A TAXPAYER MAY ALLOCATE ACROSS DIFFERENT ASSET CLASSES, INCLUDING MEDICAL OFFICES, NNN RETAIL, INDUSTRIAL, AND MORE
#3. Institutional Management Some individual landlords conducting a §1031 exchange own a single property in a single market with perhaps a handful of tenants, operated either by themselves or a small local property manager. Conversely, sponsored real estate investment programs offer the opportunity to own a fractional interest in: • Tens or hundreds of millions of dollars of real estate
• Properties managed by a regional or national property management company with hundreds or even thousands of employees • Programs that have been subjected to multiple layers of due diligence, with an offering memorandum that includes a professional business plan and detailed financial projections
• Assets that were sourced and now operated by an institutional real estate firm, often with a demonstrable track record in acquiring/ operating/selling investment-grade real estate assets on behalf of REITs, pension plans, endowments, partnerships, TICs, and DSTs
#4. Diversification 8 Passive replacement programs offer the potential for four levels of diversification:
• Tenants. With as little as $100,000, a §1031 exchanger may invest in a diversified rent roll that, in the case of multifamily, senior housing or self-storage portfolios, could include several hundred tenants. • Asset classes. With a slightly larger exchange, a taxpayer may allocate to multiple investment strategies across different asset classes, including apartments, senior housing, medical office, NNN retail, industrial, office, self-storage and (when the pandemic is over) student housing.
• Geographies. Many DST programs offer multistate portfolios, while most are single- property offerings. For example, with only $300,000, one could have fractional interests in an Arizona property, Colorado property, and a three-property portfolio in Texas, Georgia and Florida. • Sponsors/Operators. A dozen real estate operators comprise two-thirds of the market for securitized passive replacement solutions. Former landlords can potentially benefit from the collective experience, resources and track records of multiple large, institutional firms in a single exchange portfolio.
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