New Landscape for Real Estate Investment Trusts
Justin L. Sylvan
The Protecting Americans from Tax Hikes (PATH) Act made substantial changes to certain areas of the Real Estate Investment Trust (REIT) rules. Many of the provisions provide REITs with additional flexibility regarding the nature of their assets and income, which make REITs an appealing investment vehicle for foreign taxpayers (see Sidebar). Prohibited Transaction Safe Harbors […]
What Kind of Insurance Does the Project Need?
Adam M. Levine
Every business requires comprehensive insurance coverage to protect its assets and income. However, property owners and developers need to consider more than just general liability, workers’ compensation and business interruption policies. Here is a quick overview of what else may be necessary.
Crossing That Bridge: Understanding the Pros and Cons of Bridge Loans
Investors and home buyers generally use bridge loans until they can secure long-term financing. As with any form of financing, there are advantages and disadvantages. This article summarizes what exactly bridge loans entail, and then delves in to the pros and cons of this type of financing.
Trend Analysis Is Trendy
Appraisers are increasingly incorporating trend analysis when valuing real estate. Property owners, as well as potential buyers, need to understand the role trend analysis, also known as market analysis, can play when determining value. As always, one needs to consider the income, cost and market approaches when trying to assess fair market value.
Performing Preventive Maintenance is Key
Do you know the physical condition of the properties that you own? As the owner, you need to understand how things are working and what needs improvement at your residential and commercial properties. A comprehensive preventive maintenance program inventories all interior and exterior equipment “hotspots” and tracks when routine maintenance should happen. This article shows how to create a formal schedule and budget for fixed asset repair and maintenance, taking into account labor requirements and tax considerations.
Eminent Domain: Understanding the Tax Treatment Issues
Eminent domain is the process by which a government or entity has the ability to take private property for public use. Any property claimed through eminent domain must be fairly compensated. This triggers a process by which “fair compensation” is determined. Once this process is complete, there will be an award to the owner of the property, based on “severance damages” for either loss in value of a larger parcel of property that was not acquired, or the value of the portion of the property that was taken. This article covers the intricacies and tax treatment issues behind eminent domain.
Gross-up Provisions: Good News for Both Landlords and Tenants
In an uncertain economy, commercial landlords understandably look for ways to protect themselves from financial exposure. One approach is the inclusion of gross-up provisions in leases. This article explains that a properly drafted gross-up provision can help ensure that tenants pay their share for operating expenses when some units are vacant, while also protecting tenants from unexpected cost increases.
Alternative Financial Metrics to Consider in Real Estate Purchases
Kathy Z. Jeziorski
When approaching each transaction, real estate professionals anticipate to achieve the best possible outcome. The property’s net operating income (NOI) is often the first metric they will assess in determining whether an investment is going to generate cash inflow. However, this metric will not be enough for a savvy investor. In most cases, investors need to evaluate the property’s highest and best use. This article discusses the fallbacks of NOI, as well as introduce two alternative financial metrics worth considering when investing in real estate property: Net present value (NPV) and internal rate of return (IRR).
Could the Small Taxpayer Safe Harbor Work for You?
Although the final property repair regulations have been in effect since 2014, the question we still are asked most is how a property owner can tell the difference between a repair and an improvement to a unit of real estate. Stated differently, which costs can be deducted, and which must be capitalized and depreciated? This article focuses on the Small Taxpayer Expensing Election and the Small Taxpayer Safe Harbor Rule which allows a “qualifying small taxpayer” to treat costs as deductible expenses. We will also look at the other safe harbors applicable to real estate: The Routine Maintenance Safe Harbor and the De Minimis Safe Harbor.
Ask the Advisor: Is Defeasance Right for Me?
Kadir P. Sunardio
As the real estate market has improved in many parts of the United States, and interest rates are poised to climb in the near future, many property owners are considering pursuing defeasance to exit their loans. Many, however, do not really understand what is involved. This article provides input on how defeasance works and when it is best to use it.