Sarah Schwartz

Tuesday, 29 January 2008 19:00

Proactive planning

Investing in real estate requires careful planning well before the transaction, cautions Douglas G. Schultz of Burr Pilger Mayer. “It is important to step back and look at the big picture. What do you want out of the investment?”

If certain aspects of accounting and tax planning aren’t addressed, they could become huge negatives: higher tax bills, less liability protection than you might have had, and higher estate taxes. “A little creativity can go a long way to minimize taxes and maximize value,” he says.

Smart Business asked Schultz about preparing for your biggest purchase.

What should be addressed before any real estate investment purchase?

It’s important, from a tax and liability protection perspective, to use the proper entity to hold your investment. Thorough consideration of your objectives will determine whether an LLC, limited partnership, or other flow-through entity should be selected.

Much has been written about subprime mortgages — we an expect lenders to revert to more traditional underwriting guidelines in 2008, but that shouldn’t prevent qualified investors and developers from moving forward.

Still, you must understand what the property’s cash flow requirements are and what they may entail. That could mean escalating interest rates, increases in operating costs, inflation, or an unexpected event that might disrupt the liability of that space — you must have reserves available.

To that end, financing alternatives must be reviewed to make sure any guarantees, equity sharing, and/or collateralization are reasonable and will be sustainable throughout the property’s holding period. Sale lease-backs, interest enhancement mortgages, and seller financing are alternative financing techniques to consider. Loans also present special reporting issues. The calculation of various ratios or investment returns is required for compliance or covenants.

Properly characterize your investment as a passive activity or an active business. Real estate losses by definition are generally considered passive, and the deduction of these losses is limited to passive income unless the owner is a real estate professional. By meeting certain requirements relating to percentage of time and number of hours spent in real estate activities, an individual may be able to convert passive activity losses to non-passive losses, which can offset income such as wages, dividends, and capital gains.

What needs to be considered when disposing of real estate?

Investors need an exit strategy. Do they plan to sell it after it has appreciated significantly, or exchange it for another property? If so, what kind of property makes sense: a tenancy-in-common investment interest, a single tenant triple net lease property, or a similar but more valuable property? If you sell, will you qualify for long-term capital gain rates, or will you be subject to ordinary income tax rates?

If you sell your property and replace it with a new one, a like-kind exchange can reduce taxes. For example, non-income-producing land can be exchanged for triple net leased property for improved cash flow. High-equity property can be exchanged for highly leveraged property for an increase in rate of return.

Any real estate investment must be considered in terms of your overall financial and estate plan. All options — family limited partnerships, charitable trusts, and intentionally defective irrevocable trusts (IDIT) — need to be weighed. Including these tools in an estate plan can achieve a reduction in estate tax, an increase in wealth transferred to your beneficiaries, and perhaps a significant contribution to charity.

What are some tax strategies?

In real estate, you want to acquire property that will appreciate substantially and can be held and liquidated with maximum cash flow and minimal taxes. Here are two ways to accomplish this: 1) Accelerate depreciation. When a client purchases a property such as a commercial office building, we often recommend a technique called cost segregation. Cost segregation studies provide immediate cash flow savings by accelerating deductions for depreciation, in turn reducing taxes. Certain components of the building that are personal, short-lived assets are segregated from the building’s structural components, typically depreciated over 39 years. Short-lived assets might include carpets, window treatments, cabinets, partitions, and landscaping. This opportunity can be applied to buildings acquired up to 15 years ago and provides immediate tax savings. 2) Take advantage of capital gain rates. Normally, an individual who subdivides land or develops land as condominiums and then sells the land would be taxed at high ordinary income tax rates. Long-term capital gain rates apply to a sale of a property that is a capital asset held more than one year. Inventory is not a capital asset. Investors can qualify for long-term capital gains, but developers cannot. Case law and the tax code can allow a gain, under certain circumstances, to be taxed at lower long-term capital gain rates on the property's appreciated value, even where some development has occurred.

Whatever course is selected, the big picture has to encompass you, your vision and goals, as well as those of your family and their future. <<

DOUGLAS G. SCHULTZ is a tax partner and head of the real estate industry group at Burr Pilger Mayer. Reach him at (415) 421-5757 or

Tuesday, 26 August 2008 20:00

Control issues

In an effort to control ever-escalating costs, corporations regularly mandate and consolidate insurance, health care, benefits, office supplies and fleet vehicles. Yet, according to John L. Sturm, executive director of sales and marketing at Professional Travel, they commonly overlook their second- or third-largest controllable expense — travel.

“In the wake of rising fuel prices, Sarbanes-Oxley (SOX) and the lingering effects of Sept. 11, corporations need to look at travel as they would any other controllable expense,” Sturm says. “The vast majority of Fortune 1,000 companies have a managed travel program but many mid- to large-market companies do not.”

Sturm adds that many companies don’t know how much their total travel spend is, because of multisource bookings, lack of controls and no consolidated reporting. It’s the old “you don’t know what you don’t know, and you can’t properly manage what you can’t effectively measure,” he says.

Smart Business spoke to Sturm about how your company can create and implement a comprehensive travel policy.

What benefits can companies expect to see from a travel policy?

A well-formulated, well-implemented travel policy has three significant benefits: savings, scrutiny and security. Savings are immediate in terms of leveraging preferred suppliers. Once a travel management company aggregates your data, you can approach car rental companies, individual hotels and airlines for negotiated discounts. A consolidated policy ensures all tickets and transactions are managed against the suppliers and policies you establish. Scrutiny is examining both the aggregated data as well as trends within the industry to identify gaps or employee non-compliance. This enables corporations to refine the policy, identify employees not following the policy and address lost savings. Essentially, the data becomes an invaluable management analysis tool.

Finally, security is a major concern for most companies. From the international unrest following Sept. 11 to natural disasters, corporations need to know where their travelers are and exactly how they’re getting there. Should an emergency arise, you need to be able to immediately access all of your traveling employees. This is tough to do when you haven’t thoroughly defined a policy. You need to be prepared at all times.

How can a company approach updating a travel policy?

The travel industry is constantly changing. Travel today is vastly different from what it was three months ago and will be vastly different in three months from where it is today. So you constantly have to focus on what you allow to be spent in the new climate. Rising fuel prices have added fuel surcharges, baggage fees, increases in change fees, fees for snacks and meals and so on. As a result, your travel policy must be adaptable and examined regularly. To that end, you should perform annual travel policy reviews to evaluate what needs a full overhaul or just minor adjustments.

What are the cons of instituting pretrip authorization?

Pretrip authorizations are typically structured to be managed through your travel management company and require the collection of travel requests to be forwarded to a central contact for approval. Two problems with this are: the quoted fare and availability are frequently not the same by the time the approval is given and, overwhelmingly, the trip requests are approved anyway. Therefore, travelers should provide trip justification directly to their supervisor for approval prior to booking their travel.

What can companies do to assure compliance from employees?

A structured managed travel program enables you to monitor compliance nearly automatically. A travel management company sets up all the information in employee profiles. So if you’re flying from departure city A to destination city B, you use airline X, you use preferred hotel chain Y, and if you’re renting a car, you use preferred rental car company Z. Typically, it’s followed 99 percent of the time once travelers know they are on the radar screen. When you implement a travel policy, make sure employees know that if they don’t use your travel management company and preferred vendors, they won’t be reimbursed. It only takes one time with one individual for the entire organization to understand the consequences.

What risks do companies expose themselves to by not adopting a travel policy?

Notwithstanding the loss of financial controls and savings, you have SOX and security issues to consider. While you trust all employees have the company’s best interests at heart, without mandated policies and procedures in place, you haven’t communicated the proper controls to your travelers. And from a purely humanistic side, we all want to know where our employees and loved ones are in the event of a natural disaster or global terror threat. With one travel management company and policies in place, a single call provides you with all your answers.

JOHN L. STURM is the executive director of sales and marketing at Professional Travel. Reach him at (440) 734-8800 x4089 or

Wednesday, 26 March 2008 20:00

Right on target

The industrial real estate market has changed dramatically over the past several years, acquiring a new, competitive edge.

“I think the saying, ‘a warehouse is a warehouse is a warehouse,’ isn’t true anymore,” says Terry A. Stieve, SIOR, CCIM, senior vice president, principal at Colliers Turley Martin Tucker. “Putting ‘For Rent’ signs up and waiting for calls just doesn’t cut it anymore.”

Succeeding in this environment, he says, often requires an aggressive marketing campaign, as the marketing period for larger spaces can be 12 to 18 months. Space becomes forgotten about by the brokerage community while the landlord continues to incur operating expenses and negative cash flow. Keeping your space fresh requires understanding the economic drivers and how the building is positioned in the marketplace. The largest users in the area are typically the market drivers, while transportation systems identify the linkage and positioning of the property. The marketing team has to be proactive, understand why the property does not work for the market drivers, and attempt to reposition the property to meet those requirements. Good marketing and being prepared means having creative tools to address concerns.

“These buildings show poorly, but just as importantly, they get tired. Brokers forget about them,” Stieve says. “They get market worn. That’s when you’ve got to reposition that building in brokers’ minds.”

Smart Business spoke with Stieve about ways to move properties in today’s sluggish real estate market by accommodating your target market.

How has industrial real estate changed?

When I first got into the business, we used simple brochures with pictures and limited information to get a showing. Now we have intricate Web sites with details and specifications of the property. As a result, prospects only tour the two or three spaces that best meet their needs. We have less property showings now, which results in fewer opportunities to be a deal maker and promote your property. In today’s market when you do have a showing it’s because you’re one of the finalists. With fewer at-bats, you have to increase your properties’ market appeals to as broad of range of tenants as possible. Industrial real estate leasing remains a numbers game and today’s successful brokers are increasing the number of showings by being creative in adapting their space to a wide range of tenants. Corporate consolidations show no signs of stopping and, generally speaking, there are fewer and larger tenants active in the market now. Meanwhile, tenants have become more knowledgeable. The ones that are in the market for larger sized industrial spaces, say above 25,000 square feet, are very educated buyers.

How else can investors and landlords be proactive?

When it comes to big bulk warehouses, tenants can not use the 32-foot clear stacking height in these large buildings without racking to store the pallets 6 and 7 feet high. Traditionally, real estate brokers marketed square footage when tenants like Procter & Gamble wanted to lease storage for 50,000 palettes. Landlords now are including racking as part of the tenant finish build out to better serve their customers and to differentiate their space while increasing the chance of renewing the tenant. So, owners are taking extra steps to lease their buildings.

Are there any other market drivers that you haven’t mentioned?

No question the global economy has cost American jobs. However, a report by the St. Louis Federal Reserve stated technology has had a much more dramatic effect on reduced manufacturing jobs in America. The State of Missouri’s exports have increased 88 percent from 2002 to 2006. Missouri ranked eighth in the nation for percentage growth during that period. In addition to agriculture, our top exports were transportation equipment and machinery manufacturing — we’re making the equipment for other people to manufacture products overseas. With the dollar being low it’s more expensive to buy imports, but a lot cheaper to export, and 2008 should be a record year for exports. And, if the dollar stays low, it’s positive for Midwest states, where much of our nation’s exported commodities originate.

What else will 2008 bring?

St. Louis is just ending a robust period for new industrial construction. Developers will wait for the existing supply of new buildings to lease before starting additional buildings. There are numerous choices and demand is flat, so there’s downward pressure on lease rates. 2008 maybe the best year to be a tenant in this millennium and we expect to see large corporations take advantage of this and lock in longer term leases during this period of oversupply. Because the global market is changing daily, so are the users. Having a rail spur serve your building used to be an advantage, but now the rail lines are so busy, you may not be able to get service. Globalization is a driver to the industrial real estate market, which is not the case for other property types. Industrial real estate should outperform the real estate market as a whole going forward, and we see an active market while investors are delving into the operations of a given building and understanding how it’s positioned and its competitive strengths.

TERRY A. STIEVE, SIOR, CCIM, is a senior vice president, principal at Colliers Turley Martin Tucker. Reach him at (314) 746-0380 or

Wednesday, 26 March 2008 20:00

Working with your CPA

While audit and tax work are clearly the most recognizable services provided in the public accounting profession, CPA firms provide many more specialty services. In fact, a CPA should be a business’s most trusted adviser, according to Maureen Lucey Mihelich, a partner in the Consulting Group at Burr Pilger Mayer.

“Every business, no matter its size, needs the expertise normally provided by a full-fledged accounting and finance group,” she says. “The problem for many companies is that they don’t need all these skills on a full-time basis. What many companies don’t realize is that they have the option of bringing in an accounting team or CFO on a temporary basis.”

Client accounting services encompass many service areas, including budgeting, forecasting and cash flow management services to help businesses benchmark their progress. They can aid in expansion or even restructure plans. A qualified provider can research, select and implement accounting or record-keeping systems for everything from general ledgers to inventory management. Many CPA firms also offer a virtual accounting department to tackle tasks from financial and management reporting to meeting regulatory compliance requirements.

“The inability to obtain and utilize timely financial and operational data could hinder a growing company’s ability to react to changes in its industry.”

Smart Business spoke to Maureen Lucey Mihelich about how businesses can benefit from the many skill sets a CPA can offer.

In what types of industries are your clients?

My clients run the gamut from professional service firms to businesses in the manufacturing and hospitality industries. I find that, though these business owners and operators are experts in their specialty area or industry, they lack the critical eye of a financial expert to meet the financial management requirements of their growing business.

What do management advisory services entail?

Every type of business needs financial services expertise, but how much varies from business to business. If you have a business with 100 employees, it is not likely there will be a 10-person accounting department. You may only need a controller or CFO a few days a month, or you might need a team of people at the end of the year for peak projects, such as preparing for a year-end audit.

Using your CPA firm to provide these client accounting and/or management advisory services can fill these needs without hiring a team of employees. A CPA can be utilized to assist a business owner with major decisions, such as expanding a business or offering a new product line. We often assist clients in determining important financing options. For example, should the existing owners make additional investments in their business or seek funding via bank financing or outside investors?

In some cases, the challenge is how to assist a client when the business isn’t succeeding. What does it need to consider to restructure or, perhaps, change focus? The goal of client accounting and management advisory services is to assist clients by helping them run their business more efficiently and effectively. Sometimes, the best resource a CPA can provide is to play the role of devil’s advocate or to be that fresh set of eyes that looks at their situation from an objective, long-term point of view.

What other services can a CPA offer?

By providing client accounting services, a CPA can outsource the entire accounting and finance team for a client in a consistent and cost-effective manner. Family Office Services, also provided by many CPA firms, provide similar financial record-keeping and investment management services for individuals and families.

The beauty of looking to your CPA to provide these services is that you can hire only what you need, when you need it. Many clients already have a certain level of accounting personnel and use their CPA firm to fill in the pieces they don’t have. Other clients count on their CPA firm to provide recurring assistance just for specialty projects, such as quarterly reporting to their venture partners or other investors. When the business grows to the right level, they can then bring in full-time accounting and finance employees to meet the next phase of their business.

What should I look for when hiring an expert to perform client accounting services?

When meeting with a firm, have the CPA suggest some possible plans of action for your situation. The right CPA firm is going to know your industry and its challenges and opportunities. It will be able to help you establish the best practices needed to operate efficiently within that industry. Your CPA firm should assist you to see what lies ahead for you as your business expands and position you to be ready to meet that growth.

So use your accounting dollars wisely, hire the right level of internal staff to meet your current business requirements, and then bring in your CPA firm to provide periodic additional expertise during the times of your business year that make the most sense.

MAUREEN LUCEY MIHELICH is a partner in the Consulting Group at Burr Pilger Mayer. Reach her at or (415) 421-5757.

Tuesday, 25 November 2008 19:00

Global travel security

Each time an employee takes a businesstrip, something can go awry and harmthe traveler, the employer or both. It could be a major disaster, like a tsunami, or aminor mishap, like a laptop theft. Any problem, however, can result in missed meetingsand lost work hours, putting the company atrisk and often requiring significant time andmoney to resolve the issue.

Although the Corporate Manslaughter Act— which puts the onus on companies to doall they can to protect their travelers — wasinstituted in England in 2007, it’s affected thetotality of risk management, says John L.Sturm, executive director of sales and marketing at Professional Travel.

“Litigation has been brought against U.S.corporations for not preparing their travelersand not informing them of what they shouldand shouldn’t do,” says Sturm.

Smart Business interviewed Sturm on thetrials and tribulations of global travel.

What perils does global travel present?

There have been major disasters nearlyeach year since 2001 — 2002 brought us theBali bombings; 2003 was the SARS outbreak;and in 2005 the London tube bombings. Andthat’s just the headlines. Often these perilshappen behind the scenes. Things like gettingsick in a country where you don’t speak thelanguage, getting caught in an airline strike orbeing unaware of touchy cultural issues aremore often the source of traveler distressthan ‘headline’ disasters.

The perception that the world is more dangerous today than in years past is actuallyreality. The number of Category 4 and 5 hurricanes has increased by more than 50 percent in the last decade. Additionally, we havenew diseases, like SARS and Avian Flu, toworry about, the re-emergence of diseaseslike drug-resistant tuberculosis and thosethat result from bioterrorism, like anthrax.

How can companies monitor problem areas?

Certainly there are ‘hot spots’ around theworld, but incidents can happen even inplaces normally considered ‘safe.’ Houstonand New Orleans are considered pretty safedestinations unless a Category 5 hurricane isbearing down on them.

Companies do need to monitor areas thatare inherently risky due to their overall security assessment ratings as well as those thatcan become risky because of some currentincident. It’s almost impossible for a travel orsecurity manager to be aware of everythingthat can affect their travelers. However, thereare several companies that, for a reasonablecost, can provide analysis on countries andmonitor current events for elements that canaffect travelers.

How can you prepare employees beforehandand track them once they’ve departed?

Companies can be proactive in severalways. First, they can give employees accessto a comprehensive database that allowsthem to pull information about their destinations. It should include information aboutsecurity, transportation, health, entry/exitrequirements, culture, communications/technology, legal issues, environmental issuesand financial information.

Often, service providers can give this information to the traveler as soon as the trip isbooked. Studies have shown that when travelers are given this information, they’re morelikely to read and act upon it than if they have to go to the Web and pull it themselves.

In addition to monitoring, a company alsoneeds to mitigate the threats that travel to aparticular area might present. An examplewould be a country where the kidnappingthreat is high. Proactive companies takesteps to mitigate these risks so there’s anacceptable level of risk for their employees.

Risk mitigation, traveler tracking and monitoring world situations is imperative. It’simportant to know if something is affectingyour travelers and equally as important to beable to quickly locate and communicate withthem. Both travel management companiesand safety and security vendors have products and services to assist.

What do you recommend to travelers regarding how to prevent a worst-case scenario andwhat actions to take should it occur?

Being prepared is one of the most important things a traveler can do. This applies toworst-case scenarios, like terrorist incidentsor kidnapping, as well as everyday annoyances like being delayed by a protest strike.The best way to deal with a situation is to prevent it, and this is done through getting theright information before, during or even afterthe trip (due to incubation periods, somemedical incidents may not be known untilafter a trip is completed).

Most importantly, your travel managementcompany should provide this information inadvance. Travelers need to know what inherent risks their destinations present. Travelersmust know whom their company wantsthem to notify in case something happens —this is equally as important when it concernsthe death of a colleague or getting the flu.

What risks do companies expose themselvesto by not being attuned to this issue?

Companies who don’t attend to this ‘duty ofcare’ can expose themselves to everythingfrom unhappy, unprepared employees tolarge lawsuits and everything in between.Litigation may be the most expensive monetary risk, but damage to corporate image orbrand can be equally devastating.

JOHN L. STURM is the executive director of sales and marketing at Professional Travel. Reach him at (440) 734-8800 x4089

Thursday, 25 September 2008 20:00

Monitoring travel

The best way to control any cost is to closely track it, and travel is no exception, according to Todd Stoneman, vice president of information services for Professional Travel.

“Travel is one of the largest controllable expenses, but it has become the single most volatile cost facing companies today,” says Stoneman. “As with all expenses, the goal with travel is to maximize your return on investment while minimizing your spend. The year 2008 has seen one of the most dramatic impacts on travel since the post-Sept. 11 recovery, and fuel costs continue to impact the value proposition throughout the industry.”

So, by implementing a system that uses your data to scrutinize your travel, you’ll have the tools to make well-informed decisions to positively impact your bottom line.

“Not only can companies control their spend, they can examine all elements and factors contributing to the total cost more effectively,” Stoneman says. “For example, if you see your spend and sales going down, there may be a bigger problem. So it’s not just about travel, it’s about total fiscal management throughout the organization. Often, there are other factors impacting a situation, and without the proper data and reporting, it’s impossible to make prudent decisions.”

Smart Business spoke to Stoneman about the best approaches to implementing a travel reporting system and how it can enable nearly any company to run more efficiently.

How do you approach setting up a system?

Generally, you look at how you integrate front-end expenses with your back-end reporting systems to manage your other internal costs. Typically, companies break out spend by departments, cost centers, SAP numbers, P&L numbers and so on. Some may have multiple structures within their organization — for example, one for accounting, one for executive-level reporting, Sarbanes-Oxley (SOX) compliance and review and so on. Whatever metrics you use internally, follow it for travel.

It makes it much easier to analyze and disseminate throughout the organization.

Does a company’s size matter?

Customized travel reporting is not necessarily tied to company size. A company may only have 50 travelers, but $2 million or $3 million in spend because of the frequency or amount of international travel. Another company might have 1,000 employees but spend only $100,000 due to the nature of their business. Traditionally, when the spend is within your top five costs or approaches $500,000, corporations want higher visibility and focus on costs containment.

What are some mistakes companies make while implementing a management system?

The primary issue occurs when you do not consolidate your travel spend through a single source travel management supplier. Multiple source bookings eliminate the ability to accurately aggregate and analyze your travel spend. Once you have established single source aggregation, you need to ensure all measurements (departments, codes, SAP numbers) are established at the onset. Make sure you involve your accounting, finance and IT departments in the initial discovery phase. It’s difficult to go back and expand the scope after the fact, so try to talk to as many departments as possible upfront. And of vital importance, keep your travel management company updated with any personnel changes so your reporting is accurate. With a little vision and participation, you will save everyone considerable time and money.

What benefits can a company see?

Data aggregation and analysis enable you to make decisions on fact, not perception, and immediately provide you with the necessary tools to negotiate pricing and savings across your major suppliers — hotel, car and air.

Analytical tools available will enable you to see trends within each region, state, city, cost center and individual employee to help increase efficiencies and drive costs out of your system.

Does a company expose itself to risks without such a system?

The truth is in the details and your ability to manage your travel is solely reliant on your ability to measure your data. While looking for cost savings by reducing your travel activity may save you money in the short-term, it can also negatively impact your sales and revenue. By implementing proper controls and measuring the aggregated data, you’re able to identify inefficiencies and gaps within your travel programs and deal with the root causes. In most cases, merely improving efficiencies will generate considerable overall savings without making arbitrary cuts to your overall travel budget.

TODD STONEMAN is the vice president of information services at Professional Travel. Reach him at or (440) 734-8800 x4050.

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