TIC Investors
In this very dynamic real estate market TIC (Tenant in Common) investors have suffered as the market has weakened. In particular, those real estate investors that joined TIC investments in the last four years, (at the top of the market) are finding that in some locations, high vacancy rates and plunging rental rates are squeezing their cash flow and their ability to pay their mortgages.
Who bought TIC investments?
As baby boomers have aged, they wanted to reposition their assets into investments that did not take up as much of their time and that did not involve their day to day attention. These investors wanted to escape management intense investments and buy into real estate investments that guaranteed them a “safe and consistent” return.
They had typically sold other investments and traded into the TIC using a 1031 exchange, pooling with other investors which seemed like a safe bet. Unfortunately, many (not all*) TIC investments were organized by syndicators who purchased the properties at one price and then marked up the properties to resell to their investors. In many cases they used short term “interest only” loans to get their deals to pencil, betting that real estate appreciation as well as increasing rents would increase the value of the properties quickly and allow the properties to be refinanced.
As a result of the large number of investors (TIC syndicators, REITS and others) competing for the same inventory, the price of assets went sky high thus lowering the yields of the investments. CAP rates as low as five and a half were not unusual and CMBS loan originators and other financial institutions were willing to lend to TIC syndicators and their investors on a non recourse basis.
The Real Estate Market was not as strong as investors expected.
Market appreciation, and rent increases did not occur. In the majority of American markets most property vacancy rates have increased, making it difficult for TIC’s to have enough money to cover their expenses. In many cases the properties performed to proforma, but when the time came to refinance them the rules had changed and the lenders wanted to see more equity in each investment. Nervous lenders have moved their investor equity requirements from 25% to 40% and even 50%.
This has forced many TIC investors into the unpalatable position of significantly increasing their cash investments in properties to save their existing equity positions and furiously attempt to get new financing for their deals to replace the existing “interest only loans”. These new equity requirements are stretching the resources of TIC investors.
Today
In the past two years DBSI and Sunwest Management two major TIC syndicators have dissolved and filed for bankruptcy. As these cases move through the courts, questions have emerged about the future of TIC property sales. It seems likely that real estate TICs sold by real estate brokers will disappear and most likely be replaced by securitized TIC’s for larger investments and real estate partnerships for smaller investments. (TICs can be sold as real estate investments or as securities, but Real estate TICs are not held to the same high standard of disclosure as securities investments).
A reflection of this trend, is that the Tenant-In-Common Association (TICA) changed their name to Real Estate Investment Securities Association ( REISA). In the last year REISA recommended that all TICs be structured as securities.** Some TIC syndicators are still in business such as RealtyNet Advisors. Realtynet Advisors have adjusted to changes in the market place with their special approach to TIC’s where there is no debt just equity invested, in other words they do not borrow money to make a deal. They find enough investors to contribute equity for the full sales price.
The future of TIC investments will be dictated by the recovery of the market; in the mean time look for other ways to make money investing in real estate. Some of these other options include purchasing foreclosed property, purchasing real estate deals with large (50%) down payments or buying notes from banks that are desperate to increase their cash positions.
Notes:
**RealtyNet Advisors, are not your average Tenant-In-Common sponsor. Unlike most TIC sponsors, Realty Net Advisors don’t burden their properties with debt, brokerage fees, or other costly charges, and they do not sell at a higher than market rate. With the RealtyNet’s simple, co-ownership structure, investors own an undivided, fractional interest in an entire property. They each share in their portion of the net income, tax shelters, and property appreciation.” (quoted from RealtyNetAdvisors website) See http://www.realtynetadvisors.com/benefits-of-a-tic.php.
Note: What is a Tenant in Common (also known as Undivided Fractional Interest) Investment?
The tenant in common (or undivided fractional interest) structure allows investors to purchase an interest in a significant real estate asset, perhaps larger than they could obtain individually. The investor acquires a percentage ownership (title and deed) and receives passive rental income while receiving the tax benefits of traditional real estate. The investors own and control the properties, not a third party. TIC ownership provides investors with the first ever means for ownership diversity, both in location and type, of their real estate portfolio.
Unlike partnership real estate, TIC ownership entitles each owner to the same ownership rights regardless of the equity invested. This element of the investment structure puts no individual owner (or group of owners) in direct control of the property over any other investor(s). You can truly have all of the ownership benefits and security of a large commercial asset with significantly fewer obstacles. As with any type of investment, the value of a fractional interest typically increases annually due to escalations inherent in most tenant leases. From Real Estate Investment Securities Association website at, http://www.reisa.org.
** REISA is a national trade association for professionals who offer and distribute securitized real estate investments
Clifford A. Hockley is President of Bluestone & Hockley Real Estate Services, greater Portland’s full-service brokerage and property management company. Founded in 1972, Bluestone & Hockley’s staff totals nearly 110 employees, including 20 licensed brokers. The company’s property management division serves commercial buildings, apartments, condominium associations and houses in the Portland / Vancouver metro area, while the brokerage division facilitates both leasing and sales of investment properties throughout Oregon and Washington.
Cliff earned a degree in Political Science from Claremont McKenna College and holds an MBA from Willamette University. He is a Certified Property Manager and has achieved his Certified Commercial Investment Member designation (CCIM). Bluestone & Hockley is an Accredited Management Organization (AMO) by the Institute of Real Estate Management (IREM). Cliff is a member of the Institute of Real Estate Management and was named Certified Property Manager of the year in 2001 and 2003. Cliff is a frequent contributor to industry newsletters.
Bluestone & Hockley offers customized brokerage, property and asset management, as well as maintenance services. Property owners and investors throughout the Portland/Vancouver metro area. The company’s full-service approach benefits busy property owners and investors, who know they can count on Bluestone & Hockley for high quality real estate services start to finish. To learn more about Bluestone & Hockley, visit our about us visit http://www.bluestonehockley.com. To find out more about Cliff Hockley visit his contact page at http://www.bluestonehockley.com/sales-leasing/meet-our-brokers/cliff-hockley.
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If you’ve been keeping up with my blog posts lately you’ll know I’ve come to adding a few news posts from around the web on this subject. I’ve got a couple more today that are new and updated, so let me know what you think of em…
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does it ever go away? the thought of improving your business that is. i seem to think about how i can do my job better day and night. i even dream about it. crazy? i hope not!! i have always tried to be the best at my job no matter what …
Tigard Oregon Homes for Sale, Wayne B. Pruner, Realtor, GRI (Oregon First) …. John L. Scott Sandy. Address: 17150 University Ave. #200, Sandy, OR, 97055. Office Phone: (503) 826-9000. Cell Phone: (503) 704-9891. Email Me. This blog is intended to inform and educate home buyers and sellers in the greater Portland, Oregon metro area. Specializing in the Gresham, Fairview, Troutdale, Boring, Damascus and Sandy, Oregon areas. Please feel free to comment or ask a question. …
Hope you enjoy the read as much as I did and please if you have something to say, use the comments form below to let everyone know your thoughts.
Have a great day!
Have you considered buying a Mexico home to fix up? While lines at the hardware and home-improvement stores are appearing again in the U.S., with more buyers ready to invest some money in fixing up their home, experts are pointing out that the situation is drastically different from the large renovation trends last seen around 2006. Back then people were fixing up to invest and re-sell and re-invest; now buyers are fixing up because they feel because of low equity they’re stuck in their current home anyway, why not make it nicer, more efficient, etc.?
Investing in a Mexico fixer upper presents one possible solution to this “stuck here anyway” dilemma. High-potential Mexico beachfront homes in less-than-perfect condition can be obtained for a fraction of the market value. A relatively small investment can bring the home up to market value, bringing a good return on re-sale or a great possibility for rental, making for a situation more like what you remember back before the housing-market slump in the U.S.
One good example is a Puerto Vallarta Homes. A neighborhood called Alta Vista is just being discovered and gentrified; while homes and villas tend to be in shorter supply and start in a higher price range of $500,000 U.S., a home in need of some repairs can be found for half that price. If a buyer finds the right fixer-upper, this could lead to excellent increase in value. Another location on the Pacific coast good for renovation projects is Mazatlan where classic homes in the colonial city center are getting noticed for their project potential.
Moving across to the Yucatan Peninsula, Playa del Carmen properties can also be found with good possibilities for investing in a renovation. Whether it’s an older home in PlayaCar, one of the established favorites for American buyers, or a nice home with under-developed potential just outside of the touristy area (which is growing larger, and is likely to swallow up that nearby area, if you choose it well) Playa del Carmen real estate’s ongoing expansion make the money and time spent into fixing up well worth it.
Examples can be found in many other favorite or up-and-coming tourist areas in Mexico. If you feel like you’re stuck with your current U.S. home, consider a different kind of fixer-upper project – one that will be a money-maker, and help get you ahead of the game.
TOPMexicoRealEstate.com; Mexico’s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely
Mexico Real Estate NETWORK; “Mexico’s Leading Network of Specialists for Finding and Purchasing Mexican Properties Safely!” Region: Playa del Carmen real estate. Thomas Lloyd graduated from Purdue University Krannert School of Management with a degree in Management/Financial Option Investments. He has been living, investing, and working professionally in Mexico for over 15 years. A Mexican Certified Realtor he is the current president of TOPmexicorealestate, you can contact him at (512) 879-6546.
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