Tag: Commercial Real Estate Brokers Boston MA

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Why Sell Your Commercial Real Estate and Pay Taxes?

If you're like most long-term commercial real estate investors, you're holding  your properties to avoid paying the capital gains tax.  I don't blame you. Who likes paying taxes, anyway? No one. But if you're like most long-term commercial real estate investors, you're also faced with a dilemma.  You're thinking of selling, but don't want to 1031 exchange into another property and you don't want to pay those taxes. Should you pay your taxes or take your chances? There are a few tricks you can use: estate planning, charitable remainder trusts, 1031 exchanges, installment sales, etc.  But what if none of these tactics suit your goals of selling your property, liquidating your equity, and moving on from commercial real estate ownership? Bad news.  You may have to pay your taxes. The Bush Tax Cuts provided us with a 15% Federal capital gains rate, which is one of the lowest rates since 1987.  This rate is was extended under the Obama administration through the end of 2012 and after that, all bets are off. With the spending out of control in Washington D.C., repaying the debt must come from us, and a larger slice of your profits and depreciation will be one of the places the government targets. The 2012 deadline means that you and I have no idea what the new capital gains rates will be. Simply, let's say the capital gains rate increases by 10% to 25%, returning to 1996 levels.  A commercial property investor with $3,000,000 in profits would owe an additional $300,000 in capital gains taxes.  This amount may be survivable, but here's the sticky part. The investor who buys your investment property plans for a 25% capital gains rate when he sells.  If he's planning to improve the commercial real estate by adding value, he's selling the building for a profit in the future. And when he calculates his profits, he allocates a portion of his proceeds to Uncle Sam, which means he'll offer you less for your property. Now your $3,000,000 in profits equates to $2,500,000 as your buyer reformulates your market value.  You're down $500,000, plus your additional $250,000 in new capital gains taxes, which amounts to a $750,000 difference in your checking account. Many owners I speak with tell me that they don't want to sell their commercial real estate because of the tax liability.   Who wants to sell a property and send 22.5% to the federal government? I don't. I believe, however, that by the end of 2012, 22.5% might seem like a bargain. It's up to you. Is it better to get out now and pay your taxes, or wait to see what happens in Washington, D.C? Please comment below.  

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Which Sales Approach Gets You the Highest Value - Pricing Low or High?

Could every landlord and seller have it wrong when it comes to making people buy at the highest possible price?  In my experience, commercial real estate investors believe that starting with a high asking price is the best way to achieve maximum value.  It makes sense and here's why.

• It's expected that people make you offers for less than you're asking because it's the American Way.
• When the initial price is set high, potential buyers are likely to think it's worth more.
• You hope that someone will pay you more than you're willing to accept because you asked.

Here's where common sense and science disagree. Science has proven that lower asking prices can lead to a higher final sale price. Gillian Ku, a behavior scientist, and her colleagues studied this question (Read More in "Yes!" by Cialdini, Goldstein, and Martin) and concluded that there are 3 reasons why the lower asking price results in a higher final sale price than the other way around.

1. Higher asking prices act as a barrier to entry. It's true that the larger your buyer pool, the more likely you'll receive the final sale price you desire.  Lower prices encourage participation by as many people as possible.
2. The increase in buyer activity afforded by the lower asking price buyers acts as social proof to other prospective buyers that the opportunity is valuable. Remember, everyone wants what everyone wants.
3. Buyers who spent time with an opportunity early on are likely spend more time and effort trying to buy. They're playing not to lose.  If they've  spent time and energy investigating the opportunity, they're more likely to stay with it and pay more.

There is one caveat, however.  Gillian Ku and her colleagues found that buyers must know that other buyers are interested, otherwise you constrain your traffic and your lower asking price is less effective.  For example, if your retail opportunity is listed under office buildings for sale, you have a problem. Here's how you apply this scientifically proven method to commercial real estate.

• Start with a lower asking price.  Yes, it may feel awkward, but it works.
• Don't participate in a "no asking price" offering. You'll alienate buyers who need guidance in the opportunity and don't have transparency into how much demand exists for the property. Plus, it will upset them and they'll refuse to compete for the opportunity, perceiving it to be a waste of time.
• Make sure your commercial real estate broker provides your buyers and tenants with social proof for the opportunity by sharing metrics about lead flow, tours, proposals, etc.  Again, everyone wants what everyone wants.
• Never limit your offering to a narrow pool of buyers.  Ask your broker if your opportunity is being offer to his "list of buyers" or the entire market.  Many buyers and brokers like the limited pool of buyer approach because the broker doubles his commission and does less work.  The buyers have less competition among each other. Ultimately, you pay more.  Insist that your opportunity be made available to the entire market immediately to generate the highest interest level possible.

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10 Lessons from a Distressed CMBS Portfolio Assignment

Here are 10 insights I can offer you after completing a consulting assignment on an 850,000 SF portion of a $1B distressed CMBS portfolio sale. 1. The news on the street is not necessarily what's happening with the borrower and his property. 2.  To fill vacant space, discount your rents significantly.  Be the best place for the best price. 3.  Plan to renew at lower rates. Once your in-place tenants see what you've done with rents to fill the building, they'll likely want the same deal. 4.  When the borrowers stop paying, it's because they realize they're chasing losses. Paying to keep the property is worth less than letting their equity go. 5.  Property values are less than the debt owed. Find motivated lenders willing to cut a deal. 6.  Some properties are worth more as land sites than empty buildings. 7. Do your due diligence.  Lenders don't like to foreclose on Phase II and Phase III assets.  Make sure you're not buying a liability. 8.  Plan to carry an asset for 1-2 years to reach stability. 9.  Once stabilized, it may be 36-48 months before you recover your investment. 10.  Don't bet the farm on your exit cap rate.  Cash flow will likely still be paramount when you dispose.

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Cyrier Named to Banker and Tradesman's "New Leaders" 2009

Jeremy Cyrier, CCIM is 1 of 29 named to Banker & Tradesman's New Leaders in 2009.  The Banker & Tradesman Publication set out to find leaders at the forefront of cutting edge companies, who are their firm's top performers, and are entrepreneurs with a bent for innovation.  Their work is at the center of their organization's growth. The award was also given to those who have found ways to give back to their larger communities, participating in extracurricular activities and charities. Jeremy Cyrier, CCIM is the principal of MANSARD Commercial Properties, is a member of the CCIM Institute faculty where he teaches Financial Analysis for Commercial Real Estate, acts as Vice President on the New England CCIM Chapter Board of Directors, is a member of the Middlessex Reserve Deputy Sheriff Association, and is a member of the Jay W Levine 2010 Leadership Academy. Get free weekly email updates of this blog.

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What Does Pele Know About Commercial Real Estate?

Fans used to ask Pele, the great Brazilian soccer player, how he achieved such mastery of soccer.  He used to answer,"Everything is practice." Pele understood that the path to greatness wasn’t spending hours perfecting the most complicated plays of the game, rather endlessly trying to master the fundamentals.  Mastery of the fundamentals, his most difficult endeavor, catapulted him to soccer stardom. Pele teaches us that when we’re looking for increasingly complex solutions in a market of disarray, through mastery of investment analysis fundamentals, we gain the ability to see through the chaos to what really matters: understanding risk, return, and making well-informed, profitable investment decisions. Learn about applying the discount cash flow model to price commercial real estate investments, which allows us to value deals with multiple variables in a clear, coherent, and informed manner.    Once you master its application, you’ll find yourself taking stock of tenant risk, interruptions in cash flows through these uncertain times, pinpointing exit assumptions, and making adjustments today to create investments that meet your acquisition criteria. I learned my basics through the CCIM Institute. If you're interested in taking a CCIM course, email me Jeremy@Mansardcre.com and tell me your name, the course you'd like to take, when, and list the questions you have about what to expect.  I'll respond to your email within 24 hours of reading it with insights into the CCIM designation and what to expect when you enroll in your next session. About the Author :Jeremy Cyrier, CCIM is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants. You may reach Jeremy at Jeremy@Mansardcre.com .

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Get up to 90% financing with an SBA 504 loan

Not long ago, if a borrower was simply able to complete the application for a 100% loan, and they would be approved.

Talk to those who have tried the same in recent months, and you’ll hear a different story – one in which lending institutions have limited borrowing to the point of virtually freezing the real estate market. Buyers are quick to become discouraged when loans are no longer readily available without putting 30% or more down. However, tough market conditions have increased the use of specialized programs to fill the gap.

The SBA 504 program is a popular option for owner-occupied properties in need of fast cash. Offered by the New England Certified Development Corporation, the product is designated for projects ranging in size from $500,000 and up, and can be used to purchase land or buildings, new construction or expansion, renovation, leasehold improvements, or equipment.

With an SBA 504 loan, a borrower obtains a first mortgage loan for usually 50% of the project from a bank. There is no maximum dollar amount. New England Certified then provides a secondary loan (called a debenture) for the next 40%. Certain manufacturing entities are eligible for up to a $4 million debenture. All other industries are capped at $2 million. Up to 90% financing means the borrower typically provides only 10% equity for the project. Loan terms may extend as long as 20 years, and low fixed interest rates (fixed for 20 years for real estate; 10 years for equipment) are available on up to 40% of the project.

Borrowers must:

· Be located in New England.

· Operate for profit.

· Owner must occupy part of the property.

· Have a tangible net worth of $8.5 million or less.

· Have an average net profit of less than $3 million over the last two fiscal years.

Existing buildings must be at least 51% occupied, or 60% for new construction.

Just because it’s more challenging to obtain a 90% loan these days does not mean it’s impossible!

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