SELLERS HAVE EXTRA INCENTIVE AS DEC. 31 NEARS
As you surely know, “fiscal cliff” refers to the dilemma the U.S. government will face at midnight Dec. 31.
That’s when the Budget Control Act of 2011 is scheduled to go into effect. The act was signed into law by President Obama on Aug. 2, 2011, raising the debt ceiling and enabling the United State to avert an imminent default.
But now it looks like we’re about to pay the piper for that short-term fix. If nothing is done, the mandatory federal government spending cuts agreed upon as part of that 2011 debt ceiling deal will begin to go into effect. On top of that, a range of tax breaks will expire Dec. 31 and new taxes will kick in Jan. 1. Specifically, the Bush-era tax cuts will expire and five new taxes associated with Obamacare will be triggered, among other tax hikes. The Washington Post has breathlessly called this looming tax increase “taxmageddon.”
Under the Bush-era tax cuts, sellers of income-producing real estate must pay 15 percent in capital gains tax. If the tax cuts are allowed to expire, the capital gains tax will rise to a minimum of 20 percent on Jan. 1. There is usually a flurry of commercial real estate deals during the fourth quarter (Q4) of each year, as buyers and sellers scramble to close before Dec. 31 to achieve certain investment and tax planning goals. But sources speculate that the potential capital gains tax increase will trigger even more activity than usual this year.
Meanwhile, we happen to be in the midst of seller’s market for medical office buildings (MOBs), with demand far outstripping supply for high-quality, well-located properties affiliated with market-dominant, creditworthy providers.
The combination of high demand and the implications of the fiscal cliff appear to make this a highly favorable time to sell MOBs – and many owners are doing just that, as noted in this month’s article on MOB sales. (Please see “Q3 again strong for sales” on Page 1.) Q4 is likely to continue that trend, industry experts say, for all the reasons mentioned above.
But high-quality MOBs will remain in great demand long after Dec. 31. And if the fiscal cliff can be avoided, old tax cuts extended or new taxes delayed – or all of the above – demand for MOBs might be even stronger next year.
Murray W. Wolf, Publisher
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