Is the U.S. in a recession? Whether the correct answer ultimately proves to be “yes,” “no,” or “not yet,” it’s an academic issue that’s not keeping us up at night.
There’s no doubt, though, we’re entering a period of economic slowdown in the commercial real estate market caused by:
Whenever Washington politicians act like they’re serious about deficit reduction or tax reform, certain revenue-raising proposals find their way onto lists of proposed policy changes.
One of their recent favorites is the idea of limiting or removing altogether the ability of commercial property owners to defer capital gains taxes on real estate transactions, a practice known as 1031 exchanges, thanks to the provision’s home in section 1031 of the IRS tax code. You’ll also hear these referred to as “like-kind exchanges.”
Simply put, and with the understanding that there are many caveats and compliance details, a 1031 exchange is a process that under certain limited circumstances allows a commercial property owner to defer paying capital gains taxes at the time they sell a CRE investment property.
With interest rates steadily climbing, we’ll likely see the commercial real estate investment markets cool off, along with more parity between office space opportunities (the sector has struggled of late) and industrial space investment activity (which has been hot for several years).
However, interest rates shouldn’t be the only factor in a CRE investment decision, of course. Location and industry-specific trends (e.g., the life sciences boom in the Denver-Boulder corridor) also help determine demand, supply, and therefore the market price of a property.
The Metro Denver area is a good place to do business. We have a healthy business environment that leads many other geographic markets with regard to commercial construction and leasing activity, thanks to the strength of certain sectors and the general influx of companies to the area from higher cost coastal business centers.
Commercial real estate leases can be lengthy and dense. Prospective tenants assume that much of the content other than the financial terms is unchangeable “boilerplate” language. When reviewing the lease, commercial tenants look hard at the numbers and simply try to understand the rest. In fact, many non-financial provisions in a commercial real estate lease are negotiable.
As a tenant representative, we obtain the best possible arrangements and terms for our clients in many respects during lease negotiations. This month we’ll focus on some of the lesser-known negotiable economic provisions in a commercial lease. Then in March we’ll explore various obscure non-economic lease provisions that can be negotiated to your advantage.
Your landlord is well-aware of these details and fine print ... and you should be too!
Certain economic considerations in a commercial lease are well-known and easy to identify. The rental rate, obviously, is a primary factor, along with provisions related to security deposits, tenant improvement allowances, and parking abatements.
But tenants shouldn’t stop there.
720.837.9407
Denver, CO
