With The Future Of 1031 Exchanges Hanging In The Balance, Office Condos Stand Out As A Stable Investment
The future of 1031 exchanges is hazy.
Through these exchanges, sellers can defer capital gains taxes when they sell a property if they purchase another similar asset in a short period of time. These types of transactions increased in popularity during the coronavirus pandemic, but now, they’re at risk.
President Joe Biden has proposed a cap on 1031 exchanges as part of his American Families Plan bill, eliminating the exchanges for gains larger than $500K. Federation of Exchange Accommodators President Julie Baird told GlobeSt that “a cap on like-kind exchanges would effectively eliminate Section 1031 and cripple the commercial real estate market,” adding that many hotels, office buildings and retail spaces need to be reimagined as a result of the pandemic, but this cap will lead to people holding onto their properties instead of repurposing them.
While these proposed changes to the 1031 exchange may put the future of certain CRE properties at risk, one asset type could remain a smart choice for investors, regardless of the future of the program: commercial office condos.
Interest in office condos is on the rise in NYC, with sales jumping 73% in dollar volume in the second half of 2020 compared to the first half of the year. Skeptical investors can see real-life examples of this increased interest in properties like 866 United Nations Plaza, where transactions have been booming in recent months. These transactions include the sale of an occupied 13K SF unit to a group of investors, a space that has been leased by the Consulate and Permanent Mission of Vietnam since 1997. Other recent sales at 866 UNP include an expansion purchase by a current owner, as well as new purchases by a nonprofit and a financial services firm.
Jared Horowitz, vice chairman at Newmark and part of the 866 UNP sales and marketing team, said that there are unique factors about 866 UNP that have helped protect it from the economic turmoil other office buildings have experienced as a result of the pandemic. For example, there are several long-term government tenants in the building who are not subjected to market volatility.
“Despite the unprecedented effects of Covid-19 on New York City, there has been continued interest from a variety of users, such as medical and educational organizations, as well as investors seeking stable assets that can deliver an attractive ROI,” Horowitz said. “We expect that interest to increase as prospective buyers learn more about the innumerable benefits of commercial condo ownership as the current business climate continues to evolve.”
He added that buyers are drawn to the building’s impressive lineup of long-term tenants — most of the spaces have been occupied for decades, have steady positive cash flow and are easily financeable — as well as its craftsmanship. 866 UNP is also located on the water with sprawling views of the United Nations and the East River.
The building was also recently renovated to enhance its natural appeal and now boasts a new lobby with a curated digital art display, as well as new restrooms, elevator landings and water fountains. It also includes new amenity spaces that are commonly found in modern buildings, including breakout spaces, lounges and private phone booths, making it an ideal candidate for coworking or flex space. For companies looking to downsize their space since the pandemic, 866 UNP offers complimentary construction management services to help them use space as efficiently as possible.
Available units for sale at 866 UNP range from 500 SF to 61K SF, with leased investor units ranging from 2,243 SF to 7,104 SF. The building also has move-in, ready-built suites from 2,600 SF to 10,310 SF, and an available contiguous block of up to 100K SF.
For more information on the opportunities available, visit 866UNP.com.
This feature was produced in collaboration between Studio B and 866UNP.com. Bisnow news staff was not involved in the production of this content.
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