Weaver: Beyond the Numbers

The world experienced many changes during the pandemic. As a result, many things might translate to the commercial real estate (CRE) sector. Weaver Beyond the Numbers Real Estate Edition hosts Howard Altshuler, Partner-in-Charge, Real Estate Services and Rob Nowak, Partner, Tax Services shared their thoughts on these possibilities.

“I was thinking about some things I’ve seen, like contactless entry points and payments, and how those might translate to CRE. How can we make buildings smarter and more responsive?,” Nowak replied.

“Some of the innovations coming out of this period are here to stay just because they are more efficient, and secure. Do we even need to push a button for the elevator anymore?” Altshuler pondered.

“These things are already out there; we just haven’t seen them in office buildings. We may even combine biometrics so that, instead of a key card, facial recognition just opens the door,” Altshuler said.

In the office environment, there are still some unknowns about what they will look like. Still, in most cases, it’s probably going to be a hybrid approach. “It’s generally been portrayed as extremes of either the death of the office or everyone rushing back. It’s probably going to be somewhere in the middle, and we are social beings that don’t want to be cut off,” Nowak described.

With a change in who’s in the office also comes possible shifts in office architecture and space planning. Nowak added, “We’re back to open floor plans, but the separation between is likely to increase, because people don’t want to disturb each other. So, that’s just a good business practice.”

Health Care real estate is much different from other commercial real estate for several reasons. Discussing those and current trends in the space, Weaver Beyond the Numbers Real Estate Edition hosts Howard Altshuler, Partner-in-Charge, Real Estate Services and Rob Nowak, Partner, Tax Services spoke with their colleague, Corey Palasota, Managing Director for Health Care Valuation.

First, Palasota explained his role. “I spend about 60% of my time in the valuation of operating businesses, and the other 40% consulting on various things including helping them understand the real estate market.”

In differentiating Health Care real estate, Palasota noted that the buildings are typically single purpose and specialty. However, he has seen some changes in the industry around spaces having more flexibility. “There is more consideration around the services to include in the footprint.”

While many businesses are downgrading or eliminating commercial space, Health Care isn’t, as it’s an in-person service. This makes it a “safer asset class,” according to Palasota.

The hosts asked Palasota about what’s impacting valuation. “The stronger the operating business, the more valuable it can be. Other factors are the competitive advantages of the operator, what the payer mix is of commercial versus Medicare, and the reimbursement. It’s anything that demonstrates there’s enough revenue to pay the lease.”

In looking at new trends, Palasota noted that there was a lot of horizontal integration and consolidations in previous years. As of late, he’s seeing more vertical integration, which offers a competitive edge.

“Business valuation is a pie, and it’s carved up into various divisions, with real estate one of the biggest. The lease rate pushes value in one direction and risk in the other. Overall, developers want the lease rate to be viable and operations to be successful,” Palasota said.

Joining a not-for-profit board may bring tremendous opportunities for an individual looking to serve a community or specific area of interest. Still, it helps to understand the particulars of what such a commitment means and some of the challenges board members face.

Rhetoric around tax legislation changes is a topic of focus in Washington right now. While there is much left to be decided, Weaver leaders shared an update on what to expect.

Weaver Beyond the Numbers Real Estate Edition hosts Howard Altshuler, Partner-in-Charge, Real Estate Services and Rob Nowak, Partner, Tax Services for Weaver, recently covered it in an episode.

“There is an undertone from the White House on sweeping changes along with tax rates. It could include the elimination of incentives, much of which are targeted at commercial real estate, specifically 1031 Exchange,” Nowak said.

The 1031 Exchange allows for the deferment of paying capital gain taxes when selling an investment property and reinvest the proceeds into other properties. “The rules did change in 2017 to only account for real property. The complete elimination of it could have an impact on businesses and individuals. It could align with certain thresholds of income,” Nowak explained.

Another area in consideration is the capital gains rate. This could likely occur for those making an income in excess of $1 million. “It could be a bracketed type of system, and those at different thresholds pay different rates,” Nowak added.

“It could be challenging for those that sold assets years ago and deferred, as they may have to pay a higher tax rate,” Altshuler noted.

Ultimately, there is no timeline for when or if they’ll occur, so Nowak is helping clients deal with uncertainty. “The value we deliver on the consultancy side is to spend time making sure clients understand how these changes could impact them.”

From shareholder and investor obligations to regulatory compliance requirements, environmental, social, and governance issues are front and center in many industries. While the conversation continues to grow louder in the United States, many companies are already embedding sustainability reporting and other ESG-related risks and opportunities into their business strategies.

April 16 has traditionally been a day of celebration for tax professionals, but not in 2020 or 2021. As a result of the pandemic, the government delayed Tax Day. This delay and uncertainty about possible tax code adjustments are the topic for Weaver Beyond the Numbers, Real Estate Edition hosts Howard Altshuler, Partner-in-Charge, Real Estate Services for Weaver, and Rob Nowak, Partner, Tax Services for Weaver.

Tax law changes from year to year, mainly when significant political changes occur. With a new administration in the Oval Office in 2021, this year is no different.

Host Joseph Cahoon talked with Rob Nowak, a tax partner with Weaver, the largest CPA firm in the southwest, for this Folsom Forum Webinar by the Folsom Institute for Real Estate at Southern Methodist University. The duo talked about changes to tax law and what that means in real estate and in a broad sense.

Capital gains might be the big topic of taxes at the moment, with the Biden administration proposing to raise the rate to 43.4% for those with incomes over $1 million.

During election season, both candidates proposed tax changes. The Biden/Harris ticket proposed equalizing rate structures between different levels of income earners, Nowak said, with one of the rates being discussed the aforementioned capital gains rate. No legislation is passed, but there is a potential road map laid out for tax increases.

"Cap gains rates might increase from, let's say, 20 to 28%, or from 20% to the highest ordinary rate, but only for those taxpayers who meet certain income thresholds," Nowak said. "That income threshold might be a million of income, it might be $400,000 of income, but we're not talking about a wholesale adjustment of the cap gain rate structure."

If the capital gains rate went from 20 to 28%, it would be a reversion back to the Reagan-era capital gains tax rates.

On this episode of Weaver Beyond the Numbers, Real Estate edition, Howard Altshuler, Partner-in-Charge, Real Estate Services for Weaver, and Rob Nowak, Partner, Tax Services for Weaver, were joined by Charlie Anastasia, Tax Partner for Weaver, for some insights into REITs (real estate investment trusts).

The Biden administration recently submitted a proposed bill, The American Jobs Plan, to rebuild the country’s infrastructure and create millions of new jobs.

Weaver’s Mayur Naik, Senior Manager, State & Local Tax Services, and Shane Stewart, Partner-in-Charge, State and Local Tax Services, brought their wealth of knowledge and expertise to Beyond the Numbers.