What is a Reverse 1031 Exchange? by Kevin Sanz, CCIM, MSIRE

Posted on November 04, 2020

Commercial real estate investors have long relied on Section 1031 of the tax code to defer capital gains taxes on the sale of appreciated real property when they reinvest sales proceeds into the purchase of similar, like-kind property within a very specific timeframe. However, it is not uncommon for investors to identify and even acquire a new, replacement property before they sell an existing property. This is known as a reverse 1031 exchange. It is critical that investors work with experienced advisors and qualified intermediaries to ensure they meet all the criteria to qualify for tax deferral. For example, a taxpayer will need to identifying property to sell with 45 days of acquisition of the replacement property and closing on that sale within 180 days. During this period of time, the acquired property will need to be transferred to the QI to avoid tax exposure.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

Reducing Recessionary Risk in Commercial Real Estate Investments by Christopher Sanz, JD, LLM

Posted on October 28, 2020

Despite the economic volatility and uncertainty caused by the current health crisis, investor activity in commercial real estate remains strong, especially in the net lease space.

Most investors recognize that commercial property with strong fundamentals is generally a part of longer-term portfolio-diversification strategy that is not impacted by the short-term effects of changing economic conditions or wide swings of the public equity markets. By sitting tight and avoiding the urge to sell, patient commercial real estate investors will not record any losses during times of market uncertainty. This is not to say that property investors should sit on their hands and wait-out the pandemic. Rather, investors should use this time to assess their portfolios, shore up capital reserves to take advantage of discounted buying opportunities and build up their resiliency. One way to do this is to put forth efforts to strengthen tenant relationships, helping them adapt their businesses and the property to changing consumer behaviors. These efforts can give you leverage to renegotiate lease terms now, which can pay off in dividends when the economy recovers.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

How Can Investors Calculate NNN Lease Expenses? by Kevin Sanz, CCIM, MSIRE

Posted on October 22, 2020

Triple net leases (AAA) allow commercial real estate owners to pass to their tenants most of the responsibilities for managing a property and paying all the related expenses. However, it is critical that property owners carefully calculate and record all the expenses covered under a NNN from the onset.

Generally, tenant expenses can be calculated by adding together property taxes, insurance and estimates of utilities and common area maintenance (CAM) and dividing that amount by the total square footage of the building. The result is the additional NNN price per square foot above rent that tenants will pay to the property owner each month. At the end of the year, an audit of expenses should be conducted to ensure accuracy and allow owners and tenants to reconcile any overpayment or shortfalls for that year and into the future.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

What is Considered Like-Kind Property in a 1031 Exchange? by Christopher Sanz, JD, LLM

Posted on October 15, 2020

Section 1031 of the tax code provides commercial real estate investors with an opportunity to defer capital gains tax on the sale of appreciated real property when they reinvest sales proceeds into “like-kind” business or investment property. But what is considered like-kind property?

For tax years beginning in 2018, like-kind properties are limited to improved or unimproved U.S. real estate used in a trade or business or held for investment purposes, regardless of whether the properties differ in grade or quality. This means that taxpayers must first consider their purpose and intent for holding the property. Aside from that, the IRS takes a fairly liberal interpretation of like-kind property to include properties of the same nature. For example, investors may exchange an apartment building in one state for a shopping center in another state, or for a vacant lot, unimproved raw land or several industrial warehouses, provided the replacement property is of equal or greater value than the relinquished property. If replacement property is of less value than the property sold, the investor is responsible for paying tax on the difference.

Because the tax laws are complex and constantly evolving, it is important that commercial property investor work with professional advisors with experience in facilitating and closing 1031 exchanges within the time constraints allowable under the law.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

What Can Consumer Trends Tell Us about CRE Eight Months into the Pandemic? by Kevin Sanz, CCIM, MSIRE

Posted on October 07, 2020

As states across the country continue to lift coronavirus restrictions, many businesses are reopening their doors to both employees and consumers eager to get their lives back to normal. However, the harsh reality of the past eight months is that consumer behavior has changed. How this will impact commercial real estate and business operations over the long-term remains to be seen.

What we do know is that not all businesses will be turning their lights back on. In fact, industry insiders insist that the pandemic helped to accelerate the closings of a glut of underperforming retail stores and restaurants that were already struggling to adapt to consumers’ changing needs – both before and during the virus. Other businesses pivoted rather quickly, transitioning easily to work-from-home (WFH) policies that have change their use and need for physical office space in the future. Those policies combined with safer-at-home orders have forced consumers to transform their homes into self-contained work/school/play hubs for their entire families. Consequently, a significant number of U.S. families are leaving dense urban areas in favor or more spacious single-family homes in the suburbs. While it is still too early to tell if this will lead to a more long-term suburban revival, investors with commercial property in secondary and tertiary markets appear well-poised to reap the rewards of a suburban shift.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

What Expenses Do Triple Net Lease Property Tenants Pay?

Posted on October 06, 2020

One reason investors tend to favor triple-net-lease (NNN) property is that they can sit back and collect a steady stream of passive income from rental payments without incurring any of the costs to manage and operate that property. Instead, an NNN lease typically transfers those operating expenses to the tenant who must their pro rate share of those costs over the life of the lease term. While the devil of these financial obligations must be detailed in the terms of the lease agreement, NNN tenants will typically be responsible for paying rent, utilities and repairs on the leased space as well as their share of the structure’s property insurance, real estate taxes and common area maintenance (CAM) costs, which can include the following:

  • Signage;
  • Parking lot maintenance, repairs and lighting;
  • Landscaping and lawn care;
  • Security staff and systems;
  • Cleaning, janitorial services and trash removal;
  • Common area utilities;
  • Sewage, plumbing, electrical and HVAC repairs and maintenance;
  • Landlord’s property management expenses; and
  • Capital expenditures for new windows, doors, roof or HVAC

Investors should work with experienced real estate advisors to assess triple-net-lease opportunities to identify and understand their specific responsibilities for managing the property and covering all its operating expenses.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.

Limestone Asset Management Purchases Marquee Sarasota Retail Properties for $15.5 Million: 362 St. Armands Circle and 371 St. Armands Circle

Posted on September 29, 2020

Brothers Ibrahim Al-Rashid, Salman Al-Rashid and Mohammad Al-Rashid of Limestone Asset Management Purchase the Properties Through a Joint Venture Between Limestone Asset Management and Orion Real Estate Group

SARASOTA, FL (Sept. 28, 2020) — Miami-based Limestone Asset Management, via a joint venture with Orion Real Estate Group, closed on two high-end retail properties for $15.5 million at St. Armands Circle, one of Florida’s most iconic shopping and dining destinations, and Sarasota’s No. 1 tourist destination: 362 St. Armands Circle and 371 St. Armands Circle. Limestone Asset Management invests in and acquires real estate properties over all asset classes throughout North America.

Ocean Bank, the largest independent state chartered commercial bank headquartered in Florida, is providing financing.

Limestone Asset Management is an affiliate of Orion Real Estate Group, their joint venture partner in the deal. Limestone Asset Management uses Orion Real Estate Group’s expertise to complete all of its North America-based transactions. Orion Real Estate Group is led by President Kevin J. Sanz. The seller was represented by Mark Drazek and Ray Romano of CBRE’s Net Lease Property Group.

The property at 362 St. Armands Circle now encompasses three long-term tenants: Le Macaron, an authentic French pastry shop and sidewalk café at 362A; Breezin’ Up, offering embroidered and silkscreened clothing for the entire family at 362B; and Sahara, featuring women’s clothing, jewelry and accessories, at 362C. Tommy Bahama ― offering apparel for men and women, footwear, accessories and home décor ― is currently located 371 St. Armands Circle.

“Both 362 and 371 St. Armands Circle are trophy properties in booming Southwest Florida, and both of my brothers and I are very pleased to add this to our growing asset base of commercial properties within Florida,” said Ibrahim Al-Rashid, chairman of Limestone Asset Management. “This modern, premier shopping and dining district, originally conceived by circus magnate John Ringling in 1925, is an upscale destination that vacationers from all over the world enjoy.”

Sarasota is experiencing what City Manager Tom Barwin calls “probably the biggest growth spurt in the city’s history.” The influx of new residents is dominated by wealthy baby boomer retirees, young families, and entrepreneurial millennials. Overall, the county’s population has grown by 16% since 2010.

Limestone Asset Management’s most recent purchase prior to the St. Armands Circle properties was seven outparcels of The Mall at Millenia in Orlando, Florida for $22.7 million. The acquisition included more than 100,000 square feet of commercial and office space. Limestone currently holds $200 million in commercial and mixed-use real estate located across the U.S.

About Limestone Asset Management: Miami-based Limestone Asset Management was founded in 2010 and invests in and acquires real estate properties over all asset classes throughout North America.  Its holdings exceed $200 million. For more information, visit https://orionmiami.com/our-affiliates/.

About Orion Real Estate Group: Orion Real Estate Group provides commercial real estate services to investment clients around the world. Since its founding in 1978, the firm has been involved in more than $4 billion in transactions and holds a portfolio exceeding $800 million. Its headquarters are located at 200 S. Biscayne Blvd, 7th floor, Miami, FL 33131. For more information, visit https://orionmiami.com/ or call (305) 278-8400 or 1-888-255-4502.

Property Owners’ Rights When Tenants File for Bankruptcy

Posted on September 22, 2020

In the current economic climate, property owners hoping to receive monthly rental payments should not be surprised if they instead receive legal notice of a commercial tenant’s filing for bankruptcy. When this happens, landlords can take proactive measures to protect their interests and minimize their exposure to risks.

A bankruptcy filing generally does not constitute a tenant’s default or grounds for eviction, nor does it terminate the landlord-tenant relationship or the landlord’s ability to receive rental income. Rather, bankruptcies typically impose an “automatic stay” that prohibits landlords from pursuing collections or eviction action against the filing tenants. However, depending on the timing of the filing, the tenant’s payment history, and its intent to reorganize and/or continue occupying the rental space, landlords may have an opportunity for to receive relief.

For example, if a lease is in default prior a tenant’s bankruptcy filing, the landlord may file a motion to receive relief from the automatic stay and evict the tenant or enter into a new lease with new terms that are beneficial to the landlord over the life of the rental agreement. After the tenant files for bankruptcy, it must continue to carry out its lease obligations, including the payment of rent, and either assume or reject the lease. Assuming a lease requires tenants to remedy any pre- or post-filing defaults and provide financial assurances it will perform under the lease going forward. If a tenant rejects a lease, the landlord may have a claim for damages flowing from that rejection, subject to statutory caps.

Navigating successfully through these unique challenges related to owning and investing in commercial property requires the guidance of experienced real estate professionals with a broad range of legal and tax resources.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.