commercial real estate: Hidden Dangers of Partnerships and the 1031 Exchange
- 01/13/10 06:41 AM
The Section 1031 "like-kind" exchange is a legal tool utilized by many investors to upgrade their real estate holdings while deferring taxation. Theoretically, investors can exchange properties indefinitely without incurring capital gains tax. However, complications can arise when these investments are made by partnerships. It is almost inevitable that somewhere along the process, a partner will want to "cash out" their investment. This can expose the entire partnership to substantial tax liabilities. If in order to satisfy the exiting partner, the partnership's property is sold and proceeds distributed, the remaining investors will be subject to substantial taxation on any gains. … (3 comments)
commercial real estate: Interview: Telly Fathaly
- 01/07/10 06:01 AM
For this weeks blog I interviewed Telly Fathaly, Vice President at Sterling Real Estate Capital. 1.) Hi Telly can you tell us a little about yourself and Sterling? Thank you for this platform to communicate with your readers. Sterling Real Estate Capital, LLC is a Private Equity Advisory Firm that specializes in raising cash for Commercial Real Estate transactions. We serve as an intermediary between high net worth / institutional investors and operators / owners of Commercial Real Estate. Our team has an extensive industry background with principal, private equity, brokerage and Wall Street experience. We have a diversified and … (0 comments)
commercial real estate: 1031 Exchange Case Study Update- Oil and Gas
- 12/23/09 07:13 AM
The Benefits of Oil and Gas Royalties: In the past three months Exchange Solutions Group has been witness to a most interesting and ingenious trend. A group of savvy local real estate investors, who owned fully depreciated rental property (Adjusted Basis of practically Zero), desired to defer Capital Gains but lacked the optimism to reinvest locally in rental real estate. To solve this problem, these investors bought oil and gas royalty interests that qualify for 1031 exchange treatment (yes, royalties are "like-kind" with rental real estate). These investments were cash flow rich and chock-full of depletion (depreciation's equivalent in the mineral interest world). … (0 comments)
commercial real estate: General Growth Bankruptcy: Real Estate’s Foundations are Shaking
- 12/21/09 06:33 AM
General Growth's bankruptcy shakes the foundations of the commercial real estate market, and the financing documents that hold it up. The bankruptcy plot touches on a wide range of issues, from the sacredness of corporate entities to director independence to the prevalence of Delaware entities. The GGP plot, thus far, ends at a place that is a happy one for developers and a cautionary one for lenders. Before getting into the specifics, it's worth noting the overall impact: commercial real estate and its financing structures will never be quite the same.As background, complex entity structuring pervades the commercial real estate market, … (0 comments)
commercial real estate: LandAmerica Settlement Leaves Guidance on How to Handle Proceeds
- 11/13/09 07:16 AM
Imagine waking up one morning and getting a call from your bank informing you that for every dollar you had, you now have quarters. In other words, there is only 25% of your cash left. This horrible scenario is now dawning over many former LandAmerica 1031 exchange customers and they may have little choice but to accept. Close to 350 former LandAmerica customers had until November 10 to vote on a plan which would have split the proceeds of a bankruptcy ruling according to the type of 1031 exchange agreement they had in place (A U.S. trustee has filed an … (1 comments)
commercial real estate: A Credit to 1031’s: New Homeowners Get a Tax Credit Extension and Investors Get to Sell
- 11/02/09 01:52 AM
The Senate is considering a proposition that will both extend a popular tax credit for first-time home buyers past the previous Nov. 30 deadline and expand it to include certain current homeowners. This development has implications which directly affect the market for 1031 like-kind exchanges, as it will propel home purchases, allowing many investors to exchange their rental properties in a 1031 exchange. So far, ES Group has already facilitated three of these exchanges this week. The reasons for exchange have been somewhat varied. In two cases the owner simply exchanged their previous residential rental property for another, often times … (1 comments)
commercial real estate: 1031 Reverse Exchange Insights
- 10/15/09 09:22 AM
I recently ran into a very interesting blog by Net Lease Insider on the benefits of the 1031 Reverse Exchange. They interviewed Stan Freeman, President of Exchange Strategies Corporation and he provided some useful insights: 1. You can extend the time limits of your 1031 reverse exchange above 180 days because you are dealing with multiple properties, each with their own schedule. 2. You can actually make enough money from the exchange to offset the fees for completing it. If the properties you own are both producing cash flows, you are still privy to the revenues from them while … (0 comments)
commercial real estate: Watergate: Symbol of Two National Crises
- 10/07/09 04:51 AM
When someone mentions Watergate, I instinctively think of the Nixon scandal and how that event highlighted and even symbolized the problems our country faced. Government was not to be trusted and our leaders were, contrary to their protests, crooks. Even though the event itself was relatively minor and as the subsequent 1972 election results proved, completely unnecessary, it was a microcosm of all that ailed the nation. Today I read another story about Watergate, this one about how the hotel part of that complex is about to be sold for around $40 million after its previous owner, "an affiliate of … (1 comments)
commercial real estate: Commercial Real Estate Loans, A Refinancing Time Bomb?
- 09/23/09 07:17 AM
Like it or not, we could be locked in between two forces heading towards each other at breakneck speed, our fates depending on which one reaches us first. In one corner we have the economy, a once seemingly unassailable force of nature, now hobbled by recession and slowly trying to recover. In the other corner there looms billions of dollars worth of commercial real estate loans, quietly waiting as the seconds tick off towards their maturity date. We stand in the middle, our fates tied to the outcome of this race. If the economy recovers before the proverbial time bomb … (0 comments)
commercial real estate: Navigating Closing Costs and the 1031 Tax Deferred Exchange
- 08/19/09 09:05 AM
When entering into a 1031 exchange one often does not consider the ancillary costs that come with closing the transaction. Often the assumption is made that these costs will be subsidized by the 1031 exchange proceeds. However, while some of these costs certainly can be bankrolled by the tax deferred exchange, some cannot. Knowing how to avoid these expenses being deemed boot can keep your transaction out of hot water. Covered Costs: It is generally acknowledged that "payment of brokerage commissions from exchange proceeds does not create taxable boot." Thus, payment of these "non-recurring" costs of sale or purchase … (0 comments)
commercial real estate: Conservation Easement: The Greener Side of 1031
- 07/15/09 02:25 AM
Everybody wants to go green these days and as it turns out, there is a way for those owning real estate to do so as well (without installing solar panels or wind turbines). The solution is found within something known as a "Conservation Easement", a government provision enacted to provide incentive for private owners who donate their land for conservation purposes. By applying the 1031 exchange to this process, a property owner can both preserve the environment and make a new real estate investment. A conservation easement is essentially a deeded fee interest that Land Trust Commissions or other … (0 comments)
commercial real estate: “Curses are like young chicken, they always come home to roost”
- 06/10/09 07:48 AM
So you thought what we've seen so far is bad? New research from Deutsche Bank indicates that there is another financial crisis coming, specifically a "refinancing crisis". It deals with the large amount of high risk, debt fueled loans which were taken out to finance commercial real estate investments between 2005 and 2007. Now with the value of these properties gravely diminished, it is projected that many people will have no choice but to default. Starting in 2005 and peaking in 2007, underwriting standards went on a perilous "walk on the wild side"; bloating loans with so much leveraged debt that … (0 comments)
commercial real estate: From Starker to 1031
- 06/09/09 07:13 AM
Ask members of an older generation about a tax deferred exchange and they will most likely respond with the words "a starker exchange" making no mention of the commonly known term "1031". Indeed, in the old lexicon "1031" is a meaningless unassigned number. "Starker", on the other hand, represents a discernable moment in time, more specifically a court case (T.J. Starker v. U.S., 602 F. 2d 1341 9th Cir. 1979), when the tax deferred exchange was given relevancy. Before "Starker" the 1031 exchange was a cumbersome, expensive, and almost impossible venture. Originally created in 1921, the belief was that the … (0 comments)
commercial real estate: 1031 Thy Name is Diversity
- 06/08/09 03:21 AM
It is common to think of a 1031 transaction as one involving land for land or buildings for buildings. However, this is a tragic oversimplification. 1031 transactions deal with "like-kind" property and in most people's minds, "like-kind" means both pieces of property are alike, such as trading land for land. But do not follow this train of thought when dealing with real estate; in the eyes of the IRS "like-kind" refers to all "qualified real estate", opening the doors to a wide array of transactions. For example: In one case a person wished to exchange 18 oil wells valued at 1.375 … (1 comments)
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