Meridian, ID · Member since 2017 · 9 posts · 5 votes
We have a family business in that owns or leases nearly 10 million sqft of mostly industrial RE, some office buildings. About 1.8 million sqft is owned by the family in many different partnerships. This has gotten more and more complicated as some family members have sold their ownership in the business and thus the real estate as well. We are looking at what the Pros/cons would be to consolidate all the family owned real-estate into a REIT rather than individual partnerships with different members in each and have the family members ownership in the REIT reflect their ownership in the business. I am assuming this would be something a good real estate tax attorney would be able to help with. Some of the hurdles I see are:
- We use a lot of 1031's when transacting into new buildings, a REIT doesn't lend itself to that strategy easily
- Would A Delaware Statutory Trust work in this scenario? What happens when one property is sold? Is there a limit to how many properties can be held, added, removed?
I would lay out the family dynamics and individual interests first, before coming up with the solution.
Why move all of these assets into a common entity when some people just wanted to cash out?
Picture you moved all of the assets into the REIT. But family member A wanted partial or 100% cash out. How does the valuation occur and how does the sale or cash out occur? Do the members who want to stay in the REIT have the funding to do the buyout? Do you want to allow nonfamily members to buy in?
Key is to develop an exit strategy for the investors.
Also look at your reporting costs and efforts: Evaluate each solution against these costs of doing business.
a. Taxes.
b. Bank reporting
c. Multi Banks versus single. Pulling Collateral together.