CCIM candidate James Church of Keller Williams Commercial in Clarksville, Tenn., recently facilitated a 1031 exchange that involved the purchase of two Clarksville multifamily properties. The client converted fractional partnership interests (33.3% ownership) of three rent-controlled multifamily properties in California into a 100% fee-simple ownership of 61 multifamily units in Tennessee.
Beyond helping his client realize a 91% increase in cash flow, an annual savings of $19,593 in state income tax obligation (from 13.3% to zero), and the allowance of market-rate rent increases, Church turned a good transaction into a great one by assembling a $6.59 million portfolio comprised of a 48-unit apartment complex financed with an assumable Fannie Mae fixed-rate loan of 4.625%—roughly 3 points lower than current market rates—and a 13-unit townhome development (pictured).
The buyers contacted Church after seeing his marketing approach for new units from a local developer. “To get as many eyes as possible on the units, I used a platform typically known for distressed properties, generating a huge number of views,” Church says. “While the client passed on the new development, they liked my strategy and signed an agency agreement.”
A year later, the client purchased the apartment complex for $4.8 million, negotiated down from its $5.2 million listing price and assumed the Fannie Mae loan. Soon thereafter, they paid $1.788 million for the 13 turnkey townhomes, listed by Residential Investment Advisors, in an all-cash deal to ensure a quick closing. The combined transactions resulted in a 192% increase in annual NOI and unit asset growth of 815%.
Church didn’t explicitly set out to identify an assumable debt asset. Instead, he sought to provide the client with as many options as possible, including likely turnkey solutions, given the 45-day window to reinvest the net equity from the sale of the California investment and take on equal or greater debt required for a 1031 exchange.
Beyond acting as the sole buyer’s representative, Church coordinated the 1031 exchange with a qualified intermediary and managed the Fannie Mae loan assumption, engaging third-party legal and asset management expertise on the client’s behalf. Looking ahead, the client is considering a cash-out refinance of the 13 townhomes to recapture equity, potentially up to $1 million at 65% LTV, creating an opportunity for Church to strategize opportunities for the client’s next investment.
