12A — August 14 - 27, 2015 — M id A tlantic
Real Estate Journal
www.marejournal.com
M ultifamily F inancing Dwight Kay of Kay Properties discusses a solution to the 1031 Exchange time crunch Three reasons why a DST 1031 Exchange property may work for you
T
he real estate market entered 2015 on solid footing with many
that can potentially provide tax advantages and allow them to utilize a 1031 ex- change while avoiding some of the headaches that go along with owning apartments and other commercial properties.” Despite the name, the prop- erty doesn’t have to be in Delaware. Kay, for example, says his California and New York-based company works with clients and properties in all 50 states. “Whether it be, for example, a Costco in Utah, a Walgreens in New Jersey, a CVS in Florida, or a 300 unit multifamily apartment prop-
erty in Texas, our clients are able to invest from as little as $100,000 to over $5,000,000 via a 1031 exchange into our Delaware Statutory Trust (DST) properties.” A 1031 exchange allows someone to defer their capital- gains taxes on a property sale if they reinvest the proceeds in “like-kind” property. Such properties can include apart- ment buildings, vacant land, farmland, office buildings and warehouses among other properties. A Delaware Statutory Trust is a trust that lets investors
exchange property without the headaches of property management. One option that 1031 ex- change investors need to be aware of is utilizing a Dela- ware Statutory Trust (DST) 1031 replacement property. “Many of our clients had previously never heard of DST properties and how they can be used as 1031 exchange replacement properties,” says Dwight Kay , founder and CEO of Kay Properties and Investments. “But there are definite strat- egies investors should look at
buy an interest in commer- cial property, but managing the property is left to others. Because Delaware Statutory Trust properties are pre-pack- aged for 1031 exchange inves- tors, they provide a very viable solution for 1031 exchange investors that only have 45 days to identify what they are going to exchange into. Kay says Delaware Statu- tory Trust properties have sev- eral potential characteristics that 1031 investors should be aware of and consider: •Diversification – Kay says many of the investors he deals with are at a stage in life where they want to diversify their real estate holdings. “Al- though diversification does not guarantee profit or guarantee against loss, they realize hav- ing a large portion of their net worth in a single property is potentially not prudent,” he says. “Why would you bet the farm on a single piece of property?” A Delaware Statu- tory Trust allows a diversified approach that potentially makes more sense, whereby investors are creating for themselves multiple potential income streams frommultiple tenants, multiple geographic locations, multiple asset class- es (or types of real estate), etc.,” he says. The relatively low minimum investment of $100,000 allows investors to build for themselves a diversi- fied 1031 exchange solution. •Inflation protection poten- tial – Many 1031 investors gravitate towards triple-net- leased properties, as the ten- ant is typically responsible for all maintenance, taxes and insurance at the property. However, “the problem with most triple-net-leased prop- erties is the potentially flat to minuscule rental increases that could cause values to suf- fer,” Kay says. DST properties allow 1031 investors access to types of properties that have shorter-term leases that will potentially track better with inflation, such as multi-family apartments and grocery an- chored retail centers, without the burden of active manage- ment. •Quick closings – DST prop- erties are prepackaged for 1031 investors to be able to close on immediately. “For an investor in a time crunch, a DST is a good solution to a very real danger of a failed continued on page 18A
markets at or above pre-re- cession levels. Along with these prices come many own- ers interested in selling their properties and searching for a viable replacement property as they plan to utilize the sec- tion 1031 exchange to defer their capital gains taxes. Many investors are tired of the tenants, toilets and trash that come with owning and managing apartments and commercial properties and they are looking for a 1031
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