Congratulations on your upcoming 1031 Real Estate Exchange! If you're like most people venturing into the World of Section 1031 Exchanges, you are probably overwhelmed and even a bit confused by the sheer number of real estate options available to you. And if the huge variety of replacement property options isn't challenging enough, there's the whole 45 Day time constraint on top of it all. This business of 1031 Exchanges is NOT for the faint of heart!
After you've searched LoopNet until your fingers have blisters and spoken to real estate brokers that you never heard of before, you might want to look into the benefits of a highly leveraged 1031 transaction. You'll see in our examples that the use of high leverage doesn't have to be a "bad thing". In fact, "off-market" Highly Levered, High Credit Tenants can open up possibilities that you weren't aware existed and can have tremendous benefits in a 1031 exchange.
By Highly Levered (also known as Zero Cash Flow transactions) we mean using up to 88% to 90% Loan to Value (LTV). This high degree of leverage is allowed to exist simply because of the credit-worthiness of the tenant (like a CVS or Walgreens). The cash from the store operation is used to pay the amortizing debt service on the property. It is this High Leverage that allows the investor hugely attractive tax benefits.
Highly Levered Real Estate Exchanges with a very high-grade investment tenant can help investors facing these 5 scenarios: 1) The typical 1031 client who has sold his property and is running out of his 45 Days to identify a suitable replacement property. If he just had more time, he could find his "Perfect Replacement Property" but there's a 45 Day Gun to his head. If you've found yourself up to your neck in the "rough & tumble" 1031 Exchange business and can indentify with one or more of the above scenarios, you'll be relieved to know that there is a light at the end of your tunnel. Let us help put all the pieces together for your "Perfect 1031 Solution". Thank you for your interest and we look forward to working with you.
carnegiewealth@earthlink.net
2) The client who has come to realize that replacing debt higher than a 65% LTV is next to impossible in 2011 credit markets.
3) The commercial property owner facing a foreclosure who has come to realize that his biggest problem is not just losing his property, but (to add insult to injury) the federal income taxes owed from recapture and debt forgiveness.
4) The investor looking to simply "cash out" a substantial amount of his equity from his relinquished property without having to pay current income tax.
5) How would you like to buy a Walgreens/CVS for your grand kids and only pay $500,000? An 88% to 90% LTV allows you to do just that. Over the next 25 years the loan fully amortizes and your grandkids own a Walgreens/CVS Free & Clear. Now there are no Free Lunches, and over the 25 year term all of the income from the store has been used to pay off the loan. How much is that Walgreens/CVS that you paid $500,000 for 25 years from now worth? $5 million? $10 million?
If you have an interest in learning more about how a Levered Exchange transaction might fit your situation contact me directly and check out our new web-site at:
www.carnegiewealthmanagement.com
Here’s an interesting 1031 strategy that we’re taking with a new Kohl’s property in
We’ve got a $3,845,000 Ground Lease with Kohl’s (Investment Grade Tenant BBB+) for the next 17 years. Kohl’s is leasing a 90,000 square foot building on our land, which sits adjacent to a new Target and a new Lowe’s with great demographics and extremely strong population growth. Great value on a square foot acquisition basis (approx $43/sq ft) and rental basis (approx $2.77/sq ft).
The property is priced at an initial CAP Rate of 6.5%.
Now here’s The Kicker: there is an unheard of 20% rental increase in 2018.
That brings our blended annual investor yield to 7.25% over the 17 year holding period. AND there is the additional tax benefit of depreciable land improvement costs assigned by the original developer which will shelter approximately 70% of the income over the first five years.
And now for the interesting strategy that I mentioned initially: For the buyer coming in with all cash, and with the strength of Kohl’s credit, he could then easily obtain a fixed, ten year, non-recourse financing in the 50% LTV range ($1.9 plus) immediately after close. The buyer could then take out that capital on a tax free basis and do with it whatever they please. $1.9 million Tax Free.
What happens if the tenant goes dark? Kohl’s would still be liable for rent during the remainder of the term, and the parent corporation (Kohl’s) would have to go bankrupt to terminate the obligation under the lease. AND IF KOHL’S DID GO BANKRUPT, our Ground Lease Owner would then own the Building. SO we’d end up with a relatively new, 90,000 sq ft retail building at 50% below replacement cost in a strong demographic area surrounded by two of the best credit tenants in the nation. I think you could easily subdivide the space and potentially double your rental income.
I think the key points to consider in any commercial real estate investment in today’s marketplace are as follows:
1- Credit of the tenant
2- Length of lease term
3- Location
4- Rental increases
5- Rental Rate
I see this as a great opportunity for an investor looking to own an attractive after tax return from a strong credit tenant.
Carnegie Wealth Management
Investment Real Estate Division
Let us go to work for you and find
Your Next Real Estate Solution
Family Dollar (NYSE: FDO) is a regional chain of variety stores in the United States. It opened in 1959 and operates approximately 6,617 stores in 44 states and the District of Columbia. It is headquartered in Matthews, North Carolina
Family Dollar is not a true "dollar store" in the strict sense; while there are many items available for $1, there are other price points as well. However, approximately 90% of the products cost less than $10. With most locations set up like a typical supermarket, the chain deals in food items, clothing and assorted household products.
FIRST GROUP:
There are six brand new 2010 Prototype Family Dollar Stores Built to Suit with Rent Commencement Dates of February 2011. The stores are all 8,000 square feet and located on Corner lots. The lease terms are NN with Landlord/Owner responsible for Parking Lot Repairs and Roof Repairs. Tenant pays all maintenance and upkeep of Building and Parking lot. Tenant Reimburses Landlord for full amount of Taxes and Insurance every year. Primary term is 10 years with (6) five year extensions with 10% increases at every extension. Lease also includes a performance based Lease bonus of 3% of profit above certain per year sales volumes. Great opportunity for a solid investment in a down economy. Family Dollar is aggressively buying back their own stock right now and are going to be strong for years to come as they continue to add more name brands and selection to their stores. *** THIS OFFERING IS MADE CONTINGENT UPON FINAL ACCEPTANCE BY TENANT OF COMPLETED PREMISES AND LANDLORD/OWNER'S ABILITY TO SECURE ACCEPTANCE BY TENANT.
SECOND GROUP:
|
State |
Tenant |
Lease |
Option |
Type of lease |
Net Annual Rent |
Commence Date |
Asking Price |
Notes |
|
|
FL |
Family Dollar |
10 yr |
4 - 5yr w/ 10% bump |
Modified NNN |
$124,954 |
6/26/2010 |
1,470,048 |
||
|
FL |
Family Dollar |
10 yr |
4 - 5yr w/ 10% bump |
Modified NNN |
$178,183 |
12/1/2010 |
2,236,538 |
||
|
GA |
Family Dollar |
10 yr |
4 - 5yr w/ 10% bump |
Modified NNN |
$109,000 |
6/8/2010 |
1,245,714 |
||
|
FL |
Family Dollar |
10 yr |
4 - 5yr w/ 10% bump |
Modified NNN |
162,900* |
9/1/2010 |
1,916,470 |
* 5% bump in yr 6 |
|
|
FL |
Family Dollar |
10 yr |
4 - 5yr w/ 10% bump |
Modified NNN |
143,200* |
10/1/2010 |
1,684,707 |
* 5% bump in yr 6 |
|
The above information came from the owner. This in no way represents all of the terms and conditions of the leases. Anyone contemplating an investment in a Family Dollar should hire legal representation to review such on their behalf.
We're currently working with a Group of Real Estate Investment Trusts (REITs), Hedge Funds and large Retirement Plans that have assigned us the task of finding and securing for purchase, Portfolios of Triple & Double Net Lease, Corporately backed Retail Assets. On their portfolio shopping list are Dollar Generals, Advanced Auto Supply, Auto Zones, O'Reillys, Logan Roadhouses as well as Anchored Shopping Centers.
The Minimum purchase is $5 million up to $100 million. Our Triple Net Lease Box Buyers are looking for CAP Rates approaching 9% (the Anchored Shopping Centers CAP Requirements are more in the 8% Range). The Double Net CAPs are closer to 9 1/2%.
Our Buyers are also interested in purchasing these types of retail assets while under construction as long as the completion date is around the First Quarter of 2011.
If you are a principal of such a portfolio, we sure would be interested in speaking with you. Please contact me at your earliest opportunity.
Steve Arnold
239-898-8918
Property Submission Guidelines:
Our Buyer’s Benefits:
- Completely Discretionary Capital
- Due Diligence Periods of 30 Days or Less
- All Cash Buyer - No Financing Contingencies
- Experienced Buyer - High Degree of Closing Certainty
The Solution: Structuring & completing a 1031 exchange where the equity for the replacement property is substantially less than the taxes owed to the government from the foreclosure.
How it works: A low tax basis in a foreclosed property typically results from long-term ownership or from carrying a low basis from an earlier 1031 exchange.
Gain is recognized from a foreclosure since the event is deemed a sale by the IRS. The gain equals the amount of the deemed sale, less the adjusted tax basis (assuming non-recourse debt). Combined federal, state & local taxes can exceed 25% of the gain.
Defer the tax by giving the property back to the lender through a qualified intermediary, initiating a 1031 exchange. Use a deed in lieu of foreclosure to transfer the property.
Acquire a long term investment grade credit, net lease replacement property with credit tenant financing for around 10% equity.
This transaction cannot work using a 1031 exchange with property other than a long term, investment grade, net lease property with credit based financing, since too much equity would otherwise be required.
Summary: If your foreclosure is going to trigger a tax event you might want to look into a leveraged 1031 transaction to defer the tax triggered. The solution is often times considerably less than the check that you would otherwise be required to write to the IRS.
Definitions:
Triple Net Lease (NNN):
A lease in which the lessee pays rent to the lessor, as well as all taxes, insurance, and maintenance expenses that arise from the use of the property.
In a Double Net Lease (NN) the owner (you) are responsible for roof & building structure as well as some common area maintenance (mowing the grass). You'll see for example, that we offer some Dollar General stores on a Double Net basis. I'm comfortable with this with DG because with their newly built stores there is a one year manufacturer's warranty on roof & structure, AS WELL you'll typically find a 10-25 year warranty policy on the roof & structure. Anytime you look at a Double Net situation it's good to ask if the roof & building structure have warranty coverage.
FAQ's
What happens when I get to the end of the lease term and the tenant doesn't renew?
The first thing that you have to remember when you buy a NNN property is that you are NOT GETTING MARRIED. Owning property does NOT have to be a lifetime commitment. Buy your property, maximize value (that's why I like rent increase/bumps) and then SELL IT. You don't want to ever, ever, ever put yourself in a position where you've got two years left on a lease and begin to go into a panic as to whether or not your tenant wants to stay in your building.
Steven A. Arnold
Founder: Carnegie Wealth Management
"Your Next Real Estate Solution"
Every day we talk with investors seeking simple answers to the complex real estate issues they're facing. Whether your issue is finding the appropriate 1031 Replacement Property, fine tuning your current portfolio, or struggling with income tax matters from a pending foreclosure, we can help.
My goal is to assist in finding "Your Next Real Estate Solution" to meet the investment goals and objectives that you have defined. The extensive network of real estate acquisition professionals that I've developed over 30 years in the business can locate property to meet your criteria for either 1031 Real Estate Exchanges, or to simply diversify and strengthen your existing investment portfolio.
"Your Next Real Estate Solution" have been found in all classes of real estate; single & multi-tenant retail, office, multi-family, & industrial. We've specialized in Triple Net Lease (NNN) Single-Tenant Properties.
I've spent three decades helping my clients find real estate investments that match their investment criteria, threshold of risk and investor temperament. My clients want to see Off-Market properties, that offer them the CAP Rates they require, the length of lease that makes sense and the price that is fair.
Often times, our "Real Estate Solutions" come directly from the developer, a private portfolio owner or other Off-Market sources.
We've worked with Federal Express, Dollar General, Tractor Supply, Pizza Hut, Hardees, Rally's, AutoZone, Walgreen's, CVS and other corporate giants.
If you're fed up with seeing the same old tired properties on the internet, frustrated over not getting prompt (or any) responses from your broker and have finally come to the conclusion that you might just need to change your search methods, please don't hesitate to contact me. If we don't have the property you're looking for now, just give us your investment parameters and we'll go out and find it!
We appreciate your interest and look forward to helping you find
"Your Next Real Estate Solution".
Steven A. Arnold
President
(239)-898-8918 direct line
carnegiewealth@earthlink.net
Miami and Fort Myers
