Back in November, I was interviewed for the December issue of Shopping Center Business, in a segment entitled “1031 Slowdown”. It was an appropriate title at the time, for 1031’s had indeed decreased, however, today this may not be such an accurate description. Since January 1st ES Group and our partners have seen both a spike in exchange activity of multifamily/retail investments valued between $1-20 million and an increase in conversations with prospective clients. Investment sales in many segments, including multifamily, office and retail are breathing new life into the 1031 exchange market. Many are attributing the spike to newly available commercial loan money.
To bring people up to date on what we are seeing currently, I have composed a list regarding recent trends below:
- Increase in proposed 1031 QI legislation at the State Level (is actually on the table today, Jan. 21, 2010)
- Increase in commercial sales with credit (BBB+) tenants of $1-20 million.
- Increase in financing for buyers of relinquished property $1-10 million.
- Increase in residential rental sales in high employment areas with FHA financing as catalyst.
- Neutral activity in residential rental in beach communities and low employment areas.
- Neutral activity in institutional commercial sales ($30 million +)
- Increase in purchase of royalty interests.
- Increase in aircraft sales and exchanges.
- Increase in securitized debt for commercial buildings ($5 million +)
- Decrease in interest rates paid by banks on 1031 deposits since 12 months ago.
- Decrease in number of QI’s since 24 months ago (300 in 2006, 75 in 2010).
What does all of this anecdotal information translate to with regards to our future? First of all, it supports the self-correcting nature of our regulatory system, legal system, and capital markets. After LandAmerica went bankrupt, VA is passing Qualified Intermediary regulations. After the CMBS market was deemed broken, Wall Street bankers and attorneys have built and rebuilt replacements. Finally, investors have shifted their attention towards risks like the creditworthiness of tenants, which was taken for granted earlier in the cycle.
