A look at current investment trends across the commercial real estate industry.
Executive Vice President
Certified Exchange Specialist®
Chicago Deferred Exchange Company
1. What are you seeing in terms of activity by industry?
TF: 1031’s were solid through the middle of April 2020 with closing activity on both the sale and purchase side. Closing activity is now down as buyers & sellers consider re-negotiating prices and lenders have grown wary. As of now we are starting to see more investors reach out and asking more questions. They are looking around to see what is happening in the real estate space. Whether or not they decide to sell or list property in this environment is unknown to us at this time. In terms of trends every exchange client is unique with a different set of circumstances to consider depending on how their overall portfolio and family has been effected by COVID-19.
2. How has the 1031 extension affected your activity?
TF: The IRS Treasury Notice 2020-23, released on April 9, 2020 provided some much needed relief to taxpayers engaged in like-kind exchanges. The Notice provides an extension to July 15, 2020 for Taxpayers whose 45th Day identification period fell between April 1, 2020 and July 15, 2020 for a Forward Exchange.
We have many clients who had decided not to cash out at Day 45 to see if they can locate property by July 15, 2020. Day 180 remains unchanged.
There was also relief to those taxpayers in a Reverse Exchange whereas Day 180 would be extended until July 15, 2020 to sell the relinquished sale property.
3. What metrics are you watching in the industry – what causes concern and what gives hope?
TF: Transaction volume is the most important metric in our business. Deals are still getting done. People are beginning to reach out again investors want to know what is going on and want to learn more about any good opportunities to invest. Although I think it will be a longer time-frame for the entire transaction from start until finish – we may see more deals closing end of summer or fall as many of our existing pipeline deals have been extended out due to COVID-19.
4. What should people who are planning 1031 exchanges know right now?
TF: As always investors should talk with their accountants to understand tax consequences and all the new regulations in the works as it may pertain to them and their entire real estate, business and investment portfolios. People should take time to talk with real estate brokers to understand the market conditions and what opportunities are out there to determine what timing looks like and learn what financing opportunities are available with their banks. Now would also be a good time to look at how you hold title to your assets, look at your trust and estate planning needs and/or adjustments that you may like to make to your portfolios. And, CDEC will be here when you need to defer the capital gains tax on the sale of your investment property for your 1031 Tax Deferred Exchange.
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