Commercial Real Estate Finance

Posts Tagged ‘capital gains’

For years, the place where I got my start in the business, Marcus & Millichap, made a killing on single tenant net lease deals.  Most often, these deals were being sold by merchant developers who had great relationships with a particular retailer, be it Walgreens (WAG), CVS or Advanced Auto Parts (AAP).  In other cases, there were sale leaseback transactions.  Either way, Marcus’ ability to shift capital across geographic boundaries was unmatched because of the timing and financial pressure of 1031 tax-deferred exchanges.  Investors would buy deals well outside their geographic comfort area so long as the credit of the single tenant was good, the return was OK, the lease was long, and they could defer their capital gains.  But with the new accounting regulations in the financial reform we have seen of late, the onus for companies to do sale leasebacks is changing in a big way. Read the rest of this entry »

As colleges around the United States hold their commencement ceremonies, there is always a lot of talk about keynote speakers. For example, Michigan had Barack Obama, NYU chose Alec Baldwin, and Tulane welcomed Anderson Cooper. A great many high profile people are in high demand from universities across the country. So when the International Council of Shopping Centers (ICSC) were searching for a keynote speaker for their Global Retail Real Estate Convention (REcon) pickings may have been slim. Whoever was going to be this year’s speaker had some big shoes to fill as previous speakers have included Former President Bill Clinton, and 7-time Tour de France winner Lance Armstrong. Who could ICSC get to follow these two high-powered speakers? None other than Sarah Palin.
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In times like these, savvy real estate owners all sing a similar tune.  Why build when you can buy for half the cost (or at least significantly below replacement cost)?  And this is a good question.  Yet despite the cyclical nature of real estate, land is bought and sold at all times during the cycle. And this got us to thinking.  If an asset like land, which by nature does not produce income, can continue to change hands, then what are the real drivers of modeling a land deal? How speculative is it really?

That got us thinking even more (we try not to think too much… it makes us tired) about other similar markets for assets of a speculatively priced nature.  Fine art is one particular commodity/asset class that comes to mind. So let’s examine the similarities and differences between pricing for raw land in the realm of real estate, and the pricing of fine art in the world of the aristocrat. Read the rest of this entry »

Many times, when an individual, or a large developer/operator purchases a commercial property, they buy it through a limited partnership or limited liability company.  There are many reasons as to why they do this.  Anonymity is one.  Most wealthy people are private, and do not want to be bothered, whether it is by brokers or any other third party looking to drum up new business.  Probably the chief reason, however, has to do with tax law, as property level gains are not attributed the same way to the individuals who are members of the LP or LLC as if they owned the property outright as individuals.  Essentially it provides a corporate veil of ownership, both in terms of who actually owns the property, as well as how Uncle Sam views its capital gains/losses.  Furthermore, if there is ever an accident, or other mitigating factor whereby a lawsuit is brought upon the owner of a property, it again can help protect the personal assets of the actual owners if they are found guilty of a civil lawsuit, limiting the plaintiff solely to property level monies. But wait, there’s one other big reason single purpose entities (SPE’s) exist… and it isn’t to protect the owner. Read the rest of this entry »

Back on November 26, 2008, LandAmerica Financial Group, the third largest 1031 exchange intermediary at the time, filed for bankruptcy protection. Its subsidiary, LandAmerica 1031 Exchange Services (LES) filed for voluntary relief under Chapter 11 of the bankruptcy code. At the time, LES was the intermediary for over 450 incomplete transactions.

With a recent ruling by a U.S. Bankruptcy Court in the case of Millard Refrigerated Services vs. LandAmerica 1031 Exchange Services, any seller might now risk having some or all of their money completely out of their control if it was set aside with an intermediary for a tax-deferred exchange.  1031 intermediaries were once known as “safe harbors”, essentially as a safe place to dock one’s proceeds from a sale until they could find another property with which to use the funds to buy, thus completing their 1031 exchange, and protecting their capital gains from being taxed by the federal government. Well apparently, these safe harbors ain’t so safe anymore. Read the rest of this entry »