October 31, 2017

Securitized 1031 programs are on pace to raise $1.80 billion this year, according to the latest industry market report issued by Mountain Dell Consulting, a market research and analytics firm focused on the securitized 1031 exchange marketplace.

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 through the broker-dealer community.

“Most classes of real estate are bringing record sales prices,” said Louis Rogers, founder and chief executive officer of Capital Square 1031. “That is good for sellers, but can be a double-edged sword because sellers become buyers in a Section 1031 exchange. Thus, while taxpayers are receiving record prices for their relinquished property, they are paying record prices for their replacement property. Strong, sometimes unprecedented, pricing has put a strain on replacement property cash flow, even more so for [Delaware Statutory Trust] programs that have to overcome sponsor fees and securities sales costs.”

The third quarter of 2017 ended with $1.48 billion in equity raised, which exceeds the 2016 equity raising pace by $46 million, but is less than half of the $3.65 billion fundraising peak in 2006. The industry must raise additional $315 million to meet the $1.8 billion projected fundraising goal for 2017.

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