Louis Pretekin – Imperial Realty Co.
In the compendium of household terms, it’s safe to say Section 1031 is on very few lists.
However, U.S. Internal Revenue Code Section 1031 is crucial to some of the legal work done by Louis Pretekin, the general counsel for Chicago-based Imperial Realty Co. The code section enables real estate sellers to defer capital gains taxes by buying a new property or buying a property and selling another (a “reverse exchange,” which is rarer)—Pretekin has helped with at least 25 such transactions in his time at Imperial.
However versed in Section 1031, Pretekin draws from decades of experience and legal acumen in transactional and bankruptcy law to help guide Imperial Realty’s business and legal operations and his team of three attorneys.
“What’s most rewarding is I’ve been able to contribute to making Imperial one of the 10 largest property management firms and one of the three largest office space management firms in Chicago,” Pretekin says.
Imperial Realty Co. was founded in 1956 and specializes in acquiring and redeveloping troubled properties and managing commercial buildings. It continues its tradition as a family-owned and operated company with its current management team of CEO and President Alfred Klairmont, Executive Vice President Julia Klairmont, and Vice President Robert Klairmont.
It’s also a general real estate brokerage for retail, commercial and industrial properties and offers services including asset property and facilities management, tenant representation, receiverships, development and design-build construction. The company has redeveloped over 10 million square feet of office, industrial, retail and residential properties.
Pretekin has been part of Imperial Realty for almost 30 years, during which he’s seen and helped the company grow its portfolio from about 30 properties to about 110.
In a recent deal, in which he credits the associates on his team and Imperial’s CFO for their skilled management of the process, Imperial Realty conducted a successful Section 1031 exchange that resulted in the $4.5 million acquisition of a Class A office building in Matteson, Illinois, a town South of Chicago and just west of the Indiana border.
Pretekin says there are strict procedural requirements to adhere to, and timing is crucial.
Getting it done
For instance, he and his team needed to state in the sales contract for the “relinquished” building that a potential Section 1031 exchange was part of the deal and ensure that that would be understood at closing. When the deal closed, the money from the sale was held by a “qualified intermediary,” in this case, an affiliate of the title company.
Then, the seller and Imperial had 45 days to identify potential properties to acquire for the exchange. Pretekin says that typically, three properties are identified, but even then, he and his staff need to make sure all the potential acquisitions are properly identified to meet tax code requirements. After filing the list with the intermediary, the acquisition must take place within 180 days after the sale of the property being “traded”-the relinquished property.
Pretekin says the process to acquire the office buildings was complicated because the seller failed, for whatever reason, to understand it was a Section 1031 exchange with a definite closing deadline, and the deal went right down to the wire.
He says he likes to close a deal at least 48 hours before the deadline because it provides the leeway to work through any last-minute contract issues. This transaction closed the day before the deadline.
“Ideally, but rarely, a Section 1031 acquisition and closing is done within the 45-day identification deadline, so there is no need to identify properties,” Pretekin adds. “In the Matteson deal, we identified properties timely, but the final negotiations and signing of the contract were delayed so that the contract was not signed until less than four weeks before the 180-day replacement deadline to close the deal.”
Details, details, details
Pretekin says having associate attorneys on his team understand a Section 1031 exchange is just a part of the knowledge and expertise they’ll need to help make the deals guiding Imperial Realty’s growth.
Due diligence is imperative—buyers’ attorneys and, to a lesser extent, sellers’ attorneys need to understand the leases and service agreements already in place. Service agreements can include garbage pickup, electricity supply, janitorial service, landscaping and snow removal. They also need to study plats of survey and recorded title documents. There are also insurance and environmental reports to review and current and historical financial information about the operation of the building.
At Imperial, reviewing and providing financial information is the province of the CFO and his staff. Leases may contain information crucial to the purchaser and, to a lesser extent, sellers, such as exclusives, land use restrictions, rights of first refusal to lease other premises, and even to purchase the property.
There’s no typical timeframe to complete a deal, either. Pretekin has settled short-term leases in less than an hour, and he and his team have spent more than a year working with larger clients, such as retailers with hundreds of locations. The time-lapse in protracted negotiations can lead to issues being overlooked or issues previously reviewed by the client’s decision-makers referred back to them for unnecessary further review.
Enjoying the pace
He’s been coming up with deals for decades. A native of Dayton, Ohio, Pretekin earned a bachelor’s degree in economics from the University of Michigan in 1979 and his J.D. from Vanderbilt University School of Law in 1982. After graduating, he was admitted to the Illinois Bar and began his legal career practicing independently.
Pretekin eventually joined a private general practice firm in Chicago, where he specialized in real estate transactions and bankruptcy law. He estimates he took part in about 500 residential real estate closings and countless consumer bankruptcy matters in those years, but the pace of working at the firm started to burn him out.
“At the firm, it felt like my feet always needed to be moving, my heart was often racing, and my brain needed to be going all the time,” he says.
After about seven years, he was looking for new opportunities and was alerted by a contact that a commercial real estate lawyer had left a large firm to start a practice and needed some help. Pretekin provided that help for a few weeks and says he learned a lot about commercial real estate practice in doing so.
Over a few years, he had spoken to Alfred Klairmont, a principal and now president of Imperial Realty, about an in-house position, and when an opening ultimately came up, he joined the company in 1994. Initially, his work focused on leasing, but as the company began moving into buying and selling properties and borrowing money, he was able to closely observe outside counsel involved in those processes and gained the knowledge to manage the transactions himself, allowing the Company to save significant sums on outside counsel spending.
He proved his mettle by negotiating a large purchase transaction by himself. After that, virtually all the transactional work has been done in-house.
“The company gave me the running room to do these things. I knew I had found a home,” Pretekin says. “I enjoy the in-house pace and the fact that the company generally knows what I’m working on and, with the officers merely steps away, there is no need to guess what issues they are most concerned about.”
View this feature in the Vanguard Winter II 2024 Edition here.
Showcase your feature on your website with a custom “As Featured in Vanguard” badge that links directly to your article!
Copy and paste this script into your page coding (ideally right before the closing