Investment Property Capital (IPC) rescues 1031 exchange and saves client over $2,000,000 in taxes.
What does the cannabis industry and 1031 tax deferred exchanges have in common? A lot. At IPC we track the growing cannabis industry. We have relationships with local banks and national lenders who will lend on cannabis-related properties nationwide and we actively arrange financing for them.
Because of our expertise in this niche, a former dispensary owner was referred to us. He had sold an apartment complex and was now in contract to buy an office building for $13,000,000. Although the new property had no cannabis related activity, the Buyer still had Cannabis Related Business (CRB) income, and the bank he had applied to (through another broker) had just abandoned him after a 90 day underwriting process. It was the second one to do so.
When he contacted us he had only 45 days remaining to complete his like-kind exchange and avoid paying capital gains. The rules for completing an exchange are as follows: from the date of closing the sale of the old property (the ‘downleg’) a seller has only 45 days to identify up to 3 potential properties to purchase. Counting from the date of sale, any purchase(s) of an ‘upleg’ property must be closed within 180 days. If the upleg purchase does not close within 180 days, the seller is subject to capital gains taxes. Our client had a gain of $8,500,000 so his taxes would have been about $2,000,000.
Most banks still have an aversion to customers with cannabis related business (CRB) income. In our case, the client owns a property where a dispensary is the sole tenant, and this is his primary source of other income(strike one). He is also an employee at a cannabis operation (strike two, but not out). Ultimately, the bank denied him, after they put him through a lengthy and costly process. And they left him with little time to meet his 1031 exchange deadline. That is when he reached out to IPC for help.
We quickly assessed the file and the situation, and dual-tracked the financing with both institutional and private lenders whom we knew did not have an aversion to borrowers with CRB income. We submitted the file to lenders only after affirmative reviews with their decision makers. We were transparent with them as to our dual process (we pride ourselves in our excellent lender relationships) and in the end, the bank funded the transaction with the lower cost, long term loan program.
Through our time-tested relationships and our industry knowledge we saved our clients’ 1031 Exchange. He successfully deferred paying approximately $2,000,0000 in taxes on his huge gain. We were able to close the deal with time to spare.
At Investment Property Capital we provide our clients with the highest level of certainty in getting their financing closed, on time and with great terms.