Exchange Solutions Group is launching a new business model for 1031 exchanges that allows clients to self-direct exchange proceeds among multiple banks, rather than funneling funds through a single qualified intermediary. This takes a different approach than other qualified intermediaries that require using their proprietary products. The founder, James Brennan, left Wachovia to start ES Group in order to disrupt the qualified intermediary industry, which he views as fragmented and lacking transparency. ES Group plans to expand its services nationally through strategic banking partnerships.

1. NET LEASE ADVISOR
YOUR SOURCE FOR INVESTMENT REAL ESTATE ™
First Quarter 2009
Exchange Calkain opens
Solutions New Division:
Opportunity
Group Services
is seeing
20/20 on
1031
Medical Office
exchanges Buildings
Are they today’s
investment of choice?
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COMPANIES, INC.

2. that offer 1031 exchange deposi-
tory services as part of their own
proprietary product line; (2) inde-
pendent intermediaries that are not
banks that aggregate investors’ funds
in an effort to leverage their singular
relationship with a bank; and (3) our
model which is simply a platform
that allows clients to interact with
a panoply of banks and arrange the
accounts properly. Large indepen-
dent intermediaries often object to
repositioning their companies to
allow for self-direction of proceeds
because they do not want to deal
with multiple relationships and ac-
counting headaches related to inter-
est they make on clients’ funds.
CALKAIN: Tell us about expansion
plans and where you have done busi-
ness thus far?
BRENNAN: Over the last four years
I have done business nationally.
Exchange Solutions Since we started Exchange Solutions
Group our transactions have come
from California, DC, Maryland, and
Group Virginia. We have regional offices in
Texas and Los Angeles, and plan to
expand to the Northeast, Southeast
Taking a different approach to your 1031 and Mid-West within the year. We
like the baby boom generation for
exchange solution the private client market. We like
the metropolitan regions for our
institutional focus. We are working
C
alkain’s Executive Vice Presi- value proposition to customers. I with several of the largest invest-
dent, David Sobelman, had believe the model we are building ment sales brokerages to develop
the chance to sit down with empowers clients to have a more presences in the metro areas. We
the founder of Exchange Solutions transparent transaction and gain a plan on expanding primarily through
Group, James Brennan, and ask him better understanding of the moving strategic banking relationships and
first hand what makes ES Group parts. The exchange accounts, in my working directly with clients and
stand out among the rest. opinion, should not be a black hole their advisors. Bank Boards are
where clients have no awareness of dominated by property management
CALKAIN: Why did you leave Wa- the process or the location of their companies and title companies. Our
chovia to start your own Qualified money. Hopefully, we will continue model allows those regional banks
Intermediary (QI)? to see our model gain traction and to capture deposits they would not
investors and com-
BRENNAN: The Qualified Intermedi- panies will appreci-
ary industry was broken. You could
see the industry’s complete lack of
ate the value we
are bringing to the
“...it was to turn the industry on its
value and leadership based on the marketplace both head and offer a different value
fragmentation in market share. Not technically with ex-
one qualified intermediary in the change information proposition to customers”
entire industry possesses more than and competitively
5% of the market. I believe that with our unique
the industry is fragmented due to a platform. have retained by partnering with ES
universally broken business model Group. The “retail” business will be
predicated on holding investors’ CALKAIN: What is different about driven directly by educational semi-
exchange proceeds and not allowing ES Group than other Qualified Inter- nars and joint calls with clients and
them to influence where the pro- mediaries? their advisors.
ceeds will be held. When I decided
to leave Wachovia it was not just to BRENNAN: I break the industry into CALKAIN: What types of assets
start “another qualified intermedi- three segments: (1) Captive Quali- qualify for 1031 or 1033 exchanges?
ary”, it was to turn the industry fied Intermediaries that are part
on its head and offer a different of banks or financial institutions BRENNAN: Typically any capital as-
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2009

3. set that generates a capital gain or
loss qualifies for an exchange. Most James’ responsibilities include serving as the
clients focus on real estate assets primary point of contact for affluent and in-
because the capital gain is readily stitutional clients. James works closely with
apparent. Personal property capital a team of experienced advisors to offer cus-
gains tax liability is much more la- tomized exchange solutions. Prior to found-
tent, and hidden deep in the transac- ing ES Group, James served as the Mid-Atlan-
tion. Thus, depreciation recapture tic Regional Manager for two of the leading
often gets overlooked and personal National 1031 Exchange Qualified Intermedi-
property exchanges on equipment aries, where he was responsible for assisting
such as telecomm, trucks, and busi- real estate investors, accountants, attorneys,
ness equipment do not get the atten- REITs, and private equity groups with execut-
tion they deserve. ing like-kind exchange transactions.
James is a licensed attorney and possesses James Brennan Esq., LL.M.
Exchanges under Section 1033 we
an undergraduate degree in finance from the Principal/Corporate Counsel
see most often as a result of fire,
University of Scranton and a law degree from Exchange Solutions Group
flood, and eminent domain. You do
the Wake Forest University School of Law. www.1031esgroup.com
not need a Qualified Intermediary
James additionally obtained his Masters of jbrennan@1031esgroup.com
for these transactions; however, we
do get questions on them very often Law (LL.M.) Degree from Georgetown Uni-
because the concepts are so similar. versity Law Center focusing on matters of securities law and tax planning.
The pitfalls on 1033 exchanges are
often related to the misconception James has executed hundreds of 1031 exchange transactions including disposi-
that the 1031 rules apply. First of tions approaching and exceeding one billion dollars. He has been featured in the
all, on many of the conversions you Washington Business Journal, CNNMoney, the Commercial Property News, and
cannot use the broad definition of Costar regarding complex exchange strategies. The regional periodical Bisnow
“like-kind” as you are allowed under on Business deemed James “Mr. 1031” for his stature in the industry.
Section 1031.
From 2005 to 2008, James served as an Adjunct Faculty member at George
CALKAIN: There has been a consid- Washington University in their MBA Program teaching real estate development
erable amount of discussion from case studies. James resides in Alexandria, Virginia, with his wife Shelley and puppy
Washington, DC on the increase of Kona.
the long-term capital gains rate. Can
you discuss what you are hearing and
what impact that will have on like- economic climate. joint conference call or meeting with
kind (tax-deferred) exchanges? their tax advisor and Qualified In-
There are two trends we are see- termediary. CPAs and tax attorneys
BRENNAN: Increasing capital gains ing right now: (1) lack of abundant possess comprehensive relationships
taxes will cause more exchanges cer- liquidity in the marketplace for most with their clients. Qualified inter-
tainly. From our sources on Capitol assets and zero liquidity for many mediaries will be intimately familiar
Hill we hear President Obama is lis- assets, and (2) the ability to acquire with the particular rules of the
tening to his economic advisors and assets at very reasonable cap rates. like-kind exchanges because of their
not proactively raising capital gains These two trends work together focus. With a multitude of advisors
rates to levels as high as 30 percent nicely to allow for private clients clients will benefit from the commu-
which may deter transactions; how- to engage in both estate planning nication and dialogue. This dialogue
ever, that being said, rumor is that and recalibrating their real estate should not happen at settlement and
he will let the “Bush tax cuts” expire portfolio. For instance, if clients should happen as soon as there is
and we will see a mechanical move- wanted to get out of any contemplation of disposing of an
land, perhaps take a asset. Integrating a disposition and/
“Section 1031 is allegedly not on “haircut” on whatitthey would like to sell for,
or exchange should fit into a client’s
overall plan and without upfront
the table to be removed as a tax and reposition it into
credit tenant invest-
planning the client will make myopic
decisions.
benefit for investors...” ment properties they
can accomplish two
things: (1) get cash
ment upward in federal capital gains flow which often mitigates need for
tax liability. Section 1031 is allegedly liquidity, and (2) acquire financeable
not on the table to be removed as a real estate in today’s economic con-
tax benefit for investors so that will ditions. 1031 is a vehicle that allows F O R M O R E I N F O R M AT I O N :
continue to be an incentive to “trade this transition to take place. James Brennan Esq., LL.M.
into” better performing replacement CALKAIN: What should a seller do if Principal/Corporate Counsel
property rather than hold still or they are contemplating completing a Exchange Solutions Group
cash out. like-kind (tax-deferred) exchange? www.1031esgroup.com
CALKAIN: Explain the benefits of jbrennan@1031esgroup.com
using a tax deferred exchange in this BRENNAN: Sellers should conduct a
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2009

4. MEDICAL OFFICE
BUILDING SALES
SALE-LEASEBACKS
Are they today’s investment of choice?
By: Guenter Manczur, CCIM
W
ith the country’s graying both sides of the landlord/tenant Another benefit of leasing medical
population, our need for relationship. offices as opposed to owning them
medical care increases is the elimination of mortgage debt.
each year. That need translates to Why do some medical providers Leases for business facilities, when
demand for additional medical staff choose to lease instead of own? unencumbered with co-ownership
and with that, demand for more provisions or below-market purchase
healthcare facilities ranging from Capital is a resource that remains options, are typically considered
physician’s offices to laboratories, in high demand. The recent reduc- to be operating leases that are not
specialty treatment centers, ambula- tion of available mortgage loans for listed as liabilities on the tenant’s
tory surgical facilities and acute care commercial properties has caused balance sheets.
hospitals. owners to be even more cautious
in determining where and how to Finally, physician groups are often
New facilities are built in areas of deploy their own capital. Physicians corporations, partnerships and other
population growth to address this and other medical service provid- business entities comprised of many
need as well as to replace existing, ers who aren’t required to spend diverse individuals with varying
obsolete facilities. Technology de- their own funds towards the owner- financial backgrounds, capabilities
mands will also require new infra- ship of the real estate they occupy and investment goals. By making the
structure within different sectors can utilize that money for business strategic decision to separate the
of the medical industry. Within the operations and to purchase newer or core business of operating a medical
broader category of healthcare real additional medical equipment. practice from the ancillary business
estate, single tenant medical office of owning the practice’s occupied
buildings (MOBs) fall into discrete Frequently, investments that improve real estate, the group’s members
uses including special purpose facili- operations and patient care also pro- eliminate a significant area of poten-
ties such as dialysis centers, cancer vide higher financial returns than the tial internal conflict.
treatment centers, ambulatory returns achieved from the ownership
surgery centers, eye surgery centers of real estate. Capital spent for the Why are investors attracted to single
and offices that house a single physi- ownership of business real estate tenant MOBs as real estate invest-
cian practice or a small group of will reduce money otherwise spent ments?
complementary practices. on rent. However, the same money
spent on medical equipment can Investors, whether private or insti-
In order to determine the viability increase billable fees while improving tutional, are increasingly attracted
of single tenant MOBs as real estate the practice’s patient care capability. to owning healthcare real estate.
investments, we must understand The healthcare industry is one of the
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2009

5. fastest growing sectors of the econ- of ten to twenty years and may in- MARKET OUTLOOK
omy and provides numerous invest- clude several renewal options. Initial Changing financial markets have cre-
ment opportunities. Sean Keehan, base rents and periodic increases ated challenges for many owners of
et al, in “Health Spending Projec- are negotiated at the onset of the commercial real estate, whether to
tions through 2017” projects U.S. lease and vary depending on land find new purchase money mortgages
healthcare expenditures to account and construction costs, financing or to refinance existing mortgages
for some when those notes be-
“The healthcare industry is
20% of the come due.
country’s
entire GDP The sale-leaseback of
one of the fastest growing
in only owner occupied fa-
eight years. cilities is an increasingly
popular strategy that
MOBs allows owners to sell
serve the
needs of sectors of the economy...” their property, access
their entire equity and
different continue to occupy the
medical practices. They are found in costs, tenant strength and local mar- property for a predetermined length
a variety of locations to serve those ket conditions. Responsibility for of time.
needs and have different underlying maintenance, insurance and property Whether sold as newly developed
real estate values. Imaging centers, taxes commonly rests with the ten- properties or as the sale-leaseback
cardiologists and cancer treatment ant. Because physicians are generally of existing owner-occupied facilities,
centers are some of the uses that very image conscious, MOB tenants investment activity for single tenant
often locate close to hospitals for commonly strive to keep their facili- medical office buildings will continue
the convenience of both patients ties extremely well maintained. to grow for the foreseeable future.
and physicians. Because of the high
cost of land and strictly regulated
design criteria, on-campus medi-
cal office buildings are among the
most expensive medical buildings to
develop and to lease. Facilities such
as pediatrician’s offices and dentist’s
offices are often located in or near
predominantly residential areas and
are subject to lower land and devel-
opment costs.
Single tenant MOB investments are
typically structured as the fee simple
ownership of commercial real estate
subject to long-term leases with
minimal responsibilities imposed on
landlords. Throughout the term of
the leases and renewal options, land-
lords receive rent payments. At the
conclusion of the leases, landlords
may sell, re-lease or re-develop their
properties for other uses and will
receive the benefit of each proper-
ty’s residual value.
Tenants of most single tenant MOB MOB investment purchases are
properties are financially sound cor- sought by private market as well as
porations, limited liability companies institutional investors. High qual- F O R M O R E I N F O R M AT I O N :
or partnerships and sometimes pro- ity underlying real estate, tenant Guenter Manczur, CCIM
Calkain Realty Advisors
vide personal guarantees. Investors stability, long term leases, minimal 500 North West Shore Blvd.
view the development or purchase of landlord responsibilities and a grow- Suite #605
these properties as stable, low risk ing market segment are the elements Tampa FL 33609
real estate investments. common to typical MOB investment Tel: (813) 282-6000
sales that are frequently sought by Cell: (727) 403-3577
gmanczur@calkain.com
Leases are typically for initial terms the investment community.
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2009

6. Calkain Opportunity several years of aggressive prices
paid for net leased investments, many
Services
landlords took on debt that may be
maturing in the near-term. COS is
set up to evaluate options for the
Calkain Companies Forms Net Lease landlord and help with determining
several options for their investment.”
Property Division For Adverse Situations Harrison commented, “There is no
other service like this for net leased
C
alkain Companies announces litigation from soured transactions assets. Calkain is nationally known
that it has formulated its and failed investments will see an as a leader in the industry for this
newest division, Calkain onslaught of needs from investors, specialized property type and we
Opportunity Services (COS). With sponsors, attorneys and apprais- feel that we are best equipped to
a daily influx of conversations on ers to have an impartial third party handle the deluge of situations that
how to maximize value of its client’s evaluate the value of assets and help have been presented to us in recent
property in the current market envi- determine a realistic exit strategy. months.”
ronment, Calkain felt it was impor- Jonathan Hipp, Calkain Companies
tant to formalize its procedures on President and CEO, commented, “For COS will work with landlords, banks,
how to handle this specific real es- those individuals involved in less attorneys, multimember ownership
tate dynamic. With the new division than ideal situations, Calkain will be situations and a plethora of other
comes a new hire within the multi- able to formulate a plan on how to stakeholders involved in any one as-
disciplinary commercial real estate exit their challenging situation with set or portfolio of assets. IRC § 1031
firm. Todd Harrison, COS’s Managing realistic and fast results. Therefore, Tax Deferred Exchanges, Debt Work
Director, will personally oversee the we are thrilled to have Todd on Outs, Restructuring & Reorganiza-
new division and its operations. Todd board. His diverse background is tions, Litigation and Dispute Resolu-
is a veteran commercial real estate particularly well-suited to the opera- tion, and Expert Witness Litigation
professional having served in leader- tions of this new division.” Support will be the focus of the
ship positions for leading consulting, newly formed division.
due diligence, brokerage and real There is an obvious increase in the
estate investment firms. He has been number of net leased assets default- F O R M O R E I N F O R M AT I O N :
involved in over $2 billion of com- ing on their loan commitments and, Todd Harrison
mercial real estate pertaining to subsequently, banks taking control Managing Director
analysis, underwriting, due diligence of the property. Even stabilized, net Calkain Opportunity Services
11150 Sunset Hills Road,
and transactions in his tenure. lease assets may have a caveat that Suite 300
will force a non-traditional approach Reston, VA 20190
Calkain feels that the growing num- to relieving the challenging situation. Cell: (410) 567-5377
ber of potential debt restructurings, Hipp continued, “With the previous tharrison@calkain.com
CALKAIN COMPANIES, INC. NET LEASE ADVISOR First Quarter 2009