Meet EXP Realty Advisors at ICSC New York

InterFace Net Lease

Top NNN investors and investment brokers will discuss the heated and high-priced net lease investment market in a highlight session at the 4th annual InterFace Net Lease conference on September 12th in New York.

How to position 1031 deals, the availability of product and the stiff competition 1031 exchanges face against competitive products like DSTs and REITs will be discussed in a high-level 1031 market update.

How Best to Position Net Lease Properties for 1031 Exchanges

Robert James President EXP Realty Advisors	Pamela Michaels VP Asset Preservation	Sean Shanahan CFO Iridium Capital	John Glass SVP Investments Marcus & Millichap

The Art of the Deal: How Brokers Get the Job Done

NEW YORK CITY-The dynamic RealShare Net Lease event gathered the industry's top players, who shared their views on the sector. The event united around 300 industry professionals who took advantage of networking opportunities throughout the day. Click through for images from the event.

ICSC: New York Next Generation Program

Thursday, January 10th 2013

ICSC HEADQUARTERS

1221 Avenue of the Americas, Floor 41 

New York, NY 10020

NNN Retail Investments and 1031 Exchanges

Single tenant investment properties play an important role in the retail world and continue to be a highly valued segment of the industry for
developers, retailers, investors and brokers.  Although a small piece of the puzzle in the retail industry, these bite sized deals can add up to
big bucks for tenants, owners and brokers who play in this arena.  Learn what investors are looking to buy, how 1031 exchanges are
structured, where CAP rates are trending, and how much financing one can expect for your next NNN deal.  Come join us for this dynamic
panel discussion and hear from our experts about the ins and outs of the most actively traded asset class in the retail world! 


Panelist: 
Robert P. James, Founding Principal, EXP Realty Advisors, Inc. 
Marc A. Perel, Principal, ARC Properties, Inc. 
Matthew K. Scheriff, Executive Vice President, Legal 1031 Exchange Services, Inc. 
Moderator: 
Elliot Nassim, President, Mason Asset Management, Inc. 


The Next Generation program is specifically designed for real estate professionals who are seeking to develop their careers and  
build relationships in the shopping center industry.  Professionals have the unique opportunity to meet and interact with their peers,  
share experiences, exchange ideas and provide or obtain advice.  Next Generation is also open to and welcomes seasoned professionals 
 who wish to give back to the industry. This event is available to both Members and Nonmembers.  Advance registration will be closed 
 three days prior to program date, however, on-site registration is subject to availability. 

New York Next Generation Program

The Beauty of The Ground Lease - Shopping Center Today - October 2012 Issue - By Ben Johnson

When Milton Cooper speaks, people tend to pay attention. As executive chairman of Kimco Realty Corp., the largest owner of neighborhood and community shopping centers in North America, Cooper made the firm one of the first REITs to trade on the New York Stock Exchange some two decades ago. So when early this year Cooper cited ground leases as an example of the firm’s focus on quality on an earnings conference call, he managed to turn a few heads. He pointed to Kimco’s ownership of some 750 retail land parcels. “These ground leases for the most part have escalations in rent,” Cooper said. “It’s a wonderful, safe, quality investment, despite rents being low when compared to store leases.”

Cooper also put forth a particularly profitable example. “For years we have had a net effective annual rent of less than $100,000 per annum on a 100,000-square-foot store in Staten Island [New York],” he said. “A new ground lease has become effective for the same facility to a large national retailer at an annual rental of $2 million a year. I think you get our point,” he said.

Ground leases are anything but groundbreaking. In fact, they almost seem to have been around since the creation of dirt. Essentially, a commercial ground lease is a lease of land for a relatively long term of up to 99 years. They are typically triple-net in nature, meaning all the expenses of the property are the obligation of the tenant.

It is not possible to quantify just how large the ground-lease market may be, but sources say it is huge. Lance Marine, first vice president of retail services at CBRE, points out that the typical shopping center has two or three outparcels, and the vast majority of outparcels are ground-leased. Marine, who specializes in brokering ground leases in the District of Columbia area, says he has completed about 100 of those over the past few years. “It’s a substantial income stream to developers,” said Marine.

Ground leases provide tenants with several major advantages, Marine says. First, many retailers favor ground leases over traditional-space leases, because the former can free up capital that can be spent on the buildings rather than stay tied up in land. “Retailers across the board are very focused on having their brand and their identity in their unit, and having four sides to personalize benefits them much more than if they had taken an end cap or in-line space,” said Marine. And further, all rent payments made under a ground lease are deductible by the tenant for income-tax purposes, he says.

For owners, ground leases carry three basic advantages over selling the property outright: A ground lease is a way for the landlord to avoid realizing a gain from a sale to the tenant, the landlord retains long-term ownership, and the landlord may retain certain controls over the development and permitted uses of the land. Many ground leases require a tenant to develop, construct and operate a specific type of commercial project and not to change the nature of that project without the landlord’s approval.

There are some disadvantages too. Rent paid is income and is taxed at ordinary rates rather than capital-gains rates. If ground leases are not written correctly, the landlord may have little or no control over land use and development. And many ground leases contain provisions that either are restrictive or prohibit the landlord from borrowing against the land.
Tenants also have disadvantages in doing ground leases. The cost of ground-leasing property is usually higher in the long term than if the tenant purchases the property up front. Typically, a tenant will have somewhat less flexibility over the development, use and operation of the property because of restrictions that may be contained in the ground lease. Also, the tenant may not be able to pull all or part of its equity from the project through refinancing. A tenant’s leasehold interest is essentially a “diminishing asset” in that the value and marketability of the project will diminish as the end of the term nears.

Ultimately, ground-lease transactions are give-and-take on the part of both landlord and tenant, but supply and demand also dictates the balance of the negotiations. “In a market like D.C., where land is limited and demand from retailers is strong, the developer will drive and dictate that decision to a ground lease,” said Marine. “It is not just a retailer’s decision. It is also a developer’s decision. They are both in control of that process.”

The process of writing ground leases can be easier than space leases, says John J. Schupp, senior vice president of development and project management at Jones Lang LaSalle. “We have a number of ground leases that are in process right now,” Schupp said. “It literally can be an easier document to see through the legal process. Everything you can do with a standard space lease you can do with a ground lease.”

Robert James runs one of the leading firms specializing in brokering ground leases. He founded Kimco Exchange Place with Milton Cooper in 1998 and ran it for 10 years before acquiring it from Kimco four years ago. Today the firm is called EXP Realty Advisors and has offices in New York City and Dallas. James estimates that the company transacted some 300 ground leases as a division of Kimco and has closed over 100 deals as an independent company.

“It was Milton’s idea,” said James. “He didn’t know exactly what the business would look like, but I was hired to create a business around 1031 exchanges. It ended up making money as a brokerage business, where we would be able to sell the ground-leased McDonald’s at a lower cap rate than we could the balance of the shopping center.”

James notes that ground leases have long-term upside for good reason. “They are very safe,” James said. “I did retail bankruptcy restructuring for three years before I joined Kimco, and I never closed a ground lease. If the store didn’t work I would sell the ground lease.” Ground leases typically trade at cap rates 75 to 125 basis points below comparable building-and-land deals, James says. “The reason is, that’s a safer income stream, so it should trade at a lower cap rate,” he said. “Generally, the tenants renew every time, but if they go bankrupt, they will sell it to somebody else.”

Though drugstores have driven much of the demand for ground leases over the past few years, other retailers and restaurants are driving more deals these days, says Jeremy Cohen, a partner in the commercial real estate practice of Hartman Simons & Wood, an Atlanta-based law firm. “They all want their one-acre outparcel somewhere out in front of the shopping center, so they can build and control their improvements without worrying about a landlord screwing up their plans,” said Cohen. “I don’t see anything in the future that will prevent them from continuing to happen.”

Robert James to Attend the 3rd Annual Net Lease InterFace

Robert James is President of EXP Realty Advisors, Inc. which is a boutique investment sales business specializing in 1031 exchanges and the exclusive listing of single tenant net leased properties nationally. EXP Realty Advisors has offices in New York City, Dallas Texas and will soon add a California office. Rob has sold over 1.3 billion dollars of real estate in 39 states.

The 3rd annual InterFace Net Lease conference will bring together 250 leading players in the NNN, sale leaseback and 1031 markets to New York City for a day-long information and networking conference on Tuesday, September 11th (Opening cocktail reception on Monday night, September 10th).

Hear from 35+ speakers on seven panel sessions addressing topics such as:

• State of the Net Lease Market: The Outlook for the 4th Quarter and 2013
• Will the Investment Market Continue to See Record Demand, Limited Supply and Cap Rate Compression?
• Where is Pricing and Underwriting, What Debt Instruments are In (and Out of) Demand, How are Conduits Impacting the Marketplace and Will New Capital Sources Emerge in the Coming Year?
• The Retailer Perspective: Tenants Share Their Expansion and New Development Plans and How the Real Estate Industry Can Best Work With Them
• What’s in the Pipeline, Will New NNN & BTS Supply Come Close to Meeting Investor Demand, and What Structures are Being Used to Finance New Development?
• 1031 Market Update: The Potential Impact of Tax Law Change on Private Buyers and a Still Recovering Market
• The Outlook for the Sale-Leaseback Market in 2013
• Keynote Address: Now is the Time for Investing in Net Lease Real Estate Nicholas S. Schorsch, Chairman of American Realty Capital Trust and Co-Founder of American Realty Capital

New 3.8 Percent Tax and the Impact on Real Estate

With potential tax increases looming on the horizon, the value of tax deferral mechanisms, such as Section 1031 exchanges, have never been greater. One example of a potential tax increase which appears likely to take effect is the new Medicare tax, which Congress passed as part of the Health Care and Education Affordability Reconciliation Act of 2010, and was recently upheld by the Supreme Court. The Medicare tax, which goes into effect on January 1, 2013, will impose a 3.8% tax on the net investment income of joint filers with adjusted gross income over $250,000, and single filers with adjusted gross income over $200,000.

The new Medicare tax applies to adjusted gross income (the figure on the bottom of the front page of IRS Form 1040), which includes interest, dividends, capital gains, wages, retirement income and income from partnerships and small businesses. It appears the tax will also apply to dividends, rents, royalties, interest (except municipal bond interest), short and long-term capital gains, the taxable portion of annuity payments, income from the sale of a principal residence above the $250,000/$500,000 exclusion, gain from the sale of an investment property or a second home, and passive income from real estate and investments in which the taxpayer does not materially participate.

JUST SOLD: NNN LA Fitness

Blackstone Planting Its Flag Even More Firmly in CRE

In the current lackluster environment for huge private-equity deals and leveraged M&A buyouts that marked the previous boom cycle, Blackstone Group LP has increasingly shifted its focus tocommercial real estate investments. The firm, credited with timing the market perfectly in the previous cycle with its acquisition and subsequent sell-off of the former Equity Office Properties portfolio, is hoping to again capture lightning in a bottle as investor demand heightens for core property assets in leading U.S. and European markets.

Despite the improving economic landscape, Blackstone's net income for its four main business segments fell 24% in the first quarter as the growth in the values of its asset slowed, including a 23% drop in Blackstone's real estate business from first-quarter 2011.

There appears to be a strong foundation behind the volatile quarterly numbers, however. Blackstone reported $190 billion in assets under management as of the end of the first quarter -- up almost 27% from a year earlier -- including $48.3 billion in real estate, which was up 38% from a year ago.

CRE generated the firm's highest revenue volume during the quarter at $427.2 million. Steadily improving fundamentals drove a 4% increase, or $1 billion, in the value of Blackstone’s carried portfolio, with the majority of value appreciation in the firm’s office and retail properties.

Blackstone’s credit business posted $50.8 billion under management, up 61% from last year, followed by smaller growth in private equity and hedge funds.

Tony James, president and chief operating officer, and Stephen A. Schwarzman, CEO and co-founder of the private-equity and alternative investment titan, attributed the decline in profits to continuing global uncertainty. But in calls with reporters and investors, they both expect business conditions will improve in the second half of 2012 and into 2013, and also noted that Blackstone has accumulated nearly $38 billion in dry powder for acquisitions.

"[CRE] deal flow is robust as the investing environment has remained favorable given the amount of distressed assets that need to deleverage around the globe," said Schwarzman, the legendary private equity financier and investment banker. "With little new supply and slowly increasing demand for commercial space, fundamentals continue to improve from the lows of the cycle. This has resulted in occupancy improvement and rent growth in most of our core markets."

"For key office assets in the United States, occupancy is up 300 basis points versus the prior year. In Northern California, our strongest office market, site of the tech boom in the United States, office rents are up more than 15% from the prior year. This gives you some sense of what happens when the law of supply and demand reasserts itself."

To take advantage of the upswing, Blackstone's James noted that the company could divert more of its capital raising efforts into core commercial properties, as well as funds in Asia and other emerging markets. The firm already tops all private-equity fundraisers in CRE, with its Blackstone Real Estate Partners VII accumulating $6.6 billion in the first quarter.

"Investors are hungry for yield, they’re hungry for inflation hedge, and we have, of course, tremendous market knowledge and ownership of assets throughout all the major regions," James said, noting Blackstone's successful closing of its global flagship fund in February.

In an asset class where fundraising has proven extremely difficult of late, Blackstone has raised over $10 billion of total capital, with a couple of billion more in commitments over the course of the year, "which will make it the largest real estate opportunity fund ever raised and multiples in terms of size of our nearest competitors, where that multiple of size gives us the ability for competitive purposes to do larger and more complex deals," Schwarzman said.

Blackstone is seeing similar trends in hospitality as in office and retail, with virtually no new supply and modest increases in demand leading to U.S. RevPAR gains.

"Positive absorption and declining vacancy is also evident in our industrial, retail, and senior living assets," Schwarzman said.

He also noted that Blackstone acquired a large portfolio of grocery-anchored shopping centers last year from Brixmor, formerly Centro Properties, in the largest deal in the world of any leverage type since the collapse of Lehman Bros. nearly five years ago, where occupancy is at its highest level since 2009 due to accelerating leasing activity.

Schwarzman said although improving, real estate debt markets are still constrained and competition for large complex transactions remains limited -- which is a good thing for Blackstone, one of the world’s largest providers of debt and equity capital. The firm deployed or committed $2.3 billion in capital in the first quarter, with 40% of this in Europe.

In addition to the retail power center portfolio acquired in an off-market transaction from highly leveraged Brixmor, Blackstone has acquired high-quality distressed industrial portfolios in the U.S. and the U.K., and most recently agreed to buy 65 U.S. warehouse properties from Australia-based Dexus Property Group, for $770 million. Blackstone also recapitalized Parc 55, a 1,000 room hotel in San Francisco, one of the nation’s strongest hotel markets.

"This is the distressed wave that people have been talking about. All are being purchased at a significant discount to replacement cost."

In terms of dispositions, Blackstone has sold or has under contract to sell nearly $800 million in assets so far in 2012, includes the sale of Pearlridge, a mall in Hawaii which closed in the second quarter. Schwarzman noted Blackstone's sale of $1 billion in assets in the last 12 months, completed largely at significant premiums to carrying value.

"Although we were delayed in the second half of last year with some of our plans for realizations due to market turbulence, the market appears to be opening up more, particularly for properties that are stabilized. As such, we expect more asset sales in the second half of this year and into next year."

Schwarzman acknowledged that the limited partner investors that drove such deals as the EOP acquisition "have been basically traumatized by their experience in opportunity real estate," with many casualties in the private-equity space during the downturn due to loan maturities that couldn’t be refinanced.

"A large number of our competitors have gone out of business and they’ve gone out of business because they were buying leveraged real estate at very high prices," he said.

Company proposals to Blackstone for potential equity infusions and refinancing offer "almost the same deal with different names, where some piece of real estate was bought by somebody, it’s valuation is in some cases down 20%, it needs sometimes more, it needs way more equity to refinance it to the extent that they can live in a world of changed (lending) ratios."

"Who’s going to put that money up? There are very few people around who will actually do that and we are the dominant group left in the world that will do that, so people come to us all the time."

Capital providers and their consultants who funded those busted deals remain extremely cautious about exposing more money to this sector, passing on opportunistic deals in favor of reliable core real estate that don’t required much additional reinvestment or debt.

"What they’re worried about isn’t maximizing return; they want some exposure to the asset class. They just don’t want to live through these losses again."

"So I think this asset class is going to stay under invested in, even though the opportunities are actually terrific. There will be a few firms that raise funds, as they have, but those will be relatively small funds compared to what most of them have done previously."

Blackstone does not expect realized income from investments to peak until late this year and into 2013, mostly because its assets, especially real estate are appreciating rapidly, with robust underlying portfolio performance.

"Why give that away? We’ve got a wonderful compounding going on. We’ve got rents going up, we’ve got occupancies going up, we’ve got debt going down, and they’re leveraged. And I don’t understand, frankly, this focus on premature liquidations. We’re in the business of managing money."

James attributed that to a combination of factors, including shrinking stock, no new supply, the improving economy and the release of pent-up leasing demand from 2008-10.

"All of that is coming through now and I think it’s going to be good. I hope it will be even better, that the economy will at some point get a bit more robust growth. We want to wait for that to happen, if it’s going to."

In explaining the delayed realizations in real estate disposition, "we tend to actually realize significantly more than that mark," Schwarzman said. "And given the volatility of the market, it’s very hard to get this right."

As lending ratios improve from 60%-65% to 75%-80% of loan to value, the rising value of properties that Blackstone holds "will go almost dollar for dollar to us as the holder of the real estate," Schwarzman said. At disposition, the return on equity for the new owner will be about the same, but will push up the sale price beyond the simple fundamentals of increasing rents and increasing occupancies.

"Giving that up to satisfy some type of target for realizations is something we just wouldn’t do," he said.

Top 10 Most (and Least) Expensive U.S. Commercial Real Estate Markets

With economic challenges in the commercial real estate market, few U.S. markets experienced significant rent increases in 2010 from the previous year, according to new data released in December based on the Building Owners and Managers Association’s (BOMA) 2011 Exchange Report.

“Rents are still compressed from the 2007 highs, but it looks like in most markets, the bottom has hit and it’s stable now,” said Lorie Damon, BOMA’s vice president of education and research. “There has been modest rent growth in some of the better-performing markets, which tend to be on the coast.”

At $48.27 per square foot, New York tops the list of the most expensive commercial real estate markets, Shreveport, La. ranks is the least expensive at $10.47 per square foot.

Washington, D.C. followed in second place for most expensive at $42.63 per square foot. Five California cities ranked among the 10 most expensive markets. New York and San Francisco were the only markets in the group of most expensive cities to show an increase in rental income from the previous year.













BOMA noted the data suggest that prices remain favorable for tenants seeking to pursue new leases or renegotiate existing ones. Damon said building owners appear confident that rents will remain stable.

“They may not grow, but they will remain stable and at least won’t continue downward,” Damon said.









In terms of least expensive markets, Nashville, Tenn., followed behind Shreveport at $13.31 per square foot. Of the least expensive markets, both Dayton, Ohio, and Omaha, Neb., recorded 10 percent increases from the previous year.

The data are based on BOMA’s 2011 Experience Exchange Report. The annual report offers an analysis of BOMA’s data regarding operating income and expenses in more than 65,000 commercial buildings in close to 300 markets. The rental rates in each market reflect total income divided by total rentable square feet for that market.

Just Sold: Leasehold Interest in Shoppnig Center

View Other Investment Opportunities

Broker Position Available

 

EXP Realty Advisors, formerly Kimco Exchange Place, has a position available for a qualified retail or net lease investment sales broker.  The position offers the following:

• Access to our 84,000 member principal and broker database
• Convenient Manhattan, New York location
• Dedicated Marketing Coordinator to prepare institutional quality marketing packages, email blasts, wed site postings, and advertising
• Access to EXP1031.com which is receiving over 600,000 hits per month
• Free email blasts on NNNEX.com, the nation’s leading net lease web site
• Competitive commission split

Please contact Rob James if you are interested in joining our boutique investment sales organization.

exp@exp1031.com

212.972.7457

Meet Us At The RealShare Net Lease Conference!

Contact us today to schedule an appointment at the RealShare Net lease Conference.

April 13th

Marriott Marquis

1335 Broadway

New York, NY 10036

Analysis: Borders facing critical real estate decisions on future of stores across U.S.

The Borders superstore on Lohr Road in Pittsfield Township is among more than 500 stores the Ann Arbor-based chain operates in the U.S.

Borders Group Inc., born in Ann Arbor and now fighting for survival, ended its fiscal year on Jan. 30 amid dramatically different business fundamentals from previous years.

The corporate value, based on stock price, was $29 million, close to its historic low -and down from $663 million three years earlier. The headcount at the Ann Arbor headquarters totaled less than half the 1,200 who worked there two years earlier. Annual sales, which once topped $4 billion, were trending toward half that.

Yet the physical footprint of the nation’s second-largest bookseller — which operates more than 500 superstores — remained relatively unchanged from peak years.

Borders publically has grappled with its turnaround for several years as it switched CEOs, laid off staff and sought financing in an industry that’s quickly shifting to electronic delivery.

Those elements make the reports that Borders is stepping closer to bankruptcy sound valid. The numbers need to change.

As Borders executives make critical decisions for the company’s future, it’s that physical footprint — the stores and the headquarters, one of Ann Arbor largest office buildings — stepping to the forefront of the list of action items. 

Experts have pointed to the number of stores, the lease durations and the rental payments as factors that must change if Borders is to survive. The company expanded quickly, starting in the years after it went public in 1995, and now holds more than $1 billion in lease obligations on stores that are too large for a business model turning to electronic delivery and online sales.

Now the company - as it reportedly considers a bankruptcy filing as early as this month - will be making a decision on the future of it 500-plus stores.

Those decisions, in turn, will create a ripple effect across hundreds of communities in the U.S.: Closures will yield lost jobs, lost tax payments and lost real estate value.

In Washtenaw County alone, where Borders operates three stores, the company generated $1.5 million in tax revenue last year.

THE STORES

“Our physical stores … remain integral to our future success,” the company wrote in its annual filing with the U.S. Securities and Exchange Commission in January 2010.

While that may still be true as the company makes what may be its most critical decision for future survival, the stores are both lifelines for the future and barriers to survival. They’re simply too big - and too costly, based on today’s revenue.

The most concrete example of that: The company admitted in late January that it had stopped making rental payments on some of its stores. 

The bookseller says more store closings are imminent, but little information is trickling out of headquarters that might indicate which stores are on the list.

“We’re all waiting to see what happens,” said Tony Schmitt, a commercial real estate broker at Mid-America Real Estate Group, where he specializes in retail properties from its Oakland County office. “And then we’ll see how the retail real estate landscape is gong to change or stay the same.

“We’re going to know that in the next 30-60 days,” he said.

All Borders stores are leased - and as of Jan. 30, 2010, the average unexpired term was 8.1 years. A full 369 stores are in leases that won’t expire until 2017 or later.

And the dollar obligation of the leases for the company is staggering: $562 million last year, or 19 times the $28 million value of its stock as of last week.

Standing behind those properties are owners - whether institutional or individuals - that now have a $562 million annual stake in the chain maintaining those lease payments.

If the company files for Chapter 11 bankruptcy, Borders will have 210 days to assume or reject each of its leases. 

As a result, the company could seek rental rate reductions - or just outright close stores.
Either way, the landlord has to be poised to absorb a loss.

“Landlords have to know the rate they’re getting from Borders is a rate they’ll never see again,” said Wendy Chapman, an Ann Arbor appraiser at Gerald Alcock Co.

Chuck Miller of Chuck Miller Development Co. in Orchard Lake owns 10 Borders stores in several states, including Michigan. He’s also among the landlords who’ve gone unpaid.

“I’m sure most owners are doing what I’m doing,” Miller said. “You try to take an objective look at each property. You note the prevalence of a vacancy in each store’s (location) and you gauge the replacement rent.”

Other factors to consider include the time and expense to the owner if a store like Borders leaves.

“At this point there are a lot of uncertainties,” Miller said. “Most owners don’t know what will happen. … Everything is being done speculatively until Borders comes out and gives definitive answers.”

Some experts indicate Borders may not have determined those answers yet. Sources said the most recent wave of layoffs included key real estate personnel based at the Ann Arbor headquarters.

Rob James, president of EXP Realty Advisors in New York, has specialized in real estate valuations for companies in bankruptcy.

He said the chain is likely in the midst of analyzing each of its 511 superstores, going beyond the annual sales per square foot - which averages $173 across the brand - to allocating each store its share of costs for corporate expenses: distribution center and headquarters functions, for example. 

“Once you allocate costs … that analysis will tell you which stores are profitable and which aren’t and will probably close,” James said.

Some high-sales stores could turn into profitable outlets with new leases that carry lower rates, James said.

But the chain has lost its chance to monetize one aspect of the bankruptcy code due to the economic downturn.

“Any leases that are below market traditionally would be sold,” James aid. “However, in the current market, where you see flat and declining rents, I doubt there’s much value in those leases (for another retailer).”

It’s unclear on a property-by-property basis what kind of impact that could have on individual stores. But the impact of waves of store closings on shopping centers is visible in the Ann Arbor area, where Borders stores operate near vacated Circuit City and Linens N Things stores following those chains’ bankruptcies.

Filling a 20,000-square-foot store has not been easy, thanks to the economy.

Nationally, that could be changing - giving hope to communities and landlords that any wave of Borders closings could result in new tenants for the vacated spaces.

“Retailers weren’t looking to take on new space,” said Malachy Kavanagh, a vice president at the International Council of Shopping Centers in New York. “That’s starting to change,” he said. “I’ve heard from a lot of shopping centers that there are now retailers looking to expand.”

He continued: “Had this happened last year, it would have been a much more difficult environment for a landlord to fill the space.”

LANDLORDS HOPEFUL

Owners of the Ann Arbor area stores did not return calls seeking comment for this story. But they’ve watched Borders try to reposition its business for years. Agree Realty, for one, has been diversifying its portfolio, which now includes 13 Borders leases.

Nationally, at least 13 Borders stores are listed for sale.

The listings detail part of the Borders story: The properties are all 20,000 square feet or more in size, except for one small store in Las Vegas, and many tout the duration of the leases.

Many have prices that signal a high degree of investor risk.

Two, each of which were developed by Kimco Realty Trust, are listed for prices that reflect a capitalization rate - or rate of return based on the net operating income - around 8 percent.

One of those is in Canton Township, next to Ikea. James, the listing agent, said that alone makes the property valuable beyond what happens with the Borders lease.

Borders, Miller said, has been known for picking prime retail locations in the best properties.

“Borders has exceptional real estate,” he said. “They’ve been disciplined about taking the best locations in the marketplace.”

That bodes well for landlords, and ultimately communities. It’s also part of the long history of the local company that became a national name.

“Borders was thought of as a great company not just by the general public, but by development companies,” Miller said. “It was a coup to have a Borders come into your property.”

IMPACT WILL BE FELT

As experts consider the future of Borders, many cite the example of Circuit City, which filed for liquidation in 2008 instead of trying to reorganize under bankruptcy laws. About 30,000 people lost their jobs as 567 stores closed.

In the Borders case, many - including James - expect reorganization, preserving the brand and thousands of the 19,000 jobs in the company.

“I think they’ll survive in a restructured format,” James said. “There are a lot of positive things (about Borders).”

He cited the social aspects of going to a bookstore. “It’s an experience you can’t replicate online. They provide an important aspect of community.”

That’s felt acutely in Ann Arbor, the home of the chain, which maintains its flagship store on East Liberty Steet downtown.

John Fingerle, owner of Fingerle Lumber in Ann Arbor, is managing partner for the owners of the property the downtown store occupies. He joins the many people in this community who wonder what could happen to the store if it’s on a list of Borders store closings.

“They still seem to get pretty good customer traffic,” he said.

Mayor John Hieftje agrees. He spoke about the circumstances at this month's Downtown Development Authority meeting, when he mentioned that even in the uncertainty, Agree seems to be exploring which other retailers may be potential tenants if the Borders store closes.

"That would be a real loss to us,” he said, describing the store’s role as a downtown anchor. “… It’s the last thing we would want to see happen."

As he watches the Borders situation and waits for resolution, Miller said he’s questioned whether he should have devoted so much of his resources to building Borders stores and keeping them in his portfolio.

But he also said he’s not regretting it. He’s respected Borders over the years for how it established its business and how it operated. The downturn is painful to watch, but he knows the company is doing the best thing it can for its business. He’s doing the same as a Borders landlord.

“I was proud of the fact that I was able to build bookstores,” Miller said. “I think bookstores are good things for communities.”

“Borders really did things right for a number of years,” he continued, recalling the time he met founders Tom and Louis Borders. “It’s a sad day to see a fine organization struggling to survive.”

http://www.annarbor.com/business-review/borders-real-estate-decisions-will-affect-company-communities-across-us/

Frank Miller Joins EXP Realty Advisors, Inc.

Frank Miller has joined EXP Realty Advisors as a Director of Sales and Financing.  Frank formerly served as a Managing Director at Sperry Van Ness where he specialized in the sale of shopping centers and net leased properties.  Frank brings with him strong client relationships and a solid pipeline of transactions.  In addition to sales, Frank will be working to originate loans at EXP and has secured mortgage transaction with a total value of $250 million in his career.  Prior to joining Sperry, Frank ran the investment sales division at the Carlton Group.  Please join us in welcoming Frank to EXP Realty Advisors, Inc.

Frank Miller
Director of Sales and Financing
Phone: (646) 998-8119
Email: frank@exp1031.com

1031 Exchanges and the Recent Tax Rate Extension

What Does This Mean for Real Estate Investors?

The December 2010 tax cut extension maintains the President Bush-era tax cuts and provides new certainty for estate and tax planning — at least for the next two years. So what does this mean for investors and real estate brokers who want to help clients improve investment returns? 

Income Taxes and Capital Gain Taxes - 2011/2012 

The lower federal income tax rates applicable in 2010 that were set to expire on December 31, 2011, have been extended for another two years. Similarly, capital gains tax rates will remain at a maximum tax rate of 15% over the same period. Prior to the extension, some real estate investors may have remained cautiously on the sidelines given the uncertainty as to future tax rates. Now is the time to get involved!With the temporary extension of the Bush tax cuts, investors have greater certainty and should be more willing to participate in the improving real estate market. Indeed, some economists are saying that real estate values have already bottomed out making this the ideal time for real estate investors to jump back into the market. While current real estate prices may not have risen as much sellers would prefer, a tax deferred exchange can alleviate the tax burden on sale and permit the seller to capitalize on the tremendous buying opportunities that exist in today's real estate market. Moreover, historically low mortgage rates provide an opportunity to lock-in low financing costs and improved cash flow as rents begin to rise. On the flip side, a seller continues to face low capital gain tax rates for at least the next two years if no suitable replacement property is acquired to complete a tax deferred exchange. 

Estate Taxes - 2011/2012 

Prior to the tax cut extension, estate taxes were also a significant concern for investors and advisors. Fortunately, the tax cut extension established a federal estate tax exemption of $5 million and a lower maximum tax rate of 35%. Had the extension not been passed, the exemption would have been only $1 million and the top tax rate would have been 55%! The extension also restored the step-up in basis that occurs on the owner's death that applied under prior law. With the return of the basis step-up rules, investors can effectively bypass paying capital gain taxes altogether. Given the higher estate tax exemption (a married couple can now pass up to $10,000,000 to heirs free of estate tax), the new estate tax rules have given investors an increased potential to turn a tax deferred exchange into a tax-free scenario.

To recap, with the extension of the Bush-era tax cuts:By properly using 1031 exchanges, investors can never pay capital gain taxes on the exchange of properties held for investment. As an estate planning strategy, heirs will inherit property with a full step-up in basis and without federal estate taxes up to the $5 million estate tax threshold. The combined benefit: Never pay capital gain taxes and never pay estate  taxes. Call Asset Preservation, the leading national resource for 1031 exchanges, to learn more.

1031 Basics:  Identification Rules   

An exchanger has until midnight of the 45th calendar day following the sale of replacement property to properly identify the replacement property. To learn about the three different ways to identify replacement property, click on this link  Identification Rules.

Bonus Depreciation and Summary of H.R. 4853 Tax Benefits   

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R. 4853) includes an extension of the Small Business Jobs and Credit Act of 2010 “bonus depreciation” allowance through the end of 2011 and increases the amount from 50 percent to 100 percent. Under this bonus depreciation schedule, businesses may immediately write off 100% of the cost of depreciable property acquired from September 8, 2010 through January 1, 2012. To be eligible, the equipment must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a depreciation recovery period of 20 years or less. Click on Summary of H.R. 4853 Benefits to see a partial overview of additional tax related highlights.

IRS Extends Tax Filing Deadline to April 18, 2011   

Taxpayers will have until Monday, April 18, 2011 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way as federal holidays so all taxpayers will have three extra days to file their return in 2011. Also, some taxpayers – including those who itemize deductions on Form 1040 Schedule A – will need to wait until later in February to file their tax returns as a result of the IRS needing time to reprogram its processing systems. For more information, visit  irs.gov/newsroom.

Source: www.apiexchange.com

CRE Sales Deal Volume Returning to 'Normal' Levels

Encouraged by Continued Improvement in General Economic Indicators, Investors Widening Their Geographic Parameters, Taking on More Risk

By Mark Heschmeyer from CoStar Group, Inc.

January 5, 2011

If the third and fourth quarters of last year are any indication, then deal volume is returning to the commercial real estate investment sales markets.

According to CoStar COMPs, sales volume for commercial property nearly doubled from about $22 billion of deals in the first quarter of 2010 to almost $36 billion in the fourth quarter - a number that will likely increase as CoStar finalizes its quarterly tally and confirms the flurry of deals signed at year-end and those that surface in public records.

Several industry outlooks released in the last few weeks expect that a heightened level of deal volume is primed to continue.

"After rising by an estimate 60% in 2010, commercial property sales volume is expected to increase by another 25% to 20% in 2011," predicted William E. Hughes, senior vice president and managing director of Marcus & Millichap Capital Corp. "The expected improvement [in 2011] will move the investment market closer to a more 'normalized' level."

The current transaction pace is very similar to that of the second half of 2002, with nearly identical third quarter volumes and likely comparable fourth quarter trading levels as well, according to Jones Lang LaSalle. The activity in both time frames is representative of more normalized, sustainable levels - much lower than the unprecedented lofty levels of the 2005 to 2007 boom, and much greater than the sales drought in 2009.

The level of liquidity in the U.S. capital markets has improved dramatically over the course of 2010, as investors have regained confidence, particularly in stable, well-leased and located properties in the traditionally best-performing markets, Jones Lang LaSalle noted. Activity will continue to trend upward throughout 2011 as investor interest grows amid a very favorable monetary environment and an improving macroeconomic picture.

"Total investment transaction volume in apartments, office, retail and industrial will increase by a projected 36% over the 2010 figure, which at an estimated $92 billion would represent an 80% increase over the low reached in 2009," projected Josh Gelormini, vice president of capital markets research for Jones Lang LaSalle.

The deals in 2011 are likely to look different than the deals in 2010, too. There is an increased willingness to look for buying opportunities beyond either super core markets and trophy assets or vastly distressed properties, according to the fourth quarter 2010 findings of the PwC Real Estate Investor Survey.

The report notes that interest in secondary locations, Class-B properties, and value-added Class-A plays is heating up and that buyers are becoming more comfortable with taking on slightly more risk, suggesting that both investors and lenders are gaining more confidence in the overall performance of both the economy and the real estate industry.

"This time last year investors were solely focused on 'treasures' or 'traumas', properties that were either top-notch quality or significantly discounted due to sellers in distress, and there was no appetite for assets in the middle of the spectrum," said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC. "Now, many of them are looking to widen their investment parameters and take on additional risk as they see signs that the economy and the industry are slowly healing."

And at the outset of 2011, CoStar COMPS shows that more than 6,700 property sales are pending with a combined asking price of more than $9.5 billion. Of that dollar volume, about $1.49 billion is reportedly in escrow; another $6.41 billion under contract and $1.59 billion listed as pending.

Where office properties have dominated the 2010 sales landscape, retail, multifamily and industrial properties are the three leading property types in pending deals with asking price volumes of $2.49 billion, $2.08 billion and $1.94 billion respectively. Office properties make up just about $1.91 billion of pending deals. Mixed-use properties come in at about $535 million; flex properties at $268 million, hospitality at $165 million. 

Contact us today to schedule an appointment at the ICSC NY National Conference!

Look for us at Booth #239 
December 6th - 7th 
New York Hilton & Towers/Sheraton New York & Tower 
1335 Avenue of the Americas 
New York, NY 10022

Meet Us At ICSC Texas!

Contact us today to schedule an appointment at the ICSC conference in Texas!

November 17-19
Gaylord Texan Hotel & Convention Center
1501 Gaylord Trail
Grapevine, TX 76051

Meet Us at ICSC South Florida Idea Exchange!

Contact us today to schedule an appointment at the ICSC conference in South Florida!

November 15, 2010
Seminole Hard Rock Hotel & Casino
One Seminole Way
Hollywood, FL 33314