Capital-gains taxes hurt property sale, brokers say

Capital-gains taxes hurt property sale, brokers say

Cobin, Harold F

The strength of the commercial real estate market in Westchester County is anywhere from robust to anemic, according to brokers.

“It’s been as good as it’s been in a long time,” says William Cuddy, who brokers Westchester properties from the Stamford, Conn., office of C.B. Richard Ellis Inc. I think the activity level has been strong, and some might suggest it’s even been robust.”

Cuddy says the acquisition of buildings in Westchester by major corporations for their headquarters have dramatically shifted the “supply-demand dynamic for large blocks of space,” which will inevitably drive up rents for such properties. He noted Kraft Foods’ relocation to Tarrytown, Nokia’s move to White Plains and Dannon’s to Tarrytown

Asked how he sees the commercial market shaping up over the next six months, Cuddy says “it’s real estate so anything can happen, but Westchester’s in a fairly healthy position.”

He also says near-term increases in interest rates will not impact sales of office buildings.

What is having an impart, says Lionel Markusfeld, is taxes on the sale of commercial properties, making it unprofitable to put them on the market.

For investment properties, “there’s a ton of buyers. There’s no property available,” says

Markusfeld of A.Q. Commercial Realty in Mamaroneck, who blames capitalgains taxes for making the prospect of selling a building unattractive.

“You can’t make the income that you can make keeping the property you (have),” says Markusfeld. “What in effect that does is make it so there isn’t a market. I mean a market is to be fluid – people buy and sell and move – but when tax rates go to where people can’t get enough money to reinvest, they’re not going to sell.”

Another problem is working under the scrutiny of local governments, says Markusfeld. “Municipalities in today’s world are very invasive on the ownership of property.”

In contrast to Cuddy’s lack of concern about rising interest rates, Carl Austin says that because of higher rates, “I think a lot of the sale activity that we’ve seen, the rush of it may slow I don’t think it’ll stop, but it may slow.”

With 38 years in the business, Austin of Austin Corporate Properties in Rye Brook, says smaller property investments are “still anemic” because the economy really hasn’t caught fire yet in rehiring across the board.

Austin says there seems to be a trend in companies jumping the border from Fairfield County in Connecticut into Westchester, which he attributes to a better spread of rental rates in Westchester.

Compared with Fairfield County what is available in Westchester at lower rates is very attractive in terms of the buildings, the floor plates, the environments,” Austin says.

Ken Harbour of Harbour Commercial Real Estate in Armonk sees a shortage of inventory for commercial properties in Westchester.

In general, the commercial real estate picture is pretty rosy from the standpoint of there being still a lot of dollars out them to buy property and not much on the market,” says Harbour.

At the same time, Harbour points to “an interesting phenomenon,” where prices on office buildings, particularly class A properties, are increasing along with vacancy rates.

“Usually there’s an inverse proportion, but they’re going together for some reason,” says Harbour.

He believes that in the short term, there is what he perceives to be a nonsubstantial net loss in total office space occupancy while more space is becoming available than can be absorbed.

Harbour also concurs with Markusfeld that the capital-gains tax discourages property sales, noting that after subtracting the tax from a sale, it’s difficult to purchase another property where you’ll break even.

Noting there was a time in the late 1980s where values of commercial property dropped about a third, Harbour says, “There is a certain sophisticated owner who’s saying prices are so high, rates of return are so low, I can’t afford to own this property anymore. Maybe it’s not going to be worth as much next year as it is this year.”

But he calls that argument a “very hard sell because, generally speaking, values keep increasing over time.”

Harbour says the likelihood of higher interest rates has “created a bit of urgency.”

People don’t want to get caught in the interest spiral,” says Harbour “Rather than lose the opportunity of cheap money, we try to make the deal today.”

As for companies moving from Farfield County to Westchester Harbour says there are reasons for them to do so, particularly from the Greenwich and Stamford market where rental rates have been particularly higher.

However, in real estate, location is a key factor.

Frankly, it’s hard to get a guy off East Putnam Avenue,” says Harbour, “’cause you know, there’s a certain character and lifestyle in Greenwich that we can’t really do in White Plains. It’s a whole different feeling.”

Copyright Westfair Communications Jul 12, 2004

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