Are Fractional Ownerships Coming Back?

LOS ANGELES-The increasing number of would-be commercial real estate investors is making available properties harder to find. Even in today’s market, smaller investors may need help finding properties in which to invest. As a result, more and more are once again willing to consider looking at sponsored properties or fractional ownerships, in which a pool of investors owns a single property.

While 1031 exchanges and tenant-in-common ownership entities were once popular, now the Delaware Statutory Trust is becoming the vehicle of choice, Evan Farahnik, president of ExchangePoint Properties LLC, tells GlobeSt.com. Before the economic downturn, fractional ownerships usually involved a tenant-in-common structure, whereby under the tax rule up to 35 LLCs could invest in one property and have it be valid for an exchange. Since then, weaknesses in the TIC structure that have caused issues for some of the properties that were struggling and for some lenders.