March/April Newsletter.indd
Transcription
March/April Newsletter.indd
COMMERCIAL RE AL ESTATE REPORT BILL GLADSTONE, CCIM, SIOR March/April 2008 Proceed with Caution: An Overview of Pennsylvania’s Amendments to its Realty Transfer Tax Regulations T By Peter R. Wilson, Esq. The Pennsylvania Department of Revenue has amended several regulations governing the payment of realty transfer tax and taxable transfers. These changes were effective upon publication of the new regulations in Pennsylvania Bulletin No. 07-2306 on December 15, 2007. Real estate practitioners in Pennsylvania have much to be concerned about as many types of transactions are impacted. In a nutshell, life as we know it in the world of Pennsylvania real estate has been irrevocably altered. The following is a summary of a few areas of concern by topic. Agreement of Sale to Purchase Real Estate In certain situations, realty transfer tax will be imposed on the consideration From the Sales Desk t SOLD - 5005 DEVONSHIRE ROAD, HARRISBURG A local fire restoration company purchased the former Sir Speedy Printing building located in Lower Paxton Township. SOLD - 816 BELVEDERE STREET, u HARRISBURG Two investors represented by David Hooke of Hooke, Hooke & Eckman, a Carlisle brokerage firm, purchased this property. paid for the assignment of a contract to acquire real estate whether included in the stated consideration or not. The concern of real estate practitioners is that this amendment is contrary to the 1996 Pennsylvania Supreme Court decision of Allebach v. Department of Revenue. It remains to be seen whether private litigation will challenge this amendment or the Department of Revenue reconsiders its current interpretation. For now, all parties need to understand the potential liabilities. For example, Tom enters into a contract to sell a 20-acre tract of land to Larry. The purchase price is $1,000,000.00. Larry assigns his interest in the contract to Paul for (Continued on page 2) 1-2, 5, 7 Proceed with Caution 3-4, 6-7 Current Listings 8 Bits and Pieces Phone: 717.761.5070 www.BillGladstone.com wgladstone@naicir.com www.naicir.com Proceed with Caution $200,000.00. Paul then assigns his interest in the contract to Kim for $300,000.00. In real estate parlance, this piece of property has been “flipped”. At closing, the deed from Larry to Kim reflects consideration of $1,000,000.00. The Department of Revenue views the tax liability to be based on the principle set forth in the 1979 Pennsylvania Supreme Court decision in Baehr Bros. v. Commonwealth: that the Department of Revenue should look beyond the “form” of a transaction and examine the “substance” to determine realty transfer tax liability. As a result, each “flip” is treated as a fee-simple transaction. Each grantor and grantee is jointly and severally liable for the tax on their proportionate share of the (Continued from page 1) we now have essentially three taxable transactions: Tom to Larry: $1,000,000.00 Larry to Paul: $1,200,000.00 Paul to Kim: $1,500,000.00 Previously, transfer tax would have only been paid on the original $1,000,000.00 purchase price. Another assignment issue that has caused great concern is the Department of Revenue’s interpretation of the real estate industry’s preferred method of holding title through an entity. It has been common practice for a buyer to walk into my office holding an executed contract with his/her name plus the term “and/or assigns”, and ask me to form a limited partnership or limited liability company (controlled by the client) in which to hold title. "In the past, transfer tax was paid on the transfer from the seller to the entity; now the Department treats this as two transactions." total value of the “flip”. In other words, Tom’s liability is based on the original purchase price of $1,000,000.00. Larry’s realty transfer tax liability is based on $1,200,000.00 – the contract price plus the consideration for the assignment to Paul. Paul’s liability is based on $1,500,000.00 – the original contract price of $1,000,000.00; the value of the assignment from Larry, $200,000.00; and the value of the assignment to Kim, $300,000.00. Kim’s liability is $1,500,000.00 – the value of the consideration under the original agreement of sale, $1,000,000.00; and the value of the consideration for the assignment from Larry, $500,000.00. In other words, At settlement, the parties execute an assignment from buyer to buyer’s new entity and the deed goes from seller to the new entity. No problem, right? Not so fast. The Department of Revenue has taken the position that since the entity did not exist at the time the buyer entered into the contract, the buyer could not have been an agent or principal of the entity for purposes of entering into the contract. Therefore, we have two transactions for realty transfer tax purposes. Here is an example: Bill enters into a contract on Monday to sell his office building to Gary for $6,000,000.00. The “Buyer” is listed in the contract as “Gary and/or his assigns”. Gary visits his attorney, Hillary on Tuesday, and asks her to form a new limited partnership in which to take title. At closing the original parties execute an assignment of the contract to the new entity. In the past, transfer tax was paid on the transfer from Bill to the entity based on the stated consideration of $6,000,000.00. Now the Department will treat this as two transactions: one from Bill to Gary and another from Gary to his own limited partnership. Here the transfer tax is two percent of $12,000,000.00 with Bill responsible for one percent of the first $6,000,000.00 and Gary paying one and one-half percent of $12,000,000.00. 1031 (Like-Kind) Exchanges With new regulations transfers under Section 1031 of the Internal Revenue Code to and from qualified intermediaries (QIs) and exchange accommodation title holders (EATs) do not qualify as excluded transactions. Therefore in situations such as reverse exchanges, the Department of Revenue will treat the EATs acquisition of the replacement property as a separate taxable event. So in these situations, the transfer of title into the EAT and the subsequent transfer to the purchaser is (Continued on page 5) 2 N E W L I STINGS p CONTACT US TODAY: The Bill Gladstone Group of NAI CIR Phone: (717) 761-5070 Web site: www.BillGladstone.com p SALE – 136 N. HERSHEY ROAD, HARRISBURG 1± acre site located just north of Rt. 22 and Rt. 39. Convenient to full interchange of I-81 and new communty project along Rt. 39. Zoned Neighborhood Commercial. p LEASE – 989 EAST PARK DRIVE, HARRISBURG 3,750 SF available; self-contained suite with various work rooms and offices. Convenient location off I-83 and Union Deposit Road. Ample on-site parking. p SALE – 1282 N. MOUNTAIN ROAD, HARRISBURG 0.7 acre site; former Exxon Mobil convenience store and gas station. Well-traveled road connecting to full I-81 interchange. Rests between Rt. 39 and Rt. 22. p SALE – 5148 E. TRINDLE ROAD, MECHANICSBURG 1.0 acre site convenient to Rt. 15, Rt. 581 and Rt. 11. Former gas station and car wash located along Rt. 641. Good surrounding demographics and commercial development. p SALE – EISENHOWER BOULEVARD, HARRISBURG 10± acre site with public utilities available. Easy access to Rt. 283, I-83 and PA Turnpike. Surrounded by commercial, retail and industrial development. Daily traffic count: 14,300 vehicles. p LEASE – 1029 MUMMA ROAD, WORMLEYSBURG 2,000± SF available on 2nd floor. Convenient location with quick access to all major business hubs on both East and West Shores. Attractive window lines and professional finishes. p SALE – 1601 RITNER HIGHWAY, CARLISLE 31,655 SF freestanding building on 10 acres. Located at signalized intersection along Rt. 11 and one mile from full interchange of I-81. Surrounded by industrial development. CIR Commercial Real Estate Services, Worldwide. 717.761.5070 l www.naicir.com Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A 3 www.billgladstone.com/commercial C O M M E R C I A L L I STINGS p SALE – 87 TREMONT ROAD, PINE GROVE 19,644 SF bowling alley on 1.84 acres. Business has closed, but furniture, fixtures and equipment are included. 16 lanes and two lounges with a bar. Plenty of on-site parking. p SALE – 1425-1429 N. THIRD ST., HARRISBURG Two brick structures that are currently being renovated with a possible parking area on 3rd lot. 9,420 SF total located in prominent intersection across from HACC Midtown Campus. p SALE – 1580-1590 ROBINHOOD DRIVE, ETTERS Two buildings, 2,550 SF available on 1.28 acres. 900 SF wooden A-Frame commercial building and 1,650 SF masonry house. High visibility; located along the eastbound side of I-83. p LEASE/SALE –10105 JONESTOWN ROAD, GRANTVILLE 5,216 SF freestanding building located near Penn National. Ideal for medical/professional office use; commercial uses are permitted. Approximately 45 on-site parking spaces. www.billgladstone.com/industrial I N D U S T R I A L L I S TINGS p LEASE – 142 RENO ST., NEW CUMBERLAND 10,140 total SF available. 1,200 SF office space. Oversized drive-in door to space. Partial 2nd floor storage; 1,240± SF. p LEASE/SALE – 1501-1513 N. CAMERON ST., HARRISBURG 7,325 SF available. Two-floor main building and three single story buildings. Leases currently in place for about 80% of total leasable space. Office and warehouse/storage space available for occupancy. p LEASE – 4700 WESTPORT DRIVE, MECHANICSBURG 82,590 total SF available; subdividable to 4,800 SF increments. Convenient location off Rt. 15, close to PA Turnpike. Dock and drive-in combinations available. p LEASE – 7700 DERRY ST., HARRISBURG 100,000 SF flex warehouse building, subdividable to 4,000 SF increments with dock/drive-in combo; available for lease or condo purchase. Sits at heavily traveled, signalized intersection. CIR 4 Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A Commercial Real Estate Services, Worldwide. 717.761.5070 l www.naicir.com Proceed with Caution treated as two additional transactions (where realty transfer tax is paid twice, and when combined with the transfer tax being paid on the traditional sale and purchase, the parties could be liable for realty transfer taxes on four transactions). With proper planning, this scenario could be avoided through the use of tiered disregarded entities. The good news is that in a typical forward exchange where the relinquished property is sold first and the replacement property is purchased at the end of the exchange, and the QI does not take title to the property, there are only two taxable transfers – the sale and the purchase. Sale/Leaseback Arrangements In the past, transfer of title was a taxable transaction, but the leaseback (Continued from page 2) to the seller was not subject to realty transfer tax. Under the new regulations, if title to the property is conveyed on the condition that the realty is leased back to the seller, the initial transfer of title is a taxable event and the leaseback is taxable if the term is 30 years or more (including renewal options). Keep in mind the foregoing may be subject to certain exemptions, particularly if the sale/leaseback is part of a carefully structured financing transaction wherein neither the sale nor the lease is subject to tax. For example, Adam transfers property to Eve in exchange for consideration. As part of the same transaction, Eve leases the property back to Adam for 30 or more years. the right to repurchase the property at the end of the lease term. Adam’s rental payments under the lease enable Eve to get back everything she paid for the property, plus interest, and Adam has has the right to repurchase the property at the end of the lease term. (Continued on page 7) Do you like this publication? Visit our Web site to sign up for more! The Bill Gladstone Group of NAI CIR is committed to providing you with the most up-to-date information on the market. If you would like to stay in the real estate loop, simply visit BillGladstone.com and click subscribe to be added to our other publications. These publications include a biannual magazine, bimonthly newsletter, monthly eProperty fax and weekly property e-mails. 5 www.billgladstone.com/office O F F I C E L I STINGS p LEASE – 126-128 WALNUT ST., HARRISBURG 3,350 SF available in historic building located in the Central Business District. Space is on 2nd floor; private 1st floor entrance. Parking available at market rates in nearby garage. p LEASE – 516 INDUSTRIAL ROAD, LEWISBERRY 10,100 SF freestanding building available for lease. Currently has 3,735± SF warehouse space, but could be easily opened for additional space. Two drive-in doors and small fenced yard. p LEASE – 900 CENTURY DRIVE, MECHANICSBURG Two-story building with professional finishes and good window lines. 1,584 SF suite ready to accept build-out on 1st floor. Easy access to Route 15 and PA Turnpike. p LEASE – 5070-A RITTER ROAD, MECHANICSBURG 2,750 SF available in single story masonry building. Located in prominent Rossmoyne Business Center. Finished to suit tenant's needs. Immediate access to Rt. 15 and PA Turnpike. p LEASE – 3425 SIMPSON FERRY ROAD, CAMP HILL 5,100 SF suite available on the 2nd floor. Professional finishes throughout; good window line with high ceilings. Plenty of on-site parking. p LEASE – 3600 VARTAN WAY, HARRISBURG 27,500 SF available; can be subdivided to 2,000± SF. Two-story brick building with wrap around glass window lines. 203± parking spaces on site. Easy access to I-81 and all major highways. p LEASE – CLIFFDALE OFFICE PARK, CAMP HILL Professional office complex with four identical buildings. Office suites available from 217 to 3,050 SF. Immediate access to I-83 and PA Turnpike. Competitive rates. p LEASE – 2601 MARKET PLACE, HARRISBURG Professional in Class A office space available in Commerce Park. Suite 110: 3,403 SF; Suite 450: 1,715 SF; Suite 350: 3,312 SF. Competitive full-service lease rate. About 4.5 parking spaces/1,000 SF. CIR 6 Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A Commercial Real Estate Services, Worldwide. 717.761.5070 l www.naicir.com Proceed with Caution (Continued from page 5) Transfer of Interest in Real Estate Companies Under certain circumstances the new regulations can create a taxable event when 90 percent or more of the ownership interests in a qualified “real estate company” are transferred within a three year period. Under the regulations, along with other specific requirements, a “real estate company” holdings. is one that holds realty the value of which comprises 90 percent or more of the company’s tangible asset holdings. into an SPE upon the request of a lender will create tax liability. Conclusion In the current environment, it is more important than ever to consult with an experienced real estate attorney before making any moves that may create unintended realty transfer tax liabilities. Today, the old axiom “Prior Planning Prevents Poor Performance” rings truer than ever. Single Purpose Entities Commonly the real estate community utilizes single purpose entities (SPEs) at the request of mortgage lenders in financing arrangements. Despite the best efforts of the industry, the new regulations do not create an exemption for transfers into such SPEs. It is critical that buyers consult with their advisors prior to entering into contract and taking title; a subsequent transfer About the Author Peter R. Wilson, Esquire, is a shareholder in the Central Pennsylvania law firm of Reager & Adler, PC, a full service firm based in Camp Hill, specializing in all aspects of commercial and residential real estate, including planned unit developments, condominiums, land use, title insurance and construction litigation. Mr. Wilson is a graduate of Cornell University, B.S., and the University of Minnesota Law School, J.D., cum laude, and concentrates his practice in commercial real estate, real estate finance, business law and estate planning. Mr. Wilson can be reached by phone at (717) 763-1383, ext. 127, or e-mail at pwilson@reageradlerpc.com. Important Note: This article is intended for informational purposes only. Attorney Peter R. Wilson is not offering legal, accounting, or professional advice in this article. If legal advice or other expert assistance is required, the services of a competent professional person should be sought to address your particular set of circumstances. LAND LISTINGS www.billgladstone.com/land LOCATION ACRES ZONING TYPE Bent Creek Blvd., Mechanicsburg, Silver Spring Twp. 4.43 (2 lots) Community Commercial Lease Rt. 22 & Rt. 39, Harrisburg, W. Hanover Twp. 7.70 (6 lots) Commercial Highway/Office Sale St. Johns Road, Camp Hill, Lower Allen Twp. Rt. 743 (Hershey Road), Elizabethtown, Lancaster County Wildwood Park Drive, Harrisburg, Dauphin County 7700 Derry St., Harrisburg, Swatara Twp. Claster Blvd., Dauphin, Dauphin Borough 6290 Allentown Blvd., Harrisburg, Dauphin County Lena Drive, Lot 15, Mechanicsburg, Cumberland County 136 N. Hershey Road, Harrisburg, Dauphin County 1282 N. Mountain Road, Harrisburg, Dauphin County 5148 E. Trindle Road, Mechanicsburg, Cumberland County Eisenhower Boulevard, Harrisburg, Dauphin County 3.05 5.20 2.5± 15.51 (8 lots) 0.79 2.140 6.920 1.0± 0.7 1.0 10± Commercial/Office Commercial Commercial (good restaurant site) Commercial To be Commercial Neighborhood Commercial Planned Business Center District Neighborhood Commercial Neighborhood Commercial Commercial General Commercial Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale Sale CIR Commercial Real Estate Services, Worldwide. 717.761.5070 l www.naicir.com Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A 7 Bits & Pieces The Bill Gladstone Group of NAI CIR assisted in the following transactions: Leased Sold Sheetz is now under construction in Dillsburg with one of its latest convenience and gas stations. Eastern Region Director of Real Estate, Mike LaCesa, represented Sheetz in this transaction with Harry Fox, Jr., the land owner of the site. It is a great location and Mike is looking forward to high volumes. The deal ran smoothly because of the professionalism and high caliber of these two men. It was a pleasure being associated with both of you. The former Sir Speedy Printing building at 5005 Devonshire Road in Lower Paxton Township has been sold to a local company. The owners of the property, Phil and Barb Huepenbecker, were very cooperative in successfully completing the sale. Despite some difficult zoning issues, Phil and Barb remained patient until the proper buyer was selected. Congratulations to both of you. You did an excellent job and it was a pleasure working with you. Planet Fitness is now open in the shopping center on Old Gettysburg Road, Upper Allen Township. Frank Kindler, owner of Planet Fitness, negotiated a difficult deal with Lee Gehman, owner of Gehman’s Furniture. Through their diligence and patience, Lee and Frank put a professional touch on this deal. Planet Fitness is doing extremely well here. I wish you both the best of luck. The former School Claims Service building at 2608 Market Place in Susquehanna Township has been sold to the Pennsylvania Association of School Business Officials (PASBO) and Pennsylvania Association of School Administrators (PASA). Represented by Executive Director Wayne Smith and David Leeds, Assistant Managing Director, School Claims was very attentive, constantly watching the market in an effort to facilitate the sale of the building. The new occupants of the building, Jay Himes and Stinson Stroup, Executive Directors for PASBO and PASA respectively, are pleased to fully accommodate the needs of their members with a larger space. Both were cooperative and helpful. This is a true testimonial to the efforts of everyone who came together. It was a pleasure working with all of you and I hope our paths will continue to cross in the future. Wendt Partners has relocated their offices from the to Bent Creek Business Park in Silver Spring Township. Doug and Alice Wendt searched for the best location to provide better care for business clients and be more attentive to the needs of their employees. Their new location is in a building owned by PANPHA at 1100 Bent Creek Drive. PANPHA was represented by real estate broker Laura Martin of Latus Commercial Realty, who worked well with us. Doug and Alice with their attorney, Peter Wilson of Reager and Adler, P.C., resolved the lease issues for the continued success of their business and the comfort of their employees. Congratulations on a job well done. After operating in central Pennsylvania for many years, USI Southwest Insurance has finally opened a formal office at Westminister Drive in Carlisle. USI representative Marty Miracle, Senior Vice President, helped his superiors understand the need to have an office at this location. Marty is very pleased with the well-structured deal and the accommodations the landlord was able to provide. It was a pleasure to work with you Marty and I wish you the best. Thanks for all your help in making this a successful transaction. The former medical offices for owners John Stratis, MD and Dan Hely, MD at 816 Belvedere Street in Carlisle has now been sold. Dr. Stratis and Dr. Hely have separate practices now and realized it was time to dispose of the building. After a good deal of planning, we came up with a game plan that attracted a lot of attention. The building was sold to two Carlisle investors who were represented by David Hooke of Hooke, Hooke & Eckman, a Carlisle brokerage firm. The deal came together quickly and settled within 60 days. John and Dan, it was a pleasure working with both of you and I wish you the best. NAI CIR P.O. Box 8910 Camp Hill, PA 17001-8910 PHONE: 717.761.5070 FAX: 717.975.0752 wgladstone@naicir.com www.naicir.com www.BillGladstone.com BILL GLADSTONE, CCIM, SIOR PRESORTED STANDARD U.S. POSTAGE PAID Harrisburg, PA Permit No. 783