By Bill Adams, MBA, CCIM, ALC, CRB, Founder, Adams Realtors
In early 2015, Adams Realtors received an assignment from the City Schools of Decatur, Georgia to find a site for a new upper elementary school. Decatur, Georgia is a mature suburb of Atlanta with a population of about 21,000. The City of Decatur is in fact older than Atlanta, is very densely populated and has limited developable tracts of land remaining. The city’s highly regarded school system had grown from 2,300 students in the 2009-10 school year to 4,345 students by 2014-15. Because of this rapid growth, many students attended classes in trailers.
Our charge was to find a six- acre tract of land. Six acres was the minimum size land area the State of Georgia Department of Education would approve for a new elementary school site. Given the area’s state of development, it took about six months to finally identify a four-acre parcel of land with a willing seller. The school system approached the state in order to obtain a waiver of the six-acre requirement and the request was denied.
The property abutting the 4 acres to the east had an owner-occupied industrial building located on two acres of land. After some discussion and a series of negotiations, the owner of that property agreed to sell his property to the school system if we could find him a replacement property, and only if he could defer the tax on the gain on the sale of his property.
That’s where a 1031 exchange comes in. A 1031 exchange allows an owner of a business or investment property to sell and then purchase a like-kind property while deferring capital gains taxes.
In mid-2016 the school system was able to purchase both properties. The seller of the two-acre property utilized IRC Section 1031 to complete a like-kind exchange for his replacement property.
In August 2019, the Talley Street Upper Elementary School opened with a student body of 750 3rd , 4th and 5th graders. The state-of-the-art school cost $22.5 million to build. Today, the student population in the City of Decatur is 5,700. I firmly believe that if the seller of the two-acre tract of land had not been able to utilize Section 1031 for a like-kind exchange, those young children would still be going to class in trailers.