Any Plans to Buy or Sell in this Tax Year?

It may seem ridiculous for me to be posting on a hazy, hot, and humid August morning that time is running out for real estate sales this year.  However, much of commercial real estate is driven by tax concerns, and taxes play an important role all the time, even when the reasons for activity relate to other concerns.  Therefore, it's wise to consider that it takes a long time to close most properties that need environmental testing or financing, so now would be the time to get moving, if you intend to accomplish anything by the end of 2016.  In the real estate field, we try not to count on much getting done after mid-November.  Since that is about ten weeks away, I'm not being overly cautious to say that Labor Day should be your signal to ramp up your search or your sale.  Even leases can be affected by the calendar year for taxpayers, if you are interested in deducting costs of fit-up or commissions.

So time's awasting--get moving!

Lots of Hits

For all that Connecticut is being labeled as the place to leave for doing business, we are getting lots of inquiries about our listings.  In fact, "commercial real estate" is the number one thing that people Googling Pearce type into their search line.  We also get as many Ready Chat leads (those who talk to the little person who appears on the screen when you get to our site) for commercial real estate as we do for residential.  Since that doesn't correspond to what the general impression of the state of the commercial market is, I thought it was worth passing along.

People looking at properties on LoopNet are also a big source of leads for our commercial agents.  Those who search through LoopNet can be either local or not.  While calling or emailing about a property is obviously not the same as buying it or leasing it, and not all leads result in sales or leases, it's a promising start.

So feel free to join the crowd, and look for us at www.hpearcecommercial.com. 

The Puzzle of Tenant Representation

Some people may wonder why they need a real estate agent to represent them, if there is a sign in front of the building, and space for rent?  One big reason is to help with negotiating the lease.  Leases vary tremendously from property to property, owner to owner, and landlord to landlord.  They can be very confusing.  Sometimes it is even difficult to tell what the actual rental amount is.  Net leases can be called gross leases with "extra rent", expenses for the common areas can be handled very differently from space to space, and expansions, renewals, rights of first refusal, and other options can seem baffling to people who have not done this before, or not done it often.  We even had one client whose lawyer would say "They can agree to this clause now, or I'll hide it somewhere in the lease and get it anyway".  That's what your agent is for--to guide you through all the twists and turns, and give you guidance as to custom and prevailing rates in your area.  As a reminder for those who may not know, the commission for the buyer's agent is most often paid by the landlord under the terms of the lease: although that can certainly vary, it is common for the tenant not to pay for his/her representative.  As a further reminder, the commission is determined by the lease, which is between the landlord and the listing broker; the tenant has nothing to say about it.  That's why it is sometimes surprising to hear that tenants (and buyers) believe that they will pay less if they don't use their own broker. Usually, it just means more for the listing broker, who is then handling both sides of the transaction.  There are many peculiar things about our industry, and they aren't all in our favor.  Most times it really pays to have a tenant representative, or a designated agent within the brokerage firm, advising you, as a tenant, on terms and conditions, as well as on rental rates.

It's Never Too Soon to Think about Next Year's Tax Bill

By mid-December, lawyers and accountants, as well as their clients, will be frantically trying to lower 2013 tax bills, by spending down profits, acquiring extra depreciation, or putting new equipment in place by year end.  We're all busy at this time of year, but it's worth starting a month ahead of then, to evaluate your space needs going forward.  If  you have an outstanding offer on space you don't use, have you factored in the benefits of taking an offer this calendar year, before dismissing it?  If you have expansion needs, can the costs of fitting up space be put partially or fully into this tax period?

It's hard to juggle long-term decisions with short-term crises and issues, but there could be a big payoff later, for thinking about April in the chill of November.  You'll thank me later, if this prompts you to act now and save next spring!

Slow and Steady Wins the Race?

We've now written quite a bit about the lagging state of Connecticut's economy, including its current status as dead last among the fifty states in economic growth in 2012.  However, it is important to point out that we're having a good year at Pearce Commercial, following a very good year last year.  By not being in a major metropolitan market, we may have escaped the worst of the price reductions; on the other hand, since we didn't fall as fast or as far, we are not experiencing the same rapid upturn. Those stories about the hot NYC market don't extend to greater New Haven and Hartford.  Office space is still moving slowly.  Could that be a good thing?

Everyone knows that real estate is cyclical.  Everyone knows that what goes up must come down.  By flattening that line, we may be protecting ourselves.  Meteoric rises are what produces bubbles.  That's what we don't want to see.  If our real estate market can grow slowly and steadily, so much the better.

It's not all rosy. Commercial real estate financing isn't easy.  Companies that downsized aren't rushing to lease more space; in fact, it's the reduction in overhead that is most likely producing a good deal of the increased profits in corporate America these days.  Perhaps most annoyingly, people still seem reluctant to pull the trigger.  They look and look, but stall for long periods of time, sometimes not ever making the offer.

  But there are investors out there, as well as some users, and most of them seem to realize that mortgage rates have nowhere to go but up, and that values are headed that way as well.  We don't have big backlogs of empty buildings and overbuilt space.  In short, we seem to have most of the attributes of a balanced market.  And that's a good thing.

Commercial Follows Residential

One of the truisms we know about real estate is that commercial usually lags residential by nine months to a year, whether it is going into a recession or coming out of one.  Well, here we are again.  The residential market in most parts of the country has already shifted from a buyer's market to a seller's market, largely due to lack of supply.  While Connecticut is lagging behind other places, it too is showing signs of marked improvement.  Prices here have not risen on the whole, but are certainly poised to do so at any time.  Multiple offers are commonplace lately, and inventory in certain submarkets is tight.

What does that augur for commercial sales and leases? We expect to see increasing demand and decreasing supply by the middle of the year, and much of that will be tied to consumer demand.  If you look around any restaurant, you can see that purse strings have loosened.  Retail is turning around, and, if we're lucky, office will follow.  Let's all hope so!