THERE IS A FAMILIAR SCENT IN THE AIR.............

You know how you can smell the familiar scents of the changing seasons in the air ? Well those of us who have the honor to have survived a career in the real estate industry have recognized the smell in the air for some time. Right now that smell is pretty offensive; but we know from experience that it is going to turn sweet before you know it ! Recently, I was speaking with Mark Sinkhorn of LandAmerica National Commercial Services in Columbus, Ohio who reminded me that back in 1980 when the economy was experiencing record inflation and the only transactions we were doing were land contracts ; and more recently in 1987 and 1994 there was a similar collapse in the lending market. In all instances, the economy and real estate industry rebounded .

Today, other than for some condominium developments in larger markets, the commercial real estate market is not over-built and once credit frees up again commercial development should lead the way as businesses expand their operations. In the mean time, manufacturing and distribution operators might wish to consider sale-leaseback transactions as an alternative to creating cash and moving assets from on balance sheets to off balance sheets. Sale-Leaseback transactions properly structured are a "win-win" for both the developer (buyer/landlord) and the company (seller/tenant). Residential sellers might consider loan assumptions, seller purchase money mortgages and land contracts once again as tools to move their properties. There is a lot of room for creativity in commercial and residential property transactions, but care should be taken in structuring the same.

Housing Industry Relief ?

Recently, I was speaking with Scott Malof of the Cincinnati office of SS&G Financial Services and Scott reminded me that on July 30, 2008 President Bush signed into law the Housing and Economic Recovery Act of 2008 (H.R. 3221). While there are several important aspects of H.R. 3221, most of the attention has been centered on the new First-Time Homebuyer Tax Credit which will function to give first time homebuyers a temporary refundable tax credit equal to 10 % of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately). The tax credit will phase out for married taxpayers filing jointly with adusted gross income in excess of $150,000 ($75,000 for individual returns). The credit will remain effective for home purchases occuring after April 9, 2008 and before July 1, 2009. However, the taxcredit is not free money; it must be repaid to the government over 15 years. So, essentially the tax credit is an interest free loan from the government for first time homebuyers.

Among several other notable componants of H.R. 3221 it also addresses changes to the low-income housing tax credit (LIHTC), tax-exempt housing bonds and mortgage revenue bonds to name a few. The tax credits are being paid for through changes to reportable interest expense, application of gains from the sale of principal residences and acceleration of certain corporate estimated tax payments.

Given the how complicated the application of the benfits of H.R. 3221 is for individual taxpayers, the residential development community is disappointed that the tax credits were not given directly to the development community which could have used the same as reductions in sale prices. Nevertheless, if this industry incentive is going to have a meaningful impact, lenders and developers are going to have to educate their borrowers and buyers about how to take advantage of the benefits of the tax credits; and of course, tax advisors will need to create new strategies for their clients on how to adjust for the revenue offsets.