NAPA Auto Parts Portfolio 1031 Exchange with United Furniture Warehouse

Challenge

DBC Investments LLC originally owned a local auto part retailer with three locations (Montesano, Chehalis and Centralia). After retirement, they leased all of their properties to NAPA Auto Parts. Following the death of her father, the owner sought out to consolidate her equity into one stable, secure single-tenant property through a 1031- tax deferred exchange. The major challenge was selling three separate properties, to potentially different buyers, while coordinating simultaneous closings for the transactions.

Action

The tenant at the Montesano location exercised their Right of First Refusal, which was a provision in their lease that gave them the right to buy the property before the Seller negotiated any other offers. This left the other two locations available for purchase.

Kyle Sterling and Nick Bierly originally secured a buyer for the Chehalis and Centralia locations. However, during the buyers’ due diligence investigation of the properties, it was revealed that an underground storage tank had been leaking at the property in Centralia. Due to the environmental issue, financing became a problem to purchase the property. The buyer decided to walk away from both properties due to the fact that they were looking to purchase multiple locations. DBC Investments LLC made the decision to then keep the Centralia location. This left the Chehalis property as the only one available for purchase. A third party investor, Winters LP, bought the property and was represented by James Betzer of Keller Williams Realty.

Results

Once both the Chehalis and Montesano properties were under contract, the timing of the acquisitions was crucial. The seller wanted to take the funds they were going to obtain from the NAPA Auto Parts Portfolio and put it towards another investment property. Everything had to comply with the short time constraints imposed by  Section 1031.

Kyle Sterling and Nick Bierly had the idea to pitch another listing they were representing for the 1031 exchange. It was a United Furniture Warehouse located at 300 Valley Mall Way, Mount Vernon, WA 98273. The property was currently an owner-user and United Furniture Warehouse was looking to do a sale-leaseback with an investor. DBC Investments, LLC was delighted with this plan and submitted an offer to purchase.

After all the transactions sales closed, the client increased their income by 40% with this 1031 exchange. Kyle Sterling and Nick Bierly represented both the buyer and seller in this transaction.