Donald Greenhalgh
Title: Partner, DiCicco & Gulman
Age: 60
Experience: 36 years
Jonathan Farrell
Title: Partner, DiCicco & Gulman
Age: 42
Experience: 17 years
Where would developers be without the accountants who cross the T’s and dot the I’s? Bankrupt, broke and battered by the risky world of commercial real estate development. And that’s where folks like Jonathan Farrell and Donald Greenhalgh come in, to rescue developers from losing their shirts – or at least to make sure they can pay for the project they’ve proposed. The two are public accountant birds of a feather and, when flocking together, they have a combined 53
years of experience in real estate accounting.
Q: Can you both talk about your backgrounds and what you do for the firm?
A: Greenhalgh: I’ve been in public accounting for 36 years. I started with a national firm back in 1976. That firm went out of business in 1990. I moved to another national firm that went out of business in 2001 and then went to Deloitte and Touche. I joined DiCicco Gulman nine years ago. My background has always been in real estate. Five years into my career I was specializing in real estate, from projections on low-income housing projects all the way to investment funds. We have two types of real estate clients here. One is the owner/manager/developer types, the closely held family-owned properties, and we do their financial reporting and tax work. On the flip side we also have institutional clients, the large investment funds with equity from institutional investors that want to buy Class A properties – own, manage and operate them … as investments for the appreciation. We do almost any property type – office buildings, shopping centers, hotels, industrial, multifamily housing, all of the true operating real estate. … My job is to head up that real estate practice for the firm … and service all that work along the way. Whether it’s financial reporting, income tax returns, wealth planning, we do all of that. We have about 20 people dedicated solely to real estate from the senior level and up, and probably another 15 or 20 staff people that we share with other groups in the firm.
Farrell: I started in 1995 at a national firm that went down in 2002. Then I also went to Deloitte and Touche. Then I got to DiCicco Gulman about six years ago. I am what I consider the voice of reason here on the real estate tax side. What I started doing from day one was real estate taxation and partnerships. I’ve always had the family-owned and operated real estate clients, as well as institutional clients.
Q: Obviously there are plenty of tax topics to talk about regarding the looming fiscal cliff. Can you drill down on one of those for our readers? What do commercial real estate owners or operators need to be thinking about?
A: Farrell: Right now for commercial real estate. there’s a lot of favorable tax legislation that’s expiring. One of the biggest things going away is bonus depreciation, what’s also defined as a qualified leasehold improvement, which landlords use when they build out space for a tenant. Under the old rules they had a 15-year life on that property so they’d realize it all back in 15 years. On top of that, right now, there’s a 50 percent bonus depreciation deduction on that so they would get 50 percent written off year one and recognize the rest over 15 years. With this expiring tax legislation, that bonus depreciation is going away. On top of that, the life of it has gone to 39 years instead of 15 years, so if you did a $1 million build-out, instead of getting a $500,000 deduction and then one-fifteenth of the remaining $500,000 in year one, you get just one-thirty-ninth of that $1 million in year one, and the rest over 38 years. So it’s very unfavorable in terms of building out spaces right now. That was a great incentive for landlords to do tenant upgrades, and it leads to higher rents. We don’t know where this will go with so much capital sitting on the sidelines. If we can’t get that capital into place, and if those landlords don’t have the incentive to do tenant build-outs, who knows what will happen?
A: Greenhalgh: We have a client right now doing a $2 million to $3 million [build-out] to a space, of which about $600,000 to $800,000 will qualify for that 50 percent deduction. He called us and said he was having a problem with the contractor and asked what effect it could have if they don’t place the contract in service … and the certificate of occupancy in December. I said … you could lose a $300,000 to $400,000 tax deduction. If you don’t place it into service before January, you’re now looking at an extended depreciation instead of what you get currently.
Five Tax Savings Vehicles for Real Estate Owners:
- Rehabilitation credits for pre-1936 buildings
- Historic rehabilitation credits for historic structures
- Brownfield credits
- Cost segregation studies
- Section 263(a) Regulations
