When Larry Ellison bought the Island of Lanai
… there was much hue and cry over the fact that there was no conveyance tax paid as a result of the transaction. Although the purchase price of the 97% of that beautiful place has never been publicly announced, the price that was most prominently speculated on in the media was $500,000,000. Using that number, the Seller of the property, who was the CEO of the Hawaiian firm Castle & Cook, saved somewhere in the neighborhood of $6.25M in transaction costs.
The reason why there was no conveyance tax paid on the transaction was that Mr. Ellison purchased the corporation that owned the property, not the property itself. Consequently, no real property was conveyed to Mr. Ellison, only the shares of the corporate entity that owned that asset. So, despite the fact that on a transaction of that size $6.25M is essentially a rounding error, in my view $6.25M is still $6.25M.
Of course, many Hawaiian properties, especially at the high end, are owned by corporate entities, which are in many cases Limited Liability Companies, or LLCs. Although there are income tax, liability concerns, and a host of other matters which are more suited to an accountant as opposed to, for example, a real estate broker, given the right set of circumstances, such a transaction can be a win-win for both a Buyer and Seller.
I have facilitated these transactions in the past, and on the whole, they have proceeded without a hitch. So, whether you are contemplating buying or selling a property in Hawaii, converting a real conveyance into a stock purchase might be something worth considering.
