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If 39 years is too long to wait ...

Tax time can be much less traumatic for shopping center owners that have cost-segregation studies performed on their properties. The procedure, which entails marking certain components of a property for quicker depreciation, helps owners recognize the benefits of depreciation deductions sooner rather than later. For example, nonstructural millwork and special electrical, plumbing and HVAC work can often be depreciated faster than other building components. The IRS allows such items to be depreciated over five, seven, or 15 years instead of the standard 39 (27.5 for residential), says Greg K. Bryant, president of Bedford Capital Consulting, a firm that specializes in cost-segregation studies. Accessing deductions sooner will allow for significant tax deferral, which can greatly enhance cash flow in the earlier years of ownership.

Retail property owners will typically save $40,000 for every $1 million of building costs, Bryant says. A study typically takes four to six weeks and can be done on any commercial property, new or old, as long as it was placed in service after Dec. 31, 1986. “Cost-seg” is rapidly becoming standard procedure for property owners who want to maximize depreciation benefits from day one, Bryant says.

Many providers offer the service, but taxpayers should be careful when hiring a cost-seg professional, says Bryant. The IRS recommends that studies be performed by qualified professionals with relevant experience in construction, engineering and taxation, specifically stating that “a quality study will identify the preparer and always references his/her credentials, experience, and expertise in the cost-segregation area.”

GGP retools debt

General Growth Properties refinanced the $5 billion credit facility it used for the 2004 purchase of The Rouse Co. The new loan carries an interest rate of 125 basis points over the London Interbank Offered Rate, or LIBOR — about 60 basis points lower than the previous facility. This looks good to analysts, who were critical about the debt level General Growth took on for the $14 billion acquisition. “GGP has had surprising success in its efforts to lower the high initial spread of the Rouse facility and otherwise reduce variable-rate exposure,” wrote Paul Morgan, a REIT analyst at Friedman Billings Ramsey. The move frees up capital and helps the firm shoulder rising interest rates. “This increases GGP’s dry powder,” Morgan wrote, “should attractive acquisition opportunities arise in the near term.”

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