Lee & Associates Facilitate 1031 Exchange with Sale of Wall Property
ELMWOOD PARK, NJ - August 2016 The home of The Learning Experience in Wall was recently sold for a price of $3.765 million. The commercial building, located at 3300 Highway 138, has been leased to the preschool and childcare company since its construction in 2011. It’s conveniently located at the terminus of Interstate 195, near the Garden State Parkway.
The Learning Experience has over 200 locations across the country, providing child development services for children. Their programs include summer camps, kindergarten, enrichment, birthday parties, and after school programs. The Highway 138 location is under a 15 year NNN lease, with two 5-year options.
David A. Kelso, CCIM, Senior Vice President of Investment Sales / Capital Markets Group at Lee & Associates NJ explained that the building was marketed to investors seeking properties with minimal management. “With this relatively long lease term and the tenant handling most of the management themselves, this was the ideal investment for this particular buyer.”
The buyer in question was looking to complete a 1031 Tax Deferred Exchange with the purchase of this property. Lee & Associates have considerable experience with this type of deal, and NNN properties often go hand in hand with a 1031 Exchange. The company is able to quickly identify deals that suit buyers looking to reinvest profits from recent sales, and NNN properties are generally ideal for an Exchange situation.
Referred to as “net, net, net” properties, these are typically single tenant retail locations in which the tenant has a high credit rating and is willing to take responsibility for things like real estate taxes, insurance, and property maintenance. They allow investors to have minimal involvement in building management and tenant relations, as well as the associated costs.
The 1031 Exchange allows taxes to be deferred on capital gains from the sale of certain types of property, provided that the replacement property will have a similar use –that is, the property is held either for productive use in a trade or business or for investment. In addition to creating significant tax savings, these deals facilitate significant portfolio growth and increased return on investment in commercial properties. There are limits on the time that can elapse between the deals, so the guidance of an experienced broker can be critical to investors hoping to take full advantage of this section of Internal Revenue Code.
The IRS views this “like-kind exchange” as effectively changing the form of an investment without “cashing out.” This allows the investment to continue to grow, tax-deferred. There are special considerations and situations that it’s good to know about. For instance, when a depreciable property is involved, the depreciation previously claimed on the building will be recaptured as ordinary income, in some cases.
Being aware of the pitfalls and advantages of strategies like the 1031 Exchange is a benefit of working with seasoned professionals that know the tax code as well as the local market.
About Lee & Associates, New Jersey
Celebrating more than 36 years of leadership excellence in commercial real estate, Lee & Associates is the largest broker-owned firm in the country with 52 locations across the nation including California, Colorado, Arizona, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Maryland, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, South Carolina, Texas, and Wisconsin. With 800 brokers nationwide, Lee & Associates provides a wide range of specialized commercial real estate services on a local, regional and national level.