M id A tlantic Real Estate Journal — 1031 Exchange — March 19 - April 15, 2021 — 19A


1031 E xchange

By Kyle Altenau, Progress Capital Why Use a Bridge Loan For Your 1031 Exchange


an effort to deploy 100% of your 1031 Exchange, you may wind up having more cash eq - uity in the Exchange property than you want. When using a short-term bridge loan for your acquisition, you can refinance shortly after because there are no pre-payment penal- ties. Your refinance can then recapture some equity that was trapped in the transaction during the purchase. Case Study – A client ap - proached us concerned that his lender would not be able to close before his 1031 Exchange period expired. He was under

to recapture equity. A bridge loan for your 1031 Exchange may not always be the best solution, but it is an important tool to have on hand for special circumstances. Kyle Altenau is the vice president of Progress Direct, a direct bridge lender providing real estate owners and inves- tors with short term solutions to their capital needs. Progress Direct specializes in provid - ing financing for transactions that require quick closings or other situations where more traditional financing options may not be available. MAREJ

contract to purchase a newly constructed triple net corpo- rate leased Starbucks with a ten-year lease. The benefits of a Bridge Loan were: • Closing within 3 weeks, before the exchange window expired • A loan amount repre - senting 34% of the purchase price, allowing the Borrower to deploy 100% of his 1031 Exchange proceeds • The Borrower then refi - nanced the Starbucks at 75% of the purchase price two months after closing without any pre-payment penalties

or minimum interest require - ments • The refinance allowed the Borrower to recapture some of the cash equity deployed for the initial (1031) acquisition In this case, even if his bank had been able to close on time, the Borrower would have had to choose between being underleveraged with a loan amount of 34% of the purchase price or not deploying 100% of the 1031 Exchange proceeds. By using a bridge loan for the purchase, the Borrower was able to deploy 100% of the proceeds and then refinance

he prospect of us - ing bridge financ - ing when acquiring

a replace- ment prop - e r t y f o r your 1031 Exchange may seem counter in- tuitive for several rea- sons:

Kyle Altenau

1. You may be purchasing a stabilized property that eas - ily meets Bank underwriting requirements 2. Most 1031 Exchanges must deploy significant cash resulting in a low leverage loan which is easily financed 3. Exchange properties are usually held long term, so locking in a low rate for an extended timeframe is smart BUT, there are times when a Bridge Loan is actually a better solution to finance your 1031 Ex - change…. QUICK CLOSINGS – With banks still working remotely and thus moving slower than normal, deadlines to close on a 1031 Exchange can become an issue. Closing with a reliable bridge lender allows you to get to the closing table before your 1031 deadline. Value Add Opportunity – Maybe you are selling a stabilized asset and want to Exchange into a ‘Value Add’ or distressed property. Using a Bridge Loan will allow you time to renovate and stabi- lize the new asset so you can refinance based on the newly created value of the asset without the cost of expensive prepayment penalties. Equity Recapture – In Blount joins Capital Square as Chief Technology Officer RICHMOND, VA — Capi- tal Square announced that Jeffrey Blount has joined the company as chief technol - ogy officer. “Capital Square has been an early adopter of cutting-edge technologies to reduce costs and minimize risks,” said Louis Rog - ers, founder and chief executive officer of Capital Square. “Jeff, who built Capital Square’s technology systems from the ground up at his prior firm, will play an essential role in helping Capital Square expand the roll- out of new technologies. MAREJ


CONTACT KYLE ALTENAU FORMORE INFO 862.368.5004 | kyle@progresscapital.com

NJ | NY | FL progresscapital.com

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