SCI Principal Marc Paul tells GlobeSt.com the group put up $9.5 million in cash and obtained a $28.5-million loan from Bear Sterns for the remainder. The 10-year loan carries an interest rate of 5.6%.
Such transactions are becoming more common. In late May, Passco completed one of the largest tenant-in-common transactions on record, bringing together 32 investors -- most of whom were completing 1031 exchanges -- to acquire the Puente Hills Mall in California for $148 million.
"You wouldn't have seen this type of tenant-in-common transaction a year ago," says Paul. Paul says 1031 exchanges are a $40 billion market and currently only 2% of that are tenant-in-common transactions. "Come back and look at this in five or 10 years and I wouldn't be surprised to see such transactions account for 10% to 20% of the market."
One of the main reasons for the increasing interest in such transactions was a new 1031 guideline that the IRS came out with last year, providing more direction for such transactions. "Prior to that we were working in the dark, in uncharted waters" says Paul. "Now we are in the light on how to structure these deals and the majority of tax attorneys are comfortable with it."
Paul characterizes the company's typical investors as "…tending to be risk averse, long-time real estate investors, who want no management headaches and good cash flow. Usually they are selling a property and want to take advantage of the IRS tax codes."
Now, instead of having to find another apartment complex to acquire for $500,000, heretofore smaller investors can put their money in a much larger and higher quality project than they could possibly afford on their own, says Paul.
"It's a whole new wave and you are going to see a lot of this," says Paul.
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