Fundamentals across all commercial real estate sectors continue to improve from their low points during the recession. According to a report from the National Association of Realtors, ongoing job creation, which is at a higher level this year, is fueling an underlying demand for commercial real estate space, assisted by a steady increase in consumer spending. Vacancy rates are gradually declining across all sectors paired with generally modest rent growth.
Paradigm Tax Group again attended ICSC's RECon convention, an annual retail deal-making event held in Las Vegas, where there was an increase in attendees, deal activity, and overall energy. However, according to the CoStar Group, enthusiasm among the 32,000 attendees was tempered by a healthy dose of realism forged during several years of diminished activity, along with a recovery that's far weaker than the recovery following the previous down cycle a decade ago.
Proposals to increase business property taxes could make the already difficult California business landscape an even harder place to run a successful company. According to SF Gate, California small businesses failed at a rate of 69% higher than the national average in 2011, with four of the top five metropolitan areas for small-business bankruptcies coming from the state. When paired with the fact that California has the third highest unemployment rate in the nation, any proposal that makes it more expensive to conduct business in the state could be bad news for local businesses.
Bills that will allow local governments in Louisiana to recruit companies with the promise of exemption from property taxes have passed the Senate easily. According to NOLA.com, the bills call for a statewide constitutional referendum in November that would authorize the tax breaks and set in place the rules of the program. The bills will move back to the House where they will have to agree upon changes made by the Senate.
When buying an operating business such as a hotel, many purchasers forget to obtain a tax clearance certificate from the state in which the business is operated before the sale is closed. A Tax Clearance Certificate is a certified statement from the state department of revenue which states that all tax returns have been filed and that all taxes owed by the owner have been paid.
A tax clearance certificate protects the buyer of a business from having to pay any sales and use tax owed by the business that is being purchased. This successor liability also applies when assets are purchased. If a tax clearance is not obtained and the prior owner did not pay their state sales taxes, withholding taxes, and various state excise taxes, the new owner will be required to pay any tax, interest and penalties that would have been due from the prior owner.
Property tax rolls for the city of Boston, Massachusetts are growing modestly due to new construction and commercial properties previously being tax exempt. According to The Boston Globe, after two years of decline, the increase in tax revenue in the area can largely be attributed to new office towers, the expiration of tax breaks, and the sale of two Catholic hospitals to a for-profit company. Overall, the state of the city's current fiscal health is very positive.
The commercial real estate market in New York City showed a 52% year-over-year increase in Q1 2012, with transactions amounting to just under $5 billion in sales volume. According to research from PropertyShark.com, the number of closed transactions (849) remained stable in the first quarter compared to the previous, and rose by 25% year-over-year. Office and multi-family were up 34% and 31% respectively to $2.52 billion and $1.44 billion in sales.
The 2012 Iowa legislative session will likely be known for its failure to once again find a compromise on how to deliver property tax relief to commercial and industrial property owners. According to the Sioux City Journal, members of the Republican controlled House and Democrat-led Senate worked for 122 days on various ways to provide property tax reform without undercutting local governments or shifting tax burdens to homeowners and farmers, and failing to reach a resolution.
Lifestyle centers exploded in the mid-2000s, but experienced hard times during the recession due to the fact that many were built in developing areas with no anchor tenants. According to Retail Traffic, lifestyle centers are following in the footsteps of other retail formats and making a comeback as better positioned properties are drawing interest from investors. In general, retail is doing better and sales are increasing at several projects that struggled during the recession.
Investor interest in malls has recently perked up as sales volume on prime retail properties nationwide was up 87% year-over-year to $12.5 billion during the first quarter of 2012. According to Real Estate Forum, from the buyer's standpoint, the acquisition of a mall can represent a value-add opportunity at this time. For example, many investors are combining proactive management, a focus on leasing, and cosmetic and other improvements to add value to malls through a more pleasant and practical shopping experience. So far this approach has been successful.
Miami, Florida commercial real estate experts are confident about fundamentals that should help raise property valuations. According to Miami Today, during the past year there has been a flight to quality among tenants that has increased the value of trophy properties nationwide, that when added to low cap rates, produced a buying frenzy in high-profile markets. Now people are starting to move to lesser-profile areas, like North Carolina and Minnesota, a trend that should bode well for Miami.
Much of the hotel industry continues to rely on historical data, instead of focusing on the current world situation and U.S. statistics, leading to major disconnect from recognizing the risks that lie ahead. According to HotelNewsNow.com, several factors should be of concern to the nation's hoteliers, including; the rough state of employment, a housing market in the tank, GDP slowing, financial volatility in Europe, and a shaky stock market.
As a consequence of residential property taxes dropping due to Florida's housing slump, the share of property taxes paid by businesses in the state has risen nearly 20%. According to the Herald-Tribune, business taxes in Florida have increased $180 million over three years. While that number is not staggering, it does translate into a big increase in businesses' share of the property tax burden and complicates Florida's efforts to boost job creation by touting low business taxes.
Kansas House members approved a bill to buy time to define what constitutes real and business personal property. According to Bloomberg Businessweek, the bill, now on the Senate floor, tackles the issue of property that has previously been exempt from property taxes because of abatements granted by cities and counties. As the abatements expire, the property is left to be classified as either real or personal for tax purposes.
Businesses in over 400 Michigan districts are bracing for potential property tax increases under legislation in the state Senate to slash business personal property taxes. According to the Municipal Advisory Council of Michigan, if the Legislature passes the eight Senate bills to cut personal property taxes and take $470 million a year in local revenues away from local communities and local schools, local property tax increases will be triggered so the districts can continue to meet their legal obligations to repay bonds on time.
A new study by KC Conway, using thousands of securitized real estate bonds of properties that were foreclosed and liquidated, shows a wide discrepancy between the appraisal values and eventual sales prices of properties. According to The New York Times, in general, appraisals overvalue properties. Of the 2,076 properties examined in the study, 64% were appraised at values that exceeded the sales price, by a total of $1.4 billion, where 35.5% were appraised at less than the sales price, by a total of $661 million.
King County, Washington Council members have passed a new ordinance aimed at increasing fairness in the administration and collection of business personal property taxes. According to the RentonPatch, the ordinance creates an amnesty period through July 1 in which owners of unreported business personal property have the opportunity to come forward and list their property without penalty. This will increase the number of businesses listing their personal property and paying taxes on it.
Keeping up with the national trend, Utah is seeing a rebound in the development and construction of commercial real estate across the state, jumping from 26th to 6th nationally in terms of spending across all categories of commercial real estate in 2011. According to the Standard Examiner, $3.6 billion was spent in Utah last year on the development and construction of office, industrial, and retail buildings, which supported 77,550 jobs.
Texas Lawmakers held a hearing by Conservative activists that would like to abolish property taxes, claiming it is unjust that property is taxed over and over again, unlike income or sales. According to Bloomberg Businessweek, the activists support collecting more revenue through sales taxes and a reformed business tax to make up for the revenue lost by abolishing property taxes. It is there thought that a sales tax applied to real estate transactions could help make up for the property tax dollars that would no longer be generated.
A large number of smaller commercial property deals across the nation have not come to fruition due to stricter lending standards. According to a recent National Association of Realtors survey, while the commercial real estate market showed signs of recovery in 2011, credit tightened in the past year for small business with two out of three agents helping clients buy properties for less than $2 million claiming the purchases were scuttled due to lack of capital.
A ruling by the Pennsylvania Supreme Court on a religious organizations school camp claimed that most of the 61-acre spread is taxable because it does not meet all of the criteria previously established for charities in the state. According to the Pittsburgh Post-Gazette, the ruling could mean a return to the 1980's and 1990's when the tax-exempt status of charities in the state of Pennsylvania, hospitals in particular, was regularly challenged by local governments.
Spending on commercial real estate construction and development increased 12% from 2010 to 2011 and 238.3 million square feet were built last year, a 2.5% increase from 2010. According to Market Watch, 2011 was the first year since the recession began in 2007 to post gains in development and construction of office, retail and industrial buildings. The total economic impact on all phases of commercial real estate development over 2011 added $261.6 billion to the GDP.