RealNet Investments "warehouses" commercial properties for resale to investors who are typically seeking to satisfy 1031 exchanges. The properties are either sold in their entirety or in fractional interests in order to precisely match 1031 exchange requirements. The sale of fractional shares in a single asset to multiple 1031 exchange buyers is known as a tenancy-in-common transaction.
Since the IRS clarified the rules for such transactions last year, there has been a flood of companies offering such services to investors. When RealNet Investment started its business in 1999, there were four firms nationwide coordinating tenancy-in-common transactions, and there are now more than 400.
Prior to the IRS ruling, tenancy-in-common transactions were considered risky because it wasn't clear exactly how such transactions needed to be structured in order to qualify for the associated tax advantages. RealNet Investments had an significant advantage, however, as their legal representation was Portland-based Miller-Nash Attorney Ron Shellan, who was assisting the IRS in drafting what would become the official rules for tenancy-in-common transactions.
As a result of having been involved since the early days, RealNet Investments has refined its program to something it believes is only one of the safest for its 1031 exchange clients, because the properties are always multi-tenanted and RealNet is always the master leaseholder, but also a solid opportunity for brokers around the nation to get in on the action without having to start from scratch. "We provide the system and the equity, while our alliance partners provide us with good investment opportunities and local expertise in their respective markets," says company founder Scott Fouser.
For example, if a broker in Ohio brings RealNet a 9%-cap office building and can otherwise prove it's a solid investment, RealNet says it will provide the cash to initiate the transaction that same day. The broker can then not only make a commission on the sale of the individual tenancy-in-common interests, but he will also get a piece of the upside if the value of the fractional interests adds up to more than RealNet Investment paid to acquire the property, says Jason Larson, RealNet Investment's director of business development. Of course, the procuring broker must also participate in the liability, as well, by being on the master lease.
Given the rate at which brokers are joining the program, Larson anticipates the RealNet Investments will have between 12 and 15 cities covered by the end of the year. As part of the new program, Larson says RealNet Investments is preparing to launch three new Web sites: one providing general information about the company (realnetinvestments.com), one for investor clients (realnetinvestors.com) and one for alliance partners (realnetpartner.com). The Web sites will be up and running in October, says Larson.
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