For all its popularity, the 1031 industry is fraught with challenges and complexities. The number of TIC opportunities, for example, remains relatively few, says Seyfarth Shaw's Napoli. There can be as many as 34 partners in a TIC deal and all must be in accord with the purchase price, financing, renewal of the property's management agreement and lease terms of tenants, he says.

Large institutional investor programs are regularly outbid by private and high-net-worth investors seeking 1031 TIC deals. TIC buyers are often willing to take a lower yield on a property than a single owner who will have to spend much of his waking hours managing and updating the property, Napoli says.

The 5th Annual Wachovia National 1031 Exchange Seminar in mid-May in Atlanta drew attendees from coast to coast who were seeking solutions to complex questions. One hot-button topic was 1031 partnership disputes, says presenter Derrick Tharpe, vice president of Wachovia Exchange Services in Winston-Salem, N.C.

“What happens when some partners want to do a 1031 and others don't?” mused Tharpe, who advises attorneys, accountants, bankers, and clients on exchanges. “People are curious about when they can make disbursements to those who don't want to exchange, and how they can do it so as not to collapse the partnership.”

Some solutions violate the law, Tharpe says. “The euphemism in that situation was drop until you swap, which means you just drop the existing partner out of the exchange. But that's where you can get in trouble.” In most cases, it's best to issue an installment note to the exiting partner after the exchange, who can then take the payout, he says.

Some firms, such as For 1031 LLC, which was formed in October, matches up TIC deals with exchangers' debt-to-equity ratios. “If you have a client coming out of an eight-plex who has $400,000 in cash and $550,000 in debt, it's hard to replace it,” says Pete Johnson, vice president of the Boise, Idaho-based firm. “But we're able to offer varying loan-to-value ratios.”

Sometimes the hourglass just runs out. Aasia Mustakeem, a partner in the Atlanta law office of Powell, Goldstein, Frazier and Murphy, represented the sellers of two office structures who were spurred into a rush sale by a group of 1031 exchangers that needed to buy the pair of buildings quickly to get under the 180-day wire. The two other exchange properties they'd identified to the IRS had been sold out from under them and they had quickly become motivated buyers.

“There is a lot of due diligence involved in one of these deals, and we had to squeeze three months of work into a 30-day closing window to make the 180-day limit,” says Mustakeem. “It's a good thing it wasn't an older property because the due diligence would have exceeded that [time frame].”