After lobbying by commercial real estate groups, Florida’s Department of Revenue spiked a plan that could have imposed more taxes on business leases.  For complete article…..

Thankfully the Department of Revenue decided not to pursue further this job killing double tax.

The news today out of California that High Speed Rail cost estimates have now tripled to the $100 billion range reinforces that Florida made the right decision earlier this year to protect taxpayers from just this sort of boondoggle. As I said at the time, High Speed Rail (HSR) would be far too costly to taxpayers and I believe the risk far outweighs the benefits. Im glad Florida is no longer entangled in the high speed spending web.

This was the release from the Governor’s Office last week.  Scott has been under fire recently for not doing enough to increase the sluggish Florida economy.  The timing of the release was awkward and it comes off as defensive.

I am sure the comments will make his Tea Party base happy, but the reality is, it just reinforces to those close to the project that the the Governor’s decision to reject the Federal dollars for High Speed Rail was based more on knee jerk, political ideology than actual facts.  At best, it is disingenuous of the Governor to compare the California debacle with what was proposed in Florida. Right of way issues are the primary challenge with California. Florida’s HSR right of way issues had already been solved.

Folks in Florida that cheered Scott’s decision tend to confuse the issues.  The question of, “Would the project have been good for Florida?” became blurred with, “Would HSR work?”  Analyzing the facts, it is hard to debate that the project would not have been good for Florida.  With the stroke of a pen, Scott killed 20,000 jobs in a State desperate for some positive job news.  Commercial real estate development along the HSR/I-4 Corridor would have added even more to the economic equation.  ”Would it have worked?” is a more valid question to which no one has the answer.  But, in the scope of things, there was no better place to attempt HSR than on a relatively short track between Tampa and Orlando.

Shortly after Scott’s rejection of Federal HSR money, he approved a State sponsored rail system in Orlando (Sun Rail), which is one of the lowest rated rail projects in the country. The initial cost of Sunrail to the State is also many times higher than the State’s proposed share of HSR costs.  On the surface, this was a deal that logically Scott should have killed with the same swiftness that he killed HSR.  The difference is SunRail was backed and promoted by Republican John Mika. HSR was an Obama initiative.  The two decisions showed how quickly Scott could turn his back on principals in favor of partisan politics.  We the people of Florida will have to pay for the Orlando train for eternity.   The cost of HSR was a national initiative and had far less downside financial consequences for the people of this State.

Sadly, Florida was the loser in this partisan game.   In the future, Governor Scott might consider restraining from making further comments about his high speed rail decision, considering his inconsistencies on the subject of rail.

Kaiser buys, plans for campus at GunnAllen’s former digs

Former Borders site to house Florida Orthopaedic Institute

Commercial originations rise 98% in one year, MBA says

Florida law firm Ruden McCloskey falls victim to economy, housing bust

Law Firm Takes Down Entire Floor of Newly-Renovated M&I Bank Building

BB&T is buying BankAtlantic, extending its Florida network

Crowne Plaza East Acquired by Joint Venture

Uptick in Tampa Area Land Sales

Weingarten Buys Six Acre Parcel for Whole Foods

Tampa Bay’s Real Estate Sector Rebounds

Tampa Bay Area Continues to Shed Construction Jobs

Done Deals:  Riverview Condo Community Sells

Pinellas County Office Market Sees Modest Improvement

Ryan Companies Chairman Passes Away

Tampa Bay’s Commercial Real Estate Sector Rebounds

Tampa’s Airport Master Plan to Include Rail Lines

Attendees: Eric Odum with Martin Gramatica and Terry Hunt

Date: October 24, 2011

Subject: The Market Minute

EO: Good Afternoon! Welcome to Market Minute. I’m Eric Odum, I’m the principal broker for Net Lease Commercial Advisory, and today we have two very special guests with us, and I’d like to just go ahead and roll right into it.. Terry Hunt, Terry is a local developer; I think you’ve been in the market for about 30 years now developing primarily industrial buildings, is that correct?

TH: That is correct.

EO: Great to have you here.  I really appreciate it. And of course the next person probably doesn’t need much of an introduction….. Martin Gramatica, the former place kicker for the Tampa Bay Buccaneers. Really happy to have you here today.

MG: Glad to be here.

EO: How long has it been since you stopped playing?

MG: Two and a half years now.

EO: Two and a half years. And so since then, what have you been up to?

MG: Well I started a green energy efficient, pre-fabricated construction company with both of my brothers, so that has kept us pretty busy. Bill and Santiago are both working with me.

EO: Bill and Santiago both working with you…..so the three amigos are together in business.

MG: Amigos every now and then.

EO: Terry you were working on this project with the Gramatica brothers.  How did you get together on this?

TH: Well, probably three years ago now, Deborah Tamargo, a long time Commercial Realtor friend, brought those people to see me.  The humor around our office is that Deborah brought them in to buy a building from me and two weeks later, I throw away $18,000 worth of prints that were ready to go for permitting.  We redesigned the office where I’m right now, my  new corporate office, and two warehouses that we were ready to break ground on and adopted his [Martin’s] product for the exterior of the building.  We never looked back. It was the best $18,000 I’ve ever thrown away.

EO: Just to get it straight, you were ready to go, and you had previous plans and you met Martin.  The product you saw as beneficial for you, so you basically trashed the entitlement work you’d already done on it and started from scratch.

TH: That’s it exactly right, and it gave us an opportunity to be a little bit different.  I think in the economic world that we’re in, somebody, a developer, a realtor, anybody in the real estate business wants to have something a little bit different and this product that Martin brought to the table, I’ve seen where it would give us an opportunity to be different.  It’s really worked for us. We are different.

EO: You guys brought some samples here, Martin do you want to explain a little bit about what this is?

MG: Sure, the core is closed cell polystyrene and it’s skinned with two fiber cement boards. The 100% main benefit of it is the energy efficiency.  With Terry’s wall we have an R32.  We have an 8” wall, R32, where a block wall would give you an R value of 1. So, right there increases it tremendously.

EO: Explain R values, what exactly does that mean?

MG: That’s the insulation value of the product, so from an R1 to an R32 on the same thickness of panel.

EO: So it’s almost like a Styrofoam almost…

MG: That’s basically what it is. What we tell people is, you are building an igloo cooler on the shell of your building.

EO: But the exterior of it is a very hard substance, a very hard material.

MG: That is the fiber cement board; most people know like a Hardie Board.  We use Nichiha,  which is the same standards; it’s just a little greener. By using (Nichiha), you have the hard skins on the outside, and the foam in the inside. There are some competitors they put the cement in the middle of the foam and have the foam on the outside, so that makes it a softer product. This way, you never get to the foam. Termites won’t eat it, because they won’t eat the foam, they won’t eat the glue that we use, and they definitely won’t eat the fiber cement. We used all steel track in Terry’s building, so obviously they won’t touch any of that. So basically, Terry’s got a 100% termite proof building on the shell and obviously energy efficient.

EO So, let’s talk about strength a little bit, because it’s important in the state of Florida.  You’ve got the hurricane situation.  How does this substance hold up with  hurricanes, for example?

MG: We had the whole product tested for Miami-Dade, and also for Florida product approval number. The standard system that we sell starts out at 130 mph from there you can engineer it to about 200 mph. So anywhere in the range; we have a house going on the water right now that’s 170. And it’s the same panel you can use for a 100sq. ft shelter that we sent to Haiti, to 10,000sq. ft. like Terry’s buildings, or even his corporate office.

EO: How does that compare with a concrete block?

MG: On the price or the energy efficiency?

EO: No, on strength?

MG: Oh, on strength, we are stacking strength 5 times stronger than block, and then on the projectile where they shoot the 2×4, we are the only company that has passed the Miami-Dade standard with a fiber cement board, where they shoot the 2×4.  Some have passed it with metal skins, but the difference with that is, the metal skin tends to sweat. It’s kind of like a coke can, where the fiber cement does not sweat so it won’t peel your stucco off.

EO: Well, Terry, the building we’re shooting this video in is made out of this material, correct?

TH: 100%.

EO: Tell me a little bit about the building. This is the thing that struck me, how many sq. feet again?

TH: In our Corporate Office?

EO: Corporate office.

TH: 2,000 sq. ft.

EO: 2,000 sq. ft and the dollars and cents of it. The most expensive energy bill you’ve had was in the summer like most of us, right?

TH: Absolutely.

EO: And what was that on a 2,000 sq. ft. structure?

TH: We’ve never had a bill over $165.

EO: In the winter it’s running?

TH: Well, the unique thing in the winter time it’s running in the $70-$80 range, and we never turned the heat on….only one time this winter. The refrigerator and computer towers throw enough heat out.  The lowest temperature it ever got in here was 68 degrees.

EO: Over the course of time, over a year, it sounds like it comes out to about $100 average over a year, right?

TH: Well, everything’s relevant to that, but I think the number would be about a 50% savings from what your energy bill is. My house bills are considerably more than this, and obviously not made out of this product. I’ve got 5 or 6 times that much with my house and I’m paying $300 and $400 (per month) on that particular bill right now.

EO: That would make sense. Commercially the average in Tampa is about $1.50/sq. ft. annually for electric costs, and you guys just on this building are running in the neighborhood of about .75 to $1.00/sq.ft. So that would be about right then.

TH: I hired an engineer when we did one of these commercial buildings and made him use all of Martin’s specs for the product and the A/C system was cut more than 50%. They wanted 11 ½ tons if it was conventionally done and they did it for 6 tons. They wanted to build it with 5 (tons), but I had them bump it just to be conservative.

EO: Now what is the product called?

MG: SIPS – Structural Insulated Panel Systems.

EO: Your development here is the United Business Park off of Hillsborough, and you’ve actually already constructed warehouse facility out of the SIPS product. Correct?

TH: We’ve constructed two 10,000 sq. ft buildings, and the ability to finish this product off in a warehouse atmosphere is very unique. You don’t have to put anything on it – you finish it like drywall – I’ll show you. You’ll think it’s drywall but it’s actually this panel, taped and mudded and for a warehouse look, it’s very, very pretty.

EO: Terrific. Now in terms of LEED, that’s the buzz word in construction right now, and that seems to be the standard. Are you guys LEED certified?

MG: Our product is, yes.  We get everything from within 500 miles. So in order to get a LEED certified building, the best and quickest way to get to that point system that you need to get to is by doing a SIPS shell.

EO: So I think we have a pretty good idea now of what the base of the product is and how it’s working. Why don’t we go outside and take a look a little bit further on what you are working on.

EO: So, here we are in a SIPS building, and I think it’s probably been a month the first time since I came out here and it was – this is an air conditioned space – but the first time I walked in here it was not air conditioned.  To me it was notable, because it was hotter than Hades outside, and you walked into the warehouse and it still felt like it was night, because it trapped the (cool) air inside. Why don’t you tell us a little bit about this space, Terry…. what’s in it and how the SIPS is working here.

TH: Well, we built this building for Keith Rucker, and Keith owns Quality Power, a very large power lawnmower dealer, probably the largest in the Southeastern US. And the reason he’s here is because of the SIPS product.  We gave him an energy efficient building, and when I was giving you those numbers before, that’s the engineer that was in this building that did it. The product finishes off like drywall, as I told you before, and it’s just a very easy, friendly product to work with. You can do anything you can do with drywall and all this bottom stuff is just adhered to the SIPS product. There’s no furring, there’s nothing. It’s just the steel system of merchandising, all this is tacked right on to the SIPS product.

EO: It actually looks like drywall. If you came in here and didn’t know any better, it looks like drywall.

TH: You could tell somebody its drywall.

EO: And if you’re working on a residential property, I would assume there are benefits to that because you’re not having to put your cinder block, and then put a frame, and then put drywall. There’s probably some cost savings there I would think.

MG: Cost savings because we run the electrical chase through the foam and then you just pop out your boxes, so instead of having a 12” wall by the time you are done with block, furring and drywall, you have a 4” wall so you increase square footage on the house too…..not only the savings, but the square footage and obviously the R value.

EO: Let’s talk a little bit about the user. Why does a user care that this is an energy efficient facility. Talk about not only from the tenant’s side but from the owner’s side, as well.

TH: Well, number one as I told you earlier, the air conditioning here was taking 11 ½ tons. That’s two systems. Now we have one system that’s 6 tons in here doing it.  So from the maintenance side, you’re at least 50% less maintenance and they run 50% less time, so your energy bill is down and your maintenance bill is down because they’re not running all that  time. There are times that air conditioners just won’t come on. It’ll maintain that temperature for long periods of time. So, from an owner standpoint, Keith is on a lease/purchase program and we give 20% of his rent back in a 5 year period so he can purchase the building.  The SBA has programs that work well. Your banks will acknowledge that, so the energy savings alone will make a huge difference in his budget over a 5 year period.

EO: So typically what are you finding payback periods on this type of a structure for the owner, from the owners side? I think after you’re running the air a lesser amount and you’re using less electricity…. it’s costing a little more actually to build, right?

MG: No, that’s where the misconception is. People equate it as a hybrid car, where you pay a lot more for a hybrid car. Here you are paying even cheaper than you would with block. Equally performing, we’re about 10% cheaper, plus you have the energy savings.

EO: So, right from day one you’re essentially saving.

TH: From day one, there is no payback period and the simplicity of this product.  My concrete block guy is 60 years old…been doing it his whole adult life…looks at me and asks why would anybody build out of concrete block? That’s the man in business for concrete block.

MG: The other advantage is you can make it look beautiful. You see Terry’s buildings; more people have the thinking that just because it’s SIPS, the building is made out of foam, that it has to look a certain way. You look at Terry’s buildings you would never know they are made out of SIPS. So that’s another advantage you can finish them any way you want. That’s another huge advantage.

EO: Well guys I really appreciate you spending the time with me today, and I was told to ask you one last question. Who’s going to win the Superbowl this year?

MG: I always got to cheer for the Bucs, so I’m going to cheer for them, I’m not sure if we’re there yet, but I’m going to cheer for them.

EO: Alright guys, thank you very much!!

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.

The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S. (see complete Wall Street Journal Article)

I am sure this bill is going to garner some criticism in some corners.  It certainly appears on the surface to be selling US visas in exchange for foreigners’ help in bailing out the real estate market.  But, maybe these visa change proposals ALWAYS should have been in place.  Real estate is a “hands-on” investment, unlike other passive investments.  The money invested in real estate is also “sticky,” meaning investors are more likely than not to have a time frame exit strategy of longer than one year….5 to 7 years realistically at a minimum.  The investors will improve the properties, buy furniture and use local services.  All of this is good for the local economy and the financial commitment closely matches programs already in place, such as the EB5 visa.

The Florida and National Associations of Realtors reports that approximately25% of all real estate sales in Florida were to foreignors for the 12 months ending June 2011.  Most of these investors are from Canada, the UK and Germany. I am not sure how much this bill will effect sales to nationals from these countries as it is not currently necessary for citizens of these countries to obtain a visa before coming to the US.  But, it is logical to assume passing of the bill will have positive influence on sales of real estate to Brazilian, Indian and Chinese nationals to name a few, that now have stricter requirements for entry in to the US.  With a minimum of $500,000, the bill will largely attract investors that are capable of immediately contributing to the economy, perhaps start businesses here and employee US workers.  There is an enormous amount of wealth being created in the emerging economies .  The US has historically made it difficult on these countries’ citizens to obtain visas.  To ignore their growing financial influence is not beneficial to US or Florida’s interests.

For any interested parties, this is the letter sent to the members of the Florida Gulf Coast Commercial Association of Realtors (Please take a moment to contact your legislators):

FROM GOVERNMENT AFFAIRS COMMITTEE: Please read and take action to defeat this proposed tax.

Dear Interested Party and Fellow Brokers;

The Department of Revenue is trying to impose sales tax on Tenant Improvements.

This includes any and all real estate that incorporates tenants. This tax is in addition to the sales tax paid on the materials to build the tenant improvements and the real estate tax paid on the improvements.

Please assist us in defeating this tax on tax. A form letter is printed below, listing who to send it to, and who to copy it to.  Attached is a list of our legislators, too. Please spend a few minutes assisting us in defeating this outrageous attempt to double tax our industry. We need your help.

Receipt deadline is October 20  so it must be sent by October 15, 2011 to safely reach Tallahassee.  If so inclined, feel free to change the wording.

Also feel free to call any politician you know and voice your opinion on this issue. Get involved and thank you in advance.

Sincerely,
FGCAR, NAIOP, BOMA, CBA,
FR and others

Any questions?  Feel free to call Bob Zegota at 813-263-4867 or Avi Adler at 813-463-3618

Letter to DOR:

French Brown
Deputy Director, Technical Assistance and Dispute Resolution
Department of Revenue
PO Box 7443.
Tallahassee, Florida 32314-7443

Dear Department of Revenue:

On September 21, 2011 a workshop was held to determine whether to charge Sales tax on tenant improvements for commercial real estate projects.
According to the State Statute 212.031 (2) (b):
(b)  It is the further intent of this Legislature that only one tax be collected on the rental or license fee payable for the occupancy or use of any such property, that the tax so collected shall not be pyramided by a progression of transactions, and that the amount of the tax due the state shall not be decreased by any such progression of transactions.

This proposed rule is not only in conflict with the law as stated above, but also bad for small business in Florida for the following reasons:

• It is double taxation or pyramiding as referenced in the statute.
• Tenant improvements are 2 components, materials and labor. Materials are already sales taxed. Labor is taxed in many other aspects of government. Given the current economic climate, some landlords do not have capital to perform improvements on behalf of potential tenants. So the tenants do it to improve their business climate. They too then would experience double taxation. In this market, profit margins are marginal.  A 6-7% variance of costs to a tenant or landlord can make or break a deal.
• Once improvements are made, the Property appraiser reassesses the property to include tenant improvements in property taxes. Your proposal taxes this tax resulting indouble taxation. Tenant improvements are tenant specific. Once a tenant vacates, the tenant improvements have little, if any, residual value to the property. The lease itself is already taxed at 6-7% including CAM charges which are also made up of taxes and insurance and are normally tax exempt. Many leases include the costs of tenant improvements amortized over the life of the lease.
• Cost of government and add on taxes have already devastated the commercial real estate industry. CRE is sales taxed, property taxed, corporate taxed, utility taxed, income taxed, license taxed, and so on. One more tax could bury an already struggling industry.
• Taxes are already running amuck. Attempting to add another tax to items that are either already taxed or in other instances exempted, places an unfair burden on a narrow segment of the business population in our state. Our Governor promised no new taxes. Why would you attempt this in these trying times?

  I wish to go on record as a person who adamantly opposes any new tax of any sort, especially those taxes which are nothing more than double taxation.

  Sincerely,

  Cc: Governor Rick Scott
  My Legislator

  =================================================

  Information Sheet
  Send your letter to:
  French Brown
  Deputy Director, Technical Assistance and Dispute Resolution
  Department of Revenue
  PO Box 7443.
  Tallahassee, Florida 32314-7443
  Email: Rulecomments@dor.state.fl.us
  In subject line include 12A-1.070 Workshop 9-21-11

  And:

  Office of Governor Rick Scott
  State of Florida
  The Capitol
  400 S. Monroe St
  Tallahassee, FL 32399-0001
  (850) 488-7146
  His e-mail:
  Rick.Scott@eog.myflorida.com

  Legislators: See Attached

  Please copy any letters, emails or anything else to DORchallenge@gmail.com

This is to insure they receive everything and that we can track who and how many are involved. Your information will not be used for anything but this task
and will be kept otherwise confidential

DEADLINE FOR RECEIPT
BY DOR IS October 20,2011.

October 2011   A proposed sales tax on improvements to leased property would have a major negative impact on Florida business and discourage many from leasing office, industrial and retail space in the State, according to Bob Zegota, Chairman of Government Affairs, Florida Gulf Commercial Association of Realtors (FGCAR).

Zegota characterized the proposal as “double taxation” since there’s already a sales tax on leases.

“Double taxing commercial real estate is a new picture of an old practice that has been occurring in Florida for years with common area maintenance fees,” Zegota said.  “Now the Department of Revenue wants to impose a sales tax on the tenant while the tenant is already paying tax on the improvements through a lease. That is double taxation.”  Full story at Maddux Report

Goodness gracious.  What is the Florida Department of Revenue THINKING!?  A tax on tenant improvements?  This year, the Florida Legislature cut, cut and cut some more and that was before Gov. Scott unilaterally decided to increase those cuts.  Apparently, they are beginning to feel like they cut bone,  so there is a perceived need to generate more revenue.  I get that.  But, why tax tenant improvements?  It makes no sense if your goal is to increase the job pool.  Tenant Improvements are spent largely on tenants that are moving in to a new or different space than they currently occupy.   Growing companies expand and with each new lease, there are costs associated with arranging the property in a way that is best suited for their business.  These “improvements” could be as simple as paint or carpet….or they could be a massive build out that could cost as much or more than the original building shell.

This action is blatantly anti-business expansion….anti-job creation.    So, why consider it?  The answer is simple.  Its an easy target.  That is why.  Doing my best Yogi Berra imitation… Tenants that haven’t moved in, don’t know what they don’t know.   New commercial tenants are not an organized industry group, they don’t hire lobbyists, and they won’t march to “Occupy Tallahassee.”  They probably won’t even know they are hit with this tax until they start considering moving.  At that point, it is too late for them to do anything about it.

As a tenant rep, I deal with expanding businesses every day.  They are a skittish group.  One day they are full of confidence.  The next day they aren’t.   If “WE the People” make them comfortable, we increase the chances that they make that leap of faith, sign that new lease for more space AND?….Voila’ ADD MORE JOBS!  Adding an additional tax to the Go/No-Go decision could be the proverbial straw that breaks the camel’s back in favor of No-Go.  Do not place additional barriers on companies that are considering expanding…not right now.

This is a bad bill.  It is harmful to growth.  It is harmful to job creation.  It is bad for the people of the State of Florida.  Please contact your legislators and tell them to “KILL THIS!”

List of Tampa Bay Legislative Delegates – Click here!