Tuesday, March 19, 2013

New CDC/504 SBA Loan Program Offers Opportunities for Manhattan Office Condos

The new Small Business Administration (SBA) Certified Development Company (CDC)/504 loan program SBA 504 Loan Program provides small businesses with long-term, fixed-rate financing to acquire major fixed assets for use in its business.

Typically, an SBA CDC loan program includes:

* A loan from a private sector lender with a senior lien covering up to 50% of the project cost;

* A loan secured from a CDC (backed by a 100% SBA-guarantied debenture) with a junior lien covering up to 40% of the project cost;

* A contribution from the borrower of at least 10 percent of the project cost (equity).

The proceeds from 504 loan proceeds must be used for fixed asset purchases, including the purchase of a commercial condo.

To be eligible for a CDC/504 loan, your business must have not have net worth exceeding $7,500,000 or net income after taxes of over $2,500,000.

The maximum SBA debenture, 40% of the total project cost, is $1.5 million when meeting the job creation criteria or a community development goal. The maximum SBA debenture is $2.0 million when meeting a public policy goal. The maximum debenture for small manufacturers is $4.0 million, or 40% of the total project cost of $10 million.

Section 1031 Like-Kind Exchanges for Real Estate

Section 1031 Like-Kind Exchanges for Real Estate

1031 Exchange Taxpayers planning to sell, purchase, or construct real property should review the possibility of conducting an Internal Revenue Code Section 1031 like-kind exchange to defer the incurrence of federal and state income taxes on the capital gain. To qualify, property owners must exchange real property (relinquished property) for other property of a like-kind (replacement property).

Defining Like-Kind Property:

The definition of like-kind real property is very broad; the replacement property does not have to be the same type as the relinquished property. For example, a property owner could exchange his multifamily building for a mixed-use or commercial property. Also, the replacement property is not limited to a single building; a taxpayer could purchase a portfolio of two or three small buildings.

Use Requirements and Holding Period:

Taxpayers must have held the relinquished property for use in a trade or business or for investment.

While no formal rule exists, the Internal Revenue Service historically has taken the position that the taxpayer must hold both the relinquished and replacement properties in a qualified use for a certain time period. Thus, the IRS might challenge the exchange if the taxpayer sold the replacement property shortly after the exchange. Taxpayers should consult with a tax adviser concerning the appropriate holding period for property.

Recognition of Gain or Loss:

To defer total gain, both the value and net equity of the taxpayer’s replacement property must equal or be greater than the value and net equity of the relinquished property at the time of the exchange.

The Qualified Intermediary:

Most like-kind exchanges are deferred exchanges. To complete a deferred exchange, the taxpayer must transfer the relinquished property for other like-kind property and not for money. Therefore, the taxpayer cannot gain actual or constructive receipt of the relinquished property’s proceeds before purchasing the qualifying replacement property. Tax regulations impose strict limitations on the taxpayer’s access or control over the proceeds and expressly limit the right to receive, pledge, borrow, or otherwise obtain the benefits of the money.

Thus, deferred exchanges require the use of a qualified intermediary to hold the sale proceeds and acquire the replacement property. Certain persons that provide other services on behalf of the taxpayer are disqualified to act as a qualified intermediary. Many companies specialize in acting as a qualified intermediary for a fee. Consult a tax adviser to make certain that a qualified person is acting as the intermediary in the case of a deferred exchange.

Deferred Exchange Timing:

Strict timing rules apply to deferred exchanges. Generally, the taxpayer must identify the replacement property or properties in writing to the intermediary within 45 days of the relinquished property’s sale. Within 180 days of the transfer of the relinquished property, the taxpayer must receive the replacement property. The 180-day period is limited to the due date of the taxpayer’s tax return unless the filing date for the return was extended.

Tax rules also place restrictions on the taxpayer’s right to use or pledge the relinquished property sale proceeds during the 180-day exchange period. By following the guidelines, a taxpayer can successfully complete a deferred exchange and avoided incurring federal and state taxes.

Consult a tax professional for more information about Section 1031 tax-deferred exchanges.

REBNY’s 2012 Retail Report Shows Increased Demand and Rents in Prestige Shopping Corridors

The Spring 2012 REBNY Retail Report shows increased demand and rents in Manhattan’s prestige shopping corridors.

In the past year, ground floor retail asking rents in Upper Fifth Avenue (50th to 59th Street) have spiraled up 22% to a record breaking $2,750 per square foot; ground floor retail asking rents on Madison Avenue’s Gold Coast (57th St. to 72nd Street) have jumped up 31% to $1,203 per square foot; and ground floor retail asking rents on Lower Fifth Avenue (42nd St. to 49th Street) have catapulted up 75% to $900 per square foot.

The retail corridor on Columbus Avenue (66th to 79th Street) show no available space. The average asking rent for the entire Westside is up 20% in the past year to a record breaking $149 per square foot. Asking rents on Bleecker Street (7th Avenue South to Hudson Street) have increased 22% in the past half year to $452 per square foot.

REBNY reports average asking rents for all available retail space (ground floor, lower level, upper level, and mezzanine):

EASTSIDE – 60th Street to 96th Street, Fifth Avenue to the East River $159 PSF
WESTSIDE – 60th Street to 116th Street, West of Morningside Park $149 PSF
MIDTOWN – 35th Street to 59th Street $150 PSF
MIDTOWN SOUTH – 15th Street to 34th Street $ 97 PSF
DOWNTOWN – South of 14th Street $102 PSF
UPPER MANHATTAN 97th Street and higher, Fifth Avenue to the East River;
116th Street and higher, West of Morningside Park $ 67 PSF

Fueled by Tourist Traffic, Rents Rise in Key NYC Retail Corridors

As tourists continue to make New York City their number one destination, asking rents for retail spaces in the city’s hot spots are rising in certain corridors according to The Real Estate Board of New York’s (REBNY) Fall 2010 Retail Report Real Estate Board of New York (REBNY)

According to the report, since Spring 2010, retail asking rents climbed 21 percent to $1700 psf in the Times Square corridor defined by Broadway and 7th Avenue between 42nd and 47th streets. Other popular tourist destinations that are showing a steady growth in retail rents compared to the Fall 2009 include the West Village on Bleecker Street between 7th Avenue South and Hudson Street where rents increased 38 percent over 2009 to $486 psf. SoHo on Broadway between Houston and Broome streets, showed a rent increase of nine percent to $526 psf. Fifth Avenue from 49th to 59th streets and 42nd to 49th streets, showed 15 percent and 10 percent increases respectively.

As the report suggests, the growth in these retail corridors indicates that stores are more optimistic that the economic recovery will continue and that their stores will be profitable in these tourist hot spots.

Other report highlights:

* The average asking price per square foot in Manhattan rose four percent from Spring 2010 to $118 psf.

* Compared to Fall of 2009, asking retail rents for ground floor space on Madison Avenue between 57th and 72nd streets increased 14 percent to $1,049 psf.

* On the Westside, average asking rents for ground floor space on Broadway between 72nd and 86th streets increased 10 percent from Fall 2009 and seven percent from last spring.