Best Buy is looking to reduce its 42 million square foot big box footprint by 10% over the next three to five years due to weak sales caused by stretched consumers and competition from discounters and internet rivals. According to the National Real Estate Investor, the consolidation could save the company $70 to $80 million a year. The retailer is also considering subleasing space in existing stores as one way to achieve the reduction.
For most properties, the recent valuation notice you received from St. Louis County will have "frozen" your 2011 property at its 2009 value. However, it is important to realize that this value takes no account of the continued increase in effective tax rates that we've witnessed over the last several years. And since the effective tax rate is a major component of the cap rate used to value income producing properties, simply "freezing" the property's value isn't consistent with proven methodologies that generally decrease a property's value when cap rates increase.
Although the commercial real estate apocalypse that analysts feared would hit banks has yet to happen, problems associated with the industry are still alive. According to TheStreet.com, credit quality has started to improve for the CRE sector and with the housing market showing signs of a double dip, there are still more renters than buyers which bodes well for CRE vacancy rates and cashflows. The crisis banks once faced is now not as severe as before because most banks have shored up capital and shrunk their CRE exposure. Those still with high concentration in CRE however, are still at risk.
San Francisco, California is on track to see around $4 billion in downtown office building sales in 2011, a clip only surpassed during the bubble of 2007. According to the San Francisco Business Times, approximately $1 billion in deals have closed already this year with another $500 million in contract to sell and another $800 million recently placed on the market. The $4 billion threshold is not too much of a stretch for 2011 given the current investor demand for product.
New office leases totaling 4.3 million square feet were signed in New York during the month of May, the highest monthly total on record. According to the National Real Estate Investor, the surge in new leasing activity has dropped the Manhattan office vacancy rate to 9.9%, the first dip below 10% since March 2009. The 14 million square feet of leased space so far in 2011 is an increase of 35.4 % from last year at this time. Vacant space is now down nearly 2.4 million square feet since the end of 2010.
For non-REIT hospitality investors, a Transaction Price Segregation (TPS) performed for the closing of your deal provides you with maximum tax benefits in the form of:
Florida House Bill 281 requires a petitioner before the Value Adjustment Board (VAB) who challenges the assessed value of a property to pay at least 75% of the ad valorem taxes by April 1 of each tax year. Failure to do so will result in the withdrawal of the pending VAB petition, with the taxpayer, appraiser and the department of the decision of the board receiving notice by April 20. The new Bill will be applied to petitions filed for the 2011 tax year.
New property tax exemptions that were passed by voters in an effort to spur job growth in several Florida counties last year have gotten off to a slow start. According to Tampa Bay Online, the adopting counties of Hillsborough, Charlotte and Martin have not tapped into the property tax breaks while Sarasota County has granted the property tax exemptions for four manufacturing companies. Economic development officials across the adopting counties are still high on the program and chalk its lack of success up to the weak economy.
With the rise of foreclosures and few comparable properties, the traditional factors of a commercial property's real worth have been decimated, causing increasing difficulty for appraisers to supply values. According to the StarTribune, fewer sales and far more distressed properties have skewed the market, rendering it much harder to come up with a value that's acceptable to the buyer, seller and lender. Values tend to and have been reflecting the changes in the market, especially one this extreme.
Those construction workers that were able to survive the slowdown of commercial real estate development in recent years are now finding their profits squeezed by rapidly rising costs. According to the National Real Estate Investor, the supply in commercial real estate caused by the lack of development has made contractors so hungry for work that they are continuing to promise to deliver jobs for almost no increase in price, in spite of their having to pay more for materials. This creates a dangerous situation for contractors who have already cut their margins to a minimum, or in some cases negative territory.
According to analysis conducted by PKF Hospitality Research, if oil prices reach $150+ a barrel, the recovery the U.S. hotel market is currently enjoying could come to a severe halt. Research found that when oil prices increase beyond normal levels ($125+ per barrel), individual business and consumer spending power is reduced, which in turn has a negative multiplier effect throughout the economy in general and the lodging industry specifically.
Michigan economic leaders claim the state is on the books for $8 billion in tax incentives and grants that will put a drain on budget resources through 2032. According to mlive.com, Michael Finney, CEO of the Michigan Economic Development Corporation, has said that Michigan's old system of tax incentives, Mega grants and blank checks for movie companies, needs to be downsized and shaped into a system to make the state competitive with national and international markets. Essentially, business taxes need to become competitive to attract new companies and keep talent in the state.
Retailers all over the nation are set to fill up empty retail spaces over the next 12 to 18 months as the economy continues to improve, jobs continue to be created and sales have risen for the tenth-straight month. According to GlobeSt.com, new store openings and even construction are in the discussions for many retailers, with luxury retail, restaurants and value and discount retailers being the sectors most likely to expand.
Though the drop was less than 1%, the total worth of Boston, Massachusetts' taxable properties declined for the second straight year. According to the Boston Globe, the city's taxable property was $86.8 billion in the current fiscal year, a 0.5% drop from the previous year, where 2010 saw the same values drop 3.5%. The overall value of just Boston's business properties, including commercial buildings and industrial plants and equipment, declined by 2.4%.
Paradigm Tax Group and its California based Consultants have recently joined the newly formed California Association of Taxpayer Advocates (CATA). CATA was created by property tax professionals in California to protect the interests of California property tax payers and property owners with respect to adverse legislative proposals.
Publicly traded REITs continue to lead the recovery in the commercial real estate sector as their focus has switched to making opportunistic acquisitions, particularly through off-market transactions with private owners. According to Retail Traffic, REITs delivered total returns of 31.4% over the past year, outperforming the S&P 500 and leading investors to recognize that REITs are going to be the leaders in this cycle and will be able to acquire properties.
Oak Ridge, Tennessee hotel owner and developer Amir Patel has asked to terminate an agreement that could have saved his company $500,000 in property taxes on a proposed Holiday Inn Express. According to the OakRidger.com, the agreement was for a 50%, 10-year property tax break approved by the Oak Ridge Industrial Development Board which Patel is now saying would make the hotel project ineligible for Small Business Administration financing because the property would be titled to the IDB, not the borrower.
So far in 2011, institutional investors have increased their desire for commercial real estate and have overtaken public REIT's as the leading purchasers of retail and office properties in the first quarter. According to the National Real Estate Investor, institutions pumped nearly $14 billion into the retail sector from January through April of this year compared to just $3.2 billion invested in retail properties for all of 2010. Office sales also increased dramatically as they more than doubled to $10.2 billion in the first quarter from a year earlier.
Between 2008 and 2010, property taxes on commercial and industrial property in Florida fell two-thirds of one percent, about a $17 million reduction in tax revenue statewide. On the other hand, according to the Herald-Tribune, property taxes on homes of full-time residents fell about 17% or $856 million and 19% or $946 million for other owners of second homes, totaling about $1.8 billion during the same time business taxes basically remained flat.
Washington D.C.-area commercial real estate owners are growing in concern over the possibility that the District may have let them slide on millions of dollars in taxes due over the past decade, which they are now saying they still have the right to come and collect. According to the Washington Business Journal, there is probably nothing for the past decade of borrowers and attorneys to worry about.
The hotel investment market seems to be branching out from the prime coastal markets as a recent spike in offerings from Chicago, Miami and Orlando, as well as other tertiary markets throughout the West, Southwest, and Midwest are occurring. Sellers creating oversupply in markets where offering to closing ratios have widened may end up creating strong recent sales, but more likely will cause distress to large portfolios that were purchased near the top of the market with excessive leverage.
Banks, in particular regional lenders, have a clear path to bring their problem loans to market and become more active in the distressed asset arena. Since larger banking institutions have enjoyed some pretty strong earnings by cutting losses in 2010, they have less incentive to bring out large portfolios if they can hold on to, and continue to work and manage them. This prevents them from bringing them to market for a possible loss where smaller banks will be happy to simply get them off their hands.