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Comments (8)

Mar 31, 2021 - 9:38am

Yes but it's not easy.  Since 1031 owners have to control 100% of their "deal", it means structuring the ownership entity as a Tenancy in Common, which can be problematic for developers without a close relationship with their LPs.  

Mar 31, 2021 - 11:21am


TIC's are troublesome enough for stabilized deals, let alone development. I agree it would be very rare to see a TIC in a development deal.

I've worked on a TIC development deal, and it was a bear.  Mind you, it gets more complex when you factor in that the TICs cannot own the "development" as far as I know.  They can only own a real asset, the land, and then there is a whole ground lessor thing going on... it's a pain.  Not worth it as a developer unless it is really friendly money

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Apr 1, 2021 - 5:26pm

How about if you 1031'ed into the site that you were targeting for development and then contribute that to the developer as land equity? I think this would allow you to get around restrictions, but you would of course need to have a close relationship with the developer.

Apr 1, 2021 - 7:21pm

Not a lawyer, but that sounds logical. The only issue would be timing of the contribution of the land, as that could qualify as a sale (I guess that could be a matter of structuring). I think a 1031 can get disqualified if you don't hold the new exchange asset for a year + a day so it can qualify as long-term capital gain. As short-term, for trade property is not "like-kind" generally (again, there may be a way to make a case for this).

Still, this would require you getting a clear shot to buy the land, to contribute. Hell of a effort to make all this work, especially given that the partnership will might cause a sale and trigger recognition of gains before long anyway. 

So, would it really be worth it? I mean, the value of 1031 is trading a long-term hold for a long-term hold. If you trading into a short-term hold, sorta defeats the purpose (but I guess you can "roll" the tax savings in, so that's valuable).

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