Zero Cash Flow Rent Holiday Portfolio
I have amassed a sizable portfolio of zero cash flow rent holiday assets. What exit strategies do I have? The institutions I have spoke with don't touch these deals, and individual buyers filling 1031 Ex. are too small. What players can can assume approx 100 zero cash flow deals in a single transaction? I would like to shift my portfolio from drugstores to Core plus Industrial.
Thank you in advance.
The Chinese
Nail on the head. I'm on the west coast and every Chinese national I've talked with that invests in net lease wants a zero cash flow deal. They usually want something with like 10+ left on the term though so if these are nearing the end of their term it could be a little tougher.
Why do you think that is? That's surprising to see a cultural correlation.
This is the spark notes version of what a Chinese lady told me.
Chinese people don't necessarily think like Westerners, in America we may think of ourselves and our kids, but in China, they are thinking 3-4 generations down the line. In China you can't own land forever, I can't remember the specifics but you basically buy a long term lease. American property, as long as you pay taxes, can own basically forever. The Chinese see zero cash flow deals as ways to get their grandchildren commercial real estate while limiting tax liabilities. ie A retired Chinese couple is living off of a NNN Starbucks they own and have 2mm in 1031 dollars to invest. Using leverage, they buy a ZCF McDonalds in LA with a 25 year lease and use the tax 'losses' to offset the income of their Starbucks, leaving them with more money every year. After 15 years they die and leave the property to their children, who, after another 10-15 years, now own that McDonalds outright and can pass down the property as an investment over the next generations.
I'm no expert on these but this is the general thought process.
Basically, the idea of buying real estate tax free that your family can own for 500 years is like crack to Chinese nationals.
Pacnumber the answer to your Private Message is yes. It won't let me respond directly to it.
Got it. You may have to be a member a little longer to message.
Are these all currently in rent holiday / end of lease, or rent holiday comes in the future ie last 3 years of lease? Going to guess they're the drug stores initially leased during the 2000-2010 range w the free rent coming at the end of the 25 year lease, fully levered? If it's giving off phantom income that's probably the play / finding a buyer looking for that. I'm in credit tenant lease financing, so see a fair amount of this around. Feel free to shoot me a msg if want to discuss more.
Biso21 - Yes. These assets have approximately 5-15 years left on initial term (2-12 years of paying rent). What types of groups would strategically seek phantom income generating properties? Whats the financial advantage? I am less familiar with all the tax components than it appears you are. Any advise is greatly appreciated.
I am very familiar with these assets and can raise not only a buyer, but also place you into the assets you are looking for. Please recommend a way that we can have a confidential dialog.
You brokers never give up, do you?
Uh oh. Match made in heaven.
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