Shaw

LOS ANGELES-Principals of TIC Properties Management LLC, Cottonwood Capital and CapHarbor have launched a new company called Ascent Realty Advisors that is designed as a vehicle “for rescuing distressed properties and fatigued sponsors” of tenant-in-common deals. The new company will offer investors the option of contributing their TIC interests into the Ascent Commercial Property Limited Partnership, known as the Ascent Fund.

Ascent intends to allow for the roll-up of properties on a tax-deferred basis through section 721 of the IRS code. The company is also considering the formation of a publicly registered, non-traded REIT. The Ascent Fund, which will focus on office and industrial properties, will be managed by Ascent Commercial Property Management LLC, led by president Barry Gruebbel. 

Jim Shaw, Los Angeles-based CEO and president of Ascent, and co-founder of CapHarbor, tells GlobeSt.com that the founders of Ascent—based in Greenville, SC—created the new company for a number of reasons. For one, the limitations imposed by the IRS in its guidance for structuring syndicated TIC offerings “have left many properties that would otherwise be viable in an unsustainable position,” Shaw said. For example, he explained, “Many leasing agents are advising their clients to avoid properties owned in a TIC structure because of the time and uncertainty of getting a lease executed and the frequent lack of capital that is needed to fund tenant and building improvements and leasing commissions.”

Boyd

In addition, “Most lenders will not consider lending to a tenant-in-common ownership structure these days, which greatly impacts even those properties that are still performing,” Shaw says. He notes that various Ascent principals have completed the roll-up and/or recapitalization of several dozen properties that were syndicated in TIC structures and have completed the takeover of “fatigued TIC sponsors who did not have the resources to compete.”

John Boyd, chairman of Ascent and founder of Greenville, SC-based TIC Properties LLC, says that allowing investors to contribute the TIC interests into the Ascent Fund in return for operating partnership units in the fund will provide the investors with “the additional competitive and financial benefits that are provided in a diversified portfolio of properties.” Boyd went on to point out that the real estate downturn has, in some cases, reduced or depleted the reserves of TIC properties, “leaving those properties unable to compete in their markets.”

Boyd says that most TIC properties were over-capitalized for reserves when they were syndicated and the industry was aware from the outset that raising additional capital from TIC investors would be difficult, but the Great Recession and the ongoing real estate downturn have depleted those reseves. “This, combined with the collapse of the CMBS lending markets, has left a number of properties in distress,” Boyd says.

The Ascent founders point out that roll-ups provide the operating advantages and financial stability of being part of a larger diversified fund of properties, rather than remaining in a TIC structure. However, joining in the roll-up will be optional, so that investors who prefer to stay in their current TIC ownership can do so.

Josh Workman, COO of Ascent Realty, says that the new company provides a national operating platform and substantial capital base, combined with the founders’ relationships with TIC investors, sponsors and broker-dealers. That means that it can provide expertise and capital to the individual properties and, through the Ascent Fund, “a single borrowing entity that should be much more attractive to tenants and lenders alike.”

Ascent's capital comes from joint ventures with two private equity firms, plus its own internal capital. Shaw tells GlobeSt.com that if Ascent forms a non-traded REIT, it will probably do so within the next year or so, although it’s not a certainty that the company will go that route. Other possible exit strategies would include a portfolio sale to a public or private company, or a liquidation.