLC, 198 N.J. 107 (2009), softened the prior ruling on the issue (VRG Corp. v. GKN Realty Corp. 135 N.J. 539 ((1994)) which gave buyers of leased properties a clear path to avoiding responsibility for commissions after purchasing a property. The VRG court deemed the obligation to pay renewal commissions “personal” meaning it does not “run with the land” the same way an undischarged mortgage would. As such, buyers are not responsible for renewal commissions absent an “affirmative assumption” of the obligation. The Pagano ruling did not expressly reverse VRG, rather it broadened the circumstances under which a purchaser is said to have …

Alan Blinder While many sectors of real estate are seeing low occupancy and suppressed investment sales rates, medical office buildings have remained a relatively safe bet in the commercial real estate market, say speakers and panelists at the recent InterFace Medical Office Buildings conference, held in Chicago. “If there is going to be a darling [of real estate sectors,] healthcare will be the darling,” says Todd Varney, an executive vice president at Palm Beach Garden, Florida-based Rendina Companies. “It’s still a great business to be in,” says Gina Weldy, who directs finance and real estate at Chicago’s Northwestern Memorial Hospital. “We’re not a speculative business, so you haven’t seen us overbuilding. Therefore, our growth is going to have to continue.” As with all commercial real estate sectors, fewer entities have been lending for medical office properties, though such projects have had an advantage over other initiatives. Lenders have been scouring the nation for quality properties in major markets. “If [lenders] have got to change a plane in order to get there, they just won’t even look at the books,” says Vincent Cozzi, a managing director at Ventas Healthcare Properties. But, he continues, developers in smaller markets should still try to …

Andy Dow and Allan Katz During the past couple of decades healthcare real estate has evolved into a major real estate asset class separate and distinct from the traditional real estate asset classes. Because of the unique nature of these facilities, many standard lease provisions create distinctive challenges when applied in a medical lease context. In addition, medical uses often produce eccentric issues not found in standard office or retail leases. Many standard lease provisions require additional scrutiny where a medical use is involved. For example, since patients visiting medical facilities are more likely than the general public to have special needs relating to accessibility, the parties should pay special attention to the compliance with laws and accessibility provisions of the lease. In addition, HIPAA and other federal and state laws regulating confidentiality of medical records and personal health data may necessitate modifications to some typical clauses in standard office leases, such as provisions allowing landlord unfettered access to the premises. Medical tenants also frequently utilize materials and generate waste (such as immunotherapy and chemotherapy agents, biological specimens and the like), which require appropriate disposal to comply with applicable federal and state environmental and waste disposal laws. Therefore, an absolute …

William Hughes The current recession, which began in December 2007, is one of the longest and deepest in recent memory. Since the start of the downturn, 5 million Americans have lost their jobs, with unemployment currently at 8.5 percent and rising. Despite the grim economic news, there are a few encouraging signs that suggest the worst may be behind us. In recent months, sales of existing and new homes ticked up, along with mortgage applications. The rate on a 30-year fixed mortgage is hovering near its lowest point since the early 1970s, and downward adjustment in home prices in recent years has brought them closer in line with incomes. As a result of increased affordability and government programs aimed at stimulating demand and preventing foreclosures, homebuyers who have been waiting on the sidelines finally are beginning to purchase houses. The commercial real estate market reflected the resilience of the economy during the first phase of the recession, with vacancies rising at a relatively steady pace through the third quarter of 2008. The primary exception was the retail sector, which had already entered a serious downturn due to weakness in the consumer segment and some overbuilding. The dramatic intensification of job …

Bruce Katz We all know about the success of value-oriented retailers — particularly discounters — during the past holiday season and into this year. Wal-Mart has continued to capture the headlines, as have other discount and off-price retailers like Costco, Sam’s Club, Dollar Tree and TJ Maxx. This stands to reason as the economic downturn has created a sobering concern for consumers’ personal financial situations. As a result, values and shopping habits are changing. But there’s another story in the news these days: the retailers — not discounters or off-pricers — that are doing relatively well because they offer value in whatever category or price range they represent. A list of retail companies from H&M and Urban Outfitters to Sephora and Coach has reported various degrees of success and continuing expansion. Their collective message is loud and clear: customers are shopping for value. But what is the value these retailers — and others like them — offer? What is it that they have in common with each other — and with the Wal-Marts of the world — that has led to their positive news stories? Customers have naturally become more cost-conscious and price is a key factor in their purchasing …

Patrick Schleisman While the high cost of steel is motivating some design and building professionals to consider wood for their non-residential projects, many are also choosing wood because of its environmental attributes. Whether the driving force is green building certification, the need to adhere to new energy or climate change legislation, or simply a desire to set their building apart as environmentally responsible, wood is increasingly being used to achieve sustainability objectives. Gene Dunwody, Jr., of Dunwody/Beeland Architects in Macon, Georgia, prefers to use wood because it’s sustainable as well as economical, and because it’s easier to find subcontractors who can fabricate and install it. Dunwody has recently encountered a lot of interest in the use of wood framing in commercial projects. Currently, Dunwody/Beeland is primarily using wood for all of their apartment and hotel projects. In 2008, Dunwody/Beeland designed Providence Village North Macon, a mixed-use project in Macon developed by Rob Ballard, who has always preferred the use of wood. The development originally featured four buildings with 70,000 square feet of retail using a concrete system on the second floor and 240 apartments on two wood-framed floors above. To decrease cost and increase efficiency, the design has been modified …

Jerry Katz and Ryan Nowicki On Earth Day 2008 (April 22), Los Angeles became the largest city in the nation to require new real estate developments to “go green.” No longer just an option to large developers, Los Angeles now requires projects larger than 50,000 square feet to comply with the Leadership in Energy and Environmental Design (LEED) standards issued by the U.S. Green Building Council (USGBC). With increasing concerns regarding climate change, global warming and carbon footprints, going green has fast become a trend in the United States. A variety of green building assessment programs, including Green Globes, Energy Star and LEED, have been developed recently to standardize sustainable design principles for more buildings. LEED is arguably the most prominent for mid- and large-scale projects. New legal issues are undoubtedly present with respect to every aspect of a LEED project, and legal counsel that is well versed in the many areas of green building is an integral component to any LEED project team. To those unfamiliar with building green, the incorporation of LEED standards into a real estate development project can appear at the outset to be confusing, disruptive and expensive to developers. However, the economic and environmental benefits …

Jeff Green There are certain key factors that virtually all successful lifestyle center projects share that are positive prognostic indicators for long-term viability. While there is no magic formula and every project must be evaluated within the context of its individual market demographics, psychographics and competition, there are a number of important conceptual, design, development and leasing elements that successful lifestyle centers have in common. A closer look at some of these core factors enables us to draw some important universal conclusions about what constitutes a high-quality development. Mixing It Up In lifestyle center development, as in life, diversity breeds success. Lifestyle centers that are a part of larger mixed-use developments will generally perform much better than stand-alone competitors. These projects often benefit from built-in “demand” components, due to the diverse nature of their offerings and generally broader overall appeal. Virginia Beach Town Center in Virginia Beach, Virginia, is a mixed-use development that includes two hotels, condominiums and apartments, a large office component, and destination retailers and restaurants — just the right mix to breed retail success. Whether it is the on-site consistency provided by hospitality and residential elements, or the diverse combination of destination restaurants and entertainment components, variety …