Lenders Increasingly Agree to Write Down Commercial Real Estate Loans


In a reversal from just two years ago, lenders are once again agreeing to write down outstanding bank loans extended to real estate investors as the economy continues to rebound, analysts said.

As fundamentals such as rental rates and vacancy rates continue to improve, lending institutions such as J.P. Morgan Chase are increasingly willing to green-light write-downs, what accountants describe as a reduction in the book value of the real estate asset in question. Read More


Moving Leases to Balance Sheets Has Landlords and Tenants Off Balance


Moving leases—real estate, equipment or otherwise—onto balance sheets has been kicked around for some time now, but an agreement recently reached by the International Accounting Standards Board and the Financial Accounting Standards Board could signal that change is actually coming.

Sources told The Commercial Observer that the initiative, which caught fire as “transparency” became a buzzword in the midst of the financial crisis, could have major implications for lessees of commercial real estate, particularly those that lease multiple or large blocks of space.

Stephanie Urbanski, a global real estate sector resident and assurance senior manager at Ernst & Young, pointed out several of these implications. They include changes in balance sheet metrics as leverage and capital ratios, decreased borrowing capacity and decisions by some lessees to buy rather than rent.

“Their current loan agreements may say that they must have a debt-to-asset value of some number,” Ms. Urbanski said. “If you’re increasing the debt balance, that gives them less borrowing capacity.” Read More


Rapidly Expanding Accounting Firms Hungry For New Office Space


In August, Deloitte’s global headquarters relocated to a new 430,000-square-foot office at 30 Rockefeller Plaza, for which the company had inked an 18-year lease in early 2011. Over the past year, Deloitte expanded to 193,000 professionals globally, with more than 51,400 new hires. In New York, its workforce shot up seven percent to nearly 5,400 professionals, according to officials at the global professional services firm.

“It was a real estate strategy in place to ensure our office space throughout the tristate [area] provides a work environment that enables productive collaboration of our professionals, maximizes space efficiencies and is economically beneficial,” said Henry Phillips, a vice chairman and northeast regional managing partner with Deloitte.

In 2012, Deloitte was one among many of New York’s top 25 accounting firms to embark on a hiring spree that would subsequently trigger a massive hunt for expansion space, analysts told The Commercial Observer. In the past few months, several accounting firms closed deals for new offices in Manhattan.

“We had outgrown the previous space,” said Barry Garfield, the managing partner of Holtz Rubenstein Reminick LLP, which by Nov. 1, is expected to have completed its move to a new 29,271-square-foot office at One Penn Plaza from the current 14,360 square-foot office at 1430 Broadway. “Now there is space for future growth,” Mr. Garfield said. Read More


Distressed Owners of Commercial Real Estate on the Hook for Hefty Tax Bill


When the economic downturn hit, it brought real estate values plummeting. Now that prices have returned to near pre-recession levels, however, some landlords hardest hit by the distress that cropped up during the tumult could be on the hook for a hefty tax bill.

The issue traces to a common scenario in the kind of workouts that were often done to bring a building back from the brink of financial trouble.

To get at distressed property, many prospective buyers bought the debt tied to a building—often at a discount—in order to seize the asset. Rather than go through costly and arduous foreclosure proceedings, however, these note holders often dangled small continued ownership stakes in a building in order to induce the existing landlord to voluntarily hand over the keys. Read More


Expiration of Controversial J-51 Program Could Prove Surprising


Tax season surprises are rarely welcome events and next year could hold several for owners of New York commercial real estate, thanks to legislative action in Albany last year.

Bill number S5763, which died in the Assembly, was primarily tied to the Roberts v. Tishman Speyer Properties rent deregulation case. It would have meant that landlords wouldn’t have to return retroactive monetary damages related to rent overages.

The bill also would have meant the continuation of the controversial J-51 tax abatement and exemption program—originally intended to encourage owners to renovate and upgrade their buildings. In recent years the abatement has become a bone of contention among tenants rights groups, who feel that it is often used to reward landlords for improvements to luxury buildings. Read More


Use of 1031 Exchanges to Increase When George Bush-Era Tax Cuts Expire


Accountants and financial analysts predict an increase in the use of 1031 Exchanges as tax cuts implemented more than a decade ago by then-President George W. Bush expire at the end of the year and other additional surtaxes threaten to add a 13.8 percent burden to real estate investors.

The tax strategy, so named for Section 1031 of the Internal Revenue Code, could draw renewed interest next year depending on how legislators vote on the tax cuts, which could increase from 15 percent to 23.8 percent if elected officials in Congress allow them to expire, said Kenneth Weissenberg of EisnerAmper. Read More


Uncertainties and Looming Tax Deadlines Fog Landscape


Of all the dates accountants and their clients face in the upcoming weeks and months, Oct. 15 may be the kindest. Not only is it the date when those who filed for an extension must submit proper tax forms, it’s also two months removed from three other looming deadlines that could prove to be fiscal headaches for real estate investors.

Indeed, by the close of 2012, the George W. Bush era tax cuts will expire, President Barack Obama’s healthcare initiative will begin and capital gains taxes will shoot to 39.6 percent.

Then there’s the presidential election itself, with each nominee providing a different tax scenario should he be elected into office. To be sure, the terrain for accountants is murky at best. Read More


Accountants Stars of Show During Blockbuster SavaSeniorCare Trial

accounting cover for web

Two top forensic accountants squared off in a Manhattan courtroom this summer, armed with scores of spreadsheets, loan documents and bank wire records, for a decisive battle in a legal war for control of about 170 nursing homes.

The trial in New York Supreme Court had its origins eight years ago, when real estate investor Ruby Schron teamed up with his lawyer, Leonard Grunstein, in a labyrinthine $1.3 billion leveraged buyout that created SavaSeniorCare. At issue for the two expert witnesses: the exact whereabouts of $100 million. Read More