How do I accept 1031 money into my syndication then refi later?

[Anthony Barbato]

Hello,

How do I accept 1031 exchange money into my syndication and have the flexibility to refinance in 6 months?

We are putting together a syndication on a $15.8M portfolio of assisted living facilities in Northern California with a 10% cap rate.

We are raising $5M in equity and we are talking with our first investor for the deal. They are identifying a property for a 1031 exchange and are interested in our deal. 

I understand that the conventional method of syndicating with the Op Co Prop Co setup in separate LLC's does not work with 1031 exchanges because the investor is investing in the company, not the real estate. Instead, the Delaware Statutory Trust gives the investor a fraction of the title, and because of this, it is considered like kind and it works with 1031 exchanges.

We are going to close on the $15.8M portfolio with a bridge loan, and refinance into a HUD loan in 6 months. This is a problem with the DST, because you cannot refinance once you structure a deal under the DST.

Herein lies the question: How can I accept 1031 exchange money into my syndication and have the flexibility to refinance in 6 months?

Thank you

[Andrew Hogan]

I'd talk to a CPA or Attorney to get the best legal answer. I know that most syndications don't accept 1031's going in, but the most experienced sponsors are able to offset 60-80% of each dollar invested in paper losses from cost seg and depreciation, thereby creating the same effect without the time crunch and added stress.