$3.4M in 1st Year Depreciation and $1.3M in Retirements on Renovations

$6.2M Expansion to Accommodate Tenant Changes for a 20-Year-Old Retail Plaza

The owners of a grocery/retail shopping center hired Meridian to conduct a cost segregation analysis on the improvements, renovation and expansion of an 80,000 square foot retail plaza the client acquired 20 years earlier.
The $6.2 million renovations included the following:

• Conversion of the grocery store tenant spaces into four white box spaces
• Tenant allowances for the suites
• Ground-up construction of a 4,600 square foot shell building
• Tenant allowance for a new restaurant chain store
• Improvements to the entire site infrastructure

Engineering Process

Our construction engineers administered a complete analysis of all available construction drawings and specifications, contractor payment applications, invoices, and other supporting documentation for the original purchase and current renovation. We prepared a comprehensive analysis of all accumulated data on a property unit basis for cost allocation purposes within the provisions of the Internal Revenue Code. We consequently conducted an onsite inspection to verify, photograph, and document the property. Finally, our internal audit team of senior construction engineers and tax specialists reviewed and certified its completeness and accuracy.

Study Results

Our work provided first year depreciation of $3.4 million and a $1.4 million increase to first year cash flow. Furthermore, we identified $1.3 million in dispositions, enabling the client to reduce the remaining basis on the original purchase. This acceleration in depreciation allows the property investors to reduce their tax liability. Additionally, by disassembling the building asset into components, our cost segregation methodology accredits our clients’ easy identification of future benefits of abandonment, repairs, routine maintenance and overall asset management as tenants change over the life of the asset.