TROUBLED TENANT-IN-COMMON (TIC) INVESTMENTS

Real Estate Asset Advisors has been involved in the Tenant-In-Common (TIC) and 1031 TIC industry since the TIC structure first evolved into a major real estate investment option. The 1031 exchange into TIC or Tenant in Common properties isn't without challenges or major risks, Let us guide you through the workout process of troubled real estate assets.

Many Tenant in Common (TIC) and 1031/TIC sponsors have been placing investors into security structured real estate investment products which did not make sound real estate sense. Within the past year, given the adverse conditions of the real estate and credit markets, several of these sponsor groups have defaulted on agreements, properties and even gone bankrupt. Many of these companies were purely fee generating companies and now that the acquisitions have slowed or stopped in some cases, these companies are failing their investors.

We have taken a lead role in advising investors and investor groups with respect to workout and restructuring of distressed and failed TIC assets throughout the country.

Because of our long-standing, industry-wide history representing TIC investors, we have become a national resource for investor groups seeking advice and representation in connection with troubled TIC-structured assets. In fact, many of our client referrals have come from project lenders, registered representatives of broker-dealers and other industry participants who are familiar with our extensive experience in this complex area of real estate, financing and insolvency law. We have represented a number of investors in connection with the TIC workout process. In the case of a non-performing property or defaulting sponsor, we have found that TIC investors are best served by a multi-disciplinary real estate team that includes: TIC and 1031 specialists, asset management specialists, property management specialists, leasing specialists, development/redevelopment specialists and disposition specialists. With this in mind, we have adopted a task force approach to representing TIC clients.

What are the solutions?
The possibility of having to work out TIC investments has been in the minds of sponsors, lenders, broker-dealers, registered representatives, and investors from the inception of the industry. Many of these investment structures are not set up for success in a down market as the sponsors are only successful if they continue to generate fee’s, which halted abruptly in this current soft market. 

These workouts can be very complex given the number of interested parties. While there is reason for the concern, working out a TIC investment is achievable. As with any restructure it involves understanding the goals of all parties involved and how to come up with a win-win solution for everyone.

Here are a few issues to take into consideration:

Who is involved?
A TIC workout will involve the sponsor of the TIC program and the TIC investors. The restructure of these assets will also include a real estate asset management professional, legal counsel versed in real estate law, tax law and a seasoned CPA with TIC and 1031 Exchange expertise.

It is important that these professionals understand the intricacies of the industry and how these TIC sponsored deal are structured and how they can be restructured to meet the demand of the investment group without jeopardizing any potential 1031 Exchange activity.

Workout Type
There are two general scenarios which can cause a TIC program to become distressed:

The "Bad Boy" Workout
The Bad Boy workout occurs when the sponsor misstated or failed to disclose material facts in the private placement memorandum (PPM), or has failed in its obligations in managing the property in either its master lessee (if applicable), property representation and oversight.

The "Non-Performance" Workout
This workouts can be either very obvious as in the aspect of sponsor bankruptcy or ambiguous as in the sponsors poor asset management.  Today most of the workouts are related to sponsorship bankruptcy and how to restructure the asset to avoid spoiling a 1031 Exchange yet take control of our asset in order to continue receiving cashflow and paying debt service.