Information by David Shaleuly of Wachovia Exchange Services in presentation to the AICPA.
Low interest rates, a red-hot real estate market and an improving economy are making like-kind property exchanges a staple of corporate and investment strategies nationwide.
Once an esoteric vehicle used mainly by sophisticated property investors for deferring federal capital gains taxes on property transfers, the 1031 Like-Kind Exchange has moved squarely into the mainstream.
Consistently favorable regulations, safe-harbor rulings and a stable legislative climate are making 1031 exchanges a standard for property transfers ranging from vacation condominiums and yachts to shopping centers and warehouse properties.
Under Section 1031 of the Internal Revenue Code, investment or business property owners may exchange real or personal property currently held for investment or productive use, for comparable "like-kind" property, and defer capital gains tax that would ordinarily be paid until the replacement property is ultimately sold.
Although the 1031 exchange has moved into the mainstream, the structure continues to evolve. One recent innovation allows a taxpayer to purchase a tenants in common interest - now commonly known as TICs -- in a new property as a replacement property in an exchange transaction.
Fueled by a commitment to providing best-in-class customer service for its 1031 clients, Wachovia, one of the nation's largest sources of commercial real estate financing, nearly tripled its like-kind exchange deal volume last year and has maintained that momentum heading into 2004.
Top Marks for Service
In a recent customer satisfaction survey, 90 percent of Wachovia's 1031 clients gave the firm top marks for key service components -- convenience and ease of transaction, prompt receipt of documentation, timely response to issues, content of exchange agreement, and knowledge of staff. Amazingly, 99 percent said they would use Wachovia again for their next like-kind property exchange.
Wachovia's competitive advantage lies in the bank's ability to manage the entire 1031 exchange, including financing, providing replacement properties, and managing the critical property transfer.
The Charlotte, North Carolina-based bank, the nation's fourth-largest with a dominant East Coast retail franchise, also waives fees on transactions valued at $5 million and above in which transfer funds are held for at least 30 days.
1031 Seminar Features Steve Forbes
Wachovia in May will host its 5th annual 1031 Like-Kind Exchange seminar, featuring a keynote address from Steve Forbes, editor in chief of Forbes magazine, and presentations by the nation's leading tax attorneys and accountants.
Wachovia is a leader in commercial real estate finance, delivering nearly $35.3 billion in capital markets debt and equity financing and traditional bank loans to the sector last year. The bank also holds more than $25 billion in loans on its balance sheet, and services more than $90 billion in securitized mortgages and $9 billion in agency mortgages.
Wachovia's 1031 Like-Kind Exchange group is part of the bank's Structured Asset Finance team, which also provides synthetic lease, sale-leaseback, credit tenant lease, single tenant securitization and installment sale products.
Wachovia, through its Real Estate Capital Markets group, also provides permanent loans through CMBS conduit and mortgage banking, along with bridge loans, mezzanine financing, and equity co-investing financing.
Wachovia's Real Estate Financial Services unit primarily focuses on more traditional bank lending and depository services to commercial and residential real estate developers and owners. The group also serves as a referral source to Wachovia Real Estate Capital Markets.
Wachovia's Real Estate Corporate Finance team provides M&A and private equity advisory services, public capital access and corporate debt. In 2003, Wachovia led the industry in lead-managed REIT common and preferred equity offerings, and REIT investment grade debt.
Wachovia also became a leading Fannie Mae and Freddie Mac multifamily mortgage originator and servicer through the late-2003 acquisitions of Lend Lease Mortgage Capital and AMI Capital. The agency multifamily capabilities round out Wachovia's ability to provide financing across the entire capital stack.
David Shaleuly is a Managing Director and head of Wachovia Exchange Services in Winston-Salem, North Carolina.
Additional information on Wachovia's 1031 Like-Kind Exchange program is available on wachovia.com/1031 or by calling 1-888-693-5566