Engineering-based analysis is a three-legged stool on which a thorough understanding of a commercial property rests. Property Condition Assessments and their less extensive counterpart (Building Inspections) are the first leg; Capital Needs Assessments are the second, and Cost Segregation Analysis (CSA) is the third. Less familiar than the first two legs but equally important, a Cost Segregation Analysis is a tool used to maximize the tax benefits of owning a commercial property.
The building and its structural components can be depreciated over a 39-year period (or 27.5-year period for residential rental property) and land improvements over a 15-year period; but many things inside the building – furnishings, fixtures, flooring and the like – can be depreciated more quickly, over 5 to 7 years. Because most investors hold commercial properties for 10 years or less, this is a significant advantage, making it possible to extract as much as 30 percent of a building’s value during the accelerated depreciation period. These savings are real. Money the owner isn’t paying in taxes can be used for other purposes. Equally important, the projected tax savings can make the numbers work on a project that does not seem financially viable, leading lenders to approve a purchase loan they might otherwise reject.
Understanding the Numbers
According to the IRS, a study by a construction engineer is more reliable than one conducted by someone with no engineering or construction background. Criterium-Lalancette & Dudka Engineers is one of the few consulting engineering firms with the expertise to do it. In fact, we were one of the first to begin offering the service more than 10 years ago. Most engineers want to focus on buildings; they don’t want to think about the numbers. Many of our engineers are trained to look at both. They are equally comfortable focusing on the structural components of a building and the numbers that inform the tax implications of a transaction.
By undertaking the Property Condition Assessment, the Capital Needs Assessment and the Cost Segregation Analysis – all three legs of our three-legged stool — simultaneously, Criterium-Lalancette & Dudka Engineers can use a single inspection to produce all the reports – a cost-effective strategy that we highly recommend.
For investors considering whether to purchase a commercial property and for real estate brokers trying to make a marginal transaction feasible, a Cost Segregation Analysis may be essential and Criterium-Lalancette & Dudka Engineers is uniquely qualified perform it. Contact us for more information about how Criterium-Lalancette & Dudka Engineers can create a solid foundation ─ a three-legged information stool ─ for your commercial real estate transaction.