Let’s say you’re a commercial real estate investor that just sold a property. You’re sitting on a pile of cash, and Uncle Sam is about to take his cut.
But not so fast. Enter the 1031 exchange: a tax-deferred transaction that allows real estate investors to sell one property and reinvest the proceeds into another property, deferring capital gains taxes on the sale until the new property is sold.
The catch? Investors must find another property within 45 days of the initial sale and close on the deal within 180 days. Additionally, the properties exchanged must be considered like-kind by the IRS.
Miami-based startup nxtCRE calls these real estate experts “must-buy investors,” or MBIs for short. And according to the company, every year, there are upwards of 70,000 MBIs that collectively acquire $400 billion in commercial real estate using over $150 billion in equity and $25 billion in debt.
nxtCRE helps enable these MBIs to find relevant commercial real estate investment opportunities. The company partners with lenders to show these opportunities to relevant customers if they are interested. nxtCRE and the lender evenly split the 75 basis point cut that they receive from transactions that end up occurring thanks to the platform.
“Our goal is to sign up every lender in the nation,” founder and CEO Adam Sharif told Refresh Miami. nxtCRE is already on the right path, having recently inked a deal with Lument, a commercial banking company that has $50 billion in loans across 7,000 borrowers, plus $85 billion assets under management.
The idea is that when a borrower is about to pay off a loan, they get an email from the loan provider with a questionnaire regarding next steps. If the borrower plans to sell the property, the lender and nxtCRE then offer to help them find their next investment opportunity.
nxtCRE then curates properties that they believe might be relevant for the borrower. The startup neither represents the buyer nor the seller – they just connect the two parties. Buyers’ information is all anonymized, with sellers only seeing their amount of equity and their 1031 deadline.
Sharif, who has been primarily based in South Florida since 2010, started working on the origins of nxtCRE three years ago. “It took us two years to build, and we started going after our customers – lenders – in the end of 2021.” Sharif and his nine-person team who collectively have 150 years of experience in commercial real estate and capital markets spent 2022 finishing building the platform and signing up lenders.
Earlier this year, the startup announced that it had secured Series A funding led by principals of RiverLake Partners, a private equity firm. nxtCRE did not disclose the amount of the funding, but it raised $500,000 in November from the same investors, according to venture data tracker Pitchbook.
“We’re very excited about the team, the concept, and getting more lenders to sign up and start using our platform,” said Sharif. “That’s what we’re really gearing up to do.”