Posts Tagged ‘capital-gains’

The 4th Quarter Rush to Sell

Friday, January 4th, 2013

With the Bush era tax cuts on capital gains poised to expire at the end of the year, the investment sales market went on a tear in the 4th quarter. According to CoStar, total deals were up 46% from the same time a year ago based on transaction data through Dec. 31, according to Brian Kerschner, real estate economist for Property and Portfolio Research (PPR), CoStar’s analytics and forecasting company.

Not surprisingly, it was small-cap deals — assets most likely to be sold by owners hoping to mitigate the tax consequences of a sale – that really spiked, increasing in volume by 77% in the fourth quarter. Large-cap deals typically have less exposure to capital gains because they tend to involve REITs and pension funds which are tax advantaged investors.

The maximum rate for long-term capital gains had been 15% for individuals earning up to $85,650 a year or families earning up to $142,700. If we had gone over the cliff, the rate would have jumped to 20%.

Deals that closed in the waning days of 2012 included the following:

  • Amazon.com had the blockbuster of the year:  It paid $1.16 billion for its Seattle headquarters, encompassing 11 buildings totaling 1.8 million square feet.
  • Cupertino, CA-based Mission West Properties, Inc. sold all of its real estate assets for about $1.3 billion in two separate transactions
  • Dexus Property Group sold the majority of its U.S. industrial portfolio for $561 million as part of its strategy to exit the U.S. market by April, reallocating proceeds from offshore property sales to core Australian properties, CEO Darren Steinberg said. The sale of 26 of Dexus’  27 American properties was achieved at a significant premium to their book value.

Incidentally, the same logic applied to the residential market. New York, for example, saw an extraordinary 2,598 home sales in the last three months of 2012 — the highest for a Manhattan fourth quarter in at least 25 years.

Under the terms of the fiscal-cliff deal reached Tuesday, capital-gains taxes increased only for annual incomes over $400,000 for individuals and $450,000 for households. They will pay a new capital gains tax rate of 23.8%.

Median Family Wealth Slid 40 Percent During Recession

Tuesday, June 19th, 2012

While the American public was bailing out Wall Street, those same taxpayers saw their families’ net worth decline by nearly 40 percent. The recession took roughly 20 years of Americans’ wealth, according to government data, with middle-class families faring the worst.  According to the Federal Reserve, the median net worth of families plummeted by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010.  That means that American families median worth has reverted to 1992 levels.

The study is one of the most comprehensive examinations of how the economic downturn altered family finances.  Over three short years, Americans watched progress that took a generation to accumulate fade away.  The dream of retirement that relied on the expected rise of the stock market proved deceptive.  Homeownership, once viewed as a source of wealth, became a burden because the market collapsed.  The findings emphasize how deep the wounds of the financial crisis are and how healing is impossible for many families.  If the recession set Americans back 20 years, economists say, the road ahead is certain to be a long one.  And so far, the country has experienced only a halting recovery.  “It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics.  “We were in free fall.”

Net worth is defined as the value of assets like homes, bank accounts and stocks, minus mortgage and credit card debt. The Fed found that median home equity declined from $95,300 in 2007 to $55,000 in 2010, a 42.3 percent drop.  Home equity is defined as the home’s value minus how much is owed on the mortgage.  According to the Fed, median incomes fell from $49,600 in 2007 to $45,800 in 2010, a 7.7 percent drop.

Additionally incomes fell the most among middle-class families.  The wealthiest 10 percent saw their median income decline 1.4 percent over the three years, while families in the second and third quartiles experienced a drop of 12.1 percent and 7.7 percent.  The lowest-income Americans saw their paychecks fall by 3.7 percent.  Families were less confident about how much income they could expect in the future.  In 2010, slightly more than 35 percent said they did not “have a good idea of what their income would be for the next year,” an increase over the 31.4 percent reported in 2007.

Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” according to the Fed.  The survey’s findings cast a harsh light on the damage done to the economy by the recession and which helps to explain the exasperatingly slow pace of recovery.  The housing market’s collapse was at the core of the recession, during which the economy contracted approximately 5.1 percent between the 3rd quarter of 2007 and the 2nd quarter of 2009, and the unemployment rate soared 4.5 percent to 9.5 percent.  “Housing was of greater importance than financial assets for the wealth position of most families,” the Fed said.  “A substantial part of the declines observed in net worth over the 2007-10 period can be associated with decreases in the level of unrealized capital gains on families’ assets.”

Incomes improved in late 2011 but have begun falling again this year,  said Gordon Green, cofounder of Sentier Research.  The decline is larger and more unrelenting than in the recovery after the 2000 recession, when family incomes returned to previous levels within 18 months, Green said.  “Incomes went down more during two years of this recovery than during the recession itself,” he said.  “I don’t think we’ve seen anything like this.”

The impact a given family felt depended on where they live, how much they earn and what kind of investments they had, said Scott Hoyt, an economist at Moody’s.  “Richer people owned more bonds that didn’t get killed,” Hoyt said.  “For middle-income households, their primary asset is their house at the low end and the government stimulus backstopped incomes.”

Household net worth reached a high point of $66 trillion before the recession hit in December 2007 and sank to just $54 trillion in 2008, according to the Fed.  It was $63 trillion in the 1st quarter this year, but that doesn’t reflect the stock market’s volatility since then.  The Fed estimates Americans lost $7 trillion in home equity because of the housing bust that followed a significant increase in mortgage defaults after 2006.

How Will President Obama Impact Commercial Real Estate? Part 1

Thursday, December 18th, 2008

With change expected to begin in Washington, D.C., on January 20, 2009, the commercial real estate industry is bracing itself for the incoming Obama administration and the 111th Congress.  CoStar Advisor recently polled commercial real estate professionals on the top issues of the first 100 days.  The resulting list includes such policy issues as saying “no” to capital-gains increases and other investment taxes; moving forcefully to stabilize the Treasury and capital markets; suspending market rules regulating perceived asset value; making the biggest investment in the public infrastructure since the 1950s; and reforming Fannie Mae and Freddie Mac.

The overall attitude within the industry, according to a poll by National Real Estate Investor, is negative because of Obama’s plan to hike taxes on dividend income, capital gains and high-earning individuals.  The poll notes that 54 percent of responders are registered Republicans.

So, should our industry be wary of the new team?

http://www.marketwatch.com/news/story/Commercial-real-estate-stocks-rally/story.aspx?guid=%7BF3669FE9-C7E9-4D5C-9A85-AE7FECF0E5DF%7D