The case study of how we executed a successful 1031 exchange for the owner of four pawn shops into a long-term lease, single tenant investment property - increasing our client’s net income in the process!
CHALLENGE
In November of 2023, the owner of four properties in Louisiana contacted our office with the intent to sell his properties and perform a 1031 exchange into a net lease property to eliminate his landlord responsibilities and secure a long-term lease with a corporate credit tenant. We knew that this was a critical investment decision for the owner because these properties made up a substantial portion of his net worth and his tax exposure if he was unable to complete a 1031 exchange was over $900,000. This owner previously operated a chain of pawn shops before selling his operations to a larger company, retaining the real estate. He had been presented with an offer to purchase his properties that he could not refuse, and as a result had a very short amount of time to execute a 1031 exchange into a net lease investment property. This owner had never done an exchange and was admittedly fully reliant on our team to execute the full exchange.
ACTION
We didn’t waste time. We started by understanding his investment goals and timeline, and building a roadmap that showed him exactly how he was going to sell his properties, coordinate and exchange and purchase a replacement property(ies). We even provided a short list of options that were presently available. From there, we engaged with the owner and began a process of identifying potential replacement properties. We sourced replacement options from Crexi, Loopnet and Costar as well as our database of REITs, Funds, Brokers, Private Owners and Developers. In total, we prepared a list of over 45 properties that fit the client’s geographical, business-use, price and return metrics. From here, we worked hand-in-hand with our client to qualify and disqualify properties from this list. We also communicated with 20+ brokers/principals in order to confirm availability, negotiate price and terms, and ultimately narrow our search down to 5 properties we intended to aggressively pursue. Our first property (an automotive retailer in Texas) made it into escrow before determining there were some lease issues that our client and his attorney could not move past. With over half of our identification window over, we had to move quickly on a second property.
RESULTS
We quickly pivoted to our backup property which was a brand new Dollar General Market in Florida in a high-growth area. With the help of the brokers representing that owner, we negotiated and agreed to a contract, performed a site visit and diligence and closed on that property in less than two weeks (December 29th to be exact). Now our client was the proud owner of a brand-new corporately-backed absolute NNN lease receiving rent from one of the largest and most historically stable retailers in the country. Not only that, he eliminated all of his landlord responsibilities (for roof, structure, foundation, taxes, insurance, etc.), has a lease that is three times as long as his longest lease on the pawn shops, and actually increased his net cash flow by over 20%. Aside from the site visit to the property, our client never had to leave the comfort of his own home from contract to close.
TESTIMONIAL
“I had known Landan for years through his work in the net lease space and with 1031 exchanges. When I made the decision to sell my shops, I knew that I needed to seriously look into a 1031 exchange after speaking with my CPA and learning how much money in taxes I would need to pay once I sold these properties. Landan met with my wife and me to discuss this as an option, and within a very short amount of time it was clear to us that Landan needed to run this exchange for us. From start to finish, Landan and his team were professional, responsive and extremely knowledgeable about the 1031 exchange and the properties we were considering purchasing. Landan has my highest recommendation for anyone in a similar situation and considering a similar outcome to what Landan provided us.” -Jim B.
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