STRATEGIES FOR 1031 SUCCESS Presented by: Mary Kay Kennedy Senior Vice President National Operations Manager Julie Baird Vice President and Counsel STRATEGIES FOR 1031 SUCCESS First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American and the eagle logo are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action.

What We Will Discuss Today Top five things to know when planning an exchange What to put in the contract and when to set up the exchange Using exchange funds to pay expenses and make deposits Financing and partnership issues Reverse and build-to-suit exchanges ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Top Five Things to Know Exchange of like-kind properties Leasehold interests Options REIT Shares ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Top Five Things to Know Held for investment vs. held for sale Napkin test Equal or greater in value and equity ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Top Five Things to Know Timing and identification rules 45 days 3 property rule/200% rule 180 days to close ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Top Five Things to Know Same taxpayer rule Lender requirements Single member LLCs as disregarded entities ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Planning Your Exchange What to put in the purchase and sale contract Restrictions on receiving cash Taking boot out of the closing ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Exchange Funds, Expenses and Deposits Holdbacks Example: $10 million property, $1 million holdback Standpoint of seller as taxpayer; buyer as taxpayer ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Exchange Funds, Expenses and Deposits Holdback – Seller as taxpayer Are funds released to the QI before or after COE of replacement property? ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Exchange Funds, Expenses and Deposits Holdback – Buyer as taxpayer Are funds released to the seller within 180-day exchange period or after the exchange period? ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Expenses Predevelopment, due diligence costs; prorated rents, security deposits Exchange expenses vs. non-exchange expenses Transactional expenses typically paid at closing ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Exchange Expenses vs. Non-Exchange Expenses Paying them doesn’t cause boot Broker’s commissions – Revenue Ruling 72-456 Non-exchange expenses Credit for prorated rent and security deposits ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Transactional Costs Transactional items that relate to sale or purchase Typically appear on the closing statement in area Violating this may ruin exchange ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Receiving Deposits Non-refundable deposit and setting up exchange Sending deposits before the relinquished property has closed Documentation required – assignment of rights to QI ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Sending Deposits Documentation required – assignment of rights to QI Have QI sign amendments once assigned in Cancellation – return to QI Personal funds for deposit ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Refinancing Before or After an Exchange Why is this an issue? Timing Independent business purpose ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Seller Carryback Financing Example: $10 million property; $8 million cash, $2 million note Separate from exchange Included in exchange Note payable to QI Convert to cash or use note in purchase ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Partnership Issues Partners want to go their separate ways Same taxpayer rule Partnership interests excluded Drop and swap Swap and drop ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Partnership Issues Challenges: Who owns the relinquished property, holding period Magneson v. Commissioner of Internal Revenue, 753 F. 2d 1490 (9th Cir. 1985), Bolker v. Commissioner of Internal Revenue, 760 F. 2d 1039 (9th Cir. 1985) and Maloney v. Commissioner of Internal Revenue, 93 T.C. 89 (1989) CA FTB Case - In re Rago Development Corp., 2015-SBE-001, June 23, 2015 ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Reverse Exchange What is a reverse exchange? Rev. Proc. 2000-37 180-day period Flow of funds ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Reverse Exchange Benefits Challenges What if it fails? ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Improvement Exchange What is an improvement exchange Rev. Proc. 2000-37 180-day period from first closing Flow of funds ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Improvement Exchange Benefits Challenges What if construction is not completed? ©2016 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

Vice President and Counsel National Operations Manager Questions? Julie Baird Vice President and Counsel (650) 350-8385 juliebaird@firstam.com Mary Kay Kennedy Senior Vice President National Operations Manager (408) 687-5091 mkkennedy@firstam.com www.firstexchange.com First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American and the eagle logo are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action.