global Tax Hot Topics in Real Estate September 26, 2019 Between Opportunity Zones, the Internet of Things and the skilled worker shortage, the real estate industry has undergone many changes and challenges as of late. Here’s a look at the biggest trends in the industry. The real estate industry continues to fare well in many parts of the country, but everyone knows it’s subject to cycles. By staying on top of the latest opportunities and threats, you can reduce your exposure to downturns. Here’s a snapshot of some of the most significant industry trends today. Opportunity Zone Projects In April 2019, the IRS released guidelines on using Opportunity Zone (OZ) investments, leading to an increase in larger, more complex deals in the spring and summer months. Investors can use OZ tax incentives — created by the Tax Cuts and Jobs Act — to defer, reduce and even permanently exclude capital gains on their investments in qualifying funds. Real estate–focused funds already have raised billions of dollars for OZ projects. With more than 8,700 communities in all 50 states, the District of Columbia and five U.S. territories designated as qualified OZs, a wide swath of areas are ripe for investment. While the program is intended to spur growth in low-income areas, not every designated zone is distressed, and some were already moving toward gentrification before being designated. Moreover, the federal tax incentives aren’t the only draw. Many state legislatures, including Rhode Island and Connecticut, have explored their own OZ bills. Technological Advances Technological advances continue to reshape the real estate industry. Three main technologies used by real estate developers and investors include: The so-called “Internet of Things (IoT).” Smart technologies have the potential to revolutionize the ways businesses and the individuals they target operate. For example, the adoption of smart appliances and wireless security sensors in commercial and residential buildings can help improve tenant satisfaction, lower energy costs and fine-tune building maintenance. Artificial intelligence (AI). This generally refers to using computers to perform complex tasks, like image perception, voice recognition, decision making and problem solving. Marketing, deal matching and property management are just some of the functions ripe for the introduction of AI. Blockchain. This concept refers to digitized, distributed ledgers or databases that inalterably record and share information. It eliminates the need for many of the middlemen currently involved in transactions because anyone can record or view the information. It also can reduce the risk of fraud and breach of contract. For example, blockchain technologies may be used to close sales transactions. Cybersecurity Risks The greater role of technology makes cybersecurity more important than ever. Property owners that integrate IoT into their buildings, for example, will need to take appropriate steps to protect data and access to automation systems. Cyber risk assessments can help real estate businesses determine and prioritize their vulnerabilities. Once identified, firms can deploy resources and institute controls to mitigate their risks. This is another area where AI can assist. Employee training also is a critical component of cybersecurity. Employees must understand potential risks and how to combat them — and they should be given the appropriate tools and training to get the job done effectively. Talent Gap With unemployment levels down — and the need for tech savvy up — some real estate businesses are struggling to hire and retain skilled workers. As Baby Boomers retire, firms need to attract Millennials and even Generation Z staff. Many companies don’t know where to start. Some are uncertain how to achieve the culture that younger workers expect these days, including a diverse workforce and leadership team, adequate work-life balance, a robust benefits package and socially responsible values. Recession Prep Real estate is cyclical, so it’s only a matter of time before the next downturn. Have you taken steps to recession-proof your portfolio? For example, consider investing in technology and property improvements while you have a strong cash flow. Also evaluate your debt load to ensure you aren’t in danger of being overextended when a downturn hits. If you’re pursuing purchases, think about closing the deals sooner rather than later. Review your leases set to expire in the next few years, and renew early with the most reliable tenants. And stockpile extra cash in your operating accounts to help you weather any cash flow shortages. Contact our real estate specialists to help you position your business for long-term success.The TCJA…So Many Changes, So Many Questions…we can help you navigate this huge tax overhaul! Visit our Tax Reform Center for everything you and your business need to know, now.
