Tenant-In-Common (TIC) Interests
Countless individual investors have suffered significant financial losses as a result of being sold tenant-in-common interests in real estate ventures. The real estate bubble aided promoters in marketing TIC interests, and the bursting of the real estate bubble exacerbated TIC investors’ losses.
The term “tenancy in common” (or TIC) has been defined as joint ownership of property by two or more related or unrelated entities (co-tenants) in equal or unequal shares, with each co-tenant’s share being undivided, no co-tenants having exclusive right to any portion of the property, and each having equal right to possession of the whole property. The rights of the co-tenants (i.e., TIC investors) are almost always determined by agreement. Understanding the risks and obligations associated with TIC investments requires not just a legal background, but an understanding of the complex, often confusing and lengthy, multiple transaction documents that make up the TIC agreement, as well as familiarity with real estate buildings, leases, markets and finance.
TIC investments in projects such as apartments, shopping centers and office buildings have boomed in recent years. TIC syndicators, known as “sponsors,” sell the investments either directly or through a brokerage firm. A project may be managed by the sponsor or an independent management company. TIC investors are often promised cash returns of 6% to 7%.
TIC investors are often retirees seeking safe income to make ends meet in the sustained low-interest rate environment. Like many other alternative investments, TIC interests are often promoted as safe sources of income. In truth, these complex, private deals are anything but safe, and are very difficult to get out of when something goes wrong.
TIC investments are illiquid, private (Reg D) investments whose risks and inner-workings are frequently misunderstood by investors.
TIC investors are often shocked to discover that they are liable for a pro rata share of multi-million dollar purchase loans, and subject to assessments for additional payments when, for example, other TIC investors fail to pay their pro rata share, or when the manager decides that property improvements are needed.
Being private deals with multiple moving parts, players and interests, TIC investments tend to have more than their share of misrepresentations and failures to disclose important problems and risks that would cause a rational person not to invest.
As noted, when problems do come to light, they can lead to monetary assessments on the investors to put up more money, and a technical default leading to foreclosure by the lender and the loss of the investors’ entire investment.
If an investor wants to cash out of a TIC deal, that can be problematic. Not only can it be difficult to find a buyer, but even if a willing buyer can be found, the transaction usually is subject to approval by the manager and a certain percentage of the other TIC investors, which may be withheld.
Sponsors of TIC investments typically use smaller, independent broker-dealers and even accounting firms to market deals to investors. Many independent broker-dealers have been forced to shut down under the weight of legal liabilities flowing from sales of problem TIC investments.
Some sponsors are large enough to do their own marketing. One of the big promoters of TIC investments was a company named NNN Realty Advisers, which merged with well-known Grubb and Ellis, a publicly traded company that, according to its website, was “one of the largest and most respected commercial real estate services and investment companies in the world.” After merging with NNN, Grubb and Ellis became one of the largest TIC managers in the industry. Grubb and Ellis recently filed for bankruptcy.
If you have investment losses or problems involving tenant-in-common (TIC) interests, call the lawyers at Page Perry for experienced representation at (770) 673-0047 or (877) 673-0047 (toll free).