Kicking a “bigger can” down the road.

December 15, 2010

While the fiscal bargain has removed some near term fiscal uncertainty it has

greatly increased medium and long term uncertainty. Politicians keep kicking an

ever bigger can down the road, as the list of temporary fiscal stimulus actions

continues to grow. This adds unnecessarily to economic uncertainty and makes it

difficult not just for economists to forecast, but for businesses and individuals to

plan for the future. Here are our thoughts on how fiscal policy will evolve over the

next two years.

While the old Congress will continue to add to the deficit through the end of 2010; most Republicans

New Depreciation Bonus 50% - Buy Equipment Now!

Thanks to our friends at Bank of America Merrill lynch ;

There is significant tax incentive out there to buy equipment this 4^th Quarter.  The after tax cost of acquiring and financing a new asset is less in the 4^th quarter than any other time, due to the timing of the after tax cash flows. The Small Business Jobs Act of 2010 was signed into law on September 27, 2010.  Included in this bill is the extension of “Bonus” depreciation and a temporary increase and extension of Section 179 expensing limits.

The Act provides for 50% bonus depreciation on eligible equipment placed in service in 2010, substantially accelerating the normal MACRS depreciation profile, and resulting in increased economic benefits.   Most of the asset cost is deducted 4^th quarter for this tax year. For example:

Changes to the Accredited Investor Definition

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) became law on July 21, 2010.  One important impact of the Dodd-Frank Act is an immediate change to the definition of "accredited investor" under the Securities Act of 1933 and Rule 501 of Regulation D.  Those companies and individuals

DEAD or ALIVE? The Commercial Real Estate market

There has been a worldwide recession.  There will also be a worldwide recovery.   

The July/August issue of the Jones Lang LaSalle Global Market Perspective provides us some interesting insights.  Perhaps the pessimism that currently dominates the equity and commercial real estate markets needs to be tempered.  The J.L.L. report points out that global commercial real estate investment volumes totaled US$130 billion at mid-year.  The full year total is expected to reach US$300 billion.  This would be a healthy 40-50% increase over 2009. 

2010 Commercial Real Estate Market - U.S. averages

Apartment occupancy is forecasted to drop to a cyclical low of 91.7% in 2010 from 94.3% in 2007, which represents a 2.8% decrease and is less severe than the previous apartment cycle. In the 2000-2004 cycle, the cyclical low of 93.3% represented a peak to trough drop in occupancy of 3.6%.  Effective apartment rents are forecasted to rise to $1,030/unit in 2010 from $1,027/unit in 2007, which is an 8% decrease after adjusting for inflation. This is less than the 15.9% inflation adjusted decrease observed in the 2000 to 2004 period.


Office occupancy is forecasted to drop to a cyclical low of 81.9% in 2010 from 87.4% in 2007, which represents a 6.3% decrease and is less severe than the last office cycle. In the 1980 to 1986 cycle, the cyclical low of 80.7% represented a peak to trough drop in occupancy of 13.2%, which was largely driven by excess supply.  Office rents are forecasted to drop to $21.26/sf in 2010 from $24.59/sf in 2007, which is a 20.7% decrease after adjusting for inflation. This is modestly higher than the 19.5% inflation adjusted decrease observed in the 1980 to 1986 period. 

Sale of income producing assets vs. the 2010 Economy

Today is no different for the sale of a profitable enterprise than it was 2 or 3 years ago. If you had sold the asset 3 years ago for net $15,000,000, you would have taken paper in the form of warrants or whatever along with cash and maybe royalties. You would have parked most of the cash in an interest bearing account of some sort. So, considering all that's happened in the past few years since you hypothetically sold out, what would you have left and what would it be worth?  Get the point? 

No matter if you have all your cash in gold, stocks, private investment, or income producing assets of whatever sort - it's still very much at risk. Converting assets today will give you the control and satisfaction that you're seeking - right now!  A bird in the hand so to speak!  It's at risk whether you control it or someone else does. The real difference is if you put it at risk and lose it - you've made the choice.

Sustainability in Value

It all depends on knowing  your target audience. Who's buying from you? Don't let your biggest customer put you out of business. Try to keep them at no larger than 35% of your entire revenue stream.

Who are your most important customers, clients or prospects, and why? Know what is important to them and address their needs each month if you can. Find some way to reach out to them.

When recapitalizing an income producing asset, or financing for acquisition, the structure of the finance package is as important as the principal and interest rate plus costs. It can have an adverse effect on sustainability if your finance costs are to much and your lending structure is onerous to your balance sheet.
Work on structure and negotiate the fees!