1031 Exchange

BRC Advisors, Net Lease Group provides net lease advisory services for IRC 1031 exchange clients and other risk-averse Investors. Our proprietary 67,000+ NNN investment property data base, combined market intelligence and deal-making relationships, affords our clients a “BRC Market Edge.” We serve multi-family investors and taxpayers who may wish to defer their substantial capital gain liability by utilizing IRC 1031 exchange provisions. We specialize in credit tenant net leased assets which we view a “fungible commodities” to provide solutions for 1031 Exchanges; partnership basis solutions and foreclosure strategies in an increasingly volatile investment market. These assets afford an investor a stable, secure, predictable source of a return on their equity to diversify their portfolios from higher yield, more risky investment vehicles. A credit tenant assets with fixed-rate, long term debt and an investment grade tenant, in place, is more like buying a bond equivalent than a more speculative real estate investment. Many of our clients report that they have never slept better in their lives.

Over sixty (60%) percent of all 1031 Exchanges that are completed come out of our client base in Southern California. We have a very demanding client base. We are required to have a national scope for our products and services. We specialize in these credit tenant NNN properties which provide a predictable, stable and secure income stream in which the tenant has the sole responsibility for operating and management expenses that often erode the net income streams of income-producing properties.

This net lease niche of the real estate investment industry presents a risk-averse alternative for investors, many of whom are transitioning from management-intensive investments, like apartment buildings to a relative ‘coupon clipping’ option with predictable income streams and no management operations like their other real estate assets.

  • IRC 1031 provisions allow a taxpayer/investor to defer their gain and preserve their wealth. In choosing a net leased asset as a sound and conservative investment, a taxpayer/investor has a predictable income stream from tenants are effectively financed on their creditworthiness; as well as, the real estate intrinsic of more speculative investments. This is an important consideration in our changing real estate landscape.

NNN Financing

Debt structure should reflect the unique investment goals of each client which is then matched with current or prevailing debt structures available at one point in time. At BRC Advisors, Net Lease Group, we clearly monitor market conditions and debt quotes on a daily basis, and recently, multiple times a day, in order to provide accurate and updated assumptions for the debt component of nay transaction contemplated by a client. Some are looking for short term (5-10 year) yield goals; others are tax-motivated investors looking to match up their IRC 1031 debt component. Still others want to cash out of the current market and fix their debt cost for some horizon to weather the storms that may be gathering. We have access to terrific debt sources who can respond in a timely manner which allows us to secure the most effective rates and debt structures to meet client requirements and close deals.

Foreclosure Strategies

We may be facing a changing real estate environment regarding the last cycle of real estate acquisitions and debt financings. The result may be responsible investors whose project assumptions have not been borne out or whose initial debt structure had a time bomb implanted which is about to go off.

In the context of a foreclosure proceeding, an investor client not only risks losing the assets in question relating to the loan documents, but there is also an additional consideration that such “forgiveness of debt” is, in fact, a taxable event; and therefore a capital gain liability may be incurred as well.

BRC Advisors, Net Lease Group suggests that their may be additional deferral strategies available. Please contact your counsel and a BRC Advisor to review your options.

Additional Basis

In addition to rental income streams and property appreciation, the tax benefit of depreciation deductions can make an impact for most real estate owners. We encounter many situations where substantial value has been created; and rather than selling or disposing of an asset, an investor wishes to refinance and continue to own the property over a longer holding period. A problem can be that the depreciation schedule has substantially run out whether 27 year schedule for residential or 39 year schedule for commercial assets. We find that these credit tenant net lease assets can be acquired in a highly-leveraged manner due to the tenant’s creditworthiness, often with debt pre-arranged on a non-recourse basis, which can be acquired as additional basis for an owned asset to create a better tax profile. Again, as always, your accounting professional can provide guidance if this strategy has application in your particular situation. We have direct access to such access and can serve as an ancillary service to your accountant as he or she provides tax consulting services.

Portfolio Advisory

As a result of the performance standards demanded by our clients who find themselves in the time-sensitive IRC 1031 Exchange deadlines, we are highly attuned to the nuances of the net lease marketplace. We can provide portfolio advisory services for clients who do not follow the pack chasing the often illusionary high yields of the recent past. Our typical client is a seasoned real estate investment pro who has seen a number of cycles and who understands the value of diversification and security of owning at least a few NNN assets with stable, secure, predictable income streams.

Investment Grade NNN

Real estate investment is not for the ‘faint of heart’ or the undercapitalized investor. There are identifiable and predictable cycles in the economy and various real estate sub-market issues depending on location and “asset class”. With these factors in mind, there is an investment niche of net leased assets or NNN properties which fulfill a special role in every investor’s portfolio; and play an even more important role in IRC 1031 Exchanges where your investment focus is often on wealth preservation in a risk-averse manner. Consider that you may have just sold an asset which took years of work and skill to create its market value. Do you really want to start all over a gain in that cycle or do you want to savor your success, even just a little by exchanging into a less management intensive NNN property? Further, in a market like the present one, what level of market risk, do you want to take on? Do you want to risk squandering the profits that you just accumulated in this last cycle in a less secure investment vehicle at the low current market cap rates?

Many commercial properties that are advertised to the investment public are referred to as net leased properties or NNN assets. But, not all NNN assets are equal and the differences are worth noting for your review.

Credit ratings are under review with the recent sub-prime mortgage issues that is understandable, at present. Nonetheless, based on a well-regarded and researched study by Moody’s Rating Agency, net leased assets which have an investment grade (BBB or better) have a probability of default on their corporate bonds of approximately 3.8% over a twenty (20) year holding period. Non-investment grade or speculative grade tenants have a probability of approximately 38% default over the same period. There really is significantly more risk with a tenant (corporation) whose credit rating is less than investment grade. They could be a well-marketed or branded company; but there is more inherent risk in their operations for a bond investors or landlord than generally or previously acknowledged. So, investors beware. We have chosen to specialize in these investment grade tenant assets because they do provide an additional measure of income stability that serves our clients well in a changing real estate environment. Please contact us to review, in detail, our lists of both, investment grade and speculative grade tenants, each offer different investment opportunities.

We use the full range of ratings agencies, Standard & Poor’s, Moody’s, Fitch and NAICS (National Association of Insurance Carriers) as reference points for our reviews on behalf of clients in this regard.

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