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Syndication and Taxes

August 12, 1990

The writer of "The Small Investor" is right in the headline, "Be Wary of Real Estate Syndications" (Aug. 5), but way off base in saying, "The days of real estate limited partnerships were killed by the 1986 Tax Reform Act. . . ."

This implies that all syndications are (or were) tax shelters; moreover, it suggests that all realty investments, syndicated or not, were killed by tax reform and all were unsound investments. Neither is true.

The truth of the matter is that before and after tax reform, some (but not all) syndicators, institutions and private investors, in a frenzy to outbid the next buyer, overpaid for apartments and commercial properties and mortgaged them to the hilt.

These buyers who ignored cash flow, the ability of properties to service their debt, and the viability of the product and its geographic location were shot down not by tax reform, but by the foolish theory that all real estate is good and what goes up never comes down.

The realty graveyard is full of fools. The real estate recession is not a matter of prices coming down, but, rather, prices seeking levels from which they should not have strayed.

The apartment projects we have purchased since tax reform have performed as well or better than the ones purchased in the immediately preceding four-year period. That's because we followed the basic rules of real estate economies. As for the immediate future, we expect to do even better as over-financed properties run out of money and their owners start crying "Uncle!"

Syndication is dead for some, thank goodness, but not for all.

NORMAN JACOBSON

Santa Monica

Jacobson is president of Norman Jacobson Realty Resources Inc.

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