Is this a good time to sell, lease back?

With demand and prices for commercial and industrial properties strong throughout the Truckee Meadows, at least one real estate broker says businesses that own their own real estate might give serious thought to selling.

Certified public accountants caution, however, that a decision to sell a business building, then lease it back from the new owner, can raise tax complications.

The case for selling works like this, says Todd Blonsley of the Reno office of Marcus & Millichap, a brokerage that handles investment real estate: The management team of a business can't be expert in everything, and ownership of commercial or industrial property ties up management time as well as capital.

Ownership of real estate carries some financial risks, he says, and most companies would be better leaving those risks to investors who make a career of real estate.

"Companies that aren't in the business of real estate have no business owning real estate," Blonsley says.

Instead, he says, they should take advantage of the current strong demand from investors for property in northern Nevada, sell out at a premium, and lease the property back from the new owners.

"The best time to sell something is when you don't have to sell it," Blonsley says.

In doing so, he says, the sale cleans up the company's balance sheet by reducing debt, allows the company to write off rent expense and gives managers the option to deploy capital into the firm's operation.

And capital freed up by the sale of real estate can provide breathing room for a company during a crisis.

The costs of leasing the property are offset by reduction of depreciation and interest expenses, he says.

So do CPAs like the strategy? Maybe, they say, but the calculations need to be handled with care.

The first calculation needs be the owner's assumption about the direction of real estate prices in northern Nevada, says Todd Ferguson, a shareholder in the Reno office of Kafoury, Armstrong & Co.

Prices recently have been headed up strong, Ferguson says.

If the owner thinks the trend is likely to continue for a while, the return on the real estate may outstrip the potential return if the capital is deployed elsewhere in the business.

That suggests, he says, that owners thinking about selling and leasing back their property carefully compare the rates of return they'd expect from different uses of capital.

Factored into that analysis is the cost of leasing space.

Tax implications also need a careful analysis, say Chris McCune and Jim Pfrommer of Pfrommer & McCune, Ltd., a CPA firm in Reno.

Because the federal tax code is convoluted, the potential gain (and the resulting tax) depends on the type of entity selling the property, they say.

But the Pfrommer & McCune analysis says these are among the factors that need to be addressed:

* Whether the deal would be cash or installment.

If installment payments are made, will the first year's payment provide enough cash to pay the income taxes that are due?

* How and when the property was acquired.

How much depreciation has been taken? What method was used to calculate depreciation?

* Will the buyer be a related party? If so, special rules may apply.

* Would a tax-free exchange make more sense than an outright sale? Then, too, the CPAs from Pfrommer & McCune say that estate-planning questions also should be addressed.

If the property is retained until its owner dies, they note, the heirs might qualify for a stepped-up income tax basis in the property and reduce the amount of tax that's due.