I haven't had any direct experience dealing with TIC or DST sponsors, although I knew of a group based in Los Angeles called SCI that I believe was one of the bigger TIC groups and crashed and burned spectacularly.
I have come across a few groups who specialize in DST, which from what I gather is supposed to be similar to a TIC structure but not as restrictive in some aspects.
My question, is this still a viable method of raising equity? I understand the draw for 1031 investors who are trying to locate a deal to park cash and defer cap gains taxes, but is this just another bad idea waiting to happen?
Also, how do these sponsors actually raise the money to buy deals, whether TIC or otherwise? Do they have investors lined up to buy in when they tie a deal up, or do they locate the deal first and then raise the equity afterwards?
The way we are seeing DSTs play out is that they, like TICs, suited to owning very stable real estate -- think long term absolute NNN lease to a credit tenant. The problem comes when something happens at the property level and cash is needed. DSTs are unable -- legally -- to put in cash to the property to stabilize an asset if it is needed. People have tried various ways to get around this -- the DST springs to an LLC upon default, creating an opco that master leases the property and is responsible for upkeep, etc -- but they are either untried or don't quell all the concerns.
There are no shortage of DSTs that have tied up deals and are looking for debt, so the viability to raise capital seems to be there. We have seen structures where the borrower syndicates the equity before closing on the deal, and, less frequently, deals where the borrower buys the property upfront and then essentially re-sells the property to the DST, of which he will own a piece, once he has syndicated the equity.
The general view in my shop is that these are essentially no different than TIC risk, but we are anxious to see the first DST defaults to see how they play out.
On the debt side, I've worked with several TICs, one that syndicated the equity after purchase and several others that come prepackaged. The one that we did that syndicated after was a nightmare (the property was doing very well, but the TIC defaulted a ton of times for various reasons), so now we will only work with prepackaged TICs, limit them to no more than a couple partners and limits transfers.
The biggest issue is usually that you sold 100k interests to 20 people and when it comes time to sign documents to deal with an issue at a later date, you need all of their signatures before you can proceed. Getting docs signed is easy when you first do the deal, but not that easy 10 years down the line, when 4 or the original owners have died leaving their share to multiple heirs and now you need 30+ signatures. And since this isn't a partnership a that only needs the majority of votes to proceed, you are hamstrung if you have one holdout.
Also, most of those 100k investors aren't savvy real estate people, so when you need extra money for capital, they either 1) don't understand that RE is an investment that you need to maintain or 2) don't have their share of the cash to contribute.
However, if you are working with just a couple of real estate savvy partners that are just doing it for tax/structure reasons, then you generally don't have an issue.
We have turned down all requests from DSTs (or for conversions) because they are untested in courts and we definitely are not going to be the ones to go through the trouble of testing it.
Deep Dive Tutorial or Textbook on DSTs and TICs (Originally Posted: 03/11/2017)
I'm looking for recommendations on a detailed deep dive tutorial or textbook on DSTs (Delaware Statutory Trusts) and Tenants in Common (TIC).
I'm not looking for an overview article. I can find many high level (and vague) articles via google.
I would like to understand the legal, structure, and financial details of successful versus unsuccessful set up and 1031 transfers into a DST and TIC structure. Something that would be a hour long or more class taught by an experienced expert at a finance convention or even a full blown text book. I want a guidebook you would use if you had to set up a DST or TIC as part of your job.
Would love to see some literature on this subject too. Had some experience with 1031's but case studies would be great.
Enim sit ut velit consequatur. Aut aut sint voluptas dolorem et et laudantium culpa. Doloribus quis quisquam quae in.
Nam tempora cum non facere quaerat illum. Nisi cum dignissimos hic.
Ea quidem doloremque omnis eius qui. Quia iure rem repellendus aliquid sunt amet odio. Vitae inventore consequatur qui officiis et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...