Offices, shopping centers, industrial buildings and apartments were all hot ticket properties around Los Angeles in 2004. Investment dollars, inspired by continued low interest rates, and a growing perception of property as a safe alternative to the stock market, piloted the commercial property investment market to new heights last year.

Check out these figures: Commercial property buyers spent more than $4.2 billion on office buildings in LA County last year, according to Cushman & Wakefield Global Real Estate Services. That’s 6 percent more than 2003, and double the 2001 figure.

“There have been gobs and gobs of money thrown at real estate,” confirms Nicolas Buss of PNC Real Estate Finance.

Sales are up, prices are up. The Los Angeles Times reports that the average price per foot for office buildings rose to $196 in 2004, up from $156 in 2003.

Meanwhile, prices downtown hit $350 a foot in 2004. Sale prices are above $400 per square foot in downtown Santa Monica.

A member of the Action Apartment Association in Santa Monica called downtown, "A real sucker's bet. Market conditions don't justify the higher prices."

Office vacancy rates in downtown Los Angeles fell 2 percent to 17.3 percent in the third quarter 2004, but that's still well above the 10 percent level that the office building rental experts consider equilibrium. Around the county, vacancy rates came down 2 percentage points to 15.5 percent. The decline in vacancy rates didn't boost office rents, which continue to be flat throughout LA County.

LUCKY HOMEOWNERS - THE IRS HAS UNITED SECTION 121 AND THE 1031 EXCHANGE
 
The Internal Revenue Service has an intriguing new gift for property owners, an evolution of tax code sections 1031 and 121. New guidelines have been adopted allowing investors who move and use their old home as a rental property to eventually "buy down" and take cash out of the deal without facing federal income tax liability. This is an amazingly progressive step by the IRS because this money - known as "boot" in tax circles - had previously been taxed.

The "like-kind" exchange rules of IRS Section 1031 allow individuals and corporations to trade in existing business and investment property for new property of equal or greater value -- and defer the capital gains tax along the way.

IRS code Section 121 lets you exclude $250,000 of gain if you file a single-return and up to $500,000 excluded if you file a joint-return when you sell your personal residence if you have lived there for two of the last five years.

"For the first time, the IRS is allowing taxpayers to mix the rules on principal residences and investment property," notes Rob Keasal, accountant and real estate tax specialist. "The new rules do not apply to all 1031 exchanges, only those that feature the use of a taxpayer's former primary residence."

What gives this new guideline so much appeal is that for the first time, taxpayers are allowed to take cash tax-free out of a property exchange. The new rule is retroactive to Jan. 27, 2005.

The new primary home-investment possibility provided by the IRS that includes depreciation deductions goes something like this…