ARA Untangles Complicated TIC Multifamily Trade

TALLAHASSE, FL-Jackson Square Apartments, a 242-unit class A garden community in Tallahassee’s Thomasville submarket, has traded for $21.7 million. The property is 95% occupied. ARA Central Florida-based principal, Kevin Judd and vice presidents Patrick Dufour and Matt Wilcox represented the TIC seller in the deal.

The sheer number of people involved in the decision process can make TIC sales challenging. In the Jackson Square deal, the TIC included 40 individual investors who had to approve the sale. Wilcox tells GlobeSt.com that the asset was a strong performing deal in an A location, so from the beginning patience and persistence were key, along with clear communication to the buying community.

“The Tallahassee market had not experienced a brokered class A, non-student deal in some time, so there was an initial challenge with informing many groups not familiar with the market of the strong underlying fundamentals of the macro multifamily market there,” Wilcox says. “Once those factors were properly communicated, the buying community responded well.”

Another complication in the deal was the limited reps and warranties for the buyer. Due to the nature of the TIC structure, the seller's ownership entity evaporates after the sale. Wilcox says the fact that the debt markets and rates moved in favor of better debt service coverage, lower debt service payments and potentially more proceeds, helped the pricing of the transaction because buyers leveraged returns were improving with the debt markets.

Constructed in 1996, Jackson Square is located less than three miles from downtown Tallahassee and its largest employment sector—the state government—which emloys approximately 46,000.  What’s more, Florida State University, the third largest in the state, is three miles north of the apartment community.

Despite the success of the Jackson Square Apartments deal, Wilcox says he is still not seeing many TIC transactions. That’s because most TIC syndicates and transactions are a result of an investor seeking a 1031 shelter for gains made in other transactions.

“Since this is the first year of the multifamily market transactional rebound, many investors may not realize gains until this year moving forward,” Wilcox says. “Additionally, since pricing and cap rates are really turning the corner this year, many TIC owners might not have gains to realize as of yet and might be in a good cash flow position deterring a sale of an asset.”