Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/595440
22 • November 2015 • Western Real Estate Business www.REBusinessOnline.com THREE REASONS A DST 1031 EXCHANGE PROPERTY MAY WORK FOR YOU DSTs can provide a viable solution to the 1031 exchange time crunch. By Dwight Kay T here are many things to con- sider if you are a real estate in- vestor looking to conduct a 1031 exchange in today's market when it comes to choosing replacement prop- erties. One of them is what type of replacement property you want to exchange into, as this must be done prior to the end of the 45-day identi- fcation period that all 1031 investors must abide by. A Delaware Statutory Trust (DST) is a type of replacement property designed for accredited investors in- volved in 1031 exchanges. The DST is becoming an increasingly popular 1031 exchange vehicle for a number of reasons. Today, we are going to examine three benefts to DSTs: 1) DSTs are pre-packaged for exchange investors to meet certain 1031 timelines 2) DST properties allow 1031 investors to diversify their exchange proceeds 3) DST properties provide a hands-of management approach to real estate ownership 1. Pre-Packaged Properties DST 1031 properties are pre-pack- aged for 1031 investors. This means the real estate sponsor company or as- set manager has typically already ob- tained fnancing, estoppels, apprais- als, environmental reports, property condition reports, etc., and has often already closed on the DST property. This gives investors the ability to close on a DST property within typi- cally three to fve business days, po- tentially removing the closing risk in- vestors often face when they have to purchase properties on their own. The 45-day identifcation period goes very quickly as investors scram- ble to write ofers, negotiate contracts, conduct due diligence and arrange fnancing on replacement properties. Investors are often identifying prop- erties they're not even sure they can close on, or even know if they want to close on, as their due diligence is not complete yet. This presents a very real risk for a failed 1031 exchange. With the DST, clients have pre-packaged re- placement properties they know they can close on quickly. 2. Diversifcation Often times, 1031 exchange inves- tors are selling properties they have owned for many years, which have in- creased substantially in value. These properties can sometimes represent a large portion of the investor's net worth. A diversifcation strategy can generally lower the investor's concen- tration risk, and potentially help them accomplish their goals. DST properties allow investors to exchange their 1031 proceeds into multiple properties, in multiple asset classes (such as apartments, commer- cial and triple-net leased properties) and geographic locations. The tenants and their business segments are often diversifed as well. The variety available through DST properties provides the 1031 inves- tor an amount of diversifcation that is not often available to them on their own when purchasing whole proper- ties. It is important to note that diver- sifcation does not guarantee profts or protection against the loss of some (or the entire) investment principal. 3. Hands-off Management Investors are avoiding a lot of head- aches that come with the day-to-day continued on page 24 NEVADA IS PRIME FOR INDUSTRIAL OPPORTUNITIES Las Vegas and the Greater Nevada region are showcasing their business-friendly climates now that the Great Recession is in their rearview mirror. By George Condon T he Las Vegas economy is re- turning from the depths of the Great Recession and bringing its indus- trial market with it. There are several drivers behind the economy's current growth: tourism, casino/resort devel- opment, residential demand, its prox- imity to California and Nevada's pro- business stance. Tourism has returned to record lev- els. Casino/resort development is oc- curring again. The residential housing market is fnally stabilizing, sparking demand for new housing. Companies are looking at Las Vegas and Nevada, as a whole, as an alternative to Cali- fornia for distribution, especially e- commerce centers and manufacturing. The pro-business message con- veyed by state and local ofcials and economic development agencies is paying dividends, and local frms like Dermody Properties are doing all we can to support this statewide efort to attract new companies to Nevada. Las Vegas is close to one of the na- tion's largest consumer bases, South- ern California, which includes the ports of Long Beach and Los Angeles. Interstate 15 provides excellent access to Southern California and Utah with- in one day's truck drive. Additionally, linking Interstate 11 to Phoenix will open other industrial opportunities for Las Vegas. Nevada's attraction also includes the state's benefcial tax structure and ready and able workforce. Companies that need to invest large amounts of capital in their buildings for manufac- turing or complex picking and han- dling systems, or those that need large workforces have found a home here. Las Vegas is also a wise investment choice for pension fund investors who seek higher returns for investment- grade buildings than what they can achieve in Southern California. Dermody has been a very active investor and developer in Las Vegas since 1974, and remains optimistic about the region. For example, Der- mody's LogistiCenter at Cheyenne was almost 40 percent leased before its walls were even up. These factors have sparked new de- mand for industrial space, according to statistics from United Construc- tion Company, a national frm based in Nevada that has been active in Las Vegas for decades. As is the case when markets cor- rect, Las Vegas is lacking larger spaces available for lease. Signifcant statistics include: • The industrial vacancy rate is at 5.8 percent, the lowest since the third quarter of 2007. • Absorption in the second quarter of 2015 was 1.6 million square feet, the highest since the second quarter of 2008. • Absorption in the frst and second quarters of 2015 exceeded absorption for all of 2014. Dermody Properties is forecasting a strong year for the Las Vegas in- dustrial market that will lead to new construction, lower vacancy rates, and higher rents and building values. George Condon, Partner, Dermody Properties West Region Offce in Reno, Nev. Cheyenne Logistics Center encompasses 20 acres in the North Las Vegas industrial submarket. Condon