Inland’s Keith Lampi and Mountain Dell’s Taylor Garrett Discuss the Current 1031 Exchange Market

Keith Lampi, president, director and chief operating officer of Inland Private Capital Corporation, and Taylor Garrett, managing director of Mountain Dell Consulting, discuss the state of the 1031 exchange market during the first half of 2020.


How much equity was raised in the securitized 1031 market in Q1 and Q2 of 2020?  How does the first half of the year compare to 2019?

Taylor Garrett: According to the numbers provided to us:

2020: Q1: $1.05 billion, Q2: $410 million.

2019: Q1: $670 million, Q2: $692 million

What is your projection for aggregate industry sales for all of 2020?

Taylor Garrett: I am a bit more bullish than I was 60 days ago. I believe we will get to $2.0 – 2.5 billion in equity by year end.

Given the dislocation in the marketplace, are you seeing any trends emerge in terms of sponsor activity, in the way of new market entrants or consolidation in market share among existing market participants?

Garrett: We haven’t seen a lot of consolidation yet. We have heard of new sponsors looking to enter the space, but we are at 34 sponsors that have had live offerings this year. This is comparable to last year. I think later this year and early next year is where we would see consolidation. Right now, it seems too early for that to happen.

As the industry’s top securitized 1031 sponsor, how does IPC perceive the rest of 2020 from a market demand perspective, and how are you approaching bringing new products to market? 

Keith Lampi: We experienced a cooling effect in market demand throughout April and into May.  Market volatility and general uncertainty led many buyers and sellers to hit the pause button on pending transactions.

For 1031 investors, who under normal circumstances have a time-imposed compulsion to transact, the “wait and see” impact on transaction volume was intensified by the IRS imposed extension on 45/180 day deadlines through July 15th.

As the industry has settled into a “new norm” it is clear that transaction volume will continue to remain down from peak market levels for the foreseeable future. However, unlike the recession of 2008/9, when transaction volume came to a halt mainly due to the lack of availability of financing, the market today is quite different.

Financing in many sectors is readily available and at a historically low cost of capital, which has created a healthy environment for buyers and sellers to continue to come together.  I believe this trendline which has begun to show an uptick in market demand, should continue to accelerate into the second half of the year.

In terms of new products, we are taking a measured approach with asset selection by sector and market and long-term investment performance in mind.  Maintaining a high quality, diverse inventory base to accommodate 1031 investor demand is a core objective of IPC.

The sectors and markets that appear best positioned for long term stability are not necessarily trading at discounts to pre-pandemic levels.  This means, once post pandemic underwriting standards are incorporated, new products will likely experience yield compression, at least near term.

What are the differences you are seeing between the period of dislocation that occurred in 2008/2009 during the financial crisis, compared to today from a commercial real estate perspective?

Taylor Garrett: So far this seems very different. The biggest challenge in 2008 had a lot more to do with a credit crisis. Keep in mind, as well, that with the prior downturn, most of the market was focused on TICs.  This time, it’s DSTs, which are, of course, different.

A big challenge in 2008 was most TIC products were multi-tenant office and multi-tenant retail. That is no longer the case in today’s DST environment.

A big concern for the industry this time around was “collections” for multifamily and all asset types. So far, the collections for multi-family have stayed relatively strong. There are pockets where some programs have been more hard-hit markets but, generally speaking, it has not yet been a huge problem for multifamily.

What do the capital markets look like today in terms of availability of debt, pricing and how do the capital markets compare to late 2019 and early 2020?

Keith Lampi: After the onset of the pandemic, the federal reserve implemented numerous programs that have been well publicized to create stability in the market in relatively short order.  Looking at where the capital markets stand today, particularly with respect to real estate financing, there are several positive trend lines throughout marketplace, however variation does exist depending on the asset class and lending source.

More than 50 percent of the securitized 1031 market has been comprised of apartments for the past several years. Agency financing (Fannie-Freddie) remains readily available, however the implementation of index-floors and additional reserve requirements to protect against market uncertainty are the new normal.  The rates on 10-year financing are in some instances up to 50 bps lower than pre-pandemic levels.  While a majority of 10-year loans at the end of 2019 and early 2020 had interest rates as low as 3 percent, now debt quotes are around 2 percent on similar assets today.

Life insurance companies have also shown notable movement back into the market, albeit with more selectivity on assets and a desire to keep leverage at moderate levels.  Banks vary widely: some are staying active with strong sponsor/relationship clients; while others are taking a more wait-and-see approach as they review their portfolio performance.

Conduit and debt funds were greatly impacted by market volatility and benefited the least from the government intervention; some new loan activity has occurred recently, but it will likely be a slow, incremental comeback for this financing source.

Next to multifamily, industrial/warehouse is the most financeable asset type in this market. Office depends on the asset and market.  Then as expected, shopping centers and hospitality are very challenging to finance at this time, and most owners and lenders are still in the midst of deferral conversations.

Specialty assets classes have a mixed view largely dependent on market and strategy, but generally have less suitors.  The outlier in the specialty asset class segment is self-storage, which continues to be viewed as the strongest of specialty asset types in today’s environment.

Which asset classes have been targeted and deemed as most desirable by investors in the post-COVID 19 era?

Taylor Garrett:  In terms of equity raised, the three asset types that seem to continue to have success are multi-family, net lease, and self-storage. Under multi-family we have seen success on traditional apartments and 55+ active adult living apartments. We have seen much less success with student housing with the complications with universities deciding to go back or not in the Fall.  Where that settles out remains to be seen.

Have you begun to see an uptick in investor appetite as we near the July 15th deadline imposed through the IRS extension?

Keith Lampi: Towards the second half of June we began to see a significant uptick in investor demand which has occurred in various forms.

The first subset of investors simply decided to move forward with their investments after several months of tracking operational performance on the various DSTs they had previously identified.

Another category of increased demand has occurred, where investors had previously planned to use DSTs as a “plan B” to their preferred real estate investment property.  As a result of the pandemic, many of these investors ran into difficulty completing the purchase of their “plan A” asset and pivoted to moving forward with various DST offerings that were also identified.

Finally, we have observed instances where investors had waited until the first couple of weeks of July to consider and compare paying taxes and cashing out vs. completing an exchange.  After tracking market performance, many investors obtained a level of comfort with the underlying assets, sector and market as a whole and decided to complete their exchange.

While all the reasons are different in nature, the common theme is that investors seem to be cautiously optimistic in moving forward with their investments in today’s environment.

Which real estate sectors does IPC believe are best equipped to handle this economically challenging time?

Keith Lampi: Given the diverse footprint of Inland Private Capital’s assets under management, I believe we have a unique perspective from a sector, market and performance standpoint.  When I consider the sectors that are well positioned on a forward-looking basis, my analysis begins with considering which sectors have experienced general stability over the course of the past 16 weeks.

The list of best performers in recent weeks is well documented:  multifamily, self-storage, healthcare, credit tenant NNN retail, and office.  Since most real estate investing strategies in the securitized 1031 market are typically anchored on a long-term analysis, it is not enough to only consider the recent past, we also have to consider how each asset will perform over the long run.

From IPC’s perspective, strategies that are driven by demographic trends and less reliant on economic growth are the areas we plan to focus on near term.  These strategies include multifamily, self-storage and healthcare-related assets.

How has asset performance fared throughout the past 12 weeks of the pandemic and how is the industry better equipped to handle this period of uncertainty compared to periods of volatility in the past?

Taylor Garrett:  On one hand, there is a general aspect to it, as COVID has certainly impacted the world in which we live.  But how it impacts specific asset classes in specific locations has much more variability.

That said, even though we are still earlier in this pandemic than any of us would like to be, I think the DST marketplace is well-positioned to have institutional quality real estate that is pre-packaged for 1031 investors.

We are hearing more and more that investors like the opportunity to invest into higher quality real estate than they could buy on their own, and that they have professional asset and property management to help navigate this unique time. I believe that, long term, we will continue to see the DST marketplace grow because of the opportunity for investors to diversify for as little as $100,000 and have pre-packaged real estate with loans in place and strong operating partners.

It is difficult to know what the future holds, or what the “new normal” will be, but as long as we stay focus on fundamentals and the things that matter most, I really like the prospects that our industry has as we go forward.

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SFA Partners Adds Four Wealth Management Firms to Platform

SFA Partners, a group of independent advisor-focused entities, has recruited four wealth management firms: Kolinsky Wealth Management, Lehner Carroll Shope Capital Management, OakPoint Investment Partners, and Life Income. Together, the offices have more than $585 million in client assets – more than $200 million of which has been added to platforms under the SFA Partners brand.

SFA Partners encompasses The Strategic Financial Alliance (SFA), an independent broker-dealer and corporate RIA; Strategic Blueprint, an independent RIA geared to serving fee-based advisors; and SFA Insurance Services.

Kolinsky Wealth Management, based in Ramsey, New Jersey, is led by Stephen Kolinsky, Jason Kolinsky, and Chad Kolinsky, who have registered with SFA for their broker-dealer business, which encompasses approximately $80 million in assets. It also oversees $140 million through its retirement plan business and manages more than $230 million in assets through its own RIA. The Kolinsky’s were previously registered with American Portfolios Financial Services.

Lehner Carroll Shope Capital Management, based in Perrysburg, Canfield and Canton, Ohio, is led by managing partners Brian Lehner and Amy Shope. The firm will offer advisory services through Strategic Blueprint, where they directly manage about $30 million, and they also bring approximately $36 million to SFA in broker-dealer business. Lehner and Shope were previously registered with Berthel, Fisher & Company and BFC Planning Inc.

OakPoint Investment Partners, based in Southfield, Michigan, is led by Rebecca Abel and has affiliated with Strategic Blueprint where she manages $35 million in advisory assets. Abel joins from Ameriprise.

Life Income, based in Salem, South Carolina, is led by Roger Woodruff who manages $35 million in advisory assets through Strategic Blueprint. Woodruff were previously registered Securities America, Inc.

The Strategic Financial Alliance Inc. serves approximately 150 independent financial advisors across the country, collectively supporting approximately $5 billion in advisory and brokerage assets.

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ShopOne Hires Executive Vice President of Acquisitions

ShopOne Centers REIT Inc., a private real estate investment trust that invests in grocery-anchored shopping centers, has hired Chris Reed as executive vice president of acquisitions. Reed, who previously served as vice president of acquisitions and development for Brixmor, will begin his new position on August 1, 2020.

At Brixmor, Reed was responsible for overseeing the acquisition and disposition investment platform in the Northeast and Mid-Atlantic, including identifying and qualifying target markets, formulating investment strategies, and leading the underwriting and due diligence process for prospective acquisitions.

In his time at Brixmor, the company claims that he has led more than 35 investment transactions with a total value of more than $650 million. Prior to Brixmor, he served as director of capital transactions at WP Realty, where he was responsible for sourcing, underwriting and financing prospective acquisitions, as well as evaluating and completing debt and equity transactions for a retail portfolio totaling nearly 8 million square feet.

“We are very pleased to have Chris join our team, especially at a point in time where we believe there will be significant opportunities to acquire assets at substantial discounts due to the dislocation and illiquidity in the current environment,” said John Roche, chief executive officer and chief financial officer of ShopOne. “Chris has inherent familiarity of and cultivated strong relationships throughout the Northeast and Mid-Atlantic regions, and we look forward to leveraging his knowledge and connections as we actively look to grow our portfolio.”

Reed is a graduate of Temple University, where he received a BBA in finance, and Villanova University, where he earned his MBA, with concentrations in real estate and finance.

He is actively involved with the DiLella Center for Real Estate at Villanova University and is a frequent guest speaker for undergraduate- and graduate-level classes focused on real estate investment and redevelopment. Reed is also a member of the International Council of Shopping Centers.

ShopOne Centers REIT is an owner, operator and manager of grocery-anchored shopping centers. The company’s retail centers are located in established trade areas and include a mix of non-discretionary, value-oriented and grocery retailers.

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The DI Wire Welcomes Alternative Investment Exchange (AIX) as a New Directory Sponsor

The DI Wire is pleased to welcome Alternative Investment Exchange (AIX) as the newest member of our directory.

Hines Global REIT to Sell London Office Building to Hong Kong-Listed REIT for $482.6 Million

HGR Liquidating Trust, the liquidating trust of non-traded real estate investment trust Hines Global REIT Inc., has agreed to sell 25 Cabot Square, a 17-story Class A office building located in Canary Wharf in London, for approximately $482.6 million (approximately £380 million), excluding transaction and closing costs. HGR Liquidating Trust expects the transaction to close next month.

25 Cabot Square was purchased by Hines Global REIT in March 2014 for $371.7 million. Designed by Skidmore, Owings & Merrill, the Class A property was completed in 1991 as part of the first phase of the Canary Wharf development. The building is leased to Morgan Stanley UK Group.

According to Mingtiandi, a news publication focused on Asia’s real estate markets, Hong Kong-listed real estate investment trust, Link REIT, is the buyer. Earlier reports from the publication claim that “private equity fund Blackstone pulled out of the acquisition in March…after having already agreed to terms.”

According to a filing with the Securities and Exchange Commission, the purchaser funded an earnest money deposit of approximately $48.4 million (HK $375 million Hong Kong Dollars).

Hines Global REIT recently formed HGR Liquidating Trust to complete its plan of liquidation approved by stockholders on July 17, 2018. The trust’s primary purpose is to liquidate assets transferred to it and distribute the sales proceeds to equity holders after paying any of the remaining liabilities.

HGR Liquidating Trust recently declared a special distribution of $1.00 per unit which will be paid in cash on July 31, 2020 to unitholders of record at the close of business on July 15, 2020.

Hines Global REIT launched in December 2008 and closed its offering in April 2014 after raising $2.7 billion in investor equity. The value of the seven remaining real estate property investments as of June 30, 2020 was $1.2 billion.

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Capital Square 1031 Fully Subscribes DST Offering of Georgia Medical Facility

Capital Square 1031, a sponsor of Delaware statutory trust offerings for Section 1031 exchange and other accredited investors, has fully subscribed its Regulation D private placement offering, CS1031 Augusta MOB DST. The offering is comprised of a 30,500-square-foot orthopedic clinic in Augusta, Georgia, that was acquired by the DST in an all-cash transaction.

“Medical facility investments have proven to be recession-resistant over time,” said Louis Rogers, founder and chief executive office of Capital Square. “Medical care is considered a ‘necessary service’ that continues to operate even during an unprecedented pandemic.”

The facility is comprised of an orthopedic clinic that has 18 exam rooms, a dual X-ray suite, designated waiting areas, a physical therapy center, an MRI suite and space to expand for practice growth.

Constructed in 2009 and situated on nearly two acres of land, the building is 100 percent leased on a triple net basis for 12 years to Champion Orthopedics. The orthopedic practice provides orthopedic and musculoskeletal care; specialized sports medicine treatment; orthopedic surgery; physical therapy and rehabilitation services; and diagnostic imaging.

Rogers added, “Medical care is considered a ‘necessary service’ that continues to operate even during an unprecedented pandemic.”

Capital Square is a national real estate firm specializing in tax-advantaged real estate investments, including Delaware statutory trusts for Section 1031 exchanges and qualified opportunity zone funds for tax deferral and exclusion. To date, Capital Square has completed more than $2 billion in transaction volume.

Capital Square’s related entities provide a range of services, including due diligence, acquisition, loan sourcing, property/asset management, and disposition, for high net worth investors, private equity firms, family offices and institutional investors.

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Shopoff Receives Planning Commission Approval for Chula Vista Residential Project

Shopoff Realty Investments, a private placement sponsor and manager of opportunistic and value-add real estate investments, announced that its 141-unit Moss Street Townhomes project in Chula Vista, California has been unanimously approved by the city’s planning commission, with a 5-0 vote in favor of the project.

Located at the intersection of Moss Street and Industrial Boulevard, the property is comprised of nearly seven acres of land and is located less than two miles from the Chula Vista Marina. The site is currently used for light industrial and has three existing buildings totaling approximately 37,100 square feet of space, with tenant leases expiring shortly.

“This property is located in a prime coastal location within a transforming area of Chula Vista,” said Shopoff Realty Investments president and chief executive officer, William Shopoff. “With the Bayfront Hotel and Convention Center project underway less than one mile from the site, this location will be ideal for new housing, filling a great void in this area.”

The now approved plans provide for a three-story attached townhome development with 141 units within a gated community.

In other Shopoff news, the company recently received approval from the Anaheim City Council for its proposed residential development, “Lincoln At Loara,” a 115-unit gated townhome community.

Shopoff Realty Investments is an Irvine, California-based real estate firm with a 28-year history of value-add and opportunistic investing across the United States. The company primarily focuses on generating appreciation through the repositioning of commercial income-producing properties and the entitlement of land assets. The 28-year history includes operating as Asset Recovery Fund, Eastbridge Partners and Shopoff Realty Investments (formerly known as The Shopoff Group).

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LPL Financial Adds $180 Million Financial Advisor

LPL Financial LLC, the nation’s largest independent broker-dealer, has added financial advisor Keith Boyd to its broker-dealer and hybrid registered investment advisor platforms, leveraging LPL as custodian. Boyd serves approximately $180 million in brokerage and advisory assets and joins from Wells Fargo Wealth Brokerage Service.

Boyd has also aligned with Gladstone Wealth Partners, a large enterprise on LPL’s hybrid RIA platform. He is leveraging the Gladstone name for his firm, and has opened an office in Flemington, New Jersey which he shares with an established Gladstone accounting practice.

After 24 years working at a bank branch, Boyd reflected on his career and came to the conclusion that it was time for a change. “In my quest to live a more holistic life, I knew it was in my clients’ best interest to take more control over my business and operate as a fiduciary in an independent practice,” said Boyd.

LPL Financial provides service to approximately $670 billion in brokerage and advisory assets as of March 31, 2020. The company provides proprietary technology, comprehensive clearing services, practice management programs and training, and independent research to 16,763 financial advisors and 700 financial institutions.

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Watermark Lodging Trust Secures Financing from Ascendant and Oaktree Joint Venture

Watermark Lodging Trust, a non-traded real estate investment trust created by the merger of Carey Watermark Investors and Carey Watermark Investors 2 Inc., has completed a financing transaction with a joint venture between affiliates of Ascendant Capital Partners and funds managed by Oaktree Capital Management LP.

Watermark Lodging received $200 million of preferred equity capital and a commitment of up to an additional $250 million of new preferred equity capital over the next 18 months. The investors have also been granted warrants to purchase up to 6.75 percent of the company’s fully diluted common equity.

In connection with the transaction, Russell Gimelstob, Ascendant’s chief executive officer, and Alexander Halpern, founding managing partner of Ascendant and its head of hospitality, have joined the company’s board of directors.

“This transaction provides us with additional operational and financial flexibility as we navigate the current economic environment, strengthens our balance sheet and creates a pool of capital with which we can opportunistically pursue growth,” said Michael Medzigian, chairman and chief executive officer of Watermark.

Watermark Lodging Trust suspended distributions and redemptions in March, citing reduced travel and lodging demand and related financial impact resulting from the global coronavirus (COVID-19) pandemic.

Shareholders of Carey Watermark Investors 1 and Carey Watermark Investors 2, two publicly registered non-traded REITs managed by affiliates of W.P. Carey Inc. (NYSE: WPC) and Watermark Capital Partners, approved the merger of the two companies to create a self-managed non-traded REIT named Watermark Lodging Trust.

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Democrats Vow to Reverse SEC’s Regulation BI in Draft Party Platform

Without mentioning the regulation by name, Democrats took aim at Regulation BI, the Securities and Exchange Commission’s broker advice rule in an early draft of its party platform, and vowed to reverse the regulation if Biden beats President Trump in the 2020 election. The news was first reported by InvestmentNews.

“Democrats believe that when workers are saving for retirement, the financial advisors they consult should be legally obligated to put their client’s best interests first,” stated the newly released draft 2020 Democratic Party Platform. “We will take immediate action to reverse the Trump Administration’s regulations allowing financial advisors to prioritize their self-interest over their clients’ financial wellbeing.”

The SEC’s Regulation Best Interest, which had a compliance date of June 30th, claims to go beyond the suitability standard and requires broker-dealers to act in the best interest of their retail customers when making an investment recommendation of any securities transaction or investment. The SEC also requires brokers to provide clients with a standardized disclosure document about the nature of their relationship.

Opponents of the regulation argue that it does not define the “best interest” and exacerbates existing confusion among investors who are unsure about the standards their broker must observe. Proponents believe that the rule establishes a national standard that helps protect investors while preserving access to professional financial advice.

On the eve of Reg BI’s compliance date, the Department of Labor unveiled its fiduciary rule proposal that would replace the now defunct Obama era regulation.

The original DOL fiduciary rule broadened the definition of investment advice fiduciary under the Employee Retirement Income Security Act of 1974 and sought to eliminate conflicted retirement investment advice by placing certain restrictions on commission-based product recommendations.

After surviving multiple federal lawsuits, the regulation was vacated in its entirety in a 2-1 split decision in March 2018, ruling that the DOL overstepped its authority in the investment advice arena.

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