TIC Real Estate Association

TICs as Real Estate - They're Legitimate

noemail@ticassociation.org — Tue, 07 Nov 2006 23:00:00 GMT

"TICs as Real Estate - They're Legitimate" was originated by Gary Bringhurst, President and CEO of Spectrus Real Estate Company, Parent Company of For1031.

Can Tenants-in-Common (TIC) interests legitimately be structured and sold as real estate or are they always a security?

7-Nov-06 4:00 PM

Position Statement Regarding Fractional Tenant-in-Common Interests

noemail@ticassociation.org — Tue, 26 Sep 2006 18:00:00 GMT

Position Statement Regarding Fractional Tenant-in-Common Interests (“TICs”) The significant growth in the number and nature of fractional tenant-in-common interests (“TICs”) in the United States in recent years has created an unhealthy competition between those companies offering TICs under securities law rules and those companies offering TICs under traditional real estate structures. Instead of focusing on the merits of the various TICs, the marketing of TICs as securities too often includes allegations that TICs being offered as real estate are illegal. Importantly, the offer and sale of TICs as securities results in a significant reduction, and sometimes elimination, of the involvement of real estate professionals in the transaction. The Tenant-in-Common Real Estate Association (TICRE) is committed to the value of real estate professionals, including our members, advising their clients about TICs, both generally and specifically, and to be fairly compensated for those services. In assessing TIC offerings, traditional real estate facts and factors overwhelmingly dominate. A competent review and analysis of an investment in such an interest not only has the “look and feel” of a real estate analysis, it is and should be, in fact, a real estate-based analysis. To treat it otherwise is to mischaracterize the analysis. The Tenant-in-Common Real Estate Association (TICRE) regards the current level of uncertainty about real estate professional involvement in TIC transactions as contrary to good public policy and the interests of TIC owners. We also believe that attempts to squeeze all TICs into a securities law paradigm, with the attendant reduction in real estate professional involvement, is also contrary to good public policy and the interests of TIC owners. Real estate investors who acquire some of the TICs now being offered have all of the incidents of direct ownership of real estate. They can sell, pledge, or otherwise deal with their ownership interest solely as they may desire. Any TIC owner may seek to partition his interest at any time as with any real estate ownership. Alternatively, in these programs, the TIC owners can terminate the lease or management agreement at any time, and may take over management of the property directly or may hire another person to manage or lease the property, just as would any owner of any property. Most of the Federal appeals courts have addressed investments where the investor owns property subject to a management or lease arrangement with the promoter of the investment, and have found no “investment contract” and no “security” where the investors have real and legitimate control over their own investment. Most state courts follow these federal precedents. The Tenant-in-Common Real Estate Association (TICRE) supports legislation at the state and federal level, as well as supportive rulemaking by securities and real estate agencies, to establish a clear line of demarcation between TICs that are structured as real estate and TICs that are structured as securities. For more information contact the Tenant-in-Common Real Estate Association at 801-655-0239 or visit our website at www.ticassociation.org.

26-Sep-06 12:00 PM

Five Steps To Assure A Tic Program Is Treated As Real Estate

noemail@ticassociation.org — Tue, 26 Sep 2006 17:00:00 GMT

Many real estate professionals have clients with an existing investment property that are eligible
for a tax deferred Section 1031 like-kind exchange. Finding replacement property for such an
exchange is made easier through Tenants-in-Common (TIC) programs, which have recently
become a hot product to help real estate purchasers expand their opportunities. TIC ownership
qualifies as replacement property under a Section 1031 exchange and creates an opportunity for
many purchasers to participate in a larger property normally out of the reach of a single
purchaser.
TIC programs have generally been structured either as a security to be sold through securities
broker-dealers (a “Security TIC”) or as real estate to be sold through real estate brokers (a “Real
Estate TIC”). Whether a TIC transaction is a Security TIC or a Real Estate TIC, the bottom line
is that it is a real estate transaction, of which real estate professionals are an integral part and
should be compensated for their services. However, if a TIC transaction is a Security TIC, then
real estate professionals can not split commissions with a securities broker-dealer because of
federal and state securities laws. On the other hand, if the TIC transaction is a Real Estate TIC,
real estate professionals may receive compensation from the transaction. Since each TIC
sponsor treats real estate referral fees a bit differently, be sure to check each sponsors’ referral
guidelines.
Probably the most critical concept in identifying a Real Estate TIC is the amount of control a
TIC purchaser has over the property purchased. Simply put, if someone other than the purchaser
has the real and legal control over the property, the ownership interest turns into an investment
contract and thus a security.
The Supreme Court set the stage for analyzing control. Normally, what transforms real estate
into a security is the “something more than fee simple interests in land.” The Supreme Court in
its 1946 decision in SEC v. Howey defined that “something more” as an “investment contract”
where an investor has invested in a “business enterprise” and is “relying on the efforts of others”
for their profit. In Howey, the business enterprise was a large fruit business in which the
landowners participated but did not control. The Howey case drew a line between real estate and
TICRE May 2006
securities transactions by defining when a transaction becomes an “investment contract” and
thereby a security.1
Since Howey, various federal courts have revisited the control issue to clarify just how much
reliance is needed so the transaction is not considered an investment contract. Those courts
found that the purchaser loses control if he legally relies heavily “on the efforts of others.” The
actual control exercised by the purchaser is irrelevant; if the purchaser has the ultimate right to
control the property and the ability to control the property, then courts have found that the
purchaser is not relying on another and, thus, is not dependant “on the efforts of others.” It may
sound complicated, but is really quite simple to apply.
Below are five steps to assure that a TIC program has sufficient controls retained by the TIC
owners to be treated as a Real Estate TIC that would not be subject to securities regulation.
First: Verify that the TIC investment is being sold as a Real Estate TIC. Currently, only a
small percentage of TIC programs structure transactions solely as Real Estate TICs. Because
this type of structure is relatively new, these sponsors have conducted thorough due diligence
and obtained detailed and sound legal opinions from respected law firms that the Real Estate TIC
is not subject to securities regulation. Ask the Real Estate TIC sponsors for copies of their
opinions and documentation, along with other due diligence material.
The opinions and documentation should stem from a thorough analysis of legal precedent. A
sound opinion will detail that the TIC program is not using “smoke and mirrors” techniques to
skirt around securities laws, but that securities laws clearly do not apply at all. This is an
important distinction. While the federal courts, including the Supreme Court, have clarified the
TIC issue through years of case law, the Securities and Exchange Commission (SEC) and the
National Association of Securities Dealers (NASD) have not yet issued any detailed and clear
legal analysis of the securities law status of TIC programs. For example, a recent NASD
reminder to their members stated that real estate licensees may not be paid a commission or fee
from the sponsor or broker-dealer of a Security TIC while acknowledging that “some” programs
may not be subject to securities laws.
Furthermore, a Real Estate TIC sponsor will also have an established reputation and track record
that demonstrates their product offerings. The Real Estate TIC sponsor may also be a member of
the TIC Real Estate Association (TICRE), an organization founded by real estate experts
dedicated to ensuring real estate professionals are included in TIC purchases.
Second: Get a deed to the real estate and supporting due diligence information for the real
estate. In every TIC program the purchaser should receive fee simple title to the property in the
form of a deed. This may seem overly simplistic, but in any other form of indirect ownership
where a purchaser does not receive a deed to the property, the transaction is probably a security
1 That line becomes critical because the sale of directly owned real property – even though it may be subject to a
lease or other management agreement and may be owned by joint tenants – should not be put into the arena of
securities regulation. Such an overreaching of the securities regulations would create a “slippery slope” that may
subject all investment real estate transactions to cumbersome and expensive federal securities law, which would be
very detrimental to the U.S. economy, especially to small business which can least afford additional costly
regulations.
TICRE May 2006
and subject to security regulation. Ask the Real Estate TIC Sponsor to see the deed that will be
granted when a Real Estate TIC is purchased.
Security TICs are sold as securities and accompanied by what is called a Private Placement
Memorandum (PPM) as required by the securities rules. Real Estate TICs are sold solely as real
estate and are not required to have securities industry due diligence information, but should have
a real estate portfolio detailing the property, the terms of the purchase, and a sample of the
agreements the purchaser will enter into. Ask the Real Estate TIC sponsor for their due diligence
information about the property.
Third: Retain the real control over the property. As stated earlier, purchasers must have the
ultimate right to control the property they purchased. To clarify this point, think of the rights of
a property owner compared to the rights of a property manager. A property owner assumes the
risks and rewards of property ownership and through an agreement, hires and relies on another to
handle the day-to-day responsibilities of the property. This concept also applies to a “triple-net
lease” wherein a whole property lessee handles the property’s operations and pays a monthly
rental payment back to the TIC owners. That contractual relationship doesn’t change the fact
that the property owner still owns the property. The owner is still able to change who manages
the property or to sell the property outright.
The same holds true for Real Estate TICs. Just like any transaction for the purchase of real
property, Real Estate TICs include various agreements between the parties. It is not uncommon
for there to be a purchase and sale agreement, a tenants-in-common agreement, a lease
agreement, and an assumption of the existing loan. These agreements may limit the purchaser’s
day-to-day management of the property, but they should allow the purchasers to maintain and
exercise basic legal control rights to the property which include the ability to:
• Sell or pledge their ownership
• Terminate any management agreement by vote
• Partition the property
• Sell or refinance the property by vote
• Approve a lessee by vote
• Hire a new property manager by vote2.
Delegation of duties is common in real estate, but does not affect the nature of the owner’s
powers. Courts have consistently held that even if the real estate owners do not expect to
exercise their control rights (and in fact do not do so) their rights to exercise ultimate control
must exist nonetheless so as not to make the real estate a security. Ask the Real Estate TIC
sponsors what real controls there are over the property.
Fourth: Use real estate professionals to acquire a TIC ownership. All TIC programs should
insist that investors and purchasers meet certain qualifications or that they are represented by
qualified professionals. The securities laws require that a Security TIC must be sold to a
2 Don’t be confused by an agreement that may limit the TIC purchasers’ abilities because of lender conditions.
Lender restrictions are the exception to the rule. Often, the purchase of property and lending go hand in hand. For
Real Estate TICs, if the TIC owners are unhappy with lender conditions, they are able to obtain new financing on the
property by a majority vote and replace the existing lender, which would lift any unfavorable lending restrictions.
TICRE May 2006
“qualified investor.” Courts have also required this in Real Estate TICs because a purchaser who
lacks the business experience necessary to competently understand his legal rights and
responsibilities as a property owner is dependant on the promoter or property manager. Such a
purchaser is probably expecting profits from the efforts of others and therefore the transaction is
likely an investment contract and therefore a security.
Real Estate TIC sponsors should require their purchasers to be sophisticated enough to
understand the risks and issues associated with real estate, and thus be capable of exercising their
ownership rights in the property. This experience requirement can be fulfilled by real estate
professionals representing the purchaser, as courts have historically lauded the fact that a
purchaser was competently represented by a professional. Ask the Real Estate TIC sponsor if the
purchasers must be sophisticated or if the purchasers are required to use real estate
professionals.
Many TIC programs sold today involve multi-million dollar properties requiring a minimum
purchase amount in the hundreds of thousands of dollars. Practically speaking, the industry selfregulates
that purchasers are sophisticated enough to understand the transaction they entered into
and are thus capable of understanding what control rights they possess. In addition, many Real
Estate TIC programs are centered on Section 1031 exchanges where a purchaser is already an
experienced real estate owner.
Unfortunately, Security TICs exclude real estate professionals from what is inherently real estate.
Real estate professionals are uniquely qualified with the real estate business acumen necessary to
understand a purchaser’s right to control their property asset. The benefit is that Real Estate TICs
allow the real estate professional to be compensated from the transaction. Consult with a real
estate broker or state licensing bureau about becoming further educated in this arena to feel
comfortable handling these transactions.
Fifth: Receive property management information and have readily available management
alternatives. Any owner of real property must receive information about the management of
their property if they are to really control the property. That information would normally include
financial reports, leasing reports, maintenance updates, etc. A Real Estate TIC owner must
receive that same kind of information in order to control his property. Ask the Real Estate TIC
sponsor if that information is available and will be sent to the TIC owner on a regular basis.
Alternative property management options must be readily available. If not, then the owner might
have no choice but to rely on only the promoter which could create “reliance” as defined in the
securities rules and regulations. The mere fact that TIC purchasers hire and contract with
another to manage their property does not mean the purchaser has lost control over the property,
unless the person they have contracted with is so unique in their skills and abilities that there is
no practical way to find a replacement.
Courts have looked at this issue and stated that no matter how sophisticated a purchaser is, or
even if the legal right exists to replace the manager, a genuine dependence on another could exist
when the purchasers are forced to rely on a particular non-replaceable expertise. In that case, the
purchasers are dependant because finding a replacement becomes impractical and would disable
the intended value of the property.
TICRE May 2006
By way of example, the Howey case involved the sale of small land parcels which collectively
were operated as a large orange grove business to people who were not legally or practically able
to control their investment. The Court determined that the investment in the real estate was
largely tied to the operations of the orange grove and the citrus business operator who managed
the real estate. The value of the property depended on the success of the operator’s efforts, not
the property itself. In contrast, a Real Estate TIC property manager or whole property lessee
under a triple-net lease is readily replaced by another company experienced in management or
leasing of commercial real estate, thus the value tied to the property purchased would remain
unchanged. Ask the Real Estate TIC sponsor if there are readily available management
alternatives.
Conclusion.
The TIC marketplace is growing quickly and real estate professionals have the opportunity to
participate. Don’t be fooled into thinking that a securities license is needed to obtain a
commission. Real Estate TICs exist that allow the real estate professional to assist a purchaser in
the transaction and be compensated for their services. While the above steps are not
comprehensive in nature, they should provide a baseline to evaluate opportunities for real estate
purchasers without having to involve a securities professional. Consult the appropriate legal
counsel with further questions and continue to research the broad range of opportunities
available.
This article has been provided by Tenants-in-Common Real Estate Association (TICRE). TICRE
is a national trade organization established to protect and preserve tenants-in-common (TIC)
properties as real estate, promote and maintain a thriving real estate TIC industry, and to
uphold the highest level of integrity and professionalism among its members.
www.ticre.com

26-Sep-06 11:00 AM

1-2-3 Steps to Assure a TIC is Treated as Real Estate

noemail@ticassociation.org — Tue, 26 Sep 2006 17:00:00 GMT

As real estate professionals, you have clients with an existing investment property that – when
sold – is eligible for a tax deferred 1031 like-kind exchange process. Finding replacement
property for such an exchange is made easy through tenants-in-common (TIC) programs, which
have recently become a hot product to help real estate investors expand their opportunities. TIC
ownership qualifies as replacement property under a 1031 exchange and creates an opportunity
for many purchasers to participate in a larger property normally out of the reach of a single
purchaser.
TIC programs can be structured solely as real estate and not as a security when the sale involves
the direct ownership of real estate and no interest in a business enterprise. The bottom line is
that TICs are a real estate transaction, and therefore real estate professionals are an integral part
of the transaction and should be compensated for their services. If a TIC program is structured
as a security, real estate professionals may not receive compensation because of national
securities rules. On the other hand, if the TIC program is structured to be real estate, real estate
professionals may receive compensation from the transaction – each TIC sponsor treats real
estate referrals fees a bit differently (be sure to check each sponsors referral guidelines).
So, how can you assure a TIC is treated as real estate? The most critical concept in identifying a
TIC program as real estate is the amount of control a TIC purchaser has over the property
purchased. Simply put, if someone else has superior real and legal control over the property, the
ownership interest turns into an investment contract and thus a security. When all is said and
done, no one else should have rights to control the property that are superior to the property
purchasers.
Below are three steps to assure that the TIC program you and your client are involved with is a
real estate transaction and not subject to securities regulation.
1. Obtain documented representations that the seller is offering real estate, not a
security. Currently, only a small percentage of TIC programs structure transactions
solely as real estate. Because this type of structure is relatively new, these sponsors have
done their due diligence and obtained detailed and sound legal opinions from respected
law firms that the TIC program offered is not subject to securities regulation. Real estate
TIC sponsors should be more than willing to share these documents with you, along with
May 2006
other due diligence material such as a portfolio detailing the property, the terms of the
purchase and a sample of the agreements the purchaser will enter into.
2. Have the right to an active role in management of the property. As stated earlier,
purchasers must have the ultimate right to control the property they purchased. To
clarify this point, think of the rights a property owner has compared to a property
manager. A property owner assumes the risks and rewards of ownership and through an
agreement, hires and relies on the property manager to handle the day-to-day
responsibilities of the property. This concept also applies to a “triple net lease” wherein a
whole property lessee handles the property’s operations and pays a monthly rental
payment back to the TIC owners. That contractual relationship doesn’t change the fact
that the property owner still owns the property. The owner is still able to change who
manages his property or to sell the property outright.
3. Obtain appropriate, industry-related experience to represent the purchaser. A
purchaser who lacks the business experience necessary to competently understand his/her
legal rights and responsibilities as a property owner is dependant on the promoter or property
manager. Courts more readily describe these situations as securities because purchasers are
expecting profits based on the efforts of others, and not from the real estate they purchased.
In the alternative, courts have found that a sophisticated purchaser, or his/her professional
representative, thoroughly understand the rights that have been retained. In the case of TIC
real estate, a real estate professional is uniquely qualified with the real estate experience
necessary to appropriately represent an unsophisticated purchaser of their ownership rights.
The TIC marketplace is quickly growing and as a real estate professional you have the
opportunity to participate in this growing market. TIC programs exist that allow the real estate
professional to assist a purchaser in the transaction and be compensated for your services. While
the above steps are not comprehensive in nature, they should allow you to easily identify an
opportunity for your client without having to involve a securities professional. Consult your
attorney with further questions and continue to research the broad range of opportunities
available.
This article has been provided by Tenants-in-Common Real Estate Association (TICRE) and has
been abbreviated from a more in-depth article that can be found at www.ticre.org. TICRE is a
national, self-regulating trade organization established to protect and preserve tenants-incommon
(TIC) properties as real estate, promote and maintain a thriving real estate TIC
industry, and to uphold the highest level of integrity and professionalism among its members.
# # #

26-Sep-06 11:00 AM

TICRE Home Page Content

Thu, 06 Mar 2008 14:30:22 GMT

Education

TICRE is the real estate professionals portal to various educational resources available to enhance knowledge of the tenant-in-common and 1031 exchange marketplace.

Learn more »

Tenant-In-Common Multiple Listing Service

TIC-MLS provides access to a complete list of real estate and securities TIC properties currently available, as well as a secondary market for existing TIC property owners.

See TIC properties »

Let us Call You

Request a Call »
or Call Us: (801) 655-0239

Welcome

Thu, 06 Mar 2008 01:06:12 GMT

TICRE supports the real estate community.

The TIC Real Estate Association (TICRE) is a tenant-in-common trade association serving the interest of the real estate community. Established in 2004, TICRE promotes greater knowledge, understanding and commerce of TIC real estate in the real estate community.

We invite you to join with us. Join Now or learn more.

Mission/Position Statement

Wed, 05 Mar 2008 23:59:53 GMT

Mission Statement The Tenant-In-Common Real Estate Association (TICRE) supports the real estate community in the education, sales, and marketing of fractional tenant-in-common interests in real property. TICRE provides the real estate broker, agent, or other real estate professional with the tools necessary to offer the best products and services to their clients. Position Statement The significant growth in the number and nature of fractional tenant-in-common interests (TICs) in the United States in recent years has created an unhealthy competition between those companies offering TICs under securities law rules and those companies offering TICs under traditional real estate structures. The offer and sale of TICs as securities results in a significant reduction, and sometimes elimination, of the involvement of real estate professionals in the transaction. The Tenant-in-Common Real Estate Association (TICRE) is committed to the value of real estate professionals,...

TICRE protects the real estate tenant-in-common (TIC) industry.

Sat, 01 Mar 2008 21:56:36 GMT

TIC Real Estate Association's primary objective is to represent the interest of the real estate community in the tenant-in-common real estate industry. TICRE provides information, tools, and services to real estate agents, brokers, and financial advisors, so that they are better prepared to service the investment and replacement property needs of their clients.

Education

Sat, 01 Mar 2008 21:46:55 GMT

The following is a list of continuing education providers that have TICRE approved tenant-in-common or 1031 exchange courses available. We invite all reputable continuing education providers to contact us if you have a course covering tenant-in-common real estate or 1031 exchanges. We will review your course and if approved a link will be added to this page.

TIC Course Providers

1031 Exchange Course Providers

Career WebSchool
Cumberland Center II
3100 Cumberland Blvd.
Suite 1450
Atlanta,GA 30339
Dana Taulli
800/532-7649

Certified Co-Tenancy Professional

Fri, 11 Aug 2006 19:04:24 GMT

TICRE is in the process of developing a profession designation and certification for the TIC professional. In time, as this industry grows, the Certified Co-Tenancy Professional (CCTP) designation will set apart the true professional as a recognized expert in the disciplines of tenant-in-common investment real estate.

The CCTP curriculum will represent the core knowledge expected of tenant-in-common practitioners. The CCTP curriculum will consist of four core courses that incorporate the essential CCTP skill sets: 1031 exchange rules and regulations, TIC structure, TIC disclosure, and TIC sales and marketing practices.

Following the course work, candidates must submit a resume of closed transactions and/or consultations showing a depth of experience in the TIC field. After fulfilling these requirements, candidates must successfully complete a comprehensive examination to earn the CCTP designation. This designation process ensures that CCTPs are proficient not only in theory, but also in practice. With such a wide range of subjects to be mastered and in a dynamic business such as real estate, the educational process doesn\'t end once the designation is earned; there is a strong commitment among CCTPs to continuing education.

Lorem ipsum survey

noemail@ticassociation.org — Mon, 07 Aug 2006 22:59:04 GMT

Objectives:

Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diem nonummynibh euismod tincidunt ut lacreet dolore magna aliguam erat volutpat. Ut wisis enim ad minim veniam, quis nostrud exerci tution ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat. Duis te feugifacilisi.

Duis autem dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit au gue duis dolore te feugat nulla facilisi.

Ut wisi enim ad minim veniam, quis nostrud exerci taion ullamcorper suscipit lobortis nisl ut aliquip ex en commodo consequat. Duis te feugifacilisi per suscipit lobortis nisl ut aliquip ex en commodo consequat.Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diem nonummy nibh euismod tincidunt ut lacreet dolore magna aliguam erat volutpat.

Ut wisis enim ad minim veniam, quis nostrud exerci

Release Date: 7-Aug-06 4:59 PM
Expiration Date: 7-Nov-06 4:59 PM

Ut wisis enim ad minim veniam, quis nostrud exerci

Lorem ipsum

2006-08-07T22:59:04Z

Instructor: Instructor

Lorem ipsum