American Recovery and Reinvestment Act of 2009 and Commercial Real Estate

On February 13, 2009 the 111th Congress passed the American Recovery and Reinvestment Act (ARRA) in order to address the greatest economic crisis we find ourselves in since the Great Depression. It is, by far, the largest stimulus bill of its kind, and will impact virtually all sectors the U.S. economy. Here is a diagram showing how $787 Billion is being spent:

You will note, there are no bubbles labeled “Commercial Real Estate.” However, the commercial real estate sector will feel the bill’s direct effect through provisions in the bill pertaining to energy efficiency, renewable energy and SBA lending. Indirectly, commercial real estate will benefit from infrastructure spending roads, highways and bridges, and on money invested to build power transmission lines and update the nation’s aging electrical grid.

The $43 Billion of Energy spending includes money to encourage energy efficiency and renewable energy in commercial buildings. The bill provides investment tax credits and grants, in addition to accelerated depreciation programs to encourage energy efficiency and on-site renewable energy. Combining the benefits of ARRA with the existing Xcel Solar Rebate program make now the time to evaluate your commercial building for solar electric, solar thermal and/or on-site wind generation.

Renewable Energy Tax Incentives. The ARRA includes $20 billion in energy tax incentives. An investment tax credit is available for the tax year in which energy property is placed in service. The tax credit is based on 30 percent of the cost of the solar and/or small wind property.

Grants in Lieu of Energy Credits. The ARRA allows taxpayers to apply for a grant when they place specified energy property in service in lieu of claiming investment tax credits. The grant will reimburse the taxpayer for part of the expense of the facility. The ARRA authorizes the Treasury Secretary to provide a grant to any taxpayer that either: (1) places the property in service during 2009 or 2010, or (2) places the property in service after 2010, but only if the construction of the property began during 2009 or 2010 and is completed before the credit termination date with respect to that property.

If you are considering adding renewable energy to your building, your first step is an energy audit. An energy audit will establish your baseline and help you to create an energy plan for your building. Generally, a good plan call for the implementation of energy efficiency measures before moving to renewables.

SBA Loans. Both the SBA 7(a) and 504 Programs can be used for purchasing commercial real estate which will be at least 51% owner-occupied. These programs allow for financing up to 90% of the appraised value of the commercial property. In the past, the primary reason business owners have shied away from purchasing real estate with these loan programs is up-front fees. The ARRA authorizes temporary fee reductions (until September 30, 2010) under the 7(a) loan guarantee program and temporary fee eliminations under the 504 loan program.

Putting the Stimulus Bill to Work for You. If you are a building owner this is the time to make your energy efficiency and consider investing renewable energy. Be sure to consult with your CPA to make sure you qualify for the renewable energy tax credits or grants, and the accelerated depreciation. It is also a time to talk with you tenants, find out how they are doing, and to do everything you can, as landlord, to help them succeed. If you are a tenant, who has always wanted to own your space, now may be the time. With SBA fees reduced, historically low interest rates and depressed prices, opportunities abound for you to become an owner of commercial real estate.

Learning More. We are blessed here in Boulder and along the Front Range, in being a technology center for sustainability, green building and renewable energy. If you have a question about how energy efficiency, renewable energy, or tax incentives/rebates can be applied to your commercial real estate situation, drop us a line at info@caseypartners.com, and we will get your question answered or place you in touch with someone who can.

* Tax Relief – includes $15 B for Infrastructure and Science, $61 B for Protecting the Vulnerable, $25 B for Education and Training and $22 B for Energy, so total funds are $126 B for Infrastructure and Science, $142 B for Protecting the Vulnerable, $78 B for Education and Training, and $65 B for Energy. State and Local Fiscal Relief – Prevents state and local cuts to health and education programs and state and local tax increases. More details are available on the www.recovery.org website.