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Let’s look at New Jersey Marijuana Reform and Commercial Real Estate. Governor Phil Murphy campaigned on a pledge to fully legalize marijuana in New Jersey. On January 23, 2018 he signed an Executive Order directing a complete review of New Jersey’s existing medical marijuana program within 60 days, which sets the stage for legalizing recreational marijuana. Presently, only medical marijuana is legal under a New Jersey law enacted in January 2010. Likely marijuana reform presents unique real estate investment opportunities and will probably increase the demand for commercial and industrial real estate. However, there are significant risks that must be carefully considered before making any investment decisions, including criminal and civil liability (including property seizure) if federal laws are enforced, and a limited number of potential lenders and buyers.
Opportunities Associated with New Jersey Marijuana Reform
New Jersey Marijuana Reform presents a unique opportunity to be capitalized upon by risk tolerant investors willing to invest in real estate and benefit from the cannabis trend. Vacancy rates may decline based on the experience in other states following marijuana legalization and expansion, where cannabis suitable commercial real estate became hot commodities.
For example, in four states with legalized recreational cannabis (i.e. California, Colorado, Oregon and Washington), industrial real estate prices surged. In some Denver neighborhoods, the average asking lease price for warehouse space reportedly jumped by more than 50 percent from 2010 to 2015. Industrial space has been in high demand due to both marijuana growers and manufacturers seeking industrial warehouses to cultivate and process their product. Commercial real estate prices have also experienced double digit annual increases in some markets.
Risks Associated with New Jersey Marijuana Reform
The federal government does not recognize a legitimate medical use of cannabis and can impose criminal or civil liability under the Controlled Substances Act. Marijuana is currently classified as a Schedule I drug, which puts it
under the same category as heroin, cocaine, peyote, meth and fentanyl. It is currently illegal under federal law
to lease or rent real estate for the purpose of manufacturing or distributing any controlled substance. However,
the Department of Justice can direct the enforcement of these laws differently between administrations, as the
Obama Administration issued guidance discouraging the enforcement of federal marijuana laws in states where it had been legalized. United States Attorney General Jeff Sessions has long been strongly opposed to the legalization of marijuana and there is a fear of federal enforcement among owners, developers and lenders as long as the federal and state positions remain at odds. It is tough to make long term real estate investments without clarity predicated on the assumption that the federal government will not enforce its own laws.
Banks traditionally answer to federal regulators and risk losing their licenses by dealing with marijuana businesses. Federal banking laws also prevent banks from lending to or accepting deposits from illegal businesses. The federal government is also allowed to seize property. Thus, obtaining financing from traditional sources and collecting rents is difficult. Borrowing costs will therefore likely be higher than a typical real estate transaction, and tenants may be limited to properties that are owned free and clear of traditional financing.
Therefore, many companies that get into the marijuana business try to buy and control their own real estate. If the state approves expansion, it will probably issue licenses allowing business to legally sell recreational marijuana in designated places, and businesses must find a local jurisdiction that will allow them to operate.
Towns will need to change their zoning ordinances to allow for such uses.
What Does This Means for Commercial Real Estate Investors?
Higher risks will likely translate into higher rents for commercial and industrial landlords based on anecdotal evidence seen in California, Colorado, Oregon, Washington and other states that have permissible marijuana laws. Developers, landlords and investors with a suitable risk tolerance should closely follow the state’s progress in introducing and passing legislation to accomplish Governor Murphy’s goals and evaluate potential opportunities and risks. They should also monitor subsequent municipal efforts to accommodate such uses by amending their zoning ordinances, and work to identify potential opportunities in suitable locations.
The contents of this article are for informational purposes only and none of these materials offered are, nor should be construed as, investment advice, legal advice or a legal opinion based on any specific facts or circumstances.
What is a commercial relocation concierge, and do they really add value to your project? Let’s get one thing out of the way right up front: a commercial relocation concierge is not some made-up millennial job description. A commercial relocation concierge is an expert that you partner with when you are considering moving or expanding your office. They are the ones who crunch the numbers, draw up the timeline, coordinate all the subcontractors, and develop the move plan. They’ll be the one qualified to answer the question, “What’s the most cost effective way to transition to a new space?”.
A top-notch commercial relocation concierge has the connections for everything — space planners, IT/data center relocation, phone and furniture procurement, contractors, rigging services, and so much more. They know the right vendor for every job, and the right price that should be charged. Any client that thinks they can vet the vendors and negotiate a better price as their own general contractor might better think twice. Just the risk management liability alone is enough to make you scramble to find a relocation concierge ASAP.
And here’s the best part: including a Relocation Concierge on a project benefits the landlord by protecting the integrity of the real estate, and benefits the tenant by protecting their security deposit. It’s a win-win for everyone!
So what responsibilities can a commercial relocation concierge take off your plate?
• Relocation plan & objectives
• Goals & budgeting
• Space evaluation & planning
• Asset inventory/furniture analysis
• Furniture Liquidation & Procurement
• Transportation & Logistics
• Contents move plan and asset liquidation
• IT/Data center migration
• Phone system/cabling
• Facility Decommissioning
So what is the takeaway from all of this? Simply that companies that focus all their time and effort on the “hard costs” of relocation or expansion will be blindsided by the much more important “soft costs” of a transition. There are the obvious hard costs associated with any move — packing, moving, etc. But then there are the less tangible soft costs you need to consider — lost productivity, efficiencies of timing/scheduling, IT testing, risk management, etc. A commercial relocation concierge minimizes your company’s exposure to lost revenue by reducing the distraction to your core business and curtailing down time. You’re an expert at what you do, so why not let a commercial relocation concierge handle all the logistic details for you!
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 services.
Let’s look at air quality management for commercial buildings. The health of your property’s occupants can be jeopardized by poor air quality, and it is your responsibility to provide a healthy indoor environment, whether it is protecting against airborne infections like H1N1 or pollutants from equipment. From mechanical problems like a faulty exhaust fan to the measure of air volume exchanges, there are many factors that are easily overlooked. An Indoor Air Quality Management Plan is a good way to ensure that residents’ health is not endangered by the air in the building.
The plan you design must address the specific needs of each space, and should never be limited to HVAC maintenance. The task should be assigned to one person who is charged with identifying problem locations and staff whose activities might affect the quality of the air.
Air Quality Management Practices
(1) STUDY THE EXCHANGE RATE
The air volume exchange rate is a factor that property managers must consider. The American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) recommends a minimum exchange of ten cubic feet per minute per person in an indoor environment. This rate can be tested by a certified engineer. If your rate is too high, you will be alerted to problems like a faulty variable air volume box.
(2) TAKE STEPS TO IMPROVE YOUR AIR QUALITY MANAGEMENT PLAN
Ensure that you will easily be able to update your plan for any legislative or other changes that affect air quality. Follow these guidelines for creating a plan that is appropriate to your situation:
• Consult the Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA) for advice on the maintenance of air quality if you renovate or add on to your property.
• Schedule routine maintenance of motors, fan belts and filters with certified mechanics. Revisit everything every 90 days.
• Specify filter selection and maintenance. If the property has mixed uses, each occupant should have a separate filter schedule:
• Specify which Minimum Efficiency Rating Value (MERV) is necessary in the filter. The higher the number, the higher the filtration rate.
• In sensitive environments, use a high efficiency particulate air (HEPA) filter.
Design procedures for reacting to complaints by occupants, including those regarding humidity or odors. Air quality professionals may be able to analyze air samples to identify appropriate solutions, which might include dehumidifiers or air scrubbers.
• Verify that all cleaning products comply with Environmental Protection Agency (EPA) standards.
(3) WORK WITH OCCUPANTS
Inform your occupants your air quality plan, and ask for their help in maintaining good air quality. There are steps occupants can take to improve air quality, including the following:
• Refraining from smoking within 25 feet of the building
• Using entryway cleaning systems, such as grills and mats, to reduce the amount of dirt, dust and pollen that enters the building
• In sensitive environments, using ultra-violet lights to kill bacteria circulating in the air
For more air quality management and loss prevention tips, contact Hardenbergh Insurance Group. Our insurance specialists are available to help you solve your property and casualty issues.
Brian Blaston, Partner
Hardenbergh Insurance Group
phone: 856.489.9100 x 139
Let’s take a quick look at some 2018 tax law changes affecting commercial real estate tax deduction restrictions. Below please find some insight into recent tax changes affecting commercial real estate tax deductions.
Here are some items that come to mind:
(1) The Tax Cuts and Jobs Act enables investment real estate owners to still defer capital gains taxes using section 1031 like-kind exchanges. There were no new restrictions on 1031 exchanges of real property made in the law. However, the new law repeals 1031 exchanges for all other types of property that are not real property. This means like-kind exchanges of personal property will no longer be allowed after 2017 for collectibles, franchise rights, heavy equipment and machinery, collectibles, rental vehicles, trucks, etc. The rules apply to real property not generally held for resale (such as lots held by a developer).
(2) The capital gain tax rates stayed the same so a real estate owner selling an investment property can potentially owe up to four different taxes: (1) Deprecation recapture at 25% (2) federal capital gain taxed at either 20% or 15% depending on taxable income (3) 3.8% net investment income tax (“NIIT”) when applicable and (4) the applicable state and local tax rate.
(3) The tax law creates a new tax deduction of 20% for pass-through businesses. This gets tricky but here goes. For tax years 2018-2025, an individual generally may deduct 20% of qualified business income from a partnership, S corporation, or sole proprietorship. The 20% deduction is not allowed in computing Adjusted Gross Income (AGI), but is allowed as a deduction reducing taxable income.
Restrictions on Tax Deductions
(1) Mostly, the deduction cannot exceed 50% of your share of the W-2 wages paid by the business. The limitation
can be computed as 25% of your share of the W-2 wages paid by the business, plus 2.5% of the unadjusted basis
(the original purchase price) of property used in the production of income.
(2) The W-2 limitations do not apply if you earn less than $157,500 (if single; $315,000 if married filing jointly).
(3) Certain personal service businesses are not eligible for the deduction, unless their taxable income is less than
$157,500 for singles and $315,000 if married. A “specified service trade or business” means any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. (It appears President Trump liked real estate people but did not like professionals like lawyers, doctors, accountants and other consultants).
(4) The exception to the W-2 limit and the general disallowance of the deduction to personal service businesses is phased out over a range of $50,000 of income for single taxpayers and $100,000 for married taxpayers filing
jointly. By the time income for a single taxpayer reaches $207,500 or $415,000 for a married-filing-jointly
taxpayer, the W-2 limitation will apply in full (i.e. personal service professionals get no deduction).
(5) The new tax law increased the maximum amount a taxpayer may expense under Section. 179 to $1,000,000 and increased the phaseout threshold to $2,500,000. Interestingly, the new law also expanded the definition of Section. 179 properties to include certain depreciable tangible personal property used predominantly to furnish lodging. It also expanded the definition of qualified real property eligible for Section 179 expensing to include the following improvements to nonresidential real property: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems
(6) State and local taxes paid regarding carrying on a trade or business, or in an activity related to the production of income, continue to remain deductible. A rental property owner can deduct property taxes associated with a business asset, such as any rental properties. Don’t confuse such with the itemized deduction for your personal residence or vacation home which is now limited.
(7) While the prior law generally allows a deduction for business interest expenses, the new tax act limits that deduction to the business interest income plus 30% of adjusted taxable income. However, taxpayers (other than tax shelters) with average annual gross receipts for the prior three years of $25 million or less are exempt from this limitation. Real estate businesses can elect out of the business interest deduction limitation, but at the cost of longer depreciation recovery periods—30 years for residential real property and 40 years for nonresidential real property. If a real estate business does not elect out of the interest deduction limitation, then residential and nonresidential real property depreciation recovery periods are maintained at 27.5 years and 39 years, respectively.
Phew-there you have taste of what we’re going or at least as we see general changes directly or even indirectly
affecting real estate peeps. As you can see, the new law will bring a lot of changes (both good and bad) to individual and business taxpayers. On the plus side, this means more planning opportunities for many although looking for answers can be problematic as we all try to navigate through uncertain territory. These comments only touch the surface of one of the biggest tax overhauls in the nation’s history. Stay tuned and do stay close to your tax attorney and accountant.….
Let’s take a look at New Jersey Construction Lien Law. For builders and contractors alike, the words “construction lien” can be anxiety inducing. Contractors, on the one hand, know that a lien can be a valuable tool for recovering outstanding money; however, the requirements of a New Jersey Construction Lien Law claim are not intuitive, and failure to strictly comply with statutory requirements may result in a waiver of lien rights. Owners, on the other hand, know that encumbrances, even wrongfully filed ones, may threaten the timing of a transaction and cause unforeseen expenses.
The New Jersey Construction Lien Law, N.J.S.A. § 2A:44A:1 et. seq. (“Lien Law”), contains many specific provisions and must be carefully followed. A few essential pointers are highlighted below.
New Jersey Construction Lien Law for Claimants:
1. The filing requirements for lien claims in commercial and residential projects are very different. For commercial construction projects, a lien claim must be filed in the county where the project is located within 90 days of the last date that work, services or material were provided to the project. For residential construction projects, a Notice of Unpaid Balance (“NUB”) is a prerequisite to the filing of a lien claim and must be filed within 60 days of the last date that work, services, or material were provided. There are numerous additional requirements that flow from these preliminary deadlines. Claimants must be cognizant of the type of job they are performing in order to ensure that they do not violate filing deadlines.
2. Be aware of the “last date” of work. Under the Lien Law, the “last date” on which work, services or materials were provided marks the date on which the clock starts ticking on a contractor’s right to file a lien. For practical purposes, contractors should interpret the “last date” as the date on which they achieve substantial completion. Contractors often mistakenly assume that because they were still “on the job,” that the clock did not start to run on their lien rights. This is an incorrect assumption. “Punch list,” warranty, or other corrective work will not extend the deadline for the filing of a lien claim or notice of unpaid balance.
3. Be sure that the contract and all change orders are accepted in writing. Contractors have no right to file a lien claim in connection with work that was not performed pursuant to an executed contract or change order. Handshakes and verbal directives in the field will not pass muster, regardless of whether the work was accepted and approved. Contractors that do not have written agreements may be able to recover payment through a separate lawsuit for breach of contract, however, they will not have lien rights.
4. Do not forget to actually file suit on the lien claim, and to do so on time. A lien claim is a pre-requisite to a lawsuit, but it is not an actual lawsuit. Short of settlement, in order to obtain payment after the filing of a lien claim, the claimant must file a legal action based upon the lien claim. This must be done, not within 1 year of the filing of the lien claim, but within 1 year of the last date of work. It is critical that a claimant understand this distinction and meet the deadline for filing.
New Jersey Construction Lien Law for Owners:
1. Obtain a lien release and waiver with each payment. Owners should not make payments for work, services
or material without simultaneously receiving corresponding progressive, written lien releases and waivers
from their contractors and suppliers. Contractors should, in turn, should be required to obtain releases and waivers from their own subcontractors and suppliers.
2. Consider using joint checks. Making payment by joint check can help ensure that funds reach their intended destination and prevent claims for non-payment by lower tier subcontractors and suppliers.
3. Consult with counsel to scrutinize the filing. Experienced counsel will be able to determine whether any number of substantive or technical requirements have been violated by a given lien claim, including but not limited to: filing deadline errors, service errors, improper identification of the property or project, whether a balance is overstated, whether a claimed balance is based upon a sufficient writing, and whether the claimant is a proper claimant given its tier. Claimants who file improper or overstated lien claims may be forced to pay costs associated with discharging the wrongfully filed lien, such as attorney’s fees.
4. Post a bond. Particularly in instances in which a property is pending sale or transfer, the owner or its contractor (if the lien is filed by a lower tier subcontractor) may post a bond with the clerk of the county where the lien was filed in an amount equal to 110% of the lien claim. The county clerk will then mark the lien as discharged. The claimant’s rights will be unaffected, but the property will be free of the lien, and the pending transaction should be able to proceed. There are carrying costs associated with the posting of a bond; however, use of a bond can be a valuable tool in many instances. If a bond is posted, consider the option of demanding that the claimant file suit within 30 days in order to accelerate resolution of the matter.
The Lien Law is a highly technical statute with numerous requirements; however, when used correctly, it can be a tremendous vehicle for recovery. Claimants and owners should always confer with counsel in order to ensure that their rights and interests are effectively guarded.
Want More Information on New Jersey Construction Lien Law?
The contents of this article are for informational purposes only and none of these materials is offered, nor should be construed, as legal advice or a legal opinion based on any specific facts or circumstances.
Daniella Gordon, Esquire
Hyland Levin LLP
6000 Sagemore Drive, Suite 6301
Marlton, NJ 08053-3900
New Jersey Property Tax Appeal Reminder – During the next several weeks, New Jersey real property taxpayers will receive their annual (property tax) green postcards indicating 2018 assessments. The period to file a challenge to a 2018 assessment runs from February 1 to April 1, 2018. The April 1 deadline may, however, be adjusted to the later date of 45 days from the bulk mailing of the green postcards and in municipalities where there is a revaluation, the deadline may be May 1, 2018. It is the amount of the assessment – not the property tax amount – that can be challenged. A taxpayer may be entitled to a reduction if the assessment (after applying the municipality’s equalization ratio) is more than 15 percent higher than the fair-market value as of the valuation date: October 1, 2017. A prerequisite to filing an appeal is the payment of all property taxes and other municipal charges through the first quarter of 2018. Failure to respond to a property tax assessor’s prior request for income and expense information (known as Chapter 91 requests) makes a property tax appeal subject to dismissal, regardless of the appeal’s merits. Assessments greater than $1,000,000 may be challenged directly with the Tax Court of New Jersey or filed with the applicable County Board of Taxation.
We are available to review the assessments and property tax exemptions of New Jersey retail, office, industrial and commercial properties.
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 landlords, tenants, investors, developers, banks, commercial loan servicers and companies, guided by our total commitment to our clients and our community. Our team is devoted to building successful relationships, and we provide each client the highest levels of responsiveness, attention to detail, and communication even after the transaction is complete.
In 2014, 2015 and 2016, WCRE was selected by CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics and online marketplaces, to receive a CoStar Power Broker TM Award. This annual award recognizes the “best of the best” in commercial real estate brokerage by highlighting the firms and individual brokers who closed the highest transaction volumes in commercial property sales or leases within their respective markets. WCRE received the Top Brokerage Firm award for their region.
Our rapid growth is proof that our approach works. We now oversee more than 175 properties comprising 3.9 million square feet under our exclusive representation and management. But while these numbers are impressive, we know that numbers are only part of our story. We are even more proud to have built a company that has become an indispensable part of our community and earned the trust of many of the most influential players in our region.
SOUTHERN NEW JERSEY & PHILLY CRE MARKETS FINISH A STRONG 2017 WITH STRONG FUNDAMENTALS BUT MIXED RESULTS
January 8, 2018 – Marlton, NJ – Commercial real estate brokerage WCRE reported in its latest quarterly analysis that the Southern New Jersey market is in largely good shape, despite a seasonal drop in leasing activity.
“Aside from an expected leasing slow-down in the fourth quarter, 2017 was a strong year for our market,” said Jason Wolf, founder and managing principal of WCRE. “All the elements for success are in place, including a labor market that is heating up, record gains in the financial markets, and continued deal and prospecting activity and enthusiasm.”
There were approximately 210,525 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which was about half the total compared with the previous quarter. While leasing slowed considerably, the sales market stayed active, with more than 1.88 million square feet on the market or under agreement and an additional 205,364 square feet trading hands.
New leasing activity accounted for approximately 25.7 percent of all deals. Overall, net absorption for the quarter was in the range of approximately 65,250 square feet.
Other office market highlights from the report:
- Overall vacancy in the market is now approximately 10.1 percent, which is an uptick of a third of a point from the previous quarter.
- Average rents for Class A & B product continue to show strong support in the range of $10.00-$14.50/sf NNN or $20.00-$24.50/sf gross for the deals completed during the quarter. These averages have stayed within this range for most of this year.
- Vacancy in Camden County improved throughout the year, standing at 11.7 percent for the quarter, up a bit from the third quarter, but down from 13.3 percent at the beginning of the year.
- Burlington County vacancy was at 8.5 percent, a slight increase in a year that saw marked improvement overall.
WCRE has expanded into southeastern Pennsylvania, and the firm’s quarterly reports now include a section on transactions, rates, and news from Philadelphia and the suburbs. Highlights from the first quarter in Pennsylvania include:
- Philadelphia’s office market saw increasing vacancy in the Central Business District during 2017, as several large tenants emphasized efficiency and returned large blocks to the market. Still, we see increasing employment and new construction, both of which bode well for continued strength.
- The Philadelphia retail sector continues to struggle. It has been affected by the same challenges facing retail businesses everywhere. Namely, the shift to online retailing. Still, there were some positive signs amid the announced store closings and bankruptcies. Community shopping centers remain an area of strength in the market, with vacancy rates nearly half the national average.
- The Philadelphia industrial market continues its hot streak, and the outlook is positive. Vacancy rates for flex and industrial properties in Philadelphia are well below the regional and national averages, and this is expected to continue. Industrial vacancy in Philadelphia is currently at 7 percent, and net absorption was in the range of 1.7 million square feet.
WCRE also reports on the Southern New Jersey and Philadelphia retail market, noting that holiday spending reached the highest levels since 2011, with both online and brick-and-mortar retailers reaping gains. Overall holiday retail sales posted gains of 4.9 percent over last year, with online retailers gaining 18.1 percent. Other highlights from the retail section of the report include:
- Retail vacancy in Camden County stood at 8.5 percent, with average rents in the range of $12.75/sf NNN.
- Retail vacancy in Burlington County stood at 9.9 percent, with average rents in the range of $13.83/sf NNN.
- Retail vacancy in Gloucester County stood at 7.2 percent, with average rents in the range of $14.64/sf NNN.
The full report is available upon request.
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.
January 8, 2018 – Marlton, NJ – Wolf Commercial Real Estate (WCRE) proudly announces the promotion of Chris Henderson to Principal and Shareholder of the firm effective January 1, 2018. Chris Henderson joined the firm in 2014, and was previously promoted to vice president at the end of 2016. He has been recognized for his tremendous leadership skills, collaborative approach, entrepreneurial spirit, and a boundless work ethic that has served him well within the company and the community.
“Chris’s new role within the company is well deserved, and I am proud to welcome him to the WCRE partnership,” said Jason Wolf, Managing Principal of WCRE. “Our firm’s growth and success relies on the strength and development of our team, our clients, and our communities. Chris has helped to define the integrity, quality, teamwork, and focus that are the essence of the WCRE brand.”
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.moorestownofficespace.com, www.moorestownmedicalspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.
Let’s look at how the recent tax reform bill impacts commercial real estate. The Tax Cuts and Jobs Bill was signed into law on 22 December 2017. The tax reform bill is one of the most substantive changes to the tax laws passed in over 30 years. With the current administration’s background in commercial real estate and understanding of the challenges in the industry, it’s no surprise that certain provisions would be included that might help propel real estate development and commercial real estate transactions. Here’s a quick summary of a few of the critical pieces that affect the commercial real estate business. This isn’t a full compendium or review of the bill and it’s not tax advice but it will help guide you in developing some strategies to take advantage of these laws with your CPA in 2018.
Tax Reform Bill Lowers Taxes on Pass Through Corporations
Pass-through businesses—partnerships, S-corporations, and limited liability companies—are corporate entities that allow business income to “pass-through” to the owner, thereby paying a personal income rate, as opposed to a business rate. For most this is a tax cut from 40% down to 25%. So, let’s say you have a rental income entity organized as an LLC, this new regulation could be significant tax savings to you. Also, be sure to ask your accountant about the “Corker Kickback” which further amplifies this benefit through a 20% deduction subject to income thresholds.
Tax Reform Bill Offers Tax Deductions for Property Developers:
New provisions allow developers to deduct interest expenses for a variety of real estate activities, including construction, management, and property development. This should help developers free up some necessary cash to keep projects moving.
Tax Reform Bill’s Impact on 1031 Exchanges
Like-kind exchanges enable owners of property to sell at a large capital gain but defer any tax as long as they use the proceeds to buy some other property. In essence, owners of commercial real estate can keep flipping the properties until they die without ever paying any capital gains tax. (And if the estate tax is abolished, the gains might go untaxed forever.)
Tax Reform Bill’s Impact on Carried-Interest
There was lots of talk that the “carried interest” loophole would be closed for hedge fund managers. Carried interest essentially allows for taxation at lower capital gains rates rather than ordinary income rates for assets held at least one year. The new reform changes the hold period to three years but this won’t affect most hedge funds as the average hold on assets is three years.
In the real estate context, the change doesn’t make much difference to investors who have a long-term hold strategy. However, for real estate investors who operate on a fix-and-flip strategy this could affect you directly.
There are more aspects in this tax reform bill that are favorable to real estate investors and you should be consulting your CPA as soon as possible to start planning for 2018 if you haven’t already. While every action has an equal and opposite reaction, most experts agree that these new regulations should spur additional investment in the commercial real estate sector from development through purchase of real estate for rental income purposes.
For more information, contact:
Marc Snyderman, Esquire
923 Haddonfield Road, Suite 300
Cherry Hill, NJ 08002
Antonella Colella, Esquire
150 Monument Road, Suite 207
Bala Cynwyd, PA 19004
When it comes to applying asphalt sealant, pavement maintenance contractors have several options to offer property managers. They can employ any of the following:
• a spray system
• a piece of ride-on equipment with squeegee and/or spray application options
• a squeegee or a broom to apply material by hand
So, which asphalt sealant option is the best choice for the job? According to manufacturers, the decision hinges on several variables including application, material being used, personal preference, and budget.
Squeegee and Spray Asphalt Sealant Applications:
Both the squeegee and spray methods have their own set of advantages. The pressure from the squeegee application method allows the asphalt sealant to fill any cracks which help to create a high quality bond with the surface of the pavement. In contrast, the spray method lends itself to better control of how much material is being used, and a more precise application process. Oftentimes, spraying asphalt sealant is misunderstood if the operator ‘thins’ the material, or uses a low spread rate to apply it to the surface. When managed properly, both the squeegee and spray methods can lay sufficient asphalt sealant for the customer’s needs.
TWO ARE BETTER THAN ONE:
Property owners and managers may know that when seeking a pricing estimate for their asphalt sealant needs, they will generally be given a price for one application type. However, the best of both sealant worlds includes using both the squeegee and spray sealant applications together. Sealcoating application is dependent upon weather conditions; requiring a temperature of over 50°F in order to be applied. If conditions are ideal, the contractor will apply the initial base coat. Utilizing the squeegee machine, pavement sealer is poured on top of the asphalt and is pressed into all of the pores before removing excess material. The first coat generally takes one to two hours of dry time before spray coating the second application. Applying the squeegee method first creates the proper
bond to the asphalt, but can leave behind pin holes and other slight imperfections. Spraying on a second coat of asphalt sealant will help to fill those holes, allowing the surface to have a cleaner appearance by eliminating squeegee marks and any blotches. Once the second sealcoat has been applied, the area requires 24 hours of drying time before resuming use of the surface.
While one coat of asphalt sealant leaves the parking lot, or street nicely covered, the second coat will help to keep out water, leaving a longer lasting application. Plus, spray coating the second layer uses less material and takes about half the time to apply than the initial coat.
When considering the long-term value, employing both sealcoating methods for a total of two coats is the best option for longer-lasting results. Used in conjunction, the two methods will yield a longer lasting result as opposed to the typical two spray coat applications. Starting the maintenance process within three years of the initial paving installation is important in order to preserve, and protect your asphalt. Repeating the sealcoating application every five years can beautify and extend the life of your asphalt as long as 30 years. While the initial investment for the squeegee and spray coat application costs more than other methods, it will ultimately give you a better return on your investment in asphalt maintenance.
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Building life expectancy isn’t what it used to be. What to do with obsolete commercial buildings and how to prevent your portfolio from falling into the trap. 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.
Commercial Building Life Expectancy – Multiple Cases
Recent 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 buildings that are only 20 to 30 years old. Many buildings that have been constructed in the last 30 years or so, like suburban office buildings and parks, retail centers and malls, some well located industrial parks and even sports stadiums, now face the wrecking ball because they are, effectively, obsolete. Some investors report that many U.S. submarkets, for a variety of uses, are “under-demolished.”
What is driving Decreased Commercial Building Life Expectancy?
The short answer is technology. The longer answer is human interaction with technology.
Historically, most companies had fairly simple operations and spatial needs, so real estate decisions were driven by location and/or resources, with physical building changes limited by cost and location. The current digital revolution, however, is changing that—literally at the speed of light. Locations are not as “fixed” as they were previously, and businesses’ physical space needs tend to change quickly due to technological shifts. Flexibility will be the key to long-term survival in all industries, including real estate.
Traditionally, real estate has been a fixed asset acquired at high prices compared to most assets. Such requirements mandated long lead times, high fixed costs, significant capital resources, segregation of uses, long-term contracts (i.e., leases and mortgages) and zoning. The industry faces the challenge of adapting fixed physical space needs, and all that goes along with it, to meet the new reality of demand for change at the snap of a finger, and how to underwrite office or other spaces that will likely shift to “creative space” when re-financed (at lower rents, not higher).
Possible Solutions to Decreased Commercial Building Life Expectancy
From a valuation standpoint, there are two traditional factors: zoning/legal issues and physical utility. To maintain real estate flexibility, underwriters, analysts, municipalities and all industries will have to consider:
1. Revised zoning codes that stress density/form over use. The economic lives of buildings are getting shorter and it may be necessary to re-configure space more quickly. This change, however, often runs afoul of local zoning ordinances, minimally, as it relates to uses. If structures in the future are more generic in form, site-specific codes may have to be revised to reflect multiple future uses. By “pre-coding” such code requirements, one of the major impediments to re-development (generically, all permitting costs) can be streamlined for material cost savings and faster re-use. Urban areas already have an advantage in this regard due to greater densities and uses. Suburban areas will need to adapt this concept, or face an even stronger “back to the city” trend than currently in the market. Otherwise, suburban office parks and similar “obsolete concepts” could risk vacancy. All jurisdictions, in order to retain and attract industry—their tax base—will have to re-write zoning laws to allow rapid flexibility.
2. In terms of physical utility, architects and engineers will have to design buildings that can be quickly adapted to alternate uses at a reasonable cost. Aesthetics will still be important. Those who are able to successfully design and build the most flexible buildings first will fare the best. Prime locations will also continue to have great importance. These locations, however, will not be limited strictly to traditional site selection parameters. The key will be how flexible the site and/or building improvements are perceived to be for needed changes due to technological shifts that dramatically alter market demand for that space.
The combination of these elements will require a shorter-term view, and investors and municipalities should incorporate some level of alternate use analysis, even from the original construction date. Underwriters would then have the benefit of downside underwriting (to consider future conversion costs)—on a current basis.
For many years, zoning and functional utility have simply been boxes to check during the valuation process. Moving forward, and given the rapid clip of technological change, it is now time to remove it from a box and think about a real exit strategy beyond the end of a lease or mortgage term.
Let’s explore why performing pre-construction due diligence prior to the acquisition of a site or proceeding towards construction is critical.
We’ve heard it all before:
- “Do your homework.”
- “Measure twice….cut once.”
- “A little bit of knowledge is a dangerous thing.”
- “Hindsight is 20/20”
- “Snooze, you lose.”
My father didn’t author any of those lines, but he said them so often I thought he might have. And quite frequently, I can still hear his voice in my head giving me such sage counseling. But it was more than fatherly advice; it was sound advice that helped prepare me for the world of design and construction; as he would say: “Always be prepared.” He never used the term “due diligence;” but I knew what he meant.
Now that I’m all grown up, his words seem even more to the point. Performing pre-construction due diligence prior to the acquisition of a site or proceeding towards construction is critical. You need to protect your interests and investments of time and money, and the best way to accomplish that is to assess potential risks in every
It may sound like a simple task, but it is a complex process to identify and analyze the risks and arrive at sound and level-headed solutions to obstacles that may arise. After that, you’ll need to address and mitigate each through the planning and construction processes. If the obstacles appear too great, or reveal other issues that verge on being unsurmountable, it may be a good time to rethink and retool the project.
Pre-Construction Due diligence must be done for every project, no matter how big or small…be it single family home or multifamily housing, commercial, office or retail, educational or worship, healthcare or hospitality, industrial or government. So, before you take that leap and make the decision to proceed with a site and/or building project, take the time and effort to perform the investigation and assess if it (and its context) are suitable for a particular project, and if it is in balance with the other various risks involved.
Thorough pre-construction due diligence is critical to your project…from the selection of the site, to the designer and builder, delivery method and materials, to compliance, financial assessments and budget. Nothing can place you on a better course than proper pre-construction due diligence. It’s just as my dad said: “measure twice, cut once.”
Paul Stridick, AIA is Director of Design/Build at The Bannett Group. He is an award-winning architect that also has extensive government experience. Prior to joining TBG, Paul was the Director of Community Development for Cherry Hill Township, NJ, a 26-square mile suburban community in the Philadelphia metropolitan area. Before that, he was the Director of the Division of Housing and Community Resources for New Jersey’s Dept. of Community Affairs. His last article “IS THERE AN EASIER WAY TO GET SOMETHING BUILT?” was published on WCRE’s blog in August 2017.
The Bannett Group is a South Jersey firm that was founded in 1970. Since then, we’ve become one of the fastest growing design and construction firms in the region, with a portfolio of work that spans the country. The Bannett Group always views our design & construction services as a set of tools available to complete each job. We’ll pick the best tool or delivery method for each job…general contracting, construction management or even a fully integrated Design-Build package. Whatever the tool, we get the job done. With our steadfast history and fine-tuned in-house talent, we’re able to complete each project on time…on budget…every time.