COVID-19 and the CARES ACT- 1031 Exchanges and DST Solution

April 3, 2020

Al DiNi­co­la DST Invest­ments, LLC — Reg­is­tered Invest­ment Advi­sors

It is a fact the Coro­n­avirus has abrupt­ly change the finan­cial world in many ways Finan­cial Advis­ers, CPAs, 1031 Inter­me­di­aries, Real Estate Bro­kers and many oth­er are attempt­ing to adjust on a vari­ety of fronts.  There are many mov­ing parts to real estate trans­ac­tions under nor­mal con­di­tion. Today, we have seen addi­tion­al atten­tion pro­vid­ed to real estate con­tracts espe­cial­ly those uti­liz­ing a 1031 tax deferred exchange.

I have reviewed the 880 pages of the CARES Act, spend­ing more time on those sec­tions affect­ing real estate invest­ing.   After this review, I did not find any ref­er­ence that would impact the 1031 Tax Deferred Exchange process, tim­ing or exten­sion includ­ed with­in that text.  In oth­er words, there are no exten­sions!

CVID-19 Delays

Cur­rent­ly, we have sev­er­al “Clos­ings” on the down leg prop­er­ty (that a prop­er­ty own­er is sell­ing) that have been delayed for a vari­ety of rea­sons.  Some of the trans­ac­tion are focused on financ­ing where the banks now need to reeval­u­ate the acqui­si­tion.  Oth­er are sim­ply because the buy­ers can­not freely inspect the prop­er­ty as in the case in New York.  In oth­er sit­u­a­tions, the real estate also has a busi­ness includ­ed with the sale and there is addi­tion­al time need­ed to reopen that busi­ness and to eval­u­ate the full con­tract price.

How­ev­er, if you have already close on the “Down Leg” and look­ing for the replace­ment prop­er­ty you may be in a rather uncom­fort­able posi­tion.  With­out a pro­vi­sion for a clos­ing exten­sion, you may not be able to phys­i­cal­ly inspect the prop­er­ty, final­ize the trans­ac­tion or even con­duct basic due dili­gence.  In addi­tion, cer­tain rental prop­er­ties may have short term blips or inter­rup­tions in the poten­tial income stream.

Prac­ti­cal & Log­i­cal

 If you have already closed on your down leg and with­in the 45-day iden­ti­fi­ca­tion peri­od a DST* may be the prac­ti­cal and log­i­cal solu­tion to the sit­u­a­tion.  DSTs are care­ful­ly prepack­aged and can close quick­ly.   We have heard from investors who have iden­ti­fied spe­cif­ic assets to pur­chase only to be noti­fied by the lenders that the financ­ing would not be pro­vid­ed.  With a DST there is no need to qual­i­fy for debt financ­ing since DSTs are struc­tured with a non-recourse loan.  DSTs usu­al­ly employ mod­er­ate to low lever­age to be more con­ser­v­a­tive, but there is also a selec­tion of “All Cash” DSTs for those look­ing for some­thing ultra con­ser­v­a­tive or for a place for oth­er “cash” cap­i­tal, to enjoy the tax and eco­nom­ic ben­e­fits of own­ing income pro­duc­ing real estate.

DST pay month­ly dis­tri­b­u­tions and are approved by the IRS to be used to defer cap­i­tal gains, retain­ing the same real estate invest­ment attrib­ut­es!

HELP IS AVAILABLE

For more details please con­tact us for the up to date avail­abil­i­ty of DST in all asset class­es, geo­graph­ic loca­tions and most impor­tant that have been through a due dili­gence process.

If you are con­sid­er­ing sell­ing your invest­ment prop­er­ty and look­ing for a log­i­cal alter­na­tive for a replace­ment prop­er­ty, please con­tact us.  We have over 40 years’ expe­ri­ence in the real estate mar­ket and 1031 exchanges.  My name is Al DiNi­co­la, my toll-free num­ber is 800.378.0515 exten­sion 700 and my email address is. adinicola@dst.investments.  Mean­while, stay safe and healthy!

*DST are Delaware Statu­to­ry Trust and are avail­able only to Accred­it­ed Investors.