Cash Out For More – When Selling Your Property, another exit strategy.
In addition to the exit strategies outlined by David S. Fisher last month in this same space (see: http://www.landandfarm.com/news/article/1007/) owners of appreciated real property have another option that can be much more financially rewarding to their bottom lines.
Owners of ‘C’ corporations and other similarly taxed entities that are selling any type of appreciated real property held for investment – whether it’s a farm, ranch, hotel, or any other type of real property including mineral rights can elect to sell their corporation’s stock, contemporaneous with the sale of their company’s property, to a third party and thereby “cash-out” with a greater cash return and fewer liabilities.
There are ready and capable investors who are willing to acquire corporate entity for cash, thereby enabling these investors to “step into the shoes” of the former owners. These investors can purchase the company as a means to reinvest in other property they are interested in acquiring via a §1031 Exchange. Other residual assets or operations of the corporation that are acquired by these investors may be “spun-out” or distributed to the former owners.
In a non-adversarial “seller-friendly” transaction, these investors purchase the corporate stock for an amount that far exceeds what the owners would have otherwise realized if their company had merely sold the asset, paid the taxes, and then distributed the net proceeds. Such a stock sale does not impede or complicate the asset sale, but rather accelerates the closing process, facilitates the transaction and augments the monies to the sellers.
This alternative exit strategy has several benefits. In addition to enabling the owners of real property to realize greater after-tax net proceeds, a sale of their stock also minimizes exposure to the unknown liabilities they might otherwise face subsequent to the property’s sale. This fusion of exit strategies not previously cited is ideal for owners who are not fully inclined to tie up all of the proceeds their company realizes by reinvesting into a volatile real estate market for a long-term period and are simply looking for a “clean exit” with greater after-tax net proceeds. This technique is especially beneficial for foreigners who own real property in the United States.
At no cost or obligation, a comparative analysis can be prepared based on the company’s specific circumstances and tailored to the shareholders’ objectives. These analyses can be very beneficial in evaluating both asset and other stock offers received in the sales process and facilitate marketing campaigns.
Given the tightening credit market and scarcity of aggressive asset offers in the current environment, this pricing and stock acquisition structure has become even more meaningful. In some instances, our investor groups’ stock purchase price premium may allow a company to accept a lower sales price for its property while still netting the shareholders the same (or greater) after-tax proceeds and consequentially make a transaction possible.
Vince Mariano, President
Strategic Real Estate Investors