1031 Exchange Buyers: ‘Essential’ for CRE Recovery
This typically active investor category is expected to regain its confidence quickly and take advantage of extended deadlines, estimates Tom Georges of Stan Johnson Co.
May 6, 2020 | Tom Georges | Commercial Property Executive
Since January’s first reported case of COVID-19 in the U.S., our economy has experienced massive volatility. We’ve seen unemployment numbers surge and millions of businesses closed with, by some estimates, at least 3 percent of all restaurants closing their operations permanently.
Uncertainty is the new normal, at least for the moment, as professional analysts and arm-chair prognosticators try to predict when businesses will be permitted to reopen on a wide-scale basis and what will be the extent of the long-term damage to the economy. Unfortunately, there is no magic formula or any single event that is likely to jump-start the economy and quickly take commercial real estate investment sales activity back to pre-crisis levels. In the meantime, one group of investors, 1031 exchangers, continues to be active in the market, and their continued activity makes them a very essential part of our recovery.
Since it was first introduced in the 1920s, property owners have utilized Internal Revenue Code 1031 to defer taxes on capital gains by exchanging the sale proceeds and retired debt of real property into like-kind property. As a result, 1031 exchanges have become tremendously valuable in providing investors a method for keeping more of their investment dollars, allowing those dollars to work for themselves and the overall economy. Additionally, 1031 investors help to support property values by keeping a steady supply of buyers in the marketplace that are motivated to act within the timing requirements of their individual exchanges.
