A Blog About Tax Savings for Building Owners
Congratulations to Cheyenne Putnam of Aline Capital in representing the seller in getting this large deal done in Charlotte, NC. The retail center sold for $14,995 according the release from Aline Capital on LinkedIn – published below.
Aline Capital is a commercial real estate advisory firm in Greenville, SC. Cheyenne Putnam is their Director of Retail. It’s nice to see there are some big deals still getting done.
Dispite Amazon supposedly killing traditional retail as we know it, retail strip centers continue to perform very well for their owners. We study a lot of these kinds of buildings and they tend to do well for their owners in terms of accelerated depreciation.
This one happens to be in Five Forks – Simpsonville, SC. It sits on a terrific corner at Woodruff Road and Highway 14 in the highly sought after area called Five Forks. There had been an old building that was at this corner and was for sale for a long time. It got demolished to make way for this gorgeous new 3 tenant retail strip. The tenants are Summer Moon Coffee, Tazikis Mediterranean Cafe and Tek Replay.
I was in the building last week and all the tenant spaces. It’s beautiful and high quality. The Boardman Group was the General Contractor and design firm that built this building. It is located adjacent to Southside Christian School which has elementary through high school. It seems there’s a built-in customer base right there.
Retail strip centers are a highly sought after asset class for commercial real estate investors. I think part of the reason they are liked is because you typically have anywhere from 4 -15 tenants depending upon the size of the building. This spreads out the risk with the cashflow so that if one or two tenants vacate, it’s usually not a huge burden. This is not the case of course if you have one of the tenants taking up a big part of the space. But normally when that happens, those tenants are on a significant, long-term lease.
Our firm studies lots of of strip malls or retail strip centers. Cost segregation for retail strip centers is an excellent idea for the owners. Besides the big depreciation expense that gets generated and of course if the main thing people hire us for, it’s really helpful to have a breakdown of all of the sytems and components of your buildings. Retail strips, just like other commercial property, require constant upkeep, maintenance and repair. If you have things identified, it then makes it easier to make decisions about expensing vs. capitalizing when it comes to repairs or improvements.
In terms of the study results, normally we see that the 5 year property might be 8-10% of the building cost. Sometimes if the property is dominated by a tenant that might be something like a Dollar-type store, those interiors are pretty sparse by design. Those might end up being 5-7% that get identified as 5 year property. But these properties tend to have ample parking and that’s where the big payoff comes in with cost segregation. It’s not uncommon to see these buildings have 10-20% of their overall cost tied to the land improvements. Land improvements are 15 year class life property and include things like the parking lot, lighting, landscaping, patios, signage etc. Because the way bonus depreciation works, this class life qualifies for it. Bonus Depreciation schedule is noted below.
Bonus Depreciation schedule as of 3/29/24 – subject to change by Congress any minute now as they look to bump bonus depreciation back up to 100% through 2025 but that has not yet been approved.
Buildings in-service date
If you would like to talk about your building or get a quote for cost segregation, please don’t hesitate to reach out. There’s no cost or obligation. I’m not going to charge you in 15 minute increments to discuss. The consultations are free.
I get asked this question quite a bit….is “this – insert building type or address” particular building a good candidate for cost segregation? And so I also hear this with Dollar General Stores. They are pretty basic. Generally if they are stand-alone buildings they are metal buildings with not a lot of finishing. That said, almost every commercial building that is profitable and has enough basis is usually worth studying. Dollar General Stores are no different.
I recently studied a couple of them for an owner recently and the studies turned out great for the owner. Every building is different of course but in general we might see about 5-6% of the cost be identified as 5 year class life and 10-20% identified as 15 year depending upon the size of the parking lot. The two I completed recently had the 15 year land improvements come back at 16 and 18%. That is significant especially given that 15 year can be taken as bonus depreciation. Remember, property eligible for bonus depreciation is those with class lives of 20 years or less. When we do our studies, we identify 5, 7 and 15 year property. For the tax year of 2023, if a building went intok service in this particular year bonus is 80%. (Note: Congress is currently considering revising this to take bonus back up to 100% at least through 2025 is what I’ve read).
Dutch Bros is continuing to expand across the U.S. I had to post this as Daniel Herrold of Northmarq and his team are doing a great job all across the U.S. Anyway, this is a ground lease and if it’s structured that the new owner also owns the parking lot, this would be a phenomenal property for cost segregation.
Below is the link to Daniel’s post on LinkedIn.
Cost segregation is a terrific strategy for any commercial building owner. New retail development tends to do quite well we are finding especially in part because of the land improvements to develop the property. New retail buildings for Starbucks for example are excellent for cost segregation.
With a new Starbucks not only do you tend to see great numbers from the 15 year class life category but also in the 5 year as well as the stores tend to be finished nicely.
If you’re interested in getting a no-obligation free estimate on your building, please don’t hesitate to reach out at 864-276-1448. I work all over the U.S.
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