Acquisition demonstrates the power of tax incentives.

As we all know, three of the key elements to making a sound real estate investment are location, location, location. The value of a real estate transaction often goes beyond the price of the property which is bought or sold.

For many businesses, a particular location is an invaluable marketing tool or an ideal logistical center. Then there are other properties that, because of their location, can be laden with government incentives which can transform a standard transaction into a homerun for the property owner. The following is an example of a sale which took place this year where the buyer, assisted by the professionals in our firm's Economic Development Services group, took advantage of a range of government benefits which covered a substantial portion of the initial acquisition.

Prior to the sale, the buyer conducted business operations on three separate properties with an administrative facility on a fourth property. Eager to consolidate the business operations, ownership decided to hold the administrative facility site and purchase a single piece of land in Brooklyn for operations. Four distinct operations would then be consolidated into two sites.

The Brooklyn parcel happened to overlap both the East Williamsburg Empire Zone and the North Brooklyn Industrial Business Zone. With proper planning, this location afforded the company the potential for significant government incentives through the New York City Industrial Development Agency (IDA), Empire Zones Program (EDZ), and Energy Cost Savings Program (ECSP).

However, there were a number of hurdles to overcome in order for the company to receive its full complement of benefits. The NYC IDA process is a complicated one. Because of a tax-free Sec. 1031 exchange and the timing of the move, the buyer and seller would be occupying the space at the same time. In order to be approved by the IDA, we had to prove that the seller's occupancy would not affect construction and assure the IDA of a deadline for the buyer's occupancy of the site. In addition, the IDA had environmental concerns beyond what the initial environmental report addressed. This issue could have severely impacted the client's eligibility if Anchin had not been able to negotiate a more expeditious means of environmental testing.

At the end of the process, benefits to the company will total over $9 million over the next ten years:

* As a result of IDA's acceptance of the company's application, the mortgage recording tax of $400,000 was waived; the taxes on the land, approximately $800,000 over the next ten years, were abated; and the remaining real property assessment was frozen at pre-renovation levels, which is estimated to save the company $480,000.

* Because the business is in an Industrial Business Zone, the owner will save $1,000 per employee on city taxes or approximately $100,000 in the first year.

* The company will also receive energy benefits, including a reduction for the delivery of Keyspan and Con Edison services due to the Energy Cost Savings Program.

* Lastly, the company will receive a wage tax credit of $900,000 for the first five years and a real property tax refund of $420,000 over the next ten years through the Empire Zones Program, along with a reduction in its New York State tax liability estimated at $5,480,000 and ten year sales tax exemption estimated at $400,000.

Not bad for a $14 million acquisition! This example illustrates a number of important points. The possibilities that lie beneath the surface could be the determining factor in deciding whether an acquisition is a sound one. All aspects of the property, including possible tax incentive programs, need to be considered when an evaluating an acquisition or development. The tax incentives available on a property may more than cover the additional cost over that of a less expensive property. Location, location, and location can be more valuable than you think.

By MARC WIEDER, CPA ANCHIN, BLOCK & ANCHIN LLP