Random Commercial Real Estate Thoughts

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One of the very cool things that has occurred amidst our self imposed lockdown is a purge! We have closet space we’ve not seen for years! And the clothes we’ve found - oh my! When will I find time to sport that aqua marine leisure suit? Saturday Night Fever, indeed! With all this stay at home stuff - many are using the time to rid the clutter. Afterall, we are spending more time domiciled. Might as well make it work. Akin to the clutter clearance occurring - today’s column is an effort to clean-house and share with you some random thoughts circling my consciousness. So, without further ado - here goes!

A new administration? This was authored prior to November 3rd - even though you’re reading it afterwards - ahhh, the miracle of the modern press. Do we have a new President? Or, four more years of the Twitterer in Chief? Or, are the election results mired in legality like twenty years ago - Bush v Gore? Regardless, commercial real estate could be impacted. Trump has enacted polices favorable to small business and the real estate they occupy - no one can argue. Pass-through entity tax breaks, reduction in regulations, energy independence, expansion of the Small Business Administration, the CARES Act have all created a robust economy - prior to the Scourge of course. A Biden administration could portend an end to 1031 tax deferred exchanges, higher taxes, more government regulation, more dependence upon renewable energy - solar and wind but a kinder, gentler impact upon the environment. Will interest rates rise? Thus making purchasing a business home less affordable. We shall see. In the alternate scenario of “no decision yet” - uncertainty is the biggest culprit of business expansion - read the need for more commercial space. Doubt what I say? Just consider the virus induced stall currently experienced in office space as companies determine the “right size” for their operation.

1031 Tax Deferred Exchange nuances. Speaking of exchanges - the catalyst of so many commercial real estate sales - I’ve recently discovered a couple of wrinkles worth noting. QuicklyContact to sell, create an accommodator, close the sale, proceeds flow into the accommodator account, 45 days commences for identification, upleg buys need to be made at the earlier of 180 days from the close of your relinquish property of the date when your taxes are filed next year. Simple! However, what happens if you don’t complete the exchange? Well in addition to the tax burden - which is a subject for those with many more letters after their names - ie: CPA or Esq - how about the $$ in the accommodator account. When can the money be returned? It depends. If you don’t identify uplegs - the money can be returned after the 45 day identification period. If you in fact ID offerings you’d like to buy but don’t - the money is returned after the 180 day period. But, what if you ID, and close - thus satisfying the exchange - but have some money left over? Frequently, this occurs through closing credits and prorations. Unfortunately, the proceed remnants are held until after the 180 days as well. 

 Don’t try this at home. Recently, I’ve been asked to advise a couple of occupants who own their company’s location. As mentioned, this is one of the single biggest ways to create generational wealth - own the commercial real estate that houses your operation. But, please. Consult with an attorney or commercial real estate professional before selling or leasing your building to a neighbor, accepting an unsolicited offer to purchase, or selling your company and retaining the commercial real estate under a leaseback provision. Sure. I get it. You’d like to save a few bucks by creating an agreement from Legal Zoom - but the unintended consequences of avoiding counsel to save could end up costing you hundreds of thousands of dollars. Fortunately, both the aforementioned clients engaged us. By the way, our advice - if not too extensive - is complimentary. So it’s a win-win.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.