Tag Archives: Jason Wolf


Sale and Leaseback of Commercial Real Estate

Sale and Leaseback of Commercial Real EstateConfer with the professionals at WCRE or ask us for a seasoned real estate or tax attorney but here’s one technique Abo has seen work well with business clients. Although real estate is generally thought of as an illiquid asset, some liquidity can be achieved by taking out a loan backed by the property. Alternatively, a sale and leaseback may be used effectively if a company’s balance sheet is burdened with excessive debt or just having difficulty in obtaining new capital. Typically, the transaction involves the company owned property being sold to a third party and then leased back to the company under a long-term lease.

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Sale and leaseback transactions may be on the rise but clients need to be aware that the IRS often focuses on transactions between closely-held corporations and their controlling shareholder to make sure that these transactions benefit the company as well as the shareholder. In one common type of sale and leaseback transaction, the company sells the land with a building on it to the shareholder and, in turn, the shareholder leases it back to the company. Some of the financial and tax benefits we’ve seen have included:

The rental deductions the company could take might be significantly larger than the former depreciation deductions if the property had been in service for many years.

After the sale and the leaseback transaction, the shareholder’s basis in the property will be its fair market value which is usually greater than the price paid for the property by the corporation. Thus, the shareholder’s depreciation deduction would be much greater than what was previously available to the corporation (also still need to consider the tax consequences of the sale to the corporation).

The sale and leaseback may enable the shareholder to generate passive rental income that could be offset
against passive losses of the shareholder.

The IRS would obviously be concerned that these transactions have economic substance and that they are
based on reasonable market conditions, and not just designed to generate larger tax deductions. Thus, for
a sale to be valid, the controlling shareholder should have taken an equity interest in the property and also
assumed the risk of loss. For the leaseback to be valid, four tests come to mind that really should be met:

1. The useful life of the property should exceed the term of the lease.

2. Repurchase of the property by the corporation at the end of the lease term should be at fair market value and not at a discount.

3. If the leaseback allows for renewal, the rate should be at a fair rental value (speak to WCRE, not necessarily the accountant).

4. The shareholder should have a reasonable expectation that he or she will generate a profit from the sale and leaseback transaction based on the value of the property when it is eventually sold and the rental obtained during the lease term.

I suspect one of the biggest risks for the seller-lessee is the loss of a valuable asset that could have substantially appreciated over its useful life. Also, the rental market could drop, leaving the seller locked into a rental rate in excess of fair value. On the other side of the table, the seller could move or default, leaving the buyer with unattractive real estate in a soft market.

Even if there are no other problems, the benefits of the deal could be substantially reduced if the IRS deems that it is merely a “financial lease.” In that case, the IRS will treat the seller-lessee as the true owner of the real estate, with all the appropriate tax assessed, and the buyer-lessor will be treated as a lender-mortgagee.

Since sale and leaseback transactions can be quite complicated and also have to pass IRS muster, as I stated earlier, whether you are a buyer, seller or investor, you are well advised to consult with WCRE and seasoned real estate/tax counsel about your financial and tax consequences and the manner of structuring and implementing them to withstand possible IRS challenge.

FOR MORE INFORMATION:
Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, LLC and its affiliate, Abo Cipolla Financial Forensics, LLC, Certified Public Accountants – Litigation and Forensic Accountants. With offices in Mount Laurel, NJ and Morrisville, PA, tips like the above can also be accessed by going to the firm’s website at www.aboandcompany.com.

 

Martin H. Abo, CPA/ABV/CVA/CFF
307 Fellowship Road, Suite 202
Mt. Laurel, NJ 08054
(856) 222-4723
marty@aboandcompany.com
For more information, contact:

WCRE APPOINTED EXCLUSIVE AGENT TO MARKET KINGSWAY LEARNING CENTER’S MOORESTOWN AND HADDONFIELD CAMPUS PROPERTIES

Wolf Commercial Real Estate (WCRE) is pleased to announce that it has been retained by Kingsway Learning Center as exclusive agent for the sale and marketing of 144 Kings Highway West, Haddonfield, New Jersey and 244 West Route 38 Moorestown, New Jersey. This high-profile institutional disposition assignment also includes advisory duties for the properties, which are located in the affluent towns of Haddonfield and Moorestown.

The Haddonfield location consists of approximately 50,000 square feet and is situated on 2+ acres. The property is positioned in the downtown business district along Kings Highway. Surrounded by residential homes and an exuberant amount of retail, restaurants and amenities, this property is ideally positioned to be utilized as another school, office headquarter or redeveloped into alternative uses within a prestigious town within Camden County.

The Moorestown location is positioned on Route 38 and consists of 33,000 square feet and is situated on 4 acres of property. This single-story office building offers tremendous visibility with convenient proximity to The New Jersey Turnpike, Route I-295 and front along Route 38 providing for outstanding curb appeal and visibility.

Kingsway Learning Center will be working closely with WCRE to make sure they are considering all options. “For us, this is about community. We will work to ensure that the entity that lands on this site will be a great addition to these high-profile neighborhoods,” said Jason Wolf, founding principal of WCRE.

This assignment adds to WCRE’s growing number of partnerships with institutional and healthcare clients in Philadelphia and Southern New Jersey. It is the firm’s second engagement with Kingsway Learning Center. Earlier this year, WCRE helped facilitate their consolidation of Kingsway’s Moorestown and Haddonfield campuses into a new site in Voorhees, New Jersey. The school leased a 73,000 square foot building at 1000 Voorhees Drive with plans to relocate its pre-school, elementary, and secondary programs for its 175 students to a single site starting with the 2018-2019 school year.

“We look forward to working with an organization whose values align so closely with ours,” said Phil Rodriguez, COO of Kingsway Learning Center.

WCRE’s Chris Henderson, vice president and principal said, “WCRE is proud to partner with Kingsway as our latest institutional relationship in Southern New Jersey. We look forward to applying our WCRE 360 marketing approach to find the right users for these highly-desirable properties.”

WCRE’s institutional specialist team of Chris Henderson and Jason Wolf will be working closely together with Kingsway Learning Center on this disposition initiative.

A marketing brochure is available upon request.

Learn more about Wolf Commercial Real Estate at www.wolfcre.com and Kingsway Learning Center at www.kingswaylearningcenter.org.

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long term growth and success.

Learn more about WCRE at www.wolfcre.com, on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at ww.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.

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Understanding New Jersey Liquor Licenses

New Jersey Liquor Licenses

New Jersey Liquor Licenses

Let’s examine the changing landscape of New Jersey liquor licenses. There is no denying the restaurant industry and retail sectors of commercial real estate are undergoing major shifts brought on by changing consumer shopping patterns and tastes. With the rise of e-commerce, the need to visit physical locations has diminished and retailers increasingly need to offer a unique experience or destination in order to attract customers. This, combined with changing dining habits and palates that desire more convenient and varied food and alcohol options, has expanded the alcoholic beverage industry through the country, including in New Jersey.

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With this increased interest and its impact on retail spaces, it is important for landlords, property owners, brokers and other real estate professionals to have a basic understanding of New Jersey liquor licenses.

Restaurants, bars and liquor stores cannot sell, buy or serve alcoholic beverages in New Jersey without the applicable legally required license or permit. There are different categories of New Jersey liquor licenses, but the most relevant for retail purposes are (i) plenary retail consumption licenses, which are used at bars and restaurants to permit the sale of alcoholic beverages for on-site consumption, often referred to as “33” or “32” licenses; and (ii) plenary retail distribution licenses that allow for the sale of alcoholic beverages in original containers for off premises consumption, known generally as package good stores or “44” licenses. In New Jersey, licenses are generally issued and regulated at the municipal level, subject to further approval, oversight and enforcement by the State’s Division of Alcoholic Beverage Control.

The number of retail consumption and distribution licenses available in a municipality is dictated by the size of the population. New licenses can only be issued where updated Federal Census data warrants the creation of a new license, and the local issuing authority must follow specific methods established by New Jersey statute and regulations for awarding a new license. Consequentially, the pool of available licenses in a municipality is limited and the overwhelming majority of New Jersey liquor licenses must be purchased through private transactions. The price for a license is determined by supply and demand, with licenses in highly sought after municipalities being quite expensive. The limited supply and high price of liquor licenses in our State is somewhat unique, with many other jurisdictions having separate beer and wine only licenses widely available for restaurants or quick food concepts. Indeed, because of the way the liquor license industry works in New Jersey, some restaurant concepts that include wine and beer sales in their operating model in other jurisdictions find they are not able to similarly operate in New Jersey because either a license is not available or it is cost prohibitive. Landlords and brokers should be cognizant of this when considering attracting out of state restaurants or other alcoholic beverage businesses to a property.

Existing New Jersey liquor licenses are purchased through a transfer process by which the purchaser files a personto-person transfer application (and a place-to-place application when locating a license at a new premises) with the municipality or other local issuing authority. The local issuing authority then reviews the transfer application and performs due diligence on the purchaser, including investigations and criminal background checks on any individuals holding an interest in the license. Local issuing authorities must confirm that a purchaser is not disqualified from holding an interest in a liquor license, that the transfer does not violate applicable laws, and that the source of the funds used to purchase the license is legitimate. In addition to evaluating a purchaser, notice of the transfer must be published in local newspapers, and the transfer must be scheduled for public hearing and approved by the local issuing authority at the public hearing. A purchaser cannot utilize a liquor
license until its transfer is formally approved by the local issuing authority. Moreover, a transfer cannot be conditionally approved or approved subject to the satisfaction of certain contingencies.

Once a liquor license transfer is approved it cannot be undone except by accomplishing another transfer. Given this process, real estate owners and other professionals must be mindful of timing and should include adequate approval time periods and extension rights in contracts and leases involving liquor licenses. Closings on New Jersey liquor licenses are typically completed in escrow since (1) the purchaser cannot make use of the license until it is approved and thus does not want to pay the purchase price over to the seller until it has received formal approval, and (2) the seller cannot undo a transfer once approved and therefore usually requires that funds be deposited in escrow prior to the hearing to ensure that the purchaser pays for the license. As such, parties should carefully address specific escrow and closing instructions in their agreements. Where a landlord
holds the license and expects it to run with the shopping center, special attention must be paid to the arrangement between landlord and tenant concerning the license at lease expiration or termination.

Besides the more traditional New Jersey liquor licenses discussed above, property owners are increasingly encountering local winery and craft brewery establishments as tenants. These licenses are issued by the State directly and are subject to their own separate regulations. Similar to plenary retail licenses, property owners and others need to be aware of the unique issues present in the alcoholic beverage industry.

WCRE 3rd Annual Celebrity Charity Hockey Event-Coming Soon!!!

WCRE and The Philadelphia Flyers Alumni have teamed up to raise money for local charities that support OUR LOCAL COMMUNITY EVERY SINGLE DAY!

Come out and cheer your friends and co-workers on as they hit the ice to raise money and support the charities below! After watching the game, join the teams for fun, food, raffle, silent auction and autograph/photo opportunities at Victory Bar & Grill in Berlin, New Jersey!

 

Wolf Commercial Real Estate (WCRE) announces its third annual Celebrity Charity Hockey Event, in which several former Philadelphia Flyers will play alongside area business leaders to raise money for a variety of local causes. All proceeds from the event will be shared among seven area charities: The Rowan Medicine CARES Institute, the Alzheimer’s Association of the Delaware Valley, the American Cancer Society, the Susan G. Komen Foundation-Philadelphia, the Jewish Federation of Southern New Jersey, Samaritan Healthcare & Hospice and The Philadelphia Flyers Alumni Association-Snider Youth Hockey.

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WHO: Philadelphia Hockey Legends Todd Fedoruk, Doug Crossman, Kjell Samuelsson, Andre Faust, Brad Marsh, and Brian Propp (who is also Director of Strategic Relationships at WCRE). Lou Nolan, the legendary public address announcer of the Philadelphia Flyers, Kerry Fraser, Retired NHL Referree, more than 30 local business leaders, and 85 sponsors.

WHAT: See six former Flyers back on the ice, playing alongside our friends and sponsors. The game will be followed by dinner and an auction to raise even more money for these great organizations.

WHEN: Saturday, September 22, 2018

  • Celebrity Charity Hockey Game begins at 5:00 P.M.
  • Dinner and auction at 7:30-10:00 P.M.

WHERE: The game will be at the Flyers Voorhees Skate Zone, 601 Laurel Oak Road, Voorhees, New Jersey

Dinner and auction will be at Victory Bar & Grill, 795 Route 73, Berlin, New Jersey

WHY: WCRE is passionately committed to the health, well-being, and success of the people of this region. We work closely with all of the charitable organizations who will benefit from this game as part of our Community Commitment initiative, and encourage our associates and clients to do the same. The firm donates a portion of the proceeds from each transaction to a charity of our client’s choice. Learn more about our Community Commitment at http://wolfcre.com/community-commitment/.

MORE: Visit our ticket link for more information. https://bit.ly/2Kelynv

(Members of the media covering the event do not need a ticket.)

Video From 2017 Event

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long term growth and success.

Learn more about WCRE online on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.

First Annual WCRE Celebrity Charity Golf Tournament Raises $30,000

In its first year, built on the remarkable success of WCRE’s community commitment and annual celebrity charity hockey event, The WCRE Foundation has successfully raised $30,000 to be shared equally by 6 charitable causes within the Philadelphia and Southern New Jersey region.

The First Annual WCRE Celebrity Charity Golf Tournament which was held at Ramblewood Country Club in Mount Laurel this past Friday afternoon, is the brainchild of Philadelphia Flyer legend and WCRE director of strategic relationships Brian Propp and WCRE’s vice president and principal, Chris Henderson. WCRE welcomed 120 area business leaders and many guests to an afternoon of great golf, fun, competition and contests.

All proceeds from the event will be shared among the CARES Institute at Rowan University, the Jewish Federation of Southern New Jersey, the Alzheimer’s Association Delaware Valley Chapter, the American Cancer Society, Susan G Komen-Philadelphia and Samaritan Healthcare and Hospice. Each of these organizations benefits from WCRE’s long-standing practice of donating a portion of its proceeds from every transaction to an area charity. Learn more about this program at http://wolfcre.com/community-commitment/.

“This event was another successful gathering for The WCRE Foundation and our community partners. Special thanks to the entire WCRE team, our incredible sponsors, donors, golfers, friends and Ramblewood Country Club who all helped make our 2018 Celebrity Charity Golf Tournament a victory for 6 incredible non-profits in our community,” said Jason M. Wolf, founding principal of WCRE. “It is a credit to our friends, neighbors, and business associates that we are able to come together to improve the lives of others.”

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long term growth and success.

Learn more about WCRE on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.

Philadelphia’s Proposed One Percent Tax on New Construction

One Percent Tax on New ConstructionIs Philadelphia’s proposed one percent tax on new construction a good compromise or a fools bargain? The Philadelphia City Council announced new legislation on April 11, 2018, that includes a new one percent tax on new construction that would raise revenue for the Housing Trust Fund, the city’s dedicated source for developing new affordable housing, preserving existing housing and preventing homelessness.

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WHAT IS THE TAX/IMPACT FEE?

Proposed Bill No. 180351 would impose a new Construction Impact Tax/Impact Fee on all projects that are eligible for the city’s 10-year tax abatement. The funds raised from the tax are intended to help the Housing Trust Fund provide funding for more affordable and workforce housing development, which would be available to both nonprofit and for profit developers.

HOW MUCH IS THE TAX?

The tax/impact fee is 1 percent of the stated cost of construction, including repairs, construction, additions and alterations of the building and is paid when the applying for a building permit. (Note that there is some discussion to change the time when payment would be due from the building permit application to the time a zoning permit is filed.) While a one percent tax on new construction may not sound like a lot, consider the tax on a $1 billion new technology center, a $300 million new multifamily high rise or a new $800 million stadium. In each instance, the tax for these projects would be $10 million, $3
million and $8 million, respectively.

ARE CERTAIN TYPES OF BUILDING EXEMPT?

As currently drafted, all buildings that are “for human occupancy” and that are eligible for the 10-year tax abatement would be subject to the tax/impact fee. These buildings would include not only residential structures, but commercial and industrial structures as well. Rather than single out one particular kind of developer (i.e., multifamily developers), the proposed tax would apply to any project that qualifies for a 10-year tax abatement in Philadelphia.

COALITION BUILDING

There appears to have been more compromise than usual between the trades, the Building Industry Association, City Council members, members of the development community and other civic-minded individuals as the merits and concerns over the 10-year tax abatement were debated, as was the Mixed Income Housing Bill, both being offered as potential solutions for addressing Philadelphia’s affordable and workforce housing needs.

NOVEL APPROACH

Drexel University’s Lindy Institute for Urban Innovation Senior Research Fellow Kevin Gillen told the Philadelphia Business Journal, “The impact fee being considered here is a truly unique hybrid. It is tied to the abatement rather than to inclusionary zoning. And it is the type of program that is traditionally used by low-cost, low-tax Sun Belt suburbs that have experienced decades of rapid population growth, but the bill’s sponsors want to apply it to a relatively high-cost, high-tax Northeastern city that until recently has experienced decades of depopulation.”

Impact on the Mixed-Income Housing Bill

If the new bill is passed, the Mixed-Income Housing Bill will become completely optional and will be amended to include numerous beneficial bonuses such as extra height (7 feet) and density (25 to 50 percent bonus) in RM-1, CMZ-1/2/2.5, amongst other potentially attractive zoning bonuses. These bonuses will continue to have a mixed-income housing requirement or payments in lieu of an additional 1 to 2 percent of construction costs depending on the amount of the
bonus.

EFFECTIVE DATE

As proposed, the effective date would be July 1, 2018, although some are already pushing for a later effective date of January 1, 2019. Duane Morris attorneys will continue to monitor and report on any development in this issue.

FOR MORE INFORMATION

If you have any questions about this Alert, please contact Brad A. Molotsky, any of the attorneys in the Real Estate Practice Group, attorneys in the Project Development/Infrastructure/P3 Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.

FOR MORE INFORMATION CONTACT:


WCRE Opens Center City Philadelphia Office

New Exclusive Assignments and High Volume of Transactions Lead Growing Commercial Real Estate Firm to Expand into Philadelphia’s Central Business District

June 5, 2018 -Marlton, NJ – Wolf Commercial Real Estate (WCRE) is pleased to announce that it will be opening a new office at 1601 Market Street in Philadelphia. This will be the firm’s third office, in addition to its headquarters in Marlton, NJ and an office in King of Prussia that opened in 2014.

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“We’ve been serving numerous clients in and around Center City for a while now, so it makes sense to strengthen those relationships by opening an office here,” said Anthony Mannino, chief operating officer of WCRE. “This move will help create more opportunities for our professionals to network and collaborate with clients and partners, and to expand our commitment to community initiatives.”

Since its founding in 2012, WCRE has grown into a market leader in Southern New Jersey and southeastern Pennsylvania. The team has set a new standard in serving the needs of owners, tenants, and investors. The firm currently has more than 175 properties comprising 4.2 million square feet of office, retail, medical, industrial, flex and investment property in the region under exclusive watch.

Along with Mannino, WCRE’s Philadelphia team includes several well-known business leaders with deep roots in the city. Among them are Brian Propp, director of strategic relationships, Andrew Maristch, vice president corporate services & portfolios, Tony Banks, vice president, and Joseph Nassib, sales associate. Each brings a unique skill set, along with energy, passion, and the signature WCRE commitment to the community. Founding principal Jason Wolf, and Lee Fein, a senior vice president and industrial space specialist, will assist the Center City team from their respective bases in Southern NJ and King of Prussia.

Last year WCRE became affiliated with CORFAC International, a network of independently-owned, entrepreneurial commercial real estate firms with 78 offices worldwide. The move has helped elevate the firm and contributed to its latest expansion.

About WCRE

WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long term growth and success.

Learn more about WCRE online at www.wolfcre.com, on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.

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Is the AIA Contract Set In Stone?

Is the AIA Contract Set In StoneIf you’re in the business of commercial real estate, you are bound to have come across the sometimes dreaded American Institute of Architects (AIA contract), the most commonly used contract for construction projects in the United States. We say that its sometimes dreaded because the form is lengthy and somewhat dense. There is also a misconception that because the contract is a pre-set form, it cannot be negotiated or amended. But as you know, everything can be negotiated.

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Below is a summary of some provisions in the AIA contract that you should pay particular attention to and if needed, should be negotiated in a way that helps your clients. While we are lawyers, the list below should not be taken as legal advice for you or your clients. Each deal and client is different and may require a different review of the contract. Should you need a legal review of a contract, please contact us.

PERIOD OF PERFORMANCE

Make sure that the commencement date and the substantial completion date of the project is a timeframe that makes sense and works for you. Not completing a project on time can lead to delay costs including liquidated damages and other ancillary costs of additional project construction.

PROGRESS PAYMENTS

Contractors want most of their payment at the beginning stages of the project while the other party always wants to hold money for substantial completion. You can negotiate the amounts and trigger dates for payment so that you can protect your client against delays in the project.

INDEMNIFICATION

Indemnification means that one contractual party agrees to assume responsibility for certain judgments resulting from third-party claims against the other party. This clause deserves special attention in every contract and should at the very least be made mutual so that each party gets its costs covered if it is sued because of something caused by the other party.

DELAYS

Delays are inevitable in many different kinds of projects. But the risk of dealing with the fallout from project delays can be managed through contract negotiation. You don’t want your client to bear the brunt of delay costs caused by the other party. Liquidated damages or other compensable damages can be negotiated here.

CONCLUSIONS:

Although the AIA contract is seen as a boilerplate static document, there are important provisions that should be on your radar and amended if necessary so that your client is protected. We suggest that any amendments be drafted by an attorney with experience in construction and ancillary industries.

For more information contact:

Marc Snyderman, Esq.
Snyderman Law Group
923 Haddonfield Road, Suite 300
Cherry Hill, NJ 08002
856.324.8267
E-mail: marc@snydermanlawgroup.com
Website: snydermanlawgroup.com

 

Antonella Colella, Esq.
Snyderman Law Group
923 Haddonfield Road, Suite 300
Cherry Hill, NJ 08002
856.324.8267
E-mail: antonella@snydermanlawgroup.com
Website: snydermanlawgroup.com

Why Commercial Property Investors are Overpaying on Income Taxes

Commercial Property Investors are Overpaying on Income Taxes

Commercial Property Investors are Overpaying on Income Taxes

Did you know that 9 out of 10 property investors are overpaying on income taxes? Year after year, the Federal Government has continued to incentivize those who invest in Commercial Property.
The IRS has established guidelines that, if ignored, cause commercial real estate investors to pay more in taxes
than they should.

What guidelines are being ignored by Commercial Property Investors? Those revolving around Accelerated
Depreciation; known in the taxation world as Property Cost Segregation.

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RAMIFICATIONS OF IMPROPER DEPRECIATION ALLOCATION
Most commercial property investors do not truly understand the substantial benefits of accelerated depreciation.
This is evidenced by our analysis of thousands of depreciation schedules over the years. We have found less
than 10% of investors are properly depreciating their properties. The most common misconception is, “I am
going to get this money anyway”. Is this a true or false statement?

Reasons Commercial Property Investors are Overpaying on Income Taxes

1. Capital Gains vs Ordinary Income Rates
Although the mechanics of these calculations are not always as simplistic as we will be making it for this
example, the short response is – increased depreciation leads to paying taxes at the capital gains rate as
opposed to the ordinary income rate. Since capital gains rates are likely much lower than the Investor’s income
tax rate, they would benefit from accelerated depreciation.

2. Time Value of Money
Simply put, your dollar is worth more today than it will be in the future. A tax dollar saved today therefore is
worth more than a tax dollar saved in the future. Why lock up a tax savings in your property for 27-39 years
when you can receive it today?

3. Catch-Up Depreciation
If you have not completed a Cost Segregation study on your property that you have held for a period of time,
did you know that you can capture your entire missed benefit immediately? The IRS allows you to complete a
481 adjustment thus enabling you to catch up all the missed accelerated depreciation into the current tax year.
This provision alone could save you hundreds of thousands immediately!

4. The Power of Cash in hand
You are a real estate “investor”. This means you understand the investing power of having funds in your hand
today. Cash today [in the form of tax savings] enables you to invest in additional properties. The benefits of this are exponential and allow continued growth of your investment portfolio. Correct allocation of real estate
depreciation is essential for Commercial Property Investors to effectively manage their tax situation. Are you
one of the 90% who are missing out on opportunities that 10% of your competitors are capturing?

Protecting Goodwill and Intellectual Property

Protecting Goodwill and Intellectual PropertyImagine building a company that took years to gain momentum, thousands of hours of labor, sleepless nights, hundreds of thousands of dollars in costs, and second mortgages on houses to obtain bank financing. Through your hard work and risk, the company is now financially successful and has established itself as a prominent provider/seller of [insert good or service here].

Unfortunately, your business did not a) adequately protect its intellectual property or b) conduct due diligence to ensure that the intellectual property it used was its own.

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Now, a competitor’s product/service has a distinctly similar name, a different competitor is using a markedly similar logo, and yet another competitor poached your employee who did not have a non-disclosure agreement/non-competition agreement and is now utilizing your company’s trade secrets against you. To top it all off, your company just received a cease-and-desist letter from a corporation on the other side of the country alleging that the company’s slogan infringes on their trademark.

These are but a few of the many scenarios that could occur when a company does not take proactive legal measures to protect its goodwill and intellectual property, and was likewise using intellectual property haphazardly and without ensuring that there was no other owner of that intellectual property or that appropriate licensing was obtained.

In an era of global business and competition, the names, logos, and slogans of products and services, trade secrets, and other intellectual property often start off with little commercial value, but upon establishing goodwill for the business and/or creating a popular product or service, the value of a trademark can exponentially increase. For instance, Forbes estimated the value of the trademark for Google® at over $40 billion dollars, or more than one-quarter of the company’s overall value (at the time o f the Forbes publication).

However, the value of trademarks and other intellectual property is not limited only to the technology industry. The same is true for real estate entities, developers, and affiliated businesses. Think of notable brands in real estate and development and it is trademarked – i.e. PREIT®, Vornado®, Toll Brothers®, Ryan Homes®, Chicago Title Insurance Company® – and the list goes on.

As such, this blog provides a basic overview of the three most common types of intellectual property encountered by small and medium-sized businesses.

Intellectual Property – TRADEMARKS

Most basically, a trademark is a brand name. A trademark or service mark includes any word, name, symbol, device, or any combination, used or intended to be used, to identify and distinguish the goods/services of one seller/provider from those of others, and to indicate the source of the goods/services. For instance, the words Facebook® and Microsoft® are both trademarked, as is Apple Computers’ partially bitten apple logo, and both McDonalds’s golden arches and its slogan “I’m loving’ it.”

Because trademarks serve as an indicator of the mark owner’s goodwill, federal trademark law was established to protect the unsuspecting public from confusing products/services and to prevent against attempts by unscrupulous competitors to deceive the public.

Federal trademark rights may be established by either being the first to use a mark in interstate commerce (a Section 1(a) filing), or a pr ospective mark may be reserved prior to use by filing an in tent-to-use application (a Section 1(b) filing). Although the law generally provides that the first user of the mark is entitled to legal protection, with or without a federal trademark registration, federal registration provides significant additional value as it allows for the ability to recover profits, damages, and costs against infringers, national notice of ownership of the mark, the presumption of the validity of the mark, access to federal courts, as well as incontestability status for the mark after five years of federal registration.

State registrations are also available, but do not offer the national, comprehensive protection of a federal trademark registration. In light of the significant benefits of federally registering trademarks (names, logos, and slogans), the ever-increasing value of intellectual property and goodwill to all businesses, the need to protect and distinguish a mark from that of a competitor, and to avoid claims of infringement, businesses must look closely at protecting their brand through trademark protection and likewise ensure their marks are not infringing on those of another business.

Intellectual Property – COPYRIGHTS

Similarly, copyrights protect literary, musical, artistic, and dramatic works such as novels, photographs, movies, songs, etc. Copyrights can also protect creative works outside of the entertainment industry, including articles, blog postings, course materials, advertising materials, designs, graphs, charts, etc.

Unlike a trademark which requires federal filing, a work is copyrighted as soon as it is created. However, benefits are gained by registering a work with the United States Copyright Office. Promptly filing the copyright notice allows the holder to file a copyright infringement lawsuit, provides prima facie evidence of the validity of the copyright, and also provides the holder with the ability to obtain certain damages and attorney’s fees upon prevailing in a copyright infringement lawsuit.

Conversely, while not all businesses produce copyrightable works, businesses must remain cognizant of utilizing the works of others without appropriate rights or licensing. The most common scenario for a business being sued for inadvertently infringing copyrights are entertainment/restaurant establishments showing professional sports games without an appropriate commercial license or playing music without an ASCAP license. However, businesses can also face infringement actions for using copyrighted images on their website, reproducing a chart, or other seemingly innocuous activities.

In short, creators benefit from copyright protection and should register the works they have created, and business (or anyone else) using copyrighted material should be aware of the licensing requirements prior to using such works in a commercial environment.

Intellectual Property – TRADE SECRETS

Trade secrets, confidential information, proprietary information, and the like, encompass a wide variety of information that a business intends to keep secret and which those outside of the business are not afforded access. Most famously, McDonalds’s Big Mac sauce and the recipe for Coca-Cola are such types of information. However, more mundane information that almost all businesses utilize may qualify as a trade secret or otherwise necessitate protection from general release to the public. This includes customer/client lists, vendor/supplier lists, processes, know-how, business plans, marketing plans, information on prospects, customer/vendor habits and preferences, financial/financing information, creations, inventions, intellectual property (even if unregistered), etc.

Trade secrets are protected at both the state and federal levels, and many states utilize the Uniform Trade Secrets Act as a basis for defining a trade secret and cause of action thereunder. While not all proprietary or confidential information constitutes a trade secret under statute, a substantial amount will. A trade secret is often defined as information with economic value that is not generally known to other persons or is easily ascertainable, and the owner of the information has taken reasonable efforts to maintain its secrecy.

Given the immense value of intellectual property, businesses must take appropriate efforts to safeguard their trade secrets, both ensuring internally that employees do not take such information with them to another employer or otherwise use the information for their own benefit, and externally, so that such information is not otherwise obtained by a competitor.

Conversely, in hiring an employee or engaging a contractor, a business must ensure that the potential employee/contractor is not disclosing protected trade secrets of a prior employer which could drag the business into a lawsuit for trade secret misappropriation.

As such, businesses should identify all of their trade secrets and employ appropriate electronic and physical safeguards to protect such information. Likewise, businesses should actively utilize confidentiality agreements with anyone privy to the business’s trade secrets to further protect against disclosure.

CONCLUSION

As intellectual property is a key asset to many businesses in the information economy, and is nevertheless important for protection of any business’s goodwill, it is essential to proactively protect intellectual property through means of trademark, copyright, or trade secrets protections, and to likewise remain cognizant of the intellectual property of others’ so as not to be subject to an infringement action.

Is It Time to Refresh or Expand Your Space?

Refresh or Expand Your SpaceYour business is growing and you like your current location, so you’ve decided to renew your lease and either refresh or expand your space. GREAT!

Ready to expand your space? Did you call the movers yet?

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That’s right. Movers. And contractors. And space planners. And IT specialists. And a host of other vendors that you haven’t even thought of yet. When you’re staying in the same location, the reality is that the To Do list can seem almost as overwhelming as if you were pulling up stakes and starting all over in a new venue. Because you ARE starting in a new venue. The address may be the same, but how you utilize the space to maximize productivity is a rare opportunity you need to take full advantage of. You have two options: refresh or expand. To capitalize on either one of these options, you need a detailed staging and logistical plan to minimize downtime and keep your employees as close to 100% productivity while you update or expand.

So where do you start? You hire a professional logistics management team to shoulder the responsibility of planning and executing the project. No matter how big or small your space, here’s what an experienced logistics management team brings to the table for each option…

OPTION #1: Refresh Your Space

Also called an office restacking, you need to look at this type of project as an employee retention tool. No doubt your business has markedly changed over the last 10 years, so your office environment needs to evolve to best support that shift in culture. Restacking changes and improves the look and feel of the work environment, and by redefining the space to include collaboration rooms/workspaces, you can change the corporate culture in the  link of an eye to catch up with the times. A refresh re-energizes your employees, and shows you value their presence. New paint, carpeting, furniture, lighting, bathrooms, and more will make employees happier when they are at work, and warmly welcome new clients into your space when they visit. It’s a win-win.

OPTION #2: Expand Your Space

Here the biggest opportunity is to redefine the space. Are you adding new employees? Consolidating employees
from another location? Expanding the space for client interaction? A space planner will help you understand how much new space you really need (square footage/head count), and how much you should allot to common areas, workstation areas, private office areas, client showrooms, product production space, etc. An experienced logistics management team knows exactly what questions to ask to make sure you have the most comprehensive staging and logistics plan possible, so no detail is overlooked and no opportunity is missed:

(1) Where are you going to temporarily move active files and personal contents during your office refresh or expansion?

(2) Does the furniture have to be removed (new carpet installation) or just lifted in place (carpet tile installation)?

(3) Should you upgrade the furniture, or re-use what you have?

(4) How can you maintain productivity when computers or data centers need to be disconnected, moved, and reconnected?

The bottom line is refreshing and/or expanding your office requires careful thought and planning to keep your business thriving. The right logistics management team will help you hit the ground running as you launch your business into its next growth stage!

About Argosy Management Group, LLC

Argosy Management Group (AMG) is a leader in office relocation and logistics project/move management. AMG services companies throughout the U.S. and worldwide. AMG delivers a wide range of comprehensive services:  move management and transition planning, space planning and furniture needs, office and industrial relocation and liquidation, storage solutions and asset management, furniture disassembly and installation, IT/ data center relocation, and rigging.

For more information, contact: Shawn O’Neil at 609-744-4112 or Paul Sipera at 609-760-8312, or visit
www.argosymg.com

Installment Sale of Commercial Real Estate Properties

Installment Sale of Commercial Real EstateLet’s explore using an installment sale to evenly distribute tax liabilities stemming from a commercial real estate transaction. Do you own a property that has appreciated considerably and that you want to sell? Are you concerned about incurring a large capital gains tax liability or worse – ordinary income recapture? One option is to structure the sale as an installment sale. Here the buyer pays the cost of the property plus interest in regular installments, perhaps for 5 years, enabling the seller to reflect the gain for tax purposes over the entire payment period. Alas, the installment sales method can’t be used for the following:

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• Sale of inventory. The regular sale of inventory of personal property doesn’t qualify as an installment sale even if you receive a payment after the year of sale.

• Dealer sales. Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan aren’t installment sales. This rule also applies to real property held for sale to customers in the ordinary course of a trade or business.

• Stock or securities. You can’t use the installment method to report gain from the sale of stock or securities traded on an established securities market. You must report the entire gain on the sale in the year in which the trade date falls.

Items to note about installment sale transactions:

• Installment obligation. The buyer’s obligation to make future payments to you can be in the form of a deed
of trust, note, land contract, mortgage, or other evidence of the buyer’s debt to you.

• If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you
elect out of using the installment method.

• Sale at a loss. If your sale results in a loss, you can’t use the installment method. If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale.

• Unstated interest. If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have to figure unstated interest, even if you have a loss.

Sellers who decide on this strategy are cautioned, however, that an installment sale carries more risk than an outright sale of the property. Here are some areas of concern this CPA believes the seller must review in depth with his/her seasoned attorney (and if you need one you can call us at Abo and Company or my buds at WCRE): Carefully assess the creditworthiness of the buyer and possibly obtain personal guarantees if the purchaser is a business; Evaluate the future income producing capability of the property to make sure it provides sufficient
cashflow to enable the buyer to make the payments; Use an interest rate competitive with current market rates so as not to squash the deal; and Obtain a significant enough down payment, perhaps at least 20%, to have a cushion if buyer default occurs, and to cover the expenses if foreclosure becomes necessary. Business property transactions are often complex, and the services of knowledgeable professionals can be vital in developing strategies that make it possible to bring a contemplated transaction to a successful conclusion.

FOR MORE INFORMATION:

Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, LLC and its affiliate, Abo Cipolla Financial Forensics, LLC, Certified Public Accountants – Litigation and Forensic Accountants. With offices in Mount Laurel, NJ and Morrisville, PA, tips like the above can also be accessed by going to the firm’s website at www.aboandcompany.com.