Having climbed back from the lows of the Great Recession, the commercial real estate

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January 2016 Tangible Property Regs: Avoid demolishing your depreciable tax basis By Laura Jackson and Scott Drago Having climbed back from the lows of the Great Recession, the commercial real estate

In response, commercial real estate professionals are beginning to look at older properties with buildings needing significant improvements, if not complete demolition.

Purchase Price A property's purchase price is allocated between land and buildings based on their relative fair market values, with sellers and buyers often taking different points of view on how

) Sellers may want to allocate the purchase price to land, which is not depreciable and subject to lower capital gains, assuming the seller has held the property for investment purposes.

1 January 2016 Tangible Property Regs: Avoid demolishing your depreciable tax basis By Laura Jackson and Scott Drago Having climbed back from the lows of the Great Recession, the commercial real estate market has rebounded in recent years; some would say there are signs that top-tier markets are overheating. In response, commercial real estate professionals are beginning to look at older properties with buildings needing significant improvements, if not complete demolition. The return on investment may be worth the risk. But are there tax consequences to consider? Purchase Price A property's purchase price is allocated between land and buildings based on their relative fair market values, with sellers and buyers often taking different points of view on how such allocation should be calculated. (See Treasury regulations, sections (a) and 1.167(a)-5.) Sellers may want to allocate the purchase price to land, which is not depreciable and subject to lower capital gains, assuming the seller has held the property for investment purposes. A building that has been depreciated is subject to higher tax rates under certain IRS recapture rules. (See In This Issue 1,3-4 Tangible Property Regs 2-7 Featured Listings 4-5 Featured Deals 8 Additional Deals Bill Gladstone, CCIM, SIOR ext. 120 wgladstone@naicir.com "Buyers favor a higher allocation to buildings since potential depreciation would reduce future taxable income." Buyers favor a higher allocation to buildings since potential depreciation would reduce future taxable income. They even may want cost segregation studies to designate a portion of the purchase price among various subcomponents with shorter depreciable lives and faster deductions. While third-party appraisals of land and buildings are the best safeguard to potential IRS challenges to a purchase price allocation, a reasonable allocation of the purchase price may be accepted if it's based on arm's length negotiations between the parties. (Continued on page 3) A publication of the Bill Gladstone Group of NAI CIR

Office Listings 15,098 SF Sale - 1707 S.

warehouse is leased by a strong credit tenant until September 30, 2020 (right to terminate after 3 years) 2,208 SF Lease - 3552 Old Gettysburg Road, Camp Hill Beautifully renovated building

panoramic window lines make it appealing for the tenants and eye catching to customers and passing traffic 335-2,000 SF Lease - 208 N.

building Downtown amenities are just a few steps away and parking is a block in every direction 1,375 SF Lease - 3601 N.

been renovated Suite features five private offices/exam rooms, a large reception/ check-in area, a private bathroom and incredible views 1,969-20,112 SF Lease - 30 N.

building is Energy Star Certified and utilizes the latest energy management systems for optimal energy efficiency Lease - 801 East Park Drive, Suite 107, Harrisburg Attractive office suite in

2 Office Listings 15,098 SF Sale S. Cameron Street, Harrisburg Office property with adjoining warehouse and two additional storage garages The office space and storage garages will be vacated by the current occupant; the main warehouse is leased by a strong credit tenant until September 30, 2020 (right to terminate after 3 years) 2,208 SF Lease Old Gettysburg Road, Camp Hill Beautifully renovated building with high visibility and easy access to all major professional/commercial arteries of the West Shore Quick connections to Route 15 and Route 581 make this site attractive for many users Large panoramic window lines make it appealing for the tenants and eye catching to customers and passing traffic 335-2,000 SF Lease N. Third Street, Harrisburg Remodeled office space in prime Central Business District Historic building faces the Capitol Complex with the largest expanse of glass window lines in privately owned building Downtown amenities are just a few steps away and parking is a block in every direction 1,375 SF Lease N. Progress Avenue, Harrisburg Prominent, two-story office building with Progress Avenue frontage is now offering medical/professional office space for lease Lobby and common areas have recently been renovated Suite features five private offices/exam rooms, a large reception/ check-in area, a private bathroom and incredible views 1,969-20,112 SF Lease - 30 N. Third Street, Harrisburg Class A office building with marble lobby Skywalk to Strawberry Square, Harrisburg Hilton and connected parking garage directly across from the Capitol Complex This building is Energy Star Certified and utilizes the latest energy management systems for optimal energy efficiency Lease East Park Drive, Suite 107, Harrisburg Attractive office suite in recently renovated building Easily accessible from I-83/Union Deposit Interchange Good parking ratio 1,819 SF 2 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 PA License #RB024320A l

(Tangible Property Regs...Continued from page 1) But what if the buyer intends to demolish the building?

If it is currently in use, the buyer's intent to demolish the building sometime in the future should have no impact on the allocation.

regulations. Office Listings "But what if the buyer intends to demolish the building?

However, if the property was acquired with the intent to demolish it immediately or at a later date, the entire purchase price must be allocated to the land and no loss resulted upon demolition.

) 2,700-5,400 SF Lease - 4386 Sturbridge Drive, Harrisburg Newly constructed Class A office space for medical or professional use Space in shell condition, ready to accept a build-out designed to

3 (Tangible Property Regs...Continued from page 1) But what if the buyer intends to demolish the building? If the building is no longer in service, it may be difficult to argue that any significant portion of the purchase price should be allocated to the structure. If it is currently in use, the buyer's intent to demolish the building sometime in the future should have no impact on the allocation. As discussed below, the purchase price allocation to a building may be less significant if the building is ultimately demolished, unless the new owner takes advantage of recently issued Treasury regulations. Office Listings "But what if the buyer intends to demolish the building?" Demolition Tax Basis Prior to 1984, the demolition of a building resulted in a loss equal to the remaining tax basis (plus demolition, minus salvage value). However, if the property was acquired with the intent to demolish it immediately or at a later date, the entire purchase price must be allocated to the land and no loss resulted upon demolition. (See Treasury regulations, sections (a) and (b).) 2,700-5,400 SF Lease Sturbridge Drive, Harrisburg Newly constructed Class A office space for medical or professional use Space in shell condition, ready to accept a build-out designed to suit tenant Located along Route 39 with access to amenities such as lodging, the new Super Giant Store, other eateries, gas, banking and all major transportation corridors In 1984, Congress enacted Internal Revenue Code Section 280B. This tax provision provided that the adjusted basis of the building and cost of demolition (less any salvage value) must be capitalized and added to the basis of the land. No loss deduction would be allowed for demolishing a building, unless the owner could prove that the building was demolished due to an unexpected event. The tax basis for the new building only includes the cost of the new construction. However, building modifications are not subject to this rule; these costs are added to the basis of the old building, not the land. The tax rules provide that a building has been modified, not demolished, if at least 75 percent of the existing external 7,018 SF Lease E. Trindle Road, Mechanicsburg Open corner office suite offers functionality and usability There are many private offices and large conference room(s) lining the perimeter Professional office space features executive sized offices, private in-suite restrooms and two entrances walls of the building are retained in place as internal or external walls and at least 75 percent of the existing internal structural framework of the building is retained in place. (See Rev. Proc , CB 704.) New Regulations Recently issued tangible property regulations may provide a way to avoid the impact of IRC section 280B when a building is demolished. Under tangible property regulations, a taxpayer who anticipates demolishing a building may place the building into a general asset (Continued on page 4) Seeking 2016 Writers Share YOUR expertise with over 4,000 business professionals Do you have an interesting topic in mind? Get featured and published in Bill Gladstone Group of NAI CIR's magazine or newsletter publication. For Details Contact: Chuck Bender at cbender@naicir.com or (717) ext

(Tangible Property Regs...Continued from page 3) account.

A single-asset GAA can be used to the taxpayer's advantage, depreciating the property after its demolition, where the building's basis otherwise would be rolled into the land.

) Featured Deal Sold: 1821 Fulton Street, Harrisburg, PA It is important to note that the GAA election must be made in the year in which the property is acquired.

) This new rule allowing owners to continue to depreciate demolished buildings could benefit taxpayers in the current marketplace.

4 (Tangible Property Regs...Continued from page 3) account. GAA elections typically lock in the basis of a property and keep a taxpayer from realizing losses on the disposition of assets until the GAA balance is zero. A single-asset GAA can be used to the taxpayer's advantage, depreciating the property after its demolition, where the building's basis otherwise would be rolled into the land. (See Treasury regulations, section 1.168(i)-1(e)(3)(ii)(A).) Featured Deal Sold: 1821 Fulton Street, Harrisburg, PA It is important to note that the GAA election must be made in the year in which the property is acquired. Also, this election is not available for properties that are purchased and sold within the same year. (See Treasury regulations, section 1.168(i)-1(c)(1)(i).) This new rule allowing owners to continue to depreciate demolished buildings could benefit taxpayers in the current marketplace. Given current valuations, property owners should plan ahead and look for opportunities to acquire tired buildings in prime locations, demolish and rebuild them, yielding two deductions - the demolished building currently in the GAA and the new building upon completion of its construction. While this article provides a general overview of the tax benefits available under new regulations, consult your tax professional for specific advice pertaining to your situation. Reprinted with permission from Commercial Investment Real Estate, The Magazine of the CCIM Institute, Nov/Dec 2015, Vol. XXXIV, No. 6. About the Authors: Laura Jackson is a managing director in the tax practice of the Real Estate and Infrastructure Solutions industry group at FTI Consulting. Contact her at laura.jackson@fticonsulting.com. Scott Drago is a senior director in the tax practice of the Real Estate and Infrastructure Solutions industry group at FTI Consulting. Contact him at scott.drago@fticonsulting.com. Left to Right: Mary Kay Eckenrode (Director of Lending, Community First Fund), Juanita Edrington-Grant (CEO, CRAM, Inc.), Jeannine Peterson (CEO, Hamilton Health Center) CRAM, Inc., a faith-based human and social services agency, has purchased 17,327+/- SF at 1821 Fulton Street in the City of Harrisburg, PA. They will open their new training center, which will provide pre-release and re-entry services to inmates, exoffenders and their families. The Bill Gladstone Group of NAI CIR handled the transaction. Visit, for more information on the company. Office Listing Featured Land 10 Acres Sale - Eisenhower Boulevard, Harrisburg - New Pricing Offer! Nice 10 acre-site on Eisenhower Boulevard with easy access to Route 283, I-83 and PA Turnpike (I-76) Site is surrounded by commercial, retail and industrial development Commercial General zoning permits virtually any of these like uses for future development 2,000 SF Lease N. Front Street, Harrisburg - New Lower Price! Functional first floor office space includes four offices, a work room, reception area, kitchen, and two restrooms 8 Parking spaces for first floor tenant Beautiful river views in Downtown Harrisburg Conveniently located minutes from I-81 and I-83 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 PA License #RB024320A l

Office Listing Featured Deal Sold: 300 Winding Creek Boulevard, Mechanicsburg, PA Left to Right: Gary Heckman (Chief Business Development Officer, AgChoice Farm Credit), and Darrell

35 acres of land in Delta Point for the construction of their 18,000+/- SF headquarters office.

professional who could benefit from having a small functional office near the City Turn-key condition offered at a competitive full service rate Visit, www.agchoice.

5 Office Listing Featured Deal Sold: 300 Winding Creek Boulevard, Mechanicsburg, PA Left to Right: Gary Heckman (Chief Business Development Officer, AgChoice Farm Credit), and Darrell Curtis (President and CEO, AgChoice Farm Credit) AgChoice Farm Credit, FLCA, a financial institution, has purchased 3.35 acres of land in Delta Point for the construction of their 18,000+/- SF headquarters office. The Bill Gladstone Group of NAI CIR represented AgChoice Farm Credit, FLCA and Tim Brogan of Newmark Grubb Knight and Frank represented Delta Commerce Park Developers, LLC the property owners. 955 SF Lease State Street, Harrisburg Perfect location along the State Street corridor leading to the steps of the Capitol Complex Ideal for a lobbyist, attorney or other professional who could benefit from having a small functional office near the City Turn-key condition offered at a competitive full service rate Visit, for more information on the company. Commercial Listings 1,160 SF Lease - 8 Tristan Road, Suite 4, Dillsburg Space now available in this newly constructed, modern facility End-unit has an open floor plan and can easily be modified for a commercial, retail, or office user Easy access and exposure to Route 15 Similar building to be built Lease Firehouse Road, Grantville Functionally designed, to be built warehouse/shop space Two buildings: 5,000 SF (50' x 100') each Price is right and location is convenient to I-81 10,000 SF 5

Commercial Listings Industrial Listings 12,455 SF Sale - 1635 N. 7th Street, Harrisburg - Price Reduced!

a variety of users Good location in Downtown Harrisburg 85,000 SF Sale/Lease - 2969 N.

rear section has 34,000 SF with offices Excellent for assembly or light industrial uses 2,000 SF Lease - 322

turned successful furrier business Property features an open, bright, commercial space in the heart of

Sale - 6 Pine Hill Drive, Carlisle - Price Reduced!

and the PA Turnpike (I-76) in Carlisle Approximately 8,900 SF of finished office space and 74,644 SF of

Transportation Center in Downtown Harrisburg In walking distance to all the downtown restaurants, amenities, and

6 Commercial Listings Industrial Listings 12,455 SF Sale N. 7th Street, Harrisburg - Price Reduced! Building is currently being used as a church but space is very versatile and can be changed to fit the needs of a variety of users Good location in Downtown Harrisburg 85,000 SF Sale/Lease N. 7th Street, Harrisburg 85,000 SF clean industrial building available Front section has 51,000 SF with offices; rear section has 34,000 SF with offices Excellent for assembly or light industrial uses 2,000 SF Lease South Front Street, Wormleysburg First floor space available for lease in this beautiful historic schoolhouse turned successful furrier business Property features an open, bright, commercial space in the heart of Wormleysburg There are gorgeous new hardwood floors, fresh paint, high ceilings, and private parking 83,544 SF Sale - 6 Pine Hill Drive, Carlisle - Price Reduced! Large, clean warehouse facility built in 1996 and recently expanded Ideal location off the Miracle Mile at I-81 and the PA Turnpike (I-76) in Carlisle Approximately 8,900 SF of finished office space and 74,644 SF of warehouse space Lease Market Street, Harrisburg First floor space available in the Harrisburg Transportation Center in Downtown Harrisburg In walking distance to all the downtown restaurants, amenities, and Riverfront Park 7,395 SF Lease Allendale Road, Mechanicsburg Functional warehouse space with 1,000 SF being office Easily accessible from US Route 15, PA Route 581 and I-81 Convenient West Shore location Including six docks: 8' x 8' 70,710 SF 6

Industrial Listing Investment Listing 3,690 SF Lease - 2408 Park Drive (Lower Level), Harrisburg Perfect flex space for a company in need of a storage or shipping area Lower level warehouse space

2701, 2703, 2705, 2707 Horseshoe Pike, Palmyra Property consists of two commercial units (Antique Store and Gun Shop), one apartment (above Gun Shop), and two single family houses Available as an

7 Industrial Listing Investment Listing 3,690 SF Lease Park Drive (Lower Level), Harrisburg Perfect flex space for a company in need of a storage or shipping area Lower level warehouse space features a dock door, a potential drive-in and is open, clean and competitively priced Located off Progress Avenue at the I-81 interchange with many amenities close by 10,715 SF (4 Parcels) Sale , 2703, 2705, 2707 Horseshoe Pike, Palmyra Property consists of two commercial units (Antique Store and Gun Shop), one apartment (above Gun Shop), and two single family houses Available as an investment or redevelopment opportunity at one of South Londonderry Township's busiest intersections Location Acres Zoning Type 5148 E. Trindle Road, Mechanicsburg, Cumberland County (Route 641) 1.0 Commercial Limited Sale Route 22 & Route 39, Harrisburg, Dauphin County 1.35 (1 lot) Commercial Highway/Office Sale Price Reduced Wesley Drive, Mechanicsburg, Cumberland County 2.49 Commercial General District Sale Pending Grayson Road, Harrisburg (Rear Lot) 1.6 Limited Manufacturing District (ML) Sale I-81 and W. Trindle Road, Carlisle, Cumberland County 2.18 (2 parcels) Commercial Highway Sale Land Listings Price Reduced - East Cumberland Street (Route 422), Lebanon, Lebanon County 2.2 Commercial Sale 7700 Derry Street, Harrisburg, Dauphin County 2.3 (lot 8) Commercial District General Sale/Lease Route 114 & Gettysburg Pike (NEC), Mechanicsburg, Cumberland County 2.97 Highway Commercial District Sale Pending - Lockwillow Ave., Chiara Dr. and Jaycee Ave., Harrisburg, Dauphin County 3.68 (5 parcels) Commercial General Sale Price Reduced Chelton Avenue, Harrisburg, Dauphin County 3.75 Business Campus Sale/Lease 1175 Walnut Bottom Road, Carlisle, (Lots 2 & 3), Cumberland County 4.07 Community Commercial (C2) Sale Price Reduced - Bent Creek Boulevard, Mechanicsburg, Cumberland County 4.44+/- Community Commercial (C2) Sale/Lease 700 S. Baltimore Street, Dillsburg, York County Agricultural - Conservation (AC) Sale Route 114 & Gettysburg Pike (NWC), Mechanicsburg, Cumberland County 7.12 Highway Commercial District Sale Lancer Street Extended, Harrisburg, Dauphin County 7.52 Medium Density Residential (R-2) Sale Route 441 and Orchard Drive, Harrisburg, Dauphin County 8.34 Single Family Residential District Sale 730 Limekiln Road, New Cumberland, York County 8.64 Commercial Business Sale Pending - Linglestown Road, Harrisburg, Dauphin County 9.48 Commercial Neighborhood District (CN) Sale Eisenhower Blvd & Highspire Road, Harrisburg, Dauphin County 10 Commercial District General Sale 7700 Derry Street, Harrisburg, Dauphin County (lots 4-8) Commercial District General Sale Fisher Avenue, Jonestown, Lebanon County Commercial Sale Carlisle Pike (Route 11) Waterford Square, Mechanicsburg, Cumberland County (13 lots) Community Commercial (C2) Sale Price Reduced - Allentown Boulevard, Harrisburg, Dauphin County 17+ Commercial Highway (CH) Sale l 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 PA License #RB024320A 7

PRESORTED STANDARD U.S. POSTAGE PAID Harrisburg, PA Permit No.

billgladstone.com Check Out Our Recent Deals Visit www.billgladstone.com to view listings not included in this issue.

Third Street Harrisburg, PA Duquesne Light Company based in Pittsburgh, providing energy services to South

The Bill Gladstone Group of NAI CIR represented Associated PA Constructors and Patrick Sentner, SIOR, of

Space still remains available, call for details! LEASED 30 E. Shady Lane Enola, PA Family Practice Ce

Shady Lane, Enola, PA. The Bill Gladstone Group of NAI CIR handled the transaction.

8 PRESORTED STANDARD U.S. POSTAGE PAID Harrisburg, PA Permit No. 783 BILL GLADSTONE, CCIM, SIOR NAI CIR PO Box 8910 Camp Hill, PA Check Out Our Recent Deals Visit to view listings not included in this issue. LEASED 800 N. Third Street Harrisburg, PA Duquesne Light Company based in Pittsburgh, providing energy services to South Western Pennsylvania, has leased office space at 800 N. Third Street, Harrisburg, PA. The Bill Gladstone Group of NAI CIR represented Associated PA Constructors and Patrick Sentner, SIOR, of Colliers International, Pittsburgh, represented Duquesne Light Company. Space still remains available, call for details! LEASED 30 E. Shady Lane Enola, PA Family Practice Center, P.C., which provides healthcare services, has leased 2,400 SF of office space at 30 E. Shady Lane, Enola, PA. The Bill Gladstone Group of NAI CIR handled the transaction. LEASED 5060 Ritter Road, Suite A-1, Mechanicsburg, PA James Vending, Inc., a full-service vending company based in the greater Pittsburgh area, has leased 4,800 SF of flex space at 5060 Ritter Road, Mechanicsburg, PA. The Bill Gladstone Group of NAI CIR represented James Vending, Inc. and Drew Bobincheck of Landmark Commercial Realty, represented Brickbox Investments, LLC.

During the last cycle,

October 2016 Breaking Down Defeasance CMBS borrowers should understand the prepayment process. By Thomas Welch and John Poole During the last cycle, commercial mortgage backed securities lending gained