Are Tenant In Common TIC investments real estate or securities?

While Tenant In Common investments qualify as real estate for1031 exchange purposes, they are primarily sold by Securities Investment Professionals.  Since 2002 there has been a constant debate about whether TICs should be marketed as Securities or Real Estate.  While roughly 95% of the TIC industry believes TICs should be sold as Securities, the debate continues.  The main platform that the Securities side stands on is “full disclosure” to the investor.  By entering into a Securitized TIC investment, investors receive the distinct advantage of reviewing package due diligence materials in the form of a Private Placement Memorandum.  This is in most cases, a duty and expense that the investor would otherwise have to undertake on their own when acquiring other forms of real estate.

Here are some bullets supporting the opinion that Tenant In Common investments are indeed securities and should be marketed as such.

• The court case SEC vs. W.J. Howey Co. 1946.  The test for determining if a particular scheme is an investment contract and thus a security is whether the scheme involved an investment in money in a common enterprise with profits to be made solely from the efforts of others.
• According to the intentionally broad SEC definition of a security. 1. Investment of money or other property 2. The investment in the common enterprise is made with the intent to use the expertise of someone other than the investor 3. The intent is to make a profit.
• Those on the securities side believe that these TIC transactions must be brokered as securities because the investor is passive and appears to derive income from the efforts of others.
• TIC investments are pre-assembled for the investors: TIC sponsors choose the property, conduct the due diligence, seek and negotiate the loan, determine how much debt to put on property, what lender to use, obtain insurance, structure the property offering to investors, provide financial projections to the investors, select and hire the property management and a myriad of other tasks to support the opinion that TIC investors seek to profit using the expertise of another party.
• California, one of the states where the greatest number of TIC interests are sold, issued clear authority that all syndicated TIC’s are securities.