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Regus Net Falls 41% as Recession Hits Small Business

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 March 22 (Bloomberg) -- Regus Plc, the world’s largest operator of serviced offices, reported a 41 percent decline in full-year profit as the economic slowdown curbed demand from small businesses.

Net income fell to 67 million pounds ($100 million), or 7 pence a share, from 113.9 million pounds, or 11.8 pence, a year earlier, the Chertsey, England-based company said today in a statement. Revenue declined 2.1 percent to 1.06 billion pounds.

Small and medium-sized companies cut back on office space as the economic crisis hurt their earnings. Occupancy rates fell at Regus’s 1,000 office centers in 78 countries and the company was forced to lower prices and offer greater incentives to attract tenants.

“While the outlook remains unclear, particularly for the U.K., we are cautiously optimistic across our other three geographies,” Chief Executive Officer Mark Dixon said in the statement. The company plans to accelerate the opening of new centers this year, he said.

Regus climbed 3.4 pence, or 3.8 percent, to 90.55 pence at 9:38 a.m. in London trading, the biggest increase since Jan 6. The shares gained 74 percent in the 12 months to March 19, compared with a 52 percent gain for the FTSE All-Share Support and Services Index in the same period.

Average revenue per available workstation fell 7 percent to 6,535 pounds from a year earlier and occupancy declined to 77.7 percent from 82.9 percent a year earlier. In the U.K., where a fifth of Regus’s workstations are located, revenue dropped 13 percent to 191.4 million pounds.

Rent Negotiations

Regus is seeking lower rents and other cost reductions from some of the landlords it leases office space from in the U.K., Dixon said.

“We need rents down to a market level so that the centers can trade normally,” the CEO said in a telephone interview. “We are trying to do it consensually,” by offering to sign long leases and share profits when business recovers, he said.

Regus lifted its second-half dividend to 1.6 pence from 1.2 pence a year earlier. That lifted the total payment for 2009 to 2.4 pence a share, up from 1.8 pence in 2008.

The company has net cash of 237 million pounds, which Dixon said will be used to finance an expansion into 10 new countries, including Oman, Senegal and Estonia.

The company plans to increase the number of workstations it operates this year by as much as 15 percent, chiefly in Asia, the U.S. and Brazil, Dixon said.

Executive Suites , Office Rental , Office Space , Serviced Office Space

Now is the Time to Act?

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According to a recent article in the North Bay Business Journal, now is the time to act to take advantage of the bottom of the market:

"The title of the recent Sonoma State University economic outlook conference “The Time is Now” couldn't have more meaning than it does with the current office real estate market. We are at the bottom of the market, and now is the time to take advantage of the current opportunities before it’s too late."

I wish it were true, but as far as I can tell we have a ways to go before the actual bottom is reached in the North Bay or anywhere else. Now, that does not mean that now is not a good time to negotiate a great office deal.  Landlords are hungry and hurting and some fabulous lease of purchase deals are available to those willing to dive in. Until the unemploymet rate starts to drop, the bottom is still in the future, probably within a year or maybe even two.

Get help finding a great office deal

Buying Office Space , Commercial Real Estate , Office Building Sales , Office Relocation , Office Space , Office Space Negotiations , Office Vacancy Rate , San Francisco Office Space

Owners Who Negotiate Debt Reductions Could Face Tax Hits

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Mar 2, 2010 - CRE News
With property values well below where they were three years ago, borrowers are increasingly trying to negotiate reductions in their loan balances.

But doing so could trigger a substantial tax hit on any forgiveness of debt.

The tax-liability issue became fodder for headlines in recent weeks when the owner of Manhattan's Stuyvesant Town/Peter Cooper Village offered to turn the property over in a deed-in-lieu of foreclosure. Its lenders subsequently filed to foreclose.

The property's owner, a group led by Tishman Speyer Properties, won't face a tax liability on any forgiveness of debt because its cost basis in the property of roughly $5.4 billion, less any possible depreciation and capital improvements, is far greater than the $3 billion of senior debt owed. Another $1.4 billion of mezzanine debt is secured by ownership interests in the entity that owns the property. But the transfer of ownership, either through a deed-in-lieu or an actual foreclosure would trigger New York's onerous transfer tax. That tax is assessed at the rate of 3.025% of the mortgage's face value.

The transfer tax liability - it would likely be borne by the property's lenders in the event of a deed-in-lieu or a foreclosure, both of which assume the property lacks the resources to pay the tax - would total $90.75 million. But it could be reduced if the entity that owns the property, as opposed to the property itself, is transferred, according to Harvey Berenson, managing director and member of the general tax group of FTI Schonbraun McCann Group, a New York advisory firm.

In that case, the value of the underlying property determines the amount of the transfer tax. Given that StuyTown's value is said to be roughly $2 billion, the transfer tax would be about $60.5 million.

Meanwhile, given the decline in property values and the volume of debt that was written at or near the market's peak, the number of loan workouts and debt restructurings is expected to explode.

"This is happening all over the country," said Maury Golbert, tax partner at Berdon LLP, a New York tax adviser.

Most properties purchased at or near the market's peak with high-leverage financing "that's coming due now are underwater," he explained.

If the amount of debt is greater than the property's basis, or cost, the borrower would face a tax hit if any of the debt is forgiven or cancelled. And that tax would be assessed at the ordinary income level of 35%, as opposed to the 15% rate on capital gains.

So say an investor bought a property in 2003 for $50 million and because of the run-up in values was able to borrow $70 million at the market's peak in 2007. If the property is now underwater, meaning it's unable to stay current, the owner could try to negotiate a reduction in the property's debt. If successful, the property would face a tax on the amount of debt forgiven.

"If you bought in 2007 and the cost basis is big, that won't be a terrible tax result," Golbert said. But a number of long-time property investors had taken advantage of the flood of capital during the market's peak to take cash out of their properties with hefty mortgages. If those get written down, "you're looking at a more difficult tax situation," he said.

Meanwhile, owners who live in New York City would face an additional 9% hit. After federal income tax offsets are taken into account, the total tax hit could be roughly 42% on the amount of debt forgiven.

"The basic rule is if debt is forgiven, the reduction is treated as taxable income in the year it happens," Berenson explained.

But property owners facing large tax hits can defer their payments. They can, for instance, reduce the tax basis instead of recognizing income from the property whose debt has been in part forgiven. Taxing authorities are also allowing liabilities to be deferred for five years. After that, 20% of the total tax liability is due annually until it's repaid, Berenson explained.

"Lenders can foreclose, or work something out," Golbert added. In either case, depending on where the property is located, potential tax issues arise. "If you work it out, and some debt goes away," you could see a tax hit if the property's cost basis is low enough, he said.

Golbert noted that property owners facing such tax liabilities could, at least in theory, defer them by structuring tax-deferred exchanges. The problem, he said, is that such deals are difficult to structure today. They require equity and debt. If a property owner was hit by a foreclosure, chances are slim that he has sufficient equity to structure such a transaction, and "it's tough to borrow" for such exchange transactions.

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Commercial Property Pricing Increasing. Has the Bottom Been Reached?

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Feb 22, 2010 - CRE News

In a sign that the period of large monthly price declines may finally be over, commercial property pricing in December increased for the second consecutive month, according to the Moody's/Real Commercial Property Price Indices, or CPPI.

The 4.1% hike to 113.58 follows a 1% gain in November that was the first monthly increase since December 2008 in the indices' all-property component. CPPI is a collaboration of Moody's Investors Service and Real Estate Analytics and tracks repeat sales of properties. December's increase also is the largest monthly gain ever recorded by the index.

Still, pricing ended last year 40.8% below its peak in October 2007, and was down 29.2% from the end of 2008. The largest monthly drops last year occurred in the first half, while prices declined at a steadily slowing pace in the second half before reversing course and heading upward in November.

"Although we are unable to conclude the bottom is here, we do feel that the period of large price declines is over," Moody's said.

It noted that higher sales volumes often indicate pricing bottoms may be near. December's 716 total sales for a combined $9 billion was up 75% by count and more than double in dollar value from November's sales activity.

December's dollar volume also was up 5% from December 2008, and marked the first year-over-year gain in volume since credit markets became dislocated in late 2007.

The December 2009 transactions included 162 repeat sales with a combined value of $2.2 billion.

Pricing in the fourth quarter of 2009 increased from the preceding quarter for every property sector except retail, which dropped 1.5% to an index of 139.61.

The office sector led the fourth-quarter pricing upticks with a 7.9% gain to 122.15. It was followed by multifamily's 7% gain to 125.89 and industrial's 5.6% rise to 127.3.

For the full year, however, pricing for each sector was down by levels that range from 19% for retail to a high of 23.2% for industrial.

Within the 10 largest metropolitan markets, office pricing in the fourth quarter increased a whopping 26.8% to 134.65, but was still down 14.6% for the entire year. New York registered the largest full-year decline in office pricing at 38.1% to 141.17.

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Fundamentals for Small-Cap Properties Kept Weakening in January

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Feb 23, 2010 - CRE News

Fundamentals for small-capitalization properties have continued to deteriorate, according to Boxwood Means Inc., with key metrics such as rents and tenant demand weakening last month.

National rents were down across the board in January when compared to a year ago. The declines range from 3.34% to $18.94/sf for medical-office buildings, to 8.23% to $7.17/sf for industrial properties. Office properties in general saw a 4.04% decline in rents to $17.57/sf, while retail properties have seen a 6.31% drop to $17.55/sf.

When compared to a month earlier, rent declines ranged from 0.2% for medical offices to 0.74% for industrial.

Boxwood Means is a Stamford, CT, research firm that focuses on small-cap properties, which it defines as those with less than 50,000 square feet. It compiles property-level operating and sales data through a partnership with LoopNet Inc.

It also compiles Days on Market, a calculation of how long it takes to rent vacant space that it uses as a gauge for tenant demand. It said the metric is at its highest level in nine months, meaning space is languishing on the market.

Despite the bad news in the data, Boxwood Means noted that declines in rents and demand are no longer as steep as they were in previous months. But it cautioned that fundamentals would continue to weaken until the national jobs picture improved and consumer confidence rose. Today, the Conference Board reported that consumer confidence had fallen sharply this month.

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