Summerlin Plaza, a pair of commercial buildings totaling 61,900 square feet on Route 376 in Wappingers Falls sold last month for $9.42 million to a group of investors from New York City.
According to brokers who handled the deal, the transaction was consummated to take advantage of tax laws connected to real estate activity and may have been the last deal under an old economic paradigm.
The Summerlin Plaza was a two-phase project completed in 2000 by Craig O”™Donnell, a Dutchess County home and commercial builder and developer who was also the seller, according to Steve Salamone a broker in Prudential Serls Prime Properties”™ commercial division. At the time of the sale, the plaza was about 80 percent occupied with tenants that are mostly local service businesses frequented by the growing population in the East Fishkill-Wappinger area. The name of the purchasing group is AMC Wappingers L.L.C.
“It was the last gasp of the old market, that”™s exactly what I would say,” said Salamone, who said the deal had been in the works for some time before closing quickly due to the desire of the purchasers to utilize the tax benefits associated with a “10-31 exchange.”Â
A10-31 exchange allows a buyer to defer paying capital gains taxes on a property that is sold as long as the buyer replaces that property with another purchased property within six months.
“Given the market, which was correcting during the process, these guys (the purchasers) still wanted to go forward,” Salamone said. “They were approaching a deadline and didn”™t want to pay those capital gains.” If the deal had not been closed in timely fashion, “They would have lost the ability to defer,” said Salamone.
With the new year and the still faltering economy, Salamone expects that real estate prices will undergo a correction process over the first quarter or two at least. “The real estate market is very sluggish right now,” he said. “For commercial investors and brokers you have to change your approach to the market because the market is changing around you.”
And he is not thinking positive change, at least not initially. “I hate to say it, but I think there”™s going to be a lot of people going underwater,” said Salamone. “I expect end of the first or second quarter there would be a fair amount of properties in trouble so we expect a fair amount of property will hit the market at good prices.”
Yet, he said, compared to the rest of the state and the nation. “We”™re actually doing pretty well.” in the Hudson Valley. However, he does see some troubling sectors, such as the leasing sector of commercial properties, which he calls “Dead,” in the Hudson Valley. The exception is medical services, but Salamone said that the retail market is “very slow.”   Â
John Lavelle, treasurer of the New York State Commercial Association of Realtors, and a broker at RJ Smith Realty in Pine Bush, essentially agreed with that analysis. “I think in general the Hudson Valley is doing substantially better than the rest of the state,” said Lavelle. “It”™s a little more diverse is one of the reasons. In the Hudson Valley you have big manufacturers like IBM and other big employers like health care companies, and you also have the retail industry. So you have a diverse set of employers and that provides a bit of stability.”
As for prospects in 2009, “I think it”™s a little too soon to tell,” said Lavelle. “We do a lot of industrial work, small- and medium-sized companies and that aspect of our business has been pretty good and hopefully will continue to be pretty good. The question is what is going to happen with the retail market, and that is a ”˜wait and see.”™”
As for advice on buying or selling, Salamone said it is becoming a buyer”™s market, at least in terms of price and availability in coming months. “I would look for good buys,” Salamone said. He said sellers are going to have to come to grips with lower returns on their properties. “If you want to sell property in this market, you have to sell it right. Most buyers expect a significant correction in valuation.”
