Inheriting Two Commercial Properties - Sell Both or Keep One?
Hi,
Via a trust, I was given a choice to retain or sell two commercial properties one in Vancouver WA (multi tenant retail + freestanding bank building) and the other in Hillsboro OR (multi-tenant flex industrial).
Given the valuation of the two commercial properties and the fact that I need to split the estate 50/50 with another family member, I can only retain one property should I decide to do so.
The Vancouver property is valued at about $4 million (6.25 CAP rate) If I keep the Vancouver property it would make up roughly 85% of my net worth, which doesn't fit any typical asset allocation model I know of. NOI is about $220K a year. Fully leased. A sale will generate capital gains taxes and depreciation recapture, however that expense will be shared with the other beneficiary as would any other estate expenses. There is no way to 1031 unless I convey the property to myself and hold for a year - in other words own it.
The Hillsboro property currently uses gross leases (without options) running into 2023. Currently non reimbursable expenses eat up a large portion of income. NOI is about 80K a year. To change leases and/or to re tenant will be a challenge/opportunity moving forward. A sale now is free of capital gain. Brokers indicate a potential owner/user may pay $2 - 2.3 million based on comparable sales in area, a premium of 500K - $800K over an investor using an income valuation ($1.5 million), however this buyer maybe harder to come by.
The biggest question my mind at the moment - Sell both properties or keep one and if I keep one, which one. Brokers are telling me if I want to sell, I need to do it immediately due to interest rates. I still haven't been able to determine the impact of the depreciation recapture (anybody know a good CPA?) on the Vancouver property and it makes me nauseous to see the capital gains taxes (about $450K ) plus selling commission and excise tax evaporate into thin air.