Baby Boomers Behind Active 1031 Exchange Market

LOS ANGELES—Matthews Retail Advisors has publicly launched 1031 Private Client Advantage™, a program that helps 1031 exchange buyers develop a plan and get the most out of their commercial real estate. For the past six months, the program has had a trial launch with a select group of clients, and the results have been phenomenal. Now, the brokerage firm is ready to widely launch the program—which they say is game changing. It will help accommodate the high 1031 exchange traffic, which, according to Chad Kurz, Matthews Retail Advisors managing partner, has been an effect of retiring baby boomers looking for a more stable investment class. In this exclusive interview, we sat down with Kurz to talk about the active 1031 exchange market, the challenges for 1031 exchange buyers and how this new program is aimed to help. 

Globest.com: Tell me about your 1031 Private Client Advantage program.

Chad Kurz: Our 1031 Private Client Advantage is a step-by-step process that enables each broker of Matthews Retail Advisors to efficiently effectuate a 1031 exchange in real time, based on the goals and business plan of the sellers we represent. It starts with analyzing their property, determining their motivation, or the reason “why” they own investment property, and inputting this information into our proprietary software that runs an algorithm to determine just how much we can improve their investment disposition. With one recent client that entered the program, we were able to improve all three of the big reasons behind why they owned real estate: improved cash flow, improved security and improved wealth preservation/appreciation.     

We deliver the highest level of execution on the sale of property to ensure sellers get the highest price for the sale of the asset; however, we place the same amount of importance on putting clients in a better position by identifying their up leg and managing the next investment opportunity. We take the time to understand why a client is motivated to own commercial real estate. How the client is going to take advantage of that next opportunity is the perceived unknown in an exchange and the number one objection to selling. The 1031 Private Client Advantage program eliminates that unknown for clients. The program gives our clients the confidence of knowing they will have an up leg investment that will put them in a better position based off of their motivations and risks assessment for owning real estate. Most clients are accustomed to having a plan with their wealth manager. Why wouldn't they do the same thing with their investment properties? We want real estate owners to expect more. 

GlobeSt.com: What is the biggest challenge 1031 exchange buyers face?

Kurz: The biggest challenge is the “unknown.” What are they going to buy; who is the tenant; where is it going to be located; what is the likely cap rate; and most importantly, what is the new return? Another big challenge is the timeframe. The government only gives you so much time to identify and then purchase a property. If you don't have a plan in place when you list your property, and your broker isn't diligently working on effectuating your exchange throughout the marketing and sale of your down leg, you can be left buying a property because you have to, not because you want to.  Finally, oftentimes clients are not given the best information by other firms, because they're working with a broker who is trying to be a jack-of-all-trades, and they end up being a master of none.

What we do differently as a company is to first set up a plan and assign a team of tenant vertical specialists to eliminate the unknown with a client's exchange.  This team of investment specialists works together throughout the entire process to ensure that timeframes are met and the right inventory is available. Finally, because we have a unique collaborative culture of brokers who each specialize in a tenant vertical, we can offer the client the most reliable and credible information to help them make the best investment decision for their exchange property.   

GlobeSt.com: What is driving the increase in 1031 exchanges?

Kurz: We have seen a big uptick in 1031 exchange buyers and 1031 exchanges. I think one of the big drivers is the baby-boomer generation that is starting to retire. They want the peace of mind that comes with retirement. When you combine this with the volatility of the stock market and the foreign markets, you are going to see investors get out of management intensive investment opportunities or riskier assets and run toward safer investments. As a result, we are really seeing an uptick in 1031 exchanges driven from a lot of apartment buyers and owners of net leased properties that are considered riskier investments for a variety of reasons, especially in the net lease space.

GlobeSt.com: What is the motivation for a client to do a 1031 exchange?

Kurz: The three big motivations for why people own real estate are safety/security, cash flow, and wealth preservation/appreciation. The reason for doing a 1031 exchange is to improve one, two, or all three of these main motivations.  As far as purchasing net leased real estate, often times you are buying a property that is leased to an investment-grade, credit tenant that signs a long-term lease, so it is considered a very safe investment. These properties also offer a higher return than some of the more management intensive properties. People are really going toward safety and security, and in the net lease world, the rent is often guaranteed for 15 to 20 years. As we saw in 2007 and 2008, some companies are too big to fail and a lot of them have a positive outlook, considering they have very strong credit and great financial sheets. For investors, this offers an income stream and cash flow that is reliable for the foreseeable future.

GlobeSt.com: How does your team handle 1031 exchanges differently than other firms?

Kurz: This program was born out of clients' frustrations with other firms. Clients have often found out too late and too often that their broker wasn't able to access a broad selection of properties in an intelligent way to meet the goal of the client. Most brokerage companies operate as independent contractors and, thus, have a small personal database and  small available inventory that they actually control.  Often times it's a lack of effort at other companies because their attitude is to get the listing, sell the property and move on to the next listing. This leaves the client in a terrible position and often left scrambling to find a property. We recognize that often the most important thing for a client isn't what they are selling, but rather what they are going to buy. If you hire a broker that doesn't have a plan in place, you are hiring the wrong broker. With technology and innovations of the 21^st century, it is time that people who own real estate start to expect more from their brokers. We are a company that was built on helping private clients accomplish their goals, and working with developers, institutions and publicly traded companies came as a result of having control of the best buyers in the industry. It was never really our intention; our intention was always to do the right thing for our clients.  Our success shows that when you work hard and do the right thing, success is inevitable. In addition, we have one single collaborative team of specialists, and we all share one database and the same inventory. We have technology that is able to assess the risk of certain investments and determine motivation parameters. We work off of that; it is a plan, and we are the only brokerage company in existence that actually has a plan. It only makes sense that we are the ones to write the playbook.

GlobeSt.com: How are clients responding to the program?

Kurz: Feedback is very positive. Clients have been ecstatic at the results that we are able to get. For example, I worked with a client who was hesitant to sell because they had a net income stream of $8,000, and they were living off of that income. They were one of the first people that we put in the program, and when they sold their property, we ended up closing on the property that they were selling a week before closing on the property that they purchased. They went seven days without income stream, which is unheard of in this industry. We were able to purchase a superior asset with greater security and a better outlook. We have 26 other clients currently in the program who we are working through the 1031 exchange process. We want all investors to know about this process to really help put them in a better position.