Tim Reamer – Cottonwood | Commercial – Harrisonburg Va Commercial Real Estate

January 2, 2016  |   No Comments Yet

There is a good chance you don’t like your job. If you do, count yourself among the fortunate, because according to a 2006 study conducted by the University of Chicago, only about 47% of employees claim as much. A separate survey completed by Gallup estimated only 13% of employees are psychologically committed at work. That’s a tough pill to swallow as an employer or employee.

There are a myriad of reasons people dislike their jobs and books that claim to help you trick yourself into loving your job—though nothing yet in pill form for the same to the best of my knowledge. Malcolm Gladwell made an attempt to identify the reasons people were energized by their work in his book Outliers. Spoiler alert—he boiled it down to three qualities the work must have—complexity, autonomy, and an identifiable relationship between effort and reward. In other words—your work must have some recognizable meaning—at least to you.

I count myself among the lucky 47% in this regard but feel like I’ve also been awarded a bonus. One of the benefits of my work is the opportunity it provides to engage smart and interesting people.

Recently, I had the chance to meet an absolutely inspiring person conducting amazing work. Dr. Ken Rutherford is a professor of political science at JMU and Director of the Center for International Stabilization and Recovery.

Ken is a landmine survivor, co-founder of the Landmine Survivors Network, and global advocate and renowned leader in the International Campaign to Ban Landmines—all of which led to the 1997 Mine Ban Treaty, a Nobel Peace Prize, and 2008 Cluster Munitions Ban Treaty. The list of accomplishments is long and will continue to grow longer, but his greatest source of pride seemed to be reserved for his family. All of this, coupled with a candid, compassionate, and genuinely grateful approach made the story all the more powerful.

While there is no direct connection to commercial real estate, the work Dr. Rutherford is doing was entirely too fascinating not to mention given this opportunity.

Here are two more smart people and the thoughts they shared with me.

The Economics of Medians

There are at least six Facebook pages established purely for the purpose of expressing how much the users hate medians. That strip of grass or concrete separating lanes causes pain to businesses by limiting access for customers, impacts site selection decisions, and transfers millions of dollars of real estate value to intersections where medians don’t exist. It is logical to assume medians have a detrimental economic impact on business—it just might not be true.

Brad Reed, Transportation Planner with the City of Harrisonburg, is full of useful information, including two studies that suggest not only do medians not hurt business, if properly planned; they may actually contribute to economic vitality.

Corridors with planned raised median construction in three Texas communities, Odessa, McKinney, and Houston, were studied over the course of three years for the Texas Department of Transportation. Surveys were sent to, and interviews conducted with, business owners prior to construction, during construction, and after construction. As you might reasonably expect, business owners along these corridors felt strongly the construction of a new median would negatively impact their business—and they were right. During the construction of the medians, business did fall nearly across the board—with restaurants and gas stations hit particularly hard.

It was after completion that something counter-intuitive was demonstrated within the follow-up surveys and interviews. With the exception of auto repair shops and gas stations—sales, traffic volume, employment, and property values went up while the percentage of traffic accidents dropped. Restaurants, retailers, and personal service providers were all among the beneficiaries of what was reported as improved traffic flow and safer access. As it turns out, customers may be willing to exchange a little time to access a business differently if it results in increased safety—unless they are in need of fuel and a Snickers.

It is an interesting result, and my hope is access management continues to be studied in this way because perception is difficult to overcome. My experience on this issue, especially as it relates to site selection, would suggest that perception is strongly against medians.

Why You Should Love Your Accountant

I’ll warn you up front—the Internal Revenue Code Sections 162 and 263 have the winning combination of being both complex and unbelievably boring—even by accounting standards. That said, there is the potential for tax savings if you do nothing more than tear this article out, take it to your accountant, and say, “Tell me more about this.”

Billy Robinson of Brown Edwards provided me with what seemed like six hundred pages of information on tangible property regulations (TPR). This makes sense, because it took a decade of effort before the IRS released the final regulations (IRC Sections 162 and 263) providing the guidelines taxpayers must follow when deciding if costs incurred to acquire and improve tangible property can be capitalized or are deductible expenses in the year incurred.

The distinction between the two largely rests on a new concept introduced through the TPR called a Unit of Property (UOP). All determinations as to whether to capitalize or expense an expenditure is made with respect to the specific UOP to which it relates. Simply, under the UOP concept, a building is broken down to the structural components by which it is comprised to include the flooring, windows, doors, HVAC, plumbing, and electrical systems among others. Each of these represents a different and unique UOP even though they are in the same building.

Capitalization is required if an expense related to the UOP satisfies the Betterment, Adaptation, Restoration (BAR) test. Funny, because I would be thinking about drinking too if it were my job to establish or interpret these rules. Under this standard, Betterment means the improvement of a defect that existed before acquisition or a material increase in size or capacity. For example, if you had 10 ton of HVAC and increased it to 20 ton of HVAC, capitalization would be required. Adaptation is defined as changing the property to a new or different use. Lastly, Restoration references the rebuilding or replacement of a UOP after the end of its useful life.

The takeaway here is this—expenses associated with improvements that don’t represent a significant portion of a major component or UOP are now deductible. An expenditure made with respect to real estate that is reasonably expected to be incurred at least twice in the 10-year period beginning when the UOP is placed in service is deductible. All of the expenses that meet the requirements going as far back as 1987 are now deductible. Disposition of property may be one of the biggest changes. Taxpayers can recognize a loss when property is permanently retired, abandoned, or destroyed –the amount of the loss is the adjusted tax basis. There’s more, but there is also a limit to how much I can endure.

So drive this article to your accountant, thank them profusely for saving you money, and pay them whatever they ask for undertaking this torturous activity on your behalf—it’s well worth it.

Tim Reamer provides commercial real estate brokerage and consulting services with Cottonwood Commercial and specializes in retail representation, investment property (multifamily | commercial | NNN), and development projects. Learn more at www.timreamer.com.

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