Saturday, November 13, 2004
1031 Exchanges and Family Farmlands in the Appalachians
So many of our large acreages here in Western North Carolina have been in same-family ownership for many years. Those family names are famous around here...the Sprinkles, the Hensleys, the Carvers...the Banks Family..
These families bought acreage over a hundred+ years ago. The children, grandchildren, great-grandchildren inherited the property and it increased in value. Incredible family farmlands, gorgeous and cared for over many generations are the result.
Because of this long ownership, these lands have a very low tax basis. This means that when it comes to selling their family property, at today's appreciated prices, the Sellers will face a very large Capital Gains Tax. To offset this situation and avoid the tax bite, the family can do one of two things; put their lands into a Charitable Remainder Trust prior to sale or execute an IRC 1031 Tax Deferred Exchange.
The law states that if the Seller exchanges into another property of Like Kind for equal or greater value, and uses a Qualified Intermediary to advise and then hold transaction funds, the Seller normally does not pay any Capital Gains.
Today, we advise many of our clients who are interested in providing a land legacy to consider a 1031 Exchange and in listing and selling properties, we make sure specific language is in the Offer to Purchase and Contract and in the Listing Agreement. 1031 Like Kind Exchange rules are complex, so we act as part of a resource team in conjunction with financial and legal consultants as well as a Qualified Intermediary.
If you would like some help in finding excellent professional assistance, we are happy to refer you to people we feel certain are qualified to assist you. Please contact us at 1031Resources@janeAnne.com
Thanks in part to hundreds of phone calls to our Represenatives,
the House voted to save 300,000 acres of old growth forest from clearcutting.
If the Senate follows suit, the trees will continue to live undisturbed
in the Tongass National Forest.
this was reported to us from MoveOn.org
Monday, November 08, 2004
My clients affectionately refer to me as their "GREEN" REALTOR. It's a lot easier to be green these days than it used to be. Folks no longer roll their eyes but rather they smile when they meet me and shake my hand. Seems as if we are catching on that everybody wins when we build/invest GREEN.
I just read an article, Investing in Sustainable Design that appeared in the Summer, 2004 issue of Commercial Investment Real Estate that makes my point...
Investing in Sustainable DesignNew technologies help developers and tenants save the environment — and money.
by Ken Pientka
Many commercial building owners and investors favor green, and now they are discovering that buildings designed with sustainable features are another reason to prize the color of money. Attracted by lower operating and maintenance costs, corporate tenants are recognizing green office buildings` value, an important factor in today`s competitive real estate marketplace.
Sustainable design capitalizes on technological advances to provide less toxic building materials, highly efficient heating, ventilating, and air-conditioning systems, low-consuming electrical and water systems, and designs employing natural light, landscaping, and building orientation to improve energy and occupant efficiency.
Green buildings first were promoted primarily for environmental reasons. Designs involved high initial capital costs, specialized teams, and uncommon equipment and building practices. Government agencies, universities, and nonprofit organizations were early adopters of sustainable design, using subsidies and grants to offset more-expensive building costs and recouping the return through long-term occupancies.
Today, sustainable design is moving into the mainstream as more corporate tenants and owners, as well as speculative building developers, discover the value created when minor upfront capital costs and short payback times increase lease rates along with tenant attraction and retention. In short, sustainable design makes sense.
Sustainable-Design Benefits Today`s sustainable-design buildings offer a host of advantages to building owners and developers — reduced life-cycle and operating costs, increased energy and water efficiency, decreased environmental impacts, and occupants` increased comfort and quality of life.
Each of these benefits addresses building owners` and users` bottom lines.
Reduced Liability. Sustainable design creates a healthy indoor environment for building occupants, offsetting a trend toward increased insurance claims related to poor indoor air quality and sick building syndrome. Increasing fresh-air intake, improving air filtration and ventilation effectiveness, and carefully selecting materials and finishes that minimize volatile organic compound off-gassing create a healthier environment for building occupants. Eventually, insurance companies may offer premium reductions for certified green buildings.
Increased Comfort. Green building occupants are more attentive and learn faster than counterparts in typical office buildings. Increased natural light, employee-controlled temperatures, and advances in glazing and lighting systems, combined with thoughtful regard to building orientation and footprint, provide a working environment that promotes creativity, employee collaboration, and improved productivity.
More-satisfied and productive employees also are less likely to be absent. The economic potential is compelling: For example, if the average cost for employee salaries is $150 per square foot per year, a 1 percent improvement in employee performance achieved through sustainable design represents a $1.50 psf per year savings — roughly equal to the building`s average psf annual energy cost. Because employee annual salary and benefit costs far outweigh a building`s annualized energy, operations, and maintenance expenses, productivity gains can positively affect a business`s bottom line. Business Success.
Indoor environmental quality affects many aspects of business success, such as customer satisfaction, innovation capacity, work quality, employee morale, job satisfaction, employee retention, and operational efficiency. Numerous studies support the idea that a more comfortable and pleasant working environment creates an uplifting atmosphere for building occupants.
Saving Money Economics certainly prevail in weighing the options of adding sustainable features to a building. Commercial real estate tenants, brokers, developers, and appraisers need to educate themselves on sustainable design`s true costs in today`s marketplace. Innovative construction materials and techniques and mechanical system advances, while possibly more expensive upfront, can reduce a building`s lifetime operating costs significantly.
When analyzing green economics, commercial real estate professionals should consider long-term operating and maintenance costs. These factors are beginning to affect leases, insurance rates, loans, and other real estate practices as tenants, owners, banks, and communities recognize energy efficiency`s value.
Sustainable design can provide the following economic benefits.
Increased Market Demand. Growing industry evidence asserts that sustainable-design buildings can obtain higher lease premiums or be more competitive in an otherwise tough market, as more corporate tenants, particularly class A triple-net tenants, become aware of sustainable design`s cost savings. This competitive advantage already is creating a new market for green office space. Savvy brokers and leasing agents aware of green buildings` potential should look for opportunities in their markets to capitalize on this advantage.
Lower Operating Costs. Technological advances during the last 10 years in areas such as glazing, lighting, and HVAC help improve performance and lower buildings` operating costs. Along with attracting tenants, this benefit also raises a building`s value to potential investors.
Lower operating costs increase a property`s net operating income, creating a higher valuation and possibly sales price. As appraisers begin to incorporate green office buildings` value into appraisals, better capitalization rates may result, thus providing significantly higher returns.
What Constitutes Sustainable Design? Thorough sustainable design addresses a gamut of topics from site design through water and energy efficiency, material and resource conservation, indoor environmental quality, and construction techniques. The goal is to properly balance sustainable features and their costs to give building owners the best overall performance. Listed below are sustainable-design buildings` common features that commercial real estate professionals should be aware of to help market green buildings and determine their sale and lease values.
Advanced Lighting Systems. Advances in lamp, ballast, and fixture technology produce more light with less energy. Good lighting design uses as little as 0.5 to 0.75 watts psf of floor space, compared to lighting loads of 2.5 to 3 watts psf in older buildings. Furthermore, sensors that measure indoor light levels can raise and lower artificial lighting in response to changing outdoor conditions, and occupancy sensors turn lights off when not needed.
Lower lighting levels also translate into cooling cost savings as air conditioners do not have to remove the heat created by excess lighting. Indirect lighting systems save energy and improve light quality by dispersing available light and reducing glare.
High-Performance Glazing Systems. Daylighting — allowing abundant natural light indoors — enhances interior light quality and reduces energy demands. Glass in sustainable-design buildings is selected with consideration given to visible light transmittance, heat loss and gain, ultraviolet ray transmittance, and color. High-performance glazing systems admit more light while simultaneously rejecting a higher percentage of solar heat gain, resulting in better daylighting and reduced cooling loads.
Building geometry, location, orientation, glazing, and private office placement can optimize daylight while minimizing heat gain or loss. Other factors to consider include window orientation and proximity of glass to ceilings and work surfaces.
Ventilation Systems. Advanced ventilating and mechanical systems increase air-flow effectiveness, provide plentiful fresh air, and reduce exposure to biocontaminants such as microbial diseases, fungi, and molds using high-efficiency filtration systems. Improved ventilation also removes indoor pollutants generated by the off-gassing of materials such as carpet, adhesives, sealants, furniture coverings, and paints and varnishes, as well as reduces carbon dioxide levels.
Reduced Water Consumption. Many cost-effective options can reduce water use by up to 30 percent. Toilets now use 1.6 gallons per flush versus 3 to 5 gallons per flush on older models. Sensor-operated faucets and urinals help save water and improve sanitary conditions. Waterless urinals now are used in many Western markets where water is scarce. Also, selecting drought-tolerant outdoor landscaping can eliminate site irrigation needs.
Storm Water Control. Containing storm water on site and allowing it to filter into the ground reduce lake and stream runoff pollution and help recharge local aquifers. Sustainable-design developers use features such as rain gardens, green roofs, pervious pavement, and low-profile curbing to help control storm water.
Materials Selection. Building and finish materials are selected with regard to renewability, recycled content, manufacturing processes, packaging, and shipping (i.e., using materials that are locally manufactured or harvested). Sustainable-design practices also incorporate less-toxic building materials and furnishings. Carpets and floors, paints and varnishes, furniture, and other materials carefully are researched prior to specification. Life-cycle cost analyses of materials also are conducted to compare not only a system or material`s first cost but also to consider its cost over the building`s entire life span. An increase in the manufacturing of such products has reduced their costs while increasing selection and quality.
Bottom Line: Black Ink Sustainable design doesn`t come from employing piecemeal changes that create minor reductions in resource use and total life-cycle costs.
Building investors, owners, and developers can benefit the most from sustainable design if they work with designers and builders that take a holistic approach to programming, planning, designing, and construction. Simultaneously considering design, construction, and interlinked issues, such as site and climate, building orientation and form, lighting, and thermal comfort, optimizes all aspects of a project. In the end, an integrated approach often creates multiple benefits, allowing many sustainable buildings to cost minimally more than standard buildings
For more about this...look for future articles I'll share here and DO go ahead and contact me
Sunday, November 07, 2004
Last week I must have had three or four clients ask me to give then a simple explanation of the steps they would need to take in doing a 1031 Exchange.
They wanted to know how this would look in plain language so that is what you will find here. I want to say right up front that this is from my experience and it is sent to you with the caveat that you need to get the EXACT details from your Qualified Intermediary and Financial management team.
I also want to say that I have participated as the REALTOR in a good number of 1031 Exchanges with happy clients.
STEPS in the 1031 Exchange Process
___First, you need to figure out approximately how much net gain you'll have and if it's worth doing a 1031 Exchange. (Remember capital gains rates have dropped.)
___Next, when you list the property, you will want to have specific language both in the Listing Agreement and in the Sales Contract (Seller and Buyer) ...Hopefully your REALTOR will know what that language is. To be sure that s/he does, write me for a set of questions you can ask before you sign an Exclusive Right to Represent Contract. Youcan reach me at 1031@janeAnne.com
____BE SURE (double check) the 1031 language is included in the Listing and the Offer to Purchase and Contract document. The language states your intent to use the property as a 1031 Like Kind Exchange.
___Before you list your old property (seller) or think about writing an Offer to Purchase and Contract for a replacement property get out your calendar. USE IT! Missing a date by just ONE day can invalidate the entire transaction and make you liable for taxes.
___You need to use a "third party facilitator". This CANNOT be your personal CPA, your Real Estate Broker, or your personal Attorney....someone with whom you have worked closely within the last two years.. (See my notes on Qualified Intermediaries)
___MAKE SURE the Qualified Intermediary you choose has credentials through the Federation of Exchange Accomodators .Here is the member locator:
Here is the list for North Carolina:
Your QI is your bridge to the future. S/he will handle details. To learn exactly what details please go to: http://www.1031exchangeservices.net/services.html
____Remember, at the Closing, NONE OF YOUR PROCEEDS GO TO YOU! Proceeds MUST go to the facilitating Qualified Intermediary so again, it is important that you select this person with care.
____Once funds from Closing have been transferred to your QI, you have 45 days to identify IN WRITING to the QI, up to 3 properties, or a number of properties up to 200% of the fair market value of the relinquished properties.
___You have 180 days to close on the new property. (With a couple of exceptions) if you go past 180 days, you owe the taxes. USE YOUR CALENDAR!
____And once again, when you write an offer/contract for the replacement property special LANGUAGE MUST GO IN THE CONTRACT. Make sure (double check) you and your REALTOR spell out that this is a 1031 exchange.
Let me know when you want to look at LAND BUYS in the Western North Carolina mountains.