JLL Income Property Trust, an institutionally-managed daily NAV real estate investment trust, has launched a 1031 tax-deferred exchange program designed to provide accredited investors with the opportunity to defer taxes on gains from the sale of appreciated real estate.
The JLL Exchange (JLLX) program will offer a series of private placements through the sale of interests in Delaware statutory trusts holding real properties sourced from Income Property Trust’s portfolio or from third parties.
“Since the launch of our ground-breaking core daily NAV REIT investment program seven years ago, the request for a companion 1031 exchange offering has been the most asked for solution from financial advisors across our wirehouse, IBD and RIA distribution partners,” said Allan Swaringen, JLL Income Property Trust president and chief executive officer.
The 1031 like-kind exchange market continues to expand with sales, principally through the acceptance of the syndicated DST structure, expected to top $3 billion in originations in 2019, representing nine consecutive years of growth.
“Although the growth of syndicated 1031 sales is impressive, we believe it understates actual demand,” said Drew Dornbusch, managing director of LaSalle Investment Management and head of its 1031 exchange platform.
He added, “We believe the lower fees, higher quality properties, and institutional management offered by the JLLX platform will appeal to high net worth and ultra-high net worth property owners historically underserved by this market.”
Section 1031 of the Internal Revenue Code allows investors to defer paying capital gains taxes on investment property sales by reinvesting the proceeds into a similar investment property within a specified time frame. Securitized 1031 exchange programs are structured as securities and sold to retail investors. DSTs are currently the industry favorite, as tenant-in-common exchanges that were popular in the mid-2000s have since fallen out of favor.
Through its operating partnership, JLL Income Property Trust will now offer beneficial interests in DSTs as “like-kind” property to investors. Each DST will be governed by a trust agreement to be entered into among JLL Exchange, LaSalle Investment Management Inc., the REIT’s external advisor, the operating partnership, a Delaware resident trustee and investors of the DST.
Pursuant to each trust agreement, the operating partnership will retain a fair market value purchase option giving it the right to acquire the beneficial interests from the investors any time after two years from the closing of the applicable DST offering in exchange for units of the operating partnership or cash.
After a one-year holding period, investors who acquire OP units generally have the right to redeem all or a portion of their OP units for, at JLL Income Property Trust’s sole discretion, shares of common stock, cash, or a combination of both.
LaSalle Investment Management will be engaged to serve as the manager of each DST and will have primary responsibility for performing administrative actions and generally has the discretion to determine when it is appropriate for a DST to sell a property.
The operating partnership of JLL Income Property Trust will hold an option to acquire the DST property at a future date in connection with each DST offering. If the operating partnership exercises its purchase option, DST investors will automatically exchange their DST interests for units of the JLL Income Property Trust operating partnership, thereby converting their investments in a single DST asset into fractional ownership interests in a $3 billion, 75-property portfolio of office, retail, industrial and apartment properties located primarily in the United States.
Since 2012, JLL Income Property Trust (NASDAQ: ZIPTAX; ZIPTMX; ZIPIAX; ZIPIMX) has raised a total of approximately $1.9 billion through its ongoing public and various private offerings, as well as its distribution reinvestment plan.