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Author: flyerboys Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 4  
Subject: Welcome to TIC Heaven or Hell Date: 5/19/2010 10:13 AM
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This New Board, TIC tac toe, is about 1031 Tenancy in Common, and is primarily intended for people trying to figure out what to do with their ownership in a 1031 TIC.

Wikipedia on this subject:

http://en.wikipedia.org/wiki/Tenants_in_common_1031_exchange...

and Wikipedia on 1031 exchange generally:

http://en.wikipedia.org/wiki/1031_exchange

What are TICs? Some were heaven during the bubble, most have been hell since the bubble burst.

Fortunately for me, my investment in a TIC was part of a well diversified portfolio. The actual building is still cash flow positive, and I am still working and earning. But many of my co-owners have almost their entire retirement dependent on the outcome of just one TIC investment, and not surprisingly they are fearful and sometimes irrational.

Most TICs are deeply troubled for the same reasons most Commercial Real Estate investments are currently troubled. But TICs are still more troubled for two reasons:

1) their extremely unwieldy structure requires unanimity of all (typically 33) of the owners to do anything significant, making decisive action almost impossible, holding all hostage to the lone crazy, or angry, or (!!!) incapacitated or dead tenant whose estate is in so bad a tangle that it cannot be voted; and

2) they are almost all highly leveraged investments with loans expiring very soon that in the current economic reality simply will not be renewed.

This is from a recent communication within my TIC:

the structural deficiency of a TIC boils down to this:

That we TIC owners, with varying degrees of real estate experience and varying degrees of savvy and ignorance, but with a unanimous desire to defer payment of capital gains taxes, all placed our years of accumulated wealth in the hands of each other.
Period. Full Stop.


Again, from a message within my own TIC:

The most important variable to focus on over the rest of our investment horizon is the course of the loan. The loan as a ticking bomb:

Tick
May 2010. Investment is stable with respect to debt service. The building cash flow is still positive. Reserves are sufficient for now thanks to 18 months of zero distributions, the building still has substantial positive equity despite the loss of an anchor tenant.

Tick
Feb. 2011. Debt service increases. Management has to meet leasing targets or we start to run a deficit.

Tick
May 2012. If management lease targets are not met we rapidly and perilously deplete reserves.

Tick
January 2013. Loan is no longer attractive to assume, and to sell without loan assumption incurs a $3.6M+ penalty for every year left on the loan. The perverse impact of this is that even in a best case scenario projected capital appreciation reached in this time period is likely eaten up by the pre-payment penalty.

Tick
June 2014. With refinancing at our ratio of debt/equity not available in the market, our options are narrowing daily. A fully stable building with no delinquency notices is suddenly officially a distressed property because of the loan coming due in 18 months.

Tick
October 2010. The loan can be paid off without prepayment penalty if we have a buyer. We have only 3 options remaining: sell to the highest bidder, refinance with the aid of a new capital investor, or foreclosure.

Tick
January 2016. Lender calls the loan.



I expect there are many more people out there in fooldom who are dealing with this or know people who are. Almost everything I can find on the web dealing with these issues are boards run by and for the 1031 industry. Let's have a discussion by and for the owners seeking to avoid being slaughtered. Please spread the word about this board and send people to it.

Right now I am working with a volunteer cadre within my TIC, and we are intensely studying something called "roll up and re cap" as a strategy to pursue:

www.lplegal.com/files/Publication/dbca61a4-14fd-4442-a5db-03...


and we are also holding long and intensive telephone dialogs with owners in small groups to build the trust, community, and empathy we will need to find a mutually acceptable strategy and then exit this very very dangerous situation together.

I will be posting regularly about what my TIC is doing. Please do the same, and spread the word. Thanks!

david fb
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