Javier Vande Steeg describes how this company started from scratch in a new industry and became the leader of the pack.

When Asset Preservation, Inc. (API) got off the ground in 1990, only a handful of companies were active in the qualified intermediary industry for real estate exchanges. As no regulating bodies existed to establish rules and push best practices, these companies had to develop everything on their own—and API paved the way.

“There was no place to go for Exchange Intermediary 101. We created every procedure, form letter, and script, and we continuously adjusted them along the way,” said Javier Vande Steeg, president of the Granite Bay, Calif.-based firm.

With no regulatory agencies to oversee Internal Revenue Code section 1031 real estate exchanges, customers weren’t sure who to trust, so in the early ’90s, the IRS dictated that title companies and financial institutions could act as exchange intermediaries. “Before that, no one knew what they could or couldn’t do; therefore, the only option was an independent company,” said Vande Steeg. To jump ahead of the competition, API partnered with Stewart Title Company, a 114-year-old international title insurance company with more than 9,500 policy-issuing offices and agencies across the US.

Javier Vande Steeg

As the first qualified intermediary to establish itself as a subsidiary of a large title company, API went national almost overnight. Today, its 75 employees work in offices across the country, funneling business to the California headquarters and the New York processing operation, which provide all the back office support.

The qualified intermediary business is a complex one in which billions of dollars worth of real estate investments are at stake. Let’s say an investor bought property (land or a building) for $500,000 five years ago. If s/he sold it for $1 million today, taking equity into consideration, s/he would have to pay taxes on about $500,000 capital gain—a huge chunk of change that will never see an investment portfolio.

However, the IRS allows investors to defer paying taxes if they exchange the property instead. In an exchange, the investor would put all of the net proceeds toward other property of equal or greater value. “As the intermediary, our role is to complete that exchange for clients, individuals, partnerships, and corporations, while following the Internal Revenue Code section 1031.”

It is also the responsibility of API to safely hold investors’ money while they shop for new property. Vande Steeg explained that investors not only have to spend the entire amount of capital gain on a new purchase, but they cannot access these funds in the interim. On any given day, API manages more than $1 billion of its clients’ money.

For API, that’s where having a large title company at its back comes in handy. “If Stewart Title tells you that your $500,000 is safe, you’re going to feel a lot better than if you gave it to a three-man shop you’ve never heard of. Unfortunately, people do it anyway because they don’t realize the industry isn’t regulated by the federal government.”

Of course, technology is partly responsible for that sense of security, and API’s proprietary software system does the job. All offices are connected to the main data center in California, and all data is transferred to a host site in New York. In addition, the company has off-site storage in case of a natural disaster.

API used to outsource its IT functions but realized it was too important to hand off. Over the past seven years, it has brought all IT functions inhouse, hiring full-time IT managers and programmers.

Due to the complexity of the industry, API stresses education. It holds seminars for Stewart Title Company employees so they can refer clients when appropriate. “Theoretically, if we do our job and provide the proper education, we can leverage 900 Stewart Title offices and branches across the country. If we don’t maintain strong relationships with Stewart Title, they are not necessarily going to refer clients to us, even though they are our parent company,” said Vande Steeg.

He explained that if one division manager coaches and trains in 10 Stewart Title offices, each one with 300 to 400 customers, that person is theoretically reaching 4,000 potential customers. “Otherwise, he or she has to find that many customers alone, and that’s not easy to do.” API’s division managers also teach attorneys, CPAs, property owners, real estate agents, commercial brokers, and corporate America the ins and outs of 1031 exchanges.

Since day one, real estate agents have been a primary source of business for API. To sell a property is one thing, said Vande Steeg, but to pull API into the loop is quite another. Clients are thrilled to save thousands on capital gain taxes, and real estate agents are given an opportunity to double their commission by finding a replacement property for their client.

Heading into the future, API is extending education outside of the real estate industry to capture a valuable referral source in the financial industry. In fact, the company is hard at work forming strategic alliances with several financial institutions, such as stock brokerages, financial counselors, and the like that work with people every day who might be interested in doing a property exchange. “We’re entrenched in the real estate industry, and we never would have considered making this move in the past, but there is this whole world we’ve been neglecting,” said Vande Steeg.