It’s Business as Usual for This Firm on 1031 Exchanges

While there is a lot of concern about the effects of the Biden tax policies on commercial real estate, Jason Salmon, senior vice president and managing director of real estate analytics for Kay Properties & Investments, hasn’t seen that manifested into action yet.

Salmon says his clients are still actively transacting, despite the smoke around tax law changes. Even though capital gains tax may go up, investment properties still provide investors with diversification income and appreciation.

“ If they’re doing a 1031, they’re very well doing 1030’s every single day,” Salmon says. “If they’re doing 1031’s, they’re doing 1031’s. If they’re not, and they’re buying into a fractional real estate deal with non-1031 funds, they’re doing that too. For us, it’s frankly business as usual.”

While tax changes are important, the fundamentals of real estate outweigh other concerns. A solid deal is still a sold deal

“Everybody’s situation is unique to them within a larger picture of the basics of real estate,” Salmon says. “Whether somebody is a landlord or they’re fractionally owning, you’re looking at a tenant or tenants in place usually paying rent and hopefully creating value ultimately from the ownership of that real estate over time.”

 If an investor is doing a 1031 exchange, there is a very specific framework outlined through the Internal Revenue Code that they must follow.

If 1031’s were to become limited, Salmon says there are other real estate investment options, including Delaware Statutory Trust (DSTs) and Tenant in Common. “At present, we have clients that are doing 1031 exchanges, and we have clients that are doing direct cash investments and fractional ownership real estate deals,” Salmon says.

With these investments, fractional interests can be divided to be relatively modest, so gains could be below thresholds to qualify for 1031 tax treatment. These fractional options provided the ability to diversify into multiple asset classes of real estate and having professional management in place.

“In many cases, the minimum investment for a Delaware Statutory Trust could be low—in the thousands and sometimes lower with tenant in common [structures],” Salmon says. “A lot of times, it is a fairly accessible price point for investors who may be able to diversify.”

Salmon says Kay Properties & Investments has actually seen an increase in business in 2020 and 2021 as investors look for professional managers to operate their properties. Whenever there are changes, Salmon says his firm will be ready to deal with the situation.

“We really do stay hyper-focused on being present,” Salmon says. “And presently, we deal with our client’s situations as they are.”