There is no national T.J. Starker Day, but the commercial real estate industry might be justified in considering such an event. In the 25 years since the Oregon timberland owner beat the Internal Revenue Service in court over property transfer levies, billions of dollars in capital gains taxes have been saved through the vehicle usually referred to as a 1031 Exchange.

“It’s very common now,” acknowledged Garry R. Holmes, president of the New England chapter of the Society of Industrial and Office Realtors. “We are seeing it all the time.”

Although Starker won his case in 1979, and the IRS has had a rigid process to follow in place since 1984, Holmes said 1031 Exchange deals have only been prevalent in the Bay State since the early 1990s, with the concept initially taking hold out West before migrating across the country. Under the guidelines, the IRS allows an owner to defer a portion of their capital gains taxes in selling a real estate asset, provided the party acquire another qualified property within a carefully prescribed time frame.

“Nobody wants to pay taxes if they don’t have to,” Trammell Crow Co. investment broker Peter S. Joseph said in explaining the growing attraction, concurring that the number of 1031-motivated buyers is on the rise. Trammell Crow typically does not represent such players, said Joseph, who instead encounters them when peddling a property on behalf of a client.

One lingering problem during the past few years has been competition from other investors flocking into real estate, driving up the pricing and also limiting the number of investment-grade opportunities available for purchase. While owners of most property types have found buyers with relative ease in recent years, Joseph said the trouble occurs when trying to identify, negotiate and close on an asset within the designated time period. Under Section 1031, an owner has just 45 days to select a new property after the sale, followed by 135 days to wrap up the subsequent acquisition.

With the stock market still struggling and bond returns weak, pension funds have plenty of cash available and targeted for commercial real estate. Meanwhile, users of a potential property are often better positioned to pay more for a building than would be reasonable for a 1031 Exchange prospect. Because of that, experts advise that those considering a 1031 Exchange weigh all of the potential pitfalls at the outset, and also recommend that participants employ a so-called “qualified intermediary” to help guide them through the process.

“You have to be somewhat sophisticated to do it,” said Holmes, owner of R.W. Holmes in Natick. “It’s a lot more difficult than it sounds.”

The onset of 1031 deals into the New England region has ushered in several national firms which specialize in providing such assistance, firms such as IPX 1031 International Property Exchange. Commercial real estate brokers are also becoming increasingly adept at accommodating 1031 buyers, with Joseph explaining that the set time frame can be attractive in negotiating a sale.

“It’s nice to have a buyer motivated by a 1031 need,” said Joseph, with the clock helping prevent last-minute hangups. On the flip side, industry experts warn that the buyer must be careful to not be cornered into doing a deal for fear of losing the capital gains deferral. Also, Holmes warned, buyers should consider the basic fundamentals of a property and its prospects for success before trading one asset for another. Failing to recognize the value of an asset can be disastrous, said Holmes, especially in a challenging economic environment. A poorly conceived investment can wipe out any financial benefits that would have been attained by deferring taxes.

Tax Lean

If done correctly, however, a 1031 Exchange can offer substantial benefits to a property owner, most industry observers agree. Starker himself was able to trade nearly 1,900 acres of undeveloped forest in Oregon for multiple prime residential and commercial parcels. Holmes said he knows of several savvy real estate owners who have been able to consistently trade up from one asset to another using the 1031 framework, including several repeat clients.

“We’ve had good success in getting them done,” said Holmes.

Another veteran broker who has seen 1031 Exchange’s taking hold in Massachusetts is Scott R. Hughes, president of Hughes Properties. “We educate the buyers and the sellers as to why they should look at doing a 1031,” said Hughes, who stressed that he and most brokers do not pass themselves off as 1031 experts. Instead, the broker helps clients on the real estate end of the deal, outlining the strengths and possible pitfalls of a given asset.

Hughes agreed that 1031 deals were practically non-existent locally until the 1990s, but said the concept has quickly become a factor in the commercial real estate industry. By his estimates, about 20 to 25 percent of all sales today in Eastern Massachusetts involve a 1031 Exchange, adding that it only seems to be gaining in popularity. “As people become more aware of the 1031 Exchanges, they are starting to consider using it more,” he said.