In April 1031 exchange buyers were given an extension. The Internal Revenue Service issued guidance that said anyone who closed on a sale on or after April 1 would be granted an extension until July 15 to identify their replacement properties.

When that happened, Chris Pappas, associate director with Marcus & Millichap’s Net Lease Division, thinks the typical timeline for investing in 1031 exchange was relaxed.

“They didn’t have that urgency to move as quickly,” Pappas says. “Then, once they began to understand the market post-lockdown, then they started moving and closing transactions.”

As the July 15 deadline approached, 1031 investors started identifying deals. That showed up in June’s transaction number, according to the NNN Market Intelligence Report for June 2020 from Pappas. In the month, single-tenant sales jumped 67 percent compared to May. In all, 271 transactions were completed in June compared to 162 in May.

 

Going forward, Pappas wonders how much 1031 capital will be left. He says that 1031 exchange buyers only need to identify the property they’re buying by July 15. They still have 135 days to close.

With due diligence taking 30 days and closing taking 30 days, Pappas thinks most 1031 capital will be out of the market 60 days after July 15 (September 13). “Generally. you don’t see people taking that entire timeline to close their transactions,” he says. “They typically close well in advance of the 180 total days.”

Right now, Pappas says there is still a critical mass of people that are processing their transactions. But once September arrives, there could be a lull. Going forward, he thinks investors should be cautious until the exchange buyer pool benefitting from the July 15, 1031 extensions are entirely removed from the market.

In addition to an increase in transactions, June also saw the resurgence of activity in Florida. After tallying $18.7 million in May in May, dollar volume rebounded 267 percent to $88 million in June, according to the NNN Market Intelligence Report for June 2020. June’s total transaction velocity fell just short of April’s 280 transactions.

Overall, the South attracted 40 percent of all investment. The Texas/Oklahoma and West regions dropped in dollar volume for the second straight month, while the Mountain region jumped from $52 million in May to $120 million in June.

Despite those increases, COVID-19 continues to weigh on the sector. “With respect to demand for net lease real estate, there has also been a huge decrease in transactions across all product types nationally,” Pappas says.

Investors continue to prefer quick-service restaurants (69 transactions), dollar stores (61 transactions), and pharmacies (45 transactions). Those properties made up 64 percent of all June transactions. Pharmacies accounted for 29 percent of total dollar volume in single-tenant net lease, while quick-service restaurants came in second at 19 percent of dollar volume in the sector.

“The market also experienced an uptick in sales tenanted by automobile and gas/convenience tenants and a decline in bank tenanted assets,” according to the NNN Market Intelligence Report for June 2020.

 

Source: GlobeSt By Les Shaver | July 21, 2020 at 02:51 PM

 

 

 

 

 

COVID -19 has disrupted the normal market equilibrium of supply and demand, creating a unique window of opportunity for attracting exchange-motivated capital.

Despite commentary suggesting a stalled transactional market, Marcus & Millichap has seen near-record levels of closed transactions in 2020. As the 1031 exchange market leader, we know that nearly 40% of these sellers will become buyers.

 

 

Moreover, the health crisis has slowed new listings, further amplifying the opportunity for sellers to capitalize on the imbalance in place today.

 

Marcus & Millichap has the industry’s largest sales force of commercial real estate advisors and long-standing relationships with private clients, the primary source for 1031 exchange capital. Contact us today to take advantage of the small window for tapping this unique market opportunity.

 

 

 

1031 Exchanges: 10 Things to Know

 

With so many exchanges facing the same deadline, there is very real potential for unintended consequences.

As a result of the COVID-19 pandemic, the IRS issued Notice 2020-23, which provided a multitude of tax extensions, including 1031 like-kind exchange deadlines for some investors.

While the extensions were provided for good reason, there may be unintended consequences if eligible investors all wait to pull the trigger on their exchanges near or at the time of the deadline. Here’s a look at how that could happen.

The typical investor in a 1031 exchange has 45 days from the sale date of the original property to identify a replacement property, and 180 days from the sale date to complete the purchase of a replacement property. With the IRS’s new notice, the 45-day and the 180-day deadlines have been extended until July 15, 2020, for investors who originally had their 4th day or their 180th day fall between April 1, 2020, and July 15, 2020.

One example of how this could affect someone in a 1031 exchange would be if they had sold their property on April 3, 2020, in which case their 45th day would have been May 18, 2020. (They would have had to formally identify their replacement property by then.) Under the new guidelines, the same investor would have until July 15, 2020, to identify a replacement property.

More time is generally good, but if too many investors wait to effect their exchanges, the odds of unintended consequences are high. The possible outcomes? One may be that demand for quality exchangeable investment real estate exceeds the available supply in the first two weeks of July. If this happens, investors face fierce competition over replacement properties and could end up overpaying for choice assets.

Notably, many localities have seen a  significant drop in real estate listings since the outbreak of COVID-19, so the supply of available replacement properties is below normal.

Another consequence is that if an investor waits to purchase a replacement property, the investor may not have enough time to complete their transaction. I don’t think we have ever had a time in America where so many 1031 exchangers had the same deadline date.

A good option for many 1031 exchange investors facing deadline pressure may be co-investment products such as DSTs (Delaware Statutory Trusts) because the financing and due diligence are already in place by the sponsor and it’s possible to complete a purchase in three to five business days typically. So clearly, tight market or not, there are now highly viable investment options for 1031 replacement property buyers.

Bottom line, many 1031 exchange investors are rightly taking a reevaluation of the marketplace in the midst of the COVID-19 pandemic, but with so many 1031 exchangers in America facing the exact same deadline on July 15, there is very real potential for unintended consequences.

 

Source: National Real Estate Investor Alex Madden | Jun 02, 2020