Short Sales and 1031 Exchanges

1031 Exchanges and Short Sales
-Investment Property Exchange Services, Inc.

We are often asked whether the seller of investment property in a short sale can benefit from a 1031 exchange. The answer is yes. According to IPX 1031 Regional Manager, Jim Miller, in a short sale the lender is agreeing to release the property that is being sold from the lien of its Mortgage. Since the Mortgage Forgiveness Debt Relief Act of 2007 only applies to a principal residence, any debt forgiveness with regard to an investment property will be taxable.

For example, let’s assume Ian Investor purchased 123 Main Street in 2005 for $240,000 with 100% financing. Over the past few years, the value of 123 Main Street has decreased and it is now only worth $200,000. Although Ian remains current on his loan payments he does not want to continue to own 123 Main Street because of its decreased value. Accordingly, he decides to sell 123 Main Street. His real estate agent finds a buyer and states the bank is willing to agree to accept $200,000 in a “short sale”.

Although this is good news, Ian’s accountant advises him that the debt forgiveness of nearly $40,000 (approximately $240,000 minus $200,000) will result in a tax liability of between eight and twelve thousand dollars. Ian does not want to pay taxes to sell a property that has already lost $40,000 in value and decides that a short sale is not a good option for him.

Ian’s accountant suggests that he have his real estate agent contact his current bank to see if they are willing to exchange 123 Main Street with one of its “Bank Owned” properties. The benefit to the lender is that Ian is still solvent but “underwater” in 123 Main Street.; and by exchanging one of the properties it already owns (as a consequence of a prior foreclosure) Ian will remain financially stable and be more likely to continue paying his mortgage obligation. The benefit to Ian is that he will not be forced to recognize and pay taxes on “phantom income” and he will be able to acquire, as his replacement property, a better property which is equal in value to his original investment.

Accordingly, Ian’s lender agrees to exchange 456 Park Place, worth $240,000, for 123 Main Street and transfer Ian’s loan to the new property. As a result of the exchange, Ian has a better property without recognizing (paying taxes on) any gain. The lender still has one property to sell but has reduced the chance that Ian will walk away from his original $240,000 obligation.

Successfully achieving this type of transaction takes effort but it can be beneficial to investors, lenders and real estate agents. An investor could acquire the new property in an area which has stabilized and has a better chance of showing appreciation. Before selling any property in a short sale, it is very important to consult with your tax advisor. You need to receive competent advice as to what is best for your specific situation. A “do it yourself” approach may result in an unexpected tax bill which could have been reduced or avoided with proper planning.

Best commercial real estate strategy…for 2010 and beyond!

Best commercial real estate strategy…for 2010 and beyond!
Where are the “best buys” in today’s market? Which brokers have the discounted properties available for purchase? Can you find me some good deals? How in the world do I find the “best buys” before everyone else? These are all excellent questions investors posed in 2009. And the answer for all is quite simple: Exclusive Buyer Representation!

Exclusive Buyer Representation works in the best of markets and even better in challenging markets! Why? It’s estimated, 70% of all commercial transactions are influenced by professional real estate brokers. Most transactions that come to market are listed by brokers representing sellers and most “off market deals” are sourced by brokers. You get the idea. And who stands to gain from exclusive broker relationships? Savvy investors of course!

Establishing an exclusive broker relationship is the first step knowing you have a trusted real estate advisor who reaches out to thousands of brokers, continually is researching public, private and proprietary web sites looking for the “best buys” all with one single goal: to find the right property for you, the investor!

Another way to evaluate the benefits of exclusive buyer representation is to think back at how many deals you’ve heard about that never seem to make it to market. Investors learn about the “best buys’ after transactions are reported to be under contract or sold. An exclusive buyer relationship will increase the percentages dramatically that an investor will be the first to hear about the best buys!

As 2010 rolls in so will more opportunities for the ‘good deals’. The commercial real estate sector will become more competitive as sellers and lenders are motivated to sell and more investors return to the market. The more competitive the marketplace the higher the need for exclusive buyer representation!

In conclusion, the best part of exclusive buyer representation is there is no up front charge for this service. On the other hand, professional brokers are highly motivated to use all the tools and technology available to find transactions that meet a buyer’s investment criteria. The buyers’ brokerage fee is typically paid by seller at closing and in some cases fees are built into transaction.

All of the above combinations provide the investor with buying efficiency and the highest probability of being the first to locate the ‘best buys’ in 2010 and beyond!

For more information on “Exclusive Buyer Representation” please call Miguel de Arcos or email me at MdeArcos@svn.com

Using Social Media to Navigate Tough Markets – why you should demand your advisor be a social media expert

Using Social Media to Navigate Tough Markets why you should demand your advisor be a social media expert
By: Miguel de Arcos | Managing Director Sperry Van Ness | Lake Mary, FL

Anyone who has endured multiple market cycles understands that market consolidations cause a weeding out process to occur. While many tend to perceive those forced out of the market as simply not having the financial wherewithal to survive, the truth of the matter is that the reason most companies fail in tough markets is that they refused to change. Had they changed, had they adapted, had they innovated, they would have found a way to create the financial resources necessary to weather the storm. Static thinking simply does not mix well with fluid markets.

To use a military analogy, the worst thing a fighting force can do is to engage the opponent in multiple skirmishes without changing tactics. Even the best tactical precision is subject to defeat if it becomes stale or predictable and it is precisely at this point that it also becomes outdated. As it is on the battlefield, change is an essential survival skill in the business world as well. The harsh reality is that outdated business tactics will place an enterprise at a competitive disadvantage eleven times out of ten…it’s as simple as that.
In a commercial real estate market where many complain about deals not getting done, the fact of the matter is that deals close every day. If a deal isn’t getting done, it’s not because of the market, it’s because there is something wrong with the tactics being used to market the deal…it’s because it is not being marketed in the right way, at the right time, to the right people. It’s not a market thing; it’s a tactical thing…better yet, it’s a marketing thing. When hiring an advisor to help you acquire and dispose of assets in a down economy, do you want someone who complains about the market and makes excuses, or do you want someone who innovates and executes? The choice is yours…choose wisely.

Nowhere is the need for change in commercial real estate more apparent than in the marketing and branding tactics currently being employed by many practitioners. The successful culmination of a transaction occurs as a result of savvy marketing, especially in a down market. As much as some may wish it wasn’t so, the commercial real estate industry cannot simply stick its head in the sand and ignore social media. Old media has been simply been rendered ineffective by the speed at which new media has evolved, and the power of new media to engage in ways that old media never could.

Traditional old-school sales and marketing types that are still trying to do business in the same manner as 5 years ago are getting crushed by those professionals that have embraced the leverage and scale afforded through digital mediums, and in particular, social media. Through a well conceived social media strategy that focuses on trust based conversations and engagement created via blogs, YouTube, Facebook, Twitter, LinkedIn, and other social media platforms, it is not only possible to increase the visibility of an offering, but to do so with relevance, authority and influence.

Traditional brokers will attempt to “sell” you on their ability to “selectively” market your property to an “exclusive” group of buyers. The theory behind this cloak and dagger strategy is that you will somehow benefit from having your asset marketed to a “limited” pool of buyers. The fact of the matter is that anyone with a rudimentary knowledge of economics understands that exposing a property to the broadest possible market, has the highest potential for creating a competitive buying environment, which in turn will yield the highest return. The use of new media will clearly expose your property to more people in a shorter period of time than old media. So my question is this: are you going to buy the rhetoric or the reality? Are you going to base your decision on hype or basic economics?

During tough economic times many of the usual and customary suspects to acquire an asset have either gone away permanently, or are temporarily on the sidelines waiting for the market to become more predictable. Complicating things further is that many of today’s active buyers are not only cautious, but they are hoping to not have to compete on a broad scale with other buyers. Therefore, it is even more important to have inroads into broader spheres of influence, with more influence and credibility. This is best accomplished using marketing tactics that engage the broadest cross-section of buyers in a fashion that engenders trust and confidence. The appropriate use of social media creates the best possible opportunity for sellers.

Advisors who use social media as the backbone of their marketing strategy simply have a distinct competitive advantage over those who do not. Moreover, this gap will only continue to widen over time. So next time you need to buy or sell a property, my suggestion is that you skip the tired rhetoric of those who have allowed the market to pass them by, and give your attention to those advisors who will leverage the latest skills, competencies, toolsets, technology, and mediums to your advantage.

Contact the Author:
Phone: 407.333.9565 Email: mdearcos@svn.com Web: www.svnflorida.com
Copyright © 2009 – Miguel de Arcos This Office Independently Owned and Operated All information presented by Sperry Van Ness has been obtained from sources deemed reliable. Sperry Van Ness makes no representation with regard to the accuracy of the information contained herein.

Where are the bank REOs? A Commercial Real Estate Video

Please take a moment to view our newest video “Where are the bank REOs?” by Miguel de Arcos

Commercial Real Estate Recovery In Florida Should Outpace The U.S.

As I spend this mid-December weekend with my family walking around in short sleeves and shorts at a very comfortable 80 degrees, I realize why Florida’s economy will rebound faster than the rest of the Country.

Shorts in mid-December

Being a business owner I constantly study how the analytical indicators, such as supply and demand, general business conditions(Sunrail), world events and economic news, effect the commercial real estate industry. But we often overlook the social aspects that have a definite effect. Real estate values are down and unemployment is higher than the national average, but I feel encouraged that no matter how bad the conditions are, Florida will still have a “draw” that most states simply cannot compete with… THE WEATHER. Now that the median home prices have been cut by 53% to 2001 levels(Orlando Sentinel Article)and folks in the North and Mid West are freezing, I feel the net positive growth to Florida’s population will begin to ramp up again. Population growth has a positive effect on jobs and therefore, lowers vacancy rates and ultimately increases property values. I know this is oversimplifying the issue, but it does play a role nonetheless.

Florida is an economic seesaw. It swings drastically to the side of the current market condition. We are outpacing the U.S. average in unemployment and foreclosures right now, but we should also lead the Country in recovery.

Consider me an optimist. Commercial real estate values in Florida will return ahead of the rest of the Country… thanks in part to our 80 degree Decembers!

Miguel de Arcos
Sperry Van Ness

Where are the Bank REO’s??

Where are the Bank REO’s??
By: Miguel deArcos

For several months now news about how the nation’s current economic crisis is affecting the commercial real estate market has been spreading like wildfire. Warnings about growing defaulted loans and foreclosures have dominated headlines. Troubled assets are becoming more and more common, and real estate investors are on the look-out for the new deals – both off market and on – that are coming available. In fact, according to research firms like Real Capital Analytics, “the volume of troubled commercial properties grew by 122% in the first half of 2009 as approximately $67b of properties became troubled and few troubled situations were resolved.” Loan modifications and sales have only resolved 10% of this distress.

So where are the distressed properties that we keep hearing about? Banks appear to be in a holding pattern when it comes to commercial real estate. Unlike the days of the Resolution Trust Corporation (”RTC”) sale-off, banks today seem reluctant to place their REO properties on the open market, as they are afraid to take a loss. According to Deutsch Bank, property values are down approximately 40% since the 2007 peak. Banks do not appear to be motivated to dispose of properties at realistic prices, yet more distressed properties are on the horizon. Real Capital Analytics reports that “June was a particularly heavy month for new distress, indicating that the pace of defaults does not appear to be slowing.” Banks are prolonging the crisis by refusing to sell their distressed assets. Further, aside from fears over losing money on assets, banks are cautious not to worsen the current economic situation by the flooding of the market with REO properties.

However, advisors within Sperry Van Ness are working with banks throughout the country to advise them on the best disposition solutions, thus encouraging banks will begin to place their distressed assets on the open market. In the last couple of weeks have we seen a trickle of properties become available, and are optimistic that more will become available in the coming months. There are opportunities coming…

ThanksGiving In The Commercial Real Estate Industry

It’s Thanksgiving time!
A time for giving thanks for the blessings in our lives. Since this is a Commercial Real Estate (CRE) blog, I will focus my thanks on that and save the personal stuff for the dinner table Thursday night. So let me share a little bit of what I’m thankful for in the CRE industry as if you own or occupy space, this relates to you too.

I’m thankful for:

• Making it through the 2008 banking meltdown.
o I compare 2008 to someone shaking up a snow globe on the financial markets. That in turn effected every aspect of real estate. Lenders, owners & brokers couldn’t tell you which direction was up and everything froze.

• Surviving the 2009 market correction and bottoming out of CRE values.
o Values dropped like a stone all year as capital for purchases was/is non-existent and job losses mounted at a record pace. Some positive economic indicators are starting to spike which shows us that we have hopefully bottomed out.

• A 2010 recovery.
o Although it will be a long slow road, it is already starting to happen. Small businesses are starting to show signs of life & banks are slowly starting to sell off their toxic assets. With bad debt gone, they should be able to start lending again. Time heals all wounds.

• Our team of Advisors & staff at SVN/Paradigm.
o Like Thanksgiving Day we will all likely thank our family for supporting us through the good times and the not so good times. If any of you reading this have ever been to an SVN function or even to our office, you’ll see that we are a (growing) family. I am blessed to be surrounded by such a professional, well educated, morally centric and caring group of people.

In closing, I would like to also say thank you to our clients, colleagues, friends and a special thank you to OUR TROOPS who continue to fight for our liberties everyday.

Happy Thanksgiving, Merry Christmas & have a Happy New Year,

Miguel de Arcos
Managing Director

The Banking Industry Fiasco

Dear Colleagues,

For those of you that own commercial or residential property, the banking industry fiasco has a direct relationship on your property’s value. Their strategy with toxic debts has led to record bank closures and in turn has tightened credit dramatically. If consumers can not get loans, they can not buy your property and values are pushed down. Below is some information about the current state of the banking industry, you can draw your own conclusions….

“Reports indicate that 2009 will see one of the highest numbers of bank closings in US history. According to reports the hundredth bank will be closed and taken over by the FDIC next weekend. Just about a week ago the FDIC closed the ninety-ninth bank for the year. 2009 may not be as bad as previous years, in history, but according to the FDIC, currently there are 416 banks in its “at risk” category.

This indicates that there are many more bank failures to come in the months ahead. FDIC does not indicate which banks are in this category, to curb the mass withdrawal of money from the banks at risk of failures. Many bank closings have been caused by the real estate boom of the mid-2000s. It is clear that many banks are still at risk and will continue to be at risk of failure for some time.”
Maulik Shah, Sperry Van Ness | Better Capital Partners

Best Regards,

Miguel de Arcos
Managing Director

Experts: Lending Hampering Industry Recovery

Experts: Lending Hampering Industry's Recovery.

No commercial real estate crash ahead, Zell says :: CHICAGO SUN-TIMES :: Business

No commercial real estate crash ahead, Zell says :: CHICAGO SUN-TIMES :: Business.