President Trump signed an executive order yesterday that reprioritizes where federal government offices need to be located. Like so much of the American government these days, this order goes back to when Jimmy Carter was U.S. President. He wanted to revitalize the central business districts and support the central cities. Now given so many central business districts are suffering as a result of local, state and federal Covid policies, central districts once the source for fun, entertainment, restaurants and office workers appears to be hurting in many areas. Trump’s order guarantees that more suffering is to come with the feds potentially moving out.
The government has a lot of extra space. Lease rates are very costly in CBDs and given the actions to trim the size of the overall goverment, Trump has decided we don’t need the space and we don’t need it downtown. Also, who wants to work downtown these days? Sure there are some cities that are still doing well. But if you are in a blue state, how are your central cities doing? How’s crime? Do people feel safe? How are the restaurants and shops doing in the central business district.
This seems like a smart move by President Trump. It’s a good move for the tax payers and federal workers I suspect. It will cause more pain though for central business districts and the owners of commercial real estate.
Global Commercial Real Estate giant, JLL, sees improvements in the market. Here’s the CNBC interview with JLL CEO Christian Ulbrich: We’re at the beginning of recovery cycle for commercial real estate. He discusses Jones, Lange LaSalle Inc. 2024 fourth quarter financial results.
The stock is up nearly 50% in the past year so clearly there is anticipation that commercial real estate and development is coming back.
Cost cutting continues to hit Washington, DC with President Trump’s Department of Government Efficiency (D.O.G.E.) works its way through the vast bureacracy that is the Federal goverment. It’s been reported for a number of weeks that many of the building that the goverment owns have been used very little over the past several years. Trump is looking to sell as many as 443 buildings. 80 million square feet might be coming up for sale.
These buildings are considered “non-core buildings” and they are across 47 states. The General Services Administration (GSA) is responsible for unloading the space. Apparently it will be posted on the GSA’s website.
This comes as reports of a rapid rise in homes for sale in the DC area as a response to the slash and burn attitude that the new adminstration is taking to cost cuts.
The office market has been brutalized in most cities and this is not going to help. At least this is spread out across 47 states but I suspect the bulk of this inventory will hit around the Washington DC metro area.
Sale-leasebacks have surged in popularity over the past few years, offering building owners a way to maximize their sale price while securing a long-term lease that enhances the property’s value. A well-structured sale-leaseback often results in a desirable cap rate, making the transaction attractive to investors.
But there’s another major financial advantage many overlook—cost segregation.
For buildings involved in a sale-leaseback, a cost segregation study is a must. These are often income-producing properties with long-term owners (typically 3+ years), making them ideal candidates for accelerated depreciation. Instead of keeping the entire asset on a 39-year depreciation schedule, 20-30% (or more) of the building can often be reclassified into shorter depreciation lives, leading to:
✅ Increased cash flow ✅ Higher investment returns ✅ Lower tax liability (even if it’s just a deferral, the time value of money matters!)
In short, cost segregation is a no-brainer for sale-leaseback transactions. Running the numbers costs nothing—and it gives property owners and investors a valuable opportunity to discuss tax-saving strategies with their CPA.
CRE brokers, take note: Getting cost segregation estimates for your clients not only adds tremendous value but also positions you as a well-prepared, knowledgeable advisor. In a competitive market, small insights like these can set you apart.
Want to see what cost segregation can do for your next sale-leaseback deal? Let’s run the numbers—at no cost to you.
Owners of bank buildings and branches are prime candidates for cost segregation studies because of the significant tax savings and financial advantages it can provide. It’s important to get a cost segregation study done so you have all the building components and systems identified. This is the case whether you continue to operate it as a bank or if you are repurposing the building. I have come across a lot of older bank buildings that are often being used as office space for a new tenant or owner.
Bank buildings are particularly well-suited for cost segregation studies. Their specialized design and features often qualify for accelerated depreciation, especially within the 5-year property class life. There are numerous specialty components that are unique to banking that offer valuable depreciation benefits.
Here are some key components and systems to identify for shorter class lives:
Specialty electrical and plumbing systems
Drive-up windows
Interior glass windows
Pneumatic tube systems
Night depositories
Safes and safe deposit boxes
Vault doors
Even if you’ve converted a bank building into more traditional office space, many of these specialty items often remain. Reclassifying these assets to their proper 5-year lives, rather than leaving them as 39-year assets, can yield substantial tax savings. Additionally, if you end up removing some of these systems, if you have identified them, you might be able to take a partial asset disposition which would yield another excellent tax deduction.
Nationwide Service with Local Expertise
While I’m based in Greenville, SC, I study buildings like this all over the country. Whether your property is here in the Carolinas or across the country in California, it costs no more to engage my services. Our nationwide network of professional photographers ensures we can efficiently document your property to provide an accurate and thorough cost segregation analysis. The firm I represent, CSSI Services, works nationwide in all 50 states and we work on all types of buildings.
Let’s Talk
If you own a bank building—or any commercial property—and want to explore the tax-saving opportunities of cost segregation, give me a call. I’m happy to provide a no-cost, no-obligation estimate for your building. It’s a simple way to uncover hidden value and improve your bottom line.
This came across my LinkedIn feed yesterday. I always appreciate what John Drachman has to say. He does a tremendous job of noting the key points from Newmark’s Capital Markets recent quarterly report. If you’re in commercial real estate, be sure to read Drachman’s post below.
This is a fantastic explanation of Cap Rates by Ron Oxtal, MAI, Tropical Valuation Advisory, Tampa, FL. There are many variables and just because the Federal Reserve lowered interest rates by 50 basis points last week, don’t expect Cap Rates to move for commercial real estate.
Here’s the link to the Globest article referenced in the LinkedIn post above.
