What to Do with Troubled TICs? Considerations for Lenders
Lenders may be able to reform loan documents and enhance their position with tenant-in-common borrowers in the aftermath of the economic downturn. Between 2002 and 2008, the commercial real estate industry witnessed an explosion in the popularity of real estate investments in tenant-in-common (TIC) structures. The impetus for this remarkable increase in popularity was an IRS revenue procedure issued in 2002. The procedure gave comfort to investors and financial advisors that capital gains earned from selling real estate could be reinvested into TIC interests in revenue-producing properties, with no recognition of capital gains under the like-kind exchange rules of Internal Revenue Code Section 1031. Investors pooled assets with others to invest in TICs, owning everything from apartment buildings to office towers. The rapid growth of the industry, riding on the front edge of the real estate bubble, was fueled by TIC sponsors and syndicators who offered investors their services to identify co-investors and provide documentation to create and manage the TIC structure. In many situations, they offered a guaranteed return on the investment. The relative dearth of practical, judicial, or legislative guidance on TICs as a modern real estate investment tool led to a wide array of TIC structures, governed by widely varying documentation. Equally uncertain was how lenders should protect themselves against various issues specific to the structure. TO READ MORE, CLICK THE PDF ICON BELOW: View as PDF |