The Looming TIC Time Bomb

The year was 2006, the economy was booming and many thought the real estate market still had years more of growth. Promoters like Carlton Cabot and Tony Thompson were pushing a unique investment called a “tenant-in-common” or TIC investment. TICs took advantage of a 2002 IRS revenue ruling that allowed investors to pool their money and invest in large real estate projects. Suddenly middle class investors and professionals could sit at the same table and see the same projects once reserved for institutional investors.

Many of the TIC projects were financed in 2006 and 2007. They were financed in part by loans packaged into Commercial Mortgage Backed Securities (CMBS) trusts. These loans typically were for a 10-year term and mature this year and next. The outlook for refinancing isn’t great.

The TIC industry was marred by many scam promoters. Companies and people like Cabot Investments, DBSI, Tony Thompson and Gemini have all run into trouble. The leaders of DBSI were convicted of fraud and sent to prison. Carlton Cabot is under indictment. The shadow cast by these promoters has made banks very leery of TIC deals. With maturity dates of just months away, that is a real problem.

Although property values have recovered since 2007, in many cases the recovery is not enough to make them finance worthy without a significant principal reduction. That is often a shock to the TIC borrowers since the projects have enough cash flow to pay monthly debt service.

One CMBS expert believes that $30 billion of TIC financed properties are facing loan maturities over the next 21 months.

The worst thing for these TIC projects to do is wait until the last minute. Many of the investors have never met one another and often the management structure is quite weak. (Some TIC groups have very active steering committees; those are typically much better prepared.)

For some TIC groups, the answer may be to sell the project. Because TIC deals were capitalized by tax free exchanges, however, there are important tax implications that differ from member to member. Other groups want to refinance and keep the property. They find, however, that lenders won’t refinance a TIC structure.

Solutions could include a “rollup” into a single entity or a conversion into a Delaware statutory trust. These aren’t necessarily difficult tasks but investors shouldn’t wait until the last minute.

Most of the TIC owners we represent are very educated, bright people.  They don’t have experience with real estate financing and getting a group of people who have never met together to decide on a course of action is challenging.

We got our start in the TIC arena several years ago when the TIC scams began to unravel. Today, we have represented well over 100 TIC owners and several large groups. The challenge today is refinancing or unwrapping these deals before there is a maturity default.

Unlike the residential mortgage industry, the special servicers that operate in the CMBS world are sharks. Literally one day after a maturity default, fees, charges and default interest can significantly increase the debt and make refinancing much more difficult or impossible.

If you are a TIC group or individual tenant in common investor and facing imminent loan maturity, call us. We would rather help you convert or sell then to have represent you in a vicious and expensive foreclosure. 

For more information, contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. The author of this post, attorney Brian Mahany, can be reached at [hidden email].

MahanyLaw and Judge, Lang & Katers – America’s TIC Fraud Lawyers

 

Attached is a list of TIC projects. We believed it to be accurate when first published by us in April 2013:

 

AEI Fund Management Inc

American Capital Group

American Investment Exchange

Argus Realty Investors, LP

Ashforth Paradigm Capital Advisors

Atlas Venture Partners, Inc.

B&H Real Estate Holding, LLC

Behringer Harvard

BGK-Integrated Group

Bluerock Real Estate LLC

Bonaventure Realty Group, LLC

Bucks County Office, LP

Cabot Addison

Cabot Ashtabula

Cabot Broward

Cabot Creekside

Cabot Cypress Creek

Cabot East Town

Cabot Golf

Cabot Investment Properties

Cabot Northpark

Cabot Oak Grove

Cabot Trafalgar

Cabot Turfway

Capital Equities

Capital Real Estate LLC

Clearview Apartments

Cole Companies

College Park

Cottonwood Capital, LLC

Covington Realty Partners

DBSI Group of Companies

Desanto Realty Group

Direct Invest LLC

Dividend Capital

Eliason 1031 Properties Corporation

Equitable Companies, LLC

Evergreen Realty Group

ExchangePoint Properties, LLC

First Guardian Group, LLC

FOR 1031

FORT Properties, Inc.

Franklin 1031 Investments L.L.C.

Gemini Real Estate Advisors, LLC

Grand Peaks 1031 Properties

Granite Investment Group, Inc.

Griffin Capital Corp.

Independent Financial Group

Inland Real Estate

International Realty Advisor

Investment Properties of America

KBS Capital Markets Group, LLC

Kodiak Capital Partners L.L.C.

Meridian Realty Advisors, LP

Moody National Companies

National Exchange Advisors, LL

Noble Royalties, Inc.

ORIX Real Estate Capital, Inc.

Parthenon Realty 1031 Investors, LLC

PASSCO Companies, LLC

Pennbridge Capital

Poplar Avenue, LLC

Principle Equity Management

Rainier Capital Management, LP

Real Estate Partners, Inc.

Real Estate Value Advisors LLC

REEF Oil & Gas Partners

Resource Real Estate, Inc.

RK Properties

Sagebrush Realty Holdings LLC

SCI Real Estate Investments, LLC

Sequoia 1031 Companies LLC

Southfork

SRS Investments, LLC

Tax Strategies Group

Texas Energy Holdings Inc.

The Geneva Organization

The Woodlark Companies

TIC Capital LLC

Tic Properties

TREC Investment Realty

TSG Real Estate LLC

U.S. Advisors, LLC

Wells Real Estate Funds

Western America Equities LLC

 

Related topics: TIC (17) | TIC fraud (3) | TIC maturity default (9) | maturity default (15) | payment default (15) | tenant in common (4)