1031 Like-Kind Exchanges:
Tax Deferral Strategies for Real Estate
JLL Income Property Trust Fully Subscribes DST Offering with Suburban Phoenix Apartments
January 14, 2021
JLL Income Property Trust announced today the full subscription of JLLX San Marcos DST, a 1031 tax-deferred exchange offering designed to provide accredited investors with the opportunity to defer taxes on gains from the sale of appreciated real estate. Structured as a Delaware Statutory Trust (DST), the syndicated offering owns Summit at San Marcos, a highly amenitized 273-unit apartment community in the prominent Phoenix suburb of Chandler, Arizona. Investors in the DST defer the recognition of capital gains from the sale of their appreciated real estate, eliminate the responsibility of actively managing replacement properties, and participate in the cash flow and any future appreciation of Summit at San Marcos.
JLL Income Property Trust Fully Subscribes DST Offering with Premier Suburban Atlanta Apartments
June 17, 2020
JLL Income Property Trust announced the full subscription of JLLX Johns Creek DST, a 1031 tax-deferred exchange offering designed to provide accredited investors with the opportunity to defer taxes on gains from the sale of appreciated real estate. Structured as a Delaware statutory trust, the syndicated offering owns the Reserve at Johns Creek Walk, a highly amenitized 210-unit apartment community located in the affluent Atlanta suburb of Johns Creek. Investors in Johns Creek, DST defer the recognition of capital gains from the sale of their appreciated real estate, eliminate the responsibility of actively managing replacement properties, and participate in the cash flow and any future appreciation of the Reserve at Johns Creek Walk.
JLL Income Property Trust Expands Offering to Include 1031 Like-Kind Exchange Solution
October 16, 2019
JLL Income Property Trust has launched of a 1031 tax-deferred exchange program designed to provide accredited investors with the opportunity to defer taxes on gains from the sale of appreciated real estate. This offering marks the first entry into the 1031 exchange market by a daily valued, perpetual NAV REIT advised by an institutional investment manager and sponsored by a global leader in commercial real estate services. The JLL Exchange (JLLX) program offers a series of private placements through the sale of interests in Delaware statutory trusts (DSTs) holding real properties sourced from Income Property Trust’s portfolio or from third parties.
What Is a 1031 Exchange?
Section 1031 allows a taxpayer to invest the proceeds from the sale of appreciated commercial real estate into a “like-kind” property without recognizing a taxable gain. Most properties held for investment or use in a business qualify as “commercial real estate” under this definition. Delaware statutory trusts (DSTs) are trusts that may own income-generating, professionally managed commercial real estate. In 2004, the IRS issued Revenue Ruling 2004-86, which allows taxpayers to receive 1031 tax deferral treatment by investing the proceeds from the sale of their appreciated, commercial real estate into DSTs.
1031 Exchanges give the investor 45 days from the date that real property is sold to identify replacement properties and 180 days from the sell date to close on a new property to complete an exchange. To qualify for the tax deferment, the investor must reinvest the entirety of the proceeds from the initial sale and acquire real estate with the same or greater amount of debt.
Potential Benefits of a 1031 Like-Kind Exchange
1031 Exchange: Three Basic Steps
JLL Income Property Trust is an institutionally managed, daily NAV REIT that gives investors access to a growing portfolio of commercial real estate investments selected by an institutional investment management team and sponsored by one of the world’s leading real estate services firms. www.jllipt.com
LaSalle Investment Management, JLL Income Property Trust’s advisor and the investment management division of JLL, is one of the world’s leading real estate investment managers with approximatgely $65.7 billion of assets under management as of Q2 2020. LaSalle, as Advisor will be engaged to serve as the manager of each DST and will have primary responsibility for performing administrative actions in connection with the DST and any DST Property. www.lasalle.com.
JLL (NYSE: JLL) is the world’s second-largest professional services firm specializing in real estate and investment management. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 94,000 as of March 31, 2020. ir.jll.com.
Mr. Dornbusch is a Managing Director at LaSalle Investment Management and manages the 1031 Platform for JLL Income Property Trust. Since entering the alternative investment industry in 2004, Mr. Dornbusch has served in various capacities with numerous sponsors and assisted in the syndication of more than $14 billion of commercial real estate, including more than $600 million of 1031 tax deferred investments.
Most recently, Mr. Dornbusch managed product development for Colony Capital, one of the largest real estate operators in the United States. Mr. Dornbusch received a law degree from Cornell Law School. Mr. Dornbusch regularly speaks at industry conferences regarding product structuring and regulatory affairs.
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Mr. Werner is the 1031 specialist for the Private Wealth Group at LaSalle Investment Management. Joe facilitates national distribution of JLL Exchange as well as JLL Income Property Trust distribution in California and Hawaii.
Prior to joining LaSalle in 2017, Joe worked as a financial planner with Ameriprise Financial covering clients in the Northeast United States. Joe also has prior professional experience in management and consulting. Joe’s father was a prominent Midwestern real estate developer providing Joe extensive exposure to commercial real estate investing since a young age. Joe has earned two baccalaureate degrees from University of Wisconsin-Eau Claire and currently holds his CRPC designation, Series 7, 63, and 65.
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Download relevant JLL Exchange forms here.
The manager of the Trust, the Operating Partnership, JLLIPT and their affiliates are subject to conflicts of interest between their activities, roles and duties for other entities and the activities, roles and duties they have assumed on behalf of the Trust, the Master Tenant, the Operating Partnership and JLLIPT. Conflicts exist in allocating management time, services and functions between their current and future activities and the Trust. In addition, the manager of the Trust may have conflicts allocating leasing opportunities among competing properties.
The information herein has been prepared for educational purposes only and does not constitute a solicitation of an offer to purchase or sell securities real estate investments. Such offers are only made through a private placement memorandum (the “Memorandum”). The purchase of an interest in a DST involves a number of risks, which are set forth and described in the Risk Factors section of each Memorandum. You should carefully review the Risk Factors section of the Memorandum. Certain risks present in all DST offerings include:
Certain Risks Related to DST Offerings
Prospective purchasers must bear the economic risks of an investment in DST interests for an indefinite period of time and must be prepared to sustain a total loss of such investment. There is no public market for any of DST interests sponsored by JLL Exchange, and no public market is expected to develop. An investment in interests will not be appropriate for purchasers desiring or requiring liquidity in the near future. Each purchaser must bear the economic risks of an investment for an indefinite period of time and be prepared to sustain a total loss of such investment. Income / distributions from 1031 Exchanges are not guaranteed, and inflation and other increases in operating costs may affect the investor’s return. 1031 Exchanges give the investor 45 days from the date that real property is sold to identify replacement properties and 180 days from the sell date to close on a new property to complete an exchange. To qualify for the tax deferment, the investor must reinvest the entirety of the proceeds from the initial sale and acquire real estate with the same or greater amount of debt.
Certain Risks Related to Real Estate Held in a DST
There are limitations on the actions that the manager and trustee of the DST can take relative to the real estate. Revenue Ruling 2004-86 sets forth the Internal Revenue Service’s (“IRS”) standards for DST interests acquired in a Code Section 1031 exchange. In order for investors in the DST to be treated as acquiring a direct interest in real estate for federal income tax purposes, the DST must impose significant prohibitions on the powers of the DST’s manager and trustee. These prohibitions are explained in more detail in each Memorandum. If the manager and trustee of the DST are required to take action to conserve and protect the property held by the DST, but are unable to do so due to the prohibitions imposed on their powers under Revenue Ruling 2004-86, they may determine to terminate (or be required to terminate) the DST and transfer the property to a limited liability company. An interest in a limited liability company, unlike a DST interest, is not treated as a direct interest in the underlying real estate for tax purposes. You should consider the state tax consequences of acquiring, owning, holding and disposing of a DST interest. You must seek the advice of your own independent tax advisor as to state and local tax issues.
Certain Risks Related to Adverse Changes in General Economic Conditions
An economic downturn could adversely affect rental income generated from end tenants. From time to time, an economic downturn could occur that would result in slowed economic activity.