Assets depreciate over time and in real estate the life of the asset for an office building is 39 years. Obviously, most elements of a building such as carpet, interior walls, parking lots and roofs don’t last 39 years.   Cost segregation allows property owners to write off many elements of the property over a shorter life, which increases the amount of depreciation that can be taken in any one year.

Bob: How is cost segregation done and what is required to make sure it’s done properly?

Walt: Cost segregation studies are done by  an engineer and an accountant.  The owner will need an engineer’s report to indentify the shorter life elements of the property.  The accountant makes sure it is done properly with the IRS.

If anyone would like more information on cost segregation studies give me a call at (505) 256-1255 and we can talk more at length about it. It is an effective way to lower tax obligations, and that’s a good thing.

Bob: Charter Bank was taken over by the FDIC last Friday and handed over to Beal Financial Corporation.  You’ve talked before about the current federal regulations on banks and how it is affecting them.  What happened to Charter?

Walt: We have talked about this before and the Office of Thrift Supervision’s stringent oversight on the commercial banking system.  I think what happened to Charter is unfortunately going to play itself out with other banks.

The OTS made Charter write down their commercial real estate loans and for struggling banks that means putting in cash reserves for their potential real estate loses. The bank simply does not have the cash for the reserves.  The interesting part of is that Charter said the loans were not in default and where being paid.  This is an extremely difficult quandary for banks.  This is the reason although money is cheap it is hard to get a commercial loan because banks are  being required by the Feds to put cash in loan loss reserves for potential real estate losses instead of putting it out in new loans.

Bob: How can people contact you today?

Walt: Thanks Bob, there are going to be opportunities over the next couple of years in commercial real estate and Sperry Van Ness has the people and tools to help make sound investment decisions. Call me, Walt Arnold at (505) 256-1255 or check us out at waltarnold.com if you would like to discuss any of this further.  Thanks Bob, have a great week.

To read or listen to more of Walt’s weekly commercial real estate reports, visit waltarnold.wordpress.com.  To reach Walt, email him at Walt.Arnold@svn.com.