CreditCardForum.com, an internet company based in the San Fernando community of Sherman Oaks, is reporting increased credit card approval rates for 2010.

“Over the past several months, credit card companies have been ramping up their marketing efforts” says Michael Davis,  a personal finance writer for the site. He reports banks are approving significantly more credit card applications than they were in 2009. “Last year no one was getting approved, but now we’re starting to see a higher approval rate on consumer credit cards” says Davis.

Another sign the economy is on the right track is that credit card promotions are making a comeback.  For the first time in 18 months, we are starting to see long balance transfer offers and signup bonus offers.

Davis states “In 2009 Chase was hardly marketing their credit cards. Last month,  they brought back their $100 signup bonus for the Chase Freedom card. There is also a similar offer they started on the Chase Sapphire card. This is great sign, because the last time we saw promotions like that was early 2008, before the recession.”

Although the consumer credit markets are showing these healthy signs of recovery, small business credit can still be a challenge to obtain.  Davis reports “Although the consumer credit card industry has come back, small business credit cards are still hard to come by.  If the economy continues to recover, those should be more widely available within the next couple quarters.”

While Jay Thomas works as president of Six Flags Magic Mountain and Hurricane Harbor by day, he serves as a volunteer by night and weekends.

Thomas is a member on 23 boards and committees for organizations that serve the Santa Clarita and San Fernando valleys, and he does more than just attend meetings.

“A lot of people give their time and a little something here, a little something there,” said L/B/W Insurance & Financial Services, Inc. CEO Mitzi Like, who serves with him on the Single Mothers Outreach board. “This guy actually rolls up his sleeves and helps do whatever needs to be done. … He gets people involved.”

Thomas, who has been volunteering in the valleys for at least two years since he moved to Santa Clarita, serves organizations such as Michael Hoefflin Foundation, Child & Family Center and Boys & Girls Club of Santa Clarita Valley.

He is known for opening the theme park to organizations to host fundraisers, such as the annual Arthritis Walk held by the Arthritis Foundation.

Thomas said his volunteering days began around age six when he started volunteering with his grandfather, who helped establish a rehabilitation center in Texas. At age 12, he started a “business” called “Jay’s Bicycle Service” where he ended up fixing and changing bicycle tires for free, he said. His volunteering life only expanded as he grew older.

Thomas said the key to being an effective volunteer is being active.

“The one thing I won’t do is be on a board that I can’t participate in, (or) more importantly, that I can’t make a difference in,” Thomas said.

With 22 years of experience with theme parks and 15 years of experience in executive roles, Thomas said he makes himself valuable as a volunteer by sharing his financial analysis abilities.

“I can look at the books and determine how solid or healthy that organization is,” Thomas said. “Then (I) provide direction for how we get ourselves out of whatever the position may be or to better preserve ourselves for the future.”

Thomas, who mostly volunteers before 8 a.m. or after 6 p.m., says he is able to do it because his family is so supportive of his passion for helping others. They even come help him volunteer at some events, he added.

“I just feel we all need to come together as a whole for the great good of the all,” he said. “There’s a true sense of satisfaction and reward from participating with these organizations.”

Electro Rent Corp. completed the acquisition of Telogy LLC, a provider of electronic test equipment, for a final purchase price of $24.7 million.

Electro Rent will immediately transfer Telogy’s equipment inventory to its Southern California distribution center. It will also integrate Telogy’s operations and convert its management information function to its proprietary software system.

“We believe that these actions as well as other cost savings will result in immediate accretion to earnings,” said Daniel Greenberg, chairman and CEO of Electro Rent. “We look forward to serving Telogy’s customers by providing them with top-notch service and meeting all of their test and measurement equipment needs.”

Interlink Electronics Inc. has made changes to its executive ranks that will bring an $800,000 savings to the company. Charles Best, the chief financial officer for the Camarillo-based provider of e-notarization products, has been named president and chief operating officer. He takes over day to day operations from Kevin Wiley, who remains chairman and chief executive. Reorganization of senior management will bring cost savings to the company, which finished the fourth quarter ending Dec. 31 with net income of $105,000, or $0.01 per diluted share, on revenues of $2.9 million. That is an improvement over the net loss of $802,000, or $0.06 per diluted share, on revenues of $2.8 million for the same period in 2008.

For the full fiscal year, Interlink reported a net loss of $7.8 million, or $0.57 per diluted share, on revenues of $9.7 million. That widens the net loss of $3.3 million, or $0.24 per diluted share, on revenues of $13.3 million for the 2008 fiscal year.

Signs of progress are evident at Wasserman, Comden, Casselman & Esensten.

The Tarzana law firm made moves to bring its legal expertise to international clients in Asia and Israel.

By adding a new name partner in Robert Esensten the firm will literally make a sign change to the building it occupies on Reseda Boulevard and easily visible from the Ventura (101) Freeway.

Only twice before in its 32-year history has the firm added a name so it is a big deal to the other partners.

Having his name go up on the side of the building sends a signal that he is valued to the firm that he hopes to finish his career with, Esensten said.

“It is important for business development and the ability to market the firm,” Esensten added.

Esensten had his own practice for more than 25 years when he made the switch to Wasserman, Comden in 2006.

There had previously been a fourth name partner who had left so there was a void to fill, partner Leonard Comden said.

Becoming a name partner was important to Esensten and he was able to convince Comden, Steve Wasserman and David Casselman that it was in the best interest of the firm.

If you are dealing with a senior partner who has equity in the firm it only makes sense to add their name to the firm, Esensten said.

The four partners have the responsibility of managing the firm and major decisions have often been unanimous.

“It’s rare we don’t agree on things,” Esensten said. “If we have a difference of opinion we find a way to solve it.”

Going to a larger firm – 87 total employees, of which 34 are attorneys – meant compounding the administrative issues Esensten had dealt with on a smaller scale when on his own. Plus there were new practice areas for the Southwestern University law school alumnus to become familiar with.

For one, there is the class action practice for which Wasserman, Comden is becoming quite well known. The firm has filed a number of cases, some of which have settled and other that are pending, alleging fraud against companies and their products.

Esensten has also worked with attorneys in Wasserman, Comden’s office in Alhambra on matters for Chinese companies doing business in the U.S.

About 15 years ago the firm saw there was opportunity in having Chinese clients.

Last year, the partners took a major step by making a Beijing-based law firm as its affiliate in that country with the benefit that a single office replaces the multiple firms Wasserman, Comden had been using to handle joint ventures, intellectual property work and other legal matters.

“That is our home over there,” said Wasserman, who made a trip to China in March.

With a large Chinese population, Southern California is the right market to gain entry not only into China but the larger Asian market.

Mainland China and Hong Kong combine to rank ninth in foreign-owned and –affiliated companies in the county with 127 business establishments, according to the May 2009 study from the Los Angeles Economic Development Corp. and World Trade Center Association.

Most of the Chinese companies are part of the wholesale trade industry, followed by transportation and warehousing. The county has 2,700 workers earning $158 million in wages at these companies, the study said.

Wasserman tells of talking with an executive with a real estate firm specializing in industrial properties who had spent time recently taking a delegation of Chinese businesspeople around to look at buildings.

“You are going to see more and more of that,” Wasserman said

Asia isn’t the only overseas market the law firm has expanded into.

A former Wasserman, Comden attorney who moved to Israel now brings in business in that country.

There had not been an effort to work with Israeli clients until the attorney suggested it, Wasserman said, who added that with Israelis having business interests all over the world there is a broad base to represent.

One client recently sold a condominium in Israel and while the transaction was recorded in that county all the paperwork was done in the Valley office, Wasserman said.

The Tarzana office has of late taken on an international flair, with callers speaking in Hebrew and Chinese.

“For a firm that doesn’t do immigration work we’re certainly hearing a lot of different languages,” Wasserman said.

The design has been completed and the process to obtain permits has started for what would be the premiere meeting space in the Antelope Valley.

What the City of Palmdale now needs for its planned conference center is money to build it.

And that may not be easy to come by.

In different times the city’s redevelopment agency would have been able to fund the estimated $36 million facility slated to be constructed on seven acres on the southeast corner of Trade Center Drive and Avenue P-4.

But in these dire times the California legislature decided that money held by the redevelopment agencies of Palmdale and other cities would be better spent plugging the state’s deficit.

So Palmdale must wait until the conclusion of a lawsuit filed by the California Redevelopment Association challenging the state’s raid on redevelopment agency coffers.

City officials hope the legal action will be resolved before its first payment of $11.5 million is due in May.

“It is hard for us to do anything not knowing how it is going to land,” said Danny Roberts, the assistant executive director of Palmdale’s redevelopment agency. “We don’t want to make any large commitments.”

The city has already waited a decade to get the conference center project moving. A study done 10 years ago concluded that such a center would be viable and recommended that it be located close to a hotel.

The right site

For all that time, however, there was no site that satisfied that requirement. All existing hotels had no adjacent land on which to build.

Then Sun Development & Management Corp. entered the picture to build an upscale Embassy Suites hotel, which opened in February. Right next door the city purchased 7 acres for the convention center. By the end of March, the city expects to close on a smaller parcel to be used for parking.

The design for the center ties the two buildings together, with the open space of the hotel flowing toward the meeting hall, said project manager Lynn Glidden. (Attempts to reach a representative of Sun Development were not successful.)

The architect Gene Fong Associates incorporated into the design the look and feel of the area it is located.

“We tried to make sure the flavor of the facility was consistent with the high desert,” Roberts said.

Within its 77,000 square feet, the center includes an exhibition hall, an auditorium with seating for up to 200 people, six smaller meeting rooms ranging from 500 square feet to 1,055 square feet, and two smaller board rooms. Using certain building materials and sustainable practices in the construction and operation of the center allows for the city to apply for LEED certification from the U.S. Green Building Council.

While the city will build and own the facility, an outside contractor will operate it for the exhibitions, conferences, and sporting and school events the city expects will take place there.

With both Palmdale and Lancaster marketing themselves as a destination for business meetings and sports tourism the Antelope Valley has lagged in the physical space to host large scale events save for the fairgrounds.

New center needed

That exhibition space has its shortcomings and a new conference center would be welcome, said Josh Mann, executive director of the Antelope Valley Board of Trade.

Each year the board hosts a business outlook conference at the fairgrounds that has drawn crowds of 500 to 1,200 people.

“We have to bring in our own audio visual equipment,” Mann said. “As a professional meeting space there is no hotel immediate adjacent (to the fairgrounds).”

With funding still up in the air, the city does what it can to get the project ready to move forward once the money is there. The Palmdale Planning Commission will consider the project as early as April and permit applications are being prepared for submittal to the Los Angeles County health Department and the city’s building and safety department.

All those measures are being taken to have the project permit ready for when funding becomes available.

Other sources of money are under consideration, such as a federal grant and through naming rights.

But it is still the redevelopment agency that will pick up much of the cost.

“Once that (the lawsuit) is settled we can focus on raising money and our cash flow because we don’t have the state hanging over us,” Roberts said.

A few years ago, Alex Schneider posed a radical idea to the City of Ventura. And it wasn’t just about how good the surf was in the beach town located on the 101 Freeway between Los Angeles and Santa Barbara.

He rallied support to use part of the city’s $5 million Economic development fund to create an incubator for early stage high-tech companies. The goal was to complement local efforts to attract high value firms and jobs to a community not known as a tech hub.

“In Ventura there’s kind of this knee jerk reaction that if you’re a technology company you go to places like Santa Barbara and Westlake Village,” said Schneider.

The city and local chamber of commerce liked the idea. As part of a larger investment strategy, the City allocated $400,000 to launch the Ventura Ventures technology Center.

A little more than a year after the incubator opened, a dozen companies have moved in; it has attracted entrepreneurs with a track record of spinning out multi-million dollar firms; and the center is getting ready to expand.

What does this have to do with the San Fernando Valley? There are no centrally located tech incubators in the Valley and the Ventura center is targeting early stage companies that might otherwise open shop in cities like Westlake Village.

“Our market area is a 35-mile radius around Ventura,” said Schneider, executive director of the incubator, adding the number of fast growing high tech firms in the Valley and nearby Santa Barbara has significantly increased over the years.

Connected to city hall

The incubator consists of more than 10,000 square-feet of space in a building connected to Ventura City Hall. It has office space with 76 workstations spread out among private office suites and open flex space.

Flex space is suited for seed stage companies, with one to three employees, interested in networking with other high-tech companies. Private office suites are available for businesses with four to 12 employees.

Tenants pay $200-$300 per month for each work station, depending on the size of the company. Amenities include: high speed Internet; reception area; three conference rooms; break room with kitchen, cable TV and video games; foosball table; free off-street parking; janitorial services; and utilities.

Jeff Green, founder of a media buying company called The Trade Desk, said it was a no-brainer to open shop at the incubator. He is also co-founder and former COO of AdECN, an online advertising exchange company that Microsoft purchased a couple years ago.

“There’s no reason we can’t go and pay higher rent somewhere else, and there are potential benefits to doing that,” said Green, who lives in the Ventura area. “But the city has made it hard to say ‘No.’”

Green helped grow Carpinteria-based AdECN to 50 employees. He left the company in 2009 and founded The Trade Desk. He said the new venture is well-funded and growing rapidly. It now has six employees and he plans to hire more.

“What it has done for us is we’ve been able to open a company locally,” said Green, who at one point in his career commuted from Santa Clarita to Santa Monica. “It’s great for Ventura because the company is providing jobs, and employees spend locally.”

But what about the Valley as an appealing place for a tech incubator?

Green said luring companies is all about location, and there are a lot of places where a tech incubator would not work. But Woodland Hills, with its close proximity to tech hubs like Pasadena and Santa Monica and high quality of life, would be one of the best places.

Valley-area incubator projects include: College of the Canyons’ i3 Advanced technology Incubator; Valley Economic Development Center’s proposed Pacoima Entrepreneurship and Training Center; and the proposed Gold Coast Bio Center in the Thousands Oaks area.

Andrew Elliot is another entrepreneur sold on the Ventura facility. He founded Lottay, Inc. in 2008, a web site that allows people to give money through PayPal as a “meaningful and fun gift.”

Location and support from the city were key for closing the deal, he said.

“The reason Ventura works well for us is that our team draws from Santa Barbara and Los Angeles,” said Elliot. “The city is also doing a lot to make an environment that works for companies. It’s responsive to requests and needs.”

City investment

The city invested $3 million of its economic development fund with DFJ Frontiers, and the venture capital firm is helping steer businesses to Ventura, said Schneider. The city also created a $1.6 million co-investment fund. Lottay, Inc. received a slice of the latter.

Operating in the incubator has saved the company a lot of money on renting and building-out office space, said Elliot. Tenants can join forces to ask for upgrades. And working five blocks from the beach is pretty nice since many of his employees surf.

The Ventura Ventures Technology Center is getting ready to add an additional 10,000 square feet of space. Officials are exploring the feasibility of offering industrial space. And the center eventually wants to team with a local hospital to offer bio lab space.

The incubator no doubt plays to its strength of being located in Ventura and just blocks from the beach, said Schneider. Its motto is “Where High-Tech…Meets High Surf.” But having a great location is just a starting point.

“The immediate benefit of the incubator is that we’re helping reverse the stigma that Ventura is just a sleepy beach town,” said Schneider. “Now it’s my sole task to build a network in the high-tech economy and get that deal flow in Ventura.”

Zaya Younan is convinced many office real estate markets in the U.S. have hit bottom. And he’s wasting no time shifting Woodland Hills-based Younan Properties back into acquisition mode, which may involve tapping public markets.

“There’s evidence the recession is leveling and deterioration slowing down,” said Younan. “The economy is still weak and fragile. But now it’s like a patient in a hospital being able to move around again. And I expect positive trends in office.”

Younan said the company has spent the past two years strengthening its infrastructure. It increased its head count by 10 percent, including hiring many former Arden Realty executives. Most recently he brought on Robert Peddicord, Arden’s former COO.

The company is currently studying market opportunities in Dallas, Houston, Chicago, San Fernando Valley, West Los Angeles, San Francisco, and Seattle. And Younan anticipates announcing a significant pipeline of acquisitions in the third quarter of 2010.

“We have strengthened our infrastructure to prepare us for the next stage of growth, which we believe is a once in a lifetime opportunity,” said Younan. “It’s a good market for companies that are well capitalized to acquire assets.”

Younan Properties, which he founded in 2002, is a privately held real estate investment and asset management company that acquires and manages Class A office properties in top office markets nationwide.

Its portfolio includes more than 11 million square feet of space valued at more than a billion dollars. And the company employs 150.

From 2002 to 2006, Younan focused largely on acquiring and managing assets in Southern California, including the San Fernando Valley. But the market heated up and cap rates compressed, so the company sold its local assets and focused on markets such as Texas.

Younan Properties now has office buildings in Dallas, Houston, Chicago, Phoenix and the Valley. Two prominent properties in Dallas are the 50-story Thanksgiving Tower and 34-story KPMG Center.

“Texas is a very powerful state, and more importantly it’s located in the center of the country where companies can ship product,” said Younan, adding in a short period of time, the company became one of the largest office owners in Dallas and beyond.

Focusing on Texas and elsewhere allowed it to continue growing while the bottom fell out of California’s commercial real estate market, he said. But California’s strained commercial real estate market is precisely why the company is back to acquiring locally.

In the past two years it slowed acquisition activity nationally. But two deals were done right here in the Valley. One was the WarnerView Corporate Center located at 5959 Topanga Canyon Blvd. in Woodland Hills.

The Valley is not a big office market for the types of properties the company typically acquires – Class A office with 100,000 square feet or more, he said. But there are a few assets the company is interested in, primarily in Encino and Woodland Hills.

“We feel the Valley, Southern California and parts of Northern California were severely impacted and the industry has bottomed,” said Younan. Many investors are waiting for a fire sale to happen, he added, but frankly, the latter is not likely.

If current macro-Economic indicators continue in a positive direction, Younan predicts a significant shift in demand for office and retail in Q2 2010.

Historically, Younan funded growth from internal sources and a small percentage of outside investments. And loose credit markets made it possible to leverage that money. But that strategy is no longer viable, he said, given today’s tight credit markets.

So the company is pursuing a lower cost source of capital for expansion: public market financing, he said. All options are on the table such as doing an initial public offering, becoming a real estate investment trust (REIT), merger and/or acquisition, and others, he said.

Younan is convinced the company is well positioned for such a move, because of all of the work it has done beefing up its executive team and infrastructure, acquiring and managing assets nationally, and showing a track record of results.

Some of the former Arden Realty executives now working for Younan include: Robert Peddicord, chief operating officer; Andres Gavinet, chief financial officer; and Terry Smolich, VP of Human Resources.

At one point, Arden was a publicly-traded REIT and one of the largest office owners and operators in Southern California. General Electric acquired the company in 2006.

“In order to qualify for public financing, you need to be a great operator,” said Younan. “We’re in some of the top 10 office markets, a national company, and we can gauge the best time to invest in certain markets.”

Electro Rent Corp. was named the winning bidder to buy the equipment inventory of Telogy LLC, an electronic test equipment business that folded after filing for bankruptcy.

The $26.7 million purchase price by Van Nuys-based Electro Rent will be adjusted based on changes in equipment purchases and sales since Sept. 30. All Telogy operations will move from Northern California to the San Fernando Valley

The purchase broadens Electro Rent’s equipment base and meets the demand of existing and new customers, said Chairman and CEO Daniel Greenberg.

“Telogy is a highly respected name in our industry, whose business is extremely complementary to our own,” Greenberg said. “We are committed to providing Telogy’s customers with the same tradition of service excellence and responsiveness for which Electro Rent is known.”

Zaya Younan is convinced many office real estate markets in the U.S. have hit bottom. And he’s wasting no time shifting Woodland Hills-based Younan Properties back into acquisition mode, which may involve tapping public markets.

“There’s evidence the recession is leveling and deterioration slowing down,” said Younan. “The economy is still weak and fragile. But now it’s like a patient in a hospital being able to move around again. And I expect positive trends in office.”

Younan said the company has spent the past two years strengthening its infrastructure. It increased its head count by 10 percent, including hiring many former Arden Realty executives. Most recently he brought on Robert Peddicord, Arden’s former COO.

The company is currently studying market opportunities in Dallas, Houston, Chicago, San Fernando Valley, West Los Angeles, San Francisco, and Seattle. And Younan anticipates announcing a significant pipeline of acquisitions in the third quarter of 2010.

“We have strengthened our infrastructure to prepare us for the next stage of growth, which we believe is a once in a lifetime opportunity,” said Younan. “It’s a good market for companies that are well capitalized to acquire assets.”

Younan Properties, which he founded in 2002, is a privately held real estate investment and asset management company that acquires and manages Class A office properties in top office markets nationwide.

Its portfolio includes more than 11 million square feet of space valued at more than a billion dollars. And the company employs 150.

From 2002 to 2006, Younan focused largely on acquiring and managing assets in Southern California, including the San Fernando Valley. But the market heated up and cap rates compressed, so the company sold its local assets and focused on markets such as Texas.

Younan Properties now has office buildings in Dallas, Houston, Chicago, Phoenix and the Valley. Two prominent properties in Dallas are the 50-story Thanksgiving Tower and 34-story KPMG Center.

“Texas is a very powerful state, and more importantly it’s located in the center of the country where companies can ship product,” said Younan, adding in a short period of time, the company became one of the largest office owners in Dallas and beyond.

Focusing on Texas and elsewhere allowed it to continue growing while the bottom fell out of California’s commercial real estate market, he said. But California’s strained commercial real estate market is precisely why the company is back to acquiring locally.

In the past two years it slowed acquisition activity nationally. But two deals were done right here in the Valley. One was the WarnerView Corporate Center located at 5959 Topanga Canyon Blvd. in Woodland Hills.

The Valley is not a big office market for the types of properties the company typically acquires – Class A office with 100,000 square feet or more, he said. But there are a few assets the company is interested in, primarily in Encino and Woodland Hills.

“We feel the Valley, Southern California and parts of Northern California were severely impacted and the industry has bottomed,” said Younan. Many investors are waiting for a fire sale to happen, he added, but frankly, the latter is not likely.

If current macro-Economic indicators continue in a positive direction, Younan predicts a significant shift in demand for office and retail in Q2 2010.

Historically, Younan funded growth from internal sources and a small percentage of outside investments. And loose credit markets made it possible to leverage that money. But that strategy is no longer viable, he said, given today’s tight credit markets.

So the company is pursuing a lower cost source of capital for expansion: public market financing, he said. All options are on the table such as doing an initial public offering, becoming a real estate investment trust (REIT), merger and/or acquisition, and others, he said.

Younan is convinced the company is well positioned for such a move, because of all of the work it has done beefing up its executive team and infrastructure, acquiring and managing assets nationally, and showing a track record of results.

Some of the former Arden Realty executives now working for Younan include: Robert Peddicord, chief operating officer; Andres Gavinet, chief financial officer; and Terry Smolich, VP of Human Resources.

At one point, Arden was a publicly-traded REIT and one of the largest office owners and operators in Southern California. General Electric acquired the company in 2006.

“In order to qualify for public financing, you need to be a great operator,” said Younan. “We’re in some of the top 10 office markets, a national company, and we can gauge the best time to invest in certain markets.”

Tix Corp. narrowed its net loss in the fourth quarter helped by a strong showing from its live entertainment division.

The Studio City-based discount ticket seller, merchandiser and live event producer reported a net loss of $1.3 million, or $0.04 per diluted share, on revenues of $25.7 million for the quarter ending Dec. 31. For the same period in 2008, the company reported a net loss of $33 million, or $1.02 per diluted share, on revenues of $20.7 million.

The live entertainment division brought in the most revenue for the company with $19.1 million. The Tix4Tonight discount ticket division brought in $4.9 million, and the exhibit merchandising arm brought in $1.7 million in revenues.

In 2009, Tix opened two additional discount ticket locations in Las Vegas and bought out competitor All Access Entertainment with five locations in Vegas.

With those new locations selling discounted tickets for Vegas shows, Tix anticipated hitting $100 million in gross sales in 2010, said CEO Mitch Francis.

Luis “Lou” Guerrero has always been good with numbers and working through problems logically. So pursuing a career in accounting was a natural fit, because it gave him the opportunity to help businesses intelligently navigate their finances.

A certified public accountant, he worked with the small business audit group and tax department of Touche Ross & Co. (now Deloitte & Touche) for eight years, and ran his own accounting practice for a stint.

In 1995, he joined the Pasadena-based accounting firm now known as Krost, Baumgarten, Kniss & Guerrero. He helped launch a division of the company, KBKG, Inc., in 1999 to specialize in cost segregation studies. KBKG now also helps businesses obtain green building and Enterprise Zone tax credits, among other services. KBKG has an office in Woodland Hills.

Guerrero said many business owners don’t know about the financial benefits of doing a cost segregation study and how to go about obtaining other tax credits. As a result, they’re missing out on thousands, if not millions, of dollars in increased cash flow.

Question: What is a cost segregation study?

Answer: Cost segregation is a tax savings tool that allows companies and individuals who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.

In general, it’s easy to identify furniture, fixtures, and equipment that are depreciated over five or seven years for tax purposes. However, the studies go far beyond that by dissecting construction costs that are usually depreciated over 27-and-a-half or 39 years.

The goal is to identify all construction related costs that can be depreciated over five, seven, and 15 years. For example, 30-90 percent of the total electrical costs in most buildings can qualify as personal property that’s eligible to be depreciated over five or seven years.

Reducing tax lives results in accelerated depreciation deductions, reduced tax liability, and increased cash flow. Conducting a quality study involves a review of cost detail and blueprints, site inspection, photo documentation, cost estimation, and preparation of a report. KBKG works with a team of engineers and tax experts.

Q: What’s the financial benefit of doing this type of study?

A: The depreciation for a property with a cost segregation study allows for a significant increase in deductions within the first five years.

Assuming a combined tax rate of 41 percent and a return on investment factor of eight percent, every $100,000 of costs shifted from 39-year property to five-year property creates a present value tax benefit of approximately $22,000. Every $100,000 of costs shifted from 39-year property to 15-year property creates a present value tax benefit of approximately $12,000.

Q: What types of clients/properties are best suited for cost seg studies?

A: Anybody who has paid taxes over the past five years and acquired a building in the past 15 years. And any structure used for business or as rental property is eligible. But cost segregation studies are not as relevant for buildings somebody has owned for a long time. The longer you’ve owned a building, the lower the present value benefit.

If you’re planning on holding the property for only a few years, it probably doesn’t make sense. In general, clients plan on holding the property for three, four, five years or more. And every time a property exchanges, a study can be done again. It’s a present value play. You’re changing the timing to get tax deductions now versus later on.

Q: Why are you focusing on cost seg?

A: The original accounting firm, now known as Krost, Baumgarten, Kniss and Guerrero, was founded in 1939 in Pasadena. Over the years it specialized in restaurants. One restaurant in particular had 20 locations. After doing cost seg studies on those properties, the client was able to secure a $2 million refund.

Up until the late 1990s, there were hundreds of court cases about cost segregation and the IRS was fighting the concept. But around 1997, a landmark case (Hospital Corporation of America vs. Commissioner) provided the legal support to use cost segregation studies for computing depreciation. That’s when we jumped in.

We created two separate companies, KBKG, Inc. being the one that specializes in cost segregation. And we realized the best way to sell the concept was to do it directly to other CPAs. So we started by offering a lot of continuing education to CPAs. In turn, they would often hire us or their clients would hire us to do the studies.

Q: KBKG also specializes in helping businesses secure green building and Enterprise Zone tax credits. Can you tell me more about these?

A: The most common green tax credit is the residential 45L tax credit, which is applicable to residential developers such as those building single family homes, apartments or condominiums. All apartment and residential condo developments completed on or after August 8, 2005 are worth assessing. They can receive up to $2,000 per unit for things like reductions in electricity and gas usage, increased insulation and using Energy efficient appliances.

Q: How do business owners access the credit?

A: A study needs to be done to look at the Energy efficiency of the property. We conduct an engineering-based study to determine how many units qualify for the tax credit. That study is then given to the client’s CPA who applies for the credit. Most residential construction in California completed after Aug. 8, 2005 qualifies because we have such strict building standards.

Another green tax credit is Section 48. Business owners can get a credit worth up to 30 percent of the amount they spent on equipment such as fuel cell properties, small wind energy, and equipment that heats or cools a structure with solar energy.

And since many businesses are not paying as much taxes right now, because of the economy, the federal government is offering grants in lieu of the credits for the same amount of money.

Q: What about Enterprise Zone credits?

A: This is another one of those often overlooked credits that can be very useful to businesses paying California taxes. The Enterprise Zone credit approves up to $37,440 in state credit over a five-year period for each eligible employee. And there are a lot of opportunities in the San Fernando Valley for getting Enterprise Zone credits.