1031 Transactions on the Rise

Tax-deferred exchanges under Internal Revenue Code Section 1031 have changed since the recent financial crisis, according Mary Cunningham, president of the Chicago Deferred Exchange Company (CDED). The CDEC is one of the largest providers of qualified intermediary and exchange accommodation titleholder services for investors looking to structure tax-deferred exchanges under 1031.

Cunningham sat down with REIT.com at REITWise 2012: NAREIT's Law, Accounting & Finance Conference in Hollywood, Fla., last month to discuss how the financial crisis affected the transactions.

"During the financial crisis, the transaction volume decreased dramatically, and I think a lot of the REITs were conserving cash," Cunningham said. "Since the crisis has passed, we see the REITs being more opportunistic buyers, and transaction volume is up for everyone."

Cunningham said a number of market factors fueled the increase in transaction activity. Those factors included the low interest rate environment. She said low interest rates have been helpful for capital acquisitions.

"Also, the aging of the baby boomers has increased activity among health care properties," Cunningham said. "In addition, because the single family properties haven't rebounded as quickly as some of the other sectors, we see a lot of activity in the multifamily sector, because people are delaying home purchases and renting for longer periods of time."

Cunningham is keeping an eye on issues that are related to the 1031 transactions, which means being in tune with the Federal Reserve System.

"We are always watching what the Feds are doing relative to interest rates. That's a big thing. But we are also very keen to keeping our eyes on any legislative developments that might be introduced that could curtail 1031 transactions or eliminate them in general," Cunningham noted.