Inside This Issue This issue of the S.E.C. Observer is truly an “S.E.C.” issue.

Creativity, Cooperation, Collaboration and Counseling are the

cornerstones of the S.E.C. organization and this issue brings

together all of these important elements.

I believe this issue will help you understand yourself, your client,

the real market that we live and work within; and will enlighten

you to the possibilities that exist within ourselves and within

others.

Enjoy, Mark Johnson, S.E.C. 2006 Editor

Table of Contents S.E.C. Presidents Message

• "Society Marketing Sessions 2006" Stephen R. England, S.E.C. 2006 President The Society of Exchange Counselors

Feature Articles

• "The Running Exchange" Kenneth M. Vidar, S.E.C.

• "Re-Prepare Client

Before the Offer Presentation" B. Hunter Quistgard, S.E.C.

• "Justice For All"

Derek Barker, MBA Gustavo Garza, MBA

Society Columns

• "The Autopsy" Stephen D. Barker, S.E.C, CCIM

Ideas and Formulas

• "Let's Be as Good as We Can Be" Paul Manza, S.E.C.

• "Working to Solve

Negative Cash Flow" Clifford P. Weaver, S.E.C

The S.E.C. Education Foundation

• "The EDF and an MRI" Jim Brondino, S.E.C. 2006 President The S.E.C. Education Foundation

Society News Briefs

• First American Exchange Company A service from the Society's 2006 Corporate Sponsor

• Spring National Marketing

Conference Wichita, Kansas

• Counseling For Action

Jim Brondino, S.E.C., CCIM • Counseling Your Clients

Ted J. Blank, S.E.C., CCIM In the Spotlight

• B. Hunter Quistgard, S.E.C. Biography

The S.E.C. History Files

• "How to Make Money for Your Own Account" Yvonne Nasch, S.E.C.

I. S.E.C. President’s Message A. Society Marketing Sessions 2006

“Society Marketing Sessions 2006”

Stephen R. England S.E.C. 2006 President

The National Marketing events that are the focus of the Society of Exchange Counselors are riding a wave of excellent attendance and productivity. Our most recent meetings in Las Vegas and Denver were again filled with well over 100 members, candidates, and invited guests representing many clients, money, and properties looking to make a successful transaction. Some very smart people have pessimistically predicted that the Internet would reduce the real estate profession to computer and email transactions. However we appear to be proving them quite wrong. The Society’s Education Foundation has sponsored Creative Real Estate courses around the U. S. in the past few years and has found a steady market for our “people oriented” focus. The Society has existed for over 45 years, and we still find our method of making transactions to be very necessary in whatever environment the real estate industry happens to be in at any time. The popular book, “The World is Flat,” by Tom Friedman, proposes that there are certain aspects of the Internet world that have given us new tools and things to consider. Some of these are huge advantages especially in communication. One example might be that the wide email distribution of triple net properties and commercial “cookie cutter” types of real estate seems to have leveled out the cap rates around the U.S. It now seems more difficult to find an area that is offering a little better basic return. However, this easy distribution of information also contributes to making investors less “area bound” which opens more opportunities for brokers who work in our large geographical arena of clients and product offerings. The people, whether they are Owners, Buyers, or Investors, still make the transaction happen. The Society’s counseling skills are never outdated. In fact we need to keep refining them daily. People making decisions still have their likes, dislikes, and motivations that make things happen. The counseling skills of Society members and our marketing events are successfully surviving the test of time and continue to offer new opportunities and ideas. Steve England, S.E.C., is an expert in Land with a specialty in Agricultural properties, including the modern dairy business. In 1994, he served as National President of the REALTORS Land Institute. His general expertise is in counseling clients about their real estate investments and using the creative S.E.C. marketplace to solve problems or accomplish their goals no matter the situation or the types of property. Mr. England serves as 2006 President of the Society and a Vice President of the S.E.C. Education Foundation.

II. Feature Articles A. The Running Exchange

“The Running Exchange”

Kenneth Vidar, S.E.C., CCIM Of the many formulas for putting together transactions, the Running Exchange is one of the most powerful, yet least used tools in the bag of the exchangor. The Running Exchange is a catalyst method to begin transactions, and may be utilized by an experienced moderator at your local marketing sessions. It may also be utilized by an individual broker to complete more transactions and gain tremendous control of their marketplace. Utilizing a commodity or property that has very broad appeal in the market, such as a free and clear property or cash, starts the transaction. For our example we will use a $100,000 CD to begin the transaction. Step one: With our $100,000 CD, we go out in the market and locate a property we wish to buy. Or, we might attend a marketing session where we would seek offers from the participants who would be interested in making offers for our CD. There are conditions to the transaction being offered. 1.) The taker cannot close on the cash (CD). He is required to utilize the net amount, after fees, to go into the market and locate another property acceptable to him (a 1031 exchange). 2.) He can add to the transaction (boot) to go into a larger property. As a broker you could go into the market and locate a property you would like to own and make an offer to purchase the property. However, you place the contingency in the contract that the seller must utilize the net amount to locate other property acceptable to him. At first he will not understand, but you now have the ability to explain the benefits of a section 1031 exchange. Tell him you would be happy to help him locate such a property. This is a very easy way to obtain a controlled client, without having to obtain a listing on his property. Make sure you have all the proper disclosures within your contract with regards your being a “licensed real estate broker working on your own investment account for the purpose of making a profit.” Let’s assume our first contract to purchase is for a nice, free and clear condo at the lake and the contract is accepted at $100,000. We will assume a six percent commission is fair, so the first transaction will result in a net amount to the owner of the condo of $94,000 and the fee accumulating to the brokerage is $6,000.

Step two: Upon counseling with the owner of the condo, we find he has a note secured by first mortgage on another piece of real estate in the amount of $100,000 and would be willing to add it to a transaction. He also indicates he would like to invest in an apartment house but did not understand that he could exchange his condo without paying tax. You now have a client under your control. You locate a nice 10-unit apartment complex you feel would give your client the benefits he is seeking. The value of the property is $400,000 and there is an assumable first mortgage in the amount of $150,000. You make an offer of cash in the amount of $94,000 (left from the first transaction), the note in the amount of $100,000, and ask the owner to carry back a second note and trust deed on the apartment building in the amount of $56,000. In the offer to exchange, the same clause stating the owner cannot accept the proceeds of the transaction and close is inserted. He can and does, however, use the proceeds to locate another property acceptable to him. Of course, you explain the benefits of section 1031 of the IRS code and that you would be happy to help him locate such a property. In counseling you learn he could add cash to a transaction for the right deal - $200,000 is not out of the question. For our example we will still assume a six percent fee is fair, so the transaction will result in a net amount to the owner of the units: $70,000 is cash, plus $156,000 total value in paper from the two notes. Fees accumulating to brokerage now total $30,000. Step three: After counseling with the owner of the units and searching the market, we find an office building priced at $1,200,000. It has a $600,000 loan with a due on sale clause. We offer the remaining $70,000 cash plus the $156,000 in paper, subject to obtaining a new loan. Since the bank indicates the maximum loan would be 75%, the client agrees to add the additional $74,000 in cash from his available funds. The seller agrees to a commission in the amount of $72,000. Final step: As the broker you may now close the transaction if the owner of the office building is willing to accept the sale, and pay his taxes. Being a builder, he agrees. The brokerage fees have now accumulated to $102,000. To close the loop you agree to take the condo as your fee in the transaction. The cash or CD was never actually needed; it was just the catalyst that made the whole transaction possible. As you see, the "Running Exchange" is an excellent concept to make transactions happen in the market. Most investors and brokers have difficulty visualizing an exchange and tend to think only in terms of two-way transactions. Try it . . . you'll like it! Running Exchange Summary: $100,000 CD

1. Buy: Condo F&C for $100,000. Offer $100,000 CD (cash). Fee $6,000. Has: $94,000 cash plus can add $100,000 note. 2. Buy: 10 units, $400,000, loan $150,000. Offer cash of $94,000 plus paper of $100,000 and carry back of $56,000. Fee $24,000. Has: $70,000 cash plus $156,000 in paper and can add cash. 3. Buy: Office building, $1,200,000. Offer cash of $70,000 plus $156,000 paper and cash can add of $74,000, subject to obtaining a new loan. Fee $72,000. Fees now total $102,000 and the transaction can close if owner of the office building is willing to accept the sale and pay tax. Otherwise just go for another leg until you find an owner willing to close on a sale. Kenneth Vidar, S.E.C.,CRS, CCIM, is president of Vidar Companies, Inc. and has been in the real estate profession since 1974. Ken is skilled in the areas of commercial investment counseling, exchanges, mortgage financing, and property development. In 1981 Ken was awarded the National Association of Realtors' "Most Outstanding Commercial Investment Transaction" award for structuring the most creative commercial transaction of the year in the United States, The Campbell Trophy. With his extensive education in real estate, investments, and taxation, Ken is often invited to speak at and moderate marketing sessions nationwide. For six years Ken was also an instructor for the Commercial Investment Division of the National Association of Realtors, teaching the courses leading to the prestigious "CCIM" designation, considered the Ph.D. of Commercial Investment Real Estate. Vidar served as Vice President of the Northwest Region of CCIM Chapters and First Vice President of the National Society of Exchange Counselors (S.E.C.). Ken is also a recognized speaker and seminar instructor, having taught his own authored seminars in the United States and Canada for many years. He is currently an instructor for the Education Foundation of the Society of Exchange Counselors.

II. Feature Articles B. Re-Prepare Client Before Offer Presentation

“Re-Prepare Client Before Offer Presentation”

B. Hunter Quistgard, S.E.C.

Most exchange brokers exclaim loudly that their colleagues haven’t properly “COUNSELED” their client before bringing their package to the market place. When I used to teach brokers how to exchange, I would explain that commissions are “pooled and shared equally” as a norm. There usually was then an extended conversation about one side doing all the work while the other side was “un-counseled,” did not expend effort toward a deal, let the other side do all the work, and still got ½ the fee. If you have seen the movie of the ladies baseball league during WWII with Tom Hanks as the coach, you know that “THERE IS NO WHINING IN R.E.” Regardless of how well counseled or “ready” a client is for what the market will likely do to his package, it is REQUIRED to RE-PREPARE a client before offer presentation to increase the odds of performing the desired result and to have the receiving mind open, flexible and creative toward solution, rather than the niggling details of minor issues = negotiation/defensive/conflict. Exchangors of old developed a checklist to be sure they were the best prepared before presenting “the prenuptial contract” as ‘romantically’ as possible. It is a good habit to include a copy of the checklist along with your exchange offer document to other brokers: EXCHANGE PRESENTATION CHECK LIST (From "Modern Exchanger" 1977) Before you present offer(s) (maybe days before) re-prepare your client for flexibility: a. Re-identify his problem b. Re-confirm his objective c. Re-establish that all his objectives might not be solved in one transaction. d. Get him involved in "solution" rather than negotiations.* 1st choice: Presentation of offer a. Let him read and react without your comment. b. Make sure he understands what benefits are offered. How much of his stated

objective is being solved? c. Go over each part of offer to see how each part contributes to the end result. d. Go for acceptance subject to validating the presumed benefits.

2nd choice: Counteroffer a. Any taker of his situation should be dealt with seriously. b. How can we accept most of the offer with small changes. c. Sign what he will do - don't dwell on “wont’s.” d. Signed offer deserves signed response. Last choice: “In lieu of” = (Recruit help and keep taker)

Accept offer "subject to finding something satisfactory “in lieu of” part of what is offered –

Get commitment! “What set of circumstances (set of benefits) do we need to replace the unwanted part?”

This gives the offering broker a chance to re-cast his offer to comply, or: The offering broker and you can jointly go looking for the third leg to satisfy the objective by use of the unwanted portion offered.

Review with client the additional assets, money, talent, credit he maybe willing to add to the “mixture” to assist solution.

* Many folks find it easier to say no, especially to new concepts, out of lack

understanding or fear. If one could set up the client's decision making process to filter proposed solutions based on progress out of current situation into better circumstances, he will have confidence in his decisions.

Hunter Quistgard, S.E.C., is a semi-retired investment Realtor/exchange counselor. Licensed in 1960, and formed Hunter Associates in 1962, which managed, brokered, syndicated, and exchanged investment real estate. Hunter won the Counselor of the Year Award in 1984, and was President of S.E.C. in 1988. Motto: "A motivated owner with a knowledgeable and connected exchange counselor can manufacture a solution out of whole cloth."

II. Feature Articles C. Justice for All Editor’s Note: The S.E.C. prides itself on being creative within the confines of the real estate world and we, as S.E.C. members, foster the spirit of real estate ownership within our family, friends and peers. That said, I would like to introduce the son of one of our members who, as part of a school project at Pepperdine University, has written the following paper on the recent and current topic of Eminent Domain. Derek Barker is the son of Steve Barker, S.E.C. and is a law student and MBA graduate from Pepperdine University. We all wish Derek the best in his endeavors and congratulate him on a well written paper.

“Justice For All” A Paper on the New Eminent Domain

Derek Barker, MBA

Gustavo Garza, MBA The right to acquire and possess private property is one of the founding pillars of the United States of America. That right is something that separates America from much of the world. If property is to be taken from a private individual by the government, the Constitution of the United States defines the proper way in which is to be taken. This is referred to as the “Takings Clause”:

“…nor shall private property be taken for public use, without just compensation.” (Constitution of the United States of America, 5th Amendment)

It is interesting to consider why the Constitution does not expressly say every individual has a right to private property protection. James Madison, the drafter of the Takings Clause, said,

“A government is instituted to protect property of every sort… This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.” (Heritage Guide to the Constitution p.341)

This still begs the question of why, if it was so important, did the founders not place parchment protection of private property inside the Constitution.

“The American Founders viewed the natural right to acquire or possess property as embedded in the common law, which they regarded as the natural law applied to specific facts.” (Heritage Guide to the Constitution p.342)

The founders did not believe they needed to put this protection expressly in the Constitution because they thought it was already written inside the common law of that time period; it is unfortunate they did not. Until 2005, the process by which private property could be taken, which is commonly referred to as “Eminent Domain,” was fairly strait forward under the Takings Clause. A common example would be when a local government wants to expand a two lane road to a four lane road, a specific “public use,” with private residences presiding on either side. First, the government would draw up the exact dimensions of the road expansion. Second, the government would send officials with Condemnation Notices to all residences with property adjacent to the two lane road to inform them that a portion of their property would be “condemned” for the road expansion and that for their property they would be given “just compensation.” Third, the government would then take possession of the property through their power of Eminent Domain and go forward with the road expansion. Until 2005, the term by which the government was constrained in taking private property was “public use,” as written in the Takings Clause. This term had come to be defined as roads, highways, schools, bridges, governmental buildings, public parks, public walkways, power lines, and railroads; all of which are used by the entire public. In most cases the government, except for the power and railroad lines, retained one hundred percent ownership of the taken land. However, a recent Supreme Court decision changed the limits to which the government was bound when taking private property. The Supreme Court case, Kelo vs. New London, involved the City of New London Connecticut’s redevelopment plan for area called Fort Trumball. The area in question inside the Fort Trumball area was composed of,

“Approximately 115 privately owned properties, as well as 32 acres of land formerly occupied by the naval facility (Trumball State park now occupies 18 of those32 acres.” http://www.law.cornell.edu/supct/html/04-108.ZO.html

The City employed a private nonprofit organization, the New London Development Corporation (hereafter to be termed “NLDC”) to do the redevelopment by authorizing,

“The NLDC to purchase property or to acquire property by exercising Eminent Domain in the city’s name.” http://www.law.cornell.edu/supct/html/04-108.ZO.html

The City wanted to condemn the area inside Fort Trumball to place, “(a) pedestrian riverwalk…public walkway(s)….a new US Coast Guard Museum….(a) state park…parking…water dependant commercial uses…(a) waterfront conference hotel…restaurants…80 new residences…(and) 90,000 square feet of research and development office space” http://www.law.cornell.edu/supct/html/04-108.ZO.html

Ms. Susette Kelo was amongst the private residence owners being served Commendation Notices by NLDC; she did not want to sell. She, along with six other homeowners in the area, filed a suit against the City of New London in order to stop the government from taking their private residences. Ms. Kelo had been living there,

“Since 1997.” http://www.ij.org/private_property/connecticut/

This case made it all the way to the Supreme Court, which ruled 5-4 in favor of the City of New London. When examining reasons the City of New London sought to take Ms. Kelo's private residence, there are consistencies and inconsistencies between what purposes the City wanted to take her land for and what purposes the City was allowed to take her land for under the Takings Clause. Taking the land for the purposes of,

“Pedestrian riverwalk…public walkway(s)….a new US Coast Guard Museum….state park(s)…parking… (and) water dependant commercial uses,” http://www.law.cornell.edu/supct/html/04-108.ZO.html

are uses consistent with the previously agreed upon meaning of “public use.” All these uses would be for the entire public and the government would retain ownership. If these were the only purposes given by the City of New London as their justifications for taking Ms. Kelo’s residence, she would have had no basis to challenge the City’s plan. However, these were not the only purposes the City was using as a justification for taking her home. The City also stated that it was taking Ms. Kelo’s land for the purposes of,

“(a) waterfront conference hotel…restaurants…80 new residences… (and) 90,000 square feet of research and development office space” http://www.law.cornell.edu/supct/html/04-108.ZO.html

These uses are inconsistent with the previously agreed upon meaning of “public use.” If the private land was taken for the purposes of building a waterfront hotel and restaurants that would be owned and operated by private companies for private profit, then the public would not own and would be constrained from utilizing that land in the sense that the entire public could not use all the land all the time. It is not clear as to how the government would disperse ownership of the planned 80 new residences; whether ownership would be sold to private citizens or whether those residences would be run as public housing. If they were to be run by the government as public housing, that would fall under the previously agreed upon meaning of “public use.” However, if they were to be given to private citizens, then that would eliminate the public’s ability to use the land. The stated purpose

for which the City of New London had for building the 90,000 square feet of research and development office space was to,

“…capitalize on the arrival of the Pfizer facility (immediately adjacent to the property) and the new commerce it was to attract.” http://www.law.cornell.edu/supct/html/04-108.ZO.html

The City of New London admitted it was taking Ms. Kelo’s private land for the express purpose of giving it to private companies, which it thought would be brought in by the existence of the adjacent Pfizer Corporation facility. This purpose for taking Ms. Kelo’s home is in stark contrast to the previously agreed upon meaning of “public use.” If other private companies were to take ownership of the proposed R&D office space, that would severely restrict the public’s ability to use the land. In fact, we put forth this would in fact eliminate the public’s ability to use the land. It is for these reasons that the Supreme Court had to alter the term of public use, as written by the Founders in the Constitution of the United States, to public purpose in order to justify it’s decision. In June 23, 2005, the Supreme Court’s verdict, in what is now referred to as the “Kelo Decision,” stretched the limits for which purposes the government may take private property. Among the justifications as to why the court ruled in the manner in which it did, Justice Stevens wrote in the Opinion of the Court that the area in question had been deemed a,

“…distressed municipality,” http://www.law.cornell.edu/supct/html/04-108.ZO.html

and that the City of New London’s plan, “ was not adopted to benefit a particular class of identifiable individuals….(it) will provide appreciable benefits to the community, including-but by no means limited to-new jobs and increased tax revenue….(and) the City has invoked a state statue that specifically authorizes the use of Eminent Domain to promote economic development.” http://www.law.cornell.edu/supct/html/04-108.ZO.html

These have become the new boundaries of Eminent Domain. Now, any private entity has the ability to take a private individual’s land as long as the local government (1) deems that the area in question is a distressed municipality (which the media has termed, and will from here be referred to, as “blighted area”), and that the plan for that land (2) ads economic development, (3) is not adopted to benefit any particular class of individuals, and (4) increases the tax base. The government is no longer limited to taking land strictly for the previously accepted “public uses;” now it can take private property for any “public purpose” as long as the stipulations previously discussed are met. It is in the execution of the new Eminent Domain that our case takes place.

In Weare New Hampshire, a man by the name of Logan Darrow Clements (here on referred to as “Mr. Clements”) has asked the local government to lease it’s Eminent Domain power to his company, FreeStar Media LLC, to take a private residence for the “public purpose” of developing a hotel. Mr. Clements has made it clear to the local government that if it agrees, his company’s hotel will add economic development, jobs (he will need people to work in the hotel), and tax revenue (a hotel pays more taxes than a private residence). From Mr. Clements’s statements, it appears that all the criteria, short of the local government deeming the said area as blighted and leasing it’s Eminent Domain power, have been met. However, there is a twist to this story: the private residence,

“assessed at just more than $100,000…(which) brought in $2,895 in property taxes last year(2004),” http://www.concordmonitor.com/apps/pbcs.dll/article?AID =/20050629/REPOSITORY/506290321/1031

which Mr. Clements’s company wishes to take belongs to Supreme Court Justice David Souter. Justice Souter was one of the five Supreme Court Justices that ruled in the majority of the Kelo Decision previously discussed. The question remains: should the local government in Weare, NH deem the private residence in question a blighted area and lease to Mr. Clement’s company it’s Eminent Domain power to take Justice Souter’s Home? We believe there are four main issues to consider: I.) Should the Weare, NH government deem Justice Souter’s house a blighted area

which would be first step necessary for the execution of Eminent Domain? Without extensive knowledge as to what is defined as a blighted area, we choose only to refer back to the Kelo Decision. Ms. Kelo had been living peacefully in her home in a nice area for nine years and the Supreme Court ruled in favor of deeming her residence to be a blighted area. Justice Souter has also been living in his home in a nice area for many years. We see no distinction between the two residences other than the fact that Justice Souter’s home was,

“…more than 200-year(s)-old….” http://www.foxnews.com/story/0,2933,183976,00.html

If anything, this one difference leads us to believe that Justice Souter’s home had a much greater chance of being considered blighted. Therefore, we see no reason why the Weare, NH government would not be justified in deeming Justice Souter’s private residence a blighted area. It could simply point to Justice Souter’s own vote on the matter.

II.) Should the Weare, NH government lease it’s Eminent Domain power to Mr.

Clements’s company for the purpose of constructing a hotel? When the Supreme

Court ruled in favor of the City of New London in the Kelo Decision, it solidified the president of leasing governmental Eminent Domain power to a private company. Upon further analysis, this issue has already been settled in the past. Power and railroad lines are amongst the previously accepted “public uses” previously discussed. However, the government does not own the power or railroad lines; they are owned and operated by private companies. Therefore, the Supreme Court was correct in endorsing the City of New London’s desire to lease it’s Eminent Domain power over to NLDC. In this same light, the Weare, NH government would also be justified in leasing it’s Eminent Domain power to Mr. Clements’s company.

III.) Can Mr. Clements’s company take Justice Souter’s home even though Mr.

Clements has stated his main reason for wanting the property is revenge for the Kelo Decision made in part by Justice Souter?

“(Mr.) Clements indicated that the hotel must be built on this particular piece of land because it is a unique site being the home of someone largely responsible for destroying property rights for all Americans.” http://nhindymedia.org/newswire/display/2507/index.php

We believe a court may find issue with this point which could lead to this case of Eminent Domain not going through. Mr. Clements stated his primary reason for taking the land is revenge, not economic development as was the reason given by the City of New London in the Kelo Decision. While economic development and the other stipulations of the execution of the new Eminent Domain are present in this case, as they were in Kelo vs. New London, this added factor of stated intent on the part of Mr. Clements may put the brakes on the local government approving the taking. However, we believe if the Weare, NH government looks only at the fulfillment of the new Eminent Domain stipulations, it will agree to his requests. Also, there is nothing written in the Kelo Decision that says revenge would preclude Eminent Domain from taking place.

IV.) The central issue with the answer to our question goes back to the underlying

argument of the Kelo Decision; can the government take private land and give it to some other private entity for any economic development purpose? To this, Justice Thomas, in his Dissenting Opinion of the Kelo Decision, wrote,

“If such “economic development” takings are for a “public use,” any taking is, and the Court has erased the Public use clause from our Constitution.” http://www.law.cornell.edu/supct/html/04-108.ZD1.html

We believe Justice Thomas is correct in his assertion. Now, the government can take any private property for any purpose and give it to some other private entity as long as that purpose fulfills the stipulations previously discussed. Hence, the taking of Justice Souter’s home for the purpose of a hotel is justified according to the voting majority of the Supreme Court in the Kelo Decision, of which Justice Souter is a member.

Conclusion: Ms. Kelo’s home was no different from Justice Souter’s except for the fact that his was much older. So, the Weare, NH government would be justified in deeming Justice Souter’s private residence a blighted area just as Justice Souter deemed Ms. Kelo’s residence through his vote in the Kelo Decision. Leasing Eminent Domain power to Mr. Clements’s company for the purpose of taking the private residence is justified as this maneuver has been approved for many years and personally endorsed by Justice Souter. If the Weare, NH government strictly applies the Supreme Court president set out in the Kelo Decision, there should be no problem with Mr. Clements revenge reasoning. Justice Souter has personally endorsed the Weare, NH government’s ability to take his private residence for economic development through his vote on the Kelo Decision. The conglomeration of all these issues would lead us to believe that the Weare, NH government will deem the private residence a blighted area and lease it’s Eminent Domain power to Mr. Clements’s company to take Justice Souter’s home. Outcome of the Case: February 3, 2006:

A group of (Weare, NH) residents…petitioned to get the matter on the town's March ballot, asking voters to take the justice's Weare home by eminent domain for the "Lost Liberty Hotel." http://www.foxnews.com/story/0,2933,183976,00.html

February 4, 2006: Walter Bohlin (a Weare, NH resident) proposed adding the word "not" throughout the proposal to take Souter's eight acres, including his more than 200-year-old farmhouse. "It was a piece of property targeted for revenge." http://www.foxnews.com/story/0,2933,183976,00.html By secret ballot, residents voted 94 to 59 in favor of Bohlin's addition. Later, by a voice vote, they approved substituting a request that town officials not seize Souter's home by

eminent domain; and urging Gov. John Lynch and the Legislature take action to make sure property can't be taken through eminent domain and handed over to private developers for economic development purposes. http://www.foxnews.com/story/0,2933,183976,00.html

When asked about the outcome of the case, Mr. Clements said,

It's a shame they took away the chance for Weare voters to vote on it…I personally think it seems to violate the First Amendment. If you sign a petition and someone changes what you sign, that doesn't seem ethical to me…This is just one setback." http://www.foxnews.com/story/0,2933,183976,00.html

Mr. Clements has vowed to continue fighting in his pursuit of Justice Souter’s home. We do not know what will be the final outcome. We only hope that the rule of law and justice will be applied fairly to all.

I. Columns A. The Autopsy

“Profits in Demolition”

Stephen D. Barker, S.E.C., CCIM

One of the great things about our business is that we not only continue to learn new concepts and creative ideas, but we are continually reminded of the “tried and true.” Cort Parker, a vibrant and gifted Society Member, introduced a valuable visual concept many years ago. Cort developed a matrix or chart, which separated the various components of real estate into small pieces. Perhaps you have seen it. It looked akin to an auto engine in a Popular Mechanics magazine where all the parts are exploded to the edge of the page revealing the inner workings and how everything is put together. By using this chart, Cort introduced many of us to a visualization of real estate beyond surface expectations. The land, improvements, air, water, mineral, subsurface, leasehold and other rights were graphically displayed. Cort’s concept has become very valuable to me over the years, as it has provided a template for reviewing and analyzing new properties. That template has ingrained in me the first and most basic of questions regarding a property. “Is the dirt good!” and “Can I change the use?” Although these are only two of Cort's principles, I try visualizing a site as if there were no buildings, paving, water towers, landscaping, utility poles, lines, or other surface obstacles. In essence I mentally look at the land as if it is completely cleared. This raw assessment provides the basis for determining a “quick and dirty” value of the land. I want to know that if by demolishing the site improvements and incurring the commensurate costs to do so, the land value will be less than comparable other vacant land parcels in the market. My experience has shown that this approach is most effective when looking at properties that are older, maybe inner city, which are functionally or economically obsolete or just plain tired. For instance, most old industrial sites generally have a disproportionately greater land mass in comparison to buildings. Some of these opportunities are prevalent where you may find boarded up buildings with graffiti or those affected by environmental constraints. You may just as easily find a leased building that is in the path of progress. This concept of zeroing in on the Land is also extremely effective when used in path of progress or resurging areas. The best analogy I can give is the razing of homes in great neighborhoods to build a newer bigger home. The same effect can and is being applied to commercial and industrial real estate across the country. Old buildings in high growth areas are being demolished and new or alternative enterprises and improvements are replacing them. The Las Vegas strip has undergone much of this effect. Old casinos make way for new ones.

Again, it is important to recognize that a land parcel encumbered by erstwhile improvements may cost less per square foot than comparable land properties. For instance, a 200,000 sq. ft. building listed for $7.00/sq. ft. (old warehouse) by broker Harry Hustler, equates to a $1,400,000 value. The building sits on 25 acres of land in the path of oncoming yuppies. The cost for demolition and environmental is $400,000. Total cost for acquisition and demolition = $1,800,000. Your break even, as it relates to land only, is therefore is $1.65/sq. ft. If market comps are approaching the $2.5 ($2,722,500) to $3.00 ($3,267,000)/sq. ft. area you may have a pretty good chance for a decent profit. If so, this lays the groundwork for several scenarios. You can: 1.) Demolish and rebuild thereby packing your upside land profit into the new venture; 2.) Take your profit in the land (by virtue of the market value less your acquisition costs) and sell or exchange; 3.) Hold and do nothing and rent the improvement in the interim as a land holding device; or Take a portion of the profit in a fee type deal and broker the property to another investor. Several years ago I used this concept by demolishing a functionally obsolete 170,000 square foot shopping center at an expressway interchange. At first I thought the shopping center was a typical rehab, but later found out that the center was too far-gone. A quick analysis of increasing land values in the area and a determination of environmental and demolition costs revealed a substantial profit in parceling the land after demo and infrastructure. Knowing our overall land costs made our profit more certain. Our costs were low….we were substantially under market going in and therefore poised for profitability. I am sure many of you have used this concept and have experienced some great results. There are variations and add-ons that can dove tail. The important thing to remember is to look beyond the surface of each property to find its true value…. that can often times be the Land. Many thanks to Cort. Stephen D. Barker, S.E.C., Chairman of the Board and Chief Executive Officer of Catellus Group, LLC, a Michigan and North Carolina based corporation, has specialized in all facets of commercial investment real estate including development, rehabilitation, management and finance. Mr. Barker currently holds the professional designations of Certified Commercial Investment Member (CCIM) and Society of Exchange Counselor Member (S.E.C.). Mr. Barker is an often sought after lecturer and moderator at national marketing sessions and has participated in national CCIM, RLI, and S.E.C. meetings as well as other local and regional National Association of Realtors (CCIM) sponsored meetings.

IV. Ideas & Formulas A. Let’s Be as Good as We Can Be

“Let’s Be as Good as We Can Be”

Paul Manza, S.E.C. As a real estate professional we are always questioning results and asking why. Why doesn’t a Seller do this? Why is this property priced at this value? Why do certain Brokers market a property in this manner? For the untrained practitioner, emerging from the time honored traditions of the MLS system; misperception and innocent misrepresentation may be excusable. For the seasoned practitioner, one who is an S.E.C. counselor and especially those acting in a principal capacity; such misdirection is unacceptable in any venue or marketplace. Most successful brokers hold their clients accountable via counseling, or the sheer economic necessity of refusing to waste time, energy, and resources pursuing a property owner’s fantasies. In the absence of a reasonable probability of success, (i.e. fee) most brokers will choose not to participate when the Seller’s expectations are inconsistent with reality. Usually, in the brokerage world, reality has a way of forcing the players to adapt fairly quickly to the realities of the marketplace. Let’s face it, the only thing any of us in the Brokerage world have to offer is time and knowledge. Notwithstanding the foregoing, one could reasonably argue that in order to truly understand the realities of real estate, one must have experienced the thrills of ownership. A different perspective of reality emerges from the trenches, the victories, and most of all from those “expensive seminars.” Hopefully, after having been through the process a few times, one develops a sense of what constitutes a good opportunity -- a real transaction worthy of serious consideration. For the most part, successful real estate investors understand the realty of ownership and have knowledge of the benefits being offered. In the most dynamic marketplace with the most capital we have ever experienced, the marketplace will chase down and gobble up a “real” opportunity. Likewise, if a transaction isn’t absorbed by this marketplace (where even the turkeys fly), one must begin to suspect either the quality of the marketing efforts, the illusion of perceived value, and/or the level of the Seller’s motivation.

As experts in our field, and knowledgeable in our respective markets, we are perceived to understand and make the correct decisions. When a principal emerges from this marketplace failing to have successfully marketed his/her product one or more of the following is usually true:

1. He/She is emotionally attached; 2. There is an unrealistic valuation; 3. The benefits have not been clearly transmitted.

In any event, we should ask ourselves the following questions. Have we done the marketplace and those participating in it a disservice? Have we done the Seller a disservice by not explaining the benefits of the offer or the reality or their property? We must ask ourselves…Are the benefits real? Would I buy this at my price? Am I being real? In the S.E.C. world, we rely on one another to be the local experts. When asked to be geographically receptive to a situation, one has the right to expect the presenter to have a clear discernment of the reality of the situation and to represent that reality with some degree of accuracy. Anything less demeans the presenter, degrades the marketing session and at best, fails to present the Society as the ultimate equity marketing “experience.” The goal is for everyone to be as professional as possible. If you have participated in an equity marketing meeting and you have felt the dynamics between the participants and the properties, you know the search is for excellence. In as much as the efforts of the various organizations are to provide a positive and productive experience that generates the desire of the participants to go beyond mediocre and to be the best they can be. This means an increase in education, knowledge of the importance of counseling, and a desire to be the best that you can be. All of the formulas in the world will never compensate for unsound fundamentals, lack of discernment of reality, or the accurate representation of yourself and the marketplace. Paul T. Manza, S.E.C., is President of PTM Realty Investments, Inc., a full-service real estate brokerage and counseling practice. He is also actively involved in land development, commercial re-development projects and acquiring value added opportunities for a small group of investor partners. Paul is currently an active member of the New York State Commercial Association of Realtors, the Hudson Valley Builders Association and has been actively involved as a Society member since 1992.

IV. Ideas and Formulas B. Working to Solve a Common Problem

“Working to Solve a Common Problem - Negative Cash Flow”

Clifford P. Weaver, S.E.C.

Editor’s Note: This article first appeared in the November, 1974 issue of the Real Estate News Observer. Mr. Bartaloni owned a building leased to XYZ Title Insurance Company. The lease had six more years to run on a 15 year lease. However, Bartaloni forgot, in the original lease negotiations to have a tax clause or cost of living index added to the lease. The taxes had risen substantially causing the property to have a negative cash flow of $200 per month and this could increase in Broker Binn's opinion to $300 per month over the next six years. Appraisals on the property indicated a value by "cost approach" of $100,000. The loan amount was $70,000. The main reason Binn had considered "taking on" this building was the fact that the building was well located between Macy's and a regional shopping center. However, how much do you pay for an income property which produces no income, has a negative cash flow and is locked in on a lease for the next six years? What Was Their Motivation?

The seller could not financially carry the property, and was thinking about letting this prime location property slip into foreclosure.

Alternatives

The seller attempted to secure a 2nd loan on the property to carry the property over the six years. He turned this alternative down as it would cause even a larger negative cash flow and most second lenders considered this too risky.

For Every Problem There Is A Solution

Broker Binn offered to buy the property for $9,000 cash as a down payment with the balance evidenced by seven personal promissory notes. Each note would come from an investor in a limited partnership in the amount of $3,000 each payable at $50 per month including 8%. This meant Mr. Bartaloni would receive $21,000 in notes plus $9,000 cash. The cash would be used for closing costs. He accepted the offer subject to reviewing each of the investors credit report and financial statement. Binn did not want his newly formed investment group to go into a negative cash flow position.

Kill the Negative Flow

Binn knew his group would be paying the seller a total of $350 per month. Thus, he made an agreement with the seller that portions of the total payments would "service" the negative cash flow and potential future increases to the negative cash flow.

Creating Additional Seller Benefits

As an additional incentive to accepting the offer, Binn offered a 10% interest in the property to Bartaloni. This means that Bartaloni would have an equity interest in the property which would be worth money in six years when the lease was renegotiated. It was both Binn's and Bartalonis opinion the property would be worth $125,000 to $137,000 by just redrafting the lease to current prices with "all clause."

The transaction closed. The above is just one solution to a fairly common problem. How many readers could solve this problem with other formula techniques? Clifford P. Weaver, S.E.C., CCIM of San Jose, California, was a member of the Society of Exchange Counselors. Mr. Weaver personally administered the real estate interests of multiple partnerships, corporations, and joint ventures throughout his career. His articles appeared in the leading national real estate journals. He was named S.E.C. "Counselor of the Year" in 1968, and was the 1975 President of the Society. He authored articles and books on Broker Estate Building and was a founder of the original S.E.C Real Estate News Observer. . He created a real estate education program on Broker Estate Building and taught throughout the nation in the 1970's. Known for his creativity, good nature and fun loving spirit, today, the SEC honors his name with the Cliff Weaver Award for Most Creative Transaction of the Year.

V The S.E.C. Education Foundation A. The EDF and an MRI

“The EDF and an MRI”

Jim Brondino, S.E.C. 2006 S.E.C. Education Foundation President

The Education Foundation (EDF) of the Society of Exchange Counselors has been in existence for over three years. In that time, the Foundation has made valiant attempts to fulfill its Mission Statement: “The Mission of the S.E.C. Education Foundation is to encourage, sponsor and promote education programs in creative real estate.” The Foundation has met with varying degrees of success in marching toward their stated goals and objectives. It is now time to review the progress that has been made and, perhaps, modify, change and/or add to the goals, objectives and aspirations of those who had the original vision and pioneered the Education Foundation of the Society of Exchange Counselors. In that vein, the Education Foundation Board of Directors will perform what has been labeled, an “MRI!” The Board has formulated some 40 questions that need to be answered. In essence, the questions will address: How have we done? Where are we going? What can we do better? These questions, and many more, will be distributed to the EDF Board members, the founders and others for further investigation and comment. Their findings will be categorized and memorialized. Over this year, it is the intention of the EDF to hold meetings with the membership to share those findings, solicit suggestions and ascertain how best to improve the EDF going forward. The participation, suggestions, observations and recommendations of our members will prove to be invaluable to the “MRI” process. We look forward to this process, and hope that the result will enable us to provide an increased number of innovative and informative creative real estate courses to our guests and other interested individuals nationwide. Jim Brondino, S.E.C., specializes in real estate investments, tax-deferred exchanges and solving real estate problems. His extensive, internationally recognized teaching experience includes an "Exchange Marketing" class; the "Methods of Moderating and Marketing" course and his "Counseling for Action" seminar. Mr. Brondino has been the recipient of the Exchangor of the Year award, is a recipient of the S.E.C. Counselor of the Year award, and was inducted into both the prestigious American Exchangors Hall of Fame, and the National Council of Exchangors Hall of Fame. He serves as immediate Past President of the Society, and as a President of the S.E.C. Education Foundation.

VI. Society News Briefs A. The Reverse Exchange – An Overview

The Reverse Exchange – An Overview

First American Exchange Company A service from the Society's 2006 Corporate Sponsor

Section 1031 of the Internal Revenue Code permits a taxpayer to defer capital gains tax when an investment property is transferred in exchange for another of “like-kind.” The “Reverse Exchange” is a specialized transaction which occurs when an Exchangor desires to acquire Replacement Property (new) prior to selling their Relinquished Property (old). IRS Approval of Reverse Exchange Exchangors have been doing reverse exchanges in various forms since the early 60's. Although reverse exchanges are not prohibited by the IRS, the deferred exchange regulations do not apply to these transactions. Reverse exchanges were often accomplished with through an Accommodation Party, a third-party investor who was required to make an investment in the new property, to avoid being deemed the agent of the Exchangor. Without guidance from the IRS, Exchangors and Qualified Intermediaries historically relied on judicial decisions to structure these transactions. On September 15, 2000, the IRS officially embraced reverse exchanges with the issuance of Revenue Procedure 2000-37 (“Rev. Proc. 2000-37”). Since an Exchangor is prohibited from owning both the new and old properties at the same time, this Revenue Procedure creates a framework for a “safe harbor” reverse exchange. If an Exchangor follows the guidelines of Rev. Proc. 2000-37, the IRS has indicated that it will not challenge the form of the exchange. A reverse exchange may be done outside the safe harbor, but the Exchangor loses the benefit of the favorable presumptions contained in Rev. Proc. 2000-37. Rev. Proc. 2000-37 - A “Parking” Transaction Rev. Proc. 2000-37 provides that a separate entity must be formed, called an “Exchange Accommodation Titleholder” (“EAT”), to take title to either the Relinquished Property or the Replacement Property and to “park the title” for up to 180 days (the “Exchange Period”). By arranging for an EAT to park one of properties, the Exchangor has technically complied with the general rule of “relinquish first, replace later” while satisfying a market-driven need to close on the Replacement Property. The EAT is disregarded as an entity separate from its owner for federal income tax purposes.

The Rev. Proc. requires that the EAT and the Exchangor enter into a written agreement, called a Qualified Exchange Accommodation Arrangement (“QEAA”), setting forth the terms by which the EAT will take and hold title. In addition to adopting the time limitations that govern the deferred exchange, Rev. Proc. 2000-37 also requires that the Exchangor make a written identification of the intended Relinquished Property within 45 days after a property is parked with the EAT. The QEAA must provide that: (i) the EAT is holding the property for the benefit of the Exchangor in facilitating an exchange under Section 1031 and Rev. Proc. 2000-37; (ii) the EAT will be the beneficial owner of the real estate for all federal income tax purposes; and (iii) the EAT will report the acquisition, holding and transfer of the property on its federal income tax return. Exchange First …. Or Last? In an Exchange Last transaction, the Replacement Property is parked with the EAT, who assigns into the contract to purchase and takes title to it. The acquisition is often funded by a loan arranged by the Exchangor. The Exchangor must close on the Relinquished Property within the Exchange Period, calculated from the day following the closing of the Replacement Property. When the Relinquished Property is sold, the EAT completes the exchange by directly deeding the Replacement Property to the Exchangor. The Exchange Last transaction provides the Exchangor with flexibility in cases where the Exchangor is either uncertain which of their property will serve as the Relinquished Property when they own more than one or when the Exchangor is concerned about closing the Relinquished Property because of issues with the buyer. After the Relinquished Property has been transferred to the buyer, the Replacement Property and any net sales proceeds from the Relinquished Property are transferred to the Exchangor to complete the Exchange Last reverse exchange. A transaction where the Relinquished Property is parked with the EAT is referred to as an Exchange First transaction. The EAT usually takes title to the Relinquished Property immediately prior to the Exchangor’s acquisition of the Replacement Property. While the forward exchange is over quickly, the parking transaction may continue for the entire Exchange Period as the Exchangor locates a third-party buyer for the Relinquished Property. Many lenders prefer this transaction because it allows title to the Replacement Property to vest in the Exchangor, the real party in interest and the borrower under the loan agreement. Once a third-party buyer is found for the Relinquished Property, the EAT transfers title to it to the buyer and applies any net sales proceeds to retire any debt, or portion thereof, incurred by the EAT on its acquisition of the Replacement Property. Occasionally, a Qualified Intermediary may require an Exchange First transaction because of identified environmental issues with the Replacement Property. Because Rev. Proc. 2000-37 does not require the Exchangor to use one or the other approach in order to achieve a nontaxable reverse exchange, the Exchange First concept provides added flexibility to the process.

Improvement Exchanges Sometimes an Exchangor will want to make improvements to a Replacement Property using tax-deferred funds. IRS regulations require that such improvements must be made before the Exchangor takes title. The solution is to have an EAT acquire the property, make the improvements, then transfer the property to the Exchangor to complete the reverse exchange. Caution must be taken if the Exchangor tries to make improvements to land the Exchangor already owns. Rev. Proc. 2004-51 limits the application of Rev. Proc. 2000-37 in these situations. Rev. Proc. 2000-37 does not apply to Replacement Property held in a QEAA if the property is owned by the Exchangor within the 180-day period ending on the date of transfer of title to the property to an EAT. Why Do a Reverse Exchange? The reverse scenario may arise as a result of an Exchangor’s decision to acquire new property prior to selling the old property. Many practical realities and competitive reasons are often at play, requiring the Exchangor to take advantage of a purchase of new property prior to sale of the old. For instance, the Exchangor may wish to prevent loss of earnest money or a favorable financing commitment. Still others do not wish to deal with the pressure of the 45-day identification period in the deferred exchange. The reverse exchange allows the Exchangor to avoid the 45-day deadline by closing on Replacement Property first and then enjoying 180 days within which to sell the Relinquished Property. Other Exchangors may be forced into a reverse exchange because the Relinquished Property may fail to close in advance of the purchase of the Replacement Property, such as when the buyer has trouble qualifying for financing or even gets ‘cold feet’ prior to closing. If the Replacement Property closing is pending, and non-refundable earnest money might be at risk, the transaction must be converted to a reverse exchange. Best Practices Tip The general consensus among tax lawyers and advisors seems to be that the “safe harbor” of Rev. Proc. 2000-37 is truly safe. If the requirements of the Rev. Proc. are satisfied, the IRS will not challenge the EAT as the actual owner of the property. Thus, the Best Practice is to take advantage of the favorable presumptions available to Exchangors in Rev. Proc. 2000-37, even though the Rev. Proc. clearly contemplates the availability of a reverse exchange outside of its requirements. Exchangors proceeding under the safe harbor of the Rev. Proc. should take care to avoid the circumstance in which they are unable to dispose of the Relinquished Property within the Exchange Period and later attempt to “convert” the transaction to a “non-safe harbor” reverse exchange. Most experts agree that a reverse exchange must be either completely within or completely outside the

safe harbor. The transaction cannot simply morph from a safe harbor to a non-safe harbor transaction after the expiration of the Exchange Period. How To Contact Us First American Exchange Company has developed specialized expertise in reverse exchanges, facilitating “safe harbor” transactions in accordance with the provisions of Rev. Proc. 2000-37. Call us today to find out how we can help you take advantage of this valuable tool for deferring tax on your capital gains.

HUGH POLLARD, ESQ., CES® VICE PRESIDENT & REGIONAL MANAGER CHICAGO REGIONAL OFFICE SERVING ILLINOIS, WISCONSIN and INDIANA 30 N. LaSalle Street TEL: (312 917-7206 Suite 310 FAX: (630) 281-6203 Chicago, IL 60602 Nat’l (800) 333-3993 hpollard@firstam.com STEVE KATKOV, ESQ. VICE PRESIDENT & REGIONAL MANAGER MINNEAPOLIS REGIONAL OFFICE SERVING DES MOINES, OMAHA, KANSAS CITY & ST. LOUIS 1900 Midwest Plaza TEL: (612) 305-2525 801 Nicollet Mall FAX: (612) 305-2530 Minneapolis, MN 55402 Nat’l (800) 556-2520 skatkov@firstam.com

VI. Society News Brief C. Counseling for Action

“Counseling for Action”

Jim Brondino, S.E.C., CCIM Jim Brondino, S.E.C., CCIM, will present “Counseling for Action,” in Albany, New York, on April 27th & 28th at the Desmond Hotel and Conference Center. This seminar allows the attendee to actually experience what is being taught through participation in workshops. This methodology provides the attendee to immediately self-evaluate the teaching experience, to determine the validity of the material presented and to dialogue with the instructor as to the practical application of the course. This interactive seminar is designed to provide the real estate practitioner with the tools to:

develop effective client communication listening to and determining client objectives professionally complete successful transactions

Jim Brondino specializes in real estate investments, tax-deferred exchanges and solving real estate problems. Recognized for his counseling skills and transaction-making ability, he has been the recipient of the “Counselor of the Year” award from the Society of Exchange Counselors. He has also received the “Exchangor of the Year” award, has been repeatedly acknowledged for volume and creativity. His extensive, internationally recognized teaching experience includes an Exchange Marketing class, the Methods of Moderating and Marketing course and his Counseling for Action seminar. He has served in an advisory capacity to the Century 21 Investment Connection, REALTORS Land Institute (RLI) and the Commercial Investment Real Estate Institute (CCIM). In addition, he has served as a consultant to the CCIM Institute and RLI in the development of course curriculum. He finds a client-centered approach essential in guiding other professionals in working with the public. He earned a Masters Degree in Teaching/History from the University of Redlands.

Submitted to the NYS Department of State for 15 hours of Real Estate Continuing Education Credit

Questions: If you have any questions regarding the course, please call Bob Giniecki, CCIM, SEC at 518-782-9217 (email: foresiteprop@att.net) or Wayne Jensen, SEC at 607-651-9446 (email: cpn1031@cs.com ). Registration Fee: NYSCAR Members and SEC Members and Guests $175.00 (price includes class and coffee breaks). Non members $185.00

VI. Society News Briefs D. Counseling Your Clients

“High Touch Real Estate in a High Tech World”

“Counseling Your Clients”

Ted J. Blank, S.E.C., CCIM

On May 22, 2006, in Denver, Colorado, Ted Blank will present “High Touch Real Estate in a High Tech World - Counseling Your Clients.” This course will teach you how to clearly identify your client's situation; how to distinguish between you clients' needs and wants; how to ask, listen and understand the client, and much more! The course will be held from 9:00 a.m. to 5:00 p.m., at the Denver Board of Realtors, 4300 E. Warren Avenue.

What past attendees have said about Ted’s course:

This course helped open my mind and I think it will help me add value to my clients --Craig, OR

Great insight into the mind, motives, and benefits of client counseling

--Roger, OH

The best Continuing Ed Course I’ve taken in years --Steve, NY

This course is appropriate for every licensee,

from beginner to experienced, commercial or residential -- Bev, 35 years experience, VT

Effective April 15, registration will be on-line at @ http://www.ccme.biz/Counseling.htm; by faxing form to 720-240-2721, or by mailing to: CCME, P O Box 370646, Denver, CO 80237 Phone: 303-881-3070. Contact Ted Blank, blank1031@aol.com if you would be interested in sponsoring a course in your area.

VII. In the Spotlight A. B. Hunter Quistgard

Biography B. Hunter Quistgard, S.E.C.

Hunter and Alberta Quistgard, living on their Ranch near Santa Rosa, California greeted a newborn son in 1937 and named him Hunter. Hunter and his three brothers and one sister grew up on the family ranch. He graduated from Santa Rosa High School where he served as student body president and Rally commissioner in his senior year. He played football and ran track, leading the league in the half-mile. Hunter put himself through college selling “hope chest equipment to single working girls” (cookware, etc.). After graduating, he became the company’s regional sales manager for the Los Angeles basin. In 1960, Hunter went to work at his father’s real estate firm. Hunter started his own firm in 1962. In 1963, a real estate/social friend had taken Richard Reno’s course “Modern Real Estate Exchanging” and wanted to join S.E.C. but needed an S.E.C. broker. The friend, (Bill Weil, known years ago as the ‘Peppermint Kid’ by S.E.C.’s), loaned Hunter the money to travel to Dallas and take the Reno course and be his S.E.C. broker. Richard Reno’s class was the most significant turning point in his life. Hunter came home from Dallas and fired all his salesmen, got rid of three new home subdivisions listings that weren’t producing, and made more income doing exchanging in six months than he had in the previous three years. He became an S.E.C. in 1963, claiming to be yet the youngest member to be inducted at age twenty-seven. He was the first regional director, named by edict of Richard Reno (“to prevent political rivals”). Hunter considers being named Counselor of the Year of the S.E.C. in 1984, the highest and best moment of a career filled with many high points. He served as President in 1988. Hunter, along with Cliff Weaver designed and taught the first exchange counseling course in the late ‘60’s, “Exchange Counseling” to inform those who said “What do you mean by ‘a counseled client?’” It was a one day course including numerous forms, formulae, a counseling demo, case studies and lunch for thirty-five dollars. Madge Davis, S.E.C. sponsored their second successful course in Southern California, audited by Evelyn and Dick Reno as guests. Hunter admits that he and Cliff were at first simply trying to recruit brokers to do deals with. Cliff Weaver and Hunter did produce a manuscript for a book outlining the course which was given to the S.E.C. long ago. His background as a tower operator in the Air National Guard led him to become a private pilot in order to get around the NW to do “S.E.C. deals.” Trading real estate for a Cessna Turbo 210 is one of his fond memories. Trading “You can’t find it!” land in east Oregon for REO houses with an institutional lender is a proud moment; but closing a 9 property, 5

client, 4 state exchange without cash to anyone was his favorite ‘case study’ for demonstration of S.E.C. prowess. Since the Society was founded on the premise that there is no poor real estate, only owners poorly matched with property, when an owner wants out of a particular investment, the counselor’s job is to discover the reason he or she wants the change. Over time, Hunter developed a technique to focus on the client’s primary motivation, getting to the source of his reason for not wanting the property.

As Hunter counseled, he offered a succession of ways that the client could solve the problem, while keeping his property. As the client turns down successive suggestions, the counselor peels layers away to reveal the real motivation behind the client’s wishes “usually to the surprise of the client.” This way, one can find the core motivation of the client for the given situation and hopefully solve more efficiently. Finding the ‘life goals’ of the client is a philosophy based in Weaver and Quistgard’s course on Motivation and this is one technique that grew out of it. “Quistgard/Weaver” also made use of a clever time saving scheme that could also flush out other motivations. They would give a client/applicant two copies of a property financial disclosure form. This way, when they got to the fraud disclosure at the bottom of the form, they could wad it up and throw it away, and proceed to counsel themselves by completing the second copy with more candor. Hunter Quistgard’s overall philosophy is: BE A BUYER, “understand the economics of real estate;” keep an inventory of each vehicle’s ‘benefits’ in your head as they will be handy when the needs and objectives of each client shows forth and transaction creating processes, like “Stone Soup” are in progress. Asked to name any of his strengths and or weakness he’ll say, “I like to think there are unlimited alternatives available to causing a deal. Practicing the art of causing complicated closings as opposed to rubber-stamping your one formula over the world is more satisfying than just making money.” When asked about any weakness he just cocked his head and muttered “huh” or something to that effect. His wife, Lynda Paulson, runs his current life chasing 4 grandchildren between them from the 2 children each brought to the union, when she isn’t conducting workshops for executives or playing tennis and cards with her ladies. Hunter is a reflective man who takes life seriously enough to understand that one shouldn’t take life so seriously. His hobbies are sailing, golf and fly fishing. I suppose he takes golf seriously enough to have coined his own epitaph. “Here lies Hunter, an old hacker who finally made it to the hole.” As one might expect he has an intriguing sense of humor. If you’re ever fortunate enough to have dinner with Hunter (as I did in Las Vegas a couple of years ago) I guarantee you’ll learn something profound while you’re enjoying a good laugh.

VIII. S.E.C. History Files A. How to Make Money For Your Own Account

“How to Make Money for Your Own Account”

Yvonne Nasch, S.E.C.

How do we make money for our own account? By consistent planning we call "Estate Planning." It's amazing that when you mention estate planning the majority of people think that it in terms of death. They consider its sole function to be the passing of their estate to their heirs with a minimum of shrinkage. Yet the connotation of the work estate is the degree, nature and extent of use of property. Our concern is to build an estate and what other vehicle lends itself better to accomplishing almost all objectives, than REAL ESTATE. So are we any different from thousands of people who are seeking to build fortunes or increase their income through profitable investments and good management? OR are we using good business sense and sound economic concepts only for the benefit of our clients forgetting that we are entitled to the same valuable services for ourselves. I submit to you that when making a transaction on our own behalf, many of us throw caution to the wind and are later surprised when we fall flat on our faces; not because the property acquired was necessarily bad, but because the ownership became bad. Some go to the other extreme and tip the scale the other way. By being overly cautious and using tunnel vision they never make a move because the property is just not good enough and there is not enough value as an investment. A property however is inanimate and therefore of no value, except for its ability to provide amenities. In the past, the approach used to evaluate a real estate investment was based solely on the numbers game. The current or potential yield on the money invested was the deciding factor of the quality of the investment whether it was a good or a bad property. Today we realize that this is not sufficient and that there is no such thing as a bad property. What we may have is bad ownership. What other factors do we have? We all know that when you have a small property with a high equity and loan constant, and possibly some cash flow and you need tax shelter, the answer is exchange up. The problem is that everyone else knows it too, and there is a great scarcity of people who are willing to exchange down. This introduces the factor of scarcity which by its very existence influences value. As we all know, the law of supply and demand controls the market. When the supply decreases, the demand heightens and with that, the price of the commodity increases. The same applies to exchanging. The investor going up is not in a position where be can be too concerned with the $ sign. He should rather evaluate the benefits he will be receiving in comparison with the ones he is getting now. Is he getting more tax shelter? Won't he

have a faster equity growth because the loan is larger? Has he not reduced the percentage risk of his vacancy factor by having more tenants? He should then realize that if someone is willing to assume his problems, that willingness must be compensated by sometimes paying the premium price. Excellent financing is another factor worth paying the premium for. Therefore, when analyzing a property and when making the decision to move or not move, rather than losing a transaction because the pencil was too sharp and the price is too high, think in terms of positions. Where are you now and where will you be in a few years down the road if you acquire the property. Then, based upon your opinion of value plus the benefits to be derived, determine the actual value. The “BENEVALUE.” A few years ago, I started a client on an estate building program. His motivations were high but his assets were low. To accomplish our goal, we chose to acquire fast equity growth property on good terms; there was no choice but to overpay. In two years we doubled his equity and again based upon “Benevalue” we made an exchange on the same formula. The move was repeated with the client consistently paying more money than other people were willing to, but always getting his benefits. During the years, with his ability, he increased the values of what seemed high a few years ago, and was now a bargain. Because this client saw the entire picture and not only the frame, his equity was worth $300,000 in only a few years. Had he been price conscious rather than benefit oriented he may have never overpaid and would still have his $6,000 equity. When talking about value, let's truly think in terms of value to whom and when making a decision, be willing to pay for benefits received. Investments to build an estate are not to be made as a guessing game. To achieve results you must plan. Sometimes people think that once they have made a good investment, it remains one forever more. They will not face the fact that investments like everything else in life, are subject to constant change for better or worse but never maintaining the status quo. Also what was right a few years ago may not be economically sound in today’s marketplace. Therefore the investment is always subject to adjustments. An example is the use of high leverage which can be so profitable in the beginning and may have adverse effects later. A building was bought with a minimum down and due to the tax shelter some cash was generated. Now a few years later, the income tax shows a high profit. The depreciation is gone, and the equity is growing. The income has not increased enough to show spendable and pay the taxes. Things have been lucky and over the years there was a low vacancy factor so why do any work if you don't have to? A little deferred maintenance has crept in. The neighborhood has new buildings with lobbies and other modern features,

which brings in functional obsolescence. You now have reduced income, no benefits, and the high leverage is not as attractive as it was at conception. Sure all the problems may be corrected but where is the cash coming from to do it with? Is this the type of an investment you should have in your portfolio? Unless you have other properties to offset your taxes with, and a way to fund the building when cash is needed, it probably should not be in your portfolio because you could not weather an emergency. When evaluating income property you have to be concerned with the financial stability factor, which is determined by income and expense factors. You have to be realistic. Maintenance and replacements do exist. They are not merely a figment of your imagination. Roofs do have to be replaced and yesterday’s estimates will be doubled tomorrow. Unless you can provide for the needs of the property, you will not only not receive the benefits expected, but it will cut down on your ability to obtain benefits in your business. It is a poor risk investment and we cannot and should never gamble. We don't have to. Though the property may offer great benefits to someone else, it has ceased to do it for you and should be disposed of. This is why it is so important to reevaluate your investment portfolio regularly. A good time to do it is after you have filed your income tax return and have the entire picture. A well balanced portfolio should definitely have diversification, for that purpose you need certain elements. You should have at least one property which you could categorize as a Blue Chip investment. This is the type of property that will give you security, and it may well be your home. You need long term investment properties to provide for stability. The short term investments are your speculative ones. They are the properties you may go in and out for a fast profit. Then, last but not least, you should have the growth and appreciation vehicle which in most cases if offered by land ownership. To back them all you need liquidity, be it in the form of cash, a line of credit at the bank, cash value in life insurance, or saleable paper. When reviewing your estate, concentrate primarily on your long term investments. They within their own category are also of different classifications and should be evaluated in the perspective of your needs. What are they? At different times they may vary. For the maximum return on your investment, LEVERAGE is a powerful tool (controlling the most real estate with the least amount of money). The magic formula is OPM, other people’s money. To illustrate its magic, let’s compare two investments made with the same amount of money, $100,000. One will buy a $100,000 building and receive $8,000 spendable. An 8% return on the investment. The other will buy with the $100,000 initial investment. As an additional

bonus he received his cash flow tax free due to his depreciation and possibly shelters other income too. Contrast the 44% with the 8% yield of the 1st investor and you have a dramatized version of the difference between the conservative philosophy and the high voltage leverage concept. However as the formula goes, it is only as good as the material put in it. If the ingredients that go into it are poor, the leverage principle accentuates them and it can become dangerous. As a rule of thumb, be sure that the lean payment never exceeds 50% of the income and preferably it is only 40-45%. Otherwise, sooner or later you will definitely be in trouble. As a beginner, you may not have another choice and the leverage formula maybe an excellent starter. As a safeguard, immediately start finding ways to improve the property and increase the income to provide an adequate cash flow. This brings us to another classification. THE CASH FLOW PROPERTIES. Your goal should be to develop enough cash flow properties in your portfolio to provide an adequate income should you need it. That does not mean that you should use the cash flow if you have it. If cash flow is available, in no matter how small of a stream, you should treat it as income in trust. Pay it to yourself regularly as any other fixed expense and put it in a savings account, for emergencies only. If major repairs are needed you can easily borrow the money from the bank, especially when your statement shows cash in savings. This method will help increase your estate by building a liquid fund which will allow you to take advantage of opportunities when they are offered. The third type of property which should be found at the end of the rainbow is that illusive pot of gold. The FREE and CLEAR property. You should have some properties earmarked for this purpose and the decision has to be made when you acquire a property. Those that have a high amortization factor will accomplish this, but never take one in this category at the sacrifice of safety. If you have confidence in your own talent and ability to solve problems, you may speed up the process of making money by using the option. Exchange some land or lots as an option on units with a problem contingent upon your obtaining the management of the building until you exercise the option. When optioning a property you negotiate the price and terms at that time, and usually due to the problem the negotiated price will be well below the market. If you are knowledgeable in management you can increase your future equity by upgrading the property. This means also an increase in rent and on the 30 unit building a monthly increase of $20.00 rent per apartment may mean $60-80,000 increase in equity. When the project is completed you exercise your option and pick up your profit. MANAGEMENT is the KEY TO SUCCESS in all your investments regardless of category. Your personal relationship with your resident manager is of utmost importance. Be thoughtful and generous to them. This does not mean an exorbitant salary, but it means that you don't take them for granted and that you show appreciation for their efforts, always assuming that they are worth it. Otherwise change them, and do it quickly. Don't hope that they will change. They will not and unless they prove to be good within the first

months, they will never be better. Let them understand the problems you face and the necessity of good housekeeping. If you establish a good rapport, they will be on your side and bend over backwards to protect and increase your investment. To establish control, you should be aware of all the details. This can be accomplished by weekly and monthly reports. Let the manager know that you support them and their decision, but first train them to make the right ones. By delegating a certain amount of authority you free your precious time for more productive efforts. This is why I recommend having a manager in all your properties no matter how small they may be. You will find in all buildings one tenant who is more interested than the others and is willing to take some responsibilities. You don't even have to pay them on a monthly basis. You can make arrangements to pay them if they clean an apartment and if and when they rent one. The tenants can mail their checks in to you on smaller buildings, but they all know that the person who rented them the apartment is their manager. You can even have mangers on single family residences. Who is more interested in your rental homes than the neighbors? They have their investments as well. You can make arrangements with them for showing the vacancies and pay them a small fee or give them a gift. You will learn to appreciate each other. Good management is not necessarily doing all the work yourself or hiring it done. Since some of the goals will take years to accomplish, proper utilization of your time will pay dividends. Use it where it will benefit you the most. HAVE A PLAN AND BE SURE TO FOLLOW IT. NOTHING WILL HAPPEN BY ACCIDENT SO IT'S UP TO YOU TO “MAKE IT HAPPEN.” Yvonne Nasch, S.E.C., was one of the most treasured members of the Society of Exchange Counselors, and she was the 1979 Counselor of the Year. An award was created in her honor, to recognize the S.E.C. Member who completes the most transactions with other S.E.C. Members; and it is awarded annually in her memory. Yvonne had the distinct honor of being the first woman in the United States to hold the S.E.C. and CCIM designations; she also held the RECI and GRI designations. Yvonne served in many capacities as a volunteer for the various organizations she belonged to, as well as excelling in her private practice as a developer, exchangor, investor, and speaker.