“The exemption will enable clients to utilize a real estate professional with whom
they have a relationship in selling their liquidated property to do a 1031-exchange, if
they decide to go into a securitized tenant-in-common offering,” says Walker. “Their
real estate broker can now help them look at
the real estate aspects of the transaction,
such as the leases on the property, to understand market issues, cash flow analysis—all
of the things that a commercial real estate
professional does.”
The SEC received considerable input during its comment period, and the views were
mixed. In general, and perhaps not surprisingly, real estate agents wrote in favor of the
exemption, while securities reps and broker-dealers were either opposed to it or raised
concerns about certain details or how some
aspects, from a practical standpoint, would
work. Many of the concerns point to the
complexity involved in bringing together
two very different industries: the real estate
business, where caveat emptor rules and regulation is solely at the state level, and the
securities business, a highly regulated industry at both the state and federal levels and
one in which the parties involved in sales
assume a great deal of liability.
The securities community has two primary concerns, relates Jim Shaw, president
and CEO of Beverly Hills, CA-based
CapHarbor LLC. “The first is competition.
If real estate licensees are allowed into the
business, and if it’s not just a referral fee,
might they be directly competing for
clients,” says Shaw, who is both a securities
registered rep and a commercial real estate
Many believe the involvement of real estate brokers will mean further growth for the TIC industry.
Companies like DeSanto Realty Group of Radnor, PA continue to purchase properties for TIC investments,
such as Cason Estates, a 262-unit apartment property in Murfreesboro, TN. The 20-building complex was
acquired from Tarragon Corp. for $27 million, according to GlobeSt.com.
likely have to be demonstrated in one or
more ways, such as professional credentials like CCIM or SIOR designations;
equivalent education and transaction
experience; and/or a quantifiable transaction history (NAR is proposing a requirement of five commercial property transactions with a total value of at least $3
million over the prior five years).
• A commercial real estate professional
would only be able to advise the client on
the real estate components of a TIC
investment and not on the securities
aspects. A registered broker-dealer would
ultimately have to be involved to close the
transaction. However, the real estate professional may be able to discuss a specific
securitized TIC property and even
arrange an inspection of it prior to the
investor being introduced to a securities
broker. That introduction would have to
take place, according to the proposal,
when a client expresses interest in investing in a particular asset. Broker-dealers
would still be required to perform their
usual duties, such as determining whether
the investment is suitable for the client
and if an investor is accredited. (Privately
placed securities like TIC investments are
only available to accredited investors. For
individuals, it means having a net worth
of more than $1 million or an annual
income of $200,000, or $300,000 jointly
with a spouse, for the prior two years and
reasonable expectation of the same
income level in the current year.)
• An investor and its commercial real
estate representative would be required
to enter into a buyer’s agent agreement,
which, among other things, would need
to identify any participants that will share
in the real estate advisory fee and the
maximum amount of that fee.
• Real estate brokers would not be able to
advertise securitized TIC properties or
that they represent clients in the purchase
of securitized TICs. They also will not be
allowed to handle client funds; participate
in the structuring of a TIC security investment offering; or help an investor purchasing TIC securities obtain financing.
More broadly, what the exemption is
meant to do, says NAR, is allow investors to
obtain advice from commercial real estate
agents on TIC investments and compensate
those agents, who currently have no incentive to suggest securitized TICs to clients.
U nder the proposed SEC exemption, a registered broker-dealer will participate in closing TIC deals. Griffin
Capital Corp. paid $32.3 million for the 265,870-sf HQ and production facility of Quantum Foods. The
Bolingbrook, IL property was acquired last fall on behalf of 29 TIC investors, who were primarily represented
by four broker-dealers: Sigma/1031 Exchange Options, Pacific West, Omni Brokerage and Direct Capital.
