Complete 1031 Exchange

Tri-Oak Consulting Group

TOPIC: Complete 1031 Exchange
PERSPECTIVES: Sell-Side & Buy-Side Broker
PROPERTIES: Family Dollar & Nextcare

BACKGROUND

A client, who sold a dairy farm and bought a Family Dollar property in Pelion, SC from us in

2007, considered selling it after owning it for 10+ years. They wanted to complete another

1031 exchange into something that had less landlord responsibilities, better demographics,

and rental increases. In 2017, Family Dollar exercised their first 5-year renewal and we

exclusively represented our client in selling their Family Dollar property, as well as, finding

a new property to satisfy their 1031 exchange.


THE CHALLENGE

Disposition

Family Dollar exercised the first lease extension making the lease term remaining 5.5

years. However, they reduced the rent by 10% and the owner was not confident that Family

Dollar would continue to renew their lease beyond this renewal. Also, the creditworthiness

of the Family Dollar – Dollar Tree merger was making them question holding their asset. The

property had a double-net lease structure in a rural market, with an aging metal building.

These factors effected the selling price and the number of qualified buyers we were able to

attract. The seller was willing to hold the property, even with the inherent risks, if they

could not sell for a specified return.


Acquisition

Our client’s strategy for their 1031 exchange was to find a high quality property that was

within 2 hours from their home, in a dense area, with strong demographics and traffic

counts. They were considering newer triple-net Dollar General properties in North and

South Carolina, but quickly realized the cap rates in the areas they wanted were too

aggressive. Our client was looking for a property in the $1M to $1.2M range with an LTV of

35%, which limited the number of quality properties. We had to adjust our strategy, and our

search efforts began to focus more on strip centers and medical/urgent care buildings.


THE PROCESS

Disposition

We created “The Property Profiler” and conducted a thorough broadcast, leveraging our current database of potential buyers and prospects in addition to unconventional web-based resources. With pricing and marketing aggressively, we were able to locate a 1031 buyer.


Acquisition

We created “The Purchaser Profiler” and conducted an aggressive search leveraging our

database of developers and retail reps on a national and regional level to uncover any “off”

and “on” market opportunities. We also leveraged our database of properties to create a

“Locate List” for our client to easily see what properties were available. This helped us

quickly confirm search criteria and zero in on the right properties. We communicated and

qualified effectively, while moving aggressively and persistently towards finding three

properties to identify for their 1031 exchange.


THE RESULT

Disposition

After strategizing and confirming our client’s disposition and acquisition plans, we agreed

to implement a solution with a specialized team approach utilizing an exclusive

representation agreement. We aggressively broadcasted the Family Dollar property, and

after almost one year on the market we found a 1031 purchaser. We navigated and

overcame last minute negotiations, including building repairs and a price reduction due to

an existing lien on the property. We closed on their down-leg with 4.7 years of lease term

remaining.


Acquisition

Our client identified three 1031 properties within their 45 day ID period, and closed on a

urgent care building in 60 days, even with an unexpected lender change. This timeframe

was well under the allotted 180 days, which got their equity back to work as soon as

possible. The urgent care building was an all-brick, triple-net with annual rent increases

which helps counter inflation risk. The property is closer to their home, had less

responsibilities, and higher quality underlying real estate while also maintaining their initial

investment and saving more than $100K in potential capital gains taxes.


Throughout these transactions we maintained a high touch relationship and stayed in tune

with the goals and concerns of our client. We helped them stay focused and confident to

overcome hurdles during the disposition and acquisition which translated into a better long

term investment and piece of mind. By taking the time to listen, confirm goals, strategize,

and utilize our process throughout each transaction, an extremely efficient and satisfying

experience was had by all parties. Objectives were met, time was saved, and returns on

investment were achieved.

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