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One of our Thought Leaders during the month of RECon is Faris Lee Investments (at booth C150M). Shaun Riley, a senior managing director at the firm, talks about changes in retail real estate investment strategies as they relate to tax planning. He also discusses the types of assets that are attractive and why real estate is an attractive investment right now.

GlobeSt.com: Have investors changed their real estate investment strategies to better implement their tax planning and if so why?

Shaun Riley: I am seeing a shift in thinking among investors about their real estate investment strategy and tax planning. The tax exemption limit for estates has changed every year since 2001. Currently it is $5.25 million which is adjusted for inflation, however, investors are concerned the exemption limit will be decreased as more tax benefits are taken away. They feel the need to plan accordingly.

GlobeSt.com: Is there a certain profile of investor who is more likely to pursue such a strategy?

Riley: The high net worth private investor and family trusts are most active with their tax planning. While the investor is still living, they have a need to distribute cash to their heirs so that taxes on the estate can be minimized, especially if they feel there is a high probability the exemption limit for estates will decrease. In most cases with the clients I am working with, the heirs will then look to invest the distribution into retail investment properties.

GlobeSt.com: What type of retail properties are most frequently purchased by these investors?

Riley: Usually, retail properties with low management responsibilities are attractive to these investors. Retail property types such as single-tenant or multi-tenant centers with less than six tenants, with a fair amount of the income stream derived from national or strong credit tenants are the targets.

GlobeSt.com: Is real estate a preferred investment vehicle? Why?

Riley: Real estate is a preferred investment vehicle for several reasons. The heirs of an estate have seen the benefits of real estate investing from past generational success and have a strong tendency to reinvest in real estate. Additionally, over the past 10 years, real estate has become a much more acceptable holding in an investor's portfolio. Despite the recent 3.8% tax increase on investment income, real estate still offers after tax benefits through depreciation and the fact that investors can leverage the acquisition with a loan at historically low interest rates. This provides a return which typically outperforms alternative investments.

GlobeSt.com: How do you provide investment advice to these types of investors?

Riley: We look at each client and their risk tolerances and income requirements, and match them with suitable investments. On many occasions we are interacting with the client's wealth manager or CPA so the client has already received the needed tax planning strategy from the most qualified professionals. We help execute the real estate investment by looking at location, tenant mix, highest and best use, competition analysis, debt structure, and various other aspects of the investment which make real estate so unique and personal.

Instant Insights /

Retail Investment Climate Changes

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