This past September, the Dallas, Texas City and County Councils voted to raise the property tax rate to the highest levels in the areas history. According to the National Real Estate Investor, the city voted to raise the tax rate from 74.79 cents to 79.7 cents per $100 in value, a 6.5% increase, while the county voted to raise the county's property tax rate to 24.31 cents per $100 of valuation, an increase of 1.5 cents or 6.6 percent.
Real Estate Investment Trust (REIT) stocks are poised to end 2010 with gains twice as large as the broader stock market for the second year in a row. The REIT Index was up 27% as of close on Tuesday, December 28, with the rally being triggered by investors hunting for higher dividend yields. According to The Wall Street Journal, REIT dividend yields, while low compared to historical standards, are currently around 4% compared to 3.35% on Treasury bonds.
The Washington, DC market has seen close to $5 billion in commercial real estate sales closed in 2010, more than doubling the total of 2009 and exceeding 2008 by $1 billion. According to GlobeSt.com, 2010 has greatly exceeded expectations with one representative from Jones Lang LaSalle stating that, "...to have three of the highest-priced deals of all time occur this year, especially given the continued stress across most markets nationally, really highlights the durability and desirability of assets in Washington DC."
Apartment sales dominated the Phoenix commercial real estate scene this year with transactions involving complexes with 24 or more units more than doubling from 2008. According to the Phoenix Business Journal, the Phoenix, Arizona area through mid-November has had more than 130 transactions this year involving complexes with 24+ units totaling $975 million compared to 53 transactions totaling $564 million as recently as 2008.
The past decade has simply been a turbulent one for property owners, starting off with steadily rising prices, followed by the past two years of historic decline. As we move forward though, real estate is on a cautious upswing with the prospects of becoming a solid investment again. According to GlobeSt.com, the technology boom fueled office space growth prior to 2000 but burst that year with the survivors coming to head around 2004 and moving into good space and having the increasing need for data centers and helping that sector thrive.
Of the five major commercial real estate property types, retail received the lowest investment rating in this year's PwC forecast of Emerging Trends in Real Estate. According to the National Real Estate Investor, retail received a 4.5 on an investment scale of 1 to 9 (1 representing abysmal investment and 9 representing excellent prospects), losing out to even the damaged office market at 4.72. Apartments are perceived to provide the best investment at 6.19.
Giant nursing home company Sun Healthcare Group is looking to capitalize on the robust REIT environment by splitting into two publicly traded businesses. The newly formed Sabra Health Care REIT acquired the real estate assets of Sun Healthcare equaling 86 properties in 19 states and totaling $1.9 billion. Sabra plans to diversify its portfolio by acquiring hospitals and medical office buildings, thus avoiding having a single tenant concentration.
The Indiana Supreme Court issued an opinion on Wednesday, December 15, 2010, which overturned a tax court decision that greatly broadened the ability of a taxpayer to claim an exemption for religious, charitable, and educational purposes. The Indiana Tax Court decided in Oaken Bucket Partners v. Hamilton County PTABOA (49T10-0612-TA-113, September 30, 2009) that a for profit entity that owned and leased real estate to a church met the standard for an exempt purpose because they charged the church below market rent. The Indiana Supreme Court reversed the Tax Court's decision citing that, among other things, charging below market rent does not, in and of itself, establish an exempt purpose on the part of the owner of the property. The Supreme court said in its decision that, "...absent evidence that an owner of leased property possesses an exempt purpose separate and distinct from the exempt purpose of its lessee, the owner holds the property for its own benefit, not that of the public, and thus its property is not entitled to the statutory exemption."
The California State Board of Equalization announced on December 16, 2010 that the inflation factor to be applied to the tax year 2011/12 real property assessment roll will be 1.00753. In California, the annual adjustment of base year values is determined under section 51 of the Revenue & Taxation Code; an annual adjustment by an inflation factor, not exceeding 2 percent, is to be made. The inflation factor is the percentage change, rounded to the nearest one-thousandth of 1 percent, from October of the prior fiscal year to October of the current fiscal year in the California Consumer Price Index for all items.
The days of retailer's accounting departments receiving the bill from the landlord, only checking for obvious mistakes, and then signing off on the check are over. According to the National Real Estate Investor, this previous lack of attention to commercial leases after the negotiations phase ended is why many lease auditing firms, like KBA Lease Services, began operations. Today, retailers represent approximately one-third of KBA's clients with big-box and department stores servings as the firm's main base.
The Michigan State Tax Commission announced that it was withdrawing its Michigan Tax Tribunal appeals to reclassify parcels from industrial to commercial for the 2009 assessment year. The commission filed the appeals because, in its opinion, an erroneous interpretation of the law allowed the appealed personal property parcels to qualify for a special millage exemption and the Michigan Business Tax refundable industrial personal property tax credit. It was the Commission's position that the appealed real and personal property was commercial in nature. It is not clear how many of the over 10,000 appeals had not been previously settled or withdrawn, or how the Commission and the Tribunal would handle the withdrawal process.
Investors who are seeking distressed Big Box deals are facing unlikely competition from retailers. According to Retail Traffic, large tenants like Wal-Mart and Target are buying distressed space from owners or banks at prices that are often 20-30% higher than the real estate investors are willing to pay. As a result, retailers have become large players in the single-tenant market, with an example out of California saying that 50% of the states Big Boxes are now being purchased by retailers.
For two years, big investors have watched the implosion of the hospitality industry as hotel values plummeted more than 50%. It appears though, according to The New York Times, that the industry has hit rock bottom and can only go up from here, as private equity giants like the Blackstone Group and entrepreneurs like Richard Branson are diving into the sector, leading many to think that it may be bouncing back.
The $250 million equity joint venture established by Lane Co. and Lubert-Adler in 2009 has made its first acquisition - the 252-unit multi-family Villas at River Park West in Richmond, Texas, tight outside of Houston. The property was purchased with cash as an off-market transaction for an undisclosed amount. The deal was closed just 35 days after it came to market, making the cash payment necessary as the JV would be unable to obtain financing in that period. The property was acquired at a substantial discount to replacement cost.
Office sales are predicted to gain momentum as buyers strive to acquire quality properties in an increasingly competitive market. According to the National Real Estate Investor, investors have made it clear that they will pay a premium to get low-risk properties in top markets. Next year there is expected to be intense competition coupled with stabilizing market fundamentals that will give investors more confidence to expand their geographic scope out of the top tier markets of New York City and Washington, DC.
Real-estate firms known as special servicers are picking up the pace of working through bad loans and dealing with an influx of sourcing loans backed by commercial-mortgage-backed securities (CMBS). According to The Wall Street Journal, a total of $90.9 billion in loans are in need of work, compared to $73.8 billion at the end of 2009. The pace at which these loans are being resolved has picked up pace, with $27.9 billion recovered by special servicers in the third quarter, compared with $8.9 billion in the first quarter.
In a clear indication that hotel transaction volume will pick up in the first half of 2011, 52% of American investors surveyed have clear intentions to buy in the hospitality sector over the next six months. According to GlobeSt.com, now that operating fundamentals have turned the corner, buyers are becoming increasingly aggressive as they seek to take advantage of the current historically low purchase prices. While the sentiment is a promising leading indicator, it is quickly being supported by real-time transactions.
Behringer Harvard and CT Realty Investors have jointly acquired the Interchange Business Center in San Bernardino, California for $30 million. According to the National Real Estate Investor, the property was built in 2007 on a 41-acre site east of Los Angeles and is currently only 29% leased to two logistics and warehousing tenants. The four-building, Class-A industrial property contains about 802,000 rentable square feet.
Often times our Real Estate Investment Trust clients ask, "Will allocating my real estate value to enterprise value have an adverse affect on my REIT test?". The answer is that it doesn't have to. At Paradigm Tax Group we understand the issues surrounding allocating the different components of value in Real Estate transaction and how to allocate in a manner such that you are conforming to the requirements of your REIT test, and at the same time, reaping your full tax savings potential in a fair and equitable manner.
As the healthiest commercial real estate property type, forecasters expect multifamily property revenues to climb throughout 2011 in large part to moderate job growth and accelerating household creation. According to the National Real Estate Investor, although unemployment is still high at 9.6%, researchers speculate that job gains (874,000 since last December and 151,000 in October alone) has given workers enough confidence in job security to break away from family and roommates and live on their own.
Massachusetts Real Estate Assessments for the Fiscal Year 2011 will be issued by December 31, 2010 on the third quarter tax bill. Fiscal Year 2011 assessed values are 100% of Fair Market Value as of January 1, 2010. The predominant deadline to file your appeal is February 1, 2011.