$250m deal is tri-state's biggest 1031 exchange

Real Estate Weekly, June 29, 2005

WolfBlock Brach Eichler has closed on transactions totaling $250 million as part of Internal Revenue Code Section 1031 exchanges on behalf of The Solomon Organization, based in Mountainside, NJ.

Thomas E. Cohn, a partner in the Real Estate Practice Group of WolfBlock, represented The Solomon Organization, which sold three multifamily properties located in Pennsylvania and New Jersey and purchased a portfolio comprised of 2,500 apartment units, two retail properties, vacant land, as well as a 412-unit mobile home park in upstate New York.

The series of transactions, which were negotiated over a seven-month period, represent one of the largest 1031 exchanges within the Tri-State region completed in 2005 and one of the largest acquisitions of a multifamily portfolio. The Section 1031 transaction was accomplished in part as a "forward" exchange and in part as a "reverse" exchange.

As part of the tax deferred exchange, the group purchased a mixed-use portfolio of properties located in Albany, Renssalaer, Troy and Saratoga Counties, New York, from a group of related sellers. The portfolio features 12 apartment complexes, including one mid-rise building.

The proceeds from the sales of the NJ and PA apartment communities, coupled with a $155 million first mortgage and new capital from investors, were used to complete the purchase of the upstate portfolio.

According to Cohn, "Our client saw these undervalued properties in this part of New York State as a strategic opportunity to gain a substantial foothold in a region that is undergoing great transformation as well as investment in technology.

"In addition, the transaction allowed our client to utilize tax-planning techniques, which deferred taxation on what would otherwise have been substantial sums subject to capital gains tax. The opportunity to expand its base of operations beyond New York, New Jersey and Pennsylvania contributed to the purchasing group's pursuit of the new properties."

The new properties are located within an area where technology-based businesses are expanding. The State University of New York at Albany has recently opened a new research and technology facility, a significant catalyst for growth in this area.

The Solomon Organization plans substantial capital improvements to the properties, ranging from new kitchens and bathrooms at the apartment communities to refurbishing of the clubhouse. As part of the portfolio acquisition, The Solomon Organization also hired more than 80 employees that worked in financial, supervisory, property management and maintenance positions for the previous owners.

"Section 1031 exchanges have become the preferred tax planning technique, as the deferral of taxes can fuel additional investments in real estate," noted Cohn. "More than ever, we see sellers of real estate incorporating this tax planning strategy as the mechanism to increase the size of their holdings," Cohn explained.