Securitized 1031 exchange offerings have raised a record-breaking $4.53 billion as of the third quarter of 2021, according to Mountain Dell Consulting, a market research and analytics firm focused on the securitized 1031 exchange marketplace. Including unreported equity of between $300 million and $500 million, the third quarter total was close to $5 billion, the company said.
Mountain Dell has again increased its year-end forecast, projecting that the market could reach a record $6 billion in 2021, exceeding the two highest fundraising years on record: 2006 and 2019, with nearly $3.7 billion and $3.5 billion raised, respectively. At the beginning of the year, the firm anticipated a $4 billion raise, which was twice increased to $5.2 billion and $5.5 billion following the release of the first and second quarter totals.
During the third quarter of 2021, there were 39 active sponsors and 191 offerings, of which 138 closed. Mountain Dell reported that full-cycle events for Delaware statutory trusts are significant and anticipates close to $1.5 billion this year.
The top sponsors by market share were Inland Private Capital (18 percent), Capital Square (11 percent), Black Creek Group (9 percent), ExchangeRight (8 percent), Passco Companies (7 percent), and Cantor Fitzgerald Investors (7 percent).
Multifamily continued as the most popular asset classes with nearly $2.19 billion and 48.3 percent of the total equity raised, followed by retail with $671.5 million and 14.8 percent, industrial with $599.5 million and 13.2 percent, self-storage with $304.4 million and 6.7 percent, and office with $218.5 million and 4.8 percent.
1031 exchange properties were concentrated in Texas (41), Florida (30), Georgia (25), Illinois (23), and North Carolina (16).
Out of the 191 total offerings, the majority were structured as Delaware statutory trusts (178), followed by tenant-in-common (8), direct title (3) and limited liability companies (1). There were 147 offerings registered as 506(b) and 44 offerings registered as 506(c), which permits general solicitation to investors. As of September 30, 2021, the average first-year return was 4.77 percent.
The offerings spent an average of 124 days on the market, with a median of 79 days. During the fourth quarter of 2020, the average was 200 days with a median of 164.
The average equity raised per week through September 30, 2021 was $116 million, compared to $76.2 million during the fourth quarter of 2020.
Mountain Dell said that there continues to be strong demand for 1031 exchanges in the current environment, although supply has caught up leading to lower projected returns.
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, mainly as Delaware statutory trust offerings.