Webinar Provides Update on 1031 Exchanges

    Dan Wagner of Inland Real Estate Group, a sponsor of The Chicago Farmers, Nate Kuhn of Chicagoland 1031 Exchange and Lauren Speidel of Exeter 1031 Exchange Services provided a primer on the use of 1031 Like Kind Exchange Delaware Statutory Trust in a webinar prior to the regular February 8, 2021, meeting seminar.

    Dan explained that Inland has been heavily involved in 1031s for a number of years. He related that the Tax Reform Act of 1986 permanently changed tax sheltered limited partnerships. As a result, many sponsors walked away from these investments and lost investor capital. Inland salvaged some of the 1031s by moving its investors into 1031 exchanges using Walmart stores. In 1989, Inland became Walmart’s biggest landlord nationally.

    Lauren, regional manager of Exeter, said that Exeter was a nationwide qualified intermediary and she serves as an intermediary. Anyone engaged in a 1031 needs to hire a qualified intermediary to help advise, structure the exchange, prepare documentation, and to securely hold the funds, said Lauren.

    She noted that 1031s have been in existence for 100 years and are a great way for people to sell property that has been held for investment purposes, defer taxes, and have the full net sale price working for them in another investment. Lauren added that personal property such as stocks, bonds, cars, boats, or livestock no longer qualify for a 1031 Exchange due to the tax reform act of 2017. She said that a like/kind exchange, which is a 1031, addresses the sale of an investment property and the purchase of another investment property that the person intends to hold for a length of time.

    Nate, a financial adviser, helps investors identify what their goals are and helps determine which Delaware Statutory Trust (DST) makes sense for them. Dan pointed out that Inland purchases the property such as storage units, senior living facilities, grocery store, or Amazon distribution center but does not sell interests in the DST. It is not involved in structuring the 1031 Exchange, that is the work of people such as Nate and Lauren and their companies.

    Lauren reminded people that when doing a 1031 Exchange, the investor must identify the DST by name and address and they must indicate how much money they intend to invest. Nate noted he would walk clients through this process.

    Nate discussed the differences between DSTs and TICs (tenants in common):

    • DST investors own a percentage of beneficial interests in the DST that owns the real property; TIC owners have individual deeds for real property.
    • The DST is the sole borrower (investors do not have to apply for nor are they liable for any loan); each TIC investor is a borrower and responsible for loan liabilities.
    • DSTs are responsible for all property decisions; TICs offer voting rights, but require unanimous approval for a sale, lease and financing.
    • DSTs allow a higher number of investors (1,999 vs. 35 for a TIC) and typically require lower minimum investment amounts.

    “DSTs allow people to spread their assets and diversify,” added Nate. “The vast majority of deals in which we are involved are structured as DSTs.”

    He went on to say, “There is risk, assets are illiquid. DSTs are made to preserve wealth, but they don’t provide immediate access to your principal. An investor should be very sure that a DST fits into their financial plan.”

    Nate also noted that DSTs can accommodate both debt and no debt.

    Lauren and Nate stressed the importance of beginning the process or research early when considering a DST. “Having a conversation early is the key; a lot of structuring can be done in advance,” said Lauren. “Every 1031 Exchange is different. It is important to get educated. It also is important to engage a qualified intermediary prior to selling a property. The closing statement has to show that an intermediary is involved.”

    Their contact information is [email protected], (224) 505-2299, and the link to Chicagoland 1031 Exchange, and [email protected]., (630) 828-5200.

    Written by The Chicago Farmers Editor, Denise Faris