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Investing in TIC
plans? Why fractional commercial real estate syndications?
What do I get that I don't get in a private placement offering of
securities? What risks are there to be considered? What
rewards might be gained? How long must I hold the
investment? All of these are excellent questions and this page
offers some answers.
Fractional commercial
real estate syndications have been around quite a long time. The
advent of the Internet has brought the market opportunity to par with
the capital market exchanges (NASDAQ, NYSE, etc.). The demand for
capital is in the billions of dollars each year and it is growing
because of the heightened access to commercial real estate transaction
fundings the Internet has created. Commercial real estate
syndication participants are now looking beyond the stodgy, fully leased
rental multifamily property that were powered by ridiculously low cap.
rates. Real estate development finance represents the
participation in the growth of capital stock as the income-producing
assets are brought together and placed in service. The
pre-development phase typically presents the highest risks, usually has
the shortest holding period and is expected to have the highest
yields. The construction phase provides generally smaller
expectations as to risk and yields. Post-construction financings
represent equity cash-outs with a long-term holding strategy that is
based upon some tax-advantaged incentive being brought to bear to boost
capital gains beyond the point of the establishment of self-sustaining
operations.
The syndication market is
not driven the same as the institutional market because of securities
laws. This tends to spill over into the real estate syndication
market. The result is an expectation of due diligence
documentation of the transaction closer to on par than ever
before. While the states seem to have jurisdiction, nobody is in a
hurry to kill the emerging market before they have a chance to
appreciate what the potential may in fact be. The syndication
market was oversold in the condominium and tract development segments to
the point of disbelief until the roof fell in a year ago. Today's
market leaders are expected to be in rental multifamily housing, rental
senior housing, entry-fee senior housing, retail, healthcare, hotels,
condo-hotels and mixed-use projects. The single-family housing
opportunity horse has been beaten down into a rug, so we need not give
them anymore consideration.
The risks and rewards of
fractional ownership of income-producing properties is based on the
phase and the strength of the transaction. The market will settle
it, but the expectation is that a given transaction is split into phases
as set forth above. These are ideal transactions to option into
your IRA account because of the tax-deferred aspects of redeeming a
contract and reinvesting the proceeds.
The expected results should conform to each individual project and
phase, but generally:
- Pre-Construction phase transactions will pay 1.50 to 2.50 times
contract price for a holding period not to exceed three (3) years.
- Construction phase transactions will pay 1.25 to 2.00 times
contract price for a holding period not to exceed three (3) years.
- Post-Construction phase transactions will pay 2.50 to 3.50
times contract price for holding periods between 7 and 10 years.
These are not guarantees or warranties of any kind. If you
don't like what your doing then you should take the opportunity to sell
it into the market. Transparency is very important in the
syndication market and will only become more so as time moves on.
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