Querty – I’ll start this response by disclosing that I run a commercial real estate investment firm (investors, not brokers). We have never been involved in a single TIC on any level, but have advised our clients on the pros/cons of several TIC’s over the years(ps: coincidently our analysis was always not to make the investment due to their individual circumstances. We thought selling/paying the taxes was best since we knew tax rates were going to be rising and they’d have other losses to offset the gains..and getting debt off of their personal balance sheet/backs!).
Timing was the reason for most of the problems, not the TIC concept specifically. However, the TIC concept is limiting by its nature because you are personally on the hook for your share of the debt, and the odd restrictions on sales,etc. Have never been too interested in that investment model.
TIC’s are simply an outgrowth of old fashioned real estate partnerships. The TIC is a structure designed when people figured out the 1031 clients needed to actually BE ON TITLE for the 1031 exchange to be valid. If you do not take title to the new property then your exchange is invalid.
We won’t discuss the horrific front end fee structure of TIC’s which is due to the securitites lobby getting rulings that TICs are securities and NOT direct real estate offerings. This creates a huge middle man industry which is literally stealing fees from clients which should be going into the real estate. Fees north of 10% and no performance risk is absurd. One problem is that most TIC firms are really securitites firms playing real estate, not institutional real estate guys.
My suggestion is to speak with knowlegable people about your real estate goals/objectives (income, tax loss/gain/shelter, upside, etc) and then you can find reputable sponsors to work with to meet these objectives. Need to really look to the real estate developer/manager as the key to the process.
Be careful when speaking to real estate brokers/agents (commercial/residential) as their response will likely be “I’ll sell your property and buy you a great deal”. That may, or may not, be what’s in your best interest.
I have heard many of the stories countless times about these deals. What we like are properties as follows:
1) leased ONLY to Investment Grade Tenants (s&p BBB or better)
2) Fortune 500 Tenants(Fortune 100 preferred: no income risk)
3) new/long term leases (15 years+ so no vacancy risk)
4) NNN leases so we have no expense exposure/risk
5) rental guarantees from the corporation
6) invest for strong sheltered cash flow
7) upside profits is desired, however, not relied upon given timing of your needed exit not timing up with the peak of the market.
