Summary
When it comes to real estate investing, RCX thoroughly examines the strategies, managers, and investments available in the marketplace. As a result of these rigorous and ongoing efforts, RCX has underwritten numerous managers, over $20 billion in tax-advantaged real estate offerings, and continues to stay abreast of the ever changing regulatory landscape. RCX currently has an embedded portfolio of approximately $1.2 billion in assets, and our realized investments have generated a 10.76% average annual rate of return (net to investors, prior to tax savings and highlighted below).
Tax-Efficient Strategies
While many real estate owners would like to relinquish the responsibility associated with owning and operating investment real estate, very few want to sell their hard earned asset only to pay tax (up to 35%) on the gain and depreciation recapture (25%). As a result, many individuals continue to own and operate real estate directly when they could sell their asset, defer and potentially eliminate all capital gains and depreciation recapture taxes.
To facilitate this tax deferral and potential elimination, RCX has underwritten managers that allow investors to 1031 exchange into a Delaware Statutory Trust ("DST"). As seen below, the ramifications of paying tax may set investors back years and dramatically reduce their equity available to invest.
See the table above (Pay Tax / Cash Out vs. 1031 Exchange) for a summary of the assumptions to accompany the graphic above. Each investment is assumed to have a life of 10 years and generate an annual rate of return of 7% over the life of the investment.
Institutional Management and Investments
Similar to the Open-End Diversified Core Equity Index (ODCE), a benchmark of private institutional core real estate, RCX believes that DSTs from reputable, approved sponsors in a diversified portfolio should, at a minimum, provide 4.50% to 5.50% cash-on-cash returns and 7.00% to 9.00% total net returns (prior to the individual’s tax savings) over the long run. By selecting the right sponsors, asset classes and offerings, RCX believes it can continue to outperform these metrics.
ODCE net returns since inception (1978) and portfolio composition and geographic distribution are highlighted below. The ODCE index has been remarkably resilient over multiple market cycles with only two periods of a negative mark-to-market (distributions, however, were received during this period) and has yielded an average 7.42% net return since inception with a significant portion of this being current income.
Per USQ, as of June 30, 2024
The RCX Advantage
By applying our disciplined approach to the tax-advantaged real estate space, we believe RCX is able to help you (and, as applicable, your clients) effectively defer taxes and generate consistent, attractive returns with meaningful alpha to the market.
As seen in the graphic below, RCX investments (by RCX and it's clients) consistently outperform the ODCE index by +21.7% on average (these figures compare the total return of a DST investment against an ODCE fund investment over the same time period). It should be noted that the RCX investment with a -2.4% ARR represents less than 0.28% of RCX full cycle equity, and all other investments have generated a positive return to investors.
The chart above does not take into account the tax deferred (and potentially eliminated) by investing via 1031 exchange into these investments. Returns are not guaranteed, and prior performance is not indicative of future results.
Conclusion
RCX provides proactive, objective advice and effective, product-agnostic solutions to the clients of registered investment advisors (RIAs) and other real estate sales organizations that consider tax-advantaged alternatives. We believe RCX also brings together a best-in-class advisory team and network of long-standing relationships that help these firms and individuals analyze, compare and plan well in advance of a prospective sale and that provide multiple solutions to reinvest substantially all the sale proceeds in one or more replacement properties, including fee simple single tenant net lease properties, 1031 exchange / DSTs, 721 UPREIT funds, and QOFs at attractive risk-adjusted returns.
The results of these efforts have allowed our clients to bring immediate value through tax deferral while generating meaningful and consistent returns over the investment period. Contact us today to learn how we can help you with decisions pertaining to real estate.
RCX believes the sources relied upon herein are reliable, but takes no responsibility for its accuracy.
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