LarsonAllen\’s 2009 Orlando and Fort Lauderdale Surety Forum Presentation

1. LARSONALLEN
CONSTRUCTION & REAL ESTATE
CONSTRUCTION ACCOUNTING AND FINANCIAL REPORTING
FORUM
October 28, 2009 – Orlando
October 29, 2009 – Ft. Lauderdale

2. CONSTRUCTION ACCOUNTING AND FINANCIAL
REPORTING FORUM
• 4:25 Introduction Sue Christopher
• 4:30 Valuation Issues and Succession Planning Les Eiserman &
John Reed
• 4:45 Auditing and Accounting Standards Update Michael Kosinski
• 5:00 Tax Update Clint Freeman
• 5:15 FIN 46 – Current Issues Jack Rybicki
• 5:30 Banking and the Credit Markets Jerry Felicelli
• 5:45 Current State of Construction Market Sue Christopher &
Tim Skelly
• Open Discussion and Closing Sue Christopher
• LarsonAllen Construction & Real
Estate Group
• Social

3. CONSTRUCTION ACCOUNTING AND FINANCIAL
REPORTING FORUM
• Questions and open discussions are
encouraged
• Opportunity to share with one another

4. Business Valuation Issues and
Succession Planning Strategies
Presented by Les Eiserman
and John Reed

5. Valuation of a Construction Company

6. Valuation vs. Appraisal
• Valuation
“To establish a value for an entire or partial interest in
a closely held business or professional practice,
taking into account both quantitative and qualitative
tangible and intangible factors associated with the
specific business being valued.”
• Appraisal
“To establish a value of certain specific tangible
assets based upon special market knowledge,
education, and vocational training possessed by the
appraiser.”

7. Common Approaches to Valuation
• Asset Approach
• Market Approach
• Income Approach

8. Asset Approach
• Useful for
Asset-intensive businesses
Real estate holding companies
Entities that hold mostly securities (or cash)
Some contracting businesses that bid for work

9. Market Approach
• Guideline publicly traded company method (GPTCM)
Based on similar and relevant comparable entities
Adjustments are often necessary to make the comparables
more similar
• Comparative transaction method (CTM)
Based on actual transactions of similar entities
• Limited for Contractors

10. Income Approach
• Discounted earnings method
-Future expected earnings
-Apply discount rate
-Terminal value added
-Present value
• Capitalization of earnings method
-Historical results used when future expected to be similar
-Use capitalization rate (excludes growth factor)

11. What is Discount Rate?
• The rate of return, or cost of capital,
necessary to convert a future income stream
into present value
• Cost of capital
The expected rate of return an investor requires in
order to attract funds to a particular investment

12. Items to Consider
• Completed Contract versus Percentage of
Completion
• Type of Construction
General
Specialty
• Source of Revenue (Now and Future)
• Economic Activity (State and Local)

13. Rules of Thumb Method
• May use a multiple or a combination of
approaches—Market/Income/Asset
• Common in some industries
• Do not take into consideration the unique
characteristics of the subject—uses “average”
• Sometimes used to support other approaches

14. Rules of Thumb - Examples
• Construction (general) - 1 to 2 times EBITDA
• Construction (electrical) - 2 times SDE plus
inventory
• Construction (heating & AC) - 2.75 times
EBITDA
• Construction (specialty trade) - 1 to 2 times
EBITDA

15. Discounts & Premiums
• Discount for lack of control
• Premium for control
• Discount for lack of marketability
• Key person discount
• They depend on the interest to be valued and
the techniques used to establish the value
conclusion

16. Discounts vs. Premiums
Value of Control
$10.00 per share Shares
A combined
40% 40% minority interest
minority discount Control Minority
discount Premium or Discount
and a 40% 66 2/3 control
discount for premium Value of minority
lack of shares if freely traded
control $6.00 per share on an active public
equals a market ("publicly
total of 64% 40% discount for traded value" or "stock
discount lack of marketabilty market value"
from value
of control $3.60 per share
shares Value of non-marketable
minority shares

17. Current Valuation Issues
• Tax affecting S-corporations
– Should we or shouldn’t we?
• Built-in gains
– The buyer may have to pay taxes on gains in the future
• Fair value vs. fair market value in divorce
– State by state
• Goodwill
– How is it measured?
– Personal vs. professional goodwill
• Weighing of recent economic downturn

18. Succession Planning Concepts
Ownership Transfer and Business Succession
• Ownership transfer can occur with or without a
change in management through the use of
voting and nonvoting shares.
• Business succession can be planned with or
without an immediate ownership transfer
• The process of business succession begins by
widening the concentration of management
responsibility and decision making among an
assembled team

19. Why Consider It Now?
•Business valuations historically low
•Interest rates low
•Bonding is more difficult
•Having a succession plan in place is attractive
to sureties
•Owner estate tax planning

20. Ownership Transfer Strategies
• Sale to an outside buyer or consolidator
• Employee Stock Ownership Plans (ESOP)
• Transfer at death or disability through an
insurance contract
• Developing buyer(s) from within / becoming a
Succession Organization. Hardest part usually
is identifying and developing the new leader

21. Outside Sales and ESOPs Strategies Becoming
Less Popular In Today’s Market
• Limited market for construction companies
today.
• Contractor consolidators out of business
• Venture capital firms generally not interested
in contractors.
• Employee Stock Ownership Plans (ESOPs)
are less viable today than they once were.

22. Ownership Transfer Strategies
• NewCo - Create a new company and wind down the old
company. (Often there are FIN 46R issues. Sometimes
done to create a new contractor with minority status.)
• Insurance funded transfer at death or disability
• Bargain sale
• Significant bonuses to buyer used to purchase seller’s
stock
• Phantom stock or nonqualified deferred compensation
• Gifting using annual and lifetime gift exclusions

23. Grantor Retained Annuity Trusts (GRATs) –
Another Strategy To Consider
• An estate planning transfer technique
• Not a new strategy, but one that can fit well in today’s
economy.
• Transfer of shares from one shareholder to other(s)
• Utilizes IRC 7520 rate for month of transaction, which in
2009 is almost ½ of what it was in 2006 and 2007.
• Death during term results in estate tax inclusion.
• Not a good technique for transfer to grandchildren as
GST allocated at end.
• Can zero-out, resulting in no gift.
• Authority for GRATs is defined in IRC.
• Valuation self-adjusts.

24. Zero-Out GRAT
• Owner transfers (often nonvoting) stock to
GRAT
• Owner retains an annuity interest equal to
assets transferred, resulting in zero gift.
• If assets appreciate more than IRC 7520 rate,
(2009 rates have ranged from 2.0% to 3.4%,
currently at 3.2% for October 2009), all
additional value is transferred to new owner
without using any unified credit.

25. Sample GRAT Calculation
•Fact pattern – S corporation contractor worth
approximately $3,000,000. Net income
$250,000. Tax on S corporation income
handled through owner withholding.
•Contractor wishes to make key employee a
10% to 15% owner.
•Normal shareholder agreements put in place.
•Uses a Zero-Out GRAT as the transfer
vehicle.

26. Sample GRAT Results
•Shareholder contributes 35% of company in non-
voting shares to GRAT in February 2009 in exchange
for an annuity of $166,788 per year for 5 years (5 year
annuity payment at 2%).
•New owner’s distributions (35% of $175,000) paid to
old owner as partial funding of annuity. Difference
between annuity value and distributions received paid
in shares of stock (shares returned).
•At end of 5 year period, new owner retains 13%
ownership in company.
•Zero gift, so no gift tax paid or exclusion used

27. Zero-Out GRAT Calculation

28. Zero-Out GRAT “Sweet Spot”
• Low IRC 7520 interest rate
• Income generates cash flow available to distribute
without a net depletion to equity
• No debt service in company
• Equity growth (after distributions) greater than the
IRC 7520 rate
• Ability to justify a larger valuation discount

29. Questions?
Les Eiserman, CPA, CVA
leiserman@larsonallen.com
407.802.1203
John Reed, CPA, CITP
jreed@larsonallen.com
239.226.9903
10/27/2009
29

30. Auditing and Accounting Standards
Update
Michael Kosinski, CPA
mkosinski@larsonallen.com

31. Level of Assurance
Review Audit
Level of Assurance Limited Opinion
Deliverables
-Financial Statements Yes Yes
-Written Communications None Material Weaknesses and Significant
Deficiencies
Analytical Review Yes Yes
Ratio Analysis Yes Yes
Internal Control Evaluation No Yes
Direct Verification No Yes
Substantive Tests No Yes

32. Codification
• Accounting standards now are referred to
through a single structure
• Impact cosmetic for users of the financials
however new terms maybe unfamiliar
• Example
– Old SOP 81-1
– New ASC 605-35-25

33. Impairment
• Was a large issue last year
• Still is, however most companies should have
recognized impairment losses in prior year to
readjust to the new environment
• Exposure still remains for contractors who have
side investments in real estate and those who
did not fully adjust in 2008
• Be aware of equipment asset levels that do not
support the business activity
• Held and Used vs Available for Sale

34. Uncertain Tax Positions (FIN48)
• Deferral is not available
• Income attributable to the owner is not income tax
• C Corporations
– More likely then not that the position will hold
◊ Failure to file
◊ Underreporting taxable income
◊ Over reporting deductible expenses
– Inventory of tax positions
– Probability of tax positions holding
– Calculate a tax cushion and add a disclosure
– Disclose interest and penalties
– No tabular reconciliation of unrecognized tax positions
• Examples
◊ Failure to file
◊ SALT
◊ Unreasonable compensation
◊ Disallowance of an S election

35. Fair Value
• Three Levels of Fair Value
– Level 1 – Quoted market prices in an active liquid
market (stock exchange)
– Level 2 – Observable information for similar items in
active or inactive markets
– Level 3 – Unobservable inputs where the markets do
not exist. Values are very subjective. (Client estimate)

36. Subsequent Events
• Recognized –
– “events or transactions that provide additional
evidence about conditions that existed at the date of
the balance sheet, including the estimates inherent in
the process of preparing financial statements”
• Nonrecognized –
– “events that provide evidence about conditions that
did not exist at the date of the balance sheet but
arose subsequent to that date”

37. On the Horizon
• Lease Accounting
– Largest off balance sheet financing transaction class
◊ Operating Lease – No balance sheet impact but disclosed
◊ Capital Lease – Lease obligation and asset recognized
– Lease obligations will be reflected on the balance
sheet
– Largest impact will be ratio comparisons and
benchmarks

38. Lease Example
Old New
Recognition of a $300,000
lease obligation currently
reflected as an operating Assets $ 100,000 $ 400,000
lease
Liabilities 75,000 375,000
Equity 25,000 25,000
$ 100,000 $ 400,000

39. Going Concern
• The Board decided that the time frame for the
disclosures of short-term and long-term risks as well as
the assessment of an entity’s ability to continue as a
going concern would be as follows:
– Available information about the foreseeable future, which is
generally, but not limited to, 12 months from the end of the
reporting period. Certain events that are expected to occur or are
reasonably foreseeable beyond 12 months and would materially
affect the assessment are considered part of the foreseeable
future. The time frame beyond 12 months is limited to a practical
period of time thereafter in which significant events or conditions
that may affect the evaluation can be identified.

40. Going Concern
• Impact –
– The ability to hold financial statements for 12 months
to avoid a going concern opinion will be eliminated
– More going concern opinions may be issued
• Evaluation
– Reoccurring operating losses
– Loan defaults
– Legal proceedings
– Loss of business elements
– Review management’s plan to stay in business

41. Tax Update
Presented by
Clint Freeman, CPA, MBT

42. Cash is King
• Cash Positive
– Tax Deferral Methods of Accounting
– Other Deferral Opportunities
– Net Operating Loss Carrybacks
• Cash Negative
– Tax Deferral Methods of Accounting
– AMT Tax For C Corporation Using Net Operating
Losses
– Double Tax Payment March/April

43. Tax Deferral Methods
• At Least Two Methods of Accounting
• Deferral Methods of Accounting
– Cash
– Completed Contract
– NEW – Accrual less Retention for Non-Long-Term
Contracts (Automatic Change)
– Others

44. Knowing Your Tax Deferral
• Decrease in Tax Deferral
• Scenario
– Book loss
– Decrease in volume
– Decrease in tax deferral
– Taxable income
– Tax due

45. Decrease in Tax Deferral
Balance Sheet C/Y P/Y
Cash $ 10,000 $ 50,000
A/R 200,000 700,000
Total Assets $ 210,000 $ 750,000
A/P $ 40,000 $ 100,000
Accrued Expenses 10,000 20,000
Net Under/Overbillings 10,000 50,000
Note Payable 100,000 400,000
Equity 50,000 180,000
Net Liabilities & Equity $ 210,000 $ 750,000
Tax Deferral $140,000 $ 530,000

46. Decrease in Tax Deferral
Current year book loss - ($130,000)
Prior year deferral - $530,000
Current year deferral - ($140,000)
Current year taxable income - $260,000
Tax Due (At 40% combined rate) - $104,000

47. Other Deferral Opportunities
• Falling Below $10 Million 3 Yr Avg. Gross
Receipts
• Prepaid Expenses
• Other Automatic Method Changes
• Increased Section 179 and Bonus Depreciation

48. Planning When FMV Lower
• Good Time To:
– Consider S Corporation Election.
– Succession/Estate Planning
◊ Gift Shares to Next Generation

49. Questions?
Clint Freeman, CPA
cfreeman@larsonallen.com
813-286-2477
10/27/2009
49

50. FIN 46 Update
Jack Rybicki, Principal
Tampa Office

51. Consolidation (SFAS 167 / ASC Topic 810)
• FIN 46R amended by SFAS 167
• SFAS 167 guidance codified in ASC Topic 810
• Effective in fiscal 2010 for calendar year entities
• Changes-
– New model for determining primary beneficiary
– Reassessment frequency
– Enhanced disclosures

52. Variable Interest Entities
• Entity whose equity investors do not have
sufficient equity at risk such that the entity
cannot finance its own activities
-or-
• If equity investors lack any of the following:
– Power to direct activities
– Obligation to absorb losses
– Right to receive residual returns

53. Consolidate if… and how…
IF…
• The Company is determined to be the primary
beneficiary
HOW…
• Based on amounts reflected on VIE’s financials
if under common control.
• Based on fair value at the first date the company
becomes the PB if not under common control.

54. Primary Beneficiary Decision
New guidance considers two factors
• First criteria - The power to direct the activities
that mostly impact economic performance;
Qualitative (New)
• Second criteria - The obligation to absorb losses
or right to receive benefits; Quantitative (Old)
Both need to be significant to the VIE to require
consolidation.

55. Shared Power
• No primary beneficiary (and no consolidation) if
power to direct the significant activities is shared
by multiple unrelated parties.
• Power is considered Shared when:
– More than one unrelated party has power to direct the
significant activities of the VIE, and
– All decisions about significant activities require
consent of each party sharing power

56. Reassessment of PB Decision
• Old standard – only in the event of certain
explicit triggering events that co
• New standard - Reassess conclusion
periodically

57. Disclosures
• Significant judgments and assumptions made in
the primary beneficiary analysis
• Nature of restrictions on assets and liabilities for
which creditors have no recourse against PB
• Nature of, and changes, in the risks associated
with involvement in VIE
• How involvement in VIE affects financial
position, financial performance and cash flows

58. Questions?

59. State of Community
Banking
2009
Jerry Felicelli
Principal

60. Ben Sargent
December 23, 2008

61. Things to be Concerned About
• Economy and Regulatory
– “Problem” Bank list at 15-year high
– FDIC insurance premiums
– Regulatory attitudes (SCAP Program –Stress Test Worst Case Loss Rates)
• Credit Risks
– Record high loan loss provisions and net charge-off rates (2.55% - Q2 2009 vs.
1.95% - Q4 2008) set a record
– Noncurrent loan rate rises to record levels (4.35% - Q2 2009 vs. 3.76% - Q1
2009)
– Institutions continue to add to loan loss provisions
– Commercial real estate concentrations
– Consumer
• Asset Valuation
– Fair Value (OTTI)
– Goodwill
– OREO
• Capital
– Availability of Capital
– Cost of Capital

62. Six Worst Years of Stock Performance Since 1925
Year Bank Stocks S&P 500
1931 -51% -42%
2008 -50% -38%
1930 -42% -28%
1990 -41% -8%
1974 -37% -32%
1993 -32% 40%

63. Profile of a Failing Bank
• 416 Banks on FDIC “Problem List” as of June
30, 2009
– 98 Bank Failures as of October 6, 2009 compared to
25 in all of 2008.
• On-going operating losses
– 28.3% of all Banks reported a 2009 2Q loss
• Undercapitalized
• CAMELS 3-5 rating with enforcement action
• Classified assets approaching or exceeding
100% of capital

64. Texas Ratio by State
(Texas Ratio= Nonaccrual +OREO/ ALLL +Tier 1 Capital
Total Banks in Total Banks in
# State # State
ALASKA - 7 MONTANA 1 75
ALABAMA 5 151 NEBRASKA 1 239
ARKANSAS 2 135 NORTH CAROLINA 1 106
ARIZONA 10 47 NORTH DAKOTA - 94
CALIFORNIA 19 288 NEW HAMPSHIRE - 24
COLORADO 2 146 NEW JERSEY 2 122
CONNECTICUT 1 55 NEW MEXICO 2 52
WASHINGTON DC 1 5 NEW YORK 4 191
DELAWARE - 31 NEVADA 7 32
FLORIDA 48 252 OHIO 6 245
GEORGIA 58 265 OKLAHOMA 1 250
HAWAII - 9 OREGON 6 32
IOWA 3 373 PENNSYLVANIA 3 222
IDAHO - 18 RHODE ISLAND 1 12
ILLINOIS 35 614 SOUTH CAROLINA 2 88
INDIANA - 155 SOUTH DAKOTA 2 84
KANSAS 6 337 TENNESSEE 2 195
KENTUCKY - 199 TEXAS 3 636
LOUISIANA 1 157 UTAH 9 56
MASSACHUSETTS 1 171 VIRGINIA 2 118
MARYLAND 5 88 VERMONT - 14
MAINE - 29 WASHINGTON 15 81
MICHIGAN 7 142 WISCONSIN 4 278
MINNESOTA 19 406 WEST VIRGINIA - 66
MISSOURI 11 338 WYOMING 1 38
MISSISSIPPI - 95 Total 309 7,863
FDIC Quarterly Banking Profile, Second Quarter 2009

65. FDIC – Deposit Insurance Fund
(In Billions) 6/30/09 E 2008 2007
Gross Assessments $ 11.70 $ 4.40 $ 3.70
Less One-Time Assessment Credit - (1.50) (3.10)
Special Assessments 5.60
Prepaid Assessmnets 45.00
Total Assessments $ 62.30 $ 2.90 $ 0.60
Fund Balance $ 10.30 $ 17.30 $ 52.40
Expected FDIC Losses Next 5 Years $ 100
Reserves for Future Failures - 6/30/2009 $ (32)
E - Estimated
1.15 times insured deposits at 6/30/2009 = $55 Billion

66. * 106 banks in Florida with nonperforming loans of > 5% of total assets at
June 30, 2009.

67. Profitability by State – 6.30.09
Non Profitable Banks by State
# State Total % Nonprofitable # State Total % Nonprofitable
1 Alabama 147 35.25% 26 Missouri 321 21.81%
2 Alaska 5 0.00% 27 Montana 73 15.07%
3 Arizona 55 78.95% 28 Nebraska 229 13.10%
4 Arkansas 130 11.77% 29 Nevada 35 74.29%
5 California 284 57.65% 30 New Hampshire 9 55.56%
6 Colorado 138 24.33% 31 New Jersey 67 47.76%
7 Connecticut 24 28.57% 32 New Mexico 49 12.24%
8 Delaware 24 41.91% 33 New York 130 27.69%
9 District of Columbia 5 66.67% 34 North Carolina 77 46.75%
10 Florida 264 70.43% 35 North Dakota 92 11.96%
11 Georgia 304 56.79% 36 Ohio 154 13.64%
12 Hawaii 7 33.34% 37 Oklahoma 247 6.48%
13 Idaho 16 66.67% 38 Oregon 35 60.00%
14 Illinois 564 24.50% 39 Pennsylvania 140 27.14%
15 Indiana 109 17.42% 40 Rhode Island 7 42.86%
16 Iowa 358 13.30% 41 South Carolina 67 44.78%
17 Kansas 327 18.95% 42 South Dakota 82 14.63%
18 Kentucky 180 13.57% 43 Tennessee 181 30.94%
19 Louisiana 133 9.49% 44 Texas 590 13.22%
20 Maine 9 3.45% 45 Utah 59 40.68%
21 Maryland 52 34.41% 46 Vermont 9 0.00%
22 Massachusetts 36 18.02% 47 Virginia 105 29.52%
23 Michigan 133 38.25% 48 Washington 80 62.50%
24 Minnesota 403 21.83% 49 West Virginia 61 8.20%
25 Mississippi 90 13.68% 50 Wisconsin 247 14.57%
51 Wyoming 36 16.67%

68. FDIC Quarterly Banking Profile, Second Quarter 2009

69. Year End
6.30.09 2008 2007 2006
Florida Banks 28% 38% 59% 145%
Florida Banks
31% 41% 61% 225%
< $1B
Atlanta District 55% 70% 92% 190%

70. Allowance for Loan and Lease Losses
Total Portfolio (Commercial + Retail): ALLL / Total Loans & Leases

71. Florida banks
2.04%

72. Florida banks
3.05%

73. Florida banks
8.80%

74. Capital & Liquidity Issues
• Capital & Liquidity
– Capital is King!
– Build capital levels relative to risk profile (stress
testing)
– 24 Florida Banks received TARP ($307 million)*
– TRUPs non existent, subordinated debentures
– Relatively low valuations
– Well capitalized buyers can take advantage of failed
bank opportunities and branch spin-offs
– Treasury and FDIC programs have provided liquidity
– Extinguishment of TRUPS at a discount
*As of 10/01/09

75. TARP Capital Purchase Program
• Can obtain up to 3% of risk-weighted assets
• Preferred stock pays 5% dividend for 5 years;
thereafter it increases to 9% (non-voting)
• Treasury gets warrants up to 15% of funds
committed as preferred stock
• Negatives
– Government ownership
– Warrants represent common stock
• Positives
– Use capital to make loans or expand operations

76. TARP Capital Purchase Program
• Treasury has invested $365 billion in 700
institutions
• 34 Banks did not pay their quarterly August 2009
dividend payments ( largest CIT and AIG)
• 40 Banks have totally repaid their TARP
principal.
• Treasury has $134 billion to 660 Banks
outstanding at 10.07.09*
* Does not include AIG

77. Regulatory Issues and Events
• Fed Purchases of Assets (Public Private Investment
Program)
• Capital Assistance Program (Banks greater than $100
billion were required to participate)
• TLGP, TARP, TALF
• Prevent systemic risks and “Too Big to Fail”
• FDIC Insurance
• Liquidity Management and Contingency Funding Plans
• Capital
• Allowance for Loan Loss Reserves
• Loan Participations Purchased

78. Execution Priorities for Community Banks
• Capital & Liquidity
• Regulatory Issues and Events
• Credit Quality and Loss Mitigation
• Build the Right Team
• Growth, Profitability and Cost Efficiency
• Customer Service

79. Accounting Hot Topics
• Business Combinations (SFAS 141R)
• Fair Value Accounting Issues (OTTI)
• Loan Participations
• Deferred Tax Assets
• Goodwill Impairment

80. The Construction and Real Estate
Industry
What’s Next?
Timothy J. Skelly, CPA, Principal
Sue Christopher, CPA, Principal

81. As 2009 Winds Down…..
• Excess capacity of contractors continues to
pressure margins
• Increased pressure to cover fixed costs; cannot
cut expenses and still operate
• Quality of backlog is a concern
• 2009 backlog carryover to 2010 severely
diminished from prior year carryover levels
• Unemployment at Architectural and Engineering
Firms exceeds 50-60% in certain markets.
• Private development experiences lack of
demand and available financing.

82. 2010 – Where’s the Market?
• Specialty and diversified contractors are
in the best position to succeed
• Public/Government work will become a
necessity … and even more competitive
• Risk/Reward for contractors to travel and
seek new markets will escalate
• Benefits of sound financial management
and history will be realized
• Commercial construction market will
start/continue to shake out

83. Financial and Credit Markets
• Collateral position of many contractors has been
impaired – receivables/equipment / real estate
• Successive years of losses and negative cash flow
impact underwriting
• Less flexibility with loan covenants, default provisions
and guarantees
• Greater focus on cash flow and debt service
• Generally, more aggressive action expected as banks
clean up credits and reduce exposure/risk
• Real estate involvement will continue to saddle
contractors

84. Commercial Real Estate – the Parallel to Residential?
• Vacancy will continue to
increase
– Shadow vacancy
– Compounded by
Decreasing rents and
increasing cap rates
– Values may decrease
another 25-35% from
today’s values
– Defaults on commercial
mortgages will increase

85. Commercial Real Estate – the Parallel to Residential?
• Sentiment that this is not a sustainable recovery
– rather more of a fragile recovery
• No real market mechanism to clear the bench –
may take up to five years to normalize
• Downward pressure on rental rates and lack of
demand – hard to establish true market
• Mismatch of lower market rates and cost to
lease up

86. Possible Survivors?
• Public REITS and private equity groups
– Replenish capital positions in real estate portfolios
– Defense, stabilize portfolios
• Commercial Real Estate
– $2 trillion industry
– >$45 billion on the sidelines – waiting for market
fundamentals to return

87. Stimulus – Is it working?
• Commitments vs
delivery of contracts
• 2010 activity?
• More incentive on the
way?
• Agencies are getting
more bargains – as a
consequence and
expanding scopes
through changes.

88. Green Movement
• Alternative Energy
– Wind and ethanol –
Hit / Miss
• LEED Building
– No one wants to be last buyer of
non LEED building
– Banks not paying much attention
– buyers are
– Government & Non Profits are
better market than private.
– AGC initiative to increase SEC
179D deduction or convert to
credit.

89. What’s Next for Contractors?
• Merger and acquisition
activity
• Start ups and emerging
businesses
• Roll ups and
consolidations?
• Back to financial
fundamentals – cash flow
and liquidity
• Competitive market will
demand cost control and
efficiencies.

90. LarsonAllen Construction and Real Estate Group
Nationally Oriented CPA & Business Consulting Firm
Established in 1953 by Rholan Larson & John Allen
History & Focus on Privately-Owned, Owner-
Operated Businesses
Primary Advisor Relationship – “Total Client
Service”
Managed by the “LEADERS” culture
Ranked in the top 20 CPA firms in the U.S.;
approximately 1,400 employees; 30 offices in 11
states

91. LarsonAllen Locations
Upper Midwest
Minneapolis, St. Cloud, Austin, Alexandria and
Brainerd, Minnesota
Eau Claire, Wisconsin
Midwest
St. Louis, Missouri
Dallas, Texas
East
Philadelphia, Pennsylvania
Washington DC
Boston, Massachusetts
Southeast
Charlotte, North Carolina
Fort Myers, Naples, Orlando and Tampa, Florida
Southwest
Phoenix, Arizona
In addition, there are nine client service centers.

92. Construction & Real Estate Group
Construction and Real Estate industry
commitment –
Focus on industry knowledge and practice development
Dedicated construction group staff of 100 professionals
Firm-wide
Specialized A&A and tax training for all staff and principals
Construction industry association memberships and active
involvement
Serving construction and real estate clients
ranging from startups to companies with
revenues greater than $1 billion covering a
wide variety & type of contractors and real
estate entities.