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1. White Knight LCAOA February 13, 2007 Gurnee, Illinois Using Exchanges Presented by: Kevin L. Kete, SIOR North Star Deferred Exchange Corp. 312.242.6217 kkete@northstartrust.com Reverse

2. IRC §1031(a)(1) • “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.” • “No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”

3. Section 1031 is … • A legal fiction

4. Section 1031 is … • A legal fiction • An interest free, no term loan

5. Section 1031 is … • A legal fiction • An interest free, no term loan • An investment multiplier

6. Section 1031 is … • A legal fiction • An interest free, no term loan • An investment multiplier • An ENABLER

7. Why Exchange? • Preservation of equity! • The cash that would have been used to pay capital gains and other taxes in a straight sale is … • Reinvested • Leveraged …into other property(ies). One of the last remaining tax shelters.

8. The 15% Myth The 15% Myth • Federal Tax • Depreciation Recapture • State Tax • AGI

9. The 15% Myth • Federal Tax • Depreciation Recapture • State Tax • AGI • AMT

10. The 15% Myth  • Federal Capital Gain 15% • Depreciation Recapture*** 25% • State Tax, e.g., Illinois 3% • Adjusted Gross Income Effect*** ? and / or ? AMT*** 26% @ $175,000 28% thereafter ***Determined by accountant or tax advisor

11. Sale vs. Exchange (A Dramatization) Sale Exchange Sale Exchange Sale Exchange * $1,360,000 *Adjusted basis assumed @ $0

12. Reasons to Exchange • Preservation of equity

13. Reasons to Exchange • Preservation of equity • Leverage

14. Reasons to Exchange • Preservation of equity • Leverage • ROE vs. ROI • Lost Shelter • Max Depreciation • Declining Interest • Deduction

15. Reasons to Exchange • Preservation of equity • Leverage • ROE vs. ROI • Lost Shelter • Max Depreciation • Declining Interest • Deduction • The “Terrible Ts”

16. Reasons to Exchange • Preservation of equity • Leverage • ROE vs. ROI • Lost Shelter • Max Depreciation • Declining Interest • Deduction • The “Terrible Ts” • The “Three Ds”

17. Forward Exchange Qualified Intermediary Phase 1  $ Contract Assigned  Contract  Buyer Seller Deed  Taxpayer

18. Forward Exchange Qualified Intermediary Phase 2 Phase 1   $ $ Contract Assigned Contract Assigned   Contract Contract   Buyer Seller Seller Buyer Seller Deed Deed   Taxpayer Taxpayer 180 Days 45 Days

19. Reverse Exchange Forward Exchange Qualified Intermediary Phase 2 Phase 1   $ $ Contract Assigned Contract Assigned   Contract Contract   Buyer Seller Buyer Seller Deed Deed   Taxpayer 180 Days 45 Days

20. “Park It, Don’t Lose It”

21. “Park It, Don’t Lose It” The three most important factors in … • … real estate • Location • Location • Location • … tax deferred exchanges • Timing • Timing • Timing

22. “Park It, Don’t Lose It” The three most important factors in … • … tax deferred exchanges • Timing • Timing • Timing Take control with a Reverse Exchange!

23. “Parking” Rev. Proc. 2000-37 • Parking: • Reverse Exchanges • Improvement Exchanges • Requires an: E A T Exchange Accommodation Titleholder

24. E A T Qualified Exchange Accommodation Titleholder • Strawman • Middleman • Surrogate The Ultimate Legal Fiction

25. “Parking” is . . . … Two separate component parts, each separate, but contractually integrated in order to complete a: • Reverse Exchange • Improvement Exchange … Two separate component parts,

26. Reverse Exchange • First Component The replacement property is acquired and parked with an EAT • Second Component Within 180 days, the relinquished property (sold to a third party buyer) is exchanged (using a QI) for the replacement property parked with the EAT

27. Qualified Intermediary Exchange Qualified Intermediary Phase 2 Phase 1   $ $ Contract Assigned Contract Assigned   Contract Contract   EAT Buyer Seller Buyer Seller Deed Deed   Taxpayer 180 Days 45 Days

28. Why “Park” It? The investor, for various reasons, needs or wants to acquire the replacement property before disposing of the relinquished property … … needs or wants proceeds of the sale of the relinquished property to acquire the replacement property including the dollars otherwise taxed, i.e., 100% of the equity.

29. Why park it? Enter the White Knight • Avoid the 45 day stress test

30. Why park it? Enter the White Knight • Avoid the 45 day stress test • Buyer can’t close, seller won’t wait

31. Why park it? Enter the White Knight • Avoid the 45 day stress test • Buyer can’t close, seller won’t wait • Seize the Moment • Buy of a lifetime • Especially attractive

32. Why park it? Enter the White Knight • Avoid the 45 day stress test • Buyer can’t close, seller won’t wait • Seize the Moment • Buy of a lifetime • Especially attractive • Multiple relinquished • properties

33. Parking Replacement Property • Taxpayer • QEAA • Sale Contract • Note • Mortgage • Lease • Insurance • Maintenance • Occupancy • Environmental • Indemnity  Contract  $ Phase 2Upleg Deed  Replacement Property Seller Parking EAT (Buyer)  $  • Taxpayer • QEAA • Sale Contract • Note • Mortgage • Lease • Insurance • Maintenance • Occupancy • Environmental • Indemnity Lender or Taxpayer Parking EAT (Seller)

34. Parking Replacement Property  Qualified Intermediary Contract  $ Phase 2Upleg Deed  Replacement Property Seller Parking EAT (Buyer)  $  $  Contract Assigned  • Taxpayer • QEAA • Sale Contract • Note • Mortgage • Lease • Insurance • Maintenance • Occupancy • Environmental • Indemnity Sale Contract Note Contract  Buyer Deed  Lender or Taxpayer Lender or Taxpayer Taxpayer Parking EAT (Seller)

35. Parking Replacement Property  Qualified Intermediary Contract  $ Phase 2Upleg Deed  Replacement Property Seller Parking EAT (Buyer)  180 DAYS $  $  Contract Assigned  • Taxpayer • QEAA • Sale Contract • Note • Mortgage • Lease • Insurance • Maintenance • Occupancy • Environmental • Indemnity Contract  Buyer Deed  Lender or Taxpayer Taxpayer Parking EAT (Seller)

36. Improvement Exchange North Star Deferred Exchange Corp. 500 West Madison Street Suite 3150 Chicago, Illinois 60661 Attn: Kevin L. Kete, SIOR 80-1236 1234 W. Barry, Chicago, and improvements to be made thereto per attached. 1 Sold: $600,000 Bought: $400,000 plus improvements

37. Taking Control • Gattis • Not Listed Listed, no offers Under contract, closing too late Blown Forward Exchange • South Shore Drive • Crawford 3 into 1

38.  Date you actually received the like-kind property from other party The “Wrong” Questions!

39. Documentation • Assignment of Contract to EAT • QEAA … specify property being parked • Old Asset Identification Notice • Purchase / Sale Contract • Note • Mortgage • Lease • Environmental Indemnity . . . . . . . . . . . Forward Exchange Documents for QI

40. White Knight Take Control! Using Exchanges Reverse

41. Kevin L. Kete, SIOR (312) 242-6217 kkete@northstartrust.com