Patels Capital advises investment property owners on Section 1031 exchanges into Delaware Statutory Trusts, and on the Section 721 UPREIT conversions that can follow.
Substantial equity. Modest yield. Concentrated risk.
A valuable property is not the same thing as a productive investment.
In expensive markets, equity has compounded faster than rent, and the yield on that equity has fallen as a result. At low yields, a single vacancy or large repair can erase many months of net income while the owner bears all the operational liability.
Nearly all of that risk also sits in one place: one asset, one submarket, one insurance carrier. The same concentration that would be unacceptable in a stock portfolio goes unremarked in a real estate one.
Many owners have considered selling and stopped at the same two obstacles. The first is tax, which on a long-held, depreciated property is large enough to be its own argument for doing nothing. The second is where the money would go. They want to stay in real estate, and do not want to trade it for another line in a brokerage account.
Section 1031 makes another answer available. Most owners know it as a way to swap one property for another, with the same work and the same concentration. It can instead fund a fractional interest in institutional commercial property, the same class of asset that pension funds and endowments hold, professionally managed, with no operating role for you. For many owners, it also produces more income. The gain is deferred, and what you own is still real estate.
We are independent and fee-only, and work with a small number of clients, by introduction. You are also welcome to request access to our client area, where we compare institutional DST programs and the REITs they convert into. Work with us →