by Brian Mahany
Recently a client sent me a list of TIC promoters. I am not sure about the list’s accuracy but we certainly recognize many of the names. TIC– short for Tenant in Common – became a popular investment vehicle for people wishing to invest in large real estate projects.
A TIC is a real estate investment that allows multiple people to purchase fractional interests in a property. Syndicators and promoters frequently use TICs to acquire shopping centers, hotels and office buildings. By selling fractional interests, investors can participate in larger projects.
Promoters offer investors stable cash flow and professional property management. Investors simply collect monthly checks. Or so they are hope.
These projects became very popular in 2002 after the IRS ruled that investors could defer capital gains from the sale of real estate involving an “exchange” of properties. (These are sometimes called 1031 exchanges bases on the Internal Revenue Code section.)
The concept of Tenant in Common investment is sound but many of the projects were overpriced and rife with fraud. Projects like those offered by Carlton Cabot and DBSI.
We don’t suggest that all the promoters on this list are scams or even if they are all Tenant in common projects. But we do know that even legitimate TIC projects are unsuitable for many investors.
Many TIC projects were sold through stockbrokers and investment advisers. Unfortunately, some of these folks were more interested in the high commissions offered by promoters and less concerned about the soundness of the project or its suitability for most investors.
TIC interests are typically illiquid meaning there is no ready secondary market for them. If you need to sell quickly to raise cash you may find yourself stuck. That may be fine for investors who don’t need ready access to their money but a bad idea for those nearing retirement or having a need for liquidity.
TIC projects are also quite complex. Many of the investors and their advisers don’t take the time to read the fine print. In some projects, investors take on personal liability if the project fails and there is a deficiency. This can be true even though marketing materials claim they are “non recourse.”
The offering documents often run into hundreds of pages. Much of that in hard to understand legalese. While investors should always read “the fine print,” it is the broker’s job to do so. Many do not and those that do frequently don’t understand concepts such as “springing guaranties” and “joint and several liability”.
For this reason alone, TIC projects are really for sophisticated investors. We know many professionals – including lawyers – that invested in TIC projects but their knowledge of medicine, engineering or personal injury law doesn’t give them the sophistication or time necessary to evaluate one of these projects.
Of course, as long as the checks roll in on time every month everyone is happy. Problems arise, however, when you suddenly need to sell but can’t or learn that a lender is declaring the project’s financing is in default.
The people that sell these investments – primarily stockbrokers and investment advisers – are the folks primarily responsible for performing due diligence on these projects. They also have a duty to insure you understand the particular risks associated with TIC investing and that the project is suitable for your investments needs.
The explosion of TIC projects at the beginning of the millinium attracted its fair share of scam artists and promoters who simply didn’t know what they were doing. That has lead to an explosion of lawsuits against the broker dealers who sold them. Some shops simply closed their doors leaving investors with little recourse.
If you are contemplating purchasing a TIC interest, make sure you purchase through a larger, reputable brokerage firm. They have the deep pockets to pay any claims that may later arise. Make sure you also read all the documents themselves and not just rely on promotional materials. If you see a document that calls itself an ‘indemnification” agreement or “personal guaranty,” be extra cautious and make sure you understand your obligations if the project goes south. Finally, consider hiring an experienced TIC lawyer to review the investment. Most brokerage firms have the expertise to perform financial due diligence but lack the training to review legal documents.
Below is the list we received of TIC projects. We are unsure of its accuracy but recognize many of the names. Remember, not all TIC projects are scams but every project could be an unsuitable investment depending on your needs and risk tolerance.
Here is the list:
AEI Fund Management Inc
American Capital Group
American Investment Exchange
Argus Realty Investors, LP
Ashforth Paradigm Capital Advisors
Atlas Venture Partners, Inc.
B&H Real Estate Holding, LLC
Behringer Harvard
BGK-Integrated Group
Bluerock Real Estate LLC
Bonaventure Realty Group, LLC
Bucks County Office, LP
Cabot Ashtabula
Cabot Broward
Cabot East Town
Cabot Golf
Cabot Investment Properties
Cabot Oakgrove
Cabot Turfway Ridge
Capital Equities
Capital Real Estate LLC
Clearview Apartments
Cole Companies
College Park
Cottonwood Capital, LLC
Covington Realty Partners
DBSI Group of Companies
Desanto Realty Group
Direct Invest LLC
Dividend Capital
Eliason 1031 Properties Corporation
Equitable Companies, LLC
Evergreen Realty Group
ExchangePoint Properties, LLC
First Guardian Group, LLC
FOR 1031
FORT Properties, Inc.
Franklin 1031 Investments L.L.C.
Gemini Real Estate Advisors, LLC
Grand Peaks 1031 Properties
Granite Investment Group, Inc.
Griffin Capital Corp.
Independent Financial Group
Inland Real Estate
International Realty Advisor
Investment Properties of America
KBS Capital Markets Group, LLC
Kodiak Capital Partners L.L.C.
Meridian Realty Advisors, LP
Moody National Companies
National Exchange Advisors, LL
Noble Royalties, Inc.
ORIX Real Estate Capital, Inc.
Parthenon Realty 1031 Investors, LLC
PASSCO Companies, LLC
Pennbridge Capital
Poplar Avenue, LLC
Principle Equity Management
Rainier Capital Management, LP
Real Estate Partners, Inc.
Real Estate Value Advisors LLC
REEF Oil & Gas Partners
Resource Real Estate, Inc.
RK Properties
Sagebrush Realty Holdings LLC
SCI Real Estate Investments, LLC
Sequoia 1031 Companies LLC
Southfork
SRS Investments, LLC
Tax Strategies Group
Texas Energy Holdings Inc.
The Geneva Organization
The Woodlark Companies
TIC Capital LLC
Tic Properties
TREC Investment Realty
TSG Real Estate LLC
U.S. Advisors, LLC
Wells Real Estate Funds
Western America Equities LLC
If you lost money to a Tenant In Common scheme, give us a call. Often we can recover your losses from the promoter or others involved in the offering. This includes the stockbrokers and investment advisers that sell these investments. Promoters sometimes fool insurance agents or real estate salespeople into believing these interests are not securities and can be sold without a license.
We usually accept these cases on a contingent fee basis meaning no legal fees unless we win and collect. The time to file claims is limited by federal law. For people purchasing several years ago, the time to file is rapidly running out. Don’t delay.
Facing a foreclosure, allegations of personal liability or certain hidden “springing guaranties”? We can also help. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct dial).
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. Services available in many jurisdictions.
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