SOLD: 535 W Wall St

Bill Mears and Kurt Egan represented the sellers in this industrial deal with a sale price of $940,000 - way to go, guys!

There’s Gold in Them Thar Hills!

Well, it’s not a gold rush, but if you have net-leased or better yet a sale-leaseback property, hitch up your wagon. According to a recent article in National Real Estate Investor magazine, “Investment Irony”, there is stiff competition and a shortage of supply for both real estate types.

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In Beth Mattson-Teig’s piece she quotes Mark West, senior managing director at a commercial real estate capital intermediary firm. “Across all product types in real estate, there is no shortage of capital...looking for good quality deals…And in the net lease, sale-leaseback space it is very attractive, and plenty of capital is looking for the long-term, predictable cash flow that is represented by sale-leasebacks.”

With the demand up and supply short, it would certainly appear that we are in a seller’s market for at least one segment of the commercial real estate arena. Real Capital Analytics tallies the total sale-leaseback transactions in 2014 at $9.4 billion.

The 2014 volume in sales can be attributed to what commercial brokers see “From the owner perspective, we have seen a high potential of sales, as owners have made it through the depression and have decided to capitalize on current market conditions.” They are monetizing those assets to fuel growth and expansion.

What I found very interesting in the article was the interest in shorter term lease deals. Brand new investment properties, whether they are net-leased opportunities like a Walgreens or a sale-leaseback, typically have a long-term lease. Long-term leases usually mean low cap rates, which translate to higher prices per square foot. Existing net-leased properties typically have leases with shorter terms that often times translate to higher cap rates, which deliver lower prices per square foot.

One investment company purchased a large warehouse in the greater Chicago area leased by Solo Cup. They had 10 years left on the lease which, in that market, allowed for the sale at a 7% cap rate. With a longer term lease, the article suggests, that rate would have been about 6%.

The buyer was thrilled that they were able to acquire this asset at $51 per square foot. That still seems pricey, but it is, after all, the Chicago market and not Rock County. However, it does appear that the treasure in the market is sale-leasebacks with shorter-term leases. If you own a property and would like to generate cash for growth, the time could not be better to go to market.

1031 Exchange Basics (Part 2 of 2)

Sheltering taxes can be tricky but also beneficial. Finding a CPA with experience in commercial real estate is important to effectively protect yourself. A 1031 exchange is a tool often used to defer taxes and in my first blog post “1031 Exchange Basics”, I talked about the different types of 1031 exchanges. This blog will focus on the general rules of the Internal Revenue Service’s code Section 1031 that taxpayers must meet when identifying a replacement property. 

Three (3) Property Rule – The taxpayer may identify up to three potential replacement properties, without regard to their value.

200% Rule – Any number of properties may be identified, but their total value cannot exceed twice the value of the relinquished property.

95% Rule – The taxpayer may identify as many properties as he wants, but before the end of the exchange period, the taxpayer must acquire properties with an aggregate fair market value equal to at least 95% of the aggregate fair market value of all the identified properties.

When selecting a replacement property, the funds from a 1031 exchange cannot be used for a personal residence (unless it has been a rental property for 2 years), notes, an interest in a partnership, Certificates of Trust, or homes held for sale by speculation builders (among others).

Knowing the rules & regulations, using a Qualified Intermediary, and having the necessary professional help can secure the tax shelter and benefits of a 1031 exchange. 

For more information or an exchange checklist call Kurt Egan at 608-752-6325 Ext. 4.

SOLD: 4539 Woodgate Dr

Bill Mears represented the seller and Kurt Egan represented the buyer in the sale of this office investment property for $375,000. What a great way to start the new year!

Self-Storage: The New Investment Darling

“Maybe we should rent a mini warehouse.” My wife makes this statement every fall as we put away our lawn furniture. My response years ago should have been “No, let’s buy some!”

A recent Globe Street column by Brian J. Rogal of M J Partners, a Chicago-based firm, reports that the largest self-storage REIT now has an implied cap rate of 4.0%. Competitor REIT cap rates are ranging from 4.5% to 5.7%.

Courtesy of A+ Self Storage