When two long-time business partners began planning for the next phase of their real estate holdings, they faced a familiar challenge.

They jointly owned ten income-producing properties, each held in separate LLCs with 50/50 membership interests. As their children became more involved in the business, both partners wanted the flexibility to eventually separate ownership interests and pursue independent investment strategies. They also wanted to preserve the ability to complete future 1031 exchanges without triggering tax risk.

A common approach in these situations is a “drop and swap” strategy. That structure often exposes owners to significant IRS scrutiny and can jeopardize the validity of a future exchange if not handled properly.

The team, led by Peyman Cohan, developed and implemented a more sophisticated solution.

Rather than dissolving entities or transferring property directly before a sale, he restructured ownership across 20 newly formed LLCs. Each partner’s 50 percent interest in each property was placed into their own respective LLC, while maintaining centralized management through the original entities to ensure continuity for tenants, lenders, and operations.

Key elements of the strategy included:

• Preserving each partner’s ability to independently complete a future 1031 exchange
• Avoiding exposure to IRS challenges tied to “drop and swap” transactions
• Maintaining lender compliance, including formal approvals and loan assignments where required
• Preventing reassessment for property tax purposes by demonstrating no change in beneficial ownership

Tenants continued to pay rent as usual. Mortgages and expenses were paid through the operating entities. Net distributions were allocated to each partner’s separate LLC. Operational continuity remained intact, while ownership flexibility was secured.

The result was a clean, defensible structure that positioned each partner to move forward independently when ready, without triggering unnecessary tax liability or legal exposure.
As Peyman often advises, estate and succession planning is not separate from business strategy. For owners of closely held real estate portfolios, proactive structural planning can protect value, preserve options, and reduce risk before a transition is imminent.

This matter reflects the kind of forward-looking, detail-oriented planning that allows business owners to act from strength rather than react under pressure.