Cherrytree Group LLC Blog

...by Warren Kirshenbaum

The Community Renewal Tax Relief Act was passed in 2000. Part of that act is the New Markets Tax Credit, the purpose of which is to spur approximately $15 billion in investments into privately managed investment institutions (CDE) who in turn will make loans and capital investments to businesses in low-income communities.

The New Markets Tax Credit is one of several key business tax breaks that are set to expire at year end unless Congress acts. Businesses should be aware of the expiring tax provision. Businesses interested in investigating or applying for the New Markets Tax Credit should consult with a commercial real estate tax lawyer to determine whether they should take advantage of this tax break  and/or if they need to plan for the expiration of other tax credits which they have previously taken advantage of.

What is New Markets Tax Credit ("NMTC")? A taxpayer who holds a qualified equity investment in a qualified community development entity ("CDE") may be entitled to a NMTC of 39% of the qualified equity investment during a seven-year credit period. Under current law, the last NMTC dollar limitation is for 2011.

...by Warren Kirshenbaum

A New York City budget watchdog says up to $2.9 billion in tax credits intended to boost the local economy after the Sept. 11 attacks have gone unclaimed.

The Independent Budget Office says it is difficult to track how many companies took advantage of the federal tax credits aimed at spurring hiring and business investment. Local elected officials have not succeeded in persuading the federal government to convert the tax breaks to cash.

But the report released Wednesday finds that most of the rest of New York City's $20.5 billion federal aid package has been spent or will be spent on redevelopment in lower Manhattan.

The biggest chunk of money, $4.6 billion, is being spent on transportation projects including a new World Trade Center transportation hub.

Original article Wall Street Journal

by...Warren Kirshenbaum

The U.S. Department of Interior (DOI), announced a Call for Information and Nominations to develop wind on the Outer Continental Shelf.

Wind developers are invited to submit proposals that identify locations within the designated call area where they would seek commercial leases to develop wind energy projects.

The Call area is off the shores of Rhode Island and Massachusetts -- both states agreed to explore offshore wind development in July 2010. The announcement is part of DOI's Smart from the Start initiative.  Launched in November of last year, the initiative is a coordinated federal-state effort to speed the siting, leasing and construction process of new offshore wind energy projects.

In February, BOEMRE identified four offshore wind areas in Delaware, Maryland, New Jersey, and Virginia and expects to begin the leasing process in those states as early as 2012.

Cape Wind Project -- the first lease for an offshore wind farm in the federal waters of the United States, is now closing in on its construction phase.

The most recent announcement from DOI comes one month after the Incentivizing Offshore Wind Power (IWOP) Act was introduced in the U.S. Senate.

This legislation seeks to provide "the offshore wind industry with enhanced stability by extending investment tax credits for the first 3,000 MW of offshore wind facilities placed into service – which is an estimate of 600 wind turbines."

The tax credits are necessary because of the longer lead time needed to permit and construct offshore wind turbines, relative to onshore wind energy. Developers would have five years to install the offshore wind farm after receiving the tax credit. Companies would not be able to receive other production or investment tax credits in addition to the offshore wind investment tax credit, however.

Original article on Energyboom.com

...by Warren Kirshenbaum


There are great deals out there for qualified buyers in the residential market. But businesses, are often able to capitalize on real estate deals during depressed and booming markets. There are many advantages and opportunities for businesses in financing, leasing and ownership today’s real estate market.

Lease Vs. Own
Depressed market conditions can create an environment in which some businesses that typically lease properties would wish to take advantage of the low prices and become property owners. Prices for commercial real estate in some markets are attractive, and businesses are often able to secure loans with as little as 10% down. Owning real estate as a business asset can provide certain financial advantages, including financing options and tax incentives.
The value of real estate does not necessarily increase simply because the business is doing well. The success of the business does not automatically increase the value of the real estate where it is situated. The decision to lease or purchase is complicated, and businesses need to compare the short- and long-term costs associated with each and consider the opportunity cost of ownership.

Anticipating Future Needs
Large businesses spend lots of money researching trends and determining where the next hot spot is likely to be, or where a hole exists in a given market. Often, these businesses are ahead of the curve when it comes to finding out about new housing developments. Retail space, for example, is likely to become more expensive when a new condominium is built nearby - new condo equals more customers. A business that sees this coming in advance can purchase land or retail space before the values skyrocket in response to the new development.

Economic Incentives
Economic incentives from local governments can encourage businesses to expand or open in a new location. Municipalities that are trying to retain or add to their employment base may offer incentives, including credit against the payment of income taxes, credit for building "green" properties or property deals that aren't available to the general public.

Commercial Leases
Many businesses are able to secure percentage rent leases where they essentially share profits with the landlord. Generally, a base rent is set, and a percentage of the monthly or annual gross sales made on the premises is added to the base. For example, a property may have a base rent of $20 per square foot, plus 5% of sales over $250 per square foot. The idea behind a percentage rent lease is that the landlord and tenant can both take advantage of the property's location. When sales are up, more rent is paid, and during slower periods, the rent is reduced. This type of lease can help businesses gain traction in new locations and weather slow times without being burdened by high rents. Landlords benefit by attracting and keeping tenants and receiving potentially greater returns, particularly as the business grows.

Loan Incentives
The U.S. Small Business Administration's (SBA's) Loan Program is a long-term financing option designed to promote economic development within communities. The 504 Program provides businesses that have a net worth of less than $7.5 million and an average net income not exceeding $2.5 million with long-term, fixed-rate financing. The loans can be used to purchase land and existing buildings, or to finance the construction of new facilities or the renovation/modernization of existing structures. Businesses must contribute at least 10% of the project cost, and the total amount of the loan may not exceed $1.5 million, $2 million or $4 million, depending on the type of business and the level of job creation and/or economic impact.

Leverage
Businesses are often able to leverage more attractive lease terms. Tenants who have paid rent consistently and on time are often able to negotiate with present or future landlords for favorable lease terms. Particularly in markets where landlords have difficulty finding reliable tenants, or where commercial space is plentiful, those businesses that have a proven track record can be rewarded with lower rents and better benefits and concessions.

What this all means
While many businesses prefer to lease rather than purchase properties to avoid tying up cash, there are instances where ownership makes economic sense. Businesses can take advantage of real estate opportunities through special financing options, being in the right place at the right time, economic incentives and negotiating for more favorable lease terms. 

…by Warren Kirshenbaum

The Louisiana Main Street program resides in the Louisiana Division of Historic Preservation. Louisiana has 34 designated local Main Street communities. Main Streets apply a four-point approach to the revitalization of their historic commercial districts: organizational development, design and preservation, economic development and promotion.

In order to facilitate preservation, federal and state tax credits exist for commercial historic rehabilitation.
The purpose of tax credits is to encourage the preservation of historic buildings through incentives to support rehabilitation of historic and older buildings.

What is a tax credit?
A tax credit is a direct, dollar for dollar, reduction in the amount of money a taxpayer must pay in taxes for a given year. For example, if a taxpayer owes $5,000 in taxes to the Internal Revenue Service, but has a $3,000 credit, he only pays $2,000. A credit is much better than a deduction which merely reduces a taxpayer’s income and puts him in a lower tax bracket.

Federal Historic Rehabilitation Tax Credit

• The Federal Rehabilitation Tax Credit is for 20 percent of the costs of rehabilitation expenses for an income producing building.
• The credit is available for income-producing properties that are contributing elements to a National Register Historic District, or individually listed on the National Historic Register. All properties must be certified by the National Park Service.
• To qualify, the rehabilitation work must exceed the adjusted basis for the building (either the purchase price minus the value of the land, or the current depreciated value).

• The building must be a contributing element to a Downtown Development District (DDD) or a Cultural District.
• The building must be used for an income-producing purpose.
• Eligible expenses must exceed $10,000.
• This credit may be used in addition to the Federal Historic Rehabilitation tax credits, provided that the most stringent program requirements are met. It may also be combined with the State Residential Tax Credit Program if the building is mixed-use.