President’s Message: Don’t just paint it on the wall
Company culture has become a catchphrase, often overused and undervalued. Its meaning and relevance in today’s workplace are fading.
However, to me, company culture is not a buzzword. It’s not a byline or a slogan painted on the wall, or merely words printed on a t-shirt. It’s an attitude that is lived and nurtured every day.
A company’s culture is a shared set of values, beliefs, practices and purposes of the organization. It’s who you are, what you stand for, what you won’t stand for, and why people want to be associated with you. You can’t see or touch a culture, but you can certainly feel it. It affects every aspect of a business, from its employees to customers to public image, and it is evident in every action.
Stirling Properties’ ethos has been ingrained here throughout the decades. Our culture is the personality of our company and determines how we interact and work together as a team to accomplish our shared goals. These ideals motivate and shape the way we conduct ourselves and our business every day.
We place great emphasis on our team and our bench strength of up-and-coming new talent across all departments and geographical markets, as well as cross-training and expanding individual skillsets. Stirling Properties has hired over 50 new people in the past two years alone, and more than half of our team has joined in the last five years!
Every business evolves. People change, demographics change, beliefs and practices change. That’s precisely why it’s essential to have an entrenched company culture that everyone shares and buys into. Now, that’s not to say that company culture can’t adapt—it can, and it should, but it should never be abandoned.
The Millennial generation is driving significant change in workplace culture. They pursue jobs that offer purpose, meaning and flexibility that aligns with their personal beliefs and lifestyles. Companies that show commitment to social responsibility and professional development are more appealing to this demographic. As the largest cohort in the workforce today, this is especially important to consider.
At Stirling Properties, we’ve been successful in attracting this new generation of talent because I believe we live and breathe our company culture. Our culture was said to be our #1 asset by an outside consultant recently.
One of the hallmarks of our company culture is giving back. With the help of our Stewardship Committee, Stirling Properties provides charitable funding and volunteer support for numerous nonprofit organizations and community groups across our entire footprint that reflect our motto of #BeTheChange: Helping others is a work of heart.
Community spirit and generosity are evident not only on a corporate level but through individual involvement as well. Stirling Properties encourages its people to get involved and volunteer for philanthropic, civic, and cultural endeavors that impact our communities. Many members of our team generously give their time and resources to nonprofit organizations that hold a special place in their hearts.
What amazes me most is not the numbers or dollars of what is given, but rather the pride, enthusiasm, energy and heart that they commit to these causes. Also, I am humbled by their appreciation for the support that our company provides them to do so.
New Orleans Saints great Drew Brees recently said during an award acceptance speech, “Gratitude, humility and respect are the three greatest qualities you can have as a human being.” He went on to say that he works every day to instill those qualities in his children—his team off the field.
I think those same qualities can also be applied to a company and its team as a benchmark for culture. At Stirling Properties, I’m grateful for what we have and what we are able to give back, humbled by the outpouring of generosity and kindness by our team, and respectful of the cultural environment that is deep-rooted here, even amid more than forty-three years of demographic changes.
Company culture has always been an integral part of our business, but it’s more important now than ever. We need to be cognizant of and adapt to the needs of the next generation of people who are shaping our future workforce, while still staying true to the underlying principles and values that define our company.
Company culture is not a buzzword but a compass that will navigate a business towards success or failure. So, paint it on the wall, or print it on a t-shirt, but whatever you do, make it front and center in your company’s day-to-day activities.
SVN | Graham, Langlois & Legendre Joins Stirling Properties to Expand Presence in the Baton Rouge Area
Stirling Properties and Baton Rouge-based SVN | Graham, Langlois & Legendre (SVN | GLL) announce a strategic merger to combine commercial real estate services in the Gulf South region and expand their presence in the burgeoning Greater Baton Rouge market.
Joining forces will enable the companies to compete more efficiently and effectively in the local commercial real estate market and will significantly increase market share through an expanded portfolio, service offering and team capacity.
SVN | Graham, Langlois & Legendre’s current office staff, brokerage team and commercial listings will integrate into Stirling Properties’ brand and operations. Ben Graham, Justin Langlois and Steve Legendre, SVN | GLL’s founders and managing directors, will each be named Regional Vice President and assume a leadership role within Stirling Properties.
Established in 2014, SVN | GLL quickly became the third largest commercial real estate company in Baton Rouge. The company consistently ranks as a top 25 SVN office nationally among 200+ across the US. SVN | GLL specializes in sales and leasing services for retail, land, office, industrial and multifamily properties, as well as property consultation and business brokerage services throughout Louisiana and Mississippi.
Justin Langlois, Founder & Managing Director of SVN | GLL, said, “Combining the transactional brokerage expertise of GLL with the property management experience and full comprehensive real estate services of Stirling Properties allows us to collectively accomplish more together than either group could individually. Our companies have similar, complementary strengths that make a great marriage. We are excited for our clients and commercial real estate advisors, and we look forward to bringing a whole new arsenal of products, tools and skillsets to the Greater Baton Rouge market.”
Marty Mayer, President & CEO of Stirling Properties, said, “Stirling Properties is thrilled to join forces with the team at Graham, Langlois & Legendre. Their excellent reputation, strong local presence and successful track record are what immediately attracted us to the company. None of this works though, if there is not a cultural fit, and it was evident from our first meeting that both sides were aligned on culture, community engagement and business philosophy.”
Stirling Properties and the SVN | GLL team will temporarily operate out of their respective offices until later this year, when they will consolidate under one roof in a newly-designed office space with an expanded footprint to better serve the Capital Area.
Stirling Properties is located in United Plaza II at 8550 United Plaza Boulevard, Suite 303, and now, 6160 Perkins Road, Suite 200 (GLL office), in Baton Rouge. For commercial real estate needs and information in the Greater Baton Rouge area, contact Stirling Properties at (225) 926-4481.
Chipping In For Charity
Local charities score big during
Stirling Properties’ Annual Stirling Invitational Golf Tournament
Stirling Properties hosted its 18th Annual Stirling Invitational Golf Tournament on Monday, October 8th at University Club Plantation in Baton Rouge, Louisiana. This year’s tournament successfully raised more than $25,000 for local charities!
113 participants enjoyed a variety of friendly competitions in addition to 18 holes of scramble golf tournament play. Congratulations to the 1st Place Low Net winners, Stuart Bonaventure, Ryan Juneau, BJ Branigan and Trent Sandahl. The Low Gross winning team included Andy Coleman, David Laizer, Tommy Buckel and Dennis Shill.
The Longest Drive award went to Marc Bourgeois, and Closest to the Pin prizes were presented to Eric Landry, Paul Geyer and Chip Songy. Additional awards were given for 2nd, 3rd and 4th Low Gross and Low Net. A special shout out to the Highest Gross scoring team, William McKnight, Beau Egan, Elliot Turner and Neal Choppin.
However, the real winners of the day were the local nonprofit organizations that benefited from the tournament proceeds. Ochsner Foundation received $10,000 from the proceeds, and the remaining profits will be distributed to various local charitable causes.
Representatives from Ochsner Foundation were on hand to receive a check for their contributions. Grady Brame, Executive Vice President with Stirling Properties, presented a check to Louisa Post, Ochsner Foundation’s Director of Development for Baton Rouge, during an awards celebration and cocktail reception following the tournament. Rick Perry, President and CEO of Tiger Athletic Foundation, was also presented with a $1,000 check to TAF for the LSU Golf Team.
“A great time—for a great cause—was had by all. We are fortunate to be able to play such an outstanding course, and to have the opportunity to help raise funds for local nonprofit organizations that are doing critical work in our community,” said Brame. “We could not accomplish all of this without the generosity of our tournament sponsors. We want to thank all of our sponsors and everyone who came out to support our event.”
The Stirling Invitational Golf Tournament has contributed more than $239,000 to numerous organizations over the past 18 years.
Thank you to all of our friends and supporters who participated and contributed to the Stirling Invitational Golf Tournament. This event would not be possible without you.
#StirlingProud
Additional sponsors include Netchex, Newmark Knight Frank, Metairie Bank, Real Estate Tax Group, Big Easy Parking Lot Maintenance, Gulf South Electric, Dixie Office Products, Metro Mechanical Inc, Covington Electric Services Inc, Geiger Heating & Air, Jones Fussell LLP, PMAT Real Estate Investments LLC, Premium Parking, River Parish Disposal, Certified Air Conditioning, Roth Law Firm LLC, Ryan Gootee General Contractors, Larry Loyd Construction Co. Inc, ITS Fire Alarm Security, Southeastern Waterproofing, Trimark, Palmisano Group, Robert Levis Development LLC, Mullin Landscape Associates, Premier Service Team LLC, Codaray Construction LLC, Chrestia & Inc, B&G Lawn Maintenance LLC, Gene Nims Builders, NcNeer Electrical Contracting Inc, Dale’s Paving Inc, Southern Farm Bureau Life Insurance Company, CMC (Calcasieu Mechanical Contractors), Angelos Landscaping, Cook Moore & Associates (Cornerstone), Cost Segregation Services Inc. (CSSI), Huseman, Jeffrey Lipp Parking Lot Services, Precision Concrete Cutting of Louisiana, Professional Maintenance Services, , Unit Design Inc, Thermal Products Inc, Grass Unlimited, Crystal Clean Sweeping, Landry’s Lawn, T.L. Construction LLC, ACA Mechanical Industrial Inc, CertaPro Painters, CJ Ladner (State Farm), Sign Lite, Jimmy Maurin, James Hudson, and Roger Ogden.
A huge shout out to Fidelity Bank for sponsoring lunch.
President’s Message: Gross Exaggeration
I recently read another doom-and-gloom article in the local newspaper that embellished the dire health of shopping centers and the retail industry in general.
It reminded me of an old quote regarding Mark Twain, “The report of my death has been grossly exaggerated.” As the story is told, Twain was traveling abroad on a speaking tour. A rumor began that he was gravely ill, subsequently followed by reports that he actually died. A major news publication picked up on this rumor and ran with it—soon enough, the news went viral. Twain read about his own death in the media! Ironically, once the very-much-alive Twain was contacted by a reporter for a statement, he gave (a variation of) the famous line above.
His story is very reminiscent of the rumors and headlines regarding the death of retail and brick-and-mortar stores today—grossly exaggerated. This statement may sound contradictory in the wake of numerous high-profile store closures and bankruptcies over the last couple of years, but, according to a recent study by Deloitte, “The great retail bifurcation: Why the retail “apocalypse” is really a renaissance, here are some hardcore facts to add to the hysteria:
- In 2017, retail sales increased 3.5%, compared to a gross domestic product growth rate of 2.3% the same year.
- In the 1st quarter of 2018, retail spending was up 1.6% YOY; total spending across brick and mortar grew 3.2%.
- Last year, 44% of consumers reported spending more on retail than 2016. Only 14% said they spent less.
- Brick and mortar is predicted to grow by $36 billion by 2022, and e-commerce is predicted to grow by $50 billion in the same period.
Retail is not dying; it’s evolving. Deloitte’s report found that high-end, luxury retailers have seen revenues soar 81% over the last five years, while price-conscious retailers have seen their revenues steadily increase 37% over the same period. This contrasts with mid-level, balanced retailers (deliver value via a balance of price and/or promotion), whose revenue has increased only 2%. From 2015 to 2017, price-based retailers gained 2.5 stores for every store balanced retailers closed.
Net store openings and closings
(Source: Deloitte, The Great Retail Bifurcation survey, 2017)
Here’s why: The study shows that consumer economics are actually changing the retail environment, and household income has the strongest observed correlation with shopping behavior. Unfortunately, for the majority of U.S. consumers, the last 10 years have represented a dramatic worsening of their financial situations. Rising healthcare costs combined with new expenses associated with mobile phones and data plans are eating away at discretionary spending that would otherwise have benefitted retailers.
Additionally, income levels affect where consumers make purchases. Low-income consumers are 44% more likely than their wealthier counterparts to shop at discount retailers, and also more likely to shop in-store at supermarkets, convenience stores, and department stores. High-income consumers, on the other hand, are 52% more likely to shop online. While millennials are often lumped together and portrayed as the source of disruption, reporting found that millennial behavior (by income group) is virtually indistinguishable from other generations.
Likelihood of Online vs. In-store spend
(Source: Deloitte, The Great Retail Bifurcation survey, 2017)
The “e-pocalypse” can officially be filed away under fake news. While there is no question that technology has disrupted the retail business via e-commerce, mobile devices, virtual shopping, etc., physical stores continue to dominate retail sales. Research shows that 78% of consumers prefer to shop in-store and spend significantly more in physical stores than online.
In fact, the real story is that the vast majority of retail sales still take place in brick-and-mortar stores—e-commerce sales account for less than 10% of total retail sales. It is also estimated that over half of those online sales actually go to brick-and-mortar retailers. The online vs. brick-and-mortar struggle is not quite what it seems.
However, that doesn’t mean that all retail stores are going to survive. As I’ve said before, there will be winners and losers in the retail race. The winners will be those retailers that can evolve with the changing landscape and capitalize on the consumers increasing demands—and we will continue to see more store closures, especially among the mid-level, balanced retailers.
Home furnishings, beauty/cosmetics, and home improvement stores are performing exceptionally well. Stores such as Best Buy, Dollar General, Ross Dress For Less, TJX Cos. (T.J.Maxx, Marshalls, HomeGoods), ULTA Beauty, and countless others are all thriving and rapidly expanding their physical presence. We see new-to-market retailers pop up every day. Even Amazon has taken note of the power of physical stores and rolled out brick-and-mortar expansion plans. Many other pure online players have followed the same path, like Warby Parker, Fabletics, and Bonobos.
The folks at Deloitte concluded their insightful report with this: “A sea change is clearly taking place in the retail market—but it is not the retail apocalypse. In our view, it is instead a renaissance—driven by huge shifts in economics, competition, and consumer access to options, all fueled by exponential advancement in technology. And in this renaissance, the winners appear to be those retailers that can capitalize on consumers’ experiences of their economic well-being—or lack thereof—to offer a value proposition that aligns with consumer needs.”
Despite the deathly tales, retail is very much alive and well—as was Mark Twain!
Appreciation for Depreciation
The Tax Cuts and Jobs Act contains many major changes to the tax landscape that will affect every type of business entity, both large and small. The new tax reform creates significant opportunities to minimize a business’s overall tax burden.
Perhaps the most impactful—and favorable—legislation to the real estate industry is the changes and modifications to depreciation rules. Here we highlight key components that impact the commercial real estate industry and provide a comparison between the current and new tax laws.
Under prior tax law, most assets held in rental real property were required to be depreciated over periods typically ranging from 5-39 years. Assets with 20-year class lives or less were normally eligible for 50% bonus depreciation, which means we could deduct 50% of the asset in the first year and depreciate the rest over the remaining life of the asset. Under the new law, those same assets are now eligible for a 100% deduction in the year placed in service. Congress has also expanded bonus depreciation to acquisitions, which were not eligible in years past. This is a huge benefit for real estate in many ways, as it allows for significant tax write-offs in the first year for acquisitions, new developments, and redevelopments.
At Stirling Properties, we contract out a cost segregation study on all of our new acquisitions, developments, and redevelopments. These studies allocate the purchase price of the asset into its proper class life. The resulting history allows us to estimate what depreciation will look like on the project during underwriting. On the front end of our due diligence, we have an accurate idea of how much of the purchase price is going to be eligible for the new 100% bonus depreciation. For a $60 million acquisition or development, we estimate that as much as 20% of that investment can be expensed in year one, resulting in over $11 million in depreciation. As you can see in the chart below, depreciation expense has approximately doubled in year one as compared to the old law. The net present value (NPV) of the tax savings resulting from being able to deduct the additional depreciation in year one is over $500,000.
Similarly, ongoing operations of the property will be impacted considerably. To attract and retain high-quality tenants, landlords typically provide tenant improvement allowances which result in enhancements to the occupant’s space that revert to the landlord upon lease expiration. Under the prior law, these tenant improvement allowances were typically eligible for 50% bonus depreciation and the balance depreciated over 15 years. Under the new law, these allowances will be eligible for a 100% deduction in the year placed in service.
Investing in real estate can be a tax advantageous way to deploy capital, especially for individuals or companies that have significant recurring income tax burdens such as financial institutions. We anticipate that the new tax law will lead to higher demand for quality assets helping to keep deal flow robust, thus attracting more buyers and investors into the real estate arena. At Stirling Properties, we will continue to utilize this new tax law for the best interest of our properties and investors.
Disclaimer: The information contained herein is intended for information purposes only. Individuals should seek advice directly from a qualified professional before making any decisions or taking any action that might affect your personal finances or your business. Stirling Properties is not responsible for any investment or monetary decisions made based on the information provided above and is not a tax advisor. The information provided above was done so with the perceived intent of the legislation and not based on the actual regulations. The actual regulations could yield significantly different results.
Tax Reform & Real Estate… It’s a good time for our industry
The Tax Cuts and Jobs Act passed in December and several of these provisions will take effect in 2018. Many individuals have already benefited from the new tax law by seeing their recent paychecks increase. We believe this tax reform will have a similar positive impact on the real estate industry. Tax reform can be a very complicated—and tedious—topic so we’ve highlighted some of the implications for real estate owners, small business owners, and individuals. We’ll preface by saying this is our interpretation of the law, prior to the regulations being written and what we think Congress intended by the text of the law.
Initially, many of us in the real estate industry were very concerned about tax reform and the negative aspects that were being considered. The International Council of Shopping Centers (ICSC), responded by forming a committee consisting of executives and tax professionals across our industry to garner input to deploy lobbying efforts. Stirling Properties played a significant part in providing consistent feedback that guided ICSC’s lobbying efforts. Several executives in our company, including Marty Mayer, Townsend Underhill, Jimmy Maurin, Will Barrois, and me, were active in lobbying congress, and as noted below, these efforts were successful. Together, we were able to quickly respond to aspects of the tax proposal that were detrimental to the real estate industry and offer solutions that would benefit our real estate holdings and the business as a whole. We’ve compiled a brief overview of some of the changes.
Real Estate Business Owners and Investors
- Expanded Bonus Depreciation: Items that were previously required to be capitalized over 15 years (subject to 50% bonus depreciation) are now eligible for a 100% deduction in the year of completion.
- Examples of these items include parking lots, landscaping work, pylon lighting, etc.
- This provision begins to phase out after 5 years.
- Business Income Deduction: 20% of the taxable income generated from a business could be eligible to be deducted from taxable income pending multiple limitations.
- For example, if your share of taxable income from a business you own is $100,000, the first $20,000 may be eligible for a deduction, thus lowering taxable income to $80,000.
- Business income from pass-through entities like partnerships and LLCs will still be taxed at the new lower individual rates.
- Historic Preservation and Rehabilitation Tax Credit: The 20% credit for renovating certified historic structures remains in place but must be taken over a 5-year period as opposed to being fully deductible in the year of completion under the existing law.
- C-Corporations Tax Rate: The corporate tax rate under the new law is 21% as compared to 35% under the existing law.
- Property Tax Deduction: Still in place for real property trade or businesses including rental properties.
- Interest Expense from Loans: Businesses will still be eligible to deduct the interest expense from the debt incurred if its gross receipts are less than $25 million.
- The vast majority of commercial real estate in the Gulf South region would continue to be eligible to deduct interest.
- 1031 Exchanges: Real estate will still qualify to receive 1031 treatment.
- Capital Gains Rates: Remained unchanged at 0%, 15%, and 20% depending on income levels.
- Carried Interest: The new law requires a 3-year holding period to qualify for capital gains treatment as opposed to a 1-year holding period under the current law. This was a “win” for real estate as the original proposal was for carried interest to be taxed at ordinary rates.
Individuals
- Tax Rates: Almost every bracket has been widened and lowered with the top bracket being lowered from 39.6% to 37% thru 2025.
- Standard Deduction: Single filer’s standard deduction increased from $6,350 to $12,000. Married filer’s standard deduction increased from $12,700 to $24,000.
- Personal Exemptions: Taxpayers will no longer be eligible to deduct the $4,100 per dependent.
- Child Tax Credit: The child tax credit increased from $1,000 to $2,000.
- State and Local Taxes: Deduction under the new law is capped at $10,000.
- Estate Tax Exemption: Doubled to $11.2 million for single filers and $22.4 million for married couples.
At the end of the day, the real estate industry appears to have fared well in the Tax Cuts and Jobs Act. Some of these items are pending a technical corrections bill and additional clarification, but the expanded bonus depreciation and business income exclusion make being a real estate investor an enticing proposition. For investors looking to deploy capital in a tax advantageous investment, real estate is an appealing option that will rival alternative investments. We believe tax reform will provide a stimulus for real estate investment over the next five years.
We will follow up with more in-depth coverage of some of these items in the future, as well as how Stirling Properties is adapting to take advantage of this new opportunistic landscape.
The information contained herein is intended for information purposes only. Individuals should seek advice directly from a qualified professional before making any decisions or taking any action that might affect your personal finances or your business. Stirling Properties is not responsible for any investment or monetary decisions made based on the information provided above and is not a tax advisor. The information provided above was done so with the perceived intent of the legislation and not based on the actual regulations. The actual regulations could yield significantly different results.
