- DC
ashington DC — GIC, Singapore’s sovereign wealth W Totalling more than $1.05 billion in aggregate asset value GIC & Beacon lead investor joint ventures to acquire D.C. office portfolio Reagan National Airport. An affiliate of Beacon Capital Part- ners will continue to manage the buildings.
ISSUE HIGHLIGHTS Volume 29 Issue 6 March 10 - 23, 2017
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fund, has formed joint ven- tures with a group of investors including affiliates of Beacon Capital Partners , a real es- tate developer, owner and manager of office properties in major US markets, to acquire over 2.1 million s/f of office as- sets in the Washington D.C. metro totalling more than $1.05 billion in aggregate asset value. One of the joint ventures includes the acquisition of Lafayette Centre, a 789,000 s/f class A LEED Silver complex of three multi-tenant buildings located in the Central Business District (CBD) submarket, and Pentagon Center, an 912,000 s/f
Separately, GIC invested alongside an existing Beacon- sponsored fund into Terrell Place, an 426,000 s/f class A office complex of three intercon- nected buildings located in the East End sub-market. Adam Gallistel , region- al head of americas, GIC, said, “These acquisitions will strengthen our portfolio of high-quality office assets in the US and enable us to invest in scale in the Washington DC market, one of the leading gate- way cities of the US. We believe in the long-term strength of the DC metro area.” n
Northern NJ Spotlight
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Central PA Spotlight
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Terrell Place
tration located in the Crystal City submarket of Arlington, adjacent to the Pentagon and
complex of two buildings fully- leased for the long term to the US General Services Adminis-
Upcoming Conferences March 30, 2017 Pittsburgh Multifamily Summit April 26, 2016 New Jersey Office Summit April 27, 2017 Philadelphia Capital Markets Summit For speaking and sponsorship information, please contact: Linda at 781-740-2900 or lchristman@marejournal.com
184-unit building facingmidtownManhattan fully financed&under construction Landsea closes $102.3 million construction loan for Avora Luxury Condominiumproject
Weehawken, NJ — Landsea has announced that it closed on a $102.3M construction loan for Avora, a 184-unit luxury condominium project rising on the Wee- hawken, NJ waterfront facing midtown Manhattan. The amenity-rich 10- and 11-story building, which also includes 6,000 s/f of ground-floor retail space, is under construction, with initial occupancy sched- uled for first quarter, 2018. The financing was secured
Avora
Avora Interior
by Landsea with the assis- tance of Holliday Fenoglio Fowler, L.P. (HFF) through the Bank of the Ozarks . John Ho, CEO of Landsea, said: “Securing this financing reflects the appeal of Avora by a commercial lending in- stitution eager to invest in a project with an exceptional Manhattan-centric location, world-class design, and a global marketing program that has already yielded sig- nificant pre-construction sales in the United States and abroad. Avora continues Landsea’s nationwide strat- egy to acquire well-located sites in prominent United
States gateway cities for transit-oriented, residential developments.” Avora’s modern design was created by world-renowned architects IBI Group which conceived a multi-tiered, stepped-back design to maxi- mize the building’s water- front location and spectacular views of midtown Manhattan and the Hudson River. Locat- ed in the heart of the $2 billion master-planned Port Imperial community that stretches two miles of Hudson River wa- terfront, Avora is steps away from the Port Imperial Ferry Terminal, which offers ferry service to both midtown and
downtown Manhattan. The HFF debt placement team representing the bor- rower was led by senior man- aging directors T homas Di- dio, Michael Gigliotti and executive managing director Dan Cashdan . “The project’s prime loca- tion will offer residents the quickest and most convenient access to Manhattan of any luxury condo development along the Gold Coast,” said Di- dio. “Furthermore, its location abutting the Hudson River will provide residents with sweeping views of theManhat- tan skyline that will forever remain unobstructed.” n
Directory
Financial Digest................................................5-16A New Jersey................................................. Section B Pennsylvania.............................................. Section C
Upcoming Spotlights Industry Experts
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Coming Soon Spring Preview Deadline for editorial: April 28, 2017
We are inviting a select group of top executives to write an expert article about the current state of their respective marketplace and where they see it progressing in 2017. These experts will enlighten our readers on their industry and give a general overview of the marketplace in the field they represent. This issue gives industry leaders the ability to inform our 27000+ readers on the current state of the market for the remainder of the year and business expectations for 2018 focusing on specific business verticals.
call/email: Linda Christman 781-740-2900 lchristman@marejournal.com
Expert articles 550 words with author headshot and 25 word bio.
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Immediate Action Required • Offers currently being considered Portfolio of Environmentally ImpactedDevelopment Sites Three Sites Located in New Jersey BANKRUPTCY SALE (Subject to Bankruptcy Court Approval) Offer Deadline: March 22, 2017 n Kearny, Hudson County, NJ – Belleville Turnpike 28.65 Acres Across 4 Parcels n Kearny, Hudson County, NJ – O’Brien Road 6.76 Acres Across 5 Parcels n Newark, Essex County, NJ – 5.82 Acres Across 2 Parcels All Environmental Issues Have an Active Responsible 3 rd Party
Mid Atlantic R eal E state J ournal Publisher ............................................................................ Linda Christman Associate Publisher ................................................................ Steve Kelley Associate Publisher ..........................................................Barbara Holyoke Associate Publisher ...................................................................Kim Brunet Associate Publisher ............................................................. Lea Christman Senior Editor/Graphic Artist .................................................Karen Vachon Office Manager .................................................................... Joanne Gavaza Sales Intern ........................................................................ Kevin Minassian Contributing Columnist .......................... Michael Greenwald, MPPM, CPA Mid Atlantic R eal E state J ournal — Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 350 Lincoln St., Suite 1005 Hingham, MA 02043 USPS #22-358 | Vol. 29 Issue 6 Subscription rates: $99 - one year, $148 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: 781-740-2900 | Fax: 781-740-2929 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
Mid Atlantic Real Estate Journal
The Trump Impact on Real Estate -- Uncertainty Abounds M Michael Greenwald uch like the rest of the country, the real estate industry is try- ing to figure out how it will be affected by the Trump presi- dency. Noting that Trump is a life-long real estate mogul from a real estate family, one might surmise that his presidency would benefit the real estate market. However, the effects of his proposed policies combined with other economic factors are still unclear. The real estate industry seems most focused on the effect of deregulation and the repeal of Dodd-Frank, the possibility of significant infrastructure spending and related job growth, as well as the direction of interest rates. The President has taken the first step, signing an executive order rolling back the 2010 Dodd-Frank financial-overhaul law, in a sweeping plan to dis- mantle much of the regulatory system put in place after the financial crisis of 2008. During a Strategy and Policy Forum, Trump stated, “Frankly I have so many people, friends of mine, that have nice businesses and they can’t borrow money. They just can’t get any money because the banks just won’t let them borrow because of the rules and regulations in Dodd- Frank.” Like others in the Re- publican Party, Trump believes the banking reform is hindering lending, stifling growth, and harming the economy. On the
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other hand, eData from the Federal Reserve indicates that commercial lending in general and lending for commercial real estate are at higher lev- els now than before the 2008 financial crisis. And accord- ing to some economists, more stringent lending requirements for residential mortgages have helped to strengthen the hous- ing market. The stock market is already reacting to the President’s executive order, reducing the burden of regulations and ex- pediting high priority energy and infrastructure projects that will create jobs, including the Dakota Access and Keystone XL pipelines. Mining, steel, engineering, construction com- panies and others also expect to benefit from the anticipated construction boom. Although the Fed is cur- rently keeping interest rates steady, expectations for eco- nomic growth from President Trump’s proposed policies have introduced a greater uncer- tainty about the direction of the economy--leading to a muddled interest rate market. The Presi- dent’s plan to cut individual and corporate tax rates, along with increased infrastructure
spending, could spark economic growth but could also prove in- flationary. On the other hand, the President’s proposal for import tariffs could have the opposite effect on inflation, the value of the dollar, and inter- est rates. Ultimately, Trump's impact will depend upon his ability to formulate policies and suc- cessfully persuade Congress to enact them. With Repub- lican control of the House and Senate, it will be easier for him than for some recent presidents. For the moment, Trump’s direction is unclear and Congress and the presi- dent do not appear to have identical priorities. Though Trump brings a high level of uncertainty to the presidency and the real estate industry, this is a market he knows well. Time will tell whether his policies and real estate know-how will ultimately have a positive or negative impact. Mi chae l Greenwald , MPPM, CPA is partner at Friedman LLP. n Copyright © 2017 Friedman LLP. All Rights Reserved. Friedman LLP reserves the right to reproduce our material as it appears in other print or electronic media.
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and New Jersey. The Azarian Group’s portfolio includes 19 properties with more than 350 tenants totalling over 1.2 million s/f. n art deliver high-quality legal services and exceptional value to our clients. Our experienced legal team understands how to provide clients with the legal guidance they need across a wide range of legal matters, including: • Real estate • Land use and zoning • Construction • Business and corporate • Litigation • Estates and trusts • Employment n
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The Mid Atlantic Real Estate Journal is a monthly publication highlighting real estate transactions throughout the Mid Atlantic including : • New developments, ground breakings and reconstruction in the ODM (Owners, Managers & Contractors ) section • Mortgage and banking in our Financial Digest • Retail and new developments in Shopping Centers • Annual spotlights. Kaplin Stewart Attorneys at Law We are well grounded in every facet of real estate law, from acquisition to construction. We are committed to serving the needs of our clients and our communities.
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• Region specific news and spotlights in our Pennsylvania and New Jersey sections Contact: William J. Levant • wlevant@kaplaw.com 910 Harvest Drive, Blue Bell, PA 19422-0765 • 610-941-2474 • www.kaplaw.com Visit our Real Estate Blog: www.philadelphiarealestatelawyer.com Visit our Construction Blog: www.pennsylvaniaconstructionlawyer.com Other Offices: Cherry Hill, NJ 856-675-1550& Philadelphia, PA 215-567-3120
Linda Christman, CEO/Publisher Mid Atlantic Real Estate Journal 350 Lincoln Street, Suite 1005 Hingham, MA 02043 P: 781-740-2900 | F: 781-740-2929
4A — March 10 - 23, 2017 — M id A tlantic
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Multi-Family Housing Professionals Mark Your Calendars!
POA EXPO 2017 WALTER R. COHN, ESQ. WEDNESDAY APRIL 5, 2017 The Wilshire Grand Hotel West Orange, NJ
EXPO offers a unique business opportunity for companies to showcase their products and services to the exclusive membership of the Property Owners Association. With over 60 exhibitors showcasing the newest and latest offerings in the multi-family industry, this is a must attend event. Buffet dinner served throughout the evening. • Buffet Dinner with Kosher Station • Over 68 Exhibitors • Latest Technology and Information Available • Prizes Throughout the Evening Non-exhibiting associates will not be permitted to market their products or services unless they have reserved a booth. Otherwise they will be asked to leave.
Visit www.poanj.org for more information
M id A tlantic F inancial D igest F eaturing 1031 S potlight 10-year Freddie Mac loan, provided by Capital One Multifamily Finance Meridian arranges $33.8 million in agency financing for the purchase of the Sutton Pointe Real Estate Journal — March 10 - 23, 2017 — 5A
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M
basis to find the solution that best fits a client’s needs,” said Grace Huebscher , presi- dent of Capital One Multi- family Finance. “As always, we’re happy that we were able to help a client achieve its goals.” In Pennsylvaina, Merid- ian arranged $9 million in financing for the refinance of the Hampton Inn Manheim located in Manheim, PA. The five-year loan, pro- vided by a balance sheet lender, features a fixed rate of 4.87% and was negotiated by Meridian vice president, Josh Munk , who is based in the company’s Iselin office. The Hampton Inn Man- heim, located at 2764 Leba- non Rd., is a four-story, 95- key hotel. The property fea- tures spacious guest rooms and suites with wireless internet connection in each room. On-site amenities in- clude a business center, laun- dry facility, fitness center, a pool and a large events and
meeting room. The Hampton Inn Manheim is situated di- rectly off of the Pennsylvania Turnpike and is located in the heart of Pennsylvania Dutch Country, where visi- tors enjoy close proximity to various tourist attractions, including Hershey Park, Sturgis Pretzel Factory and Tanger Outlets Lancaster. “It has become a challenge to arrange financing for sea- sonal assets, such as hotels because of increasingly strict bank regulations,” explained Munk. “While CMBS dy- namics allow for hotels to be placed in large loan pools with a variety of loan sizes and property types, it is more difficult to negotiate balance sheet loans for hotel assets,” he added. “Despite the chal- lenges we faced, Meridian’s strong lender relationships allowed us to identify the optimal lender in the market and close at a lower rate than originally quoted with added proceeds.” n developing the firm’s national multifamily lending platform. Prior to that, he was also chair- man and CEO of Cushman & Wakefield Sonnenblick Gold- man, the NY real estate-based investment banking group. Prior to Cushman & Wake- field, MacManus held various senior leadership positions during a nine-year career with GMAC Commercial Mortgage Corp. (GMACCM). From 2003- 2006, he served as president of GMACCM and CEO of its North American Operations where he managed mortgage banking and seven other lend- ing platforms comprising a $10 billion balance sheet and $22 billion in annual originations. Prior to joining GMACCM, MacManus was a senior VP at Midlantic Bank (now PNC) headquartered in NJ. “A10 Capital is the most exciting business story in U.S. commercial real estate finance today,” said MacManus. “Jerry and his team have built a plat- form that is better positioned to meet the needs of middle
atawan, NJ — Meridian Capi - tal Group , one of
America’s most active debt brokers, arranged $33.8 mil- lion in agency financing for the purchase of the Sutton Pointe multifamily property located in Matawan. The 10-year Freddie Mac loan, provided by Capital One Multifamily Finance , features a floating rate of 2.73% over the 30-day LI- BOR rate and three years of interest-only payments. This transaction was negotiated by Meridian senior vice pres- ident, Russ Drebin , who is based in the company’s Iselin office. Sutton Pointe, located at Two Sutton Dr. in Matawan, NJ, is a two-story, 241-unit garden-style apartment com- plex. The property is conve- niently located off of the Gar- den State Parkway at Exit 120 and is easily accessible from New Jersey Transit. Sutton Pointe is also in close PHILADELPHIA,PA — Marcus & Millichap Capi- tal Corp. (MMCC) arranged $10.75 million in financing for luxury apartment project in Philadelphia. Matthew Rosenberg , a director in MMCC’s Philadel- phia office arranged the debt placement. Rosenberg worked closely with Phil Sharrow , multifamily and mixed-use investment sales professional in Marcus & Millichap’s Phila- delphia office. “Our advisory approach gave the client the option to sell or refinance and based on their financial goals the borrower ultimately decided to take advantage of the competitive terms MMCC was able to source,” added Sharrow. The loan was structured with a seven-year fixed term at 3.65 percent with a five-year rate reset option. The loan was a maximum cash-out refinance. The historic building in Fish-
Sutton Pointe
proximity to downtown Ma- tawan, where tenants enjoy a variety of shopping, dining and entertainment. Each unit of the property features modern kitchen appliances, hardwood floors, a washer and dryer, and spacious closets. Community ameni- ties include on-site parking, a fitness center, a pool and a playground.
“In this rapidly evolving market Meridian was able to secure 82% loan-to-cost financing at a favorable rate, as well as a flexible prepay- ment penalty that is aligned with the sponsor’s needs,” said Drebin. “Our working partnerships with Meridian and Freddie Mac allow us to tailor our approach on a case by case
Marcus &Millichap’s Rosenberg 10.75MCash- Out refinance for Historic Philly renovation
A10 Capital hires TomMacManus
Boise, ID — A10 Capital , one of the nation’s leading pro- viders of middle-market com-
mercial real estate loans, a nn o un c e d t h a t T om MacManus ha s j o i ne d the firm in a newly created role -- presi- dent, strate- gic accounts.
Tom MacManus
“Tom brings executive lead- ership and over 35 years of commercial real estate finance experience,” said Jerry Dunn , A10 Capital co-founder and CEO. “He will deepen our rela- tionships with key commercial real estate firms, an initiative that will further strengthen A10’s momentum. We are de- lighted to welcome him to the firm.” Pr ev i ous l y , MacManus served as president and COO of ARA Finance, a national full- service mortgage finance firm, where he was responsible for
Chesterman building exterior & interior
town was home to the largest hosiery manufacturing facility until the Chesterman-Leeland Company took over in 1938 and transformed the factory to produce ammunition and stain- less steel. 401 Memphis Street has since been repurposed into a 57-unit apartment building,
averaging 700 s/f per unit. The property features a mix of one bedrooms, two bedrooms and two bedrooms plus den. Build- ing amenities and features include in-unit washer and dryers, meeting rooms, park- ing, exposed brick and stainless steel appliances. n
6A — March 10 - 23, 2017 — Financial Digest — M id A tlantic
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F inancial D igest
Uptick in loan volumes began after Election Day and continues in 2017 Investors Bank is meeting the increasing demand for financing from the CRE & multifamily housing sectors S pleted 11 transactions valued at over $202 million.
By the 2016 year-end, the com- pany’s results showed that the CRE Lending Group originated $3.2 billion in new loans. Ad- ditionally, 2016 was a record year in financing commercial projects in the office, retail, and mixed-use sectors. Investors Bank Head of CRE Lending Joseph Orefice said, “We expect that more of our commercial clients prefer to lock in financing now because of the uncertainty around interest rates. Even though rates may move higher, we see a renewed optimism among our clients that businesses are entering a new phase of positive growth. Anticipating an increase in demand for CRE financing, we have expanded our lending team to deliver the exceptional service our clients expect for us.” Orefice highlighted the fol- lowing transactions that were recently completed by the In- vestors Bank CRE Lending Group: • $14.8 million loan to re- finance an 111,000 s/f office building in Branchburg, NJ • $13 million loan to refi- nance nine retail properties with a total of 169,000 square feet of space, located across Northern New Jersey • $16.7 million term loan to purchase a 124,600 s/f office building in King of Prussia, PA n March 20: Herrick to speak at 34th Annual Regional Conference of MBA Atlantic City, NJ — SanfordHerrick , founder and managing principal of Case
hort Hills, NJ — Investors Bank is suc- cessfully meeting the in- creasing demand for financing from the commercial real estate (CRE) and multifamily housing sectors. The uptick in CRE loan activity began after Election Day, gained momentum in De- cember and has continued into 2017, according to the Investors Bank CRE Lending Group. In recent weeks the CRE Lending team closed six large transactions with a total loan value of $107 million. As 2016 came to an end, Investors Bank’s senior lenders com-
Currently, the Bank is con- centrating on financing multi- family housing and commercial properties in New Jersey, the greater Philadelphia area, New York City and New York State. The CRE Lending Group is also gaining traction in diversifying its loan portfolio by providing more financing to owners of office buildings, large-scale re- tail properties and warehouse facilities. Investors Bank just reported its fourth quarter and full year financial performance for 2016.
Investors Bank recently provided $14.8 million in CRE loans to refi- nance a multi-building office park in Branchburg, N.J. The 15 building complex contains over 111,000 square-feet of comercial office space.
Recently Closed Loans
$2,350,000 $23,000,000 $6,000,000 Office Redevelopment Bridge Loan Shopping Center Construction Loan Office Redevelopment Bridge Loan Moorestown, NJ Blue Bell, PA Pennsauken, NJ 75% LTC, 24 Months, WSJP + 150 bps 75% LTC, 36 Months, LIBOR + 210 bps 75% LTV, 24 Month, LIBOR + 300 bps
Real Estate C a p i t a l , LLC (Case) , will partici- pate on the panel for the “Navigating the Ocean of N o n - B a n k and Alterna-
Real Property Capital is a Philadelphia based full service commercial mortgage banking firm with a regional focus and national capabilities. Our business model emphasizes client satisfaction through a high-touch, analytical approach that distinguishes us from the competition. Learn more about our distinct approach and proven track record of success at www.realpropertycapital.com . FOR MORE INFORMATION: R. Brenner Green, President 303 Harry Street • Conshohocken, PA 19072 • 610-456-9644 • bgreen@realpropertycapital.com
Sanford Herrick
tive Lenders” session at the 34th Annual Regional Confer- ence of Mortgage Bankers As- sociations. The session will take place on Monday, March 20, from 1:45 to 3 p.m. at Harrah’s Convention Center in Atlantic City. Herrick has orchestrated investments in more than $5 billion worth of commercial real estate over the course of his 30+-year career. n
Real Estate Journal — 1031 Exchange — Financial Digest — March 10 - 23, 2017 — 7A M id A lantic Real Estate Jour al
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1031 E xchange
Mick Law P.C. LLO: Based in Omaha, Nebraska, Mick Law is a specialty firm comprised of a�orneys who each possess a concentrated area of exper�se and in-depth knowledge. The a�orneys also have professional and educa�onal creden�als, including MBAs and securi�es industry licenses. While providing a broad range of legal services to our valued clients, our firm focuses on two principal areas of prac�ce: Broker/Dealer, Registered Investment Advisor (RIA), Family Office Representa�on; and Real Estate Finance. Addi�onal areas of prac�ce include Real Estate Transac�ons, Corporate Law, Corporate Finance, FINRA Adver�sing Review, and Li�ga�on. Broker/Dealer, Registered Investment Advisor, Family Office Representa�on: Our firm understands the needs of today’s local and na�onal broker/dealers, registered investment advisors, and family offices since we have been in their shoes. Firm a�orneys have been employed by broker/dealers who have syndicated real estate equity offerings in hospitality, senior living, office and retail development and acquisi�on, and have provided business planning and tax counsel. Our firm’s due diligence representa�on involves a concentra�on in real estate equity fund, development project, distressed debt and REIT reviews. We also have significant experience in oil and gas, private equity, leasing and mortgage securi�es products. We provide clients individualized legal opinions with an addi�onal focus on project and fund structure, financing, valua�on and exit analysis. We believe this experience allows us to assist our clients by understanding not only what the regulators require, but more importantly how a DPP product compares to its peer group and the likelihood of program performance. Our Mission: As we at Mick Law hold ourselves to the highest professional and personal standards, we know that our clients deserve the same. We feel that it is impera�ve in today’s business environment to provide the highest level of legal representa�on, quality customer service, valuable economic analysis, and reasoned direc�on. Very simply, our firm is investor-centric.
MICK LAW P.C. LLO A Due Diligence Law Firm (402) 504-1710 www.micklawpc.com
8A — March 10 - 23, 2017 — Financial Digest — 1031 Exchange — M id A tlantic
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1031 E xchange By Alan Fruitman, www.1031tax.com The NNN Triple Net Property Book
T here is a reason both vanilla&chocolate ice cream are top sellers.
know it will taste good, even predictable. When you own a NNN property, your monthly
of multi-tenant property in- clude apartment buildings, shopping centers and office
vanilla, others prefer choco- late. It’s nice to have options. Here’s why many inves- tors enjoy owning single- tenant NNN property. NNN describes a lease in which the tenant maintains and pays for all property mainte- nance, taxes and insurance. Tenants include Walgreens, CVS Pharmacy, Chase Bank, Wells Fargo, Panera, Mc- Donald’s, Dollar General, Home Depot, Wal-Mart, Au- toZone and almost every oth- er national retailer you see while driving through prime retail corridors throughout the country. Landlords are mostly individual real es- tate investors, just like you. Here’s the best part – These Fortune 500 tenants sign long-term leases that range from 10 to 25 years. The price to purchase a NNN property begins at approxi- mately $1,000,000. To make a long story short, owning a NNN property gives you the freedom to work on your day job, travel or do things other than worry about your real estate investment. The reason you are reading this article is because you want to learn more about NNN property. There are random articles and pieces of information scattered throughout various news- papers and websites. I wrote The NNN Triple Net Prop- erty Book to provide concise and quality information to real estate investors like you. Chapters in The NNN Triple Net Property Book range from Passive vs. Ac- tive Income, Location Mat- ters, Two Happiest Days of Owning a NNN Property, Build a Diversified Portfo- lio, High Leverage = Risk, Which States Should You Target or Avoid, Is an Envi- ronmental Problem a Deal Breaker, The Process & the Property, Franchise vs. Corporate Lease, Pros and Cons of a Ground Leased Property, What Is a Let- ter of Intent, Four Reasons Why Investors Utilize 1031 Exchange, and References Matter. Visit 1031tax.com or call Alan Fruitman at 1-800-454- 0015 to receive a list of avail- able NNN properties and a complimentary copy of The NNN Triple Net Property Book. n
Even though people con- sider vanilla to be plain and perhaps boring, they still enjoy it. A s s um i n g this analogy is true, com-
The NNN Triple Net Property Book was written for buyers of NNN property.
income stream will be quite good; it will also be 100% predictable. To complete the analogy, let’s associate chocolate ice cream with a multi-tenant property with short-term leases. Examples
buildings. Income from a multi-tenant property will vary each year and it will take a significant amount of your time to manage and maintain the property. Again, some people prefer
Alan Fruitman
paring a single-tenant NNN property to vanilla ice cream would be reasonable. For example, when you take a bite of vanilla ice cream, you
NNN Properties Nationwide
ALAN FRUITMAN www.1031tax.com 800-454-0015
Real Estate Journal — 1031 Exchange — Financial Digest — March 10 - 23, 2017 — 9A
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1031 E xchange By Richard Gacek, Gacek Design Group 5 Details to know about the 1031 Exchange
Y ou may be wondering why an architectural consulting and interior
of the sale of the old. Note that the two time periods run concurrently. That means you start counting when the sale of your property closes. If you designate replacement prop- erty exactly 45 days later, you’ll have 135 days left to close on the replacement property. If you receive cash, it’s taxed: Robert W. Wood, tax lawyer and Forbes Contributor, states: You may have cash left over after the intermediary acquires the replacement property. If so, the intermediary will pay it to you at the end of the 180
days. That cash–known as “boot”–will be taxed as partial sales proceeds from the sale of your property, generally as a capital gain. Beware of schemes: Taxpayers should be wary of individuals promoting improper use of like-kind exchanges. Typically they are not tax professionals. Sales pitches may encourage taxpayers to exchange non- qualifying vacation or second homes. Many promoters of like-kind exchanges refer to them as “tax-free” exchanges not “tax-deferred” exchanges.
Taxpayers may also be ad- vised to claim an exchange despite the fact that they have taken possession of cash proceeds from the sale. Also, consult a tax professional or refer to IRS publications listed below for additional assistance with IRC Section 1031 Like-Kind Exchanges. * *Publication 544, Sales and Other Dispositions of Assets; Form 8824, Like-Kind Ex- changes (PDF); Form 4797, Sales of Business Property Richard Gacek is owner and principal designer at Gacek Design Group. n
Make Sure Your investment is Like-Kind: According to Kayleigh Kulp, special to CNBC, to be eligible for the tax benefits of a 1031 exchange, you must exchange “like” investments of equal or greater value, reinvesting the net equity and having the same or greater amount of debt. Most commonly it is investment prop- erty, though it could also be art, collectibles and equipment. Close within 6 Months: The second timing rule in a delayed exchange relates to closing. You must close on the new property within 180 days
design firm is providing information on 1031. Well, at Gacek De- sign Group, we not only believe that information is knowledge,
Richard Gacek
we also know that the more we understand the commercial landscape, the more we are able to collaborate as partners and work towards a successful result. A differentiating feature of our firm is the value we place on research, so we reviewed some credible sources and as a result outlined details to know about the 1031 Exchange. 1031 Exchange is defined as a swap of one business or investment asset for another. Since most swaps are taxable as sales, 1031 Exchange allows no tax or limited tax due at the time of the exchange. The IRS’s Like-Kind Exchanges under IRC Code Section 1031 ex- plains it as follows: Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief fromdebt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like- kind property of lesser value. Who Qualifies: Owners of investment and business property. Individu- als, C corporations, S corpora- tions, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of busi- ness or investment properties for business or investment properties.
10A — March 10 - 23, 2017 — Financial Digest — 1031 Exchange — M id A tlantic
Real Estate Journal
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1031 E xchange
By Jason Salmon, Kay Properties and Investments, LLC Why you should consider deferring your taxes
T he basics: If you own investment real es- tate—that means a
exchange, this provision allows a seller of property held for in- vestment or business purposes to “replace” their “relinquished” property in a “like-kind” ex- change. Implications of paying taxes: In certain cases, taxes on highly appreciated real estate in high-tax states can pack a pretty mean punch; potentially around 50%. This is comprised of taxes for long-term capital gains (up to 20%), depreciation recapture tax (25%), the net investment income tax (NIIT) that was embedded in the Af- fordable Care Act (3.8%), and
terms and content in the first part of this article may seem technical. Notwithstanding, if you own investment real estate, this is important. Your CPA and attorney will be fa- miliar with the jargon and with the subject matter. If they are not, find another CPA and/or attorney. Maximizing value: Many private real estate investors have a buy and hold approach; and this conventional wisdom is a sound strategy. If we look to the institutional real estate investment model (followed by university endowments, pen- sion funds, foreign governments and real estate investment trusts), the exit is a vital part of how a deal is underwritten. It is tremendously important to seek to sell an asset when opportunity presents itself. Having the ability to monetize your asset and get a potential premium in the marketplace makes sense, especially when a tool as valuable as the 1031 exchange can play a part in taking real estate investing to the next level. Options: There are several directions to go for real estate investors in a 1031 exchange. One way is to find an as- set with active management responsibilities—that means tenants, toilets and trash. If an investor wants a hands-on property with day-to-day land- lord responsibilities, this would be the appropriate way to go. Another is a passive real es- tate investment—a net-leased asset, specifically NNN (triple- net) real estate passes through taxes, insurance and property maintenance expenses to the tenant that occupies the prop- erty. These types of invest- ments can be attractive, but the investor must be sophisticated and understand the space (i.e., lease negotiations for renew- als, how inflation affects value, financing implications, etc.). There are also truly passive real estate investments that allow those in 1031 exchanges (as well as those wishing to make a direct cash invest- ment) to own a fractional in- terest in a large institutional asset or portfolio of assets. Utilizing this strategy allows an investor to diversify across multiple asset classes, geogra- phies and asset managers. The structure that is often used for this model is a Delaware Statutory Trust or DST. continued on page 12A
state tax (from 0-13.3% depend- ing on the state you live in). By the numbers: As an example, if you owned an in- vestment property valued at $1 million that was yielding an annual return of 5%, and when you sold the property and paid the taxes (let’s say 50% for illustrative purposes), you would have been left with only $500,000. You would have to go considerably higher up the risk-spectrum to receive a 10% return in order to receive the same $50,000 of projected in- come for the year. Many would say, that from a financial stand-
point, it is wise to exchange your property, defer your taxes and keep your full $1 million working for you. Death and taxes: In a 1031 exchange, the real estate basis is being carried forward. It will continue to do so with all subsequent exchanges. When a property owner passes away, their beneficiaries receive a stepped-up basis. This can prove to be quite advantageous when considering estate plan- ning as the capital gains taxes are eliminated. –Message to the reader– I realize that some of the
rental condo o r h o m e , a p a r t me n t bui lding , a commerc ial building, raw o r v a c a n t land or oth- erwise—you do not have
Jason Salmon
to pay taxes when you sell the property. Uncle Sam has had section 1031 of the Internal Revenue Code in place since 1921. Also known as a 1031
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12A — March 10 - 23, 2017 — Financial Digest — 1031 Exchange — M id A tlantic
Real Estate Journal
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1031 E xchange
By Alex Snyder, Barley Snyder Did you also know the four lesser- known facts about 1031 exchanges?
Y ou have probably heard of “like kind” or “tax f ree” exchanges in
Internal Revenue Code permits a taxpayer to defer paying tax on this amount if the proceeds are instead applied towards the purchase of property of “like kind.” The potentially huge tax ben- efits have given the practice its own nickname – “1031 exchang- es.” It is important to plan these 1031 exchange transactions in advance to meet strict require- ments. Typically, a qualified intermediary is used to hold the sale proceeds until the replace- ment property is purchased. Replacement assets must be identified within 45 days, and
closing on the purchase must occur within 180 days. The re- placement property must be of value that is equal to or greater than the relinquished property, or a portion of the transaction may be taxable. Did you also know these lesser-known facts about 1031 exchanges? • Something like an air- plane could qualify for a 1031 exchange. When you do a 1031 deal, the replacement property must be of like kind, meaning the same broad category of as- set. Investment real estate for investment real estate is the
most common. But taxpayers can defer the taxable gain on the sale of most types of capital assets with a few notable ex- ceptions such as stocks, bonds, partnership interests, or notes. In other words, the exchange of a valuable non-real estate asset –such as an airplane – is eligible. • A taxpayer often has dif- ficulty identifying a property of roughly equivalent value within the time frame specified. One potential solution is to have the taxpayer purchase a fractional interest in the replacement property. This also benefits buy-
ers by allowing them to move from less valuable to more valu- able properties. From a seller’s standpoint, it may increase the marketability of a more valu- able property by opening up a larger class of buyers. • “Reverse” 1031 exchanges, though more complicated, are possible. In the standard 1031 exchange, a person sells a property first and invests the proceeds in a replacement property identified later with- out incurring tax. In a reverse exchange, a buyer acquires the replacement property first and sells the relinquished property later through the use of inter- mediaries. This structure may be useful, for example, where an investment property comes on the market before the in- vestor is ready to sell the first property. • Section 1031 exchanges can be done between related parties, with certain important limitations. The rules for de- termining whether parties are related are fairly complex, but if an exchange is made between related parties, the replace- ment property must be held for two years before it can be sold or the tax deferred by the 1031 exchange is due. A seller can purchase the replacement property from a related party only if the related party is also initiating a 1031 exchange. If you are planning to sell a capital asset with a low tax basis in the near future, contact your attorney or accountant to discuss the possibility of a 1031 exchange. Alex Snyder is a partner in Pennsylvania-based Barley Snyder’s Tax, Business, and Personal Planning groups. Contact him at 717-852-4975 or asnyder@barley.com. n Summary: The 1031 ex- change is a fantastic tool that many real estate investors have employed for years. It is used for $100,000 transactions; it is used for $100,000,000 transactions—and everything in between. The process can be quite straightforward with the guidance of a professional that has expertise in the space. This topic will be expanded upon in future articles with the hope that you will gain insight on how to make the most of your continued from page 10A continued on page 15A Why you should consider deferring . . .
reference to rea l es tat e transactions. N o r m a l l y , when an as- set is sold, tax must be paid on the differ- ence between the amount
Alex Snyder
received on the sale less the taxpayer’s “basis” in the prop- erty (the investment in the property, with some adjust- ments). Section 1031 of the
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14A — March 10 - 23, 2017 — Financial Digest — 1031 Exchange — M id A tlantic
Real Estate Journal
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1031 E xchange
By Edward Fernandez, 1031 Crowdfunding, LLC A Surge in Syndicated 1031 Exchanges
D uring the last two years, the syndicated 1031 exchange mar-
dustry Regulatory Authority, syndicated Based on the numbers, this trend should continue through 2018. Here’s how we know this: Between 2002 and 2007, syn- dicated 1031 exchange pro- grams raised over $12.4 bil- lion of equity. The majority of these investment programs used Commercial Mortgage- Backed Securities (CMBS) to finance the acquisition of their assets. With a 10-year term on these mortgages, billions of dollars in CMBS loans have matured over the
last several years and billions more will mature over the next couple years. Reports estimate approximately $300 billion in CMBS loans will have matured between 2015- 2018. The recent surge in the market is the result of these maturing loans forcing the syndicated programs from the early 2000s to come full- cycle and the investors from these programs to exchange their equity into new syndi- cated programs to continue their capital gain tax deferral cycles.
As has been the case for programs with loans that have matured in the last two years, programs with loans that will mature in 2017 and 2018 will also be forced to sell their properties because of CMBS lending guideline changes that now prohibit TIC ownership on collateral- ized property and DST gov- ernance, commonly referred to as the Seven Deadly Sins of DSTs, that restricts DSTs from refinancing. It can be expected that when these properties sell, in- vestors involved will respond as others have – by returning to syndicated programs to find suitable replacement prop- erties to complete 1031 ex- changes. As this happens over the next two years, syndicated 1031 exchange programs will again experience record amounts of equity raised. Fo r e s e e i ng t he l a r g e amounts of equity that would re-enter the market, program sponsors have been pressed to make enough investment- grade real estate available to accommodate the needs of exchange investors. In re- sponse, some sponsors have increased the portfolio size of their DSTs. Instead of syndi- cating separate DST offerings for single real estate assets, sponsors are saving time and money while increasing offer- ing maximums by combining multiple real estate assets into single DSTs. At 1031 Crowdfunding, investors are experiencing additional benefits from these types of DSTs. Not only have multiple asset DSTs become a vehicle to increase DST avail- ability faster and at a lower cost, they have also increased investment diversity. Without having to seek out multiple properties and divide equity to diversify a real estate port- folio, investors are acquiring diversified portfolios with a single purchase of beneficial interest in a multiple asset DST. DSTs popularity continues to grow as investors seek an easier way to navigate the 1031 exchange process and compete in a competitive market, and now DSTs are providing a simpler way to diversify. Edwa r d Fe rnande z is founder/CEO of 1031 Crowdfunding, LLC based in Orange County, CA. n
actual transaction amounts exceeded expectations. Syndicated 1031 exchange programs were expected to raise an estimated $800 million in 2015. The actual amounts raised by these pro- grams in 2015 exceeded $1 billion. Midway through 2016, estimates for the year’s equity raise reached $1.4 billion. The actual amount was $1.46 billion, according to Moun- tain Dell Consulting, LLC, an independent consulting firm and affiliate of Orchard Securities, LLC, a registered member of the Financial In-
ket, primar- ily existing of Delaware S t a t u t o r y Trust (DST) p r o g r a m s with a few Tenant - in- C o m m o n (TIC) pr o -
Edward Fernandez
grams, has experienced a surge in transactions, raising record amounts of equity. Though real estate analysts anticipated this surge, the
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(844) 533-1031 • WWW.1031CROWDFUNDING.COM 1031Crowdfunding.com is an investment plaaorm owned by 1031 Crowdfunding, LLC. (“Plaaorm”). 1031 Crowdfunding is not a registered broker-dealer. Private investment markeeng and other broker-dealer services are offered on the Plaaorm through Boustead Securiies, LLC a registered broker-dealer. Certain principals of 1031 Crowdfunding are affiliated with Boustead Securiies, LLC and when offering invest- ment services such offers are made in their capaciies as registered representaaves of Boustead Securiies, LLC. IRC Seccon 1031, IRC Seccon 1033, and IRC Seccon 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situaaon. There are material risks associated with invessng in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properres. These include, but are not limited to, tenant vacancies; declining market values; potennal loss of ennre investment principal; that past performance is not a guarantee of future results; that potennal cash flow, potennal returns, and potennal appreciaaon are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment. This material does not consstute an offer to sell nor a solicitaaon of an offer to buy any security. Such offers can be made only by the confidennal Private Placement Memorandum. Please be aware that this material does not replace the ppm. Are you in your 45 day ID period? Login to our extensive online plaaorm of 1031 exchange approved properres today. Our deals can close in as liile as 3 days, taking the worry out of your 1031 exchange.
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