Commercial Real Estate and Recessions are just as important as the Stock Market. We have seen recessions occur many times with the last being 2008 where the Midwest was one of the last areas affected and meant the last to recover; however, you choose to endure a recession will depend on your future economic needs.
Are you looking to just get out and take the IRS hit from a Capital Gains – maybe you are now at that point-of-life where the IRS Capital Gains isn’t as strong; maybe your accountant has said not putting money back into another ‘like-in-kind’ real estate property is recommended – so selling is the right direction.
Are you looking to weather the recession storm for the first time or second time as commercial real estate investor and found that the 2008 was not as hard a hit – so the projections of potentially another recession does not faze you – after-all, there is always the upward trend in value following a recession. Maybe now is the time to sell that single investment apartment or strip center for ‘like-in-kind’ partial ownership where the percentage of ownership has changed from 100 percent to small percentage – potentially minimizing a recessionary hit. By working with your accountant as to what is the right fit, the account might suggest the Delaware Statutory Trust Act (DSTA). The DSTA is the only recognized 1031-compatible for allowing investors to get the unencumbered freedom of contract as-well-as for investments in diverse high-quality portfolio assets that the IRS recognizes.
What is the DSTA?
The Delaware Statutory Trust Act was approved in 1988 as the Delaware Business Trust Act and then changed to Delaware Statutory Trust Act in 2002 is a statutory entity that is governed by Chapter 38, Part V, Title 12 of the annotated Delaware Code. This ensures that a 1031 can be rolled over into for investors to have a fractional interest in commercial real estate property with a relatively small investment. Having an ownership stake through a DSTA provides an opportunity to indefinitely defer capital gains taxes and relinquished the holder of a 1031 DSTA from being sole owner or manager of the commercial real estate property which provides you as the ‘Beneficial Owner’ all the rights of a trustee or singular owner without the investment problems of managing. Bechard Group recommends working with your tax professional, attorney or accountant first.
CoStar data shows that for the investor looking to staying in and weather a recession there have been three primary areas to look at: leases that are ‘net’ leases where little is placed on the landlord, long-term strong leases and finally guaranteed corporate/government leases that are financially guaranteed which will give this investor the ability to weather through the recessionary times.
When we discuss:
Net Leases, here the emphasis is on the commercial real estate tenant(s) to maintain the property verses the landlord holding the primary costs.
Long-Term Leases, a commercial real estate investor you would be after those leases that are 10 or more years. We do not consider a five year with option for another five as strong because the landlord is looking to the tenant to exercise the option; where-as, a 10-year lease would have strong exit penalties in favor of the landlord.
Financially Guaranteed Lease, a commercial real estate investor would look at this type of lease where a corporation or government entity, for instance, that has been around for years, has strong balance-sheet, will have the strength to out-last a potential recession. If the commercial real estate tenant is a governmental division, is that division part of normal operations, i.e. not through grant but always necessary – for instance the DMV, this would be solid commercial investment.
At-the-end-of-the day, your unique needs are best advised by your accountant. Once you know the direction that best suits your needs, Bechard Investments has the history, the knowledge, and the experience to help you with your commercial real estate direction. Bechard Group is Defined by more than Service & Expertise – we are Results!