Not All TIC Sponsors Are Created Equal

An investment into a 1031 Exchange – Tenant In Common (TIC) should only be made after careful evaluation of the TIC Sponsor. After all, it is the TIC Sponsor who usually negotiates the purchase of the property, obtains financing, manages the property and distributes income to the investors. There are several key elements to consider before you choose which Sponsor to turn your money over to for your 1031 Exchange replacement property.

Experience and Track Record

The experience of a TIC Sponsor is extremely important. Typically, a Sponsor with a solid track record and several years of experience can give an investor a greater level of confidence than a new Sponsor just now trying to tap into this growing, competitive market. An investor should also examine the experience of the key personnel of the company to determine how effective these individuals have been in acquiring, managing and eventually selling institutional quality properties in various real estate climates. In most cases, Sponsors are going to be private companies and may limit the amount of data it discloses to the public. So the evaluation of the key principals can be crucial in determining the strength of the Sponsor. Currently there is only one Sponsor, Grubb & Ellis, which is a publicly traded company.

Location and Asset Class

It is important to choose a Sponsor who knows how to select appropriate markets for investing and has the experience to avoid those with too much risk. A good Sponsor will look to acquire quality assets that have solid credit tenants in markets where there is low or declining vacancy and strong demand for space should a tenant leave.

The Accuracy of Projected Returns

If you looked at the projected returns of all 1031 Exchange - TIC offerings in market place, you may find some properties that appear similar can have significant differences in their projected returns. It is important not to simply choose one over the other based solely on a higher projected return. It can be much more beneficial to an investor to choose a property generating a 6% cash that actually produces that 6% than being mislead into a TIC showing an 8% cash flow that is really only generating 4%. Some sponsors will attempt to inflate first-year cash-flows in order to compete in the marketplace. An experienced sponsor should be able to justify their pro-forma assumptions by presenting investors with their multi-year track record for accurate projections and performance.

For further information on 1031 Exchange – Tenant In Common investments or to receive a PPM on current TIC offerings, please contact 1031 Alternatives Group at 866.405.1031.