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Archives for June 2020

Property Managers Help Tenants Get Back to Work

June 9, 2020 by CARNM

As the nation lifts shutdown restrictions, property managers are leveraging their partnerships with tenants to help ensure everyone’s health and safety.

Since the outbreak of the COVID-19 pandemic, property managers have faced the challenges of maintaining productivity, while ensuring the health and safety of their employees and occupants.
And now that the nation is pivoting to a full back-to-work strategy, property managers are strategizing right along with them. Angela Aeschliman, CPM, senior vice president for the Chicago-based Missner Group, tells GlobeSt.com that consistent communication with her tenants has made navigating these strange waters much easier.
“We’ve been in touch with our tenants across the board,” she says, both to gauge the needs of residents in the 1.2 million square feet of commercial space she manages, and to keep them apprised of Missner’s COVID-19 efforts. “A good 80 percent of our portfolio is working remotely,” she says. That’s primarily in the office and medical office facilities in the Missner portfolio. The remaining 20 percent is industrial.
Ongoing communication was critical at the outset of the pandemic as Missner tried to assess who could keep up with rent payments, and which tenants would seek deferrals. “In April, we talked to every single tenant that wanted some kind of deferment or needed help,” she says, “and we coordinated with them to pay in stages.” Since then, the number of tenants asking for relief has actually decreased.
But the communication continues as those tenants – and Missner itself – pivots toward getting back to work. “We’re communicating constantly and eliciting their thoughts on getting back to work, because that will drive how we manage our contract services.”
Her outreach revealed that many tenants are planning a phased approach to staffing. “Some are planning to bring back 20 percent of their workers,” she says. Other tenants are opting for a staggered schedule, with some employees working Mondays, Wednesdays and Fridays, while others take Tuesdays and Thursdays. To add relief to the schedule in the summer months, many offices will close on Fridays.
Aeschliman sees the re-entry project in three pieces. “The first priority is to define all the physical touchpoints and how we can overcome fear of contamination,” she explains.
Short of new guidance from the Centers for Disease Control on the lower risk found on touchpoints, the need is still there to question issues like hand sanitizing stations. “We don’t have touchless elevators, so when someone arrives at a floor, should we have sanitizers there? Meanwhile, we have to move furniture in the common areas, and enforce stringent restrictions on conference room reservations.”
Part of this effort includes reworking the janitorial routine. “Our janitorial scope is going to change,” she says. “We may want our night janitors to be in the building in the daytime, because optically this gives our tenants a better sense that we’re on top of this.”
Those optics are key to the communication process to assure tenants that, beyond words, all is being done to protect their health and safety. While janitors will be more visible during the day, Missner is also considering tent cards placed around the building to alert tenants to cleaning and maintenance that continues through the night. “For their comfort and understanding, it’s key to educate tenants on such issues as the scope of work that a true and thorough sanitization takes,” she says.
The second tier is to determine, “how we can assist our tenants as they re-occupy,” she says. This is especially true of Missner’s medical office tenants, who may require sanitation over and above the norm. “Do they need deep cleaning, or do they need the space fogged?” asks Aeschliman, who is also IREM’s Chicago chapter president. “Those conversations are taking place as we gear up to opening.” (She adds that medical office tenants are down in their patient counts by as much as 30 percent.)
IREM, of course, has been supporting members with guidance throughout the pandemic, much of which members can share with their stakeholders. Now, as the topic turns to re-entry, Aeschliman says she’s shared checklists for re-opening from a variety of official sources, such as Environmental Protection Agency guidance on indoor air quality.
The third piece of the puzzle is the creation of protocols for Missner’s in-house and vendor teams. To that extent, “we’re facing the same challenges as our tenants,” she says.
Missner is rearranging workstations and moving teams from one building to another, to facilitate social distancing. Much like Missner’s tenants, new shifts and staggered schedules are also being created. Needless to say, personal protective equipment (PPE) is de rigueur, and if someone has a sniffle, “you stay home.”
“We even go to the granular level,” Aeschliman says, “down to sharing pens and other little habits.”
Technology figures heavily into this overall strategy, and Missner has been pushing toward a paperless environment for a number of years now. “We’re fairly paperless, but not totally,” she says, adding that the firm is constantly moving toward such capabilities via cloud-based work orders and accounts payable and receivable – a major help today for tracking the above-mentioned rent deferrals.
But technology without communication does little for the tenant/property manager partnership. “We remind our tenants that we’re right here, behind that work order, which can be immediately dispatched to our vendors,” she says.
Technology, new protocols and emphasis on communication are all part of the partnership that exists between property manager and tenant, Aeschliman says. “These are the sort of opportunities we seek to make operations even better.”
Source: “Property Managers Help Tenants Get Back to Work“

Filed Under: All News

How Office Owners Will Play a Role in Re-Opening Businesses

June 9, 2020 by CARNM

Creating a safe environment will require collaborative solutions between tenants and landlords.

Like retail, offices are expected to execute a phased-style reopening. While strategies for re-opening office spaces and inviting employees to return to work have focused on business owners and office occupiers, property owners and landlords will certainly play an important role. According a recent workplace report from CBRE that surveyed business owners’ plans to re-open, both landlords and tenants will need to collaborate on solutions to create safe spaces for workers.
“The COVID-19 pandemic has introduced challenges that require timely, open and collaborative solutions for building owners and their tenants,” Karen Ellzey, executive managing director of CBRE’s reopening the world’s workplaces taskforce, tells GlobeSt.com. “Both parties are responsible for monitoring and implementing the latest safety guidance and orders from relevant authorities, establishing plans that account for them, communicating those plans to their constituencies, and enforcing any policies put in place.”
Building owners also need vital information from tenants, including when and how employees are returning to work and how many employees are returning in each group. “The top concerns also include how to safely manage in the ingress and egress of tenants and visitors, including clarity of responsibility between the parties on activities such as screening, enhanced common area cleaning (lobbies, parking, amenities) and changes to building operations,” says Ellzey. “Communicating these plans clearly and regularly to tenants should be a key area of focus. Many building owners are choosing community-building apps to do this virtually, allowing real-time and interactive engagement with tenant needs and concerns.”
Office occupiers, on the other hand, are focused also focused on employee return, but with a slightly different set of concerns as well, including when and how their buildings will open up, whether and when enhanced protocols, like cleaning and HVAC, at the building level will need to be implemented, and cost implications,” according to Ellzey.
Most of the responsibilities will be shared or mutually resolved between the landlord and the tenants. However, there are some gray areas that will need to be negotiated. Ellzey’s list of those unclear responsibilities include:
– Cleaning and Sanitation
– Operating Hours, Visitors and Scheduling
– Elevator Capacity and Wait Times
– Emergency Response Plans
– Parking and Garage Access
– Food Delivery
“CBRE strongly believes it is in the interest of both parties to find reasonable and mutually agreeable solutions to these actions to ensure workplaces are healthy and safe for workers to return to,” adds Ellzey.
So far, a lot of these changes could also prove to be temporary; however, the long-term impacts are still unknown. “That said, changes that facilitate social distancing, ongoing communications programs, enhanced cleaning, HVAC retrofits, hygiene stations, security, and health screenings are all examples of areas that are likely to impact both operating costs and capital expenses for the foreseeable future,” says Ellzey.
Source: “How Office Owners Will Play a Role in Re-Opening Businesses“

Filed Under: COVID-19

June 2020 CCIM Deal Making Session Properties

June 9, 2020 by CARNM

Thanks to all of the brokers, sponsors, and guests who attended the June 2020 CCIM NM Deal Making Session and to those who shared their properties.
Click here to view source PDF.
Click here to view the Thank Yous.

Name Property, City Type Price
1. Riley McKee
Shelly Branscom, CCIM
4110 Wolcott Ave NE
Albuquerque
Office $595,000
2. Clay Azar, CCIM 500 4th St SW
Albuquerque
Retail $815,000
3. Tai Bixby, CCIM Storrie Lake West
Las Vegas
Land $1,890,000
4. Austin Tidwell
Daniel Kearney
4500 Silver Ave SE
Albuquerque
Retail $750,000
5. Martha Carpenter
 
8005 Marble Ave NE
Albuquerque
Office $273,120

Filed Under: All News

The Case For a Cost Segregation Strategy

June 8, 2020 by CARNM

Real estate investors should talk with their CPA about whether they’re getting all the deductions in a post-tax reform world.

If your clients haven’t considered procuring a cost segregation study on their properties, they may not have claimed the appropriate amount of depreciation. That means they may have missed out on tax deductions in the form of additional depreciation expenses earlier in the life of their properties. They may not know that the studies typically apply to and benefit commercial properties of all types and sizes.
A cost segregation study is the process of identifying and separating personal property that is or has been grouped with real property. To calculate depreciation for federal income tax purposes, taxpayers must use the correct method and proper recovery period for each asset or property owned. A cost segregation study determines the appropriate asset class life for the entire tax basis of the property and allows property owners to reclassify components of and improvements to commercial buildings from real property to personal property. This essentially allows the assets to be depreciated on a five-, seven-, 10- or 15-year class life instead of the traditional 39-year class life of real property (27.5 years for residential rental property).

Weigh the Benefits and Challenges

For many commercial buildings, these assets might be special electrical, lighting, water, plumbing, mechanical, and finish elements. In my experience, 25% to 50% of a building’s total costs can qualify for reclassification into shorter-life assets.
While cost-segregation studies can particularly help to improve cash flow on new construction, they can also provide tax and cash flow benefits for existing structures. In fact, virtually every taxpayer or business entity that owns, constructs, renovates, or acquires a commercial real estate structure should consider these benefits. Most properties are worthwhile prospects for a cost segregation study. In fact, commercial property owners might consider obtaining a study on a building improvement or addition even if the cost basis is as low as $250,000.
These studies can also benefit any type of commercial property. Advantages increase, however, for specialized properties in industries such as manufacturing and medical, which are typically eligible for more five-year deductions. To understand the difference between depreciation with a study versus depreciation without one, consider this example based on studies I’ve completed. Assume the depreciable basis for a new commercial office building is $8 million, and 24% of the cost basis has been identified for allocation to either five- or 15-year property. The costs allocated to shorter asset class lives and eligible for bonus depreciation would be $1.92 million. The current year depreciation with a cost segregation study would be $2,075,900, while the current year depreciation without a cost segregation study would be only $205,129.
Despite the advantages of cost-segregation studies, challenges exist. Engineering-based studies tend to be the most reliable and preferred by the tax court. Yet the Internal Revenue Service (IRS) currently has no set standards for studies, which vary widely in methodology, format, documentation, and reporting. The lack of guidance and the complexity make it crucial to choose a provider who is well versed in the subject, combining an engineering-based approach with the tax knowledge of a certified public accountant (CPA).

With Tax Reform, Studies Have Gained Value

Cost segregation studies became even more valuable when the 2017 Tax Cuts and Jobs Act (TCJA) changed depreciation rules. The TCJA allowed 100% bonus depreciation on qualifying property, or assets with a class life of 20 years or less. It also created one asset class—qualified improvement property (QIP)—by combining three categories: qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. But the tax reform law omitted a recovery period. As a result, QIP, which was intended to be treated as 15-year property, fell into treatment as regular 39-year property for commercial real estate. In addition, the 100% bonus depreciation was disallowed because the property was no longer eligible for bonus depreciation and required businesses to capitalize the improvements as 39-year property.
This unintended consequence was corrected by the CARES Act, enacted in March 2020, which designated QIP as having a 15-year asset class life and therefore being eligible for bonus depreciation. The technical correction is retroactive and takes effect for qualifying property acquired and placed into service beginning Jan. 1, 2018. This could significantly affect real estate deductions on a retroactive basis. Real estate owners should consult a tax adviser about the best way to accelerate their depreciation for the 2018 and 2019 tax years.
Another change resulting from the TCJA involves Section 179, which allows businesses to deduct the full purchase price of certain property in the year of purchase. Property was expanded to include certain building systems and property improvements such as new roofs, HVAC, fire protection, and alarm and security systems.
A cost segregation study identifies all the building’s systems so that the tangible property regulations, or repair regulations, can be properly implemented. The IRS released those regulations in 2013 and 2014 to guide taxpayers in determining whether to capitalize or currently deduct expenditures for acquiring, maintaining or improving tangible property.
The tangible property regulations also introduced the definition for a “unit of property,” which is generally the entire building and its structural components, including the foundation, roof, walls, partitions, floors, windows, ceilings and permanent coverings, such as paneling or tiling. Before building owners can determine whether to capitalize an expenditure, they must understand the unit of property and the building systems, which include HVAC, plumbing, electrical, elevators, escalators, fire protection, security and gas distribution. The expenditure is evaluated to determine if it meets the definition of a restoration; an adaptation to a new or different use; or a betterment or improvement of the building system and unit of property. A cost segregation study will help to identify the costs related to these various building components so that building owners can apply the proper tax treatment.

Consider A Look-Back Study

It’s never too late to perform a cost segregation study. If you missed taking advantage of these benefits in the year the property was initially purchased, constructed or placed in service, you can still do a look-back study as long as the building was acquired or renovated after Dec. 31, 1986. With a look-back study, you will claim all of the prior years’ missed depreciation deductions in one year, and you don’t need to amend your tax return. Building owners can claim these benefits on a Form 3115-Change in Accounting Method through an Internal Revenue Code Section 481(a) adjustment. The change in accounting method is an automatic change under IRS regulations and therefore doesn’t require IRS approval before implementation.
Cost segregation studies can be a valuable source of potential tax deductions for your clients. They should consult a tax adviser for specific guidance on accelerating depreciation, as well as guidance on taking advantage of other tax provisions of the CARES Act.
Source: “The Case For a Cost Segregation Strategy“

Filed Under: All News

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