Do the Math.
Any Way You Figure It, Owning Adds Up

Most small to medium-sized businesses don’t think about buying business space. But with today’s real estate market and tax laws, that has changed.

Buying the right business condominium is a far better value than leasing. Just do the math. Put 10% down with SBA financing, subtract first-year IRC Section 179 write-offs of up to $100,000. And cost segregation that significantly accelerates depreciation.

Even before considering other tax deductions and potential appreciation, you’re dollars ahead! Borelli Investment Company is the Silicon Valley’s business condominium specialist. To learn more visit these Borelli complexes at the website listed.

A Land Repositioning Made to Order

HIGHLIGHTS

• Repositioning of ten-acre, former shopping center site in San Jose
• Created structured, orderly disposition process that focused demand, while demonstrating seller commitment
• Obtained winning bid that represented significant value enhancement for seller, and fair market price for buyer
• Winning bidder, Toll Brothers, will build approximately 200 townhomes and condominiums at Willow Glen Place

In its day, Hacienda Garden Shopping Center on Meridian Avenue in San Jose was a busy hub of activity. One of countless small shopping centers in the Bay Area designed to bring convenience to California’s carefree suburban lifestyle, Hacienda Gardens offered a medium-sized anchor retailer, supermarket, and a number of specialty retailers to shoppers in a sunny outdoor setting.

But that was in the 1960s, and by 2005 — with the growth of major regional malls such as Valley Fair and Oakridge — time had passed Hacienda Gardens by.

CHALLENGE

Surrounded by well-kept residential neighborhoods, Hacienda Gardens was ideally suited to be repositioned for high-density residential. The owners — KT Properties joint venture of Cupertino — decided to divide the old shopping center into two parcels. On one parcel, KT Properties plans a major renovation to transform the property into a master-planned, mixed use development. The northerly ten acres at Foxworthy and Meridian Avenues were put on the market for homebuilders.

Borelli Investment Company was one of a number of brokers that began working with KT Properties to find a buyer for the property at a price that would benefit both the buyer and seller.

Early in the process, a number of brokers and prospective buyers were involved, and rather than generating higher demand, this simply seemed to create more confusion. The risk to KT Properties was that the property would be sold for considerably less than market value.

SOLUTION

Borelli Investment Company proposed a more orderly disposition process that would afford all prospective homebuilders an equal opportunity to bid for the property, while at the same time, demonstrating the owner’s commitment to sell and focusing the demand in a way that would drive the offers to appropriate levels for such a well-located parcel.

Borelli Investment Company prepared comprehensive packages describing all aspects of the opportunity, and submitted the packages to approximately one dozen qualified homebuilders. This gave each bidder a clear sense of the opportunity and a thorough understanding of how the winning bidder would be selected.

RESULTS

Almost one year after beginning to work with KT Properties, Borelli Investment Company’s collaborative efforts to bring structure to the marketing process paid off with a multi-million dollar transaction that represented a substantial value enhancement to the seller — and a good deal for the buyer, Toll Brothers, America’s Luxury Homebuilder.

Toll Brothers is building Willow Glen Place, a community of approximately 200 townhomes and condominiums reminiscent of the California Bungalow style. Each residence features spacious floor plans with luxurious master bedroom suites with walk-in closet and private bath, and kitchens with well-crafted cabinets and granite slab countertops. Community amenities include a pool, spa, gym, and clubhouse — plus a tot playground.

By working closely with KT Properties to create a more orderly marketing effort than the typical land brokerage process, Borelli Investment Company helped close a transaction that was made to order for both the buyer and seller — resulting in another acclaimed Toll Brothers development offering high-quality, luxury housing.

Borelli Investment Company Closing Out Ringwood Business Center

Three-building, 72,000 square foot business condominium complex sells 46 of 47 units in a little over one year

San Jose, California, January 9, 2006 — Borelli Investment Company has announced a virtual sell-out at Ringwood Business Center, a new 72,200 square foot, three-building business condominium complex in North San Jose.

Ringwood began selling its 47 business condominium units ranging from 750 square feet to 3,500 square feet just over a year ago, and at this writing, only one unit is left.

“Business condominiums are hot in general, and Ringwood units were in high demand from day one” said Ralph Borelli, president of Borelli Investment Company, developer of the project.  “Ringwood business condominiums allow owners to buy, not lease — building equity, while enjoying the tax benefits of property ownership. The concept makes so much sense, it’s a natural winner.”

Located in International Business Park

The single-story complex is well located in North San Jose’s International Business Park.  Borelli Investment Company purchased a prime parcel left over from a larger business complex next door, and then developed an attractive, modern-looking business center.  Ringwood owners have easy access to major transportation arteries such as I-680, I-880, and the Montague Expressway, and are less than five miles from San Jose International Airport. Ample parking exists on-site, with a ratio of four cars-per-thousand square feet of space.

“Demand has remained so strong over the past year that several investors have already bought and re-sold units with a substantial appreciation in value,” Borelli commented.  “We have quite a range of owners in the complex — including professional firms, contractors, a machine shop, and even a dental lab.  Ringwood is a great place to do business.”

Borelli Investment Company handles all owner upgrades as needed.  SBA financing — requiring only 10 percent down — is available through Mid-Peninsula Bank.  Borelli Investment Company also offers lease-to-own plans, which allow a business to make purchase decisions months or years down the road, with a portion of the lease payments applied to the eventual down payment.

For more information about the final unit at Ringwood Business Center, call Borelli Investment Company at (408) 453-4700 and ask for Lynn Hawkins, or e-mail lynn@borelli.com.

Borelli Investment Company is one of the oldest commercial real estate firms in the Santa Clara Valley. The company provides a full range of commercial real estate services — from development and construction management to land sales and consulting for sales and leasing. More information about Borelli Investment Company’s services may be obtained by calling (408) 453-4700 or visiting http://www.borelli.com/.

Contact: Ralph Borelli, CEO Borelli Investment Company 1770 Technology Dr. San Jose, CA 95110 Ph: 408.453.4700 Fax: 408.453.4636 E-mail: ralph@borelli.com

www.borelli.com

Cost Segregation and 1031 “like-kind” Exchanges Doing Double Duty

Cost segregation and 1031 “like-kind” exchanges are both excellent tax-deferral strategies that can reduce your taxes. Taken together, the two methods offer even greater benefits for smart property owners.

Most owners of commercial property — from a large industrial building to the increasingly popular business condominiums — are aware of the value of IRC Section 1031 exchanges. In these transactions, commonly known as “like-kind exchanges”, owners dispose of business or investment property through a qualified intermediary, and the proceeds of the sale are used to purchase a replacement property of like kind. The transactions allow owners to defer taxes on all or a substantial portion of a gain on that sale. The replacement property typically has a carryover tax basis that is calculated by subtracting the gain deferred through the exchange from the value of the replacement property.

While 1031 exchanges have been around for a number of years, cost segregation is a newer, but now widely used tax-deferral strategy by commercial real estate owners. Cost segregation is the practice of identifying and segregating the depreciation of building components that support personal property or are related to the business activity rather than to the building itself. The building components that are reclassified from real property to personal property can be depreciated over substantially shorter time periods — ranging from 5 to 15 years — as opposed to 39 years for commercial property, using the standard straight-line method. Personal property can also employ accelerated, front-end loaded methods of depreciation, such as 200% or 150% declining balances, for even faster write-offs.

Essentially, cost segregation reflects the reality that while a building may well continue to be functional over four decades, there are many components — from carpeting and cabinets to landscaping and lighting fixtures — that will need to be replaced many times by then.

Cost segregation saves even smaller property owners tens of thousands of dollars through deferred taxes. A number of studies have suggested that as much as 25% to 30% of a property’s basis could be eligible for the accelerated depreciation. To make this determination, you’ll need the help of your CPA and perhaps an engineering consultant that can conduct the detailed study required.

Combining 1031 Exchanges with Cost Segregation

Recently, it has become clear that real estate owners can take advantage of both 1031 exchanges and cost segregation, enjoying the tax advantages of both strategies. According to an article in the Journal of Accountancy (August 2005):

In general, the definition of real property under section 1031 is determined by state law. In contrast, the definition of real and personal property for tax-depreciation purposes is determined under federal law. State law tends to classify fixtures in a building as real property. Therefore, property such as wall coverings, carpeting, special purpose wiring or other installations affixed to the building can be considered real property under state law and like-kind property for section 1031 purposes, but personal property for cost segregation studies. Thus, real estate owners can benefit from both the gain deferral under section 1031 for real estate exchanges and the enhanced cost recovery deductions of the cost segregation study.

In other words, you can have your cake, and eat it too!

A Few Considerations

Obviously, before embarking on these strategies, property owners need to consider a few factors.

First, will cost segregation be beneficial for the property you own? Borelli Investment Company performs cost segregation studies on each of the business condominiums it offers at its hot-selling complexes, such as AirTech Office Condominiums, Junction Office Center and Ringwood Business Center. Owners are, of course, advised to consult with their CPAs and are free to arrange for their own engineering studies if they wish.

Second, as a property owner, you should consult with your CPA about the impact of depreciation recapture in the future as a result of the cost segregation study, should you later dispose of the property through a 1031 exchange.

Regardless of some of the future risks, cost segregation offers such significant present value benefits through accelerated depreciation that the advantages often outweigh any potential disadvantages should a 1031 exchange later take place.

The bottom line is that relying on the two methods, buyers of Borelli Investment Company’s condominiums and other real property have tremendous potential to defer income taxes to future periods and improve their cash flow in the present.

For more information about cost segregation and 1031 exchanges, contact Borelli Investment Company at www.borelli.com, or call (408) 453-4700.

North San Jose’s Future is Looking Up

Vision North San Jose plan approved by the San Jose City Council in June 2005 provides the blueprint for a new land use policy along area transportation corridors that will see future growth go up, not out.

Driving up North First Street and into the surrounding industrial areas is like taking a trip back in time. Suddenly, it’s the 1970s. The semiconductor industry is skyrocketing. Dozens of related high technology businesses are being started each year. And these infant companies need millions of square feet of research and development and light manufacturing space here in Silicon Valley.

North First Street’s Golden Triangle — the area bounded by I-880 and Hwys 101 and 237 — is home to many of these companies. These are the buildings that surround you on your trip through time: one- and two-story dinosaurs from a different era, built for vastly different purposes than are required today.

You blink, and you’re back in the 21st century. Manufacturing has moved overseas. The imagination and brain power is still here, but the needs for office and commercial space to support these employees are radically different from what they were from the late 1960s into the 1980s — during the valley’s heyday.

City of San Jose officials have created a vision for the future that takes into account the changing business environment, transportation picture, and lifestyle trends impacting the valley today. Vision North San Jose represents meticulous research and a significant amount of discussion on the part of the San Jose Redevelopment Agency, Office of Economic Development, city planning department, council members, developers, industry executives, and residents. The plan is the first update in land use policy for the North San Jose area since 1988.

“This is a sea change in land use planning,” says Ralph Borelli, CEO of Borelli Investment Company. “The city has devised a framework for smart growth over the next 25 years. The area is going to be urbanized, with midrise and highrise office and residential buildings clustered along transportation corridors, replacing the aging industrial parks that are there now.”

High-Density, Industry-Centered, Urban Village

At the core of San Jose’s vision is a mosaic that brings together office, retail, and residential space into a high-density urban village. The plan incorporates:

• 26.7 million square feet of new office and R&D space
• 32,000 new high-density residential and single-family homes in close proximity to jobs
• 1.7 million square feet of supporting retail space
• $520 million in transportation improvements
• Parks and open spaces, public safety services, educational facilities