The subject property is a high end, newly constructed, free-standing grocery store. The construction costs Source Advisors examined was $18,100,000 and it was placed-in-service in 2017. The store is 48,000 square feet and sits on a three acre site.
The building is organized into a main floor for grocery sales with a mezzanine level for administrative functions and classrooms designed for cooking lessons. The main floor has numerous departments including a butcher’s department, seafood, bakery, wine, produce, floral, etc. Interior finishes consist of vinyl tile, carpet, ceramic tile, and drywall partitions finished with paint. The store had significant numbers of cable trays, trenches, produce watering systems, supplemental HVAC, and backup power including a large emergency generator.
Site improvements include asphalt paving, brick paving, concrete paving, cart corrals, fencing, and landscaping.
The Source Advisors Cost Segregation engineers were engaged to analyze the actual construction costs, in the form of contractor invoices, and allocated the cost detail to various trades and building components. They conducted detailed estimates from the construction drawings and augmented those findings with additional estimates performed during the site visit of the property.
Key property personnel were also interviewed. A detailed report was delivered, identifying and documenting all of the components that qualify for a shorter tax life
Source Advisors reclassified 8% or $1,450,000 as 15- year land improvements and 22% or $3,980,000 as 5-year tangible personal property. This leans towards the high end of the expected range and was due to the high end nature of the store and the complexity of its systems. Because this property is new construction and was placed-in-service in 2017, it qualifies for 50% bonus depreciation.
% OF RECLASSIFIED PROPERTY
|Increased Depreciation in 1st year||$3,080,000|
|Increased Depreciation in years 1-5||$4,240,000|
|Increased Cash Flow in 1st year||$1,080,000|
|Increased Cash Flow in years 1-5||$1,450,000|
|Net Present Value over 39 years||$1,010,000|
*Assuming a 35% tax rate, 6% discount rate, and that the property will be held for 39 years