Billions of dollars are invested every year into non-traded securities.

My interest is primarily in those nontraded securities where real estate is the underlying asset and there is a tax benefit for the investors (e.g., 1031 like-exchanges, Qualified Opportunity Zones, Nontraded REITs).

Fact Right provides high-quality third-party opinions on the sponsors (of this type of security) and their offerings. This year they gathered in Nashville a group of several hundred people active in this space – to hear from sponsors and compare insights on the economy and market – to provide us with a “behind the scenes” education.

Here is what I heard.  

MULTI-FAMILY – For the first time, I am hearing sponsors acknowledge that the long-term demand for housing will be impacted by slowing growth of the population, reduced demand resulting from changes to immigration policy, and never-ending uncertainty in the economy from war, tariff policy, and interest rates. NO ONE is heading to the door away from multi-family; it is just that no longer is every multi-family opportunity in every market an automatic home run!

MALLS – Pricing for some anchored malls have dropped to a point that “rational risk” investors are returning to the asset. Many shoppers need to “feel the product” before they buy, and malls work well as a social center magnet (to meet and walk and talk).

AI MEANS WHAT? There is concern, but no clarity, on whether AI will reduce the need for business travel, and effectively crush the value of business travel hotels. Similar to picking the winner of the next Super Bowl, everyone has a prediction, and someone will probably be right!

721 CONFUSION – When a process – a tax-free 721 election – becomes “hot” in the market, it is best to assume many touting the benefits have little understanding of the details! Can one later do a 1031 on their own? (No, though the UPREIT can). Can debt in the UPREIT (into which one brings in their property in a 721 election) attribute debt to the subject property to meet contributor tax requirements? (Yes). Does the sale of the property by the UPREIT, if it does not accomplish a 1031, triggers a taxable event for the investor of the subject property? (Yes, it does).

BIG ALWAYS MEANS BETTER? Apparently, no. Wall Street firms moved into the nontraded space with their own nontraded REITs several years back. They dominate the fundraising for nontraded REITs (as their $1,000,000/year wholesaler CAN sell ice “to people living in the Arctic”). Yet, for some, their yields are below some of the historic NTREITs, and some have the challenge of more investors wanting to exit than invest.

BOTTOM LINE

I LOVE attending the Fact Right annual conference. Particularly the closed-door session (after a group of 3 – 4 sponsor commercial presentations) to learn (at least a little) of “the story behind the story” of the sponsors and their offerings.

Considering a non-traded real estate investment or 1031 strategy? Let’s talk through the sponsor, structure, and tax considerations before you invest. Contact Rick at Rick@chesslawfirm.com or 804-241-9999