CALIFORNIA REAL ESTATE JOUR NAL - 1031 Exchangesify their portfolio with real estate but don’t...

Dec. 4, 2006

S P E C I A L S P O N S O R E D S E C T I O N

REAL ESTATE JOURNALC A L I F O R N I A

PAGE 18 DEC. 4, 2006 CALIFORNIA REAL ESTATE JOURNAL

ROUNDTABLE ■ RETAIL

ROUNDTABLE ■ TENANT IN COMMON

Far from Equilibrium

CREJ: To start us off, what is the scope ofthe TIC industry today, and how far do youthink it can grow?

TODD F. WILLIAMS: Omni Brokerage esti-mates that equity raised within TICs that soldas securities should be in the range of $4 bil-lion, give or take a half-billion, by the end of2006. That puts us just a little bit ahead oflast year, which, although they estimated it at$4 billion, came in just around $3.2 billion.There’s been a leveling off.

As far as how big we can go, I’ve alwaysfound it funny that these real estate semi-nars always have a forecast, and they’re al-ways rosy. For me, if the housing marketslows down, and pricing continues to staytough in the commercial market, and we dowhat we did last year, we’re in pretty goodshape. I wouldn’t mind seeing it stay aboutthe same, so it’s an equilibrium that’s beenreached.

There might be a little push. We’re start-ing to pick up a little steam as far as mar-keting outside of the West Coast, and a lot of

folks are looking at selling real estate if theysee their housing falling a little bit.

WILLIAM H. WINN: Since the overall 1031volume is down recently, we believe the TICtransaction volume will grow more slowly, orpotentially flatten out. The flattening outcould occur if interest rates increase withouta corresponding increase in cap rates, be-cause the TIC investor is somewhat sensitiveto the current yield and as cash-on-cash re-turns drop below 6 percent, there may beother viable investment alternatives, or somemay elect to pay the tax.

Rising cap rates would stimulate TIC in-dustry growth, assuming interest rates didnot increase as quickly as the cap rates.

WILLIAM L. EXETER: We have a huge de-mand out there that we haven’t even seenyet. I don’t know what the dollar amountwould be of the transactional volume, butfrom what we see historically, less than 10percent of our investors actually buy intoTICs. As education increases and more peo-ple get comfortable with TICs, they are goingto buy them.

TROY SIMMONS: About a year ago we wereteaching people what a tenant-in-commonwas. Now a lot of people know. Things haveleveled off, there’s not as dramatic an in-crease as it has been, but you’re going tosee a push as the education gets to the EastCoast and with the baby boomers starting toretire. I’ve heard figures at TICA that it couldgo to $15 and $20 billion a year.

WINN: The market has significant growth po-tential because of the greater exposure andacceptance of the TIC investment structurein the eastern U.S.

MARK LEVINSON: There’s already a healthymarket awareness of TICs. The 1031 ex-change structure is an accepted format andas institutions and individuals become moreaware of the flexibility and benefits of thisproduct, sales will expand.

ROBERT TWEED: We’re seeing a lot of babyboomers, and I can almost play a taperecorder that says the same thing from everyclient that comes in my office. They’re sick of

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W ith tenant-in-commonplayers raising $1 billionin equity a quarter, theindustry is bigger than

ever before. That means there ismore at stake for this emergingmarket, which faces stiffer teststhan it has ever before.

This West Coast-based investment phenomenonhas spread to markets throughout the country, butthat expansion has attracted more regulatoryscrutiny that may forcibly define TICs. At the sametime, TIC investors have expanded their favoredproduct types and market scope to become a viablecompetitor in almost every type of deal. Yet the track

William L. Exeter

Steven P. Weinstein

Mark Levinson

Todd F. Williams William H. Winn

Troy Simmons Robert “Rusty” Tweed

record for operational success is limited relative to other investment models. An entire industry has sprung up to execute and service thisonce-novel investment vehicle with more than 150 tenant-in-common association member companies in California alone.

Will these players have the foresight and liquidity necessary to respond to the demands of TIC investors as they react to larger changesin the real estate investment marketplace? What will happen when the TIC professionals is really put to the test?

The California Real Estate Journal gathered seven TIC experts to discuss the challenges and opportunities of the ever-evolving industry.Moderated by Editor Michael Gottlieb, the panel included:

WILLIAM L. EXETER, president and chief executive officer, Exeter 1031 Exchange Services LLCMARK LEVINSON, partner in corporate securities and real estate, Alschuler Grossman, Stein & Kahan LLPTROY SIMMONS, southwest regional vice president, Spectrus Real Estate Group/FOR1031ROBERT “RUSTY” TWEED, president, Tweed Financial ServicesSTEVEN P. WEINSTEIN, president, Marketmaker Capital Corp.TODD F. WILLIAMS, chief marketing officer, Argus Realty InvestorsWILLIAM H. WINN, president, Passco Cos. LLC



tenant issues and they want to get out and dosomething different with the equity in their in-vestment property.

Another big shift in the TIC business is thatit’s not just the smaller, mom-and-pop-type peo-ple with smaller properties that want to doTICs. We’re now getting much larger clients,

people with larger exchanges, such as an $8million land deal or $10 million property want-ing to do TICs.

SIMMONS: It’s difficult to go out and find agood piece of property and do all that due dili-gence. With a TIC you get good sponsors thathave the infrastructure — that’s what they dofor business, so why not just use their serv-ices? You’re going to pay a little bit of a pre-mium, but maybe not by the time you finishdoing due diligence on 10 or 15 properties andflying all over the country. You may have savedsome money.

EXETER: You have the time frame of the 45-day1031 exchange period, too. In 45 days youcan’t do your own due diligence, it’s just almostimpossible. If the sponsor has done it all foryou, it makes it a lot easier.

STEVEN WEINSTEIN: From our perspective,it’s really moving upstream. The big WallStreet firms are looking at these kinds ofclients as something they want to market,where it’s been a specialty product for asmaller group of broker-dealers and broker-dealer networks in the past. That’s going todrive more demand and make the bidding forthe opportunity more competitive.

WILLIAMS: I’ve actually met with UBSPaineWebber and CitiGroup, some fairly largegroups in New York. The biggest issue is that wecan’t create enough product for them if theywere to send it down their distribution channel.Everybody still is very cautious about what hap-pened in the late ’80s with the limited partner-ships and so forth. A lot of that was basicallydemand-driven. There was so much demand forthose tax shelters that anything they put intothe channel was basically gobbled up withinseconds.

There’s not an unlimited amount of good realestate deals. We can only put out what we canfind, which is between eight and 10 deals ayear. That’s not going to cover it for the largercompanies.

Driven by Demographics

CREJ: What are the demographics of the TICinvestor now? Is it still baby boomers movinginto less management-intensive properties, orare you starting to see another generation, orsophisticated larger investors looking for opportunities?

SIMMONS: Yes, we’re seeing younger people,in their 30s and 40s, that are wanting to diver-sify their portfolio with real estate but don’twant to be a landlord. They saw the brain dam-age that happened to their parents and theywant nothing to do with that. Or the prices areso high, they can’t afford negative cash flowuntil the appreciation catches up. A tenant-in-common deal provides the younger investor anopportunity to take up to 10 percent of theiroverall portfolio and put it into real estate with-out all the hassles that go along with it.

In addition, people are just starting to learnthat they can use self-directed IRA money topurchase real estate. There are limitations tothat, but there’s some $4 trillion dollars’worth of money out there that is available tobuy real estate.

WINN: The typical investor profile has graduallychanged in the last five years from a 65-plusmom-and-pop investor to a slightly younger in-vestor, with a growing percentage of more so-phisticated and experienced real estate in-vestors, though the age still tends to be 60-pluson average. Also, the level of sophistication be-comes greater as the minimum investment sizeincreases. Passco usually has investment mini-mums of over $500,000, increasing the likeli-hood of increased investor experience.

WILLIAMS: I was working for a qualified inter-mediary and transacting 1031 tax exchangesright about the time that TICs got started, so,2001, 2002. There were only two companiesdoing it, and they marketed primarily to the qual-ified intermediaries because they were selling itas a security. They couldn’t find many broker-dealers willing to sign off on it, so while theywere trying to build that channel, they were talk-ing to the QI saying, “If you’ve got clients thatare falling out of an exchange and can’t findanything else, give them this flier. Have themgive us a call.” So the first folks who bought intothese essentially did so because they had fallenout of an exchange and thought this was a de-cent-enough option.

Fast forward to 2006, and less than 10percent of the investors that come into ourdeals are failing in an exchange. They actuallysold what they owned in order to do an ex-change and in order to buy into our product.They’ve been led down the path of the plannedTIC exchange.

EXETER: People started to ask what this was in2000, 2001. Today they’re asking which TICsponsors I’ve worked with, and what their duediligence is like. They’ve been to seminars,even five times in a row, and they’re asking so-phisticated questions and trying to understandthe TIC.

CREJ: How has this change affected what kindsof properties will be the target opportunities forTIC investment? It seems like TIC property se-lection has expanded dramatically in dollaramount, product type and locations.

WINN: Passco purchased large assets in a TICstructure, with the Puente Hills Mall in 2003 for$148 million. The $1.6 million minimum invest-ment demonstrated the demand for larger, in-stitutional-size assets by TIC investors.

Greater market acceptance by investors,their attorneys and CPAs of the TIC investmentvehicle, especially after Rev Proc 2002-22 in2002, and the lack of viable 1031 exchangeproperty options for those investors seeking a1031 exchange, all have driven demand in re-cent years.

TWEED: When we work with a client, we try todiversify. We encourage our clients to split themoney up, and if they have enough equity, wecan put them into three, maybe four TICs, wherethey would have an apartment complex in one,a retail shopping center in another, and then anoffice building and maybe a hotel. That way theyare diversified, just like a stock portfolio.

WEINSTEIN: And you’d probably diversifythem geographically if you had the opportu-nity, too, right?

TWEED: Yes. We try to pick different marketsaround the country that have good upside potential.

Selling the ‘Steak’

EXETER: Probably one of the ancillary thingsdriving the type of property is not necessarilythe consumer or the change in demographics,but as the interest rates change, it’s harder toprovide the cash-flow results that investors arelooking for. Sponsors are looking for other typesof products that can provide a higher cash flow.

WEINSTEIN: Yes, but we’re moving to a pointwhere people aren’t necessarily always going tobe interested in cash flow. Some people justwant the return at the end and will be comfort-able with that and grow into the property. The in-dustry has been focused on cash flow becausethat’s been the audience they’ve been sellingto, but that’s shifting.

EXETER: Everybody sells the sizzle and not thesteak. With the changing of the market, theyneed to look at the fundamentals of real prop-erty and not the interest rate.

SIMMONS: We started out with products thathad triple-net leases only, and they provided as-sured monthly income. That was for somebodythat was retiring, who needed that check. We’veexpanded our product offerings to include landdeals where there’s zero cash flow or landdeals with a little bit of cash flow but high ap-preciation potential.

You’re going to have more people and moretypes of people with different investment goals.You may have somebody that’s getting close toretirement, 55 or 60 years old but not quite




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‘T he typical investor profile has gradually changed in thelast five years from a 65-plus mom-and-pop investor to aslightly younger investor, with a growing percentage ofmore sophisticated and experienced real estate

investors, though the age still tends to be 60-plus on average. Also, the level of sophistication becomes greater as the minimuminvestment size increases. Passco usually has investmentminimums of over $500,000, increasing the likelihood of increasedinvestor experience.’

– WILLIAM H. WINN, Passco Companies LLC


there, and they still need to create wealth with$700,000 or $800,000. You don’t put them allinto one building. You may peel off $100,000or $150,000 and put it into land that’s goingto appreciate significantly in three years, andlet the other stuff do the cash flow.

WEINSTEIN: Don’t you think, as thingsprogress — right now we’re focused on singlebuildings, single piece of land, single piece ofproperty — but we’re going to get to a pointwhere there’s going to be a broad array of prop-erties within a single investment or there’sgoing to be a bunch of investments that pointto a bunch of different properties?

LEVINSON: Right. For one of our clients we re-cently completed a couple of different transac-tions that incorporated multiple improvedparcels within the transaction. Those offeringswere well received by TIC investors and theclient fount that to be a very successful mar-keting approach. As time goes on, we’ll proba-bly see more clients that are looking at differ-ent product types, whether that’s retail or of-fice and so on, within one transaction.

WILLIAMS: It’s been done before, quite a whileago. A lot of folks associate CB Richard Elliswith U.S. Advisors, but prior to that affiliationthey affiliated with a guy named Duke Runnels,and Mike Franklin, who owned a companycalled FORT Properties. FORT stood for Frac-tional Ownership of Real Property Tenants-in-Common. They went out and found four or fiveproperties, put them together in what theycalled a Fort or Fort 2, and an investor tooktitle to each of those five properties as a TIC,so they bought into a small portfolio.

We’ve done deals similarly, with two unre-lated properties and five buildings total, andwe’ve wrapped them up into one exchange.The biggest issue when you start bunching up

properties becomes identification rules. We’vecertainly done it, and it does pan out well forthe transaction because you pick up a little di-versification inside your own investment.

LEVINSON: We had one client who, within oneof those, had a building that was part net leaseand part had an upside potential. With respectto the comparables in the area, once theyleased that space, the property would probablyhave a good 8 or 9 percent appreciation withina short period of time.

EXETER: It is a great way to diversify, but theidentification issue is really the key. Most ofthe clients that come to us trying to buy a poolof properties consider that to be one property.That’s the way they identify it.

It’s a huge risk because advisers aren’tcounseling them to sit down and look at theproperties underlying the overall transactionand determine whether it truly is one propertyor, more likely, it’s multiple properties andwould fall under the 200 percent rule.

LEVINSON: Right. That’s an issue of a pro-moter qualifying their investor and doing theirown appropriate due diligence to provide solidadvice to a client.

Cash Flow Versus IRR

CREJ: TIC investors on both sides of the trans-action today are looking at different outcomesthan were initially intended. Increasingly, thequestion is about cash flow and internal rate ofreturn. What kinds of yields are TICs providing?How are these expectations changing? Andhow are we meeting investor expectations?

WILLIAMS: When we got into this business,we were buying deals in the 9 percent cap raterange and financing in the mid-6 percent range.We had 250 to 300 points of positive leverage.We had deals that had cash flows.

People forget that whatever investmentmodeling numbers Argus puts out, we’re sell-ing against all the other companies. I mighthave the best property out there and it’s all 6s,but there’s going to be a bunch of other prop-erties out there that might have 7s and 8s. Ob-viously, each property is different. There’sgoing to be a different risk level.

WINN: In Passco’s case, recent transactionshave ranged from 5.75 percent to 6.5 percentfirst-year cash-on-cash return for Class A as-sets. These returns are attainable in many U.S.markets.

Returns have trended down from 8 percent-plus, three to four years ago, as cap rates com-pressed and interest rates rose. The cash re-turn projections are based on the underlyingrent, expenses and resulting net operating in-come using Argus.

WILLIAMS: Six is about the lowest cash flowthat you can put to market outside of maybe aland deal, and some people will land-bank andrealize there’s not going to be a cash flow. Any-time we’ve come out with anything under 6, it’sa difficult sell. We literally would walk awayfrom a transaction, even if it had tremendousupside potential and an IRR that would beateverything else on the map, if it didn’t have agood 6 percent cash flow up front. We justknow when we put it in the market it’s going tobe extremely difficult to sell.

It’s hard to guess total returns when you’relooking at selling five to 10 years out. You don’tknow what the interest rate or cap rate envi-

ronment is going to be. You’re guessing atwhat your NOI might be. But we’re trying tomanage investor expectations and say, if wesell at a 150-basis-point cap rate above whatwe bought it for, in a conservatively grown netoperating income, maybe 11 percent, give ortake a point.

TWEED: Our clients are looking at between 3and 4 percent cash flow off their duplex orsmall multifamily property, so there has to bean incentive for them to leave that property andgo to a TIC. The incentive would be a highercash flow and also the ease of management.It needs to be 6 percent or north of that tomake it attractive for somebody to move theirmoney.

SIMMONS: What is funny, though, is that you’lltalk to somebody and they’ll ask what the re-turns are and you’ll say 6 percent and they say,“I can get a T-bill for that.” Then you startdrilling it down with them and you find out thattheir actual cash flow on the property they aremanaging right now is about 2 percent.

TWEED: I hear that all the time. I sit down witha person and they’re thinking of the rent theywere getting when they first bought the prop-erty.

SIMMONS: They’ve got all this dormant equity,and then they look at you and say, “This is toogood to be true.” Then you say, “I’m offeringyou real estate that pays 6 percent.”

TWEED: The investor doesn’t understand thatthe numbers work much differently in mostTICs than in their smaller rental property. Whenyou get into larger properties, as we do in TICs,economies of scale work in your favor. It’s awhole different ball game with a $40 millionproperty versus an $800,000 property.

SIMMONS: We’ve done a couple below six,even with great upside. Those properties actu-ally should make the investors a lot of money,but they do stay on the shelf longer.

TWEED: They’re looking for income. They’re sit-ting there thinking, “I’ve had this property for15, 20, 25 years. I’ve got a lot of equity in it.Now is the time to turn that equity to work forme and retire.”

The bulk of the people I’m dealing with arenot so concerned about the upside potential asthey are of the safety of the principal and agood income that is greater than what they aregetting today.

CREJ: Are there challenges going forward ifsponsors are needing to show a 6 percentcash flow?

EXETER: Sponsors are beginning to do allsorts of creative financial engineering, espe-cially with the financing vehicles, to prop upthat cash flow so it looks good and they cansell the property. We’re going to find some ofthose transactions unraveling over the nextcouple of years.

WILLIAMS: We all share a concern in that, if acertain amount of TICs goes south, it’s goingto harm the industry. Folks know that a highercash flow on paper will sell better than a lowercash flow. What people need to remember isthese are not bonds and they’re not guaran-teed. Each sponsor puts together their own pa-perwork, and they’re trying to sell a product, so





‘A bout a year ago we were teaching people what atenant-in-common was. Now a lot of people know.Things have leveled off, there’s not as dramatican increase as it has been, but you’re going to

see a push as the education gets to the East Coast and withthe baby boomers starting to retire. I’ve heard figures at TICAthat it could go to $15 and $20 billion a year.’

– TROY SIMMONS, Spectrus Real Estate Group/ FOR1031


there’s an inherent bias in the PPMs.

WINN: The key is full disclosure in the offer-ing documents of what structures are used,so that the investor can make an informeddecision.

WEINSTEIN: As the demand moves eastwardand more people want to come into thesedeals, you’re going to see new kinds of spon-sors coming up with new kinds of products forpeople who aren’t the profile of what we’vebeen selling to up until now. A company likeyours, Todd, is going to have a really platinumreputation for delivering that 6, or even 8 per-cent cash flow, plus a return at the end.

You’re going to see some other pockets de-velop where those people are really the plat-inum developers of land in transition, or theyknow the bridge is coming across there andthey’re going to be able to pick up those prop-erties and develop those. As the market de-mand grows, the properties that are being of-fered will change. It doesn’t mean the old onesaren’t going to keep going, but there’s going tobe something else coming up.

WILLIAMS: I don’t mind innovation in propertytype. I do mind innovation in property under-writing. That’s the issue. We as a companyhave stuck to one type of real estate. Whenthis industry started, there was basically multi-family, retail and office. Throw industrial inthere, but now we’re seeing things like golfcourses —

EXETER: Hotels.

SIMMONS: Managed care.

WILLIAMS: Yes. Those are all fine, so long asthe economics can support the returns. As an

industry, we’ve seen more innovation in under-writing than we have in property type.

Applied Fundamentals

CREJ: To what extent are real estate funda-mentals shaping the market for TICs?

TWEED: Real estate, whether it’s in a TIC or aREIT or a partnership or an individual buyer,the same fundamentals apply. When guys inmy position present TICs to investors, we haveto be very cognizant of the quality of the deal.I hired a full-time property analyst just to gothrough PPMs and talk to TIC sponsors andfind the pros and cons of all the different prop-erties, so we can adjust the risk level of the in-vestor to the risk level of the property we’representing to them.

WILLIAMS: Five or six years ago, when the in-dustry had three or four players, nobody dealtwith the tertiary markets. Everything was core.You were buying in Phoenix, Las Vegas, SanDiego and Los Angeles. That’s what we used topitch. If I pulled the old presentations of thethree major players back in 2001, the onlything anybody would go after is core metropoli-tan markets. Everybody was looking for stabi-lized or fully stabilized properties. The ideawas, the only appropriate type of property for aTIC was one with as limited risk as possible.

As the cap rates came down further and fur-ther in those particular markets and newersponsors came in, the chase began for yield,and the only way you’re going to find higher caprates is to either go outside of your core met-ropolitan markets or get into a little bit of ariskier class of assets.

Today, stuff is being offered in cities thatI’ve never personally heard of. That’s just liter-ally a drive for yield. I mean, you’re going to paya different rate for an apartment building inthe middle of Kentucky than you are for an of-fice building in the middle of Los Angeles. Dothey have the same risk level? Not necessar-ily. Is it good or bad? I’m not saying it’s nec-essarily bad, but it’s yield that is driving prod-uct type and location.

SIMMONS: I’m not necessarily convinced thatthe cap rates reflect the risk involved in a lot ofthose. Five years ago, a Class A property mighthave been a 9 cap and a Class C a 13 or 14cap — you had a good spread there. Nowyou’re looking at a Class A at 6 and a Class Cat 8. You’ve got some of these higher-risk in-vestments, like hotels, golf courses or man-aged care, and they’re at 9 caps. It’s hard tojustify. It seems to me that there’s a lot morerisk and the caps don’t reflect it.

WILLIAMS: When there’s such a rush to getinto real estate, the cap rate differential thatusually spreads risk starts to narrow. Peopleare paying the same price for a good, solidasset and for something with a great deal ofrisk. A lot of times, we are dealing with folksthat are not that savvy, so they don’t know howto differentiate risk between two different TICdeals. That’s where working with a well-trained,well-educated financial adviser is essential. Ifyou sit two PPMs in front of somebody and onesays 6 percent and one says 8 percent, andthey both have a shiny glass building, the per-son is going to say, “I’ll take the 8.”

Setting Standards

CREJ: In real estate in general, along with WallStreet’s influx, we’ve seen an improvement in

documentation to speed up execution. Howstandardized and of what quality are the docu-ments in the TIC transaction today? Is thereroom for improvement?

WILLIAMS: I wouldn’t say they’re standardized.There’s no legal requirement that a PPM beused in a Reg. D offering. We follow public of-fering protocol and utilize the PPM literally.

LEVINSON: There certainly has to be somedisclosure. The real standard is, at the end ofthe day, whether the promoter provided infor-mation in a clear and coherent fashion so thatan investor was able to make an informed in-vestment decision and not come back dis-gruntled and feel tricked if a transaction be-comes troubled.

WEINSTEIN: If you’re a buyer, you have to dothe due diligence and stand by the outsidethird-party law firm that said, “Yes.”

LEVINSON: An outside third party due dili-gence consultant is hired often in the case ofa broker-dealer, to be an independent reviewerand satisfy the broker-dealer’s due diligencerequirement to have reasonably investigatedfacts in connection with the syndication offer-ing materials. That is in addition to the practi-cal requirements for the other people sellingthe transaction.

WEINSTEIN: It’s completely possible that thereare sponsors who play with the numbers, whichultimately hurts the industry. It’s very much ofa caveat emptor situation.

Somewhere down the road, we’ll get to areal, standardized rating system that you couldgo to, to check a stock if you’re going to buy it.You’d be able to understand if a given propertywas something that met your risk tolerance.

LEVINSON: The issue mostly impacts the repu-tation of the sponsor and what the sponsor isdoing to create an opportunity for investors tolook at objective investment criteria.

SIMMONS: In an ideal world that’s great, but Isense that this is anecdotal.

LEVINSON: Correct.

SIMMONS: I’ve seen deals where the sponsoris projecting 4 percent per year rental growthrates and 50 percent of the property is one ten-ant in a fixed-rate lease. So they’re going to getall that growth from the mom-and-pops that arethere, or they’re forecasting 4 percent vacancyrates over the next 10 years, and currently it’s12. How does Ma and Pa Kettle know if 4 or 6or 8 percent is good for Kansas City or Atlanta?

LEVINSON: That information should comefrom the demographic discussion that wouldbe in the offering materials. It should comefrom a third party. We look for consistency be-tween the appraisal and the book, and our as-sociates run the numbers as if they were in-vesting in the transaction.

WILLIAMS: This discussion is premature. I’mnot aware of any deals in which a TIC sponsorhas been sued and held up to the PPM, lookingat the PPM as the parachute on a re-entry ve-hicle on a rocket. We can sit around the tableand discuss how it’s supposed to work andhow good, but until it comes back down safelyto Earth we won’t necessarily know.





‘F ast forward to 2006, and less than 10 percent ofthe investors that come into our deals are failing inan exchange. They actually sold what they owned inorder to do an exchange and in order to buy into

our product. They’ve been led down the path of the plannedTIC exchange.’

– TODD F. WILLIAMS, Argus Realty Investors


One of these days a sale will go to court, andthe sponsor will introduce the PPM into evi-dence. Then, 12 people, who have no idea whata PPM is or what real estate is, are going tomake the decision as to whether the informa-

tion you’ve put in there was sufficient to advisethe investor of the risk and the benefits. Ex-perts will testify that the 4 percent market rategrowth is ridiculous in this particular market-place, and the firm will be held accountable fortheir actions.

LEVINSON: Having been involved in the securi-ties business, I’ve seen a lot of securities liti-gation over prospectuses, private placementand generally, in deals gone bad. It’s not an en-tirely theoretical discussion when I look at aconfidential private placement memorandum,because I’m looking at it from the perspectiveof having defended clients that have. There’splenty of case law out there.

WILLIAMS: A good sponsor and a good law firmwill draft the book looking forward, saying noteven “if” but “when” this is litigated, at somepoint, can these withstand the challenges thatwe know are going to come?

LEVINSON: Correct.

WILLIAMS: We’ll see as the market matures.

TWEED: For us, we get familiar with certainsponsors, and we get to trust their numbers. Ifwe look at a couple of the deals they’ve done,we will feel going forward other deals they pres-ent to us are going to have reasonable as-sumptions also. So there’s definitely somethingto be said for the reputation of a sponsor.

EXETER: Investor due diligence is key, and notjust seminars and education, but going andkicking the tires, visiting the property. I don’t

think most of them do that.

LEVINSON: They can take comfort that thereare a number of levels in due diligence. Theydon’t have to simply rely on the promoter.There’s that third party due diligence consultantthat evaluates the project and financial under-pinnings of the offerings, there’s the lenderdoing their own project and financial due dili-gence, and there are probably three or fourother levels that get looked at.

EXETER: It’s certainly true of the quality spon-sors and brokers. As a qualified intermediary,we have seen some sponsors and brokerswhose PPMs and disclosure would just scarethe bejesus out of you.

SIMMONS: You’ve probably seen more thananybody at this table.

Transaction Costs in Context

CREJ: In a market with lower cap rates and alimit on reasonable returns, what are the trendsin transaction costs?

SIMMONS: The lenders all went to a seminarsomewhere and they all got in the same room,and all of a sudden they all charge the samefees for the same thing, overnight. For a longtime they were fighting even putting loans onTICs, but now they realize the industry is bigenough and there’s a way to make money sothere’s a profit center. You’re looking at in-creased lender costs and then you’re looking atsome legal fees to set up LLCs for the individ-ual investors or owners.

WINN: Generally, the sponsor fees havetrended down over the years under the securityplatform. Securities law firms that prepare theoffering documents have been able to reducefees as a result of increased volume. Loan doc-ument legal costs are down on both sides be-cause most of the lenders have template TICloan documents that require less negotiation.

LEVINSON: We have seen clients lower theirfees, adjust to certain higher costs in otherareas, and agree to a given fee when reservesare overfunded. Those reserves go back to theTIC in some way or don’t necessarily go back tothe third party.

WILLIAMS: I remember when we first started inthis industry, I was literally kicked out of a com-mercial broker’s office because they thought Iwas bringing in a competitor. I went in to speakon 1031 and TIC, and I brought in somebodyfrom the sponsor. We were just about manhan-dled out of the room. They thought they’d belosing clients to the TIC industry.

Five years later, they don’t look at us as acompetitor so much as a buyer of real estate.These guys are listing it and selling it, and cer-tainly they should be friends with us for that rea-son. They might have a client that they can’tplace that they can put in, as well.

What the commercial industry didn’t realizewas that, with a TIC, you can buy a property atmarket value, mark it up a couple percent, andturn around and sell it immediately. They could-n’t do it, so they thought we were taking advan-tage of investors.

When we’re trying to describe how a loadworks on a piece of commercial real estatethat’s sold off as a TIC, the best analogy I cameup with is Hertz Rent-A-Car. If you’re Hertz, andyou want to buy 5,000 Ford Tauruses, you go di-rectly to Ford and they might charge you $7,000

a car for them. You’re not going to pay the mar-keting or shipping costs. If I personally want tobuy a Ford Taurus, I’ve got to go to the dealer,and I will pay $15,000 for the exact same car.I’m going to pay the dealer’s cost and the ship-ping and the marketing and the salesman’scommissions and so forth.

Did I overpay for the car? The answer is no,because I’m a retail buyer. That’s what I haveaccess to.

The TIC industry has essentially done thesame thing for cash flowing commercial realestate. We’ve taken that asset class, broken itup into bite-size pieces, and made it availableto the smaller investor, for a fee. That fee isreasonable, so long as the expectations of allparties involved are met. That means if the in-vestor is expecting a 6 and he gets a 6, thenhe’s good. If the registered representative thatis selling the property is expecting a commis-sion of 7 percent of equity and he receivesthat, he’s happy. If the sponsor makes what-ever it is they have in the deal, he’s happy. Allthree sides have to coexist. You take one outof there and it falls.

From our cost standpoint, so long as allthree things can be met and it’s profitable forus, we’re involved in the industry. We’re notbenevolent in that we’re doing this just for fun.

By the time we syndicate and sell a prop-erty to 35 investors, they’re going to pay about6 or 7 percent more for the property than wedid, and that’s going to cover the costs to thesponsor, the legal work to put together the syn-dication, and the securities professional thatsells the interest.

Then the reality becomes, can the propertyoutgrow a 6 or 7 percent premium such thatthese folks can exit the property after receivingtheir cash flow? Of the 36 deals we’ve done atthis point, we’ve turned six and we’ve exceededpro formas on them, so the math works.

TWEED: We’ve seen a lot of TIC deals we’vesold to clients where the sponsor bought belowmarket. By the time you add your load on it, itwas at or maybe just a little bit above the regu-lar market price. So the load didn’t make thatproperty overvalued that much, not enough tokill the deal.

EXETER: The investors really have to look at itfrom the standpoint that they don’t have a hugeacquisition team of highly skilled professionalswho know what they’re doing, so they’re payinga price for one. It certainly takes the risk out ofthat 45-day period. They don’t have to do thedue diligence. It’s already done. They just sayyea or nay.

CREJ: Has the TIC transaction process becomemore streamlined? What factors have eitherhelped or inhibited that?

WINN: Inhibitors are the lenders’ requirementfor each TIC to hold their undivided interest inthe property in a Delaware bankruptcy remotelimited liability company, the cost of $200-$1,500 per year to maintain this LLC, the loanservicers not providing good “service,” and thetransfer provisions of the loan documents. Itmakes it somewhat cumbersome for TIC in-vestors to sell their undivided interest prior tothe whole property being sold.

The TIC investment is illiquid and sold as anilliquid investment. It is no more illiquid than any“non TIC” real estate investment.

TWEED: There’s a lot more inventory today,which makes it much easier for everybody. Two,





‘W e’re moving to a point where people aren’tnecessarily always going to be interested in cashflow. Some people just want the return at the endand will be comfortable with that and grow into

the property. The industry has been focused on cash flowbecause that's been the audience they've been selling to, but that’s shifting.’

– STEVEN P. WEINSTEIN, Marketmaker Capital Corp.


three years ago we would have clients that wepromoted to and tied to some property, and bythe time they came around to being in cash,there’s no inventory to talk to them about.

Today there’s maybe 60 to 80 TIC dealsavailable at any point in time. It’s easier to pickthe appropriate property for the client whenthey’re ready to buy.

SIMMONS: It’s not an industry question somuch as a proprietary question. Successfulcompanies will build an infrastructure forspeed. They’ll have an operations departmentwith escrow built into it and everything else, sothat when somebody is ready to close they cando it.

I mean, we’ve literally done it in three days.It’s not something that we’d like to have hap-pen all the time, but you can do it that quickly,and most of the sponsors here can do that.

EXETER: It’s also an industry question. Threeor four years ago, you had escrow officers whoweren’t used to closing 35 investors. From thetitle company to the escrow company to thequalified intermediary, they’ve streamlined itand it really does flow much smoother. It’s eas-ier to do a TIC transaction.

SIMMONS: We’ve done about 120 propertiesin the last two years. We’ve got a couple of titleand escrow companies across the street fromour headquarters and they know what we haveto do. They want to do business with us, theyknow what it takes, so we’re able to do that.

WINN: Increased familiarity by escrow officers,lenders, attorneys and registered reps hascaused the process to be much smoother forinvestors. Pre-negotiated loan documents arecommon, which saves time, money and lowersthe risk of poorly structured docs.

LEVINSON: For every transaction, there’s a

host of different documents, and every TIC in-vestor probably has to deal with 30 pieces ofpaper. When that’s multiplied by 10 or 20 or30, it’s an enormous amount of paper, settingaside the financing documents and the prop-erty acquisition documents on the first leg.

We’re constantly hearing clients ask how wecan streamline the documents. We worked to-ward creating a number of mechanisms to ac-complish that, including exploring Internet andvirtual document rooms, making it available forpeople to move paper around the country.We’re looking into electronic signatures, andwe’re constantly trying to simplify that process.For every set of 30 documents that I men-tioned per tenant-in-common investor, thelender wants their copy, the sponsor wantstheir copy, the TIC wants their copy. You’re talk-ing five times 30 — 150 pages per client.

WINN: In the early years, 1994-2003, TICswould need to sign a complete set of all docu-ments, including loan documents. Today, somesponsors, including Passco, buy 100 percentof the property first, and then sell the TIC inter-ests, which results in a partial ownership inter-est transfer from sponsor to investor using anassumption agreement. The volume and com-plexity of the documents requiring investor sig-natures is dramatically reduced.

WILLIAMS: Take-down speed was a lot moreimportant five years ago than it is today, be-cause at that time we were raising all the eq-uity in order to close on the property. Most ofthe companies weren’t buying it first; they putit in escrow, and if you didn’t raise the capitalnecessary to buy that property, you lost thatparticular deal. Once you put a property undercontract, you might have a contract with 30days’ due diligence, 30 days’ escrow and a 30-day extension. That’s your window to get thebook done, out and money raised. It was very,very difficult to deal.

The first guy that walked into a lender andsaid, “I’d like a $50 million loan on behalf of 35people that I don’t know yet, how soon can weget that paperwork drawn up?” the lender prob-ably looked up and said, “You’re nuts.” Now, Iget letters from lenders saying they do TICloans. Now lenders have the underwriting crite-ria and the product in place for us.

Just by virtue of the industry maturing, we’regetting faster. But most of us larger sponsorsnow have the ability to take the property downourselves. We’re not under the gun, so tospeak, to close within 30 days and raise allthat money. We’ve also given ourselves a littlebreathing room.

WEINSTEIN: We’ve heard that story fromsmaller sponsors, that they’ve got to take downthe property, get their senior loan in place, gettheir mezzanine loan in place, raise their equity,and it all has to happen by next Tuesday. Theyhave to create this perfect storm that’s goingto get their deal to happen or it’s a bust. So wecame out with a product for smaller sponsorsto help them separate those pieces and get itunder control, make some fix ups and go tomarket. Because, honest to God, how is the in-dustry going to survive if you have busted dealsall over the place?

WILLIAMS: The original lenders didn’t likethese deals, so they wouldn’t give you a mez-zanine piece to close it. It was only those fewsponsors that have been in long enough tohave a long track record to prove they could doit that could get access.

Once you get large enough, you get a creditfacility and you can raise some of your ownfunds. That’s a big topic in the industry rightnow — how the smaller sponsors are going tofare when it’s taking longer to raise equity.

Flight to Quality Sponsorship

CREJ: Would you say the quality of sponsorshipis better today than it was before?

LEVINSON: Through the Tenant-In-Common As-sociation and other organizations, there is agenuine commitment by the vast majority of theparticipants to high operational and ethicalstandards.

EXETER: TICA is trying to come out with a best-practices statement, and most are trying to im-plement and live by the best practices. Theother side of the coin is that the market hasdone so well, the smaller providers are jumpingin at the fringe. That concerns me. They don’tfollow the best practices, and that will harm theindustry.

WINN: Securities sponsors are being chal-lenged by the NASD, the Tenant-In-CommonAssociation best-practices memo, third-partyTIC due diligence firms hired by broker-dealers,broker-dealer due diligence officers and regis-tered reps. Real estate TICs have adoptedparts of the TICA best-practices memo. If theyare members of TICA, there may be somescrutiny by real estate agents. But there areno independent due diligence firms or officersscrutinizing them.

SIMMONS: When you go from three or foursponsors to 12 to 80 in three years, thatmakes me nervous. I’m not going to sit hereand say, there’s all these bad things happen-ing. It’s just the numbers thing.

WINN: We have seen a lot of ignorance outthere in how to properly structure and under-write a TIC transaction. Some new firms thinkbecause they have managed real estate for in-stitutions, they can do the same for TICs. Thisis not the case.

In the TIC world, we plan for no capital callsduring the hold period and a stable cash-on-cash return, thus managing the cash. In the in-stitutional world, cash-on-cash returns can fluc-tuate and there is a mechanism for capitalcalls. The result has been more TIC investmentoptions both in quantity and property type.

WILLIAMS: Here’s the thing that’s interestingabout our industry versus any other industryright now. Some properties have gone some-what south, but nothing huge that’s blown upand made the cover of anything, and everybodyis so talking about when it’s going to happen.Yet we don’t hold the stock market, mutualfunds, anything else to that same level ofscrutiny. If there’s 2,000 mutual funds on thestock exchange and if 1,500 of them are good,nobody is saying there’s something wrong withmutual funds. Same thing with the stock mar-ket. We’re the one industry that is holding our-selves to this level, of no mistakes allowed.

SIMMONS: Investors hold us to an even higherstandard than the standard to which they holdthemselves.

WILLIAMS: I have a great story for that.I sent plaques to all our investors, with a pic-





‘T ICA is trying to come out with a best-practicesstatement, and most are trying to implement and liveby the best practices. The other side of the coin isthat the market has done so well, the smaller

providers are jumping in at the fringe. That concerns me. Theydon’t follow the best practices, and that will harm the industry.’

– WILLIAM L. EXETER, Exeter 1031 Exchange Services LLC


ture of the property and location and amountinvested, and an investor called me back di-rectly. He says, “Hey, I wanted to thank youfor the plaque. First of all, I hope that didn’tcome out of the operating expenses of the

property.” I said, “No, it didn’t.” He said,“Secondly, I’ll be hanging that plaque on mywall when your property is performing aspromised.”

I called my property-management guys.“How is this property doing? I mean, didsomething happen here?” They said, “No.Cash flow is currently at 7 percent.” Then Iwent back into the archives, got the PPM,and it said in year three the property wouldbe doing 7.1. This guy was that ticked offabout a 0.1 percent differential.

TWEED: The people we’re dealing with,they’ve all had bad experiences with prop-erty management or being involved in somepartnership or lost money in the stock mar-ket. They’ve made the decision to managetheir own properties for most of their life.When they come to the point in life wherethey want to do the tenant-in-common prop-erty, they’re giving up the control that they’vehad for many, many years.

WEINSTEIN: About the caliber of the peoplecoming into the market, it’s like everythingelse, you’ve got some great and some not sogreat. I was at a TICA meeting in Las Vegasand I met people with the credentials thatyou would want to find in any white shoefirm, any top-notch brokerage house, lots ofivy hanging from their resumes and experi-ence coming from some of the really bigbanks and brokerage houses. We’re very im-pressed with the quality of people in there.

When Good Deals Go Bad

CREJ: In the isolated handful of examples of

a TIC deal that went bad, what happened tothe investors? What happened to their in-vestment?

TWEED: We’ve done 60 TIC deals. Out ofthose, two have been underperforming. Now,on a percentage basis that’s pretty amazingfor any type of investment.

What happened on one of those dealswas a REIT had gotten in the TIC businessand the deal was underperforming quite abit, so luckily, the sponsor offered to buy outthe tenant-in-common owners.

The other property had an issue with oneof the tenants giving up their lease and leav-ing. It didn’t create a horrible problem, theygot new tenants in there, but because theyhad to use the reserves for tenant improve-ments, cash flow is going to be soft for aboutsix months while they replenish the re-serves.

It brings home this whole point of diversi-fication. All the clients that we’re dealingwith, we make sure they have enough liquid-ity and enough other investments that if oneof the TIC deals doesn’t perform like it’ssupposed to, they’re not going to be left inthe lurch.

WINN: We have seen some properties notmeet their projected cash on cash return oroverall returns. We hear that some dealsmay have been or are in more difficulty. Withthe number of TIC-owned properties, someproperties would be expected not to performas planned, which is not any different thanother forms of real estate ownership.

CREJ: What should we be watching for withregard to regulator y and legislativescrutiny of the market? Is there anyonewatching out for the industry or lobbying onits behalf in Washington D.C.?

LEVINSON: The Tenant-In-Common Associationhas engaged a lobbying firm in Washington.

There’s been a suggestion that there aresimilarities to the ’80s. The difference isthat the transactions in syndications of the’80s were based upon taking deductionsthat might not have existed, or deduction onmonies not paid. Today these transactionsemphasize the economics of the transactionand are simply executing on what has beena traditional tax-favored 1031 exchange pol-icy for many years. It doesn’t seem to methat this industry is going to be threatened inthe long run.

WILLIAMS: The legislators are looking atTICs right now as a revenue generator. Thisyear, in an attempt to balance the budget,someone threw in a line item that wouldhave eliminated people’s ability to roll a1031 into a TIC. They thought it would add abillion dollars to the budget. It’s the simplis-tic view, that if we just eliminate TICs thatthose people would have paid taxes at 25percent, and we would have collected thatbillion dollars. Reality says, if most peoplecan’t do TICs they won’t sell. A billion dollarsis back off the table.

WEINSTEIN: And that’s a huge incentive forthe government to keep the real estate mar-ket moving. People are willing to pay retail orretail plus for properties. That sure helps theoverall real estate industry.

WILLIAMS: Yes, the industry is mobilized.

The National Association of Realtors, whichis one of the most powerful lobbies in theUnited States, doesn’t want to see anythinghappen to 1031. 1031 keeps real estateflowing and moving and assists the econ-omy. They’re meeting with the Senate Fi-nance Committee. They’ve hired one of thetop five CPA firms in the country. They’vehired lobbyists in order to get the access tospeak to those folks.

We were able to get the legislators to takethat line item off the table this time, only be-cause it never went through in a discussion.Are we a little nervous about that? Sure.

End of the Cycle

CREJ: We are starting to see the early TIC in-vestors reach the end of the cycle. Are TICpioneers looking to come back into anotherTIC opportunity?

SIMMONS: People that got in for a reason,their expectations have been met on the fewproperties that have gone full cycle, andthey’re just going back in and doing it again.

If you went into a TIC because you hatedyour tenants, you had little cash flow and youdidn’t want to pay taxes, and then you gotthe cash flow, you doubled or tripled yourmonthly income and you eliminated being alandlord, why wouldn’t you do it again?

WILLIAMS: One of my favorite sayings, andit applies so perfectly to TICs, is: Happinessis expectations minus reality. So long asyou’ve met those — the reality of their in-vestment meets their expectations, they’regoing to be happy. We’ve turned over sixproperties, and probably 90 percent-plus ofour investors came back with us. The re-mainder went into other TIC deals. I can’tthink of anybody that just went back out-side. They had a fairly favorable experience.

SIMMONS: If you’re 65 years old and you in-vested in a TIC deal and your expectationswere met five years ago, and now you’re 70,I can’t imagine anybody saying, “Boy, I reallymiss those good-ol’ landlord days when Iwould go deal with my tenants.”

WILLIAMS: If you polled the industry on guysthat had full-cycle deals, it gets in the high90s, the percentage that stayed within TICs.Some of them just cashed out.

WINN: Our experience is that 99 percent of theinvestors stay in the transaction until the prop-erty as a whole is sold. Passco has had 12transactions go full cycle in the last 5 years.

The typical property hold period has been3 to 6 years historically. Looking forward, itwill be 7 to 10 years. In general, we are see-ing about 80 percent reinvestment into a1031 exchange opportunities and about 20percent choose to pay the tax.

SIMMONS: The only ones that I know of per-sonally where they’ve cashed out has been adeath in the family and the kids just wantedthe cash.

EXETER: We find most of our clients, oncethey’re in TICs they pretty much stay in TICS.Very few go out.

Innovation In a New Industry

CREJ: Let’s look at innovations coming to





‘T he bulk of the people I'm dealing with are not soconcerned about the upside potential as they are ofthe safety of the principal and a good income that isgreater than what they are getting today.’

– ROBERT “RUSTY” TWEED, Tweed Financial Services


the TIC industry. Would you say TIC-financeddevelopment is on the horizon?

WILLIAMS: It’s not something that we’vedone. I foresee more value-added transac-tions. People are looking for greater returnsthan what the marketplace can deliver right

now. Value-added deals can be either reposi-tioning an asset or buying an asset that isnot stabilized and leasing it up. Both ofthose things require quite a bit of money.

The problem in a TIC deal is, when youcombine that need with an exchange, you’regoing to end up with taxable consequences.If you hold money back out of an equity raiseand that money doesn’t go into the sticksand bricks of the exchange, but rather to paytaxes on it, most folks are unwilling to get in-volved in that transaction. You’d almost haveto create a bifurcated investment wherebyyou had an exchange into the property, andfolks added let’s say $200,000 dollars intoan account. Typically, these deals have zerocash flow upfront, but hopefully a higher totalreturn on the back end.

We’d like to do it. The investor that’s typi-cally being led to our table is just not savvyenough for it — even though we might beable to provide 20, 25 percent yearly re-turns. When it’s all said and done, mostfolks are just not going to get it.

EXETER: That may change as the demo-graphics change. More sophisticated peopleare coming into the TIC market. They’reyounger folks who are looking to invest, sothey may drive that at some point in time.Right now, it’s a more conservative demo-graphic base.

WEINSTEIN: We’re seeing some peopledoing some things that, unfortunately, we

can’t talk about at this point because they’restill proprietary. Within that envelope — of 35investors, and so many dollars they can com-mit, and real estate-related — we’re seeingpeople pushing the bounds. Some reallysmart lawyers are thinking about, if we pusha little more air into that envelope, can wemake sure it doesn’t pop, and still drivebusiness into the marketplace? You just haveto stand back and watch, and a year or twofrom now say, “Why didn’t we think of that?”

SIMMONS: We’re actually offering a real es-tate development deal, but it’s with non-1031 money. It’s pure equity. There aresome questions about, if you’re buying theland, can you 1031 on the back end? Prob-ably, but at the same time, we want to keepit nice and clean and the easiest way to doit is non-1031 on the front, non-1031 on theback. It’s an investment that’s going tomake you 20, 25 percent annualized re-turns.

WILLIAMS: The TIC industry does not nec-essarily need to be stretched. There areways to get into those investments and dothose types of investments. TIC may not bethe vehicle for it. We can certainly put to-gether partnerships or other structures inorder to do that.

Final Thoughts

CREJ: What will drive the next wave in theTIC industry and help it grow?

LEVINSON: The continued creativity of theparticipants in the marketplace and thesponsors and syndicators.

WINN: Innovation requires a foundation ofknowledge. In order to practice in the TICarena people need to develop skills and ex-perience. Skills are best obtained by hiringqualified leaders, managers and staff whohave worked in the TIC environment. Also,selecting the correct advisors who have ex-perience real estate transactions along withtax and securities attorneys that understandthe nuances of TICs is critical.

SIMMONS: It’s what drives innovation in anyindustry: the market. When your customersno longer like what you want, or you see an-other market segment or a channel thatsays, I would like this particular product, ifyou could tweak it slightly, that’s what’sgoing to happen. The sponsors that havetheir ears close to the market will respond.

WEINSTEIN: Demand is going to cause newsponsors to come in and old sponsors to dodifferent things. There’s an awful lot of brainpower going at the problem right now. We arededicating a lot of energy and capital to thismarket, and launching new products, suchas Syndicator Exchange, that is directed tothis industry, because we think it’s a hugeopportunity all around.

WILLIAMS: I’ll take the opposite positionand say that quality is what’s going to drivegrowth going forward. When we start throw-ing words around like “creativity” and “inno-vation,” what does it mean? There’s notmuch more we can do. It’s dirt, dirt andsteel. I mean, there’s not much more we cando with it. We can’t change its location. Wecan’t change anything about it. We can onlychange the way it’s underwritten and sold.

We’re not going to be an interest rate ora cap rate environment, in which bad dealsare going to be saved by cap rate compres-sion. There have been quite a few dealsthat had cap rates not drop. They’ve beenunderwater right now and they’ve been incash call. By virtue of buying during a risingtide, they’re able to sell and still call it asuccess.

This question is best asked two yearsfrom now. If a good portion of the deals gobad, and we can see a commonality be-tween them, then they’re going to eliminatethat from the market segment, and the sur-viving companies will be the ones with qual-ity assets.

SIMMONS: I know what you’re saying as faras innovation and creativity, but the innova-tion comes in products, good-quality prod-ucts that are different. Most people thinkTICs, and they think it’s multifamily, it’s re-tail, it’s office, whatever it is, as opposed toground leases or a land-banking program orsomething like that, where it’s a differentproduct for a different need. As long as thequality is there.

EXETER: One of the next big waves in inno-vation is going to stem from demand. As wehave more product out there, and more in-vestors that hold this product, there’s goingto be a secondary market. I don’t know howwe will deal with it.

TWEED: We’re still early in the game, buttwo, three, four years ago that turned out tobe a big plus.

WILLIAMS: That’s a hot-button issue be-cause one of the primary things the legisla-ture was talking about when they were look-ing at TICS was, “This stuff looks like a se-curity. If it can be bought and sold like a se-curity, then it shouldn’t be a function of1031.”

One of the issues was liquidity. They saidland has always been considered illiquid. Idon’t think we’ll ever get to that point, andthe reason becomes the lenders. If thesewere all-cash deals, people could just sellthem easily. The lender is the one that’sgoing to require an assumption, and as-sumptions take time and that person that’sbuying it is going to have to be underwrittenand it’s going to cost money.

If we ever got to the point where all 35 in-vestors could go out and get their own loanor the loan is actually split into 35 pieces, soif one guy sold, a new guy could just come inand reapply for a new loan with any bank thathe wanted, then maybe you’ve got a liquidityfeature.

TWEED: You’ve got to understand, the peo-ple we’re dealing with are already taking abig leap from a duplex or a four-plex into a16-story office building. We already have alot of complexity for them to grasp to startwith. Getting any more innovative is a bigleap. Truthfully, we want good quality dealsthat people can rely on and get their cashflow and count on it, and that’s going to cre-ate the growth in the industry.

CREJ: Gentlemen, it is clear that from thediscussion today that the TIC industry hasgrown and matured in a significant way andthis discussion should resolve some of themisgivings of the naysayers.

Thank you for an insightful discussion.




‘H aving been involved in the securities business, I’veseen a lot of securities litigation over prospectuses,private placement and generally, in deals gone bad.It’s not an entirely theoretical discussion when I look

at a confidential private placement memorandum, because I’mlooking at it from the perspective of having defended clients thathave. There’s plenty of case law out there.’

– WILLIAM MARK LEVINSON, Alschuler Grossman Stein & Kahan LLP

CALIFORNIA REAL ESTATE JOURNAL DEC. 4, 2006 PAGE 33



WILLIAM L. EXETERWilliam L. Exeter is president and chief executiveofficer of EXETER 1031 EXCHANGE SERVICESLLC. Exeter has been in the financial services in-dustry since 1980 and is celebrating 21 years inthe 1031 exchange services industry. He has ad-ministered more than 60,000 1031 exchanges

during his career and is one of the founding members of the Fed-eration of Exchange Accommodators. Exeter has written and lec-tured extensively on 1031 exchanges and on tenant-in-common(TIC) Properties as like-kind replacement property options andhas written an extensive educational 1031 exchange Web site atwww.exeterco.com. In addition, he is a frequent guest expert on“The Financial Advisers” money talk radio show on AM NewsRadio 600 KOGO San Diego and on the “Inside Business” radioshow on AM Radio 1000 KCEO San Diego.

MARK LEVINSONMark Levinson is a partner with ALSCHULERGROSSMAN STEIN & KAHAN and chairs thefirm’s Finance Group. With more than 20years of practice, Levinson has structuredand closed numerous complex business andfinancing arrangements for clients in the realestate, financing and securities industry. Hisexpertise has proven effective for clients involved in bringing tothe market tenant-in-common real estate syndication programs.

Levinson routinely provides corporate counsel to public andmid-market companies across a wide range of industries, finan-cial institutions, underwriters, indenture trustees and municipalissuers. These complex transactions often require expertise inderivative product financial arrangements including interest rateswap agreements. Levinson has particular experience in securi-ties default and loan default matters.

TROY SIMMONSTroy Simmons is the Southwest regional vice president for SPEC-TRUS REAL ESTATE GROUP. Based in Los Angeles, he is re-sponsible for developing and maintaining Spectrus Group’s posi-

tion as the leading provider of quality, diversifiedreal estate investments in the Arizona, Colorado,Hawaii, Nevada, New Mexico, Southern Californiaand Utah markets.

Prior to joining Spectrus, Simmons worked in theresidential construction industry where he was re-sponsible for marketing and new product develop-ment at the world’s largest roof tile manufacturer.He successfully launched multiple new and revolu-tionary products while receiving several patents.

Simmons’ professional experience also includes work as asenior executive at Knox Co. where he established the marketingdepartment and directed sales to achieve 17 consecutive quar-ters of increasing sales and profit goals.

ROBERT “RUSTY” TWEEDRobert “Rusty” Tweed is president andfounder of TWEED FINANCIAL SERVICESINC., an independent, comprehensive fi-nancial planning firm based in San Marino.

Tweed is a certified estate adviser andprominent member of the Board of Advisersof the National Association of Financial and

Estate Planners and an associate member of the Tenants-In-Com-mon Association. Tweed has assisted more than 700 clients toset up appropriate trust structures and settled more than 50 es-tates. As a specialist in retirement investment planning, he man-ages in excess of $100 million for hundreds of clients in the LosAngeles and San Gabriel Valley areas, utilizing individual portfo-lios, managed accounts, REITs, tenant-in-common offerings,1031 exchanges, real estate limited liability corporations and pri-vate trusts.

STEVEN P. WEINSTEINSteven P. Weinstein formed Marketmaker Capital in2002 to provide financing for and acquiring middle-market companies. From this foundation, he formedMARKETMAKER FUNDING with a specific focus onfinancial structuring for TIC transactions. Weinsteinhas 20 years of executive management experiencein all aspects of corporate governance in global companies suchas Reuters; growth companies such as Magnacom, an early en-trant into the unified messaging space; and venture-backed start-ups, such as Salsa Systems, a wireless software developer. Hehas led numerous corporate acquisitions and financings.

TODD F. WILLIAMSTodd F. Williams, born in 1970, is the vice president and directorof marketing and communications and director of TIC offeringsfor ARGUS REALTY INVESTORS LP. He joined Argus in May

2004. Williams is an attorney specializingin 1031 tenant in common tax exchanges.Prior to joining Argus, Williams was the as-sistant vice-president of Investment Prop-erty Exchange Service Inc., a national qual-ified intermediary directly affiliated with Fi-delity and Chicago Title. Williams is a fre-quent speaker and panel expert on thesubject of 1031 exchanges and conductscontinuing education seminars for attor-

neys, CPAs and real estate professionals. He has a diverse back-ground, that includes being a founding partner in the Law Officesof Rojo, Williams, Schlegel and Moyers, where his practice in-cluded real estate, civil and criminal litigation as well as corpo-rate and business formation. In addition, Williams is a licensedreal estate broker in California and has owned and operated asuccessful mortgage and escrow company and is registered withseries 22 and 63 securities licenses as a member of theNASD/SIPC.

WILLIAM H. WINNWilliam H. Winn is president of PASSCO COS. LLC,one of the West Coast’s leading real estate operat-ing companies. Passco specializes in providing su-perior real estate investment and tenant-in-common1031 Tax Exchange opportunities in a broad rangeof income-producing properties throughout the Con-tinental United States and Hawaii. Passco acquires and/or de-velops large-scale shopping and entertainment centers and re-gional malls, neighborhood retail centers, multifamily complexesand multi-tenant industrial business parks.

Today, the company’s portfolio of assets under managementand development consists of more than 8.2 million square feet.Passco is credited with pioneering the TIC ownership structureand continues to use it to acquire landmark retail and multifam-ily assets across the country.

From the company’s inception in 1975, BARKLEY’s mission has been to be the preferred California court report-ing firm with which clients choose to do business, for whom people wish to work and with whom competitors wantto associate. Affiliated with over 100 real-time certified shorthand reporters and with eight locations throughoutCalifornia, the company takes pride in being the first deposition agency to use and offer state-of-the-art technol-

ogy and in setting the standards of professionalism, quality and outstanding service for the industry. Worldwide scheduling 24 hours a day, seven daysa week. Large multi-state case management is our specialty. www.barkleycr.com (800) 222-1231

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