Key Takeaways
• Most lending institutions are not touching any hospitality, retail or restaurant deals.
• Starting to see new Force Majeure language being included in new agreements. Most people aren’t accepting it, but there can be some compromises, particularly if the government forces a business to shut down.
• Industrial is still very active – not enough product on the market. Seems to be a lot of activity with small businesses looking for warehouse/industrial space. However, not much available for small offices and single tenant buildings.
• Starting to see concern about 2021 – what will be in the pipeline; office buildings, retail, restaurants and hotels will take a real hit.
• Online auctions of commercial assets has seen an uptick in activity; many people are wanting to get deals done before the election and the end of the year.
• Construction costs continue to go down; now is a good time to negotiate.
• Sites are continually difficult to find, which leads to looking at re-development opportunities. No new development may be helpful for the roofing business.
• Commercial signage projects were busy at the beginning of the pandemic with offices getting signage re: COVID requirements. Those were short-lived and there’s not much new business out there.
• Ron Raitz gave a presentation on 1031s, as there has been some news lately that a Biden Administration might look to cut this program as way to pay for its Child and Elder Care Plan. This is not a “Call to Arms” or a partisan issue. Conversations about cutting the 1031 program has gone on for 25 years by both Republican and Democrat Administrations.
a. There is a misconception that the 1031 program that advantages the rich. In reality, the average size of a transaction nationally is $500,000. It’s not just a program for the rich; many people inherit property/land through estates.
b. Part of the reason that 1031s are looked at is the Joint Committee on Taxation, which is a bipartisan group that gives recommendations to the House and Senate on tax policy, started doing static scoring of 1031s about 12 years ago.
c. Static scoring is not accurate. It doesn’t take into account that about 20% of the deals wouldn’t happen because people wouldn’t want to pay tax. Also, many clients buy up in value which increases the investment pie. It also doesn’t take into account the effect that it has on all of the business (attorneys, suppliers, etc.) that would also go away. If you take the program away all of this economic activity would go away, and the Treasury would be missing out on the tax revenue from some of the ancillary businesses.
d. 1031s drive .5 – 1.5% of the GNP. If you just look at the revenue side, if 50-60% of the 1031s were phased that would equally roughly $3-$8 billion. That doesn’t go very far in paying for a $775 billion bill.
e. One other consideration/consequence of getting rid of the 1031 program is that states and municipalities would see a 20-27% devaluation in their real estate holdings. Cap rates would also go up.
f. Best resource for all of this information: https://www.1031taxreform.com.