Unique Problem Solving Through 1031 Exchanges

How did Westwood Net Lease Advisors’ team of Vince Vatterott and Jason Simon come to complete a massive 1031, resulting in their client’s acquisition of a $92.6 million new Dow Chemical Company headquarters building in Midland, Michigan?

Westwood represented a prominent Northeastern based real estate investor seeking a large exchange as a result of a return to the lender of another property where the loan far exceeded the property’s current value. Unlike most Section 1031 exchange transactions, the tax liability the client sought to defer came not from gain but from the forgiveness of debt by the lender who took a deed in lieu of a foreclosure.

As a result of the unique exchange, the client was motivated to find a property that had the lowest required equity to complete a transaction of that size. “The key for this client was to fully understand exactly what was needed to successfully defer the $11 to $12 million tax liability without requiring significant additional cash,” said Vince Vatterott, the lead broker on the transaction. “We focused on what is known as ‘zero cash flow deals’ where the loan to value is much higher because all of the rental income goes to retire the loan.”

Vince Vatterot

Vatterott presented the client with a zero cash flow transaction to acquire the new Dow Chemical headquarters building as part of the larger Dow campus. According to Vatterott, “the building was designed and built to Dow’s specific requirements, and they then agreed to lease the property for 25 years, with all of the rent, including annual increases, used to retire a loan in excess of $80 million. Wells Fargo served as the financial developer/owner/seller of the property with the ‘credit lease’ financing made by TiAA CREFF.”

Wells Fargo, the seller, was represented by David Clary of Stan Johnson Company. The client was able to assume the existing highly leveraged loan and only provided approximately $11 million in equity, which matched the tax liability that would have occurred but for the 1031 exchange transaction. Vatterott said, “While Westwood served as the client’s broker, found the property, negotiated the business terms and recommended the qualified intermediary (QI), IPX, the client was well supported by outstanding legal

Jason Simon

specialists on 1031 transactions and in completing this complicated transaction.”

“Westwood prides itself in going the extra mile for its clients, whether large or small, and making sure the deal is right for their specific needs and investment or tax planning goals,” said Vatterott. “Jason and I ran down every source and tested multiple portfolio opportunities before recommending this Dow HQ office building transaction.”

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