by Prince Licaylicay | Mar 27, 2020 | All Articles, Exchanges (1031 & DST)
Lets look at 1031 Exchange Timelines and how the pandemic can impact them. In a 1031 Exchange there are timelines to follow. If a seller of an investment property is in agreement to exchange with a Qualified Intermediary when they close on the relinquished property, the clock starts ticking. The taxpayer has 45 days from closing to identify what they plan to purchase and 180 days to close on the identified replacement property/ies. The problem arises when there is an unexpected hurdle such as the Coronavirus (COVID-19), this puts most in unchartered territory and a place where some located in certain counties are unable to view properties due to Shelter-in-Place rules.
We as an industry are waiting to see what the IRS decides. The Federation of Exchange Accommodators (FEA, 1031.org), are fighting on our behalf and are working with the Treasury and IRS seeking disaster relief for taxpayers within a 1031 exchange:
On March 23, FEA joined members of the real estate coalition in sending a letter to Treasury Secretary Steven Mnuchin and other policy makers at the Treasury Department and Internal Revenue Service, requesting guidance to delay the deadlines applicable to like-kind exchanges that are currently underway due to the COVID-19 crisis. The letter specifically requests that deadlines to identify replacement property and/or complete like-kind exchanges should be extended to the later of 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance, similar to the relief described in section 17 of Rev. Proc. 2018-58 and authorized under Internal Revenue Code Section 7508A.
What does this mean for you as a seller that is amidst the 45-day identification period? As an industry we are all moving forward with the safe harbor rules. The decision to extend must come from the IRS; for now, a taxpayer should keep moving forward knowing their timeline has yet to be approved for extension. We will share any information on extensions as soon as it is released. More to follow…
The above is not meant to be tax advice, seek tax guidance from a CPA or professional tax advisor to verify how this may affect you.
Sheila Long
Regional Sales Executive | Old Republic Exchange Company
C: 480.341.2032
T: 480.443.6830 -AZ
T: 818.543.6584 -S.Cal
sheilaL@oldrepublicexchange.com
OldRepublicExchange.com
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Mar 25, 2020 | All Articles, Leasing
Should you pay rent during a crisis? Should you stop paying rent? And how should landlords manage rent payments during a global crisis?
Over the past few days, the hottest topic has been how to handle rent when a tenant’s business is affected by crises like COVID-19. Many landlords, tenants, and property managers are already considering how to handle the next rent cycle.
We recently discussed whether it’s time to sublease. Tenants have been asking brokers for help in subleasing their space due to business losses. In this article, we’ll cover both tenant and landlord perspectives to help you navigate this challenging time. We encourage both tenants and landlords to read through as there are overlapping ideas.
What to Do as a Tenant
Be Honest
Over the past decade, many tenants have asked for rent reductions or concessions, even without real need. This has made landlords skeptical of requests. Now is the time to be honest. If you don’t need a concession, don’t ask for one. Honesty can help repair damaged landlord-tenant relationships.
Be Prepared
If you do need a concession, come prepared. Provide your 2019 and 2020 year-to-date sales reports. If you own the business independently, share your personal financial statements. Landlords will appreciate transparency. Even if your sales are down, having cash or assets doesn’t automatically disqualify you from getting help. Sharing all relevant information can earn goodwill.
Full Disclosure
Be open about your situation. Is your business fully closed? Was it by choice or by mandate? If partially open, what are you doing to mitigate losses? Explain how a rent concession will help. The more forthcoming you are, the better the chances of finding a workable solution.
Know Your Obligations
Remember, you signed a contract that obligates you to pay rent, whether your business succeeds or struggles. Explore creative solutions. For example, you could request a rent reduction for a few months and extend your lease term. You might also waive certain rights in exchange for relief. A lease has many provisions that can be negotiated beyond just rent.
What to Do as a Landlord
Listen to the Tenant
In normal times, tenants should pay rent or leave. But in a crisis, things are different. Many small business owners are doing everything they can to stay afloat, and some quality corporate tenants are facing cash flow issues. Be open to understanding their situation.
Request Information
Ask for monthly sales reports from 2019 and 2020. Request personal financial statements if appropriate. Have the tenant describe the current status of their business and what it would take to return to normal. Some may bounce back quickly, while others may need more time.
Ask for an Offer
Let tenants explain what they need. Is it free rent (abatement), discounted rent (concession), or deferred rent (loan)? Letting them propose solutions gives you a better understanding of what’s feasible.
Communicate Quickly
Even if you need time to think about the proposal, respond quickly. This is a stressful time, and delays in communication can cause tenants to close or move resources elsewhere.
Make a Deal
If you’re offering a concession, ask for something in return. For example, make the concession conditional on the tenant staying for the rest of their lease. You might also gain the right to terminate the lease if a new tenant comes along. Make sure any agreement is written down, and prevent the tenant from discussing their deal with others in the building.
Insurance
Check with a knowledgeable advisor about property or liability insurance. Most policies exclude losses caused by viruses or communicable diseases, but it’s important to know where you stand.
Federal Programs
There may be federal or state programs that can help both tenants and landlords. The Small Business Administration’s website offers guidance on available federal programs. Learn more here.
Advocate
Approaching a landlord or tenant can feel intimidating. Let us be your advisors and advocates. We aim to create win-win scenarios for everyone. By acting as a buffer, we help you maintain positive relationships moving forward.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com. Let us help you stay ahead in the market!
by Prince Licaylicay | Mar 12, 2020 | All Articles, Buying, Exchanges (1031 & DST), Investing
Let’s talk about “like kind” in a 1031 exchange. The Internal Revenue Code provides that a taxpayer may sell property and defer the payment of any capital gains tax if that taxpayer uses the proceeds to acquire like kind replacement property. It is always important to share first, section 1031 of the Code states:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
So, in this discussion I want to highlight what “like kind” really means for the seller of an investment held property. The 1031 exchange IRS uses this term however it is broader than it appears to be. Like Kind is any property that is “held for investment” or “for use in a trade or business”; meaning the property sold must be exchanged for other property that is also “held for investment or for productive use in a trade or business.” Most sellers don’t realize this now gives them the ability to sell one type of property and buy another. Giving examples, a taxpayer can sell land and buy residential OR one can sell commercial and buy multi-family. As well, sell one and buy multiple and ALL are considered like-kind. The problem is how this term is interpreted, most taxpayers think like kind must have the same characteristics, or like a vehicle, be the same make and model. That is not the case. This term should really just state: … if such real property is exchanged solely for real property of which is to be held either for productive use in a trade or business or for investment.
With this being said, a tax payer should always consult with their tax or legal advisors. Knowing the true meaning of like kind gives an investor the opportunity to understand there are many alternatives to diversify with another type of investment real estate in a 1031 Exchange. If you want to know more about the Exchange process or review your options, we are happy to assist.
Sheila Long
Regional Sales Executive | Old Republic Exchange Company
C: 480.341.2032 | T: 480.443.6830 -AZ | T: 818.543.6584 -S.Cal
SheilaL@oldrepublicexchange.com
Old Republic Exchange | Old Republic Insurance Group
OldRepublicExchange.com
With 20 years of RE background in commercial and residential, Sheila is part of the national sales team for a Qualified Intermediary dealing with 1031 exchanges.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com. Let us help you stay ahead in the market!
