Backup 1031 Alternatives for CRE Agents and Brokers

Commercial Real Estate Agents and their brokerages find that working with clients who require a 1031 exchange can be stressful, all-consuming, and frustrating.

In many situations, a CRE agent cannot facilitate the entire 1031 exchange to the client’s choice of property. This is due to lack of inventory, financing terms or missed timing.

For Commercial Real Estate agents who work with both individual and institutional clients – this dilemma is not uncommon.

Let’s look at the example below. Perhaps you have found yourself in this predicament. The relinquished property is a Medical Office Building, and the replacement property is an Urgent Care facility.

*For Illustrative Purposes Only – example excludes mortgage debt and closing costs.

If your client chooses not to 1031 exchange the remaining funds from the Down Leg property – the following taxes could be triggered: Capital Gains at the federal level, State taxes (dependent upon state), Net Investment Income and Depreciation Recapture Tax (Section 1250).

Active Real Estate – the Hand’s on Approach (Ownership)

Passive Real Estate – A Delaware Statutory Trust ("DST")

• The client is a beneficiary of a trust, the trust owns the real estate – not the client*

*For further explanation on the pros and cons of DSTs, please contact CYNA 1031 Advisors.

Disadvantages of the Delaware Statutory Trust ("DST") Structure

• DSTS are illiquid. Liquidity is only available upon disposition of individual properties or the Trust as a whole.
• Hold periods are longer than most investments (typically 5 to 10 years).
• Beneficiaries have no control or involvement in property management decisions.

Potential Benefits of a DST

For clients who cannot close on a property or does not have the necessary capital to acquire a property of their choice.

• No personal guarantee on any loans.
• No acquisition risk – properties of the DST have already been purchased and are typically cash flowing from Day¹.
• No day-to-day management headaches as the trustee is responsible for all decisions.

At CYNA 1031 Advisors we do get involved in:

• Making certain that conducting a 1031 is in the client’s personal, business, and financial best interest.
• Reviewing their current and future financial situation especially as it pertains to the client’s tax implications, income requirements, retirement strategies and estate planning needs.
• Working with the clients’ other advisors (CPAs, Attorneys, Investment Advisors etc.) to make certain that conducting a 1031 exchange utilizing the DST format is in the best interest for themselves, their families, and their business.

At CYNA 1031 Advisors we do NOT get involved in:

• Acquiring or selling the property.
• Financing or lending the property.
• Managing the property.

We seek Commercial Real Estate Agents with the following characteristics to send referrals (CYNA does not accept any fees, gifts, or gratuities of any kind):

Agents associated with reputable brokers having solid client services, asset-based specialties, relationships within the agent/broker community and lending facilities.

To discuss your situation and to discover where CYNA 1031 Advisors could potentially provide a solution to your client.