The New Economy Real Estate Model – A Soft Sell Concept

As far back as the 1970’s Sears envisioned a kiosk in their stores where a customer could buy stock and even real estate. It was a bold look at the future from one of the world’s largest retailers. All they had to do was to get the consumer to come to their stores to do business. This was quite a challenge thrown down to both Wall Street and Main Street USA. Most of us probably never heard or remember this strategy, and it never got off the ground. People just did not equate Sears with stock or real estate; they were a department store.

In fairness to Sears, the technologies and conveniences did not exist to enable the plan. Sears may have also thought themselves too big to fail. That theme does seem to be a constant.

Hmm, it appears that history does indeed repeat itself, and perhaps at shorter and shorter intervals. It may be ironic that by speeding up processes and the rate at which things can change, the lessons of history are lost at a quicker rate. Did that make sense? If it did, you may be thinking a bit like me – you’ve been cautioned.

In the 1980’s the successful real estate agent became more independent and needed fewer and fewer services from the brokerage firm. As they claimed a higher and higher portion of the brokerage fee, margins for the real estate brokerage began to shrink. Some phenomenally high interest rates had a similar impact on the mortgage banking industry. Unless buyers had no choice, they did not take on these inflated mortgages. The mortgage industry literally shrunk along with their profit margins. We all know that real estate cycles; it goes up and it goes down. The curve is rarely smooth, and is punctuated by sharp turns in one direction or another. Most features of the real estate industry react quickly to the conditions in the market that affect it. Now we have the background for the next attempt to create a commodities market from the real estate process.

In 1974, the Real Estate Settlement and Procedures Act (RESPA), as amended, was passed. It opened the door for consolidations within the industry. To foster competition, companies were regulated to prevent abuses in the industry and to keep prices to the consumer lower. It was almost ironic that the very act that was passed to prevent abuses, in a way opened the door. I don’t know that it has empirically been demonstrated that RESPA actually lowered costs or prevented abuses. With HUD as a watchdog, there was little real enforcement, and although fines were levied, industry practices ultimately were left to the states to manage. It took decades to sort it out, and Wall Street only a few months to make it yesterday’s issue.

The point for mentioning RESPA was that it allowed what was called “controlled business entities,” a term later changed to “affiliated business entities.” The home builder and the real estate brokerage could now have a captive mortgage and title business. The theory was that this would somehow create efficiencies and economies lowering the cost and improve service to the consumer. It didn’t. With all of this vertical integration, each one of the independently managed businesses was caught in the same financial wringer.

What was not taken into consideration was the pro-cyclical nature of the model. When one business was down so were the others. The upside was champagne and roses, but the downside left little room for beer and carnations. There were other oversights as well. Not understanding the risk models for businesses outside of their core competencies was seldom given the focus it deserved. Few also embraced managing the business with the same zeal they had for their core model.

The result was that many of these affiliated arrangements have failed, and the industry model for how transactions are managed remains much the same as it has since the post WWII era. Certainly technology has improved systems, but not nearly to the extent that it could. The competitive natures of the individual sectors of the real estate business keep the technologies proprietary and therefore parochial. A 21st Century model for the industry will come from somewhere outside of the core real estate industry. Next came a far a more organized and systematic attempt to create a commodity market in the real estate arena.

The boldest strategy to commoditize the residential real estate market came from a company called National Realty Trust (NRT). NRT has gone through a number of name changes. In the mid to late 1990s NRT was known as Cendant (CD). The CEO of Cendant, Henry Silverman was a Wall Street visionary who understood commodities. He was big in the rental car business (Avis) and in hospitality with a string of motel franchises. Mr. Silverman viewed the real estate as a commodity that could be franchised and methodically went about acquiring national real estate marks such as Coldwell Banker (Residential), Century 21, ERA and Sotheby’s. Subsequently they also acquired established regional real estate companies. They were and remain the largest single group of real estate companies in the industry.

Cendant experienced an accounting scandal in the last decade and lost its impetus. It never quite recovered from the scandal, and the company divided its assets into four groups. The real estate companies were sold to the Apollo Management Group. Apollo has been beset by the soft real estate market and a suit filed by Carl Icahn over a debt exchange plan. With the continuing financial and legal problems, they stumble along with business as usual. They are not in a position to lead the real estate industry into the 21st Century. This strategy involved getting in upstream in the transaction by “owning” the gatekeeper function. It required enormous amounts of capital, and technology was evolving to provide a far more efficient less capital intensive platform to emerge. The Internet makes anyone with the vision and the concept to be a potential player.

Allow me to introduce Soft Sell Solutions LLC, a creative concept for the 21st Century model for real estate. Forged with decades of experience and inside industry knowledge, the concept is supportable by existing technology, demonstrated consumer practice and buy in. The vision and passion to deliver a seamlessly integrated system stands ready to tie the disparate process together.

The third article in this series Who Controls the Real Estate Process sets the stage for a 21st Century approach.

LED Lighting Tax Aspects of Furniture Chains

The 2008 collapse of the U.S. housing market had a particularly damaging effect on the domestic furniture industry. A virtual freeze on new and existing home purchases resulted in a drastic decline in sales for furniture chains who, prior to the collapse, dominated the industry primarily by selling foreign-made furniture. The furniture industry has largely evolved into an import model where huge warehouses store the furniture that is then sold in retail show rooms. Some major brands use large, warehouse-like structures as their retail facilities. As the economy continues to improve, these companies will be able to realize significant energy cost savings and very large EPAct tax deductions by installing LED lighting in their showrooms along with energy-efficient lighting and heaters in their distribution centers.

Large store showrooms looking to showcase their furniture can use LED’s for focused lighting, while huge warehouses that hold the furniture before it reaches retail storefronts can realize tremendous operating cost reductions by installing LED’s or other energy-efficient lighting. While each of these building types involves a distinct planning process with different tax implications, LED lighting can drive large tax deductions for all furniture chain facilities.

The Section 179D EPAct Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Section 179D, furniture chains making qualifying energy-reducing investments in their new or existing locations can get immediate tax deductions of up to $1.80 per square foot.

If the building project doesn’t qualify for the largest EPAct $1.80 per square foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for the three major building subsystems: lighting, HVAC (heating, ventilating, and air conditioning), and the building envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation.

Alternative Energy Tax Credits and Grants

Pursuant to the American Recovery and Reinvestment Act of 2009, there are multiple 30% or 10% tax credits available for a variety of alternative energy measures with varying credit termination dates. For example, the 30% solar tax credit and the 10% geothermal heat pump tax credit expire January 1, 2017.

All alternative measures that are eligible for the 30% and 10% tax credits are also eligible for equal cash grants for the three years staring January 1, 2009 and ending December 31, 2011.

Unique 2011 Opportunity: Enhanced Bonus Tax Depreciation

Solar P.V. and geothermal systems are ordinarily eligible for 5-year MACRS depreciation, but building owners who install these systems after September 8, 2010 through December 31, 2011 can take 100% depreciation tax bonus immediately. Even if building owners miss this 2011 window, they can enjoy a 50% tax depreciation bonus on equipment placed in service from January 1, 2012 through December 31, 2012.

The Tax Planning Implications for Furniture Chains

Showrooms and EPAct 179D

LED lighting is excellent for presenting furniture because it provides a high-powered, focused beam ideally suited for showroom floors. The shopper is naturally drawn to the furniture because of the LED’s spotlighting effect. For this reason, the Ashley Furniture showroom in Boca Raton, Florida has opened one of the first furniture stores seeking LEED certification for its inclusion of, among other things, LED lighting. Since this store is nearly 100,000 sq. ft. large, it will be eligible for up to $60,000 in tax deductions for lighting alone, and potentially greater EPAct deductions for qualifying HVAC equipment and building envelope measures. Indeed, as part of its plan to seek LEED certification, Ashley installed high-performing, low-emitting glass with automatic shades that conserve energy and rooftop solar tubes at its Boca site. A qualified professional can convert Ashley’s required LEED energy model into an EPAct tax model.

Warehouse Lighting and EPAct 179D

Building lighting comprises a large part of furniture warehouse energy use. Most warehouses that have not had a lighting upgrade to energy-efficient lighting in the last 7 or 8 years use earlier generation metal halide or T-12 fluorescent lighting. It is important to realize that effective January 1, 2009, most probe-start metal halide lighting may no longer be manufactured or imported into the United States and, effective July 1, 2010, most T-12 lighting may no longer be manufactured or imported into the United States. This means that warehouses that still have older lighting technology will soon be, or already are, subject to large price increases for replacement lamps and bulbs.

This earlier generation T-12 and metal halide lighting is energy-inefficient compared to today’s T-8 and T-5 lighting, and a lighting retrofit can easily cut lighting electricity costs by 40 to 60 percent. In addition to large energy cost reductions from upgrading basic building lighting, most warehouses undergoing lighting retrofits install sensors that completely shut off lighting in portions of the warehouse that are not in use. Previously, many warehouse owners and lighting specialists were reluctant to install sensors because they reduced fluorescent lamp useful life. Today, with improved technology, sensors are available with warranties that protect against reduction in lamp useful life. In the furniture warehouse business, sensors will prove particularly useful because warehouses only need intermittent illumination. Combined with fluorescent, induction or, increasingly, LED lighting, sensors are a vital consideration to any furniture warehouse operator.

Warehouse Heating and EPAct 179D

New, improved commercial heating systems can give energy cost savings of 8 percent or more over the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) 2001 building code standards. There are multiple heater technologies suitable for the furniture warehouse market, including Cambridge direct fired gas heaters, unit heaters, and infrared (e.g. radiant) heaters. If it can be done, the warehouse heater could mount on an exterior wall to optimize the roof top space for a solar P.V. roof top system.

Typical Large Furniture Warehouses Obtain Large Tax Deductions

Many large warehouses have made the investments necessary to get the full $1.80 per square foot EPAct tax deduction. Since the EPAct tax deductions relate to square footage, a 500,000 square foot furniture warehouse can secure a $900,000 EPAct tax deduction.

IKEA’s Pioneering Solar Projects

IKEA uses large integrated warehouse/retail facilities to directly sell furniture. The Swedish company has recently announced that it will install solar P.V. in some of its stores in Colorado, Massachusetts, and New Jersey. By taking advantage of its enormous, flat rooftops on its facilities, IKEA will be able to generate enough kilowatt-hours to power its own stores’ lighting and HVAC needs with energy left over to sell to utilities. Further, they are making the ideal use of their solar investment by installing highly energy-efficient geothermal heating systems and LED lighting. Geothermal typically generates large EPAct 179D tax deductions, especially when coupled with LED lighting. As noted above, the geothermal system will also be eligible for a 10% tax credit or grant and very favorable tax deprecation.

The New York Market

New York City has experienced a quicker economic recovery than the rest of the country, and furniture chains are acting now to try to capitalize on the city’s momentum. Cleveland-based Arhaus Furniture; Nadeau Corp., a West Coast-based seller of eclectic furnishings; and discounter Home Goods, a division within TJX, are all newcomers to the NYC scene and each is hoping to take advantage of the heightened demand than has often forced homeowners and renters into the suburbs to shop for their furniture. With the opening of 20,000 to 40,000 square foot retail centers, these companies have the opportunity to use LED lighting, and, in some locations, solar P.V., in their building design to drive down their operating expenses while utilizing large tax incentives.

Furniture Warehouse Tax Incentivized Energy-Efficient Design Process Steps

1. Assemble team including warehouse experts for EPAct tax incentives, utility rebates, lighting, heater, building envelope and solar energy.

2. See if roof is compatible for solar and heater. Obtain proposals for installations of solar installations and any other needed roof/insulation projects and any other needed roof/insulation projects.

3. Obtain lighting design that replaces all inefficient lighting. Compare and contrast costs of fluorescent, induction and LED lighting alternatives.

4. Obtain Cambridge heater or alternative heater proposals, taking into account possible roof designs.

5. Determine utility rebate based on all proposed separate and joined energy-efficient measures. Efficient lighting will cut electric use. Roof, insulation and heater will cut “therms.”

6. Determine tax incentives including EPAct Section 179D tax deduction benefit and solar credit tax deductions. EPAct is based on total project square footage, including mezzanines and pick and pack modules. The 30-percent solar tax credit is based on the total solar material and installation costs.

7. Prepare project proposal detailing project costs, energy savings, utility rebates and tax incentives.

8. Get project approved by building owner.

9. Hire contractors and execute project.

10. Have EPAct tax expert prepare model and tax documentation using IRS approved software.

11. Process utility rebates.

12. Reduce federal and state estimated tax payments to account for expected large EPAct tax deductions and credits.

13. Celebrate tax-enhanced energy-efficient warehouse achievement

Conclusion

U.S. furniture industry supply chain structures are ideally situated for LED lighting particularly in showrooms and integrated warehouse show rooms. Since EPAct tax savings relates to square footage, the industry’s large facilities drive large tax deductions. The required warehouses are typically large, flat roof structures that are ideal for solar P.V. Achieving energy reduction enhanced with tax savings will help this very competitive industry accelerate its recovery concurrently with overall economic recovery.

3 Reasons to Invest in Eco Friendly Properties

Rewarding yourself with a new house? Why not go green and eco-friendly? It has plenty of benefits, 3 of which are discussed below.

Eco-friendly homes use natural materials during construction

There are many choices of eco-friendly construction materials. They range from recycled wood, half-raw and half-recycled, and those made from dirt, straw, and clay. According to experts, materials of these made contribute less to the greenhouse effect. They trap less of harmful gases while allowing for a freer entry of natural light and air in and out of the house.

Overall, environment-friendly homes are known to exhibit better indoor environment quality. Improved lighting conditions, better air quality, and natural thermal conditions are some of the natural benefits one can get when buying eco-homes.

Eco-friendly homes are also health-friendly

The natural materials used in eco-homes are also health-friendly. This is very beneficial to individuals with health conditions like asthma and other respiratory problems. There have been several studies linking the use of eco-friendly materials in home construction. Significant changes on health conditions were exhibited by individuals who are known asthma patients.

Further studies revealed that the more natural materials used in them help facilitate the flow of cleaner air inside homes. They are also less likely to contain plastic by-products which release toxic substances. These substances are generally linked to carcinogens or substances that contribute to the development of cancer cells.

These days, developers are more aware of the health consequences of the materials they are using when constructing properties. Home buyers just need the proper information to educate or at least warn them that eco-friendly homes are by far among the best choices when health conditions are considered.

Environment-friendly homes are energy-efficient

Today’s thrust in construction of properties gives focus on energy-efficiency. It is a known fact that the earth’s natural resources, from which man depends for water and energy, are becoming fastly depleted. In order to contribute to conservation efforts, eco-friendly houses are designed such that they would not largely depend on non-renewable energy sources.

It is now common to see houses being put on sale that are designed with solar panels. With these, energy consumption is likely reduced to about third as compared to dependency on coal or other non-renewable energy sources for electricity.

Do not just think about yourself, think about Mother Earth too! Living in an environment-friendly house can be one of your unconscious contributions towards nature conservation and protection.

The Benefits of Having an Energy Star Certified House

For two decades, the Environmental Protection Agency (EPA) is pushing energy-efficiency in homes. From this, the Energy Star in new homes was conceptualized. It aims to prevent pollution of the air while at the same time giving homes the much-needed adjustments towards energy efficiency.

For home buyers who are on the hunt for their dream homes, it is very important to look for Energy Star compliant homes. While the prices may be higher than homes established right before its implementation, buyers are guaranteed to save along the way from the prices slashed on energy costs.

And because going green is an in thing, those who invest in Energy Star homes are also assured of profits when they choose to sell them.

New construction homes are also required to follow new building codes. These requirements are also in line with the energy-efficiency methods prescribed by EPA.

How about appliances that you’ll be putting in your new homes?

You don’t have to worry too. Appliances manufacturers are also following Energy Star prescriptions. Thus, when shopping for TV, refrigerator, aircon, or any other home appliance you want to add in your new home, just look for the Energy Star sign. With this, you are assured that they are more energy-efficient than same appliances without such compliance tags.

Any other benefits, aside from less operating costs on monthly basis?

New construction homes that comply with Energy Star have added benefits. Given that the design is geared to cut energy costs, you can be assured that during warm months, the windows can give entry to natural and cool air. During cold months, the added insulation can provide heat and in fact trap the warm air circulating inside the house.

Another benefit that comes with Energy Star homes is the improved air quality inside the house. The ducts are made sure to be tightly sealed. They prevent air pollutants and even pests from finding their ways into the house. An improved indoor air quality is beneficial to the health – especially to those who have respiratory conditions.

If you are indeed a first time home buyer and you need the help of mortgage lenders, choosing Energy Star homes is quite a good choice. Many lenders are favoring these homes and within your locality, you might just be able to score one with lower origination fees.

If you are considering of buying an energy-efficient home, tapping the aid of your local real estate agent can help you a lot.