Monday, January 12, 2009

TIC Properties in Today's Real Estate Market

We all know that real estate goes up and down in value. Just like stocks, more years are up than down but occasionally we get a market such as the one we are in where it seems all investments are taking a big hit.

So, what is the state of the tenant in common market today? It depends.

It depends on what type of property you own, where it is located, and when you purchased it. Here are some of the factors involved.

Some of the most common types of tenant in common properties consist of shopping centers, office buildings, medical buildings, senior and assisted living and apartments. Most are at least 95% rented when originally purchased.

For years, when real estate values were climbing and the economy going strong, most properties met their expectations and paid out the proceeds as planned.

Now look at what is happening nationwide. Retail businesses are closing and leases are being broken. Large and small service businesses are also shutting down due to the economy. Some parts of the country are worse than others but we see job losses occurring every day. This is not the buildings or managements fault. It is part of being an owner of real estate. It wouldn’t matter if you owned the whole building or a part of it. This will disrupt your profits and income.

Many apartments are doing very well. People losing homes have to live somewhere and often fill up rentals. On the other hand, if your apartment complex is mostly filled with workers from a particular company and if that company is laying off in droves this could affect vacancy rates.

Most senior living and medical buildings are faring well. There is no shortage of aging seniors or people needing medical care. Of course more and more people are losing medical insurance so we may see this have an effect as time goes on unless we get some sort of universal health care open to all.

Commercial property is starting to slide in value and there are more and better deals to be had. The hardest part now for TIC Sponsors is getting the financing to make the purchase and allow exchangers financing in place. It is also difficult to refinance the initial loans that are resetting if the property was purchased 5-10 years ago. Again, this is true for anyone owning real estate and simply part of the risk involved.

The bottom line is that some TICs are underperforming, and some are doing well. There are great opportunities coming along when credit begins to free up. Things will get better, but some values may fall due to unforeseen events beyond our control. Owning real estate means owning the ups and downs of fluctuating markets. Just like any investment, never put all your eggs in one basket and be prepared to weather the storm. This too shall pass.

Paula Straub
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