Wolgast Blog

Sharing Your Budget Streamlines the Pre-Construction Phase

Posted by Cory Sursely on Wed, Oct 24, 2018 @ 02:54 PM

BarBWe use this blog to help educate potential construction clients on how to build their buildings more efficiently and economically.  I am posing a taboo view in this edition, but all in an effort to save the building owner weeks and maybe months of time on their pre-construction phase.  By giving a contractor a ballpark budget before design and/or estimating starts, an owner can take a shortcut in the preliminary phase and get to construction sooner.

Realistically, we understand that sharing a budget feels risky because it shows the owners “full hand” so to speak in poker terms and he or she could feel like it reduces the opportunity to negotiate.  However, for Design/Build Construction, by knowing our client’s budget we can design a building that can be accomplished comfortably for the owner, rather than one that causes sticker shock and then adds time for redrawing.  Having an owner’s actual budget at the start, helps us to provide valuable consultation to the owner regarding allowances for materials and finishes.  Also, we will know upfront if we need to scale down the building and by how much if the numbers need to be tweaked when estimating is complete.  Knowing a budget for General Construction, lets us discern if we are a fit with our full service offering (including insured contractors, precise estimates, guaranteed completion dates, warranty, full-time supervision, self-performed trades, etc. to protect the owner’s interest), or if the owner is willing to accept a more risky and lesser value option for their construction needs.

We’ve been estimating and constructing buildings for over 70 years and have a good idea of what a competitive price for a scope of work may be, considering variables like the time of year, how busy our subcontractors are, and material pricing fluctuations to pinpoint a precise final price.  Therefore, we can save everyone a lot of time if the owner’s budget is significantly under what we speculate the cost would be and the owner isn’t willing to change their scope of work.  In turn, we can help them make a business decision before they spend any money on design or go through the estimating process.

Contact Rick Suitor or Dr. Michael Shepard at 800-WOLGAST to discuss your project and budget and to see if our services are well suited to design and/or build your business investment.  In return, we will provide a competitive and accurate estimate and offer professional construction services!  This is just one shortcut to construction and happiness that we can offer.

Tags: Good for Business, Professional General Contractor, Risk Management

Building Remodel for Energy & Money Savings

Posted by Cory Sursely on Mon, Sep 24, 2018 @ 11:29 AM

There aren’t many businesses that remodel every six years, so chances are that if you’re currently ready for an update, you have the potential to save a considerable amount of money by investing in modern, energy efficient products and installations. 

NBS-EnergyWith 29% of your operating expense being spent on utilities1, the energy efficient equipment/products that have become available over the last six years or less can make a big difference.  Additionally, there are incentives for making these changes.  We have helped several school clients lower their energy expense and also secure incentive money back.  As a Consumer Energy Business Solution Trade Ally, we’ve achieved 3rd place in the past for natural gas savings for Consumers Energy school customers and helped Bullock Creek Schools maximize their incentive of more than $125,000 to offset the cost of their new heat-conserving roof, energy efficient lightbulbs and other alterations.

It’s good to be aware that some energy savings are now mandated by LARA in the State of Michigan when you build new or remodel (see our blog: Michigan Energy Code).  However, there are varying degrees ($$) of implementations to include in your remodel plans that could save more money for your business in the long run.  For instance, office equipment and other mechanical products have become increasingly more efficient even within recent years.  Building systems and materials such as water heaters, HVAC systems, programmable thermostats, windows, insulation applications, LED lighting, occupancy sensors, and toilets are all more efficient than they were in the past 10 years.

Additionally, during your remodel or new build, adding more natural light reduces the need for full time lights, which according to US Energy Information Administration can be more than 17% of utility costs for commercial buildings who haven’t converted to LED.2  Bigger windows, skylights, or light transmitting panels are great for getting the most natural light into an interior space.  Your architect will have further tricks for enhancing natural light, as well.

If you aren’t quite ready for a remodel right now, but are interested in tweaking your building systems to save on energy costs, most energy companies are currently offering free assessments to guide you to save on what you already have in place.  Contact your energy company for a complimentary report.

However, if you are interested in remodeling or building new, Wolgast is ready and capable to be your design and construction partner to achieve these energy and cost saving applications.  Call us today for more information.

1E Source Customer Direct, “Managing Energy Costs in Office Buildings”

2 U.S. Energy Information Administration, www.eia.gov, “Trends in Lighting in Commercial Buildings”, 5/17/17

Tags: Good for Business, Energy Savings, Design/Build, Remodel

Michigan’s Energy Code (2015) to Save Energy for Commercial Building owners

Posted by Cory Sursely on Wed, Jan 31, 2018 @ 09:48 AM

731621281.pngThe 2015 Michigan Energy Code, as directed by Licensing and Regulatory Affairs (LARA), went into effect Sept 20, 2017.  The changes to the code involve lighting controls of new commercial buildings and remodels with more than 50% lighting alterations in an effort to increase energy savings.  In a nutshell, different areas of a commercial building will need both sensors and a wall switch or dimmer to control lighting.

Brief & Not Too Technical Synopsis:

Going forward, commercial buildings are required to regulate their lighting either by a sensor, shut off, or schedule.  Depending on the type of the room, usage and time of day, automatic controls will regulate the power of light being used.  Without getting too technical, regularly used parts of a building must be regulated by an Automatic Full Shut Off, once the room hasn’t been occupied for 20 minutes, and an Automatic Daylight Responsive Control will dim the lights to varying powers depending on the natural light exposure. 

Lesser used areas of the building, like stairwells, warehouses, lobbies, and corridors will be regulated by an Automatic Partial Off sensor.  Lighting will be reduced to 50% or less after the area hasn’t been used for 20 minutes. 

A Scheduled Shut Off will be used where Automatic Full Off isn’t controlled and special lighting for displays, food warming, and undershelf must be controlled separately from the area’s general lighting.

Furthermore, exterior lighting will be controlled by Automatic Shut Off during daylight hours, landscaping lights will need to be Automatically Shut Off from midnight to 6AM, and generally, all other lighting/signage will be reduced to 30% or less between midnight and 6AM.  Security exemptions may apply.

Note: Exceptions and other, random codes have not been discussed here, we can answer any questions not addressed in this blog.

What Business Owners Need to Know:

When building or renovating, Business Owners can expect their lighting control budget to be larger to address the sensor and wall receptacle engineering, installation and materials.  But if LARA’s plan to reduce energy usage occurs, Business Owners will see savings on the back end on their energy costs.

The Design/Build team at Wolgast knows the codes involved with building commercial buildings, and will plan your construction project efficiently while keeping you in compliance.  Call us today for more information on other parts of the code not discussed here at 800-WOLGAST.

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Tags: Good for Business, Design/Build, Professional General Contractor

Universal Design Can Change Your Business

Posted by Cory Sursely on Tue, Jan 02, 2018 @ 10:20 AM

UniversalDesign.jpgIn 2015, there were roughly 53 million Americans1 who were disabled either in mobility, in hearing, or with their vision.  Moreover, there are the aging baby boomers with special needs, mothers with strollers, and an increasing number of people using service dogs who each have different accessibility needs to public places.  Whether you are a restaurant, retailer, bank, medical office, or school (to list a few), you likely already have Americans with Disabilities Act (ADA) standards to meet when you build a new building or remodel your existing one; however, if you aren’t already regulated by Title II or Title III, there are still benefits of planning your building for access to everyone, also known as Universal Design, which is different from ADA.  Some are considering Universal Design an emerging concept of good citizenship, much the same way LEED has done for reducing a company’s carbon footprint.  Compared to ADA which is mandated by the government to provide accessibility for disabled people within publicly used buildings, Universal Design is a choice that a building owner makes to include accommodations not regulated by the ADA to provide easy accessibility to everyone.

Going beyond ADA requirements and adopting Universal Design as a customer service practice can help you target new customers (or staff members) and also assist in marketing messages,  “Hey, we’re here for everyone! And we’ve taken measures to make sure you can easily shop here!”  Such things as having a clear approach to your building, an elevator, wider aisles, open spots for wheelchairs at tables or other seating areas can be enjoyed by many and a relief for disabled people.

For instance, years ago we worked with a national retailer on several of their Michigan stores to design and remodel required ADA updates to their restrooms.  And now through their current and vast remodeling efforts to update their stores, they’re meeting their ADA requirements and incorporating even more Universal Design elements, including: public accessibility, clear paths from the parking lot, expanding doorways, communicating barrier free assistance through labels and arrows, adding braille signage on restroom signs, updating counter heights, expanding turning radiuses in the restrooms, and making space for wheelchairs at select tables.  Some of these items are required, but not all of them are, our client is considering the usage of all its customers for easier access.

In addition, another long standing client incorporated a whole new business model by expanding through partner programs designed for children with special needs—becoming the only entity like it in Michigan.   After planning and enlisting Wolgast Architect, Rick Keith, they added a medical facility with overnight accommodations for doctors, ramps to amenities, and barrier free access for medical attention to their existing establishment, which has helped them to enhance their entire program, and further realize their mission as an organization. 

Finally, being inclusive through Universal Design is undoubtedly more expensive than not including those measures; however, it can help you when it’s time to sell your business or building.  For some businesses, remodeling now to include mandated ADA changes and beyond (i.e. Universal Design) can be sound business for customer service and the long term use of your building.

1 www.cdc.gov/media/releases/2015/p0730-us-disability.html,  “53 million adults in US live with disability”.

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Tags: Design, Good for Business, Remodel

Pardon Our Dust - Under Construction

Posted by Cory Sursely on Tue, Apr 25, 2017 @ 09:58 AM

Three Options to Keep Your Clients Happy During Your Remodel Project

Pardon.jpgDuring a commercial remodel, there is more you can do than just posting a good looking “Pardon Our Dust” sign when it comes to your customers and your staff.  We know all too well how it is when you’re trying to run a business, but need to update or reconfigure your working space.  The thought of disrupting business as usual is just too much, and losing out on customer traffic is out of the question.  But never fear, Wolgast has solutions to help you get through a remodel with only a little interruption to staff or customers.

  • We can schedule your project in phases, so that operations can be temporarily shifted or moved, but you’re still functioning as an office, manufacturer, school or shop. We’ll help you plan prior to the start of the remodel.  This applies to doctor’s offices as much as it does restaurants or schools, mostly all business types.  Open communication with your contractor will help minimize stress as you serve your customers.

  • We’re able to accommodate after hours remodeling in many instances and clean-up for your operational use in the morning. We do this when Phasing just won’t work and it may take a little longer, but it’s an option if needed.
  • Build next to or around your existing space. It has been more economical for some of our customers to build new rather than renovate, but they didn’t want to lose their current location.  As a design/build construction firm, we were able to configure how to build on their site, right next to their office.  We were able to reuse most of their existing parking lot and help them benefit from cost savings with utilities already onsite.  In many instances, once the team has moved into the new space, the old one can be demolished and cleared in a day or two.

 
We have found that there are many understanding consumers, as long as they’re able to safely enter your establishment; they will still come to you while you remodel.  For restaurants, many times we can keep your kitchen open as long as possible while working on your dining room, so a drive-thru or take out is still available.  Schools luckily have the summer to schedule their work with less interruption to their full staff.  Medical and Dental offices need special accommodations for keeping clean spaces, so we plan ahead to ensure dust doesn’t get where it will cause serious problems.

For staff, we know that demolition, nail guns and electric screw drivers can be loud.  We remodeled our own office last winter and know the excitement we felt to see the progress and also having a completion date made most noises tolerable.  Additionally, some of the noisy parts were held off until after office hours, so it all worked out with little disruption.  And if you put out a friendly “Pardon Our Dust” sign, you’ll probably get customers excited to come back and see the changes – updates on Facebook are good means to reach out as well, with a steady flow of messages to share.

We’re happy to answer any of your remodeling, or even new build questions, any time! 800-WOLGAST.

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Tags: Good for Business, Design/Build, Professional General Contractor, the Wolgast Way

Use CM When Your Client List Is Full of Building Contractors

Posted by Cory Sursely on Mon, Mar 06, 2017 @ 09:56 AM
Uncommon (and Common) Reasons to Use Construction Management

What is CM Delivery?

Subs-1.jpgOne of our Construction Management (CM) clients recently stated that starting a large construction project is similar to drinking from a fire hose.  He has appreciated relying on us to help him through the process.  If you don’t know, CM is a construction delivery method where an owner hires both the Architect and Contractor on the team before the design process begins.  The Owner, the Architect, and the CM work together to identify the scope of the project, estimate the budget, and determine the schedule.  During the Design Phase, the Architect is responsible for creating the design based on the scope, and the CM estimates the budget needed for constructing it and coordinates the schedule.  During the Construction Phase, the CM finds the subcontractors and oversees construction through the Warranty Phase; the Architect offers checks and balances to ensure that their design is executed accurately and that schedules and budgets are met.  This method is typically suited for most large projects that either span more than a year, involve more than one building, or both.  It is also suitable for other types of projects in instances described below.

Benefits of Using CM

Common benefits of CM include the use of wide spread resources/contacts, vetted construction experience, and scheduling/coordination abilities.  A CM isn’t necessary to keep large projects on track, but having the support, construction knowledge, and established relationships with subcontractors helps a large project run smoothly and feel less like “drinking from a fire hose”.  There are also uncommon benefits of using CM services.  For business owners whose clientele includes members of the construction industry (i.e. churches, banks, auto dealers, membership organizations, etc.), they now face becoming the customer to several of their standing clients who may be expecting a returned “favor”.  A CM is able to break down work scopes to include more opportunities for subcontractors and in turn involve more of their clientele to keep them happy, or help the Owner narrow down a tough decision when needed.  Finally, the CM approach offers an “open book” relationship in which fees or costs associated with the project are known and directly shared with the owner, and the CM’s fee is fixed.

 

Wolgast’s CM Department was established in 1996 and we’re systemized to provide efficient services to focus on construction while you focus on your business.  We’ve been responsible for more than $2 Billion worth of in-place construction for a third of the school districts in the state.  We’ve also been the CM for hotels, manufacturing operations, colleges, medical facilities, financial institutions, entertainment establishments and municipal projects.  Contact Steve Salyers, VP Construction Management, to see if CM is the right fit for your upcoming project at 800-WOLGAST.  According to Steve, our CM team is “the Owner’s professional representative who maximizes the value of each dollar the Owner spends.”

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Tags: Construction Management, Good for Business

Preparing Your Business for a New Buyer

Posted by Cory Sursely on Fri, Feb 17, 2017 @ 10:50 AM

BusinessOwner.jpgBruce has owned his business for more than 30 years and he’s ready to retire.  He is five years under the retirement age and has no children to take over this operation he has poured his blood and sweat into for most of his life.  Bruce has a few options.  He can close the doors, walk away, and lay off his staff of 25.  He can sell the business and the building to an interested party and use the money to supplement his retirement savings.  Or, he can find someone who wants to buy the business and then lease the building to him or her, keeping rental income for continual cash flow.

To supplement his retirement the second two options are the most appealing.  Bruce has employees to think about and having extra cash in his pocket would be beneficial.

Bruce begins to think about how he can make his business attractive to a buyer and among other things, he realizes that even though he has kept up with repairs, the building could use an overhaul after 35 years.  His HVAC system could be more efficient, his flooring is worn out, the lunchroom is a little drab, his conference room doesn’t function as well as it could, and there are areas that could change to help workflow.  There are many things that a remodel could do that would help him to attract a serious buyer and sweeten the deal if the new owner doesn’t have to turn around and renovate the building.

A renovation can also drive traffic to a business because community members are curious to see the changes (note: depending on the industry).  Promoting a remodel is a great marketing tool.  So increased traffic can help Bruce recover some of the expense of the updates and a freshened building can help attract a buyer to set him on his way to a comfortable retirement.

If you have any questions about remodeling your business or options for leasing your building to a future owner, please contact Wolgast’s, Rick Suitor-Business Development, to set you in the right direction.  If you’re a little further from retirement, you may want to start your succession planning now and keep Wolgast in mind for future renovation needs.

Tags: Leaseback, Good for Business, Risk Management

Construction Broker Service Comes up Short in Professional Construction Services

Posted by Cory Sursely on Mon, Nov 28, 2016 @ 10:00 AM

worker-figuring-edt.jpgAs construction broker companies continue to pop up, they’re coming up short compared to a Design/ Build – General Construction (DB-GC) Firm in many important areas for project success.  DB-GCs provide much more control over the schedule and the budget on your project versus a construction services broker.

A DB-GC will typically have their own self-performed trades working on the project site.  Additionally, for us, a full-time, skilled, project supervisor will be onsite 100% of the time for the duration of a project.  Having these company representatives onsite helps set the pace of the work, keeps the jobsite and scheduling organized and as a result incites progress on the project which in turn controls the budget.  With a DB-GC, you’ll also be supported by administrative staff dedicated to keeping record of insurance, invoices, sworn statements, waivers, etc. which are easily tangled if not managed properly and in real time, causing issues with financing and liability.

Additionally, a brokerage company doesn’t have “skin in the game”.  They have very little committed, i.e. no office, no staff, no equipment, and typically no ties to the community.  It’s very easy for them to walk away if things don’t go well.  Some building owners may think that should result in lower fees because the broker doesn’t have the overhead, but they also don’t have much incentive to stick through complications or hold subs accountable to their contracts and warranty work if there’s an issue after the project is done.    

Across the industry, we’re facing a labor shortage.  A broker has to rely on finding an outside contractor for every single trade because they don’t self-perform any work nor have the staff to do so.  Going forward, this shortage could result in additional time to the schedule throughout the industry; however a DB-GC is able to self-perform several trades, so this will more likely help minimize the gaps the shortage could cause with the schedule.  For instance, a DB/GC can begin site work while the other skilled trades are scheduled in the meantime.  Additionally, as the project progresses, the DB-GC can start rough carpentry if other remaining subs are needed to be scheduled.  Again, this will result in better control over the budget and schedule. 

Finally, lower price is the possible competitive benefit a broker can offer, which can make them attractive in the beginning.  In other words, a broker needs to shop around to get the lowest priced services to be competitive in the market.  Therefore, to get to that price point, they may have to select lesser quality subcontractors, which means that the quality of the work may be poorer, the schedule delayed, and warranties difficult to honor within a timely manner.  Often times, brokers are not local to the area and are blindly seeking their outside contractors in a market about which they know very little.  They don’t have relationships or the knowledge of subcontractor work history, which is a risk a building owner faces for the future of their building quality and warranties.

The leverage that a broker has over a full team of outside contractors pales in comparison to a professional DB-GC to maintain quality, protect the building owner, and deliver a project on schedule.  Our industry is going to be facing difficult times until we’re able to beef up the training programs for skilled labor, but by having our own team of craftsmen and subcontractor relationships throughout Michigan and reaching further into the Great Lakes Region, we’re able to deliver the quality and reliable construction services for which we’ve come to be known.

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Tags: Design/Build, Good for Business, Professional General Contractor, Scheduling, the Wolgast Way

How Economies of Scale Works in Construction

Posted by Cory Sursely on Wed, Oct 05, 2016 @ 10:26 AM

EconOfScale.jpgRay is the owner of a large corporation with his operation spanning over two locations.  When he outgrew his initial office, he got a great deal on a warehouse that was easily adaptable to expand his business.  Now, after years of hard work and smart decisions, he’s outgrowing both locations and has decided that it will be more efficient for his operation to all be under one roof.  But speculating on the costs involved, Ray is wondering if this is the best decision for his company right now?  What Ray may not be considering is economies of scale.  With his building being bigger and the duration of the project longer, and the fixed fees the same, he can benefit from the efficiencies that his design/builder will experience, which will lower the square footage cost.

In the construction industry, same as manufacturing, retail, and many other industries, there are ways to maximize work for optimal efficiency and also there are fixed costs that remain the same on any size project, which result in economies of scale.  For your meat market, it’s giving a discount for 3 lbs. of burger purchased so that they can sell out of the fresh stuff before grinding more and wasting what they have already ground.  For construction, it is a mix of labor and fixed costs that can result in a cost reduction for a building owner.

Large construction projects typically benefit from economies of scale for several reasons.  One, a contractor can hire an electrical crew to be assigned on site all-day for an extended period of time.  The electrician owner can anticipate consistently paying their staff a full day’s pay.  On smaller projects, the same crew could possibly work six hours, but still get paid for eight.  It’s unlikely that the crew can be assigned to a different project for those remaining two hours and still be productive.  This is less efficient use of their time versus a full shift and result in increased cost per square foot.

Two, there are fixed fees within general conditions (i.e. costs associated with making construction possible, beyond materials, supplies, and labor used on the building) that can remain the same regardless of the square footage.  For example, dumpsters, storage trailers, building permits, temporary electricity, barricades and insurance are a few types of things included in this category.  A project that is a longer duration will result in these fixed fees being a smaller percentage of their project cost than a project with a lesser duration because you only need to secure a permit one time, project signage and a fence are the same price once they’ve been installed throughout the duration, and once the equipment is mobilized to the site, the fee is the same while on site.    When you consider that a franchisee may elect to build three stores on three street corners in the same city, but each being a different size, the economies of scale will vary for each.  The largest store will have a lesser percentage of fixed fees per square foot, whereas the medium and smallest stores will have a larger percentage.  Bringing in a water line is the same cost for each, the bathrooms will likely be the same floorplan, but the percentage of the cost will be more in the smaller store than the largest store.

Third, going back to Ray and his building, he elected to use a pre-engineered metal building which was suitable for his operation.  He had to decide on using a 16 foot tall warehouse or a 20 foot tall warehouse.  He quickly realized that the fixed costs don’t change, so it would be mostly the material costs that would add to the final price of the building.  He chose the 20 foot tall warehouse to provide more storage and ultimately more room for his company to grow.

There are many factors that are in effect when estimating the cost of a building.  Regardless of the size, we have your best interest at heart and work to achieve the best value we can provide.  Please contact us when you’re ready to take the next step in expanding your business.  We can professionally design, accurately estimate, and expertly build your building quickly!  The Wolgast Way!

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Tags: Good for Business, Professional General Contractor, Financing Construction

Is there cash hidden in your building? A cost segregation study can help you find it

Posted by Andrew Rose, CPA, Principal, Rehmann on Mon, Feb 29, 2016 @ 01:33 PM
(At Wolgast's request, CPA, Andrew Rose of Rehmann's Commercial Industry Group, generously shared the following expert insight into Cost Segregation to help guide our clients to find tax savings in their building.)

steelcase.jpgAs the economy rebounds, businesses are becoming more profitable. At the same time, higher individual taxes are placing a financial burden on business owners. If you’re looking for ways to reduce taxes and boost cash flow, consider a cost segregation study.

You may benefit from such a study if you plan to acquire, construct, or substantially improve a building, or if you’ve done so in recent years. These studies apply tax accounting and engineering principles to identify building components that qualify for accelerated depreciation. Armed with a cost segregation study, you may be able to cut taxes by claiming additional depreciation expense or capturing missed depreciation deductions from previous years.

An overview

Here’s how it works: commercial real property (excluding land) is depreciated over 39 years (27.5 years for residential rental real estate). Real property includes buildings as well as structural components, such as walls, windows, floors, ceilings, elevators, wiring, plumbing, and HVAC systems. Personal property – such as furniture, fixtures, computers, equipment, and machinery — is usually depreciable over five or seven years. Land improvements – such as parking lots, fences, sidewalks, landscaping, and outdoor lighting – are depreciable over 15 years.

It’s not unusual for owners to allocate costs to real property that could properly have been allocated to shorter-lived personal property or land improvements and depreciated more quickly. A cost segregation study reveals opportunities to reallocate these costs, accelerating depreciation deductions and reducing taxes.

Virtually any business can benefit, but cost segregation studies are particularly valuable for manufacturers, hospitals, hotels, restaurants and other businesses with specialized buildings. Often, property that would otherwise be considered a structural component depreciable over 39 years may be classified as personal property if it’s more closely related to a process or a particular piece of equipment than to the building itself.

A manufacturing facility, for example, might require reinforced flooring to support heavy equipment. Or a hospital may need special wiring or electrical systems to operate medical equipment safely. In many cases, the costs of these items are depreciable over five or seven years.

What are the benefits?

The actual benefits depend on the particular facts and circumstances, but for acquired, constructed or renovated buildings, a rough rule of thumb says you can enjoy net-present-value tax savings as high as 23 cents for each dollar that’s reclassified as personal property. If reclassified property qualifies for 50-percent “bonus depreciation,” the savings can be even greater.

You can also use a cost segregation study to reallocate the costs of real estate investments in previous years. Generally, this requires you to file Form 3115 – Application for Change in Accounting Method – with the IRS. This allows you to take a “catch-up deduction” in the current year for assets that were underdepreciated in prior years.

Evaluate your options

Cost segregation studies can yield significant rewards, but they’re not for everyone. The tax savings may be limited, for example, if your income is insufficient, you’re subject to passive loss limitations, or a property’s purchase agreement contains a purchase price allocation. If you think a cost segregation study would help your business, have your advisors perform an initial evaluation to get an idea of the potential benefits.

Bonus Content: Cost segregation example

Cost segregation studies offer significant tax savings, especially for businesses, such as manufacturers, with specialized facilities. Consider this example:

Wolverine Widgets, a heavy manufacturing company, acquires an existing plant for $10 million on July 1, 2013. If the company were to allocate the entire purchase price to the building, its depreciation deductions would be roughly $256,000 per year ($177,000 in year 1, under IRS tables). Wolverine obtains a cost segregation study, which concludes that 35 percent of the purchase price is properly allocable to 39-year property, 15 percent to 15-year property, 45 percent to seven-year property, and five percent to five-year property.

Based on IRS tables, and using the Wolverine’s first-year depreciation deductions are as follows:

 

Asset class

Cost

1st-year depreciation

39 years

$3,500,000

$61,950

15 years

$1,500,000

$75,000

7 years

$4,500,000

$643,050

5 years

$500,000

$100,000

Total

$10,000,000

$880,000

 In this example, a cost segregation study generated an additional $703,000 in depreciation deductions in the first year alone.

If you would like to get in direct contact with the author, Andrew Rose, CPA and Principal at Rehmann, he can be reached at Andrew.Rose@rehmann.com, or (517) 316-2414.

Tags: Professional General Contractor, Financing Construction, Good for Business