Don’t know exactly what you want from a customer relationship management tool? Ask these questions to identify which options will address your true needs.

Choosing the right customer relationship management tool may be one of the most frustrating aspects of setting up your real estate business. Many practitioners have tried several systems but still can’t seem to find the one that fits their needs. If it works correctly, your CRM should serve as a silent partner, providing the structure to organize and nurture your contacts and relieve you of repetitive, mundane duties so you can focus on building your business. But too often, real estate pros find that their CRM doesn’t offer enough of the support they wanted.

Before choosing a CRM, you have to know what you want out of it. Blindly trying out systems can quickly become a waste of time. Micah Olson, associate broker at RE/MAX Results in Orem, Utah, advises that pros pass on CRMs that aren’t real estate–specific because they won’t be able to address your specialized needs. “I don’t see why anyone would want to customize a non-real estate CRM,” he says. “There are enough systems available today that are already set up for how real estate professionals work and the information they need,” he adds.

But Olson has learned that it’s rare for a single CRM to have all the features and functionality a practitioner needs. So how can you find the one that comes the closest? Here are some questions to ask as you look for the CRM that will work best for you.

1. Is it compatible with other tools you’re already using? Olson, who uses Top Producer(link is external), found that he could easily integrate video service BombBomb(link is external) and the Riley lead management system(link is external) into his CRM. Focus particularly on a CRM that will be compatible with your lead generation tools, Olson suggests. “Talk to your top three sources of leads and find out which CRM integrates most naturally with their system so you won’t have to enter [customer] information manually.”
2. Does it have robust automation features? A CRM’s capacity to set up and automate routine correspondence and marketing campaigns is probably most important for real estate professionals, Olson says. He’s created automated communication plans for a range of business opportunities, such as buyer and seller leads, new listings, valuation requests, buyers under contract, and follow-up with clients. “I can even set auto emails to go out six months after doing something like a valuation request, asking a client if they would like an update,” he says.
3. Does the CRM provider offer sufficient customer support? It’s important to know that if you run into problems using your CRM, you’ll get adequate assistance. When Joe Pryor, CRS, broker-owner of The Virtual Real Estate Team in Oklahoma City, upgraded to RealtyJuggler(link is external) four years ago, one of the aspects of the CRM he appreciated most was its video tutorials and step-by-step guides on how to use its features. “So you don’t have a huge learning curve,” Pryor says. And if he needed to call or email customer support, a representative was always quick to respond, he adds. “I really appreciate how personable, available, and responsive customer support is if you have a question.”
4. Does the company behind the CRM have staying power? Newer companies may be creating CRMs with more state-of-the-art features, but if they haven’t established longevity in the market, you could be stuck looking for another CRM if they go out of business. Mary Pope-Handy, CRS, CIPS, a sales associate with Sereno Group in Los Gatos, Calif., was using one CRM but the company folded. As a result, she lost all of the email records that were attached to her contact list. She wanted assurance that her next CRM provider would be around for the long haul, so she decided to use PropertyBase(link is external), which integrates with SalesForce.com(link is external), a longstanding company. “SalesForce is a big platform, and it won’t go out of business,” Pope-Handy says.
5. How much time are you willing to invest in learning a CRM’s features? “You can find a CRM system with basic functionality that’s easy to use—but it doesn’t do much,” Pope-Handy says. “Or you can choose a system that will do whatever you want, like track referrals, but you have to be willing to invest your time to learn how to use it.” She says her CRM can “do anything you can imagine,” though it took her about a month to learn how to navigate the system. So when you’re evaluating CRMs, first look at the basic features you need, then determine how many extra features you have the patience to learn.
6. Will the CRM be appropriate for everyone on your team? Chris Kallin, a sales associate at Realogics Sotheby’s International Realty in Seattle, says that when he joined the brokerage’s four-person Seattle by Design team a year ago, each team member was using a different CRM. “One of the first questions I asked was, ‘If we are going to use a CRM, why not implement the same system for everyone?’” Kallin says. Over several months, he sought recommendations from other real estate professionals, researched dozens of options, and tried several before narrowing his list down to the top three, based on factors such as price, user interface, and intuitiveness of the software. User interface in particular is an overriding factor when choosing a CRM for a team, Kallin says.
7. Do you want your CRM to focus on sales or relationships? When you launch your CRM, what kind of information first pops up? “If it’s a sales funnel and weighted opportunity figures, then it’s a sales-focused CRM, and that purports to be its primary value,” Kallin explains. “If it first presents you with contact records, then it’s more people-focused.” His team members emphasize client relationships, so they chose IXACT Contact(link is external) as their team CRM. Kallin especially likes a feature that includes the name of a client’s partner or spouse in each contact entry and uses both names in automated correspondence.

Remember that choosing a CRM is a personal decision and should reflect what you consider most important in your business, Kallin says. Once you’ve compiled a short list of potential solutions, the best proof is in their use. “Most CRMs offer a free trial,” Kallin notes. “Spend a couple of hours under the hood seeing how records are set up, what kind of action plans it provides, and how much of the work is already done for you. Then you’ll know which one is your best choice.”

©National Association of REALTORS®
Reprinted with permission

New renters over 60 are on the rise, growing 43% from 2007 to 2017 to reach 9.4 million.

In recent years, millennials have been the largest growth segment in multifamily rentals. However, renters over the age of 60 account for one-third of current rental applications in urban areas, and new renters over 60 are on the rise, growing 43% from 2007 to 2017 to reach 9.4 million. By 2035, the figure is expected to double. Here are five reasons for the surge.

1. Boomers are downsizing from larger homes.
2. They want to do less home maintenance as property management handles repairs.
3. Apartments offer age-friendly floor plans—no stairs, larger spaces for mobility devices, wider shower stalls.
4. Apartments may have amenities appealing to baby boomers, such as high-end fixtures and finishes or soundproofing.
5. Boomers have had time to accumulate savings and will be less rent burdened in managing expenses.

©National Association of REALTORS®
Reprinted with permission

Strong demand for multifamily rental units along with steady rent growth are bolstering the rental market.

Strong demand for multifamily rental units along with steady rent growth from the first quarter of 2020, projected through the first quarter of 2021, are bolstering the rental market. Here are four positive indicators:

• Year-over-year leases: In a recent NAR survey, REALTORS® reported a 33% year-over-year increase in dollar volume of new leases in the first quarter of 2020 in Class A and 35% in Class B/C, the best year-over-year leasing numbers across all commercial markets.
• Rent prices: Apartment rental prices are holding steady, rising an estimated 0.2% from June 2019 to June 2020. As of June 2020, the median price for a two-bedroom apartment was estimated at $1,192.
• Tenants keeping current: As of late June, 92.2% of apartment households in buildings with 5 or more units paid their rent—a level unchanged from a year ago.
• Construction: Multifamily starts have been on the rise since mid-2019, increasing from an annual rate of 333,000 in July 2019 to a peak of 619,000 in January 2020. There were 527,000 starts for multifamily units in February 2020.

©National Association of REALTORS®
Reprinted with permission

What to ask before entrusting a commercial cleaning business for your office in a COVID-19 world.

Everyone deserves to work in a dust-free, germ-free, and contaminant-free office—which is why hiring an exemplary commercial cleaning company is a must. In addition to finding out what a company’s rates are and talking to references, here are seven questions to ask before entrusting a commercial cleaning business for your office in a COVID-19 world.

1. Are you insured and bonded? General liability insurance and workers compensation insurance are must-haves. You’ll want to verify coverage to ensure you’d be protected in the event one of the company’s employees breaks something in your office or gets injured on the job.
2. What cleaning services do you provide? Some companies offer special services, such as window washing and hardwood floor buffing, that you may need in addition to basic cleaning tasks like dusting, vacuuming, and disinfecting surfaces.
3. What kind of training do your employees receive? You wouldn’t want a rookie mechanic repairing your car, would you? In that vein, you only want to hire people who are professionally trained to perform commercial cleaning duties. Pro tip: Find a company that performs background checks on its workers.
4. Do your bring your own cleaning tools and supplies? A full-service commercial cleaning company supplies its own vacuums, floor polishers, and other cleaning equipment, which makes the process seamless.
5. What businesses do you service with an office like mine? Experience matters, without a doubt, but you don’t want to just find out how many years a company has been in business—you also want to confirm that they have experience cleaning offices similar to yours.
6. Are you CIMS certified? A Cleaning Industry Management Standard certification from the trade group ISSA adds credibility to a professional office cleaning company. It’s among the most rigorous credentials developed for the industry.
7. Do you have a quality control process? You want to hire a cleaning company that tracks and manages the quality of its employees’ work.

©National Association of REALTORS®
Reprinted with permission

Short-term vacation rentals are working to integrate new technology and sustainability into operations and offerings.

With 96% of hotel guests carrying smart devices, and 70% of travelers indicating a preference for eco-friendly accommodations, hotels are working to integrate new technology and sustainability into operations and offerings. Short-term vacation rentals are well-equipped to offer the same services. Here are five ways they are following suit.

Digital guest experiences: mobile version of website, in-app chat, direct messaging.

Local guest experience opportunities: off-the-grid tours, volunteer work with local nonprofits, shopping for organic ingredients from local farms.

Sustainability: responsibly sourced toiletries; lights and thermostats that can be shut off or adjusted remotely; recycling options.

Augmented and virtual reality: virtual tours that provide the ability to see the interior before check-in; beacon technology to send virtual keys to guests’ phones; instructions for amenities such as laundry, security systems, and entertainment options relayed to renters through an accessible video library.

Smart homes and properties: voice technology, virtual concierge services, online guidebooks curated
by a host or property manager making local recommendations.

©National Association of REALTORS®
Reprinted with permission

As short-term renters plan vacations, technology can help property managers ensure everyone’s comfort.

When the pandemic hit and effectively shut down much of the nation, it seemed clear that no one would be going on vacation anytime soon. But after several months of quarantine, many parts of the country are slowly opening—and people are ready to get away.

Earlier this year, 53% of people had scheduled a summer vacation(link is external), with the majority planning to drive to their destinations, according to a survey by the Out of Home Advertising Association of America. Most vacationers aimed to avoid big cities(link is external) and instead visited beaches and rural areas, according to a report from Destination Analysts.

The rebound in vacation planning has mostly been good, but risks still remain for both short-term renters and property managers. In light of the ongoing pandemic, property managers must go out of their way to reassure customers that their properties are clean and safe.

While cleanliness has always been an important factor in rental properties, people want to feel that property owners are doing more than dusting the surfaces. They want to know what protocols have been implemented to protect them from COVID-19. While a thorough disinfection process can help tenants feel safer and more at ease, it’s not the only action property managers should take to protect their properties.

Several steps can help reassure visitors even beyond the pandemic. Here are four technologies—and one more straightforward suggestion—to ensure everyone feels protected:

1. Keyless entry. Smart-home technologies that allow for keyless entry remove a shared point of contact—the key—and allow guests and staff members to enter residences without the need for in-person interactions. Direct-to-home check-ins are safer options that also happen to be more convenient for renters and managers.
2. Smart thermostats. Smart thermostats digitally alert managers and renters of any heating or cooling issues, allowing maintenance to be scheduled and taken care of while guests are away. Managers can also run their HVAC systems remotely before renters arrive to make the space more comfortable, or they can flush air through a high-grade filter, adding another element of cleanliness.
3. Property operations dashboards. If you’re using a property automation platform, dashboards can help track the cleaning process—a crucial part of keeping renters safe. These tools can notify the cleaning staff as soon as guests check out, which allows them to clean immediately without the risk of coming into contact with renters. As a bonus, this means subsequent guests can check in early.
4. Smart security systems. Smart cameras and security systems can not only ensure the safety of renters but also continuously monitor properties during the offseason. Modern smart security systems provide more features than just cameras: They offer motion detectors and contact sensors that can recognize open windows and other potential vulnerabilities.
5. Proper PPE. While it’s less tech-focused than the rest of this list, personal protective equipment is indispensable. Make sure you have enough PPE available for your cleaning staff, and equip them with cleaning supplies proven to kill the coronavirus. You need to be able to say with confidence that you’re doing everything you can to keep renters safe, regardless of how much technology you employ.

The Vacation Rental Housekeeping Professionals and the Vacation Rental Management Association have released more rigorous cleaning protocols(link is external) in response to COVID-19. These guides offer great starting points for taking care of your property.

While COVID-19 has put safety concerns in the spotlight, keeping short-term rental properties safe and clean should be a permanent priority. These features always drive guest enjoyment and provide added peace of mind. By using technology to create safer and cleaner rental properties, you’re taking care of the people who make your business possible— and doing your part to stop the spread of the virus.

©National Association of REALTORS®
Reprinted with permission

Changes to city policies, zoning, and leasing agreements are needed to accommodate the altered commercial landscape brought on by the pandemic.

3 Takeaways:

• Cities are reevaluating policies and zoning laws to help retailers do business during the pandemic.
• Evolving business models are necessary to accommodate consumer behavior.
• Changes to lease structures will help ensure tenants can afford to stay long term.

For the past eight months, independent retailers, big-box chains, and restaurants have grappled with the ongoing pandemic and its effects on brick-and-mortar locations. Retailers of all kinds have had to improvise, pivot, and change amid everything from shutdowns and restrictions to changes in consumer behavior. Meanwhile, cities have been given new insights into how zoning and policies affect a business’s ability to weather crises.

The city of San Francisco, a vibrant community of multiple neighborhoods—each with its own distinctive flavor of retail—has been hit particularly hard by the COVID-19 pandemic. According to a recent Yelp Economic Impact Report(link is external), San Francisco has the third-highest number of retail and restaurant closures in the United States. Only New York City and Los Angeles have seen more businesses shut down.

A panel discussion at the 2020 Urban Land Institute Annual Symposium focused on the inevitable changes needed for brick-and-mortar retail to survive in an age of never-ending uncertainty. The discussion was led by Sheila Nickolopoulos, a senior planner with the city of San Francisco; Laura Sagues Barr, senior vice president of CBRE; and Laurie Thomas, executive director of the Golden Gate Restaurant Association.

As a result of mandates meant to curb the spread of coronavirus, restaurants are currently able to use 25% of their indoor dining spaces to seat patrons. Similarly, local businesses are allowed only a small number of patrons indoors. This has forced owners to pivot to new ways of serving their customers: via curbside pickup, delivery, and outdoor seating and selling.

At the beginning of the pandemic, though, restaurant and retail owners could not use the sidewalks in front of their stores, nor adjacent open spaces or parking spaces for seating or selling products. This, Thomas said, caused significant problems in the retail sector’s ability to evolve as quickly as it needed in order to stay open and serve customers.

The problem, Thomas said, stemmed from city policies that require thousands of dollars in fees and what she called an “arduous permitting process” that could take months. But restaurant owners did not have months to weather the pandemic while waiting on the proper permitting, and most did not have the cash flow to pay the necessary fees.

Policy and Zoning Changes Are the Future

San Francisco has long known that it’s time for a close look and overhaul of retail-related policies, which Nickolopoulos said do not reflect the current retail environment. The city already had plans to reevaluate its policies, but the coronavirus accelerated the process.

A task force composed of city and community leaders came together in an effort to figure out what immediate changes were needed to help businesses survive the pandemic. One resolution that came out of the task force is the Shared Spaces Program, which streamlines the process of allowing restaurants to quickly pivot to outdoor dining, a move Thomas said provides a necessary—but temporary—lifeline for restaurants.

The city continues to work with small businesses and restaurants to make doing business during the pandemic as easy as possible.

Lease Structures Are Changing

The ability to keep a brick-and-mortar retail space open depends on a number of factors: cash flow, business costs, rent prices, demand, and more. The pandemic interrupted cash flow for most businesses in San Francisco and beyond. Also, the retail sector had been dealing with rising rent costs and steady increases in the price of doing business. This combination of factors has made it more difficult for retail and restaurant establishments to make a profit, forcing many businesses to close.

For existing and new businesses, a change in deal structures will likely be needed to ensure tenants can afford to stay long term.

Sagues Barr, who works with many commercial retail investors, said those changes are coming down the pike. The good news, she said, is that she’s seeing an uptick in investors who are ready and able to invest in becoming landlords.

Still, for commercial leasing to be a viable source of revenue for investors, they need tenants to fill the space. Given the pandemic, the investors understand the need for flexibility in deal structures, and Sagues Barr is seeing an implementation of new leasing terms. She identified three deal structures evident in the commercial space:

1. Straight percentage deals for the term of the lease.
2. A set base rent with a percentage structure set for a period of time.
3. Percentage structure for the term of the lease (typically 18 to 24 months) that has a base rent reset based on sales.

Flexibility Is Critical

All three panelists agreed that for commercial sectors to survive the pandemic and beyond, flexibility is nonnegotiable.

From a policy perspective, Nickolopoulos said, this means making short-term changes to accommodate current commercial needs—like the Shared Spaces Program—and looking at current policy that prohibits businesses from pivoting as needed. Long-term fixes will also be necessary to make it easier for businesses to make money.

Retail establishments and restaurants will need to find new, innovative ways to get their product to their customers, Thomas said, which means revolving business models to accommodate consumer behavior and working with the city to break down barriers that prevent businesses from doing just that.

Landlords will also have to take a short-term risk for what’s hopefully a long-term win, said Sagues Barr. She also emphasized the importance of landlords and tenants coming to agreements that work for all parties involved, which means agreements might have to evolve into something new.

The Takeaway

Cities overall are resilient, which is a positive. The brick-and-mortar shopping experience isn’t going anywhere, but it is changing in myriad ways, which means commercial real estate brokers, agents, and investors will have to keep a close watch on many factors. Everything from city policy to leasing agreements will likely change in some way to accommodate the new normal brought on by the pandemic.

Because the United States is still in the midst of the pandemic, it’s hard to predict what the future of commercial real estate will look like. This isn’t the time to gather data on vacancies or business health, said Nickolopoulos, because right now, retailers, investors, and cities alike are simply focused on staying afloat.

©National Association of REALTORS®
Reprinted with permission

With some calling for the repeal of like-kind exchanges, practitioners show how the misunderstood provision can be a boon for communities.

Key Takeaways:

• Section 1031, in place since 1921, allows investors to defer paying capital gains taxes on the sale of investment property as long as the proceeds are invested into a similar (“like-kind”) property.
• Some policymakers and politicians view 1031 exchanges as a way for large investors to dodge taxes rather than defer them, but such claims fail to recognize that most participants are “mom and pop” investors and the transactions rarely lead to a permanent tax deferral.
• A high percentage of like-kind exchanges, as many as 88%, ultimately result in taxable sales. Removing 1031 exchanges entirely would reduce federal revenue and reduce other related economic activities.

Chances are that if 10 people walking down a city street were asked what a like-kind exchange is, nine of them would not know. But the truth is, those transactions are key to keeping communities vibrant.

Now this long-standing part of the tax code that greatly affects real estate, Section 1031, is at risk of being eliminated, an action that some researchers and advocates, including the National Association of REALTORS®, say would have adverse consequences for communities and their economic development. President Joe Biden has proposed doing away with Section 1031 like-kind exchanges to fund services for children and the elderly. Those are worthy services, to be sure, but eliminating like-kind exchanges of real property, which have been available to investors since 1921, won’t accomplish the goal and will hurt the economy, according to new research.

Some policymakers and politicians view 1031 exchanges as a way for large investors to dodge taxes rather than defer them, but such claims fail to recognize that most participants are “mom and pop” investors, and the transactions rarely lead to a permanent tax deferral. Common criticisms of the provision have been countered by recent research by David C. Ling, professor of real estate at the University of Florida, and Milena Petrova, an associate professor in the finance department at Syracuse University. Ling and Petrova analyzed 816,000 commercial property transactions with a median sales price of $1.1 million (not adjusted for inflation) from 2010 to 2020 provided by the commercial data giant CoStar. Among their conclusions:

• The share of like-kind exchanges ranged from 10% to 20% of all commercial real estate transactions and involved mostly smaller deals.
• A high percentage of like-kind exchanges, as many as 88%, ultimately result in taxable sales. Removing 1031 exchanges entirely would reduce federal revenue and reduce other related economic activities.
• Eliminating real estate exchanges likely would reduce transactions in most commercial real estate markets and prices in some markets, at least in the short run.
• Elimination also would probably decrease capital investment on acquired properties and increase investment holding periods and the use of leverage to finance acquisitions.

The researchers found that 1031 exchanges significantly benefit not only commercial real estate owners and operators but also the economy in general. By deferring tax liabilities, exchanges can help preserve scarce investment capital that investors can use to acquire larger properties, upgrade portfolios, and make capital improvements. Those activities create jobs and expand state and local governments’ tax bases.

1031 exchanges also make commercial real estate, which is highly illiquid, more marketable. Increased liquidity is especially important to non-institutional investors in inexpensive properties, who account for most of the like-kind exchange market. And at a time when housing shortages persist in many markets, 1031s offer a viable option for investors interested in transforming underused or vacant commercial properties into multifamily and other residential developments.

The provision is of vital importance to many REALTORS®. Between 2016 and 2019, 68% of all commercial REALTORS® had at least one 1031 exchange transaction, according to NAR research. In addition, 12% of sales by commercial members were 1031s, as were 5% of sales of residential-focused members. More than 90% of NAR members expect property values would fall if 1031s were repealed.

As lawmakers debate the future of this critical yet often misunderstood tax provision, this up-close look at two transactions shows plainly how 1031 exchanges provide major economic benefits to communities as well the investors behind them.

From Eyesore to Welcome Sight

Craig Fernsler’s 95-year-old client knew she wanted to use a 1031 exchange to invest in a replacement property in 2014, but she did not know how to go about it. She had sold a farm in Williamsport, Pa., to a company that wanted to build a plant there. Of the $4 million purchase price, a little under $2 million had gone into a passive investment for her.

“My immediate goal was to find out what the client and her family’s risk tolerance was and what they were really looking for,” says Fernsler, ccim, senior director at KW Commercial in Blue Bell, Pa. “That gave me the direction I needed to search throughout the country for a replacement property.”

What Fernsler found in 2014, and the family chose, was an investment in a new corporate-guaranteed Wendy’s fast-food restaurant in Chicago.

“There were minimal risks,” Fernsler says. “If there’s only five years left on a lease, you’re going to have risk that the tenant will leave in five years. This was a brand-new 15-year lease with increases in rent that Wendy’s would pay my client. And Wendy’s would take care of snow removal, lawn care, and any repairs and maintenance. The [client’s] kids knew this Wendy’s would be staying in business.”

Although the investment risk was minimal, the property had a long and complicated past. “A dilapidated warehouse on the site had to be torn down,” Fernsler says. The building had been vacant for years and was occupied by a range of businesses dating back to 1924, including an auto repair shop, a tool and die manufacturer, and an acrylics factory.

Fast-food chains often attract developers and investors using 1031 like-kind exchanges, Fernsler says. The redevelopment process is complex, involving environmental cleanup and government approvals. It typically takes at least two years. Some chains use a list of approved developers who handle their projects. Investors who are older or have owned residential rental properties may opt for a 1031 exchange investment that generates passive income because they do not want the hassles that come with actively managing a property.

The developer for this project commissioned an environmental site assessment in 2012 that found a 550-gallon underground gasoline storage tank on the property and volatile organic compounds related to a storm sewer detention structure. When it was determined that the groundwater and soil were contaminated, the developer hired a company to oversee removal of the storage tank and collect samples for testing. Eventually, more than 4,200 tons of soil were removed and disposed of in accordance with environmental safety requirements.

Beyond remediation of the property, the cleanup hugely benefited the community, Fernsler says. “Think about the economic vitality added with cleaning up the area. Nobody was working in that run-down warehouse for years, but then employees were working at Wendy’s, in a clean environment.” The restaurant opened at a time when new condo and apartment complexes were emerging, drawing more people to the area, and creating more activity and traffic to nearby businesses.

In addition, the overall redevelopment has generated a lot of employment and significant tax revenue over the past seven years, Fernsler says.

“I worked with an attorney and a title company. The developer hired people to construct the building,” he adds. “Engineers were hired, as well as a surveyor, an attorney who took the project through the approval process with the municipality, and the municipality attorneys. Everybody that touched this was paying regular income taxes. And transfer tax was paid when the transaction happened. This kind of transaction creates a chain reaction, but if you take away 1031s, the chain breaks. If these transactions were done more, it would be a beautiful thing.”

Mall Rejuvenation

When a grocery chain pulls up stakes, the results can ripple through a community for years. That situation began in 2013, when Safeway announced it was closing its Dominick’s Finer Foods stores in the Chicago market, including three locations in suburban Naperville, Ill.

One of those Dominick’s properties anchored a shopping mall called Fox Run Square. “Grocery stores are probably one of the safest types of anchored shopping center,” says Christine Jeffries, president of the Naperville Development Partnership. But the older centers “tend to get dog-eared toward the end of their life and need reinvestment and modernization. Owners typically say, ‘We can’t sell this property for a reasonable price, because we’re going to pay too much in capital gains.’ So, they just sit on the property.”

Not so with the owners of Fox Run Square. The 35 investors strategized with Rahul Sehgal, chief investment officer at Inland Private Property Corp., and moved forward. Bradford Real Estate Corp. bought the mall for $25.6 million in 2014. By using a 1031 exchange, the investment group was able to defer capital gains taxes. Without it, investors would have held onto the property and tried to renegotiate with the bank, says Sehgal. “Our investors did not have the nearly $30 million of additional capital that the developer spent. Even if they had come up with that kind of money with our assistance, that property would have sat vacant for a long time.”

Beyond benefiting the investors and the buyer, the deal led to the construction of a new Mariano’s grocery store on the Dominick’s site in 2016. Most of the mall’s tenants, primarily small businesses, stayed on, continuing the employment and services they had long provided the community. “It’s about keeping and supporting the small businesses,” Sehgal says. “The benefit to the neighborhood is the survival of some of the smaller tenants. You can’t support them unless you have an anchor, no matter how loyal a base they have.”

1031s offer a viable option for investors interested in transforming underused or vacant commercial properties into multifamily and other residential developments.

The two other former Dominick’s properties in Naperville followed a different trajectory. After both were leased by Albertsons Companies, one was still unoccupied in 2020, and the other only recently became home to an Amazon Fresh store. Jeffries said the dark buildings took a toll on the community. “We started seeing a lot of vacancies [nearby]. Albertsons was paying rent, but there wasn’t the same traffic, the same vibrancy you would have had if a grocery store had occupied there immediately. People want to go where there’s business, where the lights are on.”

In addition to supporting small businesses, 1031 exchanges help communities generate sales tax and property tax, Jeffries explains. “Pre-pandemic, Naperville took in more sales tax than property tax. The more sales tax communities bring in, the less property tax they need to bring in. Any time you can reduce your property tax levy by bringing in more sales, residents are happy.”

Today the mall is thriving. “You can go to that Bradford center early Saturday morning, and people are going to the Ace Hardware, the Mariano’s, the UPS Store. They’re getting their hair done,” Jeffries says. “Every single space is filled.”

©National Association of REALTORS®
Reprinted with permission