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SAN DIEGO-A 1031 exchange has closed involving seven apartment properties and 10 ownership interests in North San Diego County. Marcus & Millichap’s John E. Garner, the broker on the deal, says it involved five different clients, each with separate escrows, lenders, title companies and other variables in an “unprecedented super-exchange” valued at more than $15 million.

“Each of the principals almost doubled their return on equity, acquired better-located or newer properties, and improved their depreciation to offset their taxable cash flow,” says Garner, whose J.E. Garner Group is under the M&M umbrella. Low interest rates, rent increases and stock market instability has made good investments extremely difficult to locate and secure, says Garner. However, investors are trying to hedge some of the risk through property exchanges.

The seven-leg transaction began with two owners and two buildings, both of whom wanted to trade into larger and/or higher-quality properties. Brooke Development, with a 48-unit building and Charles and Erin Dimry of C&E Ventures LLC with a six-unit building. Dimry, a 12-year veteran of the NFL and his wife Erin, an attorney, have been a client of Garner’s for the past two years.

Barry and Mary Blue of PacWest Landcare Inc., one of the area’s largest landscape maintenance management companies, bought Brooke Development’s 48-unit Villa Del Norte property. PacWest was looking to consolidate its smaller Oceanside apartment portfolio into a larger, more centralized apartment community. The 12-unit sale to Dimry and six-unit sale to a private client enabled the acquisition of Villa Del Norte and provided “utterly perfect exchange up-legs for all three parties,” according to Garner.

The largest piece of the exchange was the 72-unit Ocean Breeze Village with a price tag of $6.45 million. Garner was successful in negotiating an extended escrow with the seller to provide time to market and sell another 32-unit building for Brooke Development.

The 32-unit project was essentially re-sold by Garner, whom had just sold it to Brooke Development less than a year earlier. Garner found a buyer, real estate entrepreneur Mitchell McDonald, who assumed the existing loan and closed on the transaction in three weeks.

“With all the moving parts, closing just one 1031 exchange can be extremely complicated,” notes Garner. “This transaction was an unremarkable deal in many ways … With low interest rates still available, the market provides opportunities for many exchange-driven buyers who are willing to pay a premium on properties in lieu of a large tax bill.”

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