Bobby Lyons and his team at Lyons Industrial Properties does a great job here in the Upstate of South Carolina. I saw that they posted this video on cement stabilization and watched it. I had not seen this before so I’m posting it here in case more people end up becoming aware of this to help them with their properties.
Category: Industrial Real Estate
Got a call the other day from commercial real estate broker who was wondering if it made sense to study small industrial buildings. There are lots of 5,000 to 10,000 SF office warehouses scattered throughout the country. We study these all the time and they are beneficial for the owners.
Let’s say an owner buys an 8,000 SF office warehouse. It doesn’t really matter what year it was built but there are lots of these still out there from the 1980’s let say. Typically they don’t have a lot of 5 year property typically associated with office space build out, but they do often have a lot of 15 year class life property which would be the land improvements – parking lots, driveways etc.
In this case, let’s say the office warehouse cost $600,000 and went into service July 1st. It’s estimated that the land us worth $75,000. That leaves $525,000 for the cost basis to be studied. Normal depreciation is spread out over 39 years so it would be $525,000 / 39 = $13,461 per year. Since this went into service on 7-1, the owner would be entitled to half the year’s depreciation or $6,730.
But let’s say the owner decides to do a cost segregation study and have it applied to his taxes. If it turns once the building is studied that 5% of the property is 5 year and 12% is 15 year property that ends up being a significant depreciation expense. (Note: every building is different).
Depreciation:
- 5 year class life = 5% or $26,250
- 15 year class life = 12% or $63,000
- Total Depreciation: $89,250
In this particular situation, the owner will be able to take 13x more depreciation than he would have had he not done cost segregation. This is provided the building qualifies for 100% bonus depreciation. Let’s also figure that this owner is an owner operator and owns his operating business as well as the real estate. He can use the depreciation to offset his operating entities income. This can be done if he “groups” his building and operating entities together in the first year he files taxes for the building. Be sure to consult with your tax advisor on this.
The depreciation of $89,250 multiplied by the owner’s tax rate (let’s say 32%) equals a tax savings of $28,560. That’s real money. The study will cost a fraction of this. It’s an awesome return.
Industrial Outside Storage or IOS, is a class of property that has become increasingly popular especially in areas where there is a high concentration of warehouses, trucking and supply chain operations. Generally speaking this is a parcel of land where truck trailers are parked.
These IOS’s generally consist of fencing all around the property and then some kind of parking pad – often gravel of sorts. Nearly all of the improvements are land improvements. There will be a small part of it likely identified as utilities which are 39 year class life.
*Let’s say you buy a 5 acre parcel that already is an IOS and you paid $700,000 for it. Maybe you have a land value of $350,000. The remain $350,000 can be studied in a cost segregation study and get that identified properly. That’s not an expensive study. It might cost about $3,000. It’s likely you’ll end up with 90+% that gets identified as 15 year class life because they are land improvements. In 2023, you can take 80% of that in depreciation right away given the bonus depreciation rules.
If you have a property like this, reach out and we can run the numbers for you.
The Upstate of South Carolina continues to be a top area in the U.S. for site selection for companies not only in the U.S. but around the world. Greenville, Mauldin, Anderson and Spartanburg continue to be at the top of the list for many companies. It’s a great area to live and do business and the location in between Charlotte (1.5 hours) and Atlanta ( about 2.5 hours) away make it a great location especially for transportation. On top of that, it’s a beautiful area. Check out what the Upstate SC Alliance had to say on LinkedIn.
Sale-leasebacks seem to be growing across different sectors of commercial real estate. We have certainly seen this happen with dental and medical practices but we are also seeing it in industrial and other commercial real estate. It frees up capital for the operating entity to go and invest and expand in the running of the business instead of having it tied up in the real estate.
Richard Blackwell, Vice President of Development, Southeast office for Agracel, Inc. published an excellent post on the value of sale-leasebacks for industrial real estate. I’m publishing his post here because this is the clearest articulation I’ve seen on what industrial owners may want to utlize a sale-leaseback strategy. This strategy does not only need to apply to industrial users. Certainly any owner-operator who is running their business out of a building they also own could look to see if executing a sale-leaseback would benefit their business. Excellent post Richard!
#saleleaseback #industrialrealestate
Industrial developer SunCap Property Group has announced that it has delivered its 251,000 square foot industrial building for a Fortune 50 transporation company. The industrial building is located Ferncliff Park in Henderson County, NC. That’s western North Carolina – west of Asheville, NC.
A sign that business continues to keep chugging along here in the Upstate of South Carolina, Lee & Associates Greenville / Spartanburg, announced that their brokers signed 13 industrial and land deals during the month of December 2022. While business might be slowing, there is still a decent amount of activity that is continuing. Lee & Associates Greenville / Spartanburg
The Upstate of South Carolina continues to attract investment from all across the country and more and more people come to realize that the cost of living as well as land and building costs are less here than in most places across the country. The proximity to Charlotte, NC as well as Atlanta, GA are a big help. I-85 runs through Greenville and provides great transportation access to the south as well as cities further up on the east coast. The Inland Port Greer is also a massive business driver helping companies with their supply chains as it has direct access to the Port of Charleston.
Money continues to flow into the Upstate of South Carolina as more companies and developers realize the value of having facilities here.
NorthPoint Development recently purchased 310 acres and plans to build a large industrial park in Spartanburg County called Spartan Enterprise Park.
More information about their development can be found in the Upstate Business Journal article. The developer is quoted, “NorthPoint Development is excited about the opportunity to bring our expertise to one of the fastest growing industrial markets in the country,” said NorthPoint Development Director of Industrial Leasing Nathan Brinker. “We have identified the Upstate as a prime market for investment due to its central location in the Southeast offering access to a large percentage of the population, connectivity to major regional transportation corridors and efficient delivery of goods via the state’s expanding inland and seaport network. Our assessments of this market show a rapidly growing population and corresponding favorable labor dynamics which companies look to when making expansion or relocation decisions. We look forward to working with local and regional economic development entities as well as the Colliers team to find the right tenants and bring new corporate investment to the Upstate.”