What is a TIC Worth?

PIABA Bar Journal, Vol 19, No 3 (2012)

18 Pages Posted: 4 Jan 2013 Last revised: 2 Dec 2013

Tim Husson

Securities and Exchange Commission

Craig J. McCann

Securities Litigation and Consulting Group

Carmen Taveras

Securities Litigation and Consulting Group

Date Written: January 4, 2013

Abstract

Tenants-in-common interests are passive real estate investments which are sold based on two claimed benefits: stable “cash on cash” returns and deferral of capital gains tax through 1031 exchanges. The “cash on cash” returns are found in financial projections in TIC offering documents. Using a stylized TIC cash flow projection based on our review of these materials, we show that TICs use aggressive assumptions to inflate the apparent returns to investors.

Projected cash flows must be discounted to determine whether a TIC investment is reasonably priced or not. A TIC’s projected cash flows should be subject to sensitivity analysis to determine the risk of unrealistic projections. This traditional risk-return analysis, as part of a reasonable basis suitability analysis, would have determined that TICs had expected returns which were insufficient to compensate for the risk of their leveraged investments in undiversified real estate and that the claimed tax deferral benefits were small compared to the mispricing in TIC offerings.

Keywords: Tenants-in-common, TIC, private placement, real estate, 1031 exchange

Suggested Citation

Husson, Tim and McCann, Craig J. and Taveras, Carmen, What is a TIC Worth? (January 4, 2013). PIABA Bar Journal, Vol 19, No 3 (2012). Available at SSRN: https://ssrn.com/abstract=2196463 or http://dx.doi.org/10.2139/ssrn.2196463

Tim Husson (Contact Author)

Securities and Exchange Commission ( email )

100 F Street, NE
Washington, DC Washington, DC 20549
United States
202-551-6803 (Phone)

Craig J. McCann

Securities Litigation and Consulting Group ( email )

3998 Fair Ridge Drive, Suite 250
Fairfax, VA 22033
United States

Carmen Taveras

Securities Litigation and Consulting Group ( email )

3998 Fair Ridge Drive, Suite 250
Fairfax, VA 22033
United States

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