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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.

Tips to Improve Comfort and Ergonomics at Work

Let’s look at tips to improve comfort and ergonomics at work. Sitting at a computer for the majority of your workday can negatively affect your health if your workstation isn’t properly adjusted. Follow these suggestions to make your workstation work for you.

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Ergonomics at Work – ADJUSTING YOUR CHAIR

• Adjust the seat height so your feet are flat on the floor and your knees equal to—or slightly lower than—your hips.
• Adjust your armrests so that your shoulders are down and relaxed. If your armrests are in the way, remove them.
• Sit in the chair with your hips positioned as far back as possible. Use a foot rest if your feet don’t touch the floor.

Ergonomics at Work – MONITOR PLACEMENT

Placing your monitor in an appropriate position helps prevent excessive fatigue, eye strain, and neck or back pain.

• Center and position the top of the monitor approximately 2 to 3 inches above seated eye level.\

• Sit at least an arm’s length away from the screen, making adjustments to suit your vision.

• You can reduce glare by positioning your screen away from windows, adjusting blinds or using a filter.

• Position source documents directly in front of you, between the monitor and the keyboard, using a copy stand.

Ergonomics at Work – KEYBOARD AND MOUSE CONSIDERATIONS

If your keyboard and mouse are not adjusted properly, it can lead to discomfort in your wrists, arms and shoulders.

• Place the keyboard directly in front of you at a distance that allows your elbows to stay close to your body and your forearms approximately parallel with the floor.

• Use the keyboard feet to adjust the tilt of your keyboard. If you sit in a forward or upright position, try tilting your keyboard away from you at a negative angle. If you are reclined, a slight positive tilt will help maintain a straight wrist position.

• A wrist rest can help you to maintain neutral postures and pad hard surfaces, but resting on it while typing is not recommended.

Ergonomics at Work – TAKE A BREAK

Regardless of how well your workstation is set up, sitting still and working in the same posture for prolonged periods is not healthy. Try to change your working position frequently throughout the day.

• Take a break or change tasks for at least 5 to 10 minutes after each hour of work. Try to get away from
your desk during lunch breaks.

• Avoid eye fatigue by resting and refocusing your eyes periodically.

• Make small adjustments to your chair or backrest.

For more information, contact:

Brian BlastonPartner
Hardenbergh Insurance Group
phone: 856.489.9100 x 139
fax: 856.673.5955
email: brianb@hig.net
www.hig.net

Rigging Services – Remove the Compressor from Your Roof When You Move

rigging servicesHow Do You Move The Compressor Off Your Roof When You Relocate Your Office? You Need Rigging Services. Here’s a little-known secret that movers won’t tell you: rigging services are critical to many moves, and not many companies are certified to do it. So what is rigging, and why would you need it? Here’s a quick tutorial.

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Q. What on earth are rigging services?

A. Rigging services are necessary when you are moving an exceptionally large, heavy, or sensitive piece of equipment — production equipment, hospital equipment, or safes and bank vaults are just some of the unique items that should only be moved by a rigging specialist. Vetted rigging specialists also have the expertise necessary to move equipment where the logistical access points are limited — from industrial machinery on a
production line to the compressor on the roof of a building. Rigging services are also necessary if you need to
crate and skid large items for transport or export, or if you’re moving industrial machinery or equipment that
needs leveling, aligning, and anchoring. Very specialized equipment (crane lifts, engineered and critical lifts,
gantry lifts to 300 tons, forklifts to 100,000 lbs, hydraulic jack-and-slide systems, unified structural jacking systems, cantilever insertion tools, etc) and very experienced move specialists are needed to conduct a rigging job safely and efficiently.

Q. So aren’t rigging services just heavy lifters with cool equipment?

A. NO! Turn-key rigging contractors provide the riggers, machinery, heavy-hauling movers, millwrights, electricians, and crafts persons to dis-assemble, transport, re-assemble and erect machinery and equipment properly. An experienced hauler with a proven match-marking system will provide the most efficient reinstallation and problem-free startup to keep your business running smoothly.

Q. What if I have just one tricky item to move, and not a whole plant?

A. An experienced provider of rigging services focuses on the size of the item, not the size of the project. Just make sure the contractor you hire is a CERTIFIED AND INSURED rigging specialist, not just movers who think they can do rigging projects.

Q . So what kind of certifications should a company have if they are providing rigging services?

A. Any logistics management company quoting on rigging services should provide OSHA qualified or  CCCOCertified riggers and signal persons. You want to take every precaution so that your job site is operating safely at all times.

Q. What’s the difference between trans-loading, heavy hauling, and freight forwarding?

A. Trans-loading is the process of transferring a shipment from one mode of transportation to another. It is most commonly employed when one mode cannot be used for the entire trip. Heavy hauling is moving oversized loads too large for road travel without an escort and special permit. Freight forwarding is getting goods from the manufacturer or producer to the final point of distribution. All three processes require handling of goods, which leaves your items at much higher risk of damage. That is why you need a rigging specialist that can provide these specialized types of transport services with integrity.

Q. What if my move is complex, and I can’t reinstall my compressor, boiler, or other heavy equipment at the new site right away?

A. A rigging service provider should be able to offer you secure, heated, and crane-served warehousing for short-term machinery and equipment storage, or containerization for long-term storage. They will deliver your equipment as your project requires.

Q. What if my relocation involves moving an entire industrial warehouse or manufacturing plant, and I need to keep manufacturing lines up and running during the transition?

A. A vetted service provider should be able to choreograph all of the various relo priorities in a single logistics plan. They can phase one manufacturing line out at the old location, and get it up and running at the new location as you transition through the move. Keeping multiple manufacturing lines productive throughout a
transition is complex, but certainly attainable with detailed planning.

The bottom line is rigging services are a critical part of any move, and you need an experienced, certified provider to tackle this part of your transition. Rigging is just too much for you to shoulder on your own.

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 visit www.argosymg.com

argosy

Why Business Owners Should Own Real Estate Personally

Let’s explore why business owners should own real estate personally rather than in a separate corporation. A frequent mistake made by small business owners is to have the operating corporation own the real estate, or to have a separate C corporation own the property and lease it to the business. The reason is that when the company eventually disposes of the property, usually after it has significantly appreciated and been substantially depreciated for tax purposes, a double tax bill will result. First, the corporation will be taxed on the appreciation upon the disposition of the real estate, and then, the shareholder(s) will be taxed on the proceeds of the disposition when they are distributed to them as a dividend or through liquidation. The tax traps are not limited to C corporations. Holding real estate in an S corporation has its own pitfalls. Mortgage debt does not constitute “basis” for tax losses when the accompanying real estate is owned in an S corporation. As most real estate investments yield potentially deductible losses after factoring depreciation on the structure, this could eliminate the tax benefits for a great deal of investors.

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Why business owners should own real estate personally rather than in a separate corporation.

A better approach is for the business owners to own the real estate personally in a limited liability company or
even in a partnership with other investors, and then lease it to the operating business. Among the advantages;

  • The business owner can sell the real estate interest for his or her own account, avoiding tax at the corporate level.
  • The owner can refinance the property for his or her own benefit.
  • Lease payments received by the property owner are not subject to employment taxes and are deductible
    by the company as a business expense.

If the property owner dies while still owning the property, heirs will get it at its stepped-up basis, eliminating tax on all of the gain resulting from appreciation. It’s particularly important for small business owners to engage in careful tax planning with respect to real estate being acquired for use by their business, and I’m sure our buds at WCRE and attorneys they deal with receive frequent requests for assistance with appropriate business and tax strategies as do we at Abo and Company.

While we’re talking real estate and hopefully that which is not titled in corporate form, 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? We reminded WCRE readers in a previous suggestion but 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, frequently for a period of 5 years, enabling the seller to reflect the capital gain for tax purposes over the entire payment period. Sellers who decide on this strategy are cautioned, however, that an installment sale carries more risk than an outright sale of the property. Thus, the seller needs to:

  • 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 cash flow to enable the buyer to make the payments.
  • Use an interest rate that is competitive with current market rates in the area so as not to squash the deal.
  • Obtain a down payment of at least 20% to have a cushion in the event of buyer default, and to cover the
    expenses if foreclosure becomes necessary.

Business property transactions are often complex, and the services of knowledgeable professional advisors 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.  

 

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.

Download Printable Article (PDF) 

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:


The Impact of Energy Efficient Building Upgrades on NOI and Asset Value

Energy Conservation Measures (ECM) or efficient building upgrades which include LED Lighting, Plumbing and Mechanical and HVAC upgrades, are proven to reduce energy and operating costs. Mechanical and HVAC upgrades could include Building Management Systems, Variable Frequency Drives on fans, pumps and motors, Free Cooling, installation of Condensing Boilers and Demand Based Domestic Water Boosters to name a few opportunities to reduce costs.
Investing in energy efficiency can yield a Return on Investment (ROI) of 30 to 40%, and an improvement in Net Operating Income (NOI) and significant Valuation Enhancement. By reducing energy and operating expenses NOI can be quickly improved giving the owner increased profits and/or a competitive advantage in the market.

NOI improvements from ECMs can be achieved in Hospitality, High and Low Rise, single and multi-tenant Office buildings, Manufacturing and Distribution Centers as well as High and Low rise multi-family buildings. Today the value of energy efficient upgrades are further increased because of favorable tax treatment – 100% expensing and generous Utility Company Cash Incentives.

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Efficient building upgrades to a property 10 years of age or older to deliver:

• Energy Cost Reductions up to 40%
• Overall OpEx Reduction of 5 to 10%
• Value Enhancement of 5 to 15%
• Increased unlevered ROR by ½ to 2%
• Competitive Market Advantage

Energy efficient building upgrades are good for buyers and sellers!

A completed Energy Efficiency project in a 25 Story Office building located in center city Philadelphia reduced annual operating costs by $208,000. The Energy Efficient Measures (ECM) included LED lighting, free-cooling, premium efficiency motors for the condenser and hot water heating pumps with variable frequency drives and Retro-commissioning of the HVAC systems.

In the two tables below observe the actual energy efficiency upgrade costs and the energy cost savings generated by the above mentioned upgrades (Project Matrix) and in the NOI Improvement table the effect these real savings would have on NOI and the “Cap” rate against typical market Rents, OpEx Costs and a hypothetical property value of $33,600,000.

Energy efficient building upgrades offer VALUE ENHANCEMENT

An Owner of a $33,600,000 property making these improvements at a Cap rate of 8.57 would see the value of the
property increased to $36,008,000 due to the improved NOI. This is a 7.2% valuation enhancement or an ≈ $3,000,000 value growth with an ≈ $500,000 investment in CapEx!

Energy efficient building upgrades offer INVESTMENT ENHANCEMENT

A buyer of a $33,600,000 property would realize an increase in their unlevered Rate of Return of .60% in net dollars by installing similar Energy Efficient building upgrades.

Energy efficient building upgrades offer ADDITIONAL BENEFITS

Reduced Maintenance Costs – Another typical benefit of installing ECMs is the reduction in maintenance expense that comes from replacing aging equipment that is in need of repair or replacement. Quite often energy savings derived from certain high ROI ECMs can help offset the cost of equipment replacement.

“Green” Building Tenants Pay Higher Rent – That’s right, a CBRE Global Research and Consulting Review reported that the overall vacancy rate for green buildings was 4 percent lower than for non-green properties—11.7 percent, compared to 15.7 percent—and that LEED-certified buildings routinely commanded the highest rents.

• Higher productivity and better occupant health
• Promotion of a culture of sustainability among all building users
• Reduced environmental impacts
• Improved public image and marketing tools for both landlord and tenant

ABOUT US

Rich Energy Solutions’ experience runs from small to large HVAC efficiency upgrades, wireless Building Management Systems and energy saving LED lighting system upgrades to displacing city steam and chilled water loops, in-house thermal and co-generation plants.

For qualified customers Rich Energy Solutions will conduct free, no obligation on-site building assessments to develop cost savings analyses and system design and provide turn-key installation of all energy conservation measures. The Rich Family has provided construction management, mechanical construction and energy saving solutions in 38 states for public and private businesses since 1918. www.richenergysolutions.com

To learn how Energy Efficiency can impact your NOI contact:

Tony Lepre
Rich Energy Solutions
www.richenergysolutions.com
tlepre@richenergysolutions.com
609.214.5520
(888) 718-RICH

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