New California 1031 Exchange Law Effective January 1, 2014

Effective January 1, 2014, all taxpayers – resident or non-resident – who sell California property in a 1031 exchange and purchase replacement property located outside of California will be required to report this annually to the California Franchise Tax Board.

In June of this year, the Legislature passed Assembly Bill 92 (AB 92) which added California Revenue and Taxation Code Sections 18032 and 24953 creating the new annual filing requirement.

With this new law, the Franchise Tax Board (FTB) will be able to track California sourced gain from 1031 exchanges.

Generally, taxes deferred in a 1031 exchange are due at a future date when the newly acquired replacement property is sold. However, if the replacement property is located out of state, there is no tracking mechanism and the State of California loses that tax revenue.

Essentially, the new “1031 Information Return” must be filed annually until the deferred gain is recognized – i.e. the property is sold without another 1031 exchange.

For taxpayers who are already required to file a California tax return, the new “1031 Information Return” will be filed as an attachment to the taxpayer’s California tax return.

For taxpayers who are not already required to file a California return, the new “1031 information Return” will be due on the same date that a California return would be due if they were required to file a California return.

The new filing requirement applies to all individuals, limited and general partnerships, estates, trusts, limited liability companies, limited liability partnerships, and all franchise or income tax paying corporations regardless of their residency status or commercial domicile.

The Franchise Tax Board will be establishing guidelines, procedures, and standards for implementing the new law.

The new California 1031 information return is currently being developed by the Franchise Tax Board. For more information on the new filing requirement please visit https://www.ftb.ca.gov/professionals/taxnews/2013/November/November_2013.pdf

For more information on 1031 exchanges, please visit www.orexco1031.com or call 1-800-738-1031.

Note: Check with your tax advisor: Major Properties is not qualified to provide tax and legal advice. This information is provided only as a courtesy to readers for information purposes only.

Is Los Angeles Important?

Watching the drama unfold this past week helped me to confirm my suspicion that Los Angeles or “LA” is important to the world. The public ceremony celebrating the life of Dr. Jerry Buss made me think of our fair city and what it means to so many. Dignitaries and business people came from all over the world to pay tribute to this amazing man. Some might call him simple, but there was nothing simple about Jerry Buss. But when you live right, and treat everyone with respect, it can seem that you are simple.

I had a good friend named Dr. Stan Walch. He was a buddy with Dr. Buss back in their school days. He tells a story of Dr. Buss as the smartest man he ever knew: “We played monopoly for real money and Dr. Buss always won! We played without tokens and without the titles. We played from memory and Dr. Buss had the best memory." I am sure Dr. Walch and Dr. Buss are playing Monopoly together again.

Then I watched the Oscar’s telecast and thought it was one of the best I've seen in my life. I liked the Captain Kirk bit a lot. During each break they played music from classic movies, conjuring up memories of the past with the music references. I loved Barbara Streisand. My only complaint was for the Jaws theme which played when speakers went overtime. Most of the show was classy. Congratulations to Argo for Best Picture and all of the other winners.

We are a city under siege. Money is pouring in from many different states and countries. Buyers from all over the world have descended on Los Angeles to purchase real estate. This starts in housing and gradually moves on to investment and commercial development properties.

If you look outside, the weather tells a great story. If you need more reasons, let’s discuss the notoriety of being in Los Angeles. We are Hollywood, the capitol of people’s dreams. Every young person growing up wants to live a life of Entourage, fast, fun, sexy etc. And they believe it can be found here in Los Angeles. They are not so wrong, but it comes at a price.

You need money to live in Los Angeles, the playground of the universe. Now New York, Amsterdam, Rio and other amazing places will argue that they are the center of the cultural universe of fun and excitement. They are right and so are we. We are the creators of Reality TV; a Pink’s chili dog can be on equal footing to a night at Spago; and living in Silverlake can be more prestigious than living in Beverly Hills. The artist sub-culture in Los Angeles is the envy of the world. The free LA Weekly newspaper is more popular than the Los Angeles Times.

How exciting to own real estate in Los Angeles. Growth and development is at an all time high. Demand for new shops and creative space is booming. There is a shortage of quality distribution space. So what does all of this mean? Where are the opportunities? Is it time to sell or buy?

If you read my previous posts, you know I always say that you should never sell real estate in Los Angeles. But for some, they need to sell. There is death, divorce, retirement, relocation and the inability to manage the property correctly. These factors create opportunities for someone else to buy in. If there is an offer that is too good to be true, and you can move the money into an exchange, then selling makes sense.

So I say: be a buyer. I would look into any single-story properties on major streets and thoroughfares. Check out the San Fernando Valley for all types of properties. I would be looking into distressed real estate in South Los Angeles as the demographics are changing and the need for basic services is growing too.

Current low interest rates allow everyone to participate in this real estate boom. The time is now for people to pool resources and get in the game. The inflation that will surely follow tomorrow will more than make up for what you pay today.

We just had a primary nominating election for mayor and many other offices. The two top mayoral candidates, Eric Garcetti and Wendy Greuel, will have a run-off election on May 21st. What I find sad is that only 16% of eligible voters actually voted, one of the lowest turnouts in memory. The apathy the population has for government tells a story of future distress. The city’s government is in an economic crisis and the city may be in a citizen crisis as well. Most citizens are living paycheck to paycheck or are on some form of government assistance. Of course, there are the wealthy that are in good shape, but they have to survive within a system of government too. The population is becoming more divided. This is not good and is outright scary.

Maybe that’s a real reason to sell?

I don't mind paying more taxes if it goes to support general services and helps people to get back on their feet. We are all in this together and need to sacrifice to make our home a better place. Real problems in our city, state and country will need real leadership and solutions if we are to thrive. We are a diverse city with a need to come together in many different ways to move forward and grow.

Meanwhile, I am still a buyer in this market.

The Year to Get Rich

The “Fiscal Cliff”, “Y2K”, the “Mayan End of the World” and “Black Monday”: all of these events and more have come and gone without an economic calamity unfolding. Fear is the greatest factor in markets and cycles.

Some of the fear factors have effects on the economy, but in the end the markets adjust and move forward. I am totally convinced that 2013 will be a dynamic year for real estate, stocks and other investment opportunities.

My predictions are as follows:

Real estate in the Los Angeles market will continue to be a safe and wise investment. Last I checked, they were not building any more land and Los Angeles is booming! Apartments, office buildings, retail stores and shopping centers and industrial properties are in high demand. There is a huge need for more and more space.

This is not a spec bubble, but real growth and requirements by end users. The biggest users are the apartment dwellers. Currently, there is a shortage of units in Los Angeles. The hipsters are looking for space in Downtown L.A. and surrounding areas.

I think that there are hidden deals and one place I recommend is the San Fernando Valley. WOW! Who would have ever thought that I, a Downtown expert, would be touting the valley. When I was single, I would not date a valley girl as it was geographically undesirable (sorry girls). Today, the valley is one development away from a similar boom as Downtown. Ventura Boulevard is an amazing street that has an unending collection of fascinating businesses that will demand growth. There is a great need for shopping and various attractions that will make the area a second Downtown (development-wise). It just needs a smart developer to bring the vision. Like AEG brought Staples Center (and the Lakers and Kings) to Downtown. Like Rick Caruso built the Americana in Glendale.

Part of the success of any vision is a cooperative business-friendly government. We have a big election coming in March and Jan Perry is a proven commodity for Mayor. She provided the foundation for the city support for the entire AEG empire development, and will champion the same type of growth for the San Fernando Valley.

 

I think President Obama should meet Jan Perry and discuss how she guided Downtown Los Angeles back into amazing prosperity. It's a blueprint for cities across America!

 

The stock market will have its annual correction, as that is how it works. But I think we will see a 15,000 or better Dow Jones industrial average in 2013. I am not an avid investor in stocks (I just own some Apple and a little real estate investment trust called Two Harbors). I also have a small amount of gold and silver. I see $2,000/oz. gold and $40+/oz. silver, but as always, check with your professional advisors and don’t rely on my opinion.

In regard to real estate, I recommend that you buy, buy and buy, as Los Angeles will continue to boom. We had a banner year in brokerage last year and 2013 is looking to be as good. We saw warehouse prices go back up to $100-$150 per sq.ft., and mass investment/speculation on land for development of apartments.

The driving force is demand and that is supported by cheap money. The opportunity to own something with a cheap loan is amazing. I suggest you buy something in the area and hold. It will multiply over time for sure. Don't over leverage yourself. You should have six months in reserve, just in case your tenants can’t pay the rent. And don’t forget to set aside money to pay the real estate taxes, as they can sneak up on you. Now is also a time to look at your portfolio and investigate refinancing. Rates are very low and you can save money and make money by lowering your interest rates.

May 2013 be a prosperous year for you!

Jan Perry Gets It!

When one decides to run for Mayor in Los Angeles, they are basically asking to live life in the proverbial "fishbowl". It is a daunting task to run a city with a hundred different nationalities and multiple groups or associations pulling on your shirttails promoting their special interests. Then, you have to balance the desires of those groups and the demands of big business with regular citizen’s basic needs for food, shelter and quality of life. There’s also dealing with the tendency of government to expand and tax, labor and union disputes, and the private sector’s desire to build and grow their companies in the most dynamic city in the world.

So how did Jan Perry, as Councilwoman for the 9th District, manage to successfully work with non-profits and the homeless, government, private business and union labor, making Downtown Los Angeles the envy of the world?

By leadership! Back in 2009, when she was acting Mayor, Councilwoman Perry knew that when Michael Jackson passed away, she had to act. Rallying the business and entertainment community, a selfless decision to stage a public tribute at Staples Center at the City’s expense was made. Hundreds of millions of fans around world shared the mourning of a legend, and Los Angeles did the fallen icon proud.

Jan Perry gets it!

We live in a world economy and the world is watching. Leadership is needed and decisions have to be made in good times and bad.  If you think about Los Angeles, we had our Rodney King riots, we had O.J., and we continue to make headlines with celebrity arrests as well as more horrible murders and tragedies. We all live in a giant fishbowl and whoever leads us for the next term or terms as Mayor needs to be ready to handle the potential issues that can inflame a community quickly, and not add fuel to the fire.

The next Mayor needs to have the sensitivity to make intelligent choices, and to celebrate with the world when the Clippers, Lakers or Kings win a championship. The next Mayor needs to be able to support the business passions of AEG as well as firms that want to call Los Angeles home, which helps to bring billions of development dollars and future tax revenue to the City. The next Mayor needs to nurture the growth and prosperity of the entire City, from the Pacific Ocean to the San Fernando Valley, from East LA to the Ports of Los Angeles.

Jan Perry has a track record of these accomplishments. She also has the drive and passion to bring this type of leadership so all of Los Angeles, so all can prosper, as well as feel safe in any neighborhood.

Our city is the envy of the world. Billions watch us on TV with the hope of one day living the American Dream. People come to Los Angeles with dreams of a better life, meeting stars and starting fresh. It takes real leadership to balance all of the differences that make Los Angeles so unique, and to responsibly lead us into the next phase of growth. 

If you are a resident of the City of Los Angeles and a registered voter, you have a choice to make this coming March 5th. Here are three things you can do to help Jan Perry be the next Mayor:

1. Vote                             

2. Send this message to your friends

3. Send a contribution www.janperry.com 

Inside City Hall with Councilwoman Jan Perry: Part 2 of 2

Here is the second part of my interview with Los Angeles Mayoral candidate Jan Perry.

Q: Institutions like the University of Southern California (USC) and Los Angeles Trade Tech have been an important part of the educational landscaped Downtown. How do our educational institutions fit into the development of our urban core today and in the future?

A: We have many fine institutions that I have worked closely with to ensure positive growth. The Fashion Institute of Design and Merchandising recently finalized their expansion plans that includes a new sign district. They are an integral part of the community as they are uniquely situated adjacent to the Downtown Fashion District, which is the second largest industry in our city behind filming and entertainment. I believe that the continued growth of their campus will support the growth of the fashion industry in the City of Los Angeles.

Educational institutions like Los Angeles Trade Technical College have played a major role in the positive development of Downtown and the surrounding communities. They are training the workers of the future and are well-positioned to train hospitality, construction and culinary workers for the jobs that are being created today and in the future.

USC is currently going through the development of a specific plan and development agreement with the City that will upgrade their campus and re-imagine University Village into a retail center for the region. I established a negotiating team to ensure that this development moves forward while respecting the needs of the surrounding community. I believe that, through this process, we have been able to strike a good balance that allows us to move forward with confidence.

Q: Downtown has long been a diverse place, for people living at all levels of the economic spectrum. In this respect, the development landscape must mirror this. Can you tell me about how you balanced the needs of both the people now living in Downtown LA and for future residents?

A: I have a planning background. From the beginning, I worked to create a jobs/housing balance in my council district. I used and developed many planning tools for increased density and for the Downtown street standards to encourage developers and make it easier for them to navigate the City’s entitlement process. And I worked to preserve affordable housing.  I am a proud supporter of the Affordable and Supportive Housing Trust Fund that enabled me to work with both the for and non-profit affordable housing developers to leverage hundreds of millions of dollars into permanent affordable housing for seniors, working families and the homeless. These projects have a 55 year covenant for affordability.

Most recently, we cut the ribbon opening the YWCA Urban Job Corp Center in South Park. This center offers job training, housing and services for emancipated foster youth and at-risk young people. The program provides job training and placement in the surrounding community. This includes the jobs created by projects like Wilshire Grand and Farmers Field. I am proud of the role that I played in this project, working with the YWCA to acquire initial funding from the CRA and to leverage resources to finance the project that houses 400 transitional age youth. The Downtown Women’s Center is the only homeless service provider in Skid Row for women. The new center was made possible because I worked to convert an ageing shoe factory into a beautiful, award winning, adaptive reuse service enriched supportive housing and service project.  I believe that projects like these enhance the area for more real estate investment while working to meet the needs of the community.

Q: For any residential community to be successful, you need the right balance of housing, jobs  and amenities. What is the retail and amenities mix of Downtown and what is the future for this sector?

A: Retail is an important component of every community. The adaptive reuse ordinance helped jump-start the residential component of Downtown, and along with development came many niche businesses occupying the ground level floors of these buildings. These small businesses continue to grow. You can see the evidence on Main and 7^th Street where restaurants, beauty stores, dry cleaners and specialty stores have filled once empty store fronts.  The entrance of big name retailers like Ralphs, and more recently Target, have demonstrated the strong buying power that now exists Downtown. I worked closely with both and know that this is just the beginning for the Downtown community. The future will bring a brand new Fig at 7^th mall with attractive store fronts, a unique and appealing food court and farmers market. I am also confident that the final phase of the Grand Avenue project will bring more big name retail development to Downtown. With the mix of small niche businesses and key large-scale retail operations, Downtown will continue to grow, creating the need for more retail leases.

Q: You are running for Mayor of Los Angeles. What lessons have you learned about real estate and development during your time as a Councilmember that you believe will translate to your platform citywide?

A: The biggest lesson I have learned is that the best way to get things done is to be honest and straight forward when it comes to development. I have lived by the philosophy that you need to tell people what to expect and follow through in a manner that supports their interests and goals. I directed my staff to meet weekly with developers. It has provided them with the opportunity to present their plans and receive feedback and provide assistance before the start of their project. This process gave greater confidence in the entitlement process. Major projects were addressed with multiple city agencies meeting with developers simultaneously to sort out challenges. Developers knew what to expect in advance. All too often, I hear that the city is confusing and difficult to navigate. I have a reputation for streamlining the development process and getting projects done. I would bring this same level of skill to the mayor’s office. I worked to meet community needs and serve the interests of all of the people I represent. I believe that a great deal can be done to restore and stimulate development in every community in Los Angeles in a manner that meets the needs, growth interests and is done to a scale that honors and serves the community interests. 

I have a record of being proactive and of seeing projects to completion. You can expect nothing less from me as your next mayor.

Inside City Hall with Councilwoman Jan Perry: Part 1 of 2

I had a nice sit down with Councilwoman Jan Perry, who is currently running for Mayor of Los Angeles. We discussed many issues about Downtown, and if she can win the Mayoral election, Los Angeles is in for a great future!

Q: Under your tenure on the City Council we have seen Downtown Los Angeles flourish and develop into a city center with 40,000 residents. In fact, over the past decade alone, the Downtown Center Business Improvement District (DCBID) has reported that Downtown has seen over $9 billion in private investment, 90,000 new jobs, and $40 million in new tax revenue for the city.

What do you believe was the catalyst for this tremendous growth?

A: The faith of our business, development community and private sector, along with the support of government agencies like the Community Redevelopment Agency, helped spur the renaissance that we have enjoyed in Downtown Los Angeles. The catalytic development of the Staples Center in the 1990’s replaced parking lots and paved the way for LA Live and now the new Farmers Field stadium and Convention Center expansion.

The city adopted the Adaptive Reuse Ordinance allowing for the conversion of underutilized industrial and office buildings into mixed use housing and retail development. We have fostered public/private partnerships that have resulted in tremendous projects that include housing for people living at all income levels. This development activity continues to act as a catalyst for more investment and growth that extends beyond Downtown Los Angeles and into neighboring communities.

Downtown Los Angeles offers higher density development for people that want to live in the urban core. New housing has led to greater investment and brought new restaurants and neighborhood retail like full service stores and a new Target for Downtown workers and residents. Downtown Los Angeles is a major employment center. I worked hard to provide as many opportunities for people to live close to their work place and establish a jobs/housing balance. 

I am proud of the role I played in the development of LA Live and the Convention Center Hotels which helped establish the Sports and Entertainment District to attract larger conventions. This project demonstrated the potential of downtown and with the addition of a new football stadium and expanded exhibition space it is estimated that we will need five more hotels to accommodate a far greater level of activity. Downtown has transformed into a 24 hour city and a place where people come to work, live and be entertained.

The past decade has brought a renewed faith in the capacity of Downtown as the economic engine for the region. I believe my vision for Downtown as a center for our tourism, entertainment, cultural events, civic engagement, job creation and residential living has been realized through my effort to ensure that development and development partners were given realistic guidelines and expectations in which to navigate the city. I have been a person of action and someone with a record of getting things done. I believe that what we have been able to accomplish Downtown is remarkable.

Q: You have long been a champion of creating a true cultural corridor to highlight the wealth of cultural opportunities in Downtown. In fact, you served for eight years on the Grand Avenue Joint Powers Authority as Vice Chair. While this project has changed since it was first envisioned, what can you tell us about its future?

A: The Grand Avenue Project began under Mayor Hahn and continues today, despite the many hurdles that we have faced along the way. From the downturn in the economy to the dissolution of the CRA, this project has had its ups and downs. Through it all, however, I remained confident that we would bring quality development to our cultural corridor. I am proud of what we have been able to accomplish. The results speak for themselves: a new 12-acre civic park, the development of the Broad Museum, and a future mixed-income housing tower with space for restaurant and retail operations, and a central plaza that will serve as a gateway to the Downtown Regional Connector. The Regional Connector will connect light rail and subway services from Long Beach, Hollywood, the San Fernando and San Gabriel Valleys, the West Side and South Los Angeles and make coming to Downtown far easier by way of public transit. The ongoing development of our public transportation infrastructure is a key component to the future of our region. We will not get people out of their cars unless we offer them a variety of affordable living situations close to where they work.

Q: Hotel development Downtown has been an important issue. You have been at the forefront of many of these large-scale developments, highlighting the need for more hotel rooms for conventions and tourism. Can you tell me about some of these projects?

A: For many years, our Convention Center and LA Inc. (our Convention and Visitor’s Bureau), have told the City that we need more hotel rooms in order to truly compete for large conventions. We responded with the development of the JW Marriot, adjacent to the Convention Center. I worked closely with the developer and the city staff to structure a financial incentive package to help the development pencil out. The hotel created new jobs for the region, met our need for a convention center hotel, and contributes new tax revenue for city services like fire and police.

This, however, was just the beginning. I chaired the City’s Ad Hoc Stadium and Convention Center Modernization Committee and, after over a year of negotiations and public input, we were able to draft a development agreement with AEG to build an Events Center /NFL Stadium and modernize the West Hall of our current Convention Center. With this new space, we will move from 15^th to 5^th in convention exhibition space. This is good news for the entire region as large conventions utilize hotel space throughout the region.  

I am excited that I was able to work with the Wilshire Grand Hotel on their redevelopment efforts, supporting upgrades that will accommodate more room nights and visitors within walking distance of the Convention Center. I also worked closely with Marriott to help structure a similar deal with them on the development of two new hotels on Olympic Blvd across from LA Live. Both will be major boon for the Downtown area, creating thousands of construction and permanent jobs and support tourism in the region.

The Recovery Continues

It has been awhile since I last wrote. I just returned from Europe and in the tourist areas of Greece, Turkey, Israel and Italy there were very little signs of a recession or slow down.

Restaurants were busy, hotels were jammed, museums had lines and things seemed very good. I ran into a friend from Los Angeles in Jerusalem and had dinner with local philanthropists Stanley and Joyce Black in Venice, Italy.

Earlier in the year, a lawyer friend and associate contacted me about listing a property in the San Fernando Valley. The property is Center BMW headquarters (for over 25 years), who are the tenants. Prior to my trip, I met with the owner, who inherited the property from his step-mother. We decided to sell the property to Center BMW, who were more than ready to be the owner of their new 30,000 sq.ft. showroom and 169,000 sq.ft. dealership. The deal was made without having to be placed on the open market! Both Buyer and Seller were happy and the transaction closed upon my return from Europe.

David Farguson, the president and new owner of Center BMW, is a really nice guy, and I suggest that you meet him personally if you want to buy or lease a new car. I know that I will get my next car from him. You can reach him at 818-907-9995. Center BMW has developed a loyal following from celebrities and “regular” people alike.

When I returned from my trip, I noticed the Downtown Los Angeles and Hollywood real estate markets were exploding. We are currently in the middle of so many deals and the future is looking very good. Again, owner/user type deals are just going crazy with easy money i.e. SBA financing at 4% interest (20-25 years amortized).

Our residential business in and around L.A is doing very well too. There are a shortage of condo's in Downtown Los Angeles and we are making many land deals for development. Laura Silver, from our office, was recently voted the best Residential Broker in Downtown by the Los Angeles Downtown News.

Another good sign about our Los Angeles economy is that the lower end housing is doing well. I met with Lori Gay of Los Angeles Neighborhood Housing and she told me that they have multiple closings daily, and multiple offers for all types of housing. NHS provides housing services to over 10,000 new home owners annually. She and NHS are amazing.

The lag in the economy is in retail rental properties. This is due to competition, people buying over the internet, and overall conservative spending on the consumer level. The biggest risk to the continued growth and prosperity continues to be government debt. This needs to be addressed on all levels: city, state and federal.

It’s good to be back and with you again.