Real Estate Monitor: Winter 2011

This issue of the Real Estate Monitor includes the following articles:

Understanding the Energy Efficient Tax Deduction

Skoda Minotti, along with CLS Facility Services, invites you to a seminar on Friday, February 11th to learn how you can take advantage of the energy efficient tax deduction, which allows building owners to deduct a portion of the expenses incurred for energy efficient building expenditures.

More specifically, the presentation will cover the following:

Real potential to save 35%-55% on energy costs for buildings 20,000 ft2 +
An overview of general lighting knowledge
Information concerning government regulations on mandatory phase outs of non-energy-efficient lighting
What lighting products need to be replaced and when
What lighting products are available and which type should you upgrade to
Rebate money available from the local utility companies
Getting this accomplished without disruption to your business

We will provide attendees with an estimate of their savings through this deduction. Please bring the following items with you so we can complete this calculation:

The square footage of your building or buildings
The type of lighting currently in your facilities
The name of your utility company and your rate per kWh

Speaker bios:

David R. Walter, CPA, MBA, Manager, Skoda Minotti
Dave is a manager with Skoda Minotti’s Tax Planning and Preparation Department and is involved in the Real Estate and Construction Group. He provides tax planning and advisory services, conducts tax research for clients and serves as a business advisor helping clients grow their business and make strategic tax decisions. He specializes in the area of real estate and construction working with tax laws and strategies that affect this industry to help clients optimize their tax position. He is involved with National Association of Industrial and Office Properties (NAIOP) and Construction Financial Management Association (CFMA).
Phil Burne III. VP Sales and Marketing, CLS Facility Services
Phil is an innovative strategic executive with over 25 years’ experience in both Fortune 500 and entrepreneurial endeavors. Phil has served as an officer of a Fortune 500 company as Vice President, Sales. He has also held the positions of CEO, Executive Vice President Sales / Marketing in emerging companies, and has been involved with developing capital investments. Phil brings a unique and creative approach to the facility management industry, with a perspective on how CLS delivers quality service to our clients. He has been directly involved with CLS roll outs of lighting retrofit projects for several national chains, and has great experience in the lighting industry.

Event Information:
Friday, February 11th
7:30: Breakfast and Meet & Greet
8:30 - 9:30 am: Presentation and Q&A

Cleveland Marriott East
26300 Harvard Road
Warrensville Heights, Ohio 44122

Click here to register - $20 registration fee applies

New Requirements for Asbestos Surveys from the Ohio Department of Health
By Dan Brown, Partners Environmental Consulting, Inc.

Asbestos containing materials (ACM) were widely used in the 1950s, 1960s and 1970s as an insulating and decorative material in many buildings. Some asbestos containing materials can still be purchased and utilized in the United States. Prior to conducting renovation or demolition activities of any buildings, you are required to conduct an asbestos survey and provide notification to the Ohio Department of Health (ODH) and the Ohio Environmental Protection Agency (EPA) if ACM is present in significant quantities. Many people also conduct asbestos surveys before they purchase a property to better understand potential environmental costs associated with the management of ACM. In the past, surveys associated with Property transactions could be limited, or screening-type surveys. Recently, the rules for the process to conduct such surveys have changed and only comprehensive surveys are now allowed in Ohio.

As of September 1, 2010, revisions to the rules promulgated in the State of Ohio by ODH require all Asbestos Inspectors to collect bulk samples for asbestos in accordance with the regulations adopted by the United States Environmental Protection Agency pursuant to Title II of the Federal Toxic Substances Control Act found in 40 CFR Part 763.86, regardless of site or location.

Click here to learn more about the materials to be sampled.

Housing: Affordability of Home Ownership
By Anthony La Malfa

As the old adage goes, every cloud has a silver lining, and if we can find a silver lining in how home prices have fared over the past few years it would be housing affordability. According to a recent article, Housing Affordability – A Good Omen (we hope!), by Lawrence Yun in the September 2010 issue of the National Association of Realtor’s newsletter, real estate insights, housing affordability could reach an all time high in the second half of 2010.

NAR’s Housing Affordability Index

According to the National Association of Realtor’s website (www.realtor.org), the housing affordability index is designed to measure whether or not a typical family (one earning the median family income as reported by the U.S. Census Bureau) could qualify for a mortgage loan on a typical home (defined as the national median-priced, existing single family home as calculated by NAR), assuming a 20 percent down payment is made.

Click here to read the rest of this article.

Deductions: Passive Losses
By Robert Klein

With the year reaching its end, real estate professionals should review the special rules that entitle them to deduct losses from rental real estate activities at once rather than carrying them forward to future years. In general, all rental real estate activities are passive, so that losses incurred by non-professionals can only be deducted against passive income. Passive losses exceeding passive income for the year must be carried over to future years.

Exception for Real Estate Professionals

For real estate professionals, rental real estate losses are currently deductible if (1) during the year if more than 50 percent of their personal services are performed in real properties businesses, and (2) more than 750 hours are spent in real property businesses.

Click here to read the rest of this article.

Mortgage Loans: New Rules
By Josh Weiss

It is widely accepted that the recent real estate collapse was primarily due to lenders reducing, or disregarding the standards relating to home mortgage qualifications. Exacerbating these issues was having these same lending institutions bailed out, closed, and reopened under another name. As a result of this collapse, President Obama signed into law on July 21, 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act (the "Act"). The stated aim of the legislation is "to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail," to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes." While the Act will affect all financial markets, it will directly impact the real estate market due to clauses relating to mortgage loans, assetbacked securities and appraisals.

Click here to read the rest of this article.

Housing: Residential Ground Leases
By David Tevlin

Housing affordability remains a major concern for home builders and home buyers. One approach to cutting home prices already has a long history: the residential ground lease. By giving the builder a share of the anticipated future appreciation of the property, ground leasing can achieve the same results as a program such as the shared appreciation mortgage (SAM) but with few complexities.

How it Works

As with a commercial ground lease, a home builder can retain title to the underlying land while selling only the building to a home buyer. Since land can represent 20% or more of the total cost, this substantially reduces the price of the home and the buyer’s down payment. Also, if the ground rent is less than the after-tax debt service on the financing the buyer would otherwise need, carrying costs also are reduced.

Click here for the rest of this article.

Securities: No Liability Under Securities Exchange Act
by Alvin Arnold

A pension fund brought a 10b-5 class action against reinsurers for securities fraud but a federal district court ruled that the reinsurer was not required to disclose its sub-prime risks in greater detail than it did and that the statement by an executive officer regarding the risk of its sub-prime related activities was not false or misleading.

In addition, allegations that the reinsurer misstated the value of its credit default swap (CDS) arrangements by failing to mark them to market value, did not provide sufficient particularity to state a 10b-5 claim. Plumbers’ Union Local No. 12 Pension Fund v. Swiss Reinsurance Co., 2010 WL 3860397 (S.D. N.Y. 2010)

Click here for the rest of this article.

Information courtesy: BDO

Cleveland Real Estate Market Overview
By Andrew Coleman & J.R. Fairman, Jones Lang LaSalle

Economy

Tour velocity slowed as tenants prepared for 2011. Seasonally unadjusted employment rose over 19,500 in November when compared the previous year. Manufacturing, professional and business services, education and health services, and leisure and hospitality have driven the growth, as all sectors have experienced six or more months of consecutive year-over-year increases. Conversely, the information, financial activities, and government sectors have continued to struggle, experiencing six or more months of consecutive year-over-year decline. Cleveland should sustain slow employment growth through the first quarter of 2011.

Click here for more information on market conditions and the 2011 outlook, courtesy of Jones Lang LaSalle.

Prior issues are available at our E-Newsletter Archive. If you would like to subscribe to this free quarterly e-newsletter, send an email to info@skodaminotti.com.

If you have any questions about any of these articles, post a comment below or please contact our Real Estate & Construction Group at 440-449-6800.

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