Securitized 1031 Exchanges Projected to Raise a Record-Breaking $5.5 Billion in 2021
Securitized 1031 exchange offerings have raised a total of $2.55 billion as of the second quarter of 2021, an increase of 53 percent compared to the same period last year when sales totaled $1.46 billion, according to Mountain Dell Consulting, a market research and analytics firm focused on the securitized 1031 exchange marketplace.
The firm indicated that in addition to the $2.55 billion raised, there was roughly $200 million that was not reported, bringing the actual total closer to $2.75 billion.
Mountain Dell has again increased its previous year-end forecast, projecting that the market could now reach a record $5.5 billion in 2021, exceeding the two highest fundraising years on record: 2006 and 2019, with nearly $3.7 billion and $3.5 billion raised, respectively. At the beginning of the year, the firm projected a $4 billion raise, which was later increased to $5.2 billion after the first quarter totals were released.
During the second quarter of 2021, there were 37 active sponsors and 141 offerings, of which 82 closed. Mountain Dell reported that full-cycle events for Delaware statutory trusts are significant and anticipates close to $1.5 billion this year.
The top five sponsors by market share were Inland Private Capital (19 percent), Capital Square (15 percent), ExchangeRight (8 percent), Passco Companies (7 percent), and Cantor Fitzgerald Investors (6 percent). Other notable mentions include Black Creek Group with 5 percent of market share and RK Properties with 4 percent.
Multifamily continued as the most popular asset classes with nearly $1.29 billion and 50.5 percent of the total equity raised, followed by retail with $414.2 million and 16.3 percent, industrial with $226 million and 8.9 percent, self-storage with $177.9 million and 7 percent, and multi-manufactured housing with $162.5 million and 6.4 percent.
1031 exchange properties were concentrated in Texas (26), Florida (20), Georgia (17), Illinois (15), and North Carolina (11).
Out of the 141 total offerings, the majority were structured as Delaware statutory trusts (130), followed by tenant-in-common (8), direct title (1) and limited liability companies (2). There were 105 offerings registered as 506(b) and 36 offerings registered as 506(c), which permits general solicitation to investors. As of June 30, 2021, the average first-year return was 5.09 percent.
The offerings spent an average of 131 days on the market, with a median of 79 days. During the fourth quarter of 2020, the average was 200 days with a median of 164.
Section 1031 of the Internal Revenue Code allows investors to defer paying capital gains taxes on investment property sales by reinvesting the proceeds into a similar investment property within a specified time frame. Securitized 1031 exchange programs are structured as securities and sold to retail investors, mainly as Delaware statutory trust offerings.
Mountain Dell said that there is strong demand for 1031 exchanges in the current environment and not enough supply to keep up. In addition, the Biden Administration has proposed capping gains deferred under like-kind exchanges at $500,000 to pay for the $1.8 trillion American Families Plan, which industry experts fear would “effectively eliminate” Section 1031 from the tax code, where it has remained for more than 100 years.
- On July 16, 2021