March/April Newsletter.indd

COMMERCIAL
RE AL ESTATE REPORT
BILL GLADSTONE, CCIM, SIOR
March/April 2008
Proceed with Caution:
An Overview of Pennsylvania’s Amendments to its Realty Transfer Tax Regulations
T
By Peter R. Wilson, Esq.
The Pennsylvania Department of
Revenue has amended
several
regulations governing the payment of
realty transfer tax and taxable
transfers. These changes
were
effective upon publication of the
new regulations in Pennsylvania
Bulletin No. 07-2306 on December
15, 2007. Real estate practitioners
in Pennsylvania have much to be
concerned about as many types
of transactions are impacted. In a
nutshell, life as we know it in the
world of Pennsylvania real estate
has been irrevocably altered. The
following is a summary of a few areas
of concern by topic.
Agreement of Sale to Purchase
Real Estate
In certain situations, realty transfer
tax will be imposed on the consideration
From the Sales Desk
t SOLD - 5005 DEVONSHIRE
ROAD, HARRISBURG
A local fire restoration company
purchased the former Sir Speedy
Printing building located in
Lower Paxton Township.
SOLD - 816 BELVEDERE STREET, u
HARRISBURG
Two investors represented by
David Hooke of Hooke, Hooke
& Eckman, a Carlisle brokerage
firm, purchased this property.
paid for the assignment of a contract
to acquire real estate whether included
in the stated consideration or not. The
concern of real estate practitioners is that
this amendment is contrary to the 1996
Pennsylvania Supreme Court decision
of Allebach v. Department of Revenue.
It remains to be seen whether private
litigation will challenge this amendment
or the Department of Revenue
reconsiders its current interpretation.
For now, all parties need to understand
the potential liabilities.
For example, Tom enters into a
contract to sell a 20-acre tract of
land to Larry. The purchase price
is $1,000,000.00. Larry assigns his
interest in the contract to Paul for
(Continued on page 2)
1-2, 5, 7
Proceed with Caution
3-4, 6-7
Current Listings
8
Bits and Pieces
Phone: 717.761.5070
www.BillGladstone.com
[email protected]
www.naicir.com
Proceed with Caution
$200,000.00. Paul then assigns his
interest in the contract to Kim for
$300,000.00. In real estate parlance,
this piece of property has been
“flipped”. At closing, the deed from
Larry to Kim reflects consideration
of $1,000,000.00. The Department
of Revenue views the tax liability to
be based on the principle set forth
in the 1979 Pennsylvania Supreme
Court decision in Baehr Bros. v.
Commonwealth: that the Department
of Revenue should look beyond the
“form” of a transaction and examine
the “substance” to determine realty
transfer tax liability. As a result,
each “flip” is treated as a fee-simple
transaction. Each grantor and grantee
is jointly and severally liable for the
tax on their proportionate share of the
(Continued from page 1)
we now have essentially three taxable
transactions:
Tom to Larry: $1,000,000.00
Larry to Paul: $1,200,000.00
Paul to Kim: $1,500,000.00
Previously, transfer tax would
have only been paid on the original
$1,000,000.00 purchase price.
Another assignment issue that has
caused great concern is the Department
of Revenue’s interpretation of the real
estate industry’s preferred method of
holding title through an entity. It has
been common practice for a buyer
to walk into my office holding an
executed contract with his/her name
plus the term “and/or assigns”, and
ask me to form a limited partnership or
limited liability company (controlled
by the client) in which to hold title.
"In the past, transfer tax was paid on the transfer
from the seller to the entity; now the Department
treats this as two transactions."
total value of the “flip”. In other words,
Tom’s liability is based on the original
purchase price of $1,000,000.00.
Larry’s realty transfer tax liability is
based on $1,200,000.00 – the contract
price plus the consideration for the
assignment to Paul. Paul’s liability is
based on $1,500,000.00 – the original
contract price of $1,000,000.00; the
value of the assignment from Larry,
$200,000.00; and the value of the
assignment to Kim, $300,000.00.
Kim’s liability is $1,500,000.00 – the
value of the consideration under
the original agreement of sale,
$1,000,000.00; and the value of the
consideration for the assignment from
Larry, $500,000.00. In other words,
At settlement, the parties execute an
assignment from buyer to buyer’s
new entity and the deed goes from
seller to the new entity. No problem,
right? Not so fast.
The Department of Revenue has
taken the position that since the entity
did not exist at the time the buyer
entered into the contract, the buyer
could not have been an agent or
principal of the entity for purposes of
entering into the contract. Therefore,
we have two transactions for realty
transfer tax purposes. Here is an
example: Bill enters into a contract
on Monday to sell his office building
to Gary for $6,000,000.00. The
“Buyer” is listed in the contract as
“Gary and/or his assigns”. Gary visits
his attorney, Hillary on Tuesday,
and asks her to form a new limited
partnership in which to take title. At
closing the original parties execute
an assignment of the contract to the
new entity. In the past, transfer tax
was paid on the transfer from Bill
to the entity based on the stated
consideration of $6,000,000.00. Now
the Department will treat this as two
transactions: one from Bill to Gary
and another from Gary to his own
limited partnership. Here the transfer
tax is two percent of $12,000,000.00
with Bill responsible for one percent
of the first $6,000,000.00 and Gary
paying one and one-half percent of
$12,000,000.00.
1031 (Like-Kind) Exchanges
With new regulations transfers
under Section 1031 of the Internal
Revenue Code to and from qualified
intermediaries (QIs) and exchange
accommodation title holders (EATs) do
not qualify as excluded transactions.
Therefore in situations such as reverse
exchanges, the Department of Revenue
will treat the EATs acquisition of the
replacement property as a separate
taxable event. So in these situations,
the transfer of title into the EAT and the
subsequent transfer to the purchaser is
(Continued on page 5)
2
N E W L I STINGS
p CONTACT US TODAY:
The Bill Gladstone Group of NAI CIR
Phone: (717) 761-5070
Web site: www.BillGladstone.com
p SALE – 136 N. HERSHEY ROAD, HARRISBURG
1± acre site located just north of Rt. 22 and Rt. 39. Convenient
to full interchange of I-81 and new communty project along
Rt. 39. Zoned Neighborhood Commercial.
p LEASE – 989 EAST PARK DRIVE, HARRISBURG
3,750 SF available; self-contained suite with various work
rooms and offices. Convenient location off I-83 and Union
Deposit Road. Ample on-site parking.
p SALE – 1282 N. MOUNTAIN ROAD, HARRISBURG
0.7 acre site; former Exxon Mobil convenience store and gas
station. Well-traveled road connecting to full I-81 interchange.
Rests between Rt. 39 and Rt. 22.
p SALE – 5148 E. TRINDLE ROAD, MECHANICSBURG
1.0 acre site convenient to Rt. 15, Rt. 581 and Rt. 11. Former gas
station and car wash located along Rt. 641. Good surrounding
demographics and commercial development.
p SALE – EISENHOWER BOULEVARD, HARRISBURG
10± acre site with public utilities available. Easy access to
Rt. 283, I-83 and PA Turnpike. Surrounded by commercial, retail
and industrial development. Daily traffic count: 14,300 vehicles.
p LEASE – 1029 MUMMA ROAD, WORMLEYSBURG
2,000± SF available on 2nd floor. Convenient location with
quick access to all major business hubs on both East and West
Shores. Attractive window lines and professional finishes.
p SALE – 1601 RITNER HIGHWAY, CARLISLE
31,655 SF freestanding building on 10 acres. Located at
signalized intersection along Rt. 11 and one mile from full
interchange of I-81. Surrounded by industrial development.
CIR
Commercial Real Estate Services, Worldwide.
717.761.5070 l www.naicir.com
Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of
price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A
3
www.billgladstone.com/commercial
C O M M E R C I A L L I STINGS
p SALE – 87 TREMONT ROAD, PINE GROVE
19,644 SF bowling alley on 1.84 acres. Business has closed,
but furniture, fixtures and equipment are included. 16 lanes
and two lounges with a bar. Plenty of on-site parking.
p SALE – 1425-1429 N. THIRD ST., HARRISBURG
Two brick structures that are currently being renovated with
a possible parking area on 3rd lot. 9,420 SF total located in
prominent intersection across from HACC Midtown Campus.
p SALE – 1580-1590 ROBINHOOD DRIVE, ETTERS
Two buildings, 2,550 SF available on 1.28 acres. 900 SF wooden
A-Frame commercial building and 1,650 SF masonry house.
High visibility; located along the eastbound side of I-83.
p LEASE/SALE –10105 JONESTOWN ROAD, GRANTVILLE
5,216 SF freestanding building located near Penn National.
Ideal for medical/professional office use; commercial uses are
permitted. Approximately 45 on-site parking spaces.
www.billgladstone.com/industrial
I N D U S T R I A L L I S TINGS
p LEASE – 142 RENO ST., NEW CUMBERLAND
10,140 total SF available. 1,200 SF office space. Oversized
drive-in door to space. Partial 2nd floor storage; 1,240± SF.
p LEASE/SALE – 1501-1513 N. CAMERON ST., HARRISBURG
7,325 SF available. Two-floor main building and three single story
buildings. Leases currently in place for about 80% of total leasable
space. Office and warehouse/storage space available for occupancy.
p LEASE – 4700 WESTPORT DRIVE, MECHANICSBURG
82,590 total SF available; subdividable to 4,800 SF increments.
Convenient location off Rt. 15, close to PA Turnpike. Dock and
drive-in combinations available.
p LEASE – 7700 DERRY ST., HARRISBURG
100,000 SF flex warehouse building, subdividable to 4,000 SF
increments with dock/drive-in combo; available for lease or condo
purchase. Sits at heavily traveled, signalized intersection.
CIR
4
Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of
price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A
Commercial Real Estate Services, Worldwide.
717.761.5070 l www.naicir.com
Proceed with Caution
treated as two additional transactions
(where realty transfer tax is paid twice,
and when combined with the transfer
tax being paid on the traditional sale
and purchase, the parties could be
liable for realty transfer taxes on four
transactions). With proper planning,
this scenario could be avoided through
the use of tiered disregarded entities.
The good news is that in a typical
forward
exchange where
the
relinquished property is sold first and
the replacement property is purchased
at the end of the exchange, and the QI
does not take title to the property, there
are only two taxable transfers – the
sale and the purchase.
Sale/Leaseback Arrangements
In the past, transfer of title was a
taxable transaction, but the leaseback
(Continued from page 2)
to the seller was not subject to
realty transfer tax. Under the new
regulations, if title to the property is
conveyed on the condition that the
realty is leased back to the seller, the
initial transfer of title is a taxable
event and the leaseback is taxable
if the term is 30 years or more
(including renewal options). Keep in
mind the foregoing may be subject to
certain exemptions, particularly if the
sale/leaseback is part of a carefully
structured financing transaction
wherein neither the sale nor the lease
is subject to tax. For example, Adam
transfers property to Eve in exchange
for consideration. As part of the same
transaction, Eve leases the property
back to Adam for 30 or more years.
the right to repurchase the property
at the end of the lease term. Adam’s
rental payments under the lease enable
Eve to get back everything she paid
for the property, plus interest, and
Adam has has the right to repurchase
the property at the end of the lease
term.
(Continued on page 7)
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5
www.billgladstone.com/office
O F F I C E L I STINGS
p LEASE – 126-128 WALNUT ST., HARRISBURG
3,350 SF available in historic building located in the Central
Business District. Space is on 2nd floor; private 1st floor
entrance. Parking available at market rates in nearby garage.
p LEASE – 516 INDUSTRIAL ROAD, LEWISBERRY
10,100 SF freestanding building available for lease. Currently
has 3,735± SF warehouse space, but could be easily opened for
additional space. Two drive-in doors and small fenced yard.
p LEASE – 900 CENTURY DRIVE, MECHANICSBURG
Two-story building with professional finishes and good window
lines. 1,584 SF suite ready to accept build-out on 1st floor. Easy
access to Route 15 and PA Turnpike.
p LEASE – 5070-A RITTER ROAD, MECHANICSBURG
2,750 SF available in single story masonry building. Located
in prominent Rossmoyne Business Center. Finished to suit
tenant's needs. Immediate access to Rt. 15 and PA Turnpike.
p LEASE – 3425 SIMPSON FERRY ROAD, CAMP HILL
5,100 SF suite available on the 2nd floor. Professional finishes
throughout; good window line with high ceilings. Plenty of
on-site parking.
p LEASE – 3600 VARTAN WAY, HARRISBURG
27,500 SF available; can be subdivided to 2,000± SF.
Two-story brick building with wrap around glass window lines.
203± parking spaces on site. Easy access to I-81 and all major
highways.
p LEASE – CLIFFDALE OFFICE PARK, CAMP HILL
Professional office complex with four identical buildings.
Office suites available from 217 to 3,050 SF. Immediate access
to I-83 and PA Turnpike. Competitive rates.
p LEASE – 2601 MARKET PLACE, HARRISBURG
Professional in Class A office space available in Commerce
Park. Suite 110: 3,403 SF; Suite 450: 1,715 SF; Suite 350:
3,312 SF. Competitive full-service lease rate. About 4.5
parking spaces/1,000 SF.
CIR
6
Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of
price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A
Commercial Real Estate Services, Worldwide.
717.761.5070 l www.naicir.com
Proceed with Caution
(Continued from page 5)
Transfer of Interest in Real Estate
Companies
Under certain circumstances the
new regulations can create a taxable
event when 90 percent or more of
the ownership interests in a qualified
“real estate company” are transferred
within a three year period. Under the
regulations, along with other specific
requirements, a “real estate company”
holdings. is one that holds realty the
value of which comprises 90 percent
or more of the company’s tangible
asset holdings.
into an SPE upon the request of a
lender will create tax liability.
Conclusion
In the current environment, it is
more important than ever to consult
with an experienced real estate
attorney before making any moves
that may create unintended realty
transfer tax liabilities. Today, the old
axiom “Prior Planning Prevents Poor
Performance” rings truer than ever.
Single Purpose Entities
Commonly the real estate community
utilizes single purpose entities (SPEs)
at the request of mortgage lenders in
financing arrangements. Despite the
best efforts of the industry, the new
regulations do not create an exemption
for transfers into such SPEs. It is
critical that buyers consult with their
advisors prior to entering into contract
and taking title; a subsequent transfer
About the Author
Peter R. Wilson, Esquire, is a shareholder
in the Central Pennsylvania law firm of
Reager & Adler, PC, a full service firm based
in Camp Hill, specializing in all aspects
of commercial and residential real estate,
including planned unit developments,
condominiums, land use, title insurance
and construction litigation. Mr. Wilson
is a graduate of Cornell University, B.S.,
and the University of Minnesota Law
School, J.D., cum laude, and concentrates
his practice in commercial real estate, real
estate finance, business law and estate
planning. Mr. Wilson can be reached by
phone at (717) 763-1383, ext. 127, or
e-mail at [email protected].
Important Note: This article is intended for
informational purposes only. Attorney Peter
R. Wilson is not offering legal, accounting, or
professional advice in this article. If legal advice or
other expert assistance is required, the services of
a competent professional person should be sought
to address your particular set of circumstances.
LAND LISTINGS
www.billgladstone.com/land
LOCATION
ACRES
ZONING
TYPE
Bent Creek Blvd., Mechanicsburg, Silver Spring Twp.
4.43 (2 lots)
Community Commercial
Lease
Rt. 22 & Rt. 39, Harrisburg, W. Hanover Twp.
7.70 (6 lots)
Commercial Highway/Office
Sale
St. Johns Road, Camp Hill, Lower Allen Twp.
Rt. 743 (Hershey Road), Elizabethtown, Lancaster County
Wildwood Park Drive, Harrisburg, Dauphin County
7700 Derry St., Harrisburg, Swatara Twp.
Claster Blvd., Dauphin, Dauphin Borough
6290 Allentown Blvd., Harrisburg, Dauphin County
Lena Drive, Lot 15, Mechanicsburg, Cumberland County
136 N. Hershey Road, Harrisburg, Dauphin County
1282 N. Mountain Road, Harrisburg, Dauphin County
5148 E. Trindle Road, Mechanicsburg, Cumberland County
Eisenhower Boulevard, Harrisburg, Dauphin County
3.05
5.20
2.5±
15.51 (8 lots)
0.79
2.140
6.920
1.0±
0.7
1.0
10±
Commercial/Office
Commercial
Commercial (good restaurant site)
Commercial
To be Commercial
Neighborhood Commercial
Planned Business Center District
Neighborhood Commercial
Neighborhood Commercial
Commercial
General Commercial
Sale
Sale
Sale
Sale
Sale
Sale
Sale
Sale
Sale
Sale
Sale
CIR
Commercial Real Estate Services, Worldwide.
717.761.5070 l www.naicir.com
Information concerning these offerings comes from sources deemed reliable, but no warranty is made as to the accuracy thereof, and they are submitted subject to errors, omissions, change of
price or other conditions, prior sale or lease, or withdrawal without notice. All sizes approximate. NAI CIR, 1015 Mumma Road, Wormleysburg, PA 17043 PA License #RB024320A
7
Bits & Pieces
The Bill Gladstone Group of NAI CIR assisted in the following transactions:
Leased
Sold
Sheetz is now under construction in Dillsburg with one of its latest convenience
and gas stations. Eastern Region Director of Real Estate, Mike LaCesa,
represented Sheetz in this transaction with Harry Fox, Jr., the land owner of
the site. It is a great location and Mike is looking forward to high volumes. The
deal ran smoothly because of the professionalism and high caliber of these two
men. It was a pleasure being associated with both of you.
The former Sir Speedy Printing building at 5005 Devonshire Road in Lower
Paxton Township has been sold to a local company. The owners of the property,
Phil and Barb Huepenbecker, were very cooperative in successfully completing
the sale. Despite some difficult zoning issues, Phil and Barb remained patient
until the proper buyer was selected. Congratulations to both of you. You did an
excellent job and it was a pleasure working with you.
Planet Fitness is now open in the shopping center on Old Gettysburg Road,
Upper Allen Township. Frank Kindler, owner of Planet Fitness, negotiated a
difficult deal with Lee Gehman, owner of Gehman’s Furniture. Through their
diligence and patience, Lee and Frank put a professional touch on this deal.
Planet Fitness is doing extremely well here. I wish you both the best of luck.
The former School Claims Service building at 2608 Market Place in Susquehanna
Township has been sold to the Pennsylvania Association of School Business
Officials (PASBO) and Pennsylvania Association of School Administrators
(PASA). Represented by Executive Director Wayne Smith and David Leeds,
Assistant Managing Director, School Claims was very attentive, constantly
watching the market in an effort to facilitate the sale of the building. The new
occupants of the building, Jay Himes and Stinson Stroup, Executive Directors
for PASBO and PASA respectively, are pleased to fully accommodate the needs
of their members with a larger space. Both were cooperative and helpful. This
is a true testimonial to the efforts of everyone who came together. It was a
pleasure working with all of you and I hope our paths will continue to cross in
the future.
Wendt Partners has relocated their offices from the to Bent Creek Business
Park in Silver Spring Township. Doug and Alice Wendt searched for the best
location to provide better care for business clients and be more attentive to the
needs of their employees. Their new location is in a building owned by PANPHA
at 1100 Bent Creek Drive. PANPHA was represented by real estate broker Laura
Martin of Latus Commercial Realty, who worked well with us. Doug and
Alice with their attorney, Peter Wilson of Reager and Adler, P.C., resolved the
lease issues for the continued success of their business and the comfort of their
employees. Congratulations on a job well done.
After operating in central Pennsylvania for many years, USI Southwest
Insurance has finally opened a formal office at Westminister Drive in Carlisle.
USI representative Marty Miracle, Senior Vice President, helped his superiors
understand the need to have an office at this location. Marty is very pleased
with the well-structured deal and the accommodations the landlord was able
to provide. It was a pleasure to work with you Marty and I wish you the best.
Thanks for all your help in making this a successful transaction.
The former medical offices for owners John Stratis, MD and Dan Hely, MD at
816 Belvedere Street in Carlisle has now been sold. Dr. Stratis and Dr. Hely have
separate practices now and realized it was time to dispose of the building. After
a good deal of planning, we came up with a game plan that attracted a lot of
attention. The building was sold to two Carlisle investors who were represented
by David Hooke of Hooke, Hooke & Eckman, a Carlisle brokerage firm. The
deal came together quickly and settled within 60 days. John and Dan, it was a
pleasure working with both of you and I wish you the best.
NAI CIR
P.O. Box 8910
Camp Hill, PA 17001-8910
PHONE: 717.761.5070
FAX:
717.975.0752
[email protected]
www.naicir.com
www.BillGladstone.com
BILL GLADSTONE, CCIM, SIOR
PRESORTED STANDARD
U.S. POSTAGE PAID
Harrisburg, PA
Permit No. 783