Retail condo sales fueled by tax incentives

Real estate investors in America's large metropolitan cities are seeing a new boom in condo sales. Retail condo sales were up to 560,000 square feet last year, in contrast to 2003, when only 28,000 square feet of retail condo space was sold.
Many real estate investors are finding renting retail condo space more appealing than office or residential space. Many investors can often escape paying capital gains taxes on large properties sold for a profit by quickly investing the money into other real estate.
Patrick Cooney, for example sold four residential brownstone apartments which he purchased in the late 1970's for $350,000 for $12 million in 2001.
By reinvesting most of his profit into retail condo space, he was able to avoid a capital gains tax.
Cooney is not alone. Eric Anton, an executive director at Eastern Consolidated estimated that half of the retail condo sales in his office are to buyers with money that they are eager to apply to 1031 exchanges which diminish the capital gains tax.
Another reason the retail condo market is booming could be because retail space looks more attractive than office space, said David LaPierre, a senior vice president at CB Richard Ellis.
Having the ability to go in and out of stores can make a location seem more tangible than office space, LaPierre said.
There is a drawback to the boom, the increase in interest in retail condos has caused prices to increase, however capitalization rates have decreased. Cooney received a 7 percent capitalization rate from his retail condo purchase in 2002, but said if he sold it again he would only receive about a five percent capitalization rate.