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Costa Mesa, CA, United States, 2006/04/17 - With the increasing availability of 1031 Exchange Tenant-In-Common (TIC) real estate offerings, investors should carefully evaluate the fees charged by sponsors, advised Bob Horning, a partner with Private Equity Group, LLC.
“The majority of 1031 Exchange Tenant-In-Common offering sponsors are reputable, but some are looking to make a lot of profit on the investor up front,” Horning said. “The investor needs to select and work with a quality sponsor, by comparing one sponsor to another.”
Horning, who has been advising investors about 1031 Exchange Tenant-In-Common rules and regulations since the industry began, noted that the best real estate offering companies are very conservative about their fee structures.
“Investors need to be able to analyze the structure of how TIC properties are put together,” he said. “An investor shouldn’t have to wait eight or ten years to sell his or her property just to overcome some of the up-front fees that certain sponsors are charging.”
To help investors conduct a thorough comparison of offering companies, Horning suggested the following guidelines:
• Investigate the track record and experience of the sponsor, as well as key personnel. The knowledge and expertise that the top sponsors have in the acquisition, financing, management, and disposition of commercial real estate, has been critical to the success and growth of the Tenant-In-Common industry.
• Evaluate “all in costs,” meaning the price of the property, plus the additional expenses incurred by the sponsor to bring the property to market. Some sponsors charge investors excessive fees that are buried in the “all in cost.”
• Determine whether or not the sponsor’s business plan is in line with your investment objectives. For example: What is the average length of time the sponsor intends to hold the properties? Do they specialize in a particular asset class, such as office, multi-family, or industrial? Are they geographically diversified, or do they tend to focus on a particular region of the country?
• Confirm that the sponsor’s back office is adequately staffed, with knowledgeable individuals that will promptly address any questions you may have.
Additionally, Horning recommended that investors learn how to analyze the offering memorandum, including such factors as the property’s gross income, the property’s operation expenses, the debt-to-income ratio, the property’s location, and the quality of the property’s day-to-day management.
“The disclosure helps the investor evaluate the property and the offering,” Horning said. “But investors also need to understand what the sponsor is charging. My mantra is that not all real estate sponsors are created equally.”
A licensed securities broker since 1992, Robert Horning has been involved with the Tenant-In-Common industry from its inception in 1994. He is a specialist in tax-advantaged investments, a member of the Tenant-In-Common Association, and a frequent speaker and author on income tax and capital gains tax planning. Horning is a registered representative with Direct Capital Securities, Inc.
About Private Equity Group, LLC
Private Equity Group, LLC is a financial services company that specializes in 1031 real estate exchange solutions for accredited investors. Securities are offered through Direct Capital Securities, Inc., member NASD and SIPC.