Coronavirus changing deal fundamentals

[Christopher Brown]

I am in my 180-day period for a 1031 exchange with $2mm in escrow and two properties under contract: a stabilizing self storage deal in a small but growing market and a NNN deal with three QSR (two credit quality national) tenants in Tampa. I had intended to close on the NNN deal and to syndicate the storage deal, but that was two weeks ago...

I have NO idea how to move forward with either property and my 180 days is up first week of May. Financing for NNN QSR is basically frozen - my really attractive CMBS debt got pulled, though the local bank says they think they'd still fund it - and the possibility of rent abatements or the spaces going dark in the next six months certainly seems like it could be a possibility. And while I have the reserves to float a longer lease up for the storage deal, the prospects for much longer stabilization period and slower growth in population/rents in that market suddenly make the deal seem less attractive.

Because my 1031 cost basis is so low, I'd pay basically 45% in cap gains if I don't close on either deal. But paying the taxes and having $1mm cash on the sideline all of a sudden seems almost like an upside!  Wonder how others with deals in play are evaluating the huge unknowns that all of a sudden are in play?

[Greg Dickerson]

Originally posted by @Christopher Brown:

I am in my 180-day period for a 1031 exchange with $2mm in escrow and two properties under contract: a stabilizing self storage deal in a small but growing market and a NNN deal with three QSR (two credit quality national) tenants in Tampa. I had intended to close on the NNN deal and to syndicate the storage deal, but that was two weeks ago...

I have NO idea how to move forward with either property and my 180 days is up first week of May. Financing for NNN QSR is basically frozen - my really attractive CMBS debt got pulled, though the local bank says they think they'd still fund it - and the possibility of rent abatements or the spaces going dark in the next six months certainly seems like it could be a possibility. And while I have the reserves to float a longer lease up for the storage deal, the prospects for much longer stabilization period and slower growth in population/rents in that market suddenly make the deal seem less attractive.

Because my 1031 cost basis is so low, I'd pay basically 45% in cap gains if I don't close on either deal. But paying the taxes and having $1mm cash on the sideline all of a sudden seems almost like an upside!  Wonder how others with deals in play are evaluating the huge unknowns that all of a sudden are in play?

Without know the specific details of the markets, properties and the tenants it's hard to advise you. Retail and foodservice are taking a beating and if the national tenant closes they may decide not to reopen depending on the history of the location. Storage could be good but depending on how bad things get people may clean out their stuff to try and sell it and eliminate that payment. All depends on who the   customers are and if they have lost jobs.