Case 4

 

UpREIT rejected for credit tenant property alternative

A seller’s long-owned property had depreciated significantly so that his gain and resulting tax would be large.  He aimed to defer taxes by contributing his property to a REIT but he worried about the tax that would be triggered at any time by the REIT’s eventual sale of the contributed property. 

Haunted by the uncertainty, he pursued, instead, a Net Lease Capital strategy of structured exchange for sale-leaseback property. The exchange portfolio included properties diversified across industries and geography, and with low risk of missing 1031 deadlines, due to these properties’ abundance and liquidity.

The seller planned to hold many of the properties at least as long as until the market conditions changed, affording better investment opportunities. With some of the properties, he would use credit tenant finance to draw significant proceeds to use in other investments.