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And Another One…Summit 1031 Exchange Going Down

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Believe me, I would like to be writing good news about the 1031 business, especially this time of year. But I thought this posting from the Summit 1031 website would be of interest:


“To All Customers of Summit 1031 Exchange:


Summit Accommodators, Inc. (”SAI”), which maintains the exchange fund accounts for customers of Summit 1031 Exchange (”Summit Customers”), is experiencing significant financial issues. As a result, at this time, Summit is not accepting new exchanges, has curtailed its daily operations, and ceased funding existing exchanges until SAI can address and resolve its financial issues.


Currently, there are significant funds in the exchange fund accounts maintained by SAI. However, the balances are less than the total amount of all currently open exchanges for Summit Customers. SAI is attempting to address this liquidity problem through the liquidation of other assets and potentially available resources. SAI is committed to making every effort to address and correct these issues.


Summit sincerely regrets the concern SAI’s financial issues presents for Summit Customers. SAI management is devoting all of its attention to finding a prompt resolution of these issues and avoiding detriment to Summit Customers. Further status updates will be provided on Summit’s website at www.summit1031exchange.com as soon as possible.”


I don’t know the details behind Summit’s financial problems, but I believe Summit also offered Tenant-in-Common packages as part of its services and I would bet that it was problems with those buildings that led to the financial reorganization Summit now plans.


Peter Wunsch

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Peter, your conclusion is not supported by the details reported at Summit's website. Since the issue seemed to be centered around the exchange funds held in trust, I think it highly unlikely that the liquidity issue stems from a TIC property.


They said that their exchange fund trust account is insufficient to meet all of their exchange funding obligations. Tells me that Summit invested the exchange funds in something to generate short term interest -- perfectly legal. A problem arises when the investments fall in value and can not be redeemed for the amount invested. For example, a money market fund's net asset value falls below $1 per share, as has recently happened.


Perhaps, a bank failed and FDIC only covered the first $250K on deposit. With millions to deposit, chances are that Summit failed to limit its deposits in any one bank to $250K or less, and one or more of their exchange escrow accounts was at a failed bank.


There are more plausible explanations behind Summit's liquidity issue than a problem with a TIC package.


Summit says that they are attempting to address their problem through the liquidation of other assets. I would not call a plan to raise capital by selling capital assets a "financial reorganization." We just don't know enough of the details of the problem and the potential solutions to comment any further.

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