“I welcome your referrals & I love to refer business” Owners Who Negotiate Debt Reductions Could Face Tax Hits - CRE News With property values well below where they were three years ago, borrowers are increasingly trying to negotiate reductions in their loan balances. But doing so could trigger a substantial tax hit on any forgiveness of debt. The tax-liability issue became fodder for headlines in recent weeks when the owner of Manhattan's Stuyvesant Town/Peter Cooper Village offered to turn the property over in a deed-in-lieu of foreclosure. Its lenders subsequently filed to foreclose. The property's owner, a group led by Tishman Speyer Properties, won't face a tax liability on any forgiveness of debt because its cost basis in the property of roughly $5.4 billion, less any possible depreciation and capital improvements, is far greater than the $3 billion of senior debt owed. Another $1.4 billion of mezzanine debt is secured by ownership interests in the entity that owns the property. But the transfer of ownership, either through a deed-in-lieu or an actual foreclosure would trigger New York's onerous transfer tax. That tax is assessed at the rate of 3.025% of the mortgage's face value. The transfer tax liability - it would likely be borne by the property's lenders in the event of a deed-in-lieu or a foreclosure, both of which assume the property lacks the resources to pay the tax - would total $90.75 million. But it could be reduced if the entity that owns the property, as opposed to the property itself, is transferred, according to Harvey Berenson, managing director and member of the general tax group of FTI Schonbraun McCann Group, a New York advisory firm. In that case, the value of the underlying property determines the amount of the transfer tax. Given that StuyTown's value is said to be roughly $2 billion, the transfer tax would be about $60.5 million. Meanwhile, given the decline in property values and the volume of debt that was written at or near the market's peak, the number of loan workouts and debt restructurings is expected to explode. "This is happening all over the country," said Maury Golbert, tax partner at Berdon LLP, a New York tax adviser. Most properties purchased at or near the market's peak with high-leverage financing "that's coming due now are underwater," he explained. If the amount of debt is greater than the property's basis, or cost, the borrower would face a tax hit if any of the debt is forgiven or cancelled. And that tax would be assessed at the ordinary income level of 35%, as opposed to the 15% rate on capital gains. So say an investor bought a property in 2003 for $50 million and because of the run-up in values was able to borrow $70 million at the market's peak in 2007. If the property is now underwater, meaning it's unable to stay current, the owner could try to negotiate a reduction in the property's debt. If successful, the property would face a tax on the amount of debt forgiven. "If you bought in 2007 and the cost basis is big, that won't be a terrible tax result," Golbert said. But a number of long-time property investors had taken advantage of the flood of capital during the market's peak to take cash out of their properties with hefty mortgages. If those get written down, "you're looking at a more difficult tax situation," he said. Meanwhile, owners who live in New York City would face an additional 9% hit. After federal income tax offsets are taken into account, the total tax hit could be roughly 42% on the amount of debt forgiven. "The basic rule is if debt is forgiven, the reduction is treated as taxable income in the year it happens," Berenson explained. But property owners facing large tax hits can defer their payments. They can, for instance, reduce the tax basis instead of recognizing income from the property whose debt has been in part forgiven. Taxing authorities are also allowing liabilities to be deferred for five years. After that, 20% of the total tax liability is due annually until it's repaid, Berenson explained. "Lenders can foreclose, or work something out," Golbert added. In either case, depending on where the property is located, potential tax issues arise. "If you work it out, and some debt goes away," you could see a tax hit if the property's cost basis is low enough, he said. Golbert noted that property owners facing such tax liabilities could, at least in theory, defer them by structuring tax-deferred exchanges. The problem, he said, is that such deals are difficult to structure today. They require equity and debt. If a property owner was hit by a foreclosure, chances are slim that he has sufficient equity to structure such a transaction, and "it's tough to borrow" for such exchange transactions. Built-out for immediate occupancy The DK Post This Issue: Featured Properties pg 1 Upcoming Events pg 2 News pg 3 Jeffrey Hall Commercial Real Estate Broker 1880 S. Cobalt Point Way Ste. 200 Meridian, ID 83642 O 208-955-1026 C 208-794-8020 F 208-955-1020 [email protected] www.dkcommercial.com “All the real estate that is fit to print” Weiser Chevron & C-store for Sale 622 E. Commercial, Weiser ,ID $595,000 3,048 SF store 23,568 SF Lot Motivated Seller, Bring all Offers Amenities: Newer Chevron Store with 4- pumps, QSR Mexican Restaurant All equipment included! Located directly on a high traffic corner Hwy 95 & Commercial. Office Building for Lease 6206 N. Discovery Way Boise, ID $7.00 / sf NNN 5,070 / sf Amenities: Close to the HP Campus, the West YMCA, Restaurants and the Bus Route Tenant signage available on the building as well as monument signage Ample Parking Wired with a T-1 line Office Space for Lease 3451 Copperpoint Dr. Meridian, ID $14.50 / psf FLSV Three Suites available #104 = 1611 / sf #105 = 2744 / sf #107 = 1649 / sf AMENITIES: Amazing deal in Silverstone. Class “A” Building in the desirable Silverstone Business Park Spacious Office Suites Built-out and ready for Occupancy Ample parking Easy access to I-84 and all Valley Locations Office Space for Sale or Lease 1665 Hill Rd. Boise, ID $349,000 3,000 /sf Amenities: Newly remodeled brick building with new roof, carpet, windows & landscaping. Great visibility with high traffic counts. Walking distance to Downtown & Historic Hyde Park MAY 2010 LOCAL UPCOMING EVENTS: Starting a Business Date and Time: 5/6/2010 - 4:00 p.m. Event Location: Ventura Building / J. Jared Gray CPA’s 3006 E. Goldstone Dr. Meridian, ID 83642 Phone: (208) 350-7304 Event Description: There's a lot to consider in starting your own business: developing a business plan, obtaining sufficient funding, marketing and a host of other concerns. Also critical is determining the organizational structure that best suits the business, because it will impact operating efficiency, the way you report income, the taxes you pay and your personal liability. NEWS From HERE & THERE “A set back, is a set up for a come back” Boise, Idaho and the Surrounding Area Business Builder Day Date and Time: 5/19/2010 7:30 a.m. to 6:00 p.m. Event Location: Owyhee Plaza on the Mezzanine Boise, ID 83702 Phone: (208) 323-4464 Event Description: Business Builder Day is back! Past attendees know BBD means hours of B2B networking, info-packed seminars, blue ribbon speakers and more business. The local business community needs this event and it’s promising to be the best BBD yet! Exciting business essentials seminars, highlighted with featured guest speakers, accentuate the historic atmosphere of the Owyhee Plaza. Business Builder Day welcomes each year the following guests: Start-up entrepreneurs, Newly established businesses Mature business owners ready to jump to the next level of commitment Veteran business persons looking to fine tune their operation Land for Sale 1601 W. Overland Rd. Meridian, ID $4.00 / sf AMENITIES: Newly developed infrastructure, Commercial or Retail use; zoned TNC-Commercial SW Corner of Overland & Linder Roads. Close proximity to newly developed Ten Mile interchange. DK COMMERCIAL BROKERAGE SERVICES Sales, Purchase or Leasing of: Retail ~ Office ~ Industrial ~ Investment ~ Land Buyer/Tenant and Seller/Landlord Representation Distressed Property Assistance Business Brokerage Services Other Services: Corporation Service . Property Dispositions . Investment Analysis Portfolio Valuations . Corporate Relocations . Lease Administration Insights for Landlord’s on Tenant Lease Agreements: By Jeffrey Hall What is concerning to me in today’s market is some landlord’s not being educated enough about the current market conditions, which has resulted in tenants vacating space just to move across the street for half the rent. Landlords need to take a pro-active approach in order to retain their current tenants. To start, I would suggest a landlord meet personally with each of their valued tenants (property managers are excluded from these meetings). Find out how the business is doing this year and if they are seeing an increase in business over 2009. If the tenant is struggling to make rent every month, offer any assistance possible in the way of marketing the property or making some rent concessions. If a landlord takes this approach prior to the tenant getting behind on rent or looking for a new space, I assure you that some landlord will have one less vacancy on their hands. The landlord who feels that their space is too valuable and can be leased out at 2007 rents, is the landlord who will lose in the long run because finding an uneducated tenant who is shopping for space and willing to pay those rates will be few are far between. by John Assaraf With so many different beliefs about the definitions of success, it seems the word is overused. Certainly, success too often refers to how much money someone earns in a year or to net worth. Of course, earning a lot of money can be wonderful. Yet there are plenty of people who have acquired great wealth only to find themselves emotionally or physically broke. Relationships with a spouse or kids have been the sacrificial lambs for money. Many have even forfeited their own health for the mighty dollar. I don't know one person who has lost good health and wouldn't give every nickel to regain it. The same is true for those who have lost a child's or spouse's love in the pursuit of financial gain and material riches. Many people achieve financial success at the expense of the rest of their lives. They keep thinking that once they make a certain amount of money, they'll slow down and have time for other important things like family, God, and health. But most people never get there; there's always more money to be made, one more thing to do. It's usually too late before they realize that every day is the journey, and it's not just about the money. It's important to create a successful and fulfilling balance in each area of life. One of my friends, Michael J. Stefonik, spent more than twenty years building a multimillion-dollar business while his marriage and relationship with his two children suffered. Shortly after his annual physical, his doctors disclosed the results of an MRI scan of his brain. They found a large tumor that would soon cause him to go blind or kill him. When he asked for a solution to the problem, he was told surgery was the only answer; however, there was only a fifty percent chance he would make it through the operation. Within seventy-two hours, Michael arranged to sell his company and made all the other necessary preparations in anticipation of his possible death. After ten hours of surgery, a large and benign tumor was removed. Michael spent three weeks in the hospital, then went home for recovery, where he was nursed for several months by the very people he had neglected---his family. Today, he's doing great and working to build a successful consulting business in the same industry in which he made his first fortune. More important, he's also making sure he gives plenty of attention to his health, his kids, his ex-wife, and his true friends. Somehow, what's important becomes obvious when life is on the line. Guess what? Life is on the line every day, and you are trading what you do for it. In other words, life is a series of trade-offs, and every moment is literally spent: Time and, therefore, our lives are traded for the things we choose to do. Imagine for a moment if my friend had been you. How would you have felt and reacted? Would you have wished you could go back in time and make different decisions? Success can be incredibly elusive or it can come in abundance with the right mind-set and know-how. Few people really understand how to create abundance, particularly abundance in every facet of their lives. Fewer still have studied the cause of results. As a consequence, most people have no clue as the awesome power that resides within them or how to tap into nature's intelligence. Even successful people don't really understand the true cause of their success. They can tell you what they do, but rarely can they explain why or how they do it. Yet, you can have it all, including but not limited to lots of money. Instead of realizing this, most people accept the way things are in their lives as some kind of foregone conclusion. They blame the circumstances or conditions into which they were born for the way they live today. But the truth is, you create your circumstances and reality. How many people have overcome trying circumstances to create the life of their dreams? You can become one of those people and have it all! From the book "Having it All" by John Assaraf Flex Space for Sale Quarry Business Complex 6401 Eisenman Rd. Boise, ID $50.00 / sf 12,600 total square feet divisible 2100 / sf Motivated Seller, Bring all Offers Amenities: Suites can be customized based upon your commercial needs Buy one Suite or multiple suites Beautiful and secure all block buildings Top grade entry doors and awnings, loading dock, 22’ high ceilings, grade level doors. Close Freeway access with great visibility. 1711 W. Franklin Rd. Meridian, ID Harks Corner Carwash for Sale $795,000 3,254 / sf on .72 acres Amenities: One - Belanger Auto Bay Four - Self Serve Bays Four - Detail Express Vacuums Airlift doors & 18-item Vendmaster Credit Cards accepted in all bays Excellent Location in the new Ten Mile Interchange Area. This area continues to expand bringing more volume to the business in this location. This is a Great Opportunity for someone looking for a low maintenance income business. Marketing Your Business...What's New?...What's Best For You? Date and Time: 5/26/2010 9:00 a.m. to 12:00 p.m. Event Location: Boise Metro Chamber of Commerce 250 S. 5th St. Boise, ID 83702 Phone: (208) 472-5259 Event Description: When it comes to marketing your business, there are a lot of options: print, direct mail, television or radio, billboards, etc. How do you know which is best for you? What about online options and virtual marketing? Join us for a look at different types of marketing and the strengths and weaknesses of each. Hear from media buyers, industry professionals and companies that will share their success stories. Includes breakout time for meeting with presenters on specific strategies and tools for you! Commercial Forum Date and Time: 5/19/2010 8:30 a.m. Event Location: Title One 1940 S Bonito Way Ste 190 Meridian, ID 83642 Social Media Summit Date and Time: 5/6/2010 9:00 a.m. to 11:30 a.m. Event Location: Touchmark at Meadow Lake Village 4037 E. Clocktower Lane Meridian, ID 83642