Posted by ray@lcorn on June 12, 2006 at 20:20:28:
I haven’t done a TIC deal, and probably won’t unless I decide to use the structure as an exit strategy for our own portfolio. For that reason, I’ve researched the business model and regulatory issues extensively. I wrote a post last year with my opinions. The direct URL is http://www.creonline.com/commercial-real-estate/wwwboard5/messages/15732.html
My thoughts haven’t changed. If you’re a buyer of a TIC interest, the returns are in the range of 7%-8% pre-tax, the interests are highly illiquid (meaning no secondary market yet exists to exit a deal if you don’t like it). The structure requires the deals to be formed at premium valuations, hence the relatively low level of returns.
As a promoter the structure can deliver lucrative returns, even after the expenses of regulatory compliance. That’s why in the time since my post the TIC market has exploded to an estimated $4B in deals in the past year. For investors that means it is not just important, but critical, to do complete due diligence on the promoter and the real estate at the property and market level.
I’m not for or against the model. I try to educate myself to every available option for deal structure. The TIC structure has several good points. Specifically, I think many RE investors come to a point when direct ownership is no longer attractive and, assuming the deal checks out both on a real estate basis and the promoter bona fides are impeccable, it can be a valid passive ownership strategy.
There are a number of posts in the archives on the subject. Use the search button at the top of the newsgroup and search for “TIC”.
p.s. there are alternative methods to cash out, avoid a 1031, and still defer taxes. However, like TICs, every method comes under intense scrutiny before becoming mainstream. Here’s a couple more working their way through the system now; see this WSJ article from last week: http://www.realestatejournal.com/buysell/taxesandinsurance/20060602-silverman.html