The Law Office of Lynnette Ariathurai A Professional Corporation

It is important to diversify commercial real estate in California

Real estate is an important investment for most people. However, this type of investment is subject to the rise and fall of the economy. This is why many people want to diversify their commercial real estate portfolio so they can minimize risk. The founders of the California Family Fitness gym chain decided to diversify their real estate portfolio recently by selling $98.7 million worth of real property.

The founders sold the ten properties, which are currently leased to California Family Fitness, in order to reinvest in other properties which were not solely dependent on only one tenant. Although the one tenant, California Family Fitness, is a healthy and growing company, the founders still wanted to further diversify in order to have a more balanced real estate portfolio. The founders of the gym chain currently operate another company Fit Development which will be used to purchase commercial real estate across multiple Western states.

The two founders of the gym chain, who had sold the chain in 2006 while retaining ten percent each, are currently contracted to purchase 500,000 square feet of properties in four different states, including California. However, the purchase needs to be completed soon, in order to take advantage of Section 1031 of the U.S. Tax Code. The code section allows the founders to purchase the commercial properties without incurring tax liabilities on the sale of their former properties, however they must finalize the purchase of the new properties within six months.

As one may be able to see in this case in California, selling and buying commercial real estate can require some knowledge of applicable law in order to make the transaction financially successful. However, each person will have different goals when making a real estate transaction. Certain tax and real estate laws may only apply in specific circumstances, therefore one's strategy will have to apply the law to one's specific situation.

Source: Sacramento Business Journal, California Family Fitness founders sell nearly $99M of real estate portfolio to reinvest in other properties, Kelly Johnson, Aug. 30, 2013

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