Commercial Investment Real Estate March/April 2019 | Page 19

Any potential buyer should examine all relationships. The determination that one small contractor does not qualify as an independent contractor could result in all the rent from that property being treated as non-qualified income. REIT Sales REIT buyers must dig deep to avoid foot faults that would terminate the target’s REIT status at some point along the way. When selling a REIT, all quarterly and annual testing, REIT shareholder infor- mation, independent contractor lists, dividend resolutions, and more need to be in proper order. In other words, make sure to dot your i’s and cross your t’s. Also, prepare for heavy scrutiny on all aspects of your REIT compliance. For example, something as simple as conservatively treating an item of income as non-qualifying could lead buyers and their advisers to question the complete- ness and accuracy of the testing. Document conclusions and back them up with the relevant law or guidance. REIT buyers must dig deep to avoid foot faults that would terminate the target’s REIT status at some point along the way. This includes looking into any predecessor REITs that may have converted or merged long ago, making sure all taxable REIT subsidiaries are properly elected, and examining all corporate mergers and conversions that may result in hidden tax liabilities. Ultimately, most problems during REIT due diligence can be resolved. REITs can use taxable REIT subsidiaries to shield non-qualified income, terminate relation- ships and tenancy where necessary, and ensure the right asset and income mix going forward. But it doesn’t end there. Determining how a REIT or property fits into the overall business structure should not be taken lightly. Acquiring a separate REIT could cause other taxable entities in a structure to be included in a state combined return and taxed in a state where they were not previously subject to tax. With any type of acquisition, state transfer and income taxes can present a structuring opportunity as well. Stephen Bertonaschi is a senior managing director in the tax practice of the real estate and infrastructure industry group at FTI Consulting in Roseland, N.J. Contact him at [email protected]. CCIM Development Specialty Track The CCIM Development Specialty Track program is one of the industry’s leading continuing education concentrations, providing developers, investors, and consultants with a comprehensive understanding of the entire process of development from due diligence to disposition. The program content is structured around the Real Estate Development Matrix developed by Daniel Kohlhepp, Ph.D., of the world-renowned Johns Hopkins Carey Business School. Upcoming Courses Introduction to Development Workshops: March 25 − 27, 2019 | Addison, Texas June 11 − 13, 2019 | New Orleans Aug 27 − 29, 2019 | Chicago Oct 22 − 24, 2019 | Kirkland, Wash. See additional course listings at www.ccim.com/dev-track To learn more, visit www.ccim.com/dev-track or call [phone], opt 2 CIREMAGAZINE.COM March | April 2019 17