What You Need to Know About Protecting Your 1031 Exchange Investment Properties
There is a windfall of opportunities today that meet the criteria of a 1031 exchange. Whether you’re a commercial investor, an
attorney, or an accountant that represents clients with these types of properties, there are some critical issues to consider impacting the market.
A 1031 exchange allows investors to avoid capital gains taxes when they sell an investment property and reinvest the proceeds in a similar property or properties within a specific timeframe. Investors may use this approach when focused on smaller commercial properties like restaurants and retail.
Today, many of these types of properties are vacant either temporarily or permanently due to closures related to the COVID-19 pandemic. While 1031 exchange properties are a great way to reinvest profits without incurring capital gains taxes, that gain itself can diminish quickly if the property falls into disrepair during vacancy.
When opportunity meets risk
While investors have seen more availability of shuttered retail and restaurant properties, stark increases in unemployment are accompanying these closures. As of February 2021, over 10 million Americans remain unemployed1, according to the Bureau of Labor Statistics.
Unemployment may explain why commercial property crime is on the rise. A 2020 Washington Post article shows dramatic increases in commercial property crime in major cities. Rates of burglary at commercial properties increased by 44% in Seattle, 41% in Denver, and 17.5% in New York.2 The article suggests the properties are targeted because they are vacant with fewer personnel on-site.
With our current climate driving increases in criminal behavior, well-meaning property investors are exposed to risks like theft, vandalism, copper theft, and safety issues. These risks are counted along with common weather-related issues such as freeze damage, storm damage, mold, and water intrusion, which can reduce property value.
These negative impacts can make the perfect investment property become a headache, where repairs and remediation efforts are required to address damage, safety issues or municipal regulations. Otherwise, you or your client may face citations, fines, or lawsuits.
How to Stay Protected
There’s no one-size-fits-all solution for commercial real estate maintenance and security. Your risk can depend on geography, crime rates in your areas, the condition of your properties, use of security systems or guard services, and other factors.
Ultimately, one of the best ways to stay protected and maintain the condition of your property is to get professional assistance. Commercial Asset Preservation (CAP) specializes in the protection and preservation of vacant commercial buildings across the United States. Our locally based skilled contractors provide services to ensure that properties are maintained in a way that retains value.
A few of the steps we take to preserve properties:
- Assessment: An initial property condition report reveals the current status of the property and identifies areas in need of repair, preventative or ongoing maintenance, and a schedule for recurring inspections.
- Security: Rekey locks, install a lockbox, and review personnel who accesses the site. Protective boarding of windows and doors may be beneficial in certain instances as can engaging guard services. Commercial Asset Preservation can arrange interior building access for other parties who need it.
- Protection: Winterization, seasonal landscaping or snow plowing, preventative maintenance, and addressing any repairs needed. We also offer access to a vacant building insurance policy to further protect the investor’s interest in the property.
Trust the Professionals
Since our launch in 2009, CAP has become the go-to resource nationwide for inspection, maintenance, and repair services for dozens of well-known retailers, restaurateurs, landlords, REITs, financial institutions, receivers, and other parties responsible for commercial real estate.
At closed buildings, CAP can conduct recurring inspections to report on evidence of vandalism, security concerns, life safety issues, and possible municipal code violations. Even though our customers are distantly located from the vacant building, we help them feel as though they are on site at the property through detailed photo documentation and identification of issues of concern. Because CAP uses highly-skilled commercial contractors to perform inspections, emergency property repairs can be addressed without delay.
A few reasons why CAP is a smart choice:
- Unmatched experience: Our operations team has managed the maintenance and inspection of well over one million retail, restaurant, medical, office, and industrial property services. We leverage experience and our extensive contractor resources to provide our clients with solutions that help retain property value.
- Specialized focus: CAP is the only company in the United States predominately focused on vacant commercial properties. We believe our unique niche allows for a greater concentration on an aspect of the real estate world that until now many had considered to be an afterthought.
- Nationwide reach: We support all kinds of commercial property operators across the country through our nationwide team of local independent contractors. That means your business has access to a professional resource to protect and preserve your property, even in emergencies, without delay. Our contractors are familiar with the neighborhoods in which these properties reside and the requirements of local officials.
Protect the investment you’ve made. Reach out to discuss how Commercial Asset Preservation can protect your vacant properties now and in the future.
Contact CAP (801) 461-8242, inquiries@commercialpreservation.com
1 Bureau of Labor Statistics. Employment Situation Summary. https://www.bls.gov/news.release/empsit.nr0.htm Last Updated: February 5, 2021. Accessed: February 25, 2021.
2 The Washington Post. Amid pandemic, crime dropped in many U.S. cities, but not all. https://www.washingtonpost.com/crime-law/2020/05/19/amid-pandemic-crime-dropped-many-us-cities-not-all/. Last Updated: May 19, 2020. Accessed: February 25, 2021.