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Owners Who Negotiate Debt Reductions Could Face Tax Hits - CRE News

With property values well below where they were three years ago, borrowers are increasingly trying to

negotiate reductions in their loan balances. But doing so could trigger a substantial tax hit on any forgiveness

of debt. The tax-liability issue became fodder for headlines in recent weeks when the owner of Manhattan's

Stuyvesant Town/Peter Cooper Village offered to turn the property over in a deed-in-lieu of foreclosure. Its

lenders subsequently filed to foreclose.

The property's owner, a group led by Tishman Speyer Properties, won't face a tax liability on any forgiveness

of debt because its cost basis in the property of roughly $5.4 billion, less any possible depreciation and capital

improvements, is far greater than the $3 billion of senior debt owed. Another $1.4 billion of mezzanine debt is

secured by ownership interests in the entity that owns the property. But the transfer of ownership, either

through a deed-in-lieu or an actual foreclosure would trigger New York's onerous transfer tax. That tax is

assessed at the rate of 3.025% of the mortgage's face value.

The transfer tax liability - it would likely be borne by the property's lenders in the event of a deed-in-lieu or a

foreclosure, both of which assume the property lacks the resources to pay the tax - would total $90.75 million.

But it could be reduced if the entity that owns the property, as opposed to the property itself, is transferred,

according to Harvey Berenson, managing director and member of the general tax group of FTI Schonbraun

McCann Group, a New York advisory firm. In that case, the value of the underlying property determines the

amount of the transfer tax. Given that StuyTown's value is said to be roughly $2 billion, the transfer tax would

be about $60.5 million. Meanwhile, given the decline in property values and the volume of debt that was

written at or near the market's peak, the number of loan workouts and debt restructurings is expected to

explode. "This is happening all over the country," said Maury Golbert, tax partner at Berdon LLP, a New York

tax adviser.

Most properties purchased at or near the market's peak with high-leverage financing "that's coming due now

are underwater," he explained. If the amount of debt is greater than the property's basis, or cost, the borrower

would face a tax hit if any of the debt is forgiven or cancelled. And that tax would be assessed at the ordinary

income level of 35%, as opposed to the 15% rate on capital gains. So say an investor bought a property in 2003

for $50 million and because of the run-up in values was able to borrow $70 million at the market's peak in

2007. If the property is now underwater, meaning it's unable to stay current, the owner could try to negotiate a

reduction in the property's debt. If successful, the property would face a tax on the amount of debt forgiven. "If

you bought in 2007 and the cost basis is big, that won't be a terrible tax result,"

Golbert said. But a number of long-time property investors had taken advantage of the flood of capital during

the market's peak to take cash out of their properties with hefty mortgages. If those get written down, "you're

looking at a more difficult tax situation," he said. Meanwhile, owners who live in New York City would face

an additional 9% hit. After federal income tax offsets are taken into account, the total tax hit could be roughly

42% on the amount of debt forgiven. "The basic rule is if debt is forgiven, the reduction is treated as taxable

income in the year it happens," Berenson explained. But property owners facing large tax hits can defer their

payments. They can, for instance, reduce the tax basis instead of recognizing income from the property whose

debt has been in part forgiven. Taxing authorities are also allowing liabilities to be deferred for five years.

After that, 20% of the total tax liability is due annually until it's repaid, Berenson explained. "Lenders can

foreclose, or work something out,"

Golbert added. In either case, depending on where the property is located, potential tax issues arise. "If you

work it out, and some debt goes away," you could see a tax hit if the property's cost basis is low enough, he

said. Golbert noted that property owners facing such tax liabilities could, at least in theory, defer them by

structuring tax-deferred exchanges. The problem, he said, is that such deals are difficult to structure today.

They require equity and debt. If a property owner was hit by a foreclosure, chances are slim that he has

sufficient equity to structure such a transaction, and "it's tough to borrow" for such exchange transactions.

Built-out for immediate occupancy

The DK Post

This Issue: Featured Properties pg 1

Upcoming Events pg 2

News pg 3

Jeffrey Hall Commercial Real Estate Broker 1880 S. Cobalt Point Way Ste. 200 Meridian, ID 83642 O 208-955-1026 C 208-794-8020 F 208-955-1020 Jeffrey@dkcommercial.com www.dkcommercial.com

“All the real estate that is fit to print”

Weiser Chevron & C-store

for Sale

622 E. Commercial, Weiser ,ID

$595,000

3,048 SF store

23,568 SF Lot

Motivated Seller, Bring all Offers

Amenities:

Newer Chevron Store with 4-

pumps, QSR Mexican Restaurant

All equipment included!

Located directly on a high traffic

corner Hwy 95 & Commercial.

Office Building for Lease

6206 N. Discovery Way Boise, ID

$7.00 / sf NNN

5,070 / sf

Amenities:

Close to the HP Campus, the West

YMCA, Restaurants

and the Bus Route

Tenant signage available on the

building as well as

monument signage

Ample Parking

Wired with a T-1 line

Office Space for Lease

3451 Copperpoint Dr. Meridian, ID

$14.50 / psf FLSV

Three Suites available

#104 = 1611 / sf

#105 = 2744 / sf

#107 = 1649 / sf

AMENITIES:

Amazing deal in Silverstone.

Class “A” Building in the desirable

Silverstone Business Park

Spacious Office Suites

Built-out and

ready for Occupancy

Ample parking

Easy access to I-84 and all

Valley Locations

Office Space for Sale or Lease

1665 Hill Rd. Boise, ID

$349,000

3,000 /sf

Amenities:

Newly remodeled brick building

with new roof, carpet, windows &

landscaping. Great visibility with

high traffic counts. Walking

distance to Downtown & Historic

Hyde Park

MAY 2010

LOCAL UPCOMING EVENTS: Starting a Business

Date and Time:

5/6/2010 - 4:00 p.m.

Event Location:

Ventura Building / J. Jared Gray CPA’s

3006 E. Goldstone Dr.

Meridian, ID 83642

Phone:

(208) 350-7304

Event Description:

There's a lot to consider in starting your own

business: developing a business plan, obtaining

sufficient funding, marketing and a host of

other concerns. Also critical is determining the

organizational structure that best suits the

business, because it will impact operating

efficiency, the way you report income, the

taxes you pay and your personal liability.

NEWS From HERE & THERE

“A set back, is a set up for a come back”

Boise, Idaho and the Surrounding Area

Business Builder Day

Date and Time:

5/19/2010

7:30 a.m. to 6:00 p.m.

Event Location:

Owyhee Plaza on the Mezzanine

Boise, ID 83702

Phone:

(208) 323-4464

Event Description:

Business Builder Day is back! Past attendees know BBD means hours of B2B networking,

info-packed seminars, blue ribbon speakers and more business. The local business community

needs this event and it’s promising to be the best BBD yet!

Exciting business essentials seminars, highlighted with featured guest speakers, accentuate the

historic atmosphere of the Owyhee Plaza.

Business Builder Day welcomes each year the following guests:

Start-up entrepreneurs, Newly established businesses

Mature business owners ready to jump to the next level of commitment

Veteran business persons looking to fine tune their operation

Land for Sale

1601 W. Overland Rd.

Meridian, ID

$4.00 / sf

AMENITIES:

Newly developed infrastructure,

Commercial or Retail use; zoned

TNC-Commercial SW Corner of

Overland & Linder Roads. Close

proximity to newly developed Ten

Mile interchange.

DK COMMERCIAL BROKERAGE SERVICES

Sales, Purchase or Leasing of: Retail ~ Office ~ Industrial ~ Investment ~ Land

Buyer/Tenant and

Seller/Landlord

Representation

Distressed Property Assistance

Business Brokerage Services

Other Services: Corporation Service . Property Dispositions . Investment Analysis Portfolio Valuations . Corporate Relocations . Lease Administration

Insights for Landlord’s on Tenant Lease Agreements: By Jeffrey Hall

What is concerning to me in today’s market is some landlord’s not being educated enough about

the current market conditions, which has resulted in tenants vacating space just to move across

the street for half the rent. Landlords need to take a pro-active approach in order to retain their

current tenants. To start, I would suggest a landlord meet personally with each of their valued

tenants (property managers are excluded from these meetings). Find out how the business is

doing this year and if they are seeing an increase in business over 2009. If the tenant is struggling

to make rent every month, offer any assistance possible in the way of marketing the property or

making some rent concessions. If a landlord takes this approach prior to the tenant getting behind

on rent or looking for a new space, I assure you that some landlord will have one less vacancy on

their hands. The landlord who feels that their space is too valuable and can be leased out at 2007

rents, is the landlord who will lose in the long run because finding an uneducated tenant who is

shopping for space and willing to pay those rates will be few are far between.

by John Assaraf

With so many different beliefs about the definitions of success, it seems the word is overused. Certainly, success too often refers to how

much money someone earns in a year or to net worth. Of course, earning a lot of money can be wonderful. Yet there are plenty of people

who have acquired great wealth only to find themselves emotionally or physically broke. Relationships with a spouse or kids have been

the sacrificial lambs for money. Many have even forfeited their own health for the mighty dollar. I don't know one person who has lost

good health and wouldn't give every nickel to regain it. The same is true for those who have lost a child's or spouse's love in the pursuit

of financial gain and material riches. Many people achieve financial success at the expense of the rest of their lives. They keep thinking

that once they make a certain amount of money, they'll slow down and have time for other important things like family, God, and health.

But most people never get there; there's always more money to be made, one more thing to do. It's usually too late before they realize

that every day is the journey, and it's not just about the money. It's important to create a successful and fulfilling balance in each area of

life.

One of my friends, Michael J. Stefonik, spent more than twenty years building a multimillion-dollar business while his marriage and

relationship with his two children suffered. Shortly after his annual physical, his doctors disclosed the results of an MRI scan of his

brain. They found a large tumor that would soon cause him to go blind or kill him. When he asked for a solution to the problem, he was

told surgery was the only answer; however, there was only a fifty percent chance he would make it through the operation. Within

seventy-two hours, Michael arranged to sell his company and made all the other necessary preparations in anticipation of his possible

death.

After ten hours of surgery, a large and benign tumor was removed. Michael spent three weeks in the hospital, then went home for

recovery, where he was nursed for several months by the very people he had neglected---his family. Today, he's doing great and working

to build a successful consulting business in the same industry in which he made his first fortune. More important, he's also making sure

he gives plenty of attention to his health, his kids, his ex-wife, and his true friends. Somehow, what's important becomes obvious when

life is on the line.

Guess what? Life is on the line every day, and you are trading what you do for it. In other words, life is a series of trade-offs, and every

moment is literally spent: Time and, therefore, our lives are traded for the things we choose to do. Imagine for a moment if my friend

had been you. How would you have felt and reacted? Would you have wished you could go back in time and make different decisions?

Success can be incredibly elusive or it can come in abundance with the right mind-set and know-how. Few people really understand how

to create abundance, particularly abundance in every facet of their lives. Fewer still have studied the cause of results. As a consequence,

most people have no clue as the awesome power that resides within them or how to tap into nature's intelligence. Even successful people

don't really understand the true cause of their success. They can tell you what they do, but rarely can they explain why or how they do it.

Yet, you can have it all, including but not limited to lots of money. Instead of realizing this, most people accept the way things are in

their lives as some kind of foregone conclusion. They blame the circumstances or conditions into which they were born for the way they

live today. But the truth is, you create your circumstances and reality. How many people have overcome trying circumstances to create

the life of their dreams? You can become one of those people and have it all!

From the book "Having it All" by John Assaraf

Flex Space for Sale

Quarry Business Complex

6401 Eisenman Rd. Boise, ID

$50.00 / sf

12,600 total square feet

divisible 2100 / sf

Motivated Seller, Bring all Offers

Amenities:

Suites can be customized based

upon your commercial needs

Buy one Suite or

multiple suites

Beautiful and secure

all block buildings

Top grade entry doors and

awnings, loading dock, 22’ high

ceilings, grade level doors.

Close Freeway access with

great visibility.

1711 W. Franklin Rd.

Meridian, ID

Harks Corner Carwash for Sale

$795,000

3,254 / sf on .72 acres

Amenities:

One - Belanger Auto Bay

Four - Self Serve Bays

Four - Detail Express Vacuums

Airlift doors &

18-item Vendmaster

Credit Cards accepted in all bays

Excellent Location in the new

Ten Mile Interchange Area. This

area continues to expand

bringing more volume to the

business in this location. This is a

Great Opportunity for someone

looking for a low maintenance

income business.

Marketing Your Business...What's New?...What's Best For You?

Date and Time:

5/26/2010

9:00 a.m. to 12:00 p.m.

Event Location:

Boise Metro Chamber of Commerce

250 S. 5th St.

Boise, ID 83702

Phone:

(208) 472-5259

Event Description:

When it comes to marketing your business, there are a lot of options: print, direct mail,

television or radio, billboards, etc. How do you know which is best for you? What about

online options and virtual marketing? Join us for a look at different types of marketing and

the strengths and weaknesses of each. Hear from media buyers, industry professionals and

companies that will share their success stories. Includes breakout time for meeting

with presenters on specific strategies and tools for you!

Commercial Forum

Date and Time:

5/19/2010

8:30 a.m.

Event Location:

Title One

1940 S Bonito Way Ste 190

Meridian, ID 83642

Social Media Summit

Date and Time:

5/6/2010

9:00 a.m. to 11:30 a.m.

Event Location:

Touchmark at Meadow Lake Village

4037 E. Clocktower Lane

Meridian, ID 83642