Winter 2008

Real Estate Investment Funds: Understanding Selected Terminology
Real estate investment agreements often contain specialized terminology likely to be unfamiliar to first-time investors. Some selected key terms are "The Promote," "Subsequent Distributions," "Clawbacks," "Subsequent Investors," "The Hurdle Rate," "Cost of Debt," "Cost of Equity" and "Bond Premium Model." Read more...

Investments: Break-Even Ratios and Sensitivity Analysis
With concern being expressed that the real estate cycle is peaking due to overpriced properties and the possibility of a recession, real estate buyers, in the classic phrase, should use a sharp pencil when analyzing a proposed investment. Two analytical tools for doing so are the break-even ratio and sensitivity analysis. Read more...

Leases: Hidden Issues in Market Rate Renewal Options
A renewal option in a commercial lease often is freely granted to the tenant by the landlord even though the option is one-sided—it will be exercised only if it is beneficial to the tenant. Even when the option is given in exchange for some concession by the tenant, the landlord should be diligent in drafting language to ensure that the renewal rental will match as closely as possible the fair rental value of the premises at the time the new lease term begins. Read more...

Mortgage Securities: Inside the Rating Process
One question being asked about the rating agencies is why they were so late in downgrading CMBS and CRE issues that subsequently experienced problems. A recent report by Moody's Investors Service offers one explanation. Ratings to some extent reflect anticipated future market changes (rising or falling) that would affect a current offering. Several examples of this are in this article. Read more...

Year-End Tax Review: Rentals, Real Estate Sales and Gifts
For real estate professionals, losses from rental real estate activities are not subject to the passive loss rules if during a tax year: (1) more than 50 percent of the taxpayer's personal services are performed in real property businesses; and (2) more than 750 hours of service are performed in real property businesses. For both of these tests, the taxpayer must materially participate in the real property businesses. If a joint return is filed, these two tests are met only if they are separately satisfied by either spouse. (However, in determining material participation, a spouse's participation is taken into account.) Services performed as an employee are ignored unless the employee owns more than 5 percent of the employer. Read more...

Financing: Lender Liability for Improper Disclosure
In a decision that affects all types of financing, a federal district court in Massachusetts ruled that a lender's disclosure to a competitor of the reasons for the lender's decision not to finance a prospective borrower's investment could constitute a tortious interference with a prospective business relationship if such action constitutes a violation of established standards in the banking industry. Read more...

Somerset CPAs Real Estate Team News

Marion County Reassessment: Commercial/Industrial Income and Expense Statements
On January 11, 2008, we sent out an e-alert regarding the "Commercial/Industrial Income and Expense Statement" survey forms that were sent by the Marion County Assessor and Manatron, the contractor working on the state-ordered reassessment for 2006. Read more...

Visit Us at BOMA
Michael Fritton, Dan Dickerson, Cynthia Bay and Andrea Riffey will be at the BOMA Indianapolis annual trade show event on February 21, 2008. Please come by our exhibit booth for a visit. Somerset is proud to be a Corporate Sponsor of BOMA Indianapolis in 2008.

Somerset Real Estate Seminar Series
The dates for our annual Real Estate Seminar Series have been set. Topics include Introduction to Like-Kind Exchanges (June 21), Advanced Like-Kind Exchanges (July 9) and Real Estate Tax Update (August 13). Michael Fritton will be the speaker for each session. Registration is open on the Seminars page of our web site.

Real Estate Focus is provided by Somerset’s Real Estate Team for our clients and other interested persons upon request. For additional information on the issues discussed, please contact Michael Fritton, CPA. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. 

These articles were written by and published herein with the permission from professionals of BDO Seidman, LLP.  Somerset is a member of the BDO Seidman Alliance, a nationwide association of independently owned accounting and consulting firms.

Somerset CPAs, P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com