commercial real estate: hot topics january 2016

Hot TopicsCommercial Real Estate

Reduce Taxes Maximize Cash Flow Minimize Risk

JANUARY 2016 | ISSUE NO 02

How to Minimize Your Property Taxes

Property taxes are not like income taxes in that therersquos no schedule to follow to determine your tax liability Taxing jurisdictions are responsible for assessing the value of real property for tax purposes and what that assessment entails will

vary In 49 of the 50 states property taxes are based on fair market value that is the price for which the property would sell in its market Most states include both the cost it would take to replace the building and the property itself in the assessment

Any owner of real property should consider whether they should have a property value analysis Reassessments are generally completed on a mass scale using a computer-automated system As such the assessment may not reflect the particulars of the property Property values are generally not determined by walk-throughs so the overall conditions of the building and economic factors may not be considered To determine if you would qualify for an assessment reduction carefully examine your property and consult with a qualified expert to ensure the assessed value is accurate

Crosscheck with Peers

The process for reassessing the value of your property starts with your current property tax assessment Many of the records are available from the county assessorrsquos office Find out what the state has determined your property is worth and then verify that the number mirrors the price set for similar types of property Property tax assessments are public record so you should be able to find property tax assessments for locations

(Continued on page 2)

1-800-ASK-CBIZ bull wwwcbizcomCommercialRealEstatecopy Copyright 2016 CBIZ Inc NYSE Listed CBZ All rights reserved

CBIZrsquos Real Estate practice is uniquely positioned to help you minimize risk and capitalize on market opportunities

We work with owners managers operators and investors as well as commercial real estate developers and partnerships in all of the major CRE sectors retail office hotel multi-family shopping centers and real estate investment trusts

FINANCIAL SERVICESINSURANCE SERVICESVALUATION SERVICES

IN THIS ISSUEHow to Minimize Your Property Taxes PAGE 1

Congress Permanently Extends Several Tax Provisions Important to Real Estate Industry

PAGE 2

Crowdfunding - The Ultimate FlexibilityPAGE 4

Cyber Risk - Now It IS the Daily News PAGE 5

CBIZ BizTipsVideoscbiz

PAGE 21-800-ASK-CBIZ bull wwwcbizcomCommercialRealEstate CBIZ BizTipsVideoscbiz

DISCLAIMER This publication is distributed with the understanding that CBIZ is not rendering legal accounting or other professional advice This information is general in nature and may be affected by changes in law or in the interpretation of such laws The reader is advised to contact a professional prior to taking any action based upon this information CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein

with similar features to yours A third party can help you aggregate data to determine if comparable properties have lower assessed values This step is important as it will be a key piece of the case for lowering your property tax liability

Assess the Assessment

Checking your value against those of peers will not be enough as every property is unique You need to be thorough in assessing the information covered in the current assessment of your property to determine whether the information is accurate Is the square footage correct Are the key features of the building included in the results

Next take a fine-tooth comb to your property to determine if the units of property that have the potential to lower your liability are being considered Identify units of property that have depreciated such as roofing elevators or air conditioning units Also factor in whether pieces of the property have been damaged due to flooding hail or other natural elements

Third parties can help you conduct the assessment The evaluation should be thorough to ensure that every element of the property is factored into the assessment For example if you own an office building the assessed value of the building should consider your tenant mix and rent schedule

Enlist Help

Should you determine you want to appeal the assessment get an advisor with experience in assessing the property taxes involved You are essentially building a case to prove your current assessment does not adequately reflect the value of your property A third party can assist in the documentation process

Look for Other Forms of Relief

States offer different types of property tax exemptions discounts credits and rebates[1] When determining if your property tax liability could be reduced you want to ensure you are taking advantage of all the benefits for which you are eligible A tax professional experienced in working with the nuances of state and local property tax provisions can assist you in meeting your compliance requirements and coordinating the applicable benefits

Repeat as Necessary

Businesses in particular should consider having their property evaluated each year regardless of whether a reassessment is needed A professional eye can help identify potential sources of lower values and elements that could qualify for property tax relief

(Continued from page 1)

[1] httpwwwkiplingercomarticletaxesT055-C000-S002-how-to-reduce-your-property-taxeshtml

For more information about property taxes contact the author Jay Mason or your local CBIZ MHM tax professional


The ldquoProtecting Americans from Tax Hikes Act of 2015rdquo (ldquoPATHArdquo) signed by President Obama on December 18 2015 for the first time permanently

enacting a number of the tax breaks generally dubbed the ldquoExtendersrdquo because of the need to extend them year after year The House of Representatives passed the bill on December 17 and the Senate followed suit the next day This represents the opportunity for an extended period of certainty for taxpayers who rely on these tax incentives but have to wait until December of each year to make business and personal decisions affected by them

Business Provisions - Permanently Extended

Several provisions important to the commercial real estate industry which had expired at the end of 2014 not only were reinstated but were extended permanently Further some provisions have been enhanced significantly from their previous incarnations

Increased Section 179 Expensing Election ndash The Section 179 immediate expensing election had plummeted from $500000 in 2014 to $25000 in 2015 With PATHA businesses with adequate taxable income can



immediately deduct up to $500000 of qualified tangible property (including off-the-shelf computer software) in 2015 and all subsequent tax years The Section 179 deduction begins to phase out when total qualified purchases for the year exceed $2 million Several enhancements to the Section 179 deduction take effect in 2016

n The $250000 cap on qualified real property (consisting of qualified leasehold improvements qualified restaurant property and qualified retail improvement property) no longer applies

n Air conditioning and heating units will be eligible property and

n The $500000 and $2 million limits both are indexed for inflation

15-year Straight Line Cost Recovery ndash Traditionally depreciated over 39 years qualified leasehold improvements qualified restaurant property and qualified retail improvement now permanently can be depreciated over 15 years on a straight-line basis Improvements must be made to the interior of non-residential real property more than three years after the building was placed in service Qualifying restaurant and retail improvements can include improvements to owner-occupied or leased space while qualifying leasehold improvements may only include leased space (related party leases do not qualify)

PATHA also permanently reduced the recognition period for built-in gains of S corporations from 10 to five years Therefore anyone holding real estate in a C corporation can consider converting to an S corporation if you plan to hold the appreciated real estate for more than five years

Business Provisions ndash Extended Through 2019

While not extended permanently some business provisions received a healthy five-year extension through 2019

Bonus Depreciation ndash Taxpayers can once again elect to take additional first-year (ldquobonusrdquo) depreciation on qualifying asset purchases through December 31 2019 The bonus depreciation percentage however decreases in the later years as follows

PLACED INSERVICE DURING

BONUS DEPRECIATIONPERCENTAGE

2015 50

2016 50

2017 50

2018 40

2019 30


As in previous iterations of the provision qualifying assets generally include new tangible personal property off-the-shelf computer software and qualified leasehold improvements Qualified restaurant or retail property do not qualify for bonus depreciation in 2015 unless the property also meets the definition of qualified leasehold improvements Beginning with property placed in service in 2016 however bonus depreciation may be claimed on an addition or improvement to the interior of any nonresidential real property PATHA also reinstates the corresponding election to accelerate AMT credits in lieu of claiming bonus depreciation increasing the amount of AMT credits that can be claimed beginning in 2016


Not to be left out some of the narrower or less popular business provisions were extended through 2016 Though the long-term prospects for these provisions are unclear the multi-year extension at least gives taxpayers who can benefit from the provisions the opportunity to do so Provisions extended through 2016 of most interest to the commercial real estate industry include the energy efficient commercial buildings deduction Several other energy incentives were also extended

This article was authored by Bill Smith and Phil Zaman of the CBIZ National Tax Office For more information about income taxes please contact CBIZ MHM tax professional

PHIL ZAMANNational Tax Office

BILL SMITHNational Tax Office


This Guest Article is provided by Selequitycom a crowdfunding and investment service

Owners developers and investors in cash-flow investments like commercial real estate (CRE) are frequently faced with the disposition of a prime

piece of real estate for a variety of reasons Many times the reason cited is liquidity

CRE investments are regularly held in partnerships or LLCs for long periods of time to allow for appreciation of the value of the property and the realization of the significant revenue from annual cash returns The illiquid nature of CRE investments is occasionally seen as a barrier for investors however investors are often rewarded with appreciating values and annual cash returns sometimes exceeding stock market returns by as much as 100 percent During the period of Q4 2000 to Q3 2015 CRE properties gained over 108 percent in value in the US and the Dow and SampP 500 gained 50 to 60 percent Also of note is the average Dow stock produces a 25 to30 percent dividend and CRE properties typically generate a 6 to8 percent annual return

Recent legislative changes (the Jumpstart Our Business Start-ups Act of 2012 or JOBS Act) opened equity investing to many more investors This means CRE owners and developers (sponsors) are no longer restricted to raising money only from people with whom they have ldquoa substantial business relationshiprdquo They can now ldquogenerally solicitrdquo accredited investors those persons with assets exceeding $1000000 beyond the value of their primary residence or having annual incomes of $200000 for an individual or $300000 for a couple All of this raises a question ndash

Why sell your prized real estate Why not recapitalize with the Crowd

Sponsors typically have a plan regarding their holding period for a CRE investment quite frequently in the five to eight year range More often than not sponsors collect fees to manage and operate the property so if the property is located at Main amp First and is providing a high performance return for the investors and fees to the sponsor why sell

Online investing by the ldquocrowdrdquo provides the ownership with the ultimate flexibility of funding without losing

control of this high performing asset The current partnership can now be recapitalized with new investments coming from an online crowdfunding project This is a new way to provide liquidity to your initial investors who may need to pull their money off the table for a multitude of reasons including cash flow issues estate planning diversification etc The owners also may be able to return the initial capital and take some of their profit early if the asset has appreciated enough

An online capital raise from accredited investors using a platform like Selequity helps current investors who desire liquidity and locates new investors who want the benefit of

CRE ownership as a part of their portfolio

Recapitalizing an existing asset provides the sponsor with the ability to disclose actual

performance returns not just pro forma estimates More often than not a CRE propertyrsquos past performance may be seen as attractive to a new group of investors

Investors enjoying some liquidity from a recapitalization can easily absorb

the costs associated with getting their investment and profits returned Liquidity

premiums in recapitalizations could range from 10 to 20 percent likely much better than a

direct buyout from the sponsor and have no effect on the investors staying in the deal The exiting investors also may be more favorably inclined to making future investments with that sponsor

The passing of the JOBS Act has created a valuable tool for sponsors to access new capital from investors who previously did not have an opportunity to make a CRE investment Using the power and efficiency of the internet to broadly solicit new accredited investors will provide significant growth in the CRE investment industry with eight million accredited investors in the US controlling $11 trillion in assets

Online CRE investing models are just getting started but using online stock trading as a guide this model will also change an industry Massolutions an industry research group is estimating online real estate investing will reach over $130 billion in the US alone by the year 2020

Crowdfunding is the key to ultimate flexibilityndashfor the sponsors and investors alike

Crowdfunding - The Ultimate Flexibility

For more information about crowdfunding and how it works you are invited to visit Selequitycom


Cyber intrusions are no longer one-off events Cyber issues are a fact of doing business Cyber risk should be top of mind for business owners and

executives across all business sectors and industries ndash retailers service providers financial institutions property managers ndash there is no safe haven

According to Ryan Vela Dallas-based regional director of North America reactive and proactive cybersecurity services at Fidelis Cybersecurity ldquo70 of security professionals think they have done enough with respect to security but 40 still expect to be breachedrdquo1

While the threat is acknowledged directors need to understand and approach cybersecurity as an enterprise-wide risk management issue not just an IT issue according to the National Association of Corporate Directors

How vulnerable are you Well letrsquos begin with email Vela recalled an incident where a hacker who was already in a large oil companyrsquos system noticed that one work group ordered takeout from a Chinese restaurant every Friday The hacker created a PDF labeled as an updated menu When workers clicked on the menu the hacker was able to download code to user PCs giving them access to business data

But email is hardly the only way in Printers thermostats and video conference equipment ndash even VPN connections ndash can provide entreacutee to your system

In his exclusive November 2015 interview with GlobeStcom Kelly discussed specifically how the commercial real estate community is at risk He noted that while the growing trend of conducting operations through the internet offers clear cost and control advantages there are also clear vulnerabilities Important services like HVAC can be tampered with or shut down contractors and vendors holding key data may be vulnerable

While suggesting that employee training and clear security policies can close the door to nearly 80 of intrusions caused by employee carelessness Kelly advocates establishing ldquomulti-disciplined teamsrdquo with C-suite leadership that can respond to both online and onsite security events

From ldquoBestrdquo Practice to ldquoEssentialrdquo Practice

When cybersecurity is not part of the business process it leaves a company vulnerable to a range of security issues Prevention and protection measures are critical These should include both risk analysis through assessment and risk mitigation through the growing pool of cyber-focused insurance products and internal operational safeguards If this topic is within your sphere of responsibility you may want to check out our Cybersecurity Quick Assessment and will find articles of interest on our blog (search ldquocyberrdquo)

For additional information questions or to discuss cyber risk contact the authors Chris Roach National IT Practice Leader for CBIZ Risk amp Advisory Services or Damian Caracciolo Vice President CBIZ Executive Risk

Cyber Risk - Now It IS the Daily News

ldquo Cyber risk is growing exponentiallyrdquo mdash RAY KELLY former NYPD Commissioner and former leader of Risk Management Services at Cushman amp Wakefield

ldquo The United States faces unprecedented cyber security threatsrdquo

mdash TOM RIDGE former Homeland Security Secretary

1 Cyber hackers often target equipment systems that are never checked Business Insurance 102715

800-ASK-CBIZ bull wwwcbizcomCommercialRealEstate CBIZ BizTipsVideoscbiz

DISCLAIMER This publication is distributed with the understanding that CBIZ is not rendering legal accounting or other professional advice This information is general in nature and may be affected by changes in law or in the interpretation of such laws The reader is advised to contact a professional prior to taking any action based upon this information CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein

with similar features to yours A third party can help you aggregate data to determine if comparable properties have lower assessed values This step is important as it will be a key piece of the case for lowering your property tax liability

Assess the Assessment

Checking your value against those of peers will not be enough as every property is unique You need to be thorough in assessing the information covered in the current assessment of your property to determine whether the information is accurate Is the square footage correct Are the key features of the building included in the results

Next take a fine-tooth comb to your property to determine if the units of property that have the potential to lower your liability are being considered Identify units of property that have depreciated such as roofing elevators or air conditioning units Also factor in whether pieces of the property have been damaged due to flooding hail or other natural elements

Third parties can help you conduct the assessment The evaluation should be thorough to ensure that every element of the property is factored into the assessment For example if you own an office building the assessed value of the building should consider your tenant mix and rent schedule

Enlist Help

Should you determine you want to appeal the assessment get an advisor with experience in assessing the property taxes involved You are essentially building a case to prove your current assessment does not adequately reflect the value of your property A third party can assist in the documentation process

Look for Other Forms of Relief

States offer different types of property tax exemptions discounts credits and rebates[1] When determining if your property tax liability could be reduced you want to ensure you are taking advantage of all the benefits for which you are eligible A tax professional experienced in working with the nuances of state and local property tax provisions can assist you in meeting your compliance requirements and coordinating the applicable benefits

Repeat as Necessary

Businesses in particular should consider having their property evaluated each year regardless of whether a reassessment is needed A professional eye can help identify potential sources of lower values and elements that could qualify for property tax relief


[1] httpwwwkiplingercomarticletaxesT055-C000-S002-how-to-reduce-your-property-taxeshtml

For more information about property taxes contact the author Jay Mason or your local CBIZ MHM tax professional


The ldquoProtecting Americans from Tax Hikes Act of 2015rdquo (ldquoPATHArdquo) signed by President Obama on December 18 2015 for the first time permanently

enacting a number of the tax breaks generally dubbed the ldquoExtendersrdquo because of the need to extend them year after year The House of Representatives passed the bill on December 17 and the Senate followed suit the next day This represents the opportunity for an extended period of certainty for taxpayers who rely on these tax incentives but have to wait until December of each year to make business and personal decisions affected by them

Business Provisions - Permanently Extended

Several provisions important to the commercial real estate industry which had expired at the end of 2014 not only were reinstated but were extended permanently Further some provisions have been enhanced significantly from their previous incarnations

Increased Section 179 Expensing Election ndash The Section 179 immediate expensing election had plummeted from $500000 in 2014 to $25000 in 2015 With PATHA businesses with adequate taxable income can














2015 50

2016 50

2017 50

2018 40

2019 30




























































2015 50

2016 50

2017 50

2018 40

2019 30














































