Category: Focus April – 20

CCIM March Luncheon – Cost Segregation Strategies-Understanding the Details of Increase Cash Flow

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• Companies specializing in cost segregation studies can help developers show potential equity investors how their returns can be maximized before they invest
• Cost segregation front-ends tax losses by classifying everything in the building: chattels, carpet, light fixtures, etc., and assigning an economic life to them, and then amortizing each of them over that life
• Land is excluded and is not depreciable
• Different categories of assets may be depreciated over 5, 7, 15, 25, or 39 years
• Savings can be reinvested in other real estate ventures, by rolling them forward into new deals
• This cost segregation strategy can be employed by individuals, estates, corporations, partnerships, and LLCs
• There was a special limited-term act passed in 2017 called “Bonus Depreciation” that increased benefits to property owners even more than the basic Act allowing cost segregation which was passed in 1987
• The age of the building does not matter-what does is the year in which it is acquired-cost segregation can begin then on it and on capital improvements
installed by the new owner-so the formula becomes: Buy, Renovate, Hold for appreciation, and Sell
• Cost segregation can even be applied retroactively on a building some years following its acquisition
Click to read more at www.rednews.com.

CCIM Commercial Real Estate Forecast Competition – February 2020

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Keynote Speaker: Mark Dotzour, PhD We should have a solid economy ongoing in Houston and Texas, with a few ‘clouds’, such as election year uncertainty, China trade issues, and the Covid19 virus scare. Energy exploration and production will be curtailed due to lack of capital from investor/lenders, which should eventually lead to an upward trend in oil prices. Our current economic expansion is into its 129th month, and going strong. 2020 will be a little slower but consumer confidence and most other economic indicators remain strongly positive. Commerce is so interconnected on the planet that trade disputes will inevitably need to be worked out. Even if 2020 is a little slower, it should create pent-up demand for 2021. Wages are up about 3.5% a year, and lots of job openings remain, despite steady increase of hiring, which has been in the range of 200-300,000 new jobs per year in recent years. Housing starts are up and household debt is down; corporate profits are leveling off-companies did not reinvest savings from last tax cut but instead bought own stock. Unemployment claims are way down, and interest rates are low and going lower. It is a ‘given’ that we will have a recession in next five years but it is not on the immediate horizon. Click to read more at www.rednews.com.

Houston Industrial and Logistics Summit RECAP

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• Waller County in the past was resistant to growth and that has changed since residents have seen the strong tax base which can come from industrial users who need to grow out of Houston; the County realizes now that high-paying jobs can come with industrial development as well; the County has few drainage issues since it has slightly rolling terrain; a new rail-served park is in place; the world’s largest cricket field is coming to Prairie View, emblematic of Houston’s diversity; the conversion from Ag land to industrial tax base can have a huge economic benefit to the County, and the residents have realized the difference this makes
• La Porte works diligently to balance the needs of citizens with needs of industrial users, but available land is dwindling, and remaining tracts in some cases are being hoarded for future use as City Fathers try to get it into ‘best hands’; high tax base from industrial users enables high-end services to local citizens; the City realizes that ‘time is money to developers’ and it makes available meet-ups where a developer can come and sit down with all City department heads in one meeting to determine the level of support for his proposed land use
• Storm surge and inundation was minimal in La Porte during Harvey; nonetheless, attention is being given to future weather issues; a Tri-County cooperative effort has been established including Baytown and Chambers County after severe flooding in the Cedar Bayou watershed from rain and rising water which saw 6-8 feet of water invade a large industrial development which had been recently completed; the cooperative group is seeking regional, state, and federal dollars for future deluge and storm surge prevention, while pre-Harvey there was minimal cooperation

Click to read more at www.rednews.com.

Real Estate Brokers: What To Do with the “Leftover Equity” in a 1031 Exchange

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As a Real Estate Broker, do you ever have clients who do a 1031 exchange, secure a replacement property but find that the amount of the new acquisition leaves them short of the total exchange amount? Maybe they are short by as little as $50,000 to $100,000? In most cases like this the client ends up paying taxes on the remaining amount (Boot) of the 1031 exchange. However, in many cases they pay quite a bit more than the current 15% capital gains tax on that remaining amount. In fact, when you consider the recapture (of depreciation) that the IRS requires plus any state tax, it ends up being significantly more. There is another option to explore. Present them with an acquisition of the OTHER real estate, mineral interests. What are mineral interests? Like the surface real estate, mineral interests are a titled position recorded in the county clerk’s office, often in the same instrument. The difference is, mineral title conveys the rights below the ground. What value do they have? It can be significant value, especially in states like Texas where Energy Companies extract oil and natural gas from below the surface and pay the mineral owners a royalty off the gross production. There are millions of people who own mineral interest in the United States and billions of dollars are paid out to them each year in the form of royalty payments. The U.S. is the only country in the world where mineral interests can be privately owned. Click to read more at www.rednews.com.

A Renaissance Man; Meet the Recipient of the 2020 REDnews Lifetime Achievement Award

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Hundreds of Houston real estate professionals gathered at the Briar Club on March 12 for the inaugural REDnews Awards, highlighting the best and brightest of our industry. You can check out the full list of finalists and winners on page 13, but the most significant award of the night went to John Walsh. We honored him with the Lifetime Achievement Award for his decades of service to the Houston community. “I really wasn’t surprised because John has not only been successful, but it’s so well-deserved,” said longtime friend Howard Tellepsen, CEO of Tellepsen Builders. He and Walsh go back 50 years when the two attended Lamar High School together. “He’s very understated. He’s very humble. I’m just so proud that he is receiving this lifetime achievement award,” Tellepsen said. “I saw these characteristics of John in high school.” The pair graduated in 1962, going their separate ways. Walsh attended the University of Texas for undergrad, then received his MBA from the University of Houston before helping form Exxon’s real estate subsidiary, Friendswood Development. Click to read more at www.rednews.com.

O’Connor & Associates Hotel Forecast – Randy McCaslin Managing Director of CBRE Hotels Consulting, Speaker

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BY RAY HANKAMER
rhankamer@gmail.com

Takeaway: 2014 was a boom year for hotel occupancy in Houston (69%), but in 2015 there was the beginning of the drop in oil prices and the decline in demand (-2.6%). By 2021 occupancies will
have climbed slowly back to 66% barring any unforeseen events. The Super Bowl in the first quarter of 2017 was boon PR-wise for our city, but over the year it will have contributed only nominally to hotel occupancy / revenue.

  • 2016 was the bottom, as demand fell and new supply was coming on stream; 2017 transition year, with gradual return to stabilization over next 4-5 years
  • 2014 had been a stellar year with occupancies about 10 % over traditional levels
  • The new downtown Marriott convention hotel will be a ‘game-changer’ in Houston’s ability to attract future conventions-we now have an attractive number of rooms within 3-4 blocks of the George R. Brown Center
  • 5,200 new hotel rooms will have opened in the CBD by the end of 2017
  • Katy-Westchase-Energy Corridor, NW, and IAH have been hardest hit by lower levels of O & G industry travel

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