Archives for February 2019

A NAREIT report shows that markets have kept their momentum through 2018 and into 2019.

A voracious appetite for commercial real estate demonstrates no signs of lessening as demand exceeded supply growth for retail, apartments and office markets, and was matched in industrial space.
According to market commentary from NAREIT, vacancy rates declined in office and retail markets, slightly changed in industrial, and had a small seasonal uptick within the multifamily sector. Rent growth decelerated, however, for office, retail and industrial properties while apartment rents continue to accelerate.
Industrial property markets had supply and demand roughly balanced, at high levels, as steady increases in e-commerce sales drive the demand for logistics facilities to ship goods purchased online.
“There is a lot of industrial growth especially with logistics facilities. Supply and demand are evenly balanced even though there is a slight easing of rents from approximately 6% to 5%,” says Calvin Schnure, senior vice president, Research & Economic Analysis for NAREIT.
Apartments enjoyed the highest net absorption on record in 2018, according to data from CoStar.
“There is a much stronger growth and demand for apartments from all age groups,” says Schnure. “Apartment rents are high simply due to demand.”
REITs tend to own higher-quality apartments and they boast high occupancy rates because people are renting and not buying homes. It’s a different path when residents choose to rent instead of purchasing and reasons some individuals choose to rent range from not wanting to settle down to not having a downpayment towards a home purchase. Apartment REITs are answering that call, Schnure tells GlobeSt.com.
With the slower construction of new retail properties, according to the report, demand growth outpaced new construction by a wide margin. Retail stores are struggling to keep up with competition from online stores and so there has been a shift in the type of tenants in the malls including more boutiques and sporting goods stores. Malls typically have a fairly high occupancy rate, however, because “people are still strolling in the malls, trying on clothes and shoes while enjoying the experience. Mall operators also entice customers with experiential events making it a destination. All in all, retail REITs are dealing with retail challenges but they are still doing fairly well,” says Schnure.
Office markets saw a slight slowing in net absorption, to 18.3 million square feet, from 20.5 million square feet in Q3, according to the report. However demand growth in the second half of the year accelerated from the quarterly average of 14.3 million square feet in the first half of the year, and demand exceeded supply growth in Q4 by 2-to-1. Some of the main reasons for the surge is the economy’s steady job growth numbers and the office-sharing phenomenon.
By: Tanya Sterling (Globe St)
Click here to view source article.

A recent IRS public hearing shined a light on some of the program’s murkier areas and Withers LLP tax lawyer James R. Brockway tells GlobeSt.com where he thinks the law will be clarified.

The opportunity zone legislation was introduced in October as part of a hastened process to pass the 2017 Tax Cuts and Jobs Act in December. Approximately six months were given to certify the zones eligible for the program. Resulting uncertainties have left investors waiting for regulatory guidance. James R. Brockway, a partner in the private client and tax team at the global law firm Withersworldwide, discusses with GlobeSt.com a few key areas where he anticipates further directions based on the IRS public hearing on February 14.

Reporting Requirements

The real estate industry and businesses see a tremendous opportunity to develop low-income areas. But some representatives of low-income housing and neighborhood communities are wary of gentrification and concerned that the program is “a boondoggle for the millionaires and billionaires who want to roll over their gains,” states Brockway.

He describes the regulations as a very low key, relaxed reporting system that is done by self-certification. “There is very little data being gathered to see whether or not the intended reasons for the program’s creation are being satisfied,” Brockway says.

“State and local governments are going to want to have a hand in determining what gets done in the zones,” he adds. As permits, zoning, variances and building demolitions are all very local, the tax lawyer predicts greater involvement by local governments wanting to see designated areas truly benefiting and wanting to collect data.

Original Use, Substantial Improvement and Capital Reserves

The program requires that either the original use of the property commences with the qualified opportunity fund or that the property be substantially improved. Brockway asserts, “Nobody knows what original use in opportunity zones actually means. If you are developing land, the original use can never commence with you.”

He opines the law should clearly state with vacant land or abandoned buildings after a certain number of years, the developer is coming in and commencing an original use.

To substantially improve the property, the regulations say within 30 months the developer must spend an amount equal to the allocable component apportioned to the building if purchasing building and land.

Brockway provides the following example: An investor pays $1,000,000, with the land worth $400,000 and the buildings worth $600,000. Within 30 months, the investor must put in another $600,000 into the deal for it to qualify as an opportunity zone business property.

But in New York City it can be difficult to finish a project within 30 months. Brockway points out it can take 24 months to even get clearance. So this requirement needs some adjustments.

Cash reserves can be treated like working capital to be spent within 31 months of being received by the opportunity zone business. This seeks to prohibit parking cash in qualified opportunity funds and encourages putting money to productive use. Brockway notes that all businesses require working capital cash. Plus, in construction, things happen. What if the property floods or zoning issues arise or a labor dispute erupts? The law has not defined the quantity of cash that could be working capital. He opines there needs to be a reasonable exception clause for setting aside capital reserves beyond the 31-month period.

Entrance and Exit Policies

The tax legal pro also observed concerns about the entrance and exit policies in qualified opportunity funds. “The investment requirements in many cases will require an upfront loading of cash contribution,” he says. Many projects are done in stages where excess capital would have to sit with upfront cash contributions due to the 180-day deadline to invest gains. This may fail the qualified opportunity business property test.

Investors eventually need to exit the property to reap the tax benefit. Once a person holds a qualified opportunity zone investment for 10 years, except for taxes paid in 2026 the increase in property value is exempt from taxes. However, because the exemption applies only upon disposition of an interest, Brockway says a qualified opportunity fund with multiple properties may not be able to generate the benefits within given exit deadlines because an entity with multiple properties may not be marketable.

Originally the exit deadline was 2028 and it was extended to 2047. However, Brockway comments for those looking to hold their investment for a longer term, there should be the ability to mark-to-market with an appraisal at the end of 2047 or an extension or elimination of the exit deadline. This way the program is not creating an unnatural market or forcing people to dispose of successful businesses to get the tax exemption.

The Withers tax partner expects new rules, guidances or notices to come out in March with new regulations supplementing the existing law in October 2019.

By: Betsy Kim (Globe St)
Click here to view source article.

At the February 2019 LIN Meeting held on February 20, 2019, 9 excellent properties were presented.
Thank you for presenting properties and attending the meeting!
Thank you to the Sunport who hosted Aviation Center of Excellence (ACE) ABQ Sunport at 2200 Sunport Blvd.
View February 2019 LIN properties here.
View the February 2019 Thank Yous here.

CARW recently received the ACE Award – Accredited Commercial Excellence – from theNational Association of REALTORS® Commercial Division.  CARW was 1 of 6 boards out of 200 across the country selected for this honor.

Read the CARW Announcement