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Tax Overhaul Could Be Big Win For U.S. Real Estate Investors

U.S. commercial real estate is a likely winner in the evolving Republican tax overhaul, which is poised to lower rates for property owners, spur new investment and increase demand for rental housing, according to a new report.

Owners and developers of commercial real estate stand to gain from a new tax break for “pass-through” entities, which don’t pay corporate tax but instead pass income through to their owners’ individual tax returns, according to the report, by Cushman & Wakefield Inc. The House and Senate have reached a tentative agreement to create a 20 percent deduction for pass-throughs, which the report notes are responsible for 61 percent of investment in U.S. commercial real estate.

It’s not as big a boon for the industry as it might have been. The House bill passed last month slashed the top tax rate on pass-through income to 25 percent from a current top rate of 39.6 percent. That would have been a “huge win,” said Revathi Greenwood, head of Americas research for Cushman & Wakefield.

The Senate bill has tied the new deduction to the amount of wages the business pays, said Greenwood, meaning larger savings for ownership structures with more employees, such as real estate investment trusts. It’s unclear whether the House-Senate compromise retains that provision.

Representatives of the two chambers are meeting this week to reconcile their versions of the legislation, setting the stage for President Donald Trump, who made his fortune in commercial real estate, to sign a bill into law as early as next week.

In the weeks since the House of Representatives unveiled its tax plan, on Nov. 2, housing experts have warned of its potential effects on the U.S. housing market. Proposed changes to the treatment of mortgage interest and state and local taxes could reduce incentives for buying a new home. Potential effects on commercial real estate have gotten less attention, perhaps because the industry doesn’t have much to complain about.

Opportunity for Malls

Still, not every sector will benefit equally. The tax plan should favor residential landlords, the report said, with the tax benefits of homeownership curbed. It is also likely to benefit retail landlords by lowering taxes on companies that rent space and leaving consumers with more discretionary income to spend.

“Mall operators are looking at restructuring anyway, remaking their properties to give shoppers experiences they can’t get online,” Greenwood said. “We think some of the money saved in taxes will be reinvested back into the business. Office landlords are likely to see more-modest gains. While corporate tenants are key beneficiaries of the tax plan, they’re likelier to return tax savings to shareholders than to increase spending. The tax overhaul could benefit the office sector by discouraging companies from moving their headquarters abroad to save on taxes. Health-care companies are likely to pare back investment in real estate.”

That’s partly because a Senate provision to repeal Obamacare’s individual mandate could curtail demand for services, and partly because both the Senate and House bills reduce exemptions for charitable gifts, which are often used to fund the construction of new hospital buildings.

Click here to view the Bloomberg news video ‘House, Senate, Said To Reach Tentative Tax Deal’

 

Source: Bloomberg

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Equity Office Pays More Than $110M For Portfolio In Broward & Palm Beach

Prologis just sold a portfolio of properties in Broward and Palm Beach counties to Chicago-based Equity Office for more than $110 million, property records show.

The portfolio includes industrial buildings in Delray Beach, Mangonia Park, Hollywood, Dania Beach, Fort Lauderdale, Pompano Beach and Coconut Creek. The deal was financed with an $83.5 million loan from Wells Fargo.

Equity Office, which is owned by the Blackstone Group, also bought properties in Seminole and Miami-Dade counties, as well as Illinois and Wisconsin. The sales in Miami-Dade County have not yet cleared records. Prologis and Equity Office were not immediately available to comment.

Records show the Blackstone affiliate picked up an industrial complex at 430 South Congress Avenue for $9.5 million and an industrial site at 1335 West 53rd Street for $4.6 million.

In Broward, industrial complexes at 3601 and 3613 North 29th Avenue in Hollywood sold for $23.5 million; properties at 3700 North 29th Avenue, 3401 North 29th Avenue and 5555 Angler Avenue in Dania Beach sold for $14.6 million; buildings at 3600 Northwest 35th Avenue, and 5535 and 5545 Northwest 35th Avenue in Fort Lauderdale closed for $12.1 million; and the warehouse complexes at 2800 North Andrew Avenue in Pompano Beach and 4801 Johnson Road in Coconut Creek sold for a combined $39.7 million.

The properties were originally owned by KTR Capital Partners, which was acquired by Prologis and Norway’s sovereign wealth fund in 2015 for $5.9 billion.

Equity Office owns a portfolio of more than 50 million square feet of office space across the country, according to its website. Blackstone acquired its assets in a $39 billion leveraged buyout in 2007.

 

Source: The Real Deal

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Is 2018 Gearing Up To Be A Good Year For Real Estate Investment?

The real estate market is one of the most in-tune economic barometers; its transactions add up to nearly 15 percent of GPD.

As globalization and digitization continue to disrupt established labor and business patterns, housing needs and investment opportunities evolve as well. In certain go-to metro areas like Silicon Valley or Dallas Fort Worth, the workforce struggles with a housing impasse. Historic luxury property magnets like New York or Los Angeles are seeing a heated bidding war between domestic and international buyers, competing for investment.

While regional hubs benefit from available housing to attract talent, there is a growing body of evidence to suggest a direct correlation between rising housing costs and stagnating job rates. That’s a worrisome prospect. In better news, millennials are finally beginning to transition from renting to buying,rejuvenating upscale home sales. But that still raises a few questions, like is 2018 gearing up to be a good year to invest in real estate? If so, where should one look? What incongruities should buyers watch out for?

To navigate a market fraught with mixed messages, the Observer turned to Justin Fichelson, luxury real estate advisor and TV personality on Bravo’s Million Dollar Listing San Francisco, who’s built a thriving business on referrals and exclusive repeat clients.

With markets rallying and prices rising, is it a good time to buy?

Absolutely! The real estate markets in the major urban centers in the United States have increased dramatically; $300K in the mid-1980s in San Francisco could get you a house that’s worth over $5 million today. Long-term, real estate will only go up if you buy wisely in resilient markets connected to innovation-driven industries. For example, the West Village in NYC saw townhouse values soar 150 times, within one generation. If you think ahead, strategic real estate purchasing is key to peace of mind for you and your family. If we map the economy dynamics now, Austin, Texas continues to grow as does Charlotte, North Carolina and many towns around the Bay Area including Vallejo, Walnut Creek and Petaluma.

How will price hikes affect real estate markets in 2018?

The phenomenon of being priced out of a neighborhood is real, both for older longtime residents and people starting their professional lives in a new place. Look for areas where young people are moving next. For example, San Francisco with its strict zoning laws has a highly coveted and extremely limited stock. As a result, people are moving to outlying areas within strong transportation networks which are being developed to accommodate such expansion. Places like Vallejo and Richmond are attractive for those looking to flip a property. Of course, there are always safe bets in historic neighborhoods like Pacific Heights or SoHo.

Is there a difference between clients based in New York versus San Francisco?

Bay Area clients are mostly in tech-related industries, while NYC customers come from a far more diverse array of industries like finance, entertainment and fashion; they often originate from abroad, which makes sense. The American market is one of the most resilient due to being supported by perhaps the most diverse economy in the world. People are still looking to live the American dream! NYC clients also tend to have a more sophisticated eye, when it comes to the architecture and design of high-end new development projects.

So, what does a million dollars buy in the USA?

That depends on where you’re looking to explore. A million in San Francisco is a good one-bedroom or a mediocre two-bedroom apartment. In NYC, that may be a one-bedroom in more accessible areas or a shoebox in the hot spots. In Miami, that’s a spacious two-bedroom or a decent home away from the beach. In LA, a million-dollar property can range from a small single-family home to a tiny plot of dirt in a commercially lucrative area. In most urban places, the pricing varies dramatically, depending on the neighborhood.

What questions should prospective buyers ask themselves?

What are you trying to achieve with this purchase? Is it a family home or something convenient for a couple years with the goal of getting a larger space later? Realistically, how much are you comfortable spending and how will that alter your lifestyle? Then, think about who you are going to work with to accomplish this. For example, a home in the trendy Cow Hollow area of San Francisco sold for a million over its asking price the day before it was to be brought on the market…the West Coast is gaining popularity as an international home-buying destination, so buyer competition is real. It’s all about knowing the right local experts and building a relationship with an agent you trust.

If you were to retire now, where would you live and what would you do?

I’d split my time between San Francisco, NYC and London. I’m a San Francisco native, NYC is the center of the world, full stop, meanwhile, London has the perfect combination of urban beauty, world history and the geographic convenience of getting anywhere in Europe within a few hours. I’d probably increase my involvement with charitable causes. I am a founding member of the Exploratorium Lab which raises money for the Exploratorium, one of the world’s premier interactive science museums. I believe that education, ultimately, is the key to success in any undertaking—including buying a home.

 

Source: Observer