Brick & Mortar Life Expectancy Isn’t What It Used to Be: Here’s How to Fight Obsolescence
Nov 01,2017
Buyers, owners, investors and developers of real estate are facing questions regarding how properties are valued in the current market, especially where there are problems appraising a property’s highest and best use. More specifically, this question focuses on reversion value.Multiple CasesRecent Class B or lower valuation projects (as well as some lower level Class A properties) have presented serious, widespread questions from a valuation standpoint. The main question is simple: What should be done with “obsolete” buildings?Historically, such a question became pertinent only after 50-100 years. Buildings were “built to last,” and most were designed to be updated over time. Part of the reason for that long horizon was that ample land was available for expansion. Another was that zoning was very prescriptive and clearly defined in many ways. Lastly, fixed real estate was a capital-intensive asset class.In the past five years alone, that question, however, is now being asked about...
Capital Trends in the Atlanta Real Estate Market
Aug 23,2017
Smith & Howard’s 2017 survey of Georgia’s real estate and construction industries revealed strong optimism for continued growth among all real estate market sectors. At our recent event, Georgia’s industry experts discussed the market and the survey results, including the financing environment for real estate development in the region. To gain additional perspective about the real estate capital market in Metro Atlanta, we spoke with event panelist Lance Patterson, the CEO of Patterson Real Estate Advisory Group. Lofty Expectations To understand Atlanta’s real estate lending climate today, it’s useful to take a look back at where it was before the market crash. Prior to 2008, Atlanta was experiencing a robust market that, in Patterson’s words, simply became “way too frothy.”  “The vast majority of developers and the capital community didn’t recognize that we were doing far more deals than needed to be done,” said Patterson. “There was a sense that...
Rebuilding Skilled Labor, Part 1
Jun 15,2017
As Georgia and the nation’s economy continues to bounce back from the financial crisis a few years ago, growth in Atlanta and the state is thriving. Natives and newcomers alike have become accustomed to data that tells them people are flocking to the peach state. And the evidence is reflected at every turn; highways are multiplying, cranes are lifting and buildings are gleaming. Needless to say, development in Georgia is one hot topic. A Little Background For the past 50 years, Georgia's population growth has exceeded the national growth rate. The local construction and real estate industries have clearly tracked alongside those trends, despite dips during the recession of 2009-2012. The National Association of Homebuilders (NAHB) estimates new housing starts in the U.S. are now 1.2 million annually, while counting cranes in Midtown Atlanta produces a tally of 19 in a 1.2 square mile area. According to an analysis of...
2016 Year in Review: Top Tax Issues Impacting the Real Estate Industry, Part One
Feb 01,2017
The next tax filing season may seem far away, but as 2016 ends, taxpayers will begin the task of year-end tax planning. While 2016 was not a year for major tax reform or legislative action, there have been some notable regulatory changes. 2016 saw several pieces of regulatory guidance that could have an impact on acquisition and disposition transactions, entity structuring activities, taxable income calculations and tax accounting method options. As real estate owners and operators, construction companies, developers and REITs embark on analyzing their tax situation for 2016 and beyond, it’s critical to be aware of these new developments.Though many tax changes proposed or finalized in 2016 could impact the real estate industry, in this article we highlight two areas that should be top of mind for leaders in the real estate industry at the start of the new year, including IRC Section 385 regulations, and a series of...
PErspective in Real Estate
Feb 01,2017
Federal regulators—the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC)—have increased their scrutiny of commercial real estate loans, urging lenders to strengthen terms amid fears of a real estate bubble. This is deterring small, local banks from issuing new loans, and many are selling off the loans they do own to PE firms, pension funds, foreign banks and other institutional lenders, according to The New York Times. Large banks are also retreating, as they can no longer count on selling portions of large loans to smaller banks.The absence of other lenders is drawing PE firms, hedge funds and REITs into the debt investing space, with a particular focus on bridge and mezzanine loans. Last year, private equity real estate debt funds raised $15 billion, with just 5 percent of firms targeting bridge loans. Research firm Preqin predicts fundraising will be stronger this year, with...
Rental Property Owners Can Maximize Tax Deductions
Dec 09,2016
Rental property owners should be aware of two regulations that can help them increase tax deductions on their 1040 tax forms. Provisions under the tangible property regulations and the small taxpayer safe harbor each offer attractive benefits. It is important – and advantageous – for taxpayers to gain some familiarity with the regulations, as we have seen the regulations affect many taxpayers—from companies to individuals who own rental property reported on their 1040 tax forms. Tangible Property Tangible property regulations, issued by the IRS in 2013 and effective for tax years after January 1, 2014, address a wide variety of topics of interest to rental property owners, including materials and supplies; repairs and maintenance; capital expenditures; and amounts paid for the acquisition and improvement of tangible property. The tangible property regulations allow taxpayers to immediately deduct purchases of tangible property below certain thresholds under the de minimis safe harbor. This...
Capture Tax Savings through Repair and Maintenance Expenses
Sep 08,2016
Tax relief opportunities for owners of real estate can be found in unexpected places—from parking lot striping to lobby renovations and LEED improvements. In this article, we tackle some of the finer points of the repair and maintenance (R&M) regulations available to taxpayers. As you read, consider the types of R&M you may have performed or anticipate performing on your property, and see if we can help you take advantage of tax savings. Election to Expense Capital Assets (De Minimis Safe Harbor) A taxpayer may now elect to expense capital assets under a certain dollar amount threshold per-item, per-invoice. When the regulations were originally issued, that threshold was $500 for a taxpayer who did not have an audit of their financial statements and $5,000 if the taxpayer had audited financial statements. Under the new rules, non-audited taxpayers can elect to expense items under $2,500; the amount of $5,000 for audited...
REITs Split Off Into New S&P Sector
Aug 29,2016
BackgroundOn September 1, publicly traded equity REITs will be spun off from other financial stocks under the Financials sector into a newly created 11th sector in the Global Industry Classification Standard (GICS); the first addition of a new sector since its introduction in 1999. This will result in changes to the manner in which REITs are classified in a number of indexes, such as the Standard & Poor’s (S&P) 500.  ImpactQuestions remain as to how this reclassification could impact the industry. REITs have flown under the radar in recent years, perhaps due to lingering fears from the Great Recession. Now, however, there is a notable shift in the investment community toward viewing real estate as a core asset to include in portfolios. Real estate’s low correlation to stocks and bonds can help lower a portfolio’s overall risk. As the low interest rate environment continues to hinder bank profits, Morningstar reports...
No Gloom, Just Boom
May 09,2016
The Atlanta ZIP code, 30363, was recently ranked number 10 among America’s ‘Top 10 Boom Towns,’ according to Realtor.com. The improving local economy is fueling new construction, lower vacancy and higher rents in the area. Millennials are also a large part of this improving economy. The 30363 encompasses Midtown and West Midtown, an area known for Atlantic Station (our home), Home Park and its recent and successful developments. Neighborhoods included on the ‘Boom Town’ list are experiencing a vast amount of construction, job creation and housing market growth. The rise of millennial employees has encouraged companies to relocate or remain in the Buckhead, Midtown or Downtown Atlanta vicinities. Integra Realty’s Office Market Report indicates an increase in market rents by two percent over the last year. Office buildings located in Buckhead and the Central Perimeter area have increased their asking rents above $30.00 per square foot. Integra Realty anticipates Central Perimeter,...
New Law Restricts Tax-Free REIT Spinoffs
May 05,2016
In recent years, tax-free spinoffs under Sec. 355 involving REITs became popular among corporations with real estate holdings. The essence of REIT spinoffs is that valuable real estate leaves the corporation and moves tax-free into the favorable REIT tax regime. New tax legislation that took effect December 7, 2015, severely curbs this tax planning strategy.The REIT Spinoff TransactionThe recent legislation targets the following type of transaction: a corporation conducting the core operating business (OpCo) contributes its real estate assets to a controlled subsidiary (SpinCo) in exchange for 100 percent of the SpinCo stock. OpCo then distributes the SpinCo stock to the OpCo shareholders in a tax-free spinoff transaction under Sec. 355, whereby neither OpCo nor its shareholders recognize any income or gain.Shortly after the spinoff, SpinCo elects REIT status, and OpCo then leases the real estate from the REIT. OpCo thus makes deductible rent payments to the REIT, and the...

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