Leasehold Bifurcation / 1031 exchange
If you were to split the leasehold (building) and fee (land) on and asset and subsequently sell the fee-interest... could you theoretically take the proceeds from the sale and do a 1031 exchange back into the leasehold interest if it was retained by a separate PropCo or SPE?
No, first I think your org chart thinking is a little off here. You would lease the building to a related entity, sell the land and then buy the lease from the related entity? That means the related entity needs to go and 1031 next. But before that becomes an issue, 1031 exchanges need to be at "arms length" and that doesn't mean just selling for market prices but buying and selling entities cannot be related.
When you are undergoing a 1031, you have to nominate and subsequently close on a property that is of a greater value. I apologize but I just can't see how your example would get the numbers to work, considering the equity and mortgage boot.
Value of the leasehold would depend on the ground lease rent, if it was a very favorable long term lease the leasehold could definitely be worth more than the fee initially.
The keyword here is "very favorable". I guess I can see this applying to a market where values are decreasing. However, in my humble experience, this is akin to searching for a unicorn.
Indeed but this guy is talking about engineering his own related entity deals.
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