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2018 Tax Reform

There is a lot of smoke and mirrors being employed by both sides of the aisle when it comes to the recently passed tax plan. Some would have you believe it is the end of the middle class, while others all but guarantee a golden age for those who would climb higher. But how will it affect the commercial real estate market? Ultimately we will have to wait and see, but the plan as it is designed to work looks good for investors and appears to avoid a cataclysmic event that some have predicted.

While there are still a lot of questions about the overall benefits, the investment and commercial property sectors have reason to rejoice, to the point that they are consistently being called the “big winners” in this tax reform.

First of all, of course, is the corporate tax rate cut from 35% to 21%. This is an instant savings for all incorporated investment property owners and retailers alike, allowing them to further invest or provide larger bonuses. The examples to date include; Apple, Home Depot, Starbucks, and Walmart to name a few.

The new law limits interest expense deductions to 30% of adjusted taxable income, but most operations that would incur interest for investment property owners are exempt from this rule.

While home equity debt is no longer deductible for most people, there is a clause that allows the proceeds of such a deduction to be used for the acquisition of new properties or improvement of an existing rental property. Excess capital gains can be deferred by similar means.

Investment property owners can also fully expense some investments, rather than having them spread out over years – a process that will allow investors to consider further expansion.

There is also a “freebie” deduction of 20% of qualified business income for pass-through entities, and those making an income of less than $157,000 if filing single or $315,000 if filing jointly will be automatically qualified for this deduction without the requirement of a wage and basis calculation.

There is one missed opportunity that would have been an additional benefit for investment property owners. At one point, there had been a proposal to change the “useful life” of commercial property to 25 years from the current 39 years. This would have increased the annual amount for this deduction. Unfortunately, we will not be seeing this, as it did not make the final bill.

One thing that is not changing, that will be of benefit to investors, is the IRS Section 1031 exchanges. Investors can still immediately reinvest gains in property sales to similar properties in order to defer that gain. Many had feared that 1031’s may have been greatly impacted or revised but fortunately that was not the case.

Finally, because this is a huge tax bill and it was pushed through relatively quickly, it is almost certain that there will be loopholes to be taken advantage of. Hopefully, we can all find them soon!

2018 Perspective

While I can spend time predicting market trends and changes for 2018 in what is The Bennett Blog’s 1st Edition of a New Year, I think it’s worthwhile to put things in Perspective….one of my favorite words and a practice I live by. If you read our Bennett Blog you know these blogs have lacked some personal content from who is actually writing them, me. And there has been a void in the “Story.” Well here is my massively condensed story…

Entrepreneurship has been engrained in my DNA from the start. My mother was, and still is, a residential realtor and my father the owner of a nursery and landscaping company. Both were self-made. There was never any doubt, if you wanted something growing up in our house, you worked for it, PERIOD. Especially when you have two older brothers like I did! You didn’t complain or look for blame, you worked harder. The point is, you control your own destiny. When my brothers and I turned 14 we were given a shovel and sent to work digging ditches with our Father so that we could save up enough money over the summers to buy each of our first cars…that was the rule in our house, you buy your first car, period. I remember playing in my high school basketball summer league and showing up to the games with dirt under my fingernails from working for my father all day.

Having played sports my whole life and excelled in basketball, I played at Albright College in Reading, PA. This was my first experience to realizing there was way more to life than sports. After my freshman year, I transferred to Montclair State University and had to redshirt my Sophomore year. To fill the void from not playing basketball, I started a mobile detailing business and that was the end of my NBA aspirations. We detailed high end cars and boats in the summers, but it ultimately turned in to a full-time business and my first serious endeavor working for myself. I had my appointment calendar, would display my business cards all over my town, created pricing brochures, and hustled non-stop. By my senior year I was packing a full semester in to 2 days a week of classes so that I could run my business the other 5 days and commute from home to be closer to my customer base. For a 20-year-old, I was making money. Then I graduated, and reality hit me. After stumbling to find my way and working full time for a international metal company, I took the leap and went into real estate full time. Starting at a local commercial real estate company, taking every meeting, listing, or opportunity that I could to get my name out there. I remember saying to my broker, the harder it gets, the more I want to succeed. I made $30,000 in the first 2 years and even living with your parents that is NOT a lot of money.

I started Bennett Realty with one main purpose in mind; no more partners, no more distractions, and no more unnecessary BS. I want to go full tilt! Having a fully integrated brokerage and development platform, an approach that is not commonly seen, has left no dull moment and has been the most exciting time of my career.

After less than 2 years, we have continued our successful record of accomplishment of growth for our existing clients, secured new ones, and signed multiple development deals that are expected to start construction in 2018. During that growth, we launched a major social media campaign and plan to raise that effort to new heights in 2018. We won’t stop being uncomfortable…. part of the reason I wrote this!

Not an ‘End’, Just a Reflection….2017 Wrap Up

The past 12 months will surely go down as a memorable year in the real estate business and perhaps be viewed as the year of the “pivot”, or the first significant change in the market in a generation. The creation of the social media explosion and ecommerce have forever changed the game. Many people and retailers continued to play catch-up and reacted on a situational basis instead of adopting long term plans to coexist and thrive in this new world. Others greatly benefited from this and we saw, and will continue to see, online “e-tailers” open brick-and-mortar locations. Inevitably during this change, the market had its casualties. In 2017 there were more bankruptcies in a 12-month period in the retail sector than almost any other time. Acquisitions by both online and brick-and-mortar retailers was a HUGE part of industry change, from Amazon buying Whole Foods to Walmart buying jet.com. A big part of this is driven by millennials who also greatly impacted the multi-family and residential market, and created a boom in the mixed-use transit projects from the suburbs to the urban areas.

We close out 2017 with the first tax reform bill in the U.S. in 35 years and while pundits and experts are debating the potential impact, many retailers are already predicting a near 15% reduction in their Corporate Tax Rate adding to their bottom lines, which means more growth, and ultimately more jobs and commerce. I have spent a lot of time discussing and writing about what has been coined as this “Retail Armageddon” and its hyper-reaction to admittingly big changes that have occurred and mostly from the position of disagreement. Its not that people don’t have money to spend on retail, like they did in the Great Depression, they HAVE the money, the consumer is there, they are just getting things and their information in a different and diverse way today.

I’m excited about next year and some of the very BIG things we have in the pipeline. We will likely be under construction on a new development project, continue to push and succeed for our existing clients in an unrivaled way, and continue to grow and perfect our infrastructure in all aspects. Thoughts become things and that will never change….wishing everyone a Happy Holiday and Prosperous New Year.

New York 2017 ICSC Download

After spending 3 days at the International Council of Shopping Centers (ICSC)’s 2nd largest show in the world in New York City last week and having a week to dig out from the hundreds of emails, process the potential for new business, and follow up on last week’s meetings, I thought I would share some insight from the show and overall where the industry seems to be today.

There were many bright spots curating throughout the show, at a formal dinner I hosted, and all around the cocktail parties. These include the seemingly inevitable passage of some portion of the first tax reform in 30 years in the US, the early results of Black Friday and the overall optimism in the market. As I write this blog, I’m reading an article about retail sales jumping in the month of November…this is good news. I think something near a “settling in” is occurring in the industry, an understanding that the way people shop and how people live has changed, not ‘is changing’. No longer is news of a regional mall anchor’s closure triggering unnecessary panic or downward speculation, nor is the news about a 10-year-old lifestyle center going through a redevelopment and repurposing surprising…To me it’s more exciting and here is why; in a free market industry such as real estate no developer, broker, or tenant dictates how the market trades…only the market can. And the “market” is the consumer. The ‘changes” that are occurring are being responded to by the market with intuitive thinking and outside-the-box ideas. For the first time in the internet era, we are starting to ‘catch up’ on technology and instead of chasing the change are now building on this expectation in all aspects of our industry.

I hosted a dinner, had dozens of meetings, hopped around cocktail parties, shook a lot of hands, reconnected with old friends, and spent time with current ones….This show has always been a tremendous opportunity to reach the masses in a few short days, as long as you can handle the 18 hour days!

The “Consolidation Affect”

Perhaps consolidation is something not discussed as much as it should be, or it is just something that we’ve softened to, like the continuance of bankruptcy filings. However, I find that this ongoing trend of the real estate industry has long lasting affects for both the overall market, and for the general consumer.

One theme is consistent; the larger companies continue to grasp at a growth mechanism that is centered around acquiring its rivals or competitors as opposed to ongoing growth of its own brand.

Think about this, in the first 8 months of 2017 Amazon bought Whole Foods, Walmart bought Bonobos and jet.com, Coach bought Kate Spade, Michael Kors bought Jimmy Choo, Camping World bought Gander Mountain, and, a few weeks ago, Walgreens Boots Alliance obtained federal approval to purchase over 1,900 Rite Aid Pharmacy stores, a deal that has been in the works for several years. Inevitably, some of these consolidations will create markets that will be over-stored and force some retailers to consider consolidating even further to just 1 brick and mortar presence in each market. I’m not predicting this will create a massive wave of vacancies, but it will certainly be a large part of deal flow in all sectors of commercial real estate in the future.

While consolidation is not something new, the uniqueness of today’s narrative is that it now includes brick and mortar companies acquiring online only retailers. If you would have said just 5 years ago that Walmart, the world’s largest retailer, would purchase an independent online retailer such as jet.com, no one would have believed it.

Consolidation has never been viewed as an industry disruptor, and in many cases in the past the industry has praised these events. It was assumed that it gave retail different channels that they did not previously have, but how will this affect the industry overall? Over the next decade, consolidation will certainly be large part of the evolution of retail.

SEARS IS A “GOOD” THING!

How many times have we heard of a Kmart or Sears store closing, potentially closing, or looking like a rag? It may be the most obvious topic in retail; Sears is in midst of a constant “store closing list”, the likes of which we have never seen before in retail. Perhaps Blockbuster Video was most like the slow demise we’re witnessing. However, Sears continues to have a heartbeat, mainly due to their REIT spinoff, Seritage, as well as their CEO’s continued equity injections to keep the retailer from being in default from its obligations. While no one quite knows the future of Sears, I don’t think anyone believes a turn-around is possible. The brand is just too beat down and there are too many other places to get what Sears sells.

Now that we have established the most obvious conclusion in retail, how does this slow demise affect the market? One word, “GOOD”! Of the 40-plus Sears I have been in or driven past not one of them proved to be the highest and best use of the Property, thus affecting the surrounding retail in many cases. The continued velocity of redevelopment, repurposing, and redevising of the Sears/Kmart buildings is fueling many of these markets and centers resurgence. Look at Kings Plaza in Brooklyn; a massive block box that was once Sears will be repurposed as a multi-tenant shopping and dining experience.

The real question is what will we do when Sears is gone??? Most would agree that if they can maintain a viable business, this “tap in to our real estate” game plan could go on for 20 years. It took Sears nearly 50 years to get to the portfolio they have today. Not ever has there been a tenant with so many stores in so many strong markets, with so much potential being so underutilized. Perhaps you could look back at the old school regional brands such as Bradlees, but most would agree this has not been seen before in retail. It would be interesting to know of all U.S. retail absorption last year, what percentage involved a former Sears or Kmart. In my world, it has contributed to A LOT of deals and will continue to do so for many, many years to come.

The Bennett Blog Begins…

Welcome to the Bennett Blog…

This is why you should listen….

I formed Bennett Realty just over a year ago after spending the past 12+ years slugging through the commercial real estate industry, including working at small and big companies as a broker, starting a brokerage company with partners most recently, and developing properties during this time. While I achieved much success, I wasn’t happy. Not only did I no longer want to be in an operating partnership, I wanted a platform where I can do both brokerage and development in a boutique setting with a hands-on-approach, a model not commonly seen and perhaps doing the complete opposite of what is perceived as the “norm”….for these same reasons, we are launching the Bennett Blog.

I am not a big “poster” on social media and I don’t provide minute by minute updates of what I am doing throughout the day on Facebook or LinkedIn like the rest of the world but I have accepted that it is a big part of how people communicate and ultimately arrive at decisions about many things. The scary thing is that most of the things that are posted are not only baseless with bottomless thoughts, they are irrelevant to what I want to read so I’m here to express some thoughts about the real estate industry from a brokerage and development perspective with the main purpose to challenge the norm and candidly expose many of these inaccurate posting or news stories. If you would have asked me just a couple months ago if I would ever write a blog I would have laughed and said “who has time for that?”….but, I’m tired of reading about topics by “experts” who have not spent a day in the trenches of this business like I have. They haven’t seen the bottom and clawed their way up or become self-made in an industry that is perhaps the last frontier in the white-collar side of business. My intention for this blog to challenge much of what people say about the commercial real estate industry, get some things off my chest, and, as my SEO guy tells me, perhaps get my company greater exposure on the web…Being Normal Sucks!

Hope you enjoy this

Tyler Bennett
President/Founder
Bennett Realty Group, LLC

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