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By AZ Advisory Team, December 31, 2009 12:05 pm

Why 1031 Exchange?

Any real estate property owner or investor of real estate, should consider an exchange when he/she expects to acquire a replacement “like kind” property subsequent to the sale of his existing investment property. Anything otherwise would necessitate the payment of a capital gain tax, which can exceed 20-30%, depending on the federal and state tax rates of your given state. To make it easy to understand, when purchasing a replacement property (without the benefit of a 1031 exchange) your buying power is reduced to the point, that it only represents 70-80% of what it did previously (before the exchange and payment of taxes). Below is a look at the basic concept, which can apply to all 1031 exchanges. From the sale of a relinquished real estate property, we should understand this concept so that we can completely defer the realized capital gain taxes.

The two major rules to follow are:

• The total purchase price of the replacement “like kind” property must be equal to, or greater than the total net sales price of the relinquished, real estate, property.

• All the equity received from the sale, of the relinquished real estate property, must be used to acquire the replacement, “like kind” property.

The extent that either of these rules (above) are violated will determine the tax liability accrued to the person executing the Exchange. In any case which the replacement property purchase price is less, there will be a tax responsibility incurred. To the extent that not all equity is moved from the relinquished to the replacement property, there will be tax. This is not to say that the (1031) exchange will not qualify for these reasons. Keep in mind, partial exchanges do in fact, qualify for a partial tax-deferral treatment. This simply means that the amount, of the difference (if any), will be taxed as a boot or “non-like-kind” real estate property.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 30, 2009 11:06 am

Commercial Real Estate Investment Advisory: 1031 Exchange

Due to the fact that exchanging a property represents an IRS-recognized approach to the deferral of capital gain taxes, it is very important for you to understand the components involved and the actual intent underlying such a tax deferred transaction. It is within the Section 1031 of the Internal Revenue Code that we can find the appropriate tax code necessary for a successful exchange. We would like to point out that it is within the Like-Kind Exchange Regulations, issued by the US Department of the Treasury, that we find the specific interpretation of the IRS and the generally accepted standards of practice, rules and compliance for completing a successful qualifying transaction. We will be identifying these IRS rules, guidelines and requirements of a 1031. It is very important to note that the regulations are not just simply the law, but a reflection of the interpretation of the (Section 1031) by the IRS.

Click illustration on the left to full view.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 29, 2009 10:49 am

1031 EXCHANGE

A 1031 exchange, otherwise known as a tax deferred exchange is a simple strategy and method for selling one property, that’s qualified, and then proceeding with an acquisition of another property (also qualified) within a specific time frame. The logistics and process of selling a property and then buying another property are practically identical to any standardized sale and buying situation, a “1031 exchange” is unique because the entire transaction is treated as an exchange and not just as a simple sale. It is this difference between “exchanging” and not simply buying and selling which, in the end, allows the taxpayer(s) to qualify for a deferred gain treatment. So to say it in simple terms, sales are taxable with the IRS and 1031 exchanges are not. US CODE: Title 26, §1031. Exchange of Property Held for Productive Use or Investment.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 28, 2009 4:10 pm

Conduit Raceways

All types of wiring methods present in the building must be detailed and individually inspected. The evaluation of each type of conduit and cable, if applicable, must be done individually. The conduits in the building should be free from erosion, and checked for considerable dents in the conduits that may be prone to cause a short. The conductors and cables in these conduits should be chafe free, and their currents not over the rated amount.

Emergency Lighting

Exit signs lighting and emergency lighting, along with a functional fire alarm system must all be in good working condition.

Above is the Minimum Inspection Procedural Guidelines For Building’s Structural Recertification for the Miami-Dade County, contact me for the specific guidelines in your county.

This concludes our series on Forty Year Inspection Requirements.  Feel free to contact me to discuss this with you further or for any other topics related to commercial real estate that you may be interested in.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 27, 2009 12:01 pm

Electric Service

A description of the type of service supplying the building or structure must be provided, stating the size of amperage, if three (3) phase or single (1) phase, and if the system is protected by fuses or breakers. Proper grounding of the service should also be in good standing. The meter and electric rooms should have sufficient clearance for equipment and for the serviceman to perform both work and inspections. Gutters and electrical panels should all be in good condition throughout the entire building or structure.

Branch Circuits

Branch circuits in the building must all be identified and an evaluation of the conductors must be performed. There should also exist proper grounding for equipment used in the building, such as an emergency generator, or elevator motor.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 26, 2009 11:24 am

Loading

It is of importance to note that even in the absence of any observable deterioration, loading conditions must be viewed with caution. Recognizing that there will generally be no need to verify the original design, since it will have already been “time tested”, this premise has validity only if loading patterns and conditions remain unchanged. Any material change in type and/or magnitude or loading in older buildings should be viewed as sufficient jurisdiction to examine load carrying capability of the affected structural system.

Scope of Electrical Inspection

The purpose of the required inspection and report is to confirm with reasonable fashion that the building or structure under consideration is safe for continued use under present occupancy. As mentioned before, it is a recommendation procedure, and under no circumstances are these minimum recommendations intended to supplant proper professional judgment.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 25, 2009 9:54 am

Windows

Window condition is of considerable importance with respect to two considerations. Continued leakage may have resulted in other adjacent damage and deteriorating anchorage may result in loss of the entire unit in the event of severe wind storms short of hurricane velocity. Perimeter sealant, glazing, seals, and latches should be examined with a view toward deterioration of materials and anchorage of units for inward as well as outward (section) pressures, most importantly in high buildings.

Wood Framing

Older wood framed structures, especially of the industrial type, are of concern in that long term deflections may have opened important joints, even in the absence of deterioration. Corrosion of ferrous fasteners will in most cases be obvious enough. Dry rot must be considered suspect in all sealed areas where ventilation has been inhibited, and at bearings and at fasteners. Here too, penetration with a pointed tool greater than about one eight inch with moderate hand pressure, will indicate the possibility of further difficulty.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 24, 2009 9:46 pm

The FDIC has received bids from over a dozen investors for a $1.1 billion dollar package of commercial real-estate loans that they acquired from various failed banks.

The portfolio consists of mostly nonperforming commercial property loans. Demand for these assets, at a discounted price, has grown intense. Investors have amassed billions of dollars to buy distressed loans and property much as investors like Sam Zell did in the early 1990s.

“A lot of investors are anxious to invest cash they have raised,” said David Tobin, a principal with Mission Capital Advisors, a loan-sale adviser.

The increased demand is welcome news for the FDIC, which is selling the portfolio of loans at a discount, while trying to limit taxpayer losses and shore up its deposit-insurance fund.

Some analysts are optimistic the price may get driven up from competing bidders.

The sale comes during a time when the FDIC is facing unprecedented challenges which make this sale the equivalent of putting a finger in the dike. As banks continue to fail, along with the estimated costs of those failures, the FDIC is urgently seeking to replenish their deposit insurance fund, which was showing a negative $8.2 billion balance at the end of September.

So far, the financial crisis has swallowed up 140 banks, leaving the FDIC with about $30 billion in real-estate debt that is available for sale for the next 12 months. That figure is double the level from a year ago.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 23, 2009 6:32 pm

The FDIC is entering into direct partnerships with buyers and retaining a long-term equity stake in the loan portfolios as it opens up to bidders one of the second-largest bulk sale of commercial property in its history. The winner is expected to be one of finance’s private equity titans. The sale is consisted of a portfolio of nonperforming loans from commercial real estate properties issued by failed lenders IndyMac, Corus and Franklin. The agency has been scrambling to raise some cash from a vast array of bank assets as the FDIC fund that insures bank deposits went red this year.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, December 22, 2009 11:00 pm

Similar to the report released by the CCIM Institute and the Real Estate Research Corporation, Moody’s Investors Service said today that prices of commercial real estate continue to decline, but the speed of the decline may be slowing. The Moody’s/REAL Commercial Property Price Index declined 1.5% in October to 107.98 from 109.61 in September. Based on the index, prices for commercial real estate were 36.4% lower than in October 2008 and 43.7% below the peak measured in October 2007. The index is based on repeat sales of the same properties across the U.S. This is a very clear indication that we are very near the bottom.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.