Transcript (1) (a) - NAI Norwood Group

Tools for Maximizing Cash Flow in a
Recovering Economy
March 23, 2011
8:00am – 10:00am
The 100 Club
100 Market Street, Portsmouth, NH
A panel discussion for commercial property
owners looking to utilize tools to
help maximize property incomes during
struggling economic times.
Tools for Maximizing Cash Flow in a
Recovering Economy
Agenda
Introduction of Panel
Macro Perspective of Each Discipline
Case Study on a 40,000sf Mixed Use Facility
Questions and Answers
Brian O’Brien
Managing Broker, NAI Norwood Group
Brian has over 20 years of commercial real estate experience in the leasing and sale
of office, industrial and investment real estate. He is an expert in 1031 exchanges and
alternative real estate investments. Brian has sold over $30 million worth of institutional
grade real estate investments to 1031 exchange buyers nationwide and has been
involved in the acquisition, redevelopment and repositioning of multi-building
complexes on behalf of investment groups in NH.
NAI Norwood Group is a commercial real estate brokerage firm with over 40 years of history
serving New Hampshire and New England. With offices in Portsmouth and Bedford, their
geographic reach covers all of NH, Northern MA, and Southern ME. Their affiliation with NAI
Global can help them assist their clients around the nation and the world and help give a
global perspective to their real estate needs. We can assit in:
-Consultation
-Business Brokerage
-Sales And Leasing
-Buyer and Tenant Representation
-Sale Leaseback
-Development
Chris Snow
President, Property Tax Advisors
Chris has 18 years of experience as a property tax consultant. He has successfully
negotiated millions of dollars worth of tax abatements for commercial and industrial
property owners as well as land use change taxes. His strengths lie in his knowledge
of the commercial real estate market, his understanding of the assessment and appeal
process and his long term relationships with many of the assessors in Northern New
England.
Property Tax Advisors, Inc. specializes in reducing the tax liability on commercial and industrial
properties throughout northern New England. We use our in-depth knowledge of state
statutes, market conditions and assessment guidelines to lower your property taxes.
• Analyze assessed values versus fair market values
• Advocate for you during revaluations to minimize your new assessment
• File Appeals and represent you at hearings
• Negotiate with assessors before or after filing for a tax abatement
Jeff Begin
President, Norton Insurance
Jeff Begin joined Norton Insurance in 1978, and has served as President and CEO since 1994.
Jeff is also President of the firm’s subsidiary, Fairfield Kilgore Agency, and Treasurer of Abenaki
Insurance Services, LLC. Jeff specializes in the areas of workers’ compensation and malpractice
insurance, and is licensed in all of New England as well as New York and Florida.
Norton Insurance Agency, Inc. was founded in 1958, and created Norton Financial Services in
1988. They currently have five offices in Maine and New Hampshire.
Norton provides its clients creative, customized insurance and financial services solutions that
produce meaningful results, offering workers’ compensation plans, commercial
property/casualty insurance, group health insurance, employer sponsored benefit and
retirement plans, home and auto insurance, and investment management services to
businesses and individuals throughout Northern New England.
Greg Bryant
Managing Partner,
Bedford Strategies and Solutions
Greg is a managing partner for Bedford. Since 2002, Greg has successfully
established the firm as a recognized industry leader, guiding Bedford in the completion
of more than 6,500 cost segregation studies, covering a wide range of property types
and sizes. Under his leadership, Bedford has grown to a full time staff of more than 50
and remains at the forefront of the cost segregation services field, providing
engineering-based studies to hundreds of real estate owners and accounting firms
nationwide. As Bedford looks to the future Greg is positioning the company to play a
significant role throughout the real estate life cycle with a focus on innovative
consulting services to maximize depreciation, tax credits and other financial incentives
for sustainable real estate holdings.
Combining experience in development, construction and engineering for more than
three decades, Greg has a broad understanding of the commercial real estate industry,
ranging from project conceptualization through construction and asset management.
Tools for Maximizing Cash Flow in a
Recovering Economy
Agenda
Introduction of Panel
Macro Perspective of Each Discipline
Case Study on a 40,000sf Mixed Use Facility
Questions and Answers
Perspective: Brokerage
Speaker: Brian O’Brien
Viewpoint
Current Market Conditions
•Vacancy Rates
•Industrial: 13%
•Office: 18.93% (not including “shadow space”, most likely higher)
•Anemic to spotty with signs of hope!
Outlook
•Tied to job creation
•Continued decline through 2013
Perspective: Brokerage
Speaker: Brian O’Brien
Leasing Tips
1. Be aware of current market conditions, comps, and competition.
2. “Forget about the past, it’s a new world!” Know the cost of vacancy.
• Disruption of cash flow months to years
• Increased expenses LL must pick up
• $4-5 PSF Office
• $2-3 PSF Industrial
• $1.50 PSF Utilities
• Tenant Improvement Dollars: $5-$50 PSF
• Leasing Commissions could be 1.5 times normal rates in a soft market.
• Professional Service: Attorneys, Architectural, Space Planner, etc.
• Leasing Incentive: Required for new tenants.
• Tenant Mix: Losing an anchor tenant may make your building less
attractive to new prospects.
• Higher vacancy rate drives up the cap rate.
Perspective: Brokerage
Speaker: Brian O’Brien
Leasing Tips Continued
3. “Retain is the Game:
• Get a head start with renewals 1-2 years in advance of the expiration.
• Give incentives now for a “blend and extend”.
• Consider short term flexible arrangements over the next two years.
Perspective: Brokerage
Speaker: Brian O’Brien
Summary
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•
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Declining rents through 2013
Stay abreast of market conditions.
Retain your existing tenants at all costs.
Know the true cost of vacancy.
Perspective: Tax Abatement
Speaker: Chris Snow
Viewpoints
•Net Operating Income and Market Value
•Market Rents vs. Contract Rents
•Comparable Sales vs. Comparable Assessments
•Vacancy and Capitalization Rates
Process
•Tactics for approaching and negotiating with the Assessor
•The Appeals Process
Perspective: Insurance
Speaker: Jeff Begin
STATE OF THE PROPERTY/CASUALTY INSURANCE
MARKET
•Sustained soft market cycle- 8 years in a 6 year cycle
•Excess capacity with insurance carriers vs. demand for the products
•Prices for most property specific risks are extremely competitive
•How does this affect the buyer of the products
•Price VS Product
Perspective: Insurance
Speaker: Jeff Begin
BUSINESSOWNERS POLICIES- BUSINESS
INTERRUPTION COVERAGE
•Not all BOP’s are the same, but most insure loss of rents on actual loss
sustained basis
•365 days from date of loss
•Most can be endorsed to include 90-120 period of restoration
•Define period of restoration
Perspective: Insurance
Speaker: Jeff Begin
CHANGES IN VACANCY - UNOCCUPANCY CLAUSE
IMPORTANT CHANGES ISO 2002 Businessowners
Coverage Form BP 0003 01 10
Vacancy
a. Description of Terms
(1) As used in this Vacancy Condition, the term building and the term vacant have the meanings
set forth in Paragraphs (a) and (b) below:
(a) When this policy is issued to a tenant, and with respect to that tenant's interest in
Covered Property, building means the unit or suite rented or leased to the tenant. Such
building is vacant when it does not contain enough business personal property to conduct
customary operations.
(b) When this policy is issued to the owner or general lessee of a building, building means
the entire building. Such building is vacant unless at least 31% of its total square footage is:
(i) Rented to a lessee or sub-lessee and used by the lessee or sub-lessee to conduct
its customary operations; and/or
(ii) Used by the building owner to conduct customary operations.
Perspective: Insurance
Speaker: Jeff Begin
CHANGES IN VACANCY - UNOCCUPANCY CLAUSE
IMPORTANT CHANGES ISO 2002 Business owners
Coverage Form BP 0003 01 10
(2) Buildings under construction or renovation are not considered vacant.
b. Vacancy Provisions
If the building where loss or damage occurs has been vacant for more than 60 consecutive
days before that loss or damage occurs:
(1) We will not pay for any loss or damage caused by any of the following even if they are
Covered Causes of Loss:
(a) Vandalism;
(b) Sprinkler leakage, unless you have protected the system against freezing;
(c) Building glass breakage;
(d) Water damage;
(e) Theft; or
(f) Attempted theft.
(2) With respect to Covered Causes of Loss other than those listed in Paragraphs (1) (a)
through (1) (f) above, we will reduce the amount we would otherwise pay for the loss or
damage by 15%.
Perspective: Cost Segregation
Speaker: Greg Bryant
Accelerated depreciation can greatly enhance cash flow
Data obtained from a properly completed study can be used in the future
Studies can be performed on new acquired or constructed properties
Our Case Study involves a “Look-Back” approach – No need to amend tax returns
Current temporary incentives in place for Qualified Leasehold Improvements
Synergies with other incentives related to energy retrofits
Has application for properties of approximately $1MM or more
Tools for Maximizing Cash Flow in a
Recovering Economy
Agenda
Introduction of Panel
Macro Perspective of Each Discipline
Case Study on a 40,000sf Mixed Use Facility
Questions and Answers
Case Study Analysis
Case Study Analysis
21 Fourth Street, Dover NH
Gross Income: $260,000
Real Estate Taxes: $80,000
Other Expenses:$80,000
Total Expenses: $160,000
Net Operating Income: $100,000
Case Study Analysis
21 Fourth Street, Dover NH
BUILDING DATA
• 40,000 Square Feet
• 1st Floor – 10,000sf Retail “ABC Inc” $12.00 NNN
•1st Floor – 20,000sf Warehouse “XYZ Co” $5.00 gross plus utl.
•2nd Floor – 10,000 Office Vacant - $9.00 NNN asking
PURCHASE DATA
•Purchased in 2006 for $2,500,000
•Currently assessed for $3,350,100
•Annual tax burden of $79,564
Case Study Analysis:
Brokerage Perspective
“ABC Inc.” not doing well and wants to
reduce overhead by shrinking space in half,
10,000 SF reduced to 5,000 SF office user.
Option A
Reconfigure space cutting in half and keep tenant same rate PSF.
Costs:
$30 PSF TI, x 5,000 SF = $150K
• Loss of 50% rental income, 5,000 SF x $12 PSF = $70K
• Increase expenses of $5 PSF and utilities of $1.50 PSF
5,000 SF x $6.50 PSF = $32,500 or $48.50 PSF
$24 PSF over 2 years
Option B
Reduce rent by 50% for 2 years and stay in the entire 10,000 SF “as is”.
Costs: 5,000 SF x $12 PSF = $60,000 x 2 years = $120,000
Which would you choose?
Case Study Analysis: Property
Tax Advisor Perspective
The assessment values the second floor at the same value as the first.
The assessment is based on Potential Gross Income that is higher than both market
and actual income.
The assessment is based on operating expenses that are lower than both market and
actual.
The Net Operating Income is significantly lower than the assessment model.
Current Comparable Sales are limited, but they indicate a lower market value than the
assessment.
Comparable assessments have been lowered to reflect the current market conditions.
•Research complete: Time to meet with the assessor!
•Taking the “Bird in Hand” or trying for “Two in the Bush?”
Projected Savings: 20% or $15,912
Case Study Analysis:
Insurance Perspective
Business Interruption - Timeframe for most claims
scenarios exceed 12 months from date of loss to full lease
up
Solution - Endorse the policy to add 90 day additional period of restoration. Case study yields
$45,000 loss of rents coverage for $30.00!
Vacancy Clause - Assuming ABC reduces it’s footprint by $5,000 sq feet, and space remains vacant
for more than 60 days – the clause will be triggered
Option A: Notify agent/carrier and request that carrier waive the vacancy provision in the policy
Option B: If current carrier declines, find a carrier that will waive vacancy clause
Case Study Analysis:
Cost Segregation Perspective
Assuming 39-year straight line depreciation by client since acquisition
12% accelerated to 5 year, 8% accelerated to 15-year
Catch-up depreciation of $211,000 for 2010 Tax Return – NO NEED TO AMEND!!
$96,000 tax savings (at 40% blended rate)
$0.60 PSF tax deduction for lighting upgrade (EPACT 2005)
$25,385 in asset write-down for lighting upgrade - $10,150 tax savings
Certain tenant improvements would eligible for 100% bonus depreciation in 2011
Tools for Maximizing Cash Flow in a
Recovering Economy
Questions?
Brian O’Brien – NAI Norwood Group
Chris Snow - Property Tax Advisors Inc
Jeff Begin – Norton Insurance
Greg Bryant – Bedford Strategies and Solutions