X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

Duane Lund is suffering from an identity crisis of sorts. He’s at a loss to describe the true nature of his company: “Are we a wealth-management firm that happens to offer a real estate solution?” he asks rhetorically. “Or are we a real estate company with a wealth-management solution?” Whatever the answer, the CEO of the Geneva Organization in Minneapolis, with its focus on TIC transactions, is not likely to resolve the issue soon, especially as Geneva delves more deeply into that wealth-management model. In fact, Lund predicts that in the not too distant future, more non-1031-driven investors will be knocking on his door, swelling their piece of his portfolio from it’s current 10% to as much as 50%. As that trend grows, he says, it will help validate for investors Geneva’s TIC emphasis. That growth, he says, will fuel a doubling of his current $500-million portfolio and, for the industry in general, guarantee the long-term success of TICs. In a recent exclusive interview, he told GlobeSt.com his reasoning.

GlobeSt.com: Can you summarize your mission and strategy?

Lund: We really have two business models. I often ask myself if we’re a wealth-management firm that happens to offer a real estate solution or are we a real estate company with a wealth-management solution. In terms of offerings, we specialize in one product for our investors, and that product is TIC interests. But increasingly we’re intersecting with the major wealth-management firms around the country and working with them to provide this product to their client base. The difference here is that this client base is non-1031 motivated, even though it was the 1031 provision of the tax code that kicked off the TIC sector. Geneva has been around since July of ’03. For me, it’s the same game, different name in that I’ve been doing this for 20 years.

GlobeSt.com: How so?

Lund: In the ’80s the majority of my focus in the real estate sector was making product available using primarily the syndicated limited-partnership format. In the ’90s, my run was dedicated primarily to investors using the REIT vehicle to get into real estate. Now I’m using the TIC structure to get investors into real estate.

GlobeSt.com: There are those who give TICs a short shelf life. How long can the trend maintain steam?

Lund: Here’s what we know. The 1031 provision dates back to 1921, and it’s fundamental to the code. So I don’t see the industry going anywhere but up, because the 1031 industry is doing nothing but going up. So while there are those who suggest that this is just a sprint, TICs are more of a marathon. I spent 12 years in the REIT industry, and I’d say that the TIC industry today is where REITs were in 1992.

GlobeSt.com: Can you support that?

Lund: If you look at REITs in 1992, although they had been around for a long time, it was very much a small game, highly fragmented and very inefficient, with low liquidity and quite frankly very limited institutional participation. Then, from the fall of ’92 and into ’93 and ’94, we saw the rebirth of the REIT industry, with several companies going public, and today it’s very liquid with very high institutional participation and very efficient. The TIC industry today has the characteristics of that 1992 REIT industry. We’re highly fragmented with low liquidity. For the most part, we don’t have institutional participation, and it remains a very inefficient industry. But 1031s are a $60-billion-a-year industry. So I see nothing but opportunity knocking for those who can create transparency and efficiency. This is 1992 all over again, and there’s a big opportunity.

GlobeSt.com: But in the early ’90s REITs were also grossly misunderstood. How are TICs misunderstood?

Lund: Time and conflict can cause clarity. People forget that, in the fall of 1994, there was a REIT collapse and stock prices were hit hard. Then there was another ramp-up, followed by a little collapse in the fall of 1998. These are growing pains the industry experienced; we just haven’t experienced it yet in the TIC industry.

GlobeSt.com: But you see it happening?

Lund: Yes. There are those entering the business today who are overpaying for the privilege of participation. They’re getting into the TIC business to build a portfolio rather than a TIC business. Geneva is a business that just happens to have a TIC portfolio. For every REIT that made it to the show–and to the New York Stock Exchange–for every REIT that has a valuation in excess of a billion, there are probably four or five REITs that didn’t make it to the show. I think over the next 24 to 48 months we’ll see survivors and failures in the TIC industry, and that shakeout will be welcome.

GlobeSt.com: But everybody is overpaying for everything these days.

Lund: Yes and no. There are still quality deals. Our investment philosophy can be boiled down to people first and property second. We invest in people who happen to own properties, and our investment portfolio today, which is about a half billion dollars and all acquired in the past 24 months, are off-market deals. We’re not competing in the open market. We meet with people who are not necessarily looking to sell and we typically acquire somewhere between a 90% and 95% interest in a property owned by a local or regional development company. Then we award the property management and leasing contract to that organization. This people-first, property-second philosophy, and aligning ourselves with he who built it and he who manages it and he who leases it, has been our strategy from square one. Our acquisition strategy is competing on solutions, not price.

GlobeSt.com: What are your acquisition parameters in terms of geography and property type?

Lund: In terms of geography, we’re Midwest based, and 90% of my portfolio is here. We believe the Midwest is made up of bread-and-butter, meat-and-potato, stable, predictable assets. It turns out that, of my customer base of investors, almost a third are from the West Coast and find the Midwest to be an attractive investment market that doesn’t have the highs or lows of the West Coast. Outside the Midwest we have some assets in Phoenix. In terms of property types, if we get comfortable with an organization and that organization has a track record, we’re comfortable getting into their product type. Again, it’s people first. As a result, we offer all of the major food groups–office, industrial, multifamily, retail and seniors housing. About half of my investors diversify by product type when they come to Geneva. They’ll put a million-dollar investment in, but that’ll go into two separate TIC deals.

GlobeSt.com: So where are you going to be in a year?

Lund: Today we’re at a half billion dollars in total assts and we’d be disappointed if we didn’t double it, given my current pipeline of deals under contract and those we’re evaluating for a second- or third-quarter ’06 acquisition.

GlobeSt.com: And how will those non-1031 investors play into that mix?

Lund: They’re about 10% of our model today. Over time they’ll be a third or maybe half. So TICs are more than the 1031 code. They’re about making quality real estate available to the average investor over time. It’s another menu item in addition to REITs. And that’s why this sector is a marathon and not a sprint.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.