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Advanced Real Estate Creates an Investment Alternative to a 1031 Exchange

4/23/24

Advanced Real Estate has launched a new investment alternative to the 1031 tax deferred exchange, called the X Fund. Since August 2023, Advanced has joined together the owners of $50 mil of smaller properties. Advanced will ultimately sell this portfolio and orchestrate a 1031 tax deferred exchange into much larger and more efficient properties. Advanced is accustomed to owning large-scale properties as their portfolio includes several 400–750-unit apartment communities in Southern California.

“After purchasing over 12,000 units during the past 40 years, we have learned how much more profitable and efficient larger properties are than smaller properties. Further, the larger the property, the less competition when purchasing. This allows our investment groups to start with a lower basis,” said Paul Julian, President of Advanced. “With the X Fund, private owners can now enjoy the benefits of an investment scale normally limited to major institutional investors.”

According to Julian, Advanced’s X Fund allows investors to move out of their active property ownership and into a passive role in larger-scale properties with higher returns. This shift also rids the investor of the management and liability that comes with owning their own properties.

“Prior to the X Fund, owners faced hefty taxes if they sold. These owners had to choose between selling their property and paying a major share of the proceeds in taxes or completing their own 1031 exchange. If they chose the latter, they ended up with a larger headache and even more liability,” said Rick Julian, CEO of Advanced. “The 1031 exchange process is very risky because it is difficult to find a suitable exchange in 45 days. If you have already sold your property and cannot find that exchange, you are stuck with the massive tax hit!”

With the X Fund, there is no sales process. Instead, investors simply contribute their property, tax-free, into the X Fund in exchange for limited partnership shares. With one simple transaction, an investor transforms from being a single property owner, to a partner in a professionally managed, diversified portfolio of properties. At that point, the investor’s responsibilities and liabilities are eliminated. They will have a cash flow stream that continues indefinitely, while enjoying large periodic cash distributions through tax-free refinances. Most importantly, the investor is in a partnership with a well-capitalized, vertically integrated operator with a proven 40-year track record of owning and operating a sizeable Southern California multifamily portfolio.

“Advanced acquired three large apartment communities in 2023 including the 156-unit “Edison” in Long Beach, the 264-unit “Surf House” in Huntington Beach, and the 714-unit “The Grand” in Costa Mesa. The Grand was the largest multifamily property transacted in Southern California in 2023 and the 6th largest in the nation.

Since its successful launching of Advanced X Fund 23 in August 2023, Advanced will now open a new X Fund each year, starting with Advanced X Fund 24 set to launch this month. Advanced will consider all property types and locations throughout the United States for the assets to be contributed into the Fund. These include multifamily, industrial buildings, retail centers, and even rental homes.




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