SALT LAKE CITY-The Tenant in Common investment industry is an emerging force within the commercial real estate industry. This year's TIC Real Estate Symposium, now under way here, is probably the largest gathering of TIC experts to date. Timothy Snodgrass, president and CEO of Argus Realty Investors, sees the industry only getting bigger.
"As more people learn about this industry, they see that it fills a need," says Snodgrass, who moderated a panel discussion on the industry. "I just don't see the market stopping in terms of new people investing."
A TIC is a tax deferral option that sellers of commercial real estate can use under section 1031 of the IRS Tax Code. TICs are extremely complex and sophisticated, merging the worlds of tax planning, real estate, securities, finance and corporate structure. Instead of buying a replacement property, sellers can pool capital to purchase a percentage of a larger property that they likely could not afford otherwise.
Ralph Bunje, president of the Federation of Exchange Accommodators, says many investors are able to get past the complexities when walked through the process by someone who is knowledgeable. He also points to another reason TICs are gaining popularity among investors.
"There's a whole group of people over 50 who want property that's easy to manage or that is managed for them," Bunje says. "The basic client is coming in looking for an income stream, for a property that's management-free and with cash flow."
And most properties in TIC transactions are just that: investment-grade properties that are managed by someone else. Snodgrass says there is still a lot of people who know nothing about TICs, but that's not to suggest that the message isn't getting out. In 1997, the TIC industry saw about $50 million in transactions. Estimates for 2004 exceed $2 billion.
The TIC's difficult structure is a concern for people within the industry. Now, with more people entering the arena, education is a key focus. A TIC Boot Camp set the tone of the annual conference, giving newcomers a primer and reminding those already familiar with the industry just how complex TICs can be.
Panelist Michael Yesk of IPX1031 Exchange Services in Northern California says educating the different professions as to what their roles are is important. "We're bringing people together from related industries," he says. "These are people who are unfamiliar with TICs and we're giving them an understanding of how they affect them, whether they are real estate brokers, financial planners or attorneys."
Tomorrow: Coverage of sessions including a comparison of different 1031 replacement options and marketing tactics.
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