S.E.C. Real Estate Observer

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Much effort, many dollars, extensive time, and talent gets spent exposing real estate equities to the marketplace(s), that many times are for naught. When an owner wants to change out of his current real estate into a different set of circumstances, the standard “drill” is to put it on the market shelf and struggle to find a cash buyer or a trade for the perfect property(s). Many lookers for this type of property may show up, but if the precise pursuits of the potential taker are not consistent with the subject property, it remains an orphan. (No piece of real estate ever being exactly like any other and especially not exactly like the pursuer’s picture of what he’d like.)

When a proposal is made to acquire the subject property with an exchange of commodities that seemingly do not solve the owner’s objective(s), the proposal is turned away and the transaction creator continues to “beat his clothes on the rocks down by the river harder, instead of getting a washing machine.” It is true that some offerors want to trade their old wife in for “Angelina Jolie” (or the like) and get $50K cash to boot, but many times the proposal is offering similar value, but just not containing the circumstances that fit the desires of the owner of the property in question. That may be the last true TAKER of this property that “comes down the path.”

In the days before the recent years of too much cash chasing too little real estate (for most current operators = “Long before ‘Once upon a time'”), there was little cash compared to unwanted real estate and the creative transaction causers had to find systems to make commerce of motivated real estate equities, without rendering everything to cash so as to purchase the desired circumstances. (There was no cash and “Uncle Sam” resisted extracting his share if you traded.) Team brainstorming, extensive inventorying of motivated owners, careful counseling of owners to be flexible, inventive contracts, escrows, transaction mechanics, etc. etc. developed. These techniques honored the value of that first TAKER as being ½ of a closed deal.

Common terms heard then: “Three leg it!” – “I need another leg.” – “In-lieu acceptance”- “I need a situation that does _____ for my owner.” – “There are now enough solid legs to this chain that the brokers can cause a closing by taking out the orphan leg with the commissions that might otherwise be lost.” And there were other similar terms.

It starts with the acceptance of the unwanted proposal, to keep the TAKER available by using language that allowed the owner to offer either his own, or the offeror’s vehicle(s) for a third, more satisfying set of circumstances (“in lieu of what is being offered”); tying the TAKER in for a period. If the third party wants neither, the “legging” can continue until the necessary legs have been found. Many trophies and other awards have been issued to those counselors who were successful in this process for “The most creative deal of the year.” etc. (Most of which are given to members of S.E.C.)

An example of a transaction proposal that naturally leads to a 3 (or multi) leg concept is the builder/developer’s finished product (that requires a new loan to take out the construction loan, the builder wanting to get on to the next project) getting offered other finished product, usually of similar circumstances, but of smaller value, much less or no loan = more liquid. The offeror is usually either using a house(s) as down payment or “pyramiding” up from smaller income to bigger, more leveraged income. The builder doesn’t wish to close on what has been offered, so the TAKER is tied in while the builder acquires land for the next project with the offered vehicle(s) as part or all of the acquisition and the land owner gets (at least partial) deferred tax on profits going into income/crankable property, converting his land to spendable.

There are only 472 other examples of usually rejected exchange proposals that lend themselves to automatic multi-leg transactions, if the TAKER is not just rejected out of hand.