1 / 12

Defining a “TIC”

Background: Tenancy-in-Common Transactions Dr. Harold Hunt Research Economist Texas A&M Real Estate Center. Defining a “TIC”. Ownership model based on English common law Undivided fractional ownership in real property Each co-owner receives fee title and a title policy

dalton
Download Presentation

Defining a “TIC”

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Background:Tenancy-in-Common TransactionsDr. Harold HuntResearch EconomistTexas A&M Real Estate Center

  2. Defining a “TIC” • Ownership model based on English common law • Undivided fractional ownership in real property • Each co-owner receives fee title and a title policy • Each co-owner receives proportional share of net income, tax benefits and appreciation

  3. Defining a “TIC” • Qualifies for a 1031 like-kind exchange with IRS • Purpose is to defer capital gains taxes • Qualification was clarified by IRS in Rev. Proc. 2002-22 • Lays out guidelines for an advanced ruling request • Private letter rulings vs attorney opinions • States 15 conditions for acceptable TIC structure • Primary concern is avoiding “partnership” designation

  4. TIC Advantages • Property management • Institutional-grade properties • Potential for portfolio diversification • Debt/equity flexibility for 1031 exchanges

  5. TIC Limitations • Liquidity • Exit strategy • Co-owners may not know each other • Costs and fees

  6. The Process • Asponsor acquires/arranges to acquire property • Sponsor then helps facilitate sale of TIC interests to TIC investors • Interests are sold as real estate or as a security

  7. The Process • Sale of securitized TIC Interests: • Subject to Federal & State securities laws • Subject to State real estate laws • Brokered by securities broker dealers • Represent about 90% of TIC interests being sold

  8. The Process • With a TIC structured as a security: • Sponsor or their affiliate remain as property manager • Sponsor or affiliate retainsasset mgmt. function and controls most property decisions, including: • Setting lease rates and TI expenditures • Distributing funds to TIC investors • Recommending when to sell or refinance the property

  9. The Process • Sale of real estate TIC Interests: • Not subject to Federal & State securities laws • Subject to State real estate laws • Brokered by real estate licensees • Represent about 10% of TIC interests being sold

  10. The Process • With a TIC structured as real estate: • Sponsor allows TIC investors to select an unrelated third party to be property manager • Asset mgmt. decisions voted on by TIC investors * The issue of investor control determines whether TICs are real estate or a security

  11. Security vs Real Estate • 1946 Supreme Court case: SEC v W.J. Howey & Co. • Four conditions must be met for the sale of a TIC fee title property interest to be considered a security: (1) The investment of money (2) in a common enterprise (3) where the investor is led to expect profits (4) solely from the efforts of a 3rd party (i.e. the sponsor)

  12. A Few Statistics • TIC Equity Volume (securitized TICS only): 2001: $167 million 2004: $1.8 billion 2005: $3.2 billion

More Related