Look into bonus depreciation

May 25, 2008 in Articles

Author: Greg Perry
Publication: Portland Press Herald/Maine Sunday Telegram

On February 13, President Bush signed into law the Economic Stimulus Act. While most of the attention is focused on the dispersal of rebate checks to taxpayers, there are also a couple of significant tax-saving provisions geared toward landlords, developers, business owners, and tenants.

Our overview will be on the provision called bonus depreciation.

Bonus depreciation was first introduced following September 11, 2001, but the policy expired at the end of 2004. It was reintroduced with the Economic Stimulus Act of 2008 to both encourage new construction and the purchase of depreciable assets.

For landlords, developers, business owners, and tenants the provision allows for a 50 percent write-off of qualified leasehold improvements in 2008. This is a drastic change from the 2.5 percent per year allowed since 2006.

The idea is to encourage improvement to existing non-residential properties that are more than three years old. For example, renovation of a Class B office building into a more-sought-after Class A building to meet the requirements of a prospective tenant. (Continued on PDF)

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It's still a sellers market

April 27, 2008 in Articles

Author: Nathan DeLois
Publication: Portland Press Herald/Maine Sunday Telegram

Escalating land prices and skyrocketing construction costs have contributed to a real estate market that has developers pressing hard to find profitable projects.

We all know the cost of construction has increased significantly recently, but land prices are all but pricing developers and owner/users alike out of the market, and at the very least, making quality new developments scarce.

For developer, picture this scenario: A major national retailer or developer builds a regional shopping center anchored by multiple big-box stores and several baby-box stores. Throw in some national restaurant chains and banks, and suddenly local land prices spike upward.

Let’s say it costs $250 per square foot to buy land and build a quality small retail center in this neighborhood. To be adequately profitable, a developer will look for $25-$30 per square foot NNN in lease rates. If tenants in the market are willing to pay only $15-$20 per square foot NNN, the project will stall.

Stalled projects have been occurring more often in Maine, as a reality of high land and construction costs converges with the reality of tenant budgets. (Continued on PDF)

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Leasebacks can be a boon

March 23, 2008 in Articles

Author: Matthew Cardente
Publication: Portland Press Herald/Maine Sunday Telegram

In today’s market, it is difficult to justify buying a property that is partially or completely vacant, unless you are buying it as a business location or have a replacement tenant. Often, buildings that are sold vacant because the seller is the owner/occupant and is either moving the operation, or closing the business altogether.

One way to land a buyer in this situation is by doing a sale leaseback. Here is some insight on how a leaseback may be beneficial to the seller and the buyer.

If you are an owner-occupant and think you are going to sell your building in the next five years, plan ahead. Consider selling at least one year earlier than your move out date and offer prospective buyers a leaseback of the space that you occupy.

However, make sure you have flexibility, as an owner/user may want to move in sooner.

The longer leaseback term you agree to, the more security you offer the investor. Besides, if you plan to relocated your operation, it is beneficial to have a year to find the right property as well as have time to move. (Continued on PDF)

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Efficiency a true win-win

January 13, 2008 in Articles

Author: Brian Giguere
Publication: Portland Press Herald/Maine Sunday Telegram

In a market with many leasing options for tenants, property owners need to differentiate their buildings from those of the competition. One area that many owners neglect is the efficiency - or, should I say, the inefficiency - of the building’s utility costs and property maintenance.

In any given market, tenants can expect to pay an average per-square-foot price, but they may find there is a wide range when it comes to common area maintenance charges (CAMs) and utility costs.

Because they are in a very desirable area in which tenants have few options and little leverage, some commercial property owners are able to get away with energy-inefficient buildings.

But most owners could increase occupancy rates and income by cutting costs for their tenants. (Continued on PDF)

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Retail forecast for 2008

January 1, 2008 in Articles

Author: Matthew Cardente
Publication: Portland Press Herald

With the continuation of increases in construction costs, the aggressive pricing of commercial land, and the flattened commercial lease rates, developers are finding it more difficult to justify new construction.

All commercial sectors have been affected by the rise in development costs but the retail sector has been less affected than the office and industrial sectors.

This is due in part to the higher achievable lease rates of retail vs. office and industrial. Rough estimates suggest that a Class A office building and a retail complex cost about the same to build ($150- 165 per square foot). However, Class A office lease rates range from $15-20 per square foot NNN.

In 2007, new retail developments included the 520,000-square-foot Shops at Biddeford anchored by Target and Lowe’s; the 454,000-square-foot Augusta Crossing anchored by Lowe’s and Best Buy; and the Gateway Shoppes at Scarborough that will be anchored by a 130,000-square-foot Cabela’s.

Typically, these types of centers acquire big box tenants to support the development and then fill in the remainder of the space with small-to mediumsized retailers. (Continued on PDF)

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