1031 Buyer Purchases Two Net Leased Properties from the Same Seller

Upland recently helped a Buyer and a Seller in the sale of a property leased by Office Depot, for $4.19 Million.

The Seller is a nationwide developer of single tenant properties, with a great reputation for developing buildings leased to a high quality list of clients including; Kmart, Eckerd's Drugstores, Gander Mountain, Regal Cinema, Office Depot, Walgreen's Drugstores, and Pier One Imports.

The Buyer is a Minnesota based real estate investor who was selling a multi-family property, and was looking for a good, long-term replacement property to fulfill his "up-leg" on a 1031 Tax Deferred Exchange. He was entertaining an Office Depot in Maplewood, Minnesota, a Walgreen's in Sioux Falls, South Dakota, a local industrial property and an assisted living facility near Boston, Massachusetts. (Upland was not involved in the industrial or assisted living property transactions).

Since the Buyer had to identify three properties within 45 days of closing his sale, he chose the Office Depot, the assisted living property and the industrial property as options. We helped him negotiate a deal and write a Letter of Intent on the Office Depot. He said that the Office Depot property was his second choice, and he continued to pursue the assisted living property as his preferred property. Upland let the Seller know the situation, and asked them to let us know if anyone made any strong overtures for the property. Since the property was in a second position, we told the Seller that if we heard anything, we'd let them know. We kept in contact with both parties, but did not think the Buyer would revive interest in the Office Depot.

Approximately three months later, after the Buyer told us that he was nearly under contract and involved in his due diligence on the Boston property, he contacted us to say the deal was unraveling, and that he may want to take another look at the Office Depot.

We re-contacted the Seller, who had reduced their asking price in the interim, and proceeded to negotiate a new Letter of Intent on terms which were acceptable to both parties. The market had shifted in the favor of the Buyer, and he was delighted. In fact, he pointed out that had the deal points not improved, he would have bought the industrial property. The Seller was a little disappointed in the reduced profits, but realized that "the market is what it is". The Seller left the table a little unhappy, but felt they had made a fair market deal. The Buyer was very happy, since he had recognized a price reduction, but moreover, came to realize that this property, located "in his own backyard" was ultimately his favored investment. He is a hands-on kind of owner, and he assigned significant value to the real estate, and it's long term residual value, which made him become even more comfortable with the investment.

As an epilog to this transaction; Within three months of this sale, the Buyer purchased an adjacent Pier One Imports for $1.79 Million from the same Seller. He had proceeds from a 1033 Condemnation transaction, and was able to control an entire site, which was ultimately a win-win for all of the parties involved.