Wednesday, November 14, 2012

Time for Owner's to Get Paid?

I assume, most owner's will tend to agree with the headline.
Any replies and input are ALWAYS welcome as all owners bring experience to the discussion.

Many owners of commercial properties who did the, now dreaded 1031 exchange?–esp. through Sun1031 (add DBSI and For1031)– have either lost their entire investment(s) through foreclosure or have not received any distributions for years.

For those who lost their properties, it's more than a shame because it's so close to a crime, that it should be a crime. People go to jail for a lot less in the USA.
it's amazing that this has gone on almost unnoticed by government. Many of us HAVE contacted government entities, but I do not know of any help that's been proffered.

There was the Idaho Attorney General's prosecution of DBSI, but through bankruptcy. You can search on the web to see some interesting information. But, I've also personally spoken to some former DBSI property owners.

Most of us realize that bankruptcy basically benefits lawyers and usually the people at the company (defendant) are shielded personally. SOME properties survived the bankruptcy hearings, but were saddled with attorney fees. In addition, high property management costs (PM's were chosen by the court) for at least one year before owners could change property management if they choose.

The marketing gem for DBSI–and other 1031 sponsors/brokers (Sun1031 included, but they then changed their language later to say one year return for the stated %) was not only the lure of high returns, monthly income, hands-off management, deferred capital gains, etc. BUT the GUARANTEE of those lures. But, as we know or learned, a guarantee is only as good as the company/people behind them. And the adage still stands true: there are NO GUARANTEES. right?

Owner Expenses Have Not Declined
Which brings us to the present. Generally, commercial vacancy rates are still on the high side keeping lease rates low, as much as 60% lower. This will hold true until the economy improves a bit more and vacancies decline. Some good news is that new commercial building has usually not occurred because of the glut of space.

IN MOST CASES, what has NOT declined are owner's costs.

This is a major problem and concern. It's also where some properties were lost entirely because they could not manage positive cash flow long enough to keep the properties alive.

This was due to, among other things:
> property tax rates based on the buying prices of 2005-2007
> inflated property values and faulty pro-rata data from the 1031 sponsors
> high, leveraged debt against the property by 1031 sponsors, who stripped any equity the property did hold and pocketed the cash.

Owners who are still hanging on, are treading water or accumulating red ink as they pay all expenses but enjoy no returns. They also have continued losses and/or declining equity.

Many entities ARE getting paid
There's money coming in, but not to owner's in the form of distributions.
Property Managers get paid, real estate leasing company's get paid, advertisers, utilities co., landscapers, lawyers (if needed), construction companies, all get paid. The Local municipalities get paid via various taxes. And most tenants have benefited by lower lease rates or some even skipping out on their leases sticking owners.

NOW, I do have to say, these people EARN their money. I do not mean to begrudge anyone for making money by working their respective fields. Some like PM's and leasing company's may even have seen some revenue decline as lease rates dropped.

And… the Vultures Benefit with Help of Government?

Vulture asset buying companies have bought a bulk of distressed 1031 notes for @ .23 on the dollar but get paid 100% on their $ for the existing note! But, owners have been slow to get or are denied a note reworking, etc. That is, IF there's a mortgage.
If there's not a loan, owners are facing a declining asset. But, perhaps absent the albatross of a mortgage helps.

The Vultures buy notes from the FDIC who seized failed banks. As I understand it, SOMEHOW, this is an insider's game as owner's were not allowed to bid/purchase their own distressed notes. This would have/could have saved owner's and added instant equity to help right the ship. Instead, owners hold the same onerous deal. The FDIC have for some reason I don't understand, held on to a % of the notes. I guess this is capitalism?

Many have benefited except owner's of many properties. In these cases something has to change. The status quo is a slow death.

Needed Immediately: A new Business Model
What is needed is a new business model which will return owner's into the paid mix. But, the people getting paid by us via our properties, are not in a hurry to create one. Mainly because it may mean less money for them.

So, we continually find ourselves in survival mode.
My following opinion is not aimed at any ONE entity. Everyone works for their piece of the pie.
But, ALL involved have to accept some sort of "redistribution" of the money OWNER's are bringing to them. EVERY expense HAS to be looked at and considered for cuts/restructure, no matter how small.

This may mean doing landscaping work only when absolutely needed versus a monthly contract. Other vendors may also fall into that category.

Local counties HAVE to lower tax rates to reflect current values, basically 50% of the real estate highs. If not, they WILL be lowered when the Vultures take over ownership at their .23 note buy rates. Or, when they re-sell the notes or properties at lower values, but still a profit for the Vultures.

If a new structure is not soon created, vendors may lose their base customers–the owner's–when we resume more control and we MAKE the needed change(s).

Some properties have made changes for their benefit. I'm in one property in which we pursued and obtained a property tax rate decline saving us about $17,000 a year. That's an infusion of pure positive cash flow added to our books.

Ask Yourself This
When you owned a business, if cash flow was not correctly balanced, you HAD to make changes (usually quickly) or the business would fail. This may have meant raising prices, cutting advertising, retail operations may stay open longer or cut hours, etc. The SAME principles apply here in my opinion. The property IS our business.

The now old sales pitch of a "hands-off" investment is, no longer a viable business model for owners. It was a selling tactic. Most owners have allowed the current structure to continue for years. The questions arise: how much longer? Is the investments dead money? Is it time to sell and use any cash for new investments?

If nothing changes soon, the only winners will be the Vultures picking the bones of our sweat equity.

Have you done something to better a property? I relish any owner's input, ideas or opinions on how to change/restructure the current model to benefit everyone. Even if you support the status quo.

I hope this finds everyone healthy.

Monday, April 9, 2012

SUN 1031… "No Longer doing business"

Many of us will not be surprised to hear, but I found out that SUN1031 has not been doing any more business. If you search their name and look at their "website" it no longer has any information.

I assume this could change in the future.

Interestingly enough, it seems some of their last holdings were sold(?) to members of the title company Sun1031 used, Alpha Title in Alpharetta GA.

The new company name for these holdings is "Sun South". 
Pretty cozy, huh?

Thus, this could have been a maneuver by SUN1031 to get out (protect) of these assets due to some owners still looking to sue SUN 1031.

According to the AZ secretary of state, Sun 1031 still exists with Shaun Coleman as the Registered Agent. So even if they closed their office, the legal entity still exists as of today.

Most of us has lost all or a great deal from SUN1031 "investments".

Wish all of you the best this year.

Tuesday, February 1, 2011

Re: some comments + >I suggest Interested owner's leave their info...

Following up on just some comments from readers, i strongly suggest that people leave a way to get in touch. I know this may be obvious, but i've noticed people wanting to get in touch but then not leaving their info.

If you are concerned with being anonymous, it's easy to set up an email account just for this purpose and keep your private info concealed.

i thought my email address WAS included here. if you are having trouble finding it, always feel free contact me at:

re: any attorney's who have responded or "work out" companies – i'm sure owners would mainly be interested in a contingency basis which we've not been able to secure – since MOST of us have lost our investment monies and don't have extra money laying around. But again, you also feel free to contact me!

also, at this point, we are figuring statute of limitations has run it's course. perhaps we are wrong.

I will again revisit the comments and reply best i can.

thank you & good luck to us.

Still Tough, but some signs of hope on the Horizon?

As many of us know, there have been foreclosures aplenty in real estate in the past two years. Some who bought their TIC's through Sun 1031 have witnessed this firsthand.

Commercial RE didn't dodge the Residential RE effect because to a point they go hand in hand. Commercial tends to lag Residential, but since the overall RE drop and economic recession have been prolonged, they've had the time to catch up to each others' misery. There's been at least a 40% average decline in commercial property values since August 2007.

Many small business owners use(d) their homes as collateral or credit lines when they needed cash flow or business improvements. This helped the economy as a whole. As that source of funding has dissipated, new business cannot start up and present businesses may not continue to weather the storm. Especially the "mom and pops".

You also have the economic recession effecting businesses who are leasing. Business is down and they are looking to cut costs, IF they can stay in business. More businesses are looking at competing vacant properties at sometimes half the price.

If that competition is a big company with a lot of operating cushion, those large corporations will squeeze and steal tenants from small property owners – while driving down leasing rates for all.

I've seen this first hand when a tenant's lease is up. At one property, a large business was able to move at half the price PLUS get TI from the large corporation.

The business wanted the small owner to give major concessions to stay, including caps on all CAM expenses plus that aforementioned half price lease – at a non escalating 5 yr. term.
Often time, owners are loathe to agree to such a deal, which is a risk. Nimble and constant communication between your PM and leasing broker are very important in such matters.

In later years, this can be a risk for the business moving as big corporations won't consider "cam caps", or flat leasing terms, etc. They just may find themselves moving again in 3-5 years.

Finally we are into 2011. For the most part, properties have to be able to last well thru the end of 2012 for any potential recouping of investment dollars. We are hoping the worst is behind us.

Some properties were hurt by maxed out equity for their mortgage which benefited only the TIC sponsor; and properties without a mortgage were bought at a steep price. Throw in poor/high property management fees and you have a problem at the beginning of an economic downturn that = catastrophe.

The downward lease-pricing trends see many of us having trouble supporting the mortgages that MANY TIC properties were encumbered with when they were bought.

As many of us have learned, an honest, hard working, lean property manager/leasing agent is integral for a property's (and your tenant's) success. In the years that have passed from the first PM we were saddled with, we are STILL finding errors that cost us $$.

I think many of us have learned some hard lessons these past few years.

Sunday, October 24, 2010

Sharks are Patrolling the Distressed TIC Market

As some Tenant in Common owners are learning (myself included), the latest affront to owners is keeping your property(s) afloat. Also, there are now sharks circling distressed properties in the continued downtrend in commercial real estate – specifically TIC's.

A couple of reasons are they can buy the properties at deep discounts, and in a few years (or sooner) have income generating commercial real estate. The current "predictions" from experts are at least another 5-8 year wait from today for any possible return to fruition. This is if you bought in or around 2005-07.

Some of the companies doing the circling of foreclosed or soon to be foreclosed TIC's / commercial real estate are the very same people who sold thousands of us a bill of goods. They may come at us under a different moniker.

I know I personally would NOT trust the people who sold me my TIC's. The "guarantee's" they proffered weren't worth anything. The management they had in place robbed from owners, etc.

How about DBSI or FOR1031's guarantees? They simply went bankrupt and caused a huge financial burden to owners. Owners were at the mercy of the courts and LAWYERS.

In Sun1031's case they mostly bought property and flipped them. Many times they took out loans against the properties & any distributions paid were simply earlier equity from the property and not truly 'income distributions'.

The promised monthly distributions of our TIC have mostly stopped for owners. If you have a mortgage you know how tough it is to meet that obligation with the weak lease rates and vacancies.

Many properties in the TIC market are missing payments hoping for a loan modification.

Though it is possible to do this, as people have found out with residential real estate it's close to impossible to do. It's also a difficult work out with the banks.
In addition, much of the "forgiven debt" is simply added on to the back end of the loan eating up any future equity.

Be aware of anyone offering to "help your property". These are wolves in sheep's clothing. There are big companies in the TIC industry ready to pounce on our properties and leave you with nothing.

If you find yourself in that position, there's suppose to be a new company forming that will truly help distressed TIC's. I don't have details of any structures, but they hope to save people from losing all of their property(s).

The word is that the new company doesn't want to see TIC owners lose their entire investment(s) from any of the TIC's, regardless of the sponsor.

As soon as I have any more information I will pass it along. That's all i know. Hopefully the information will help some owners. If you can stave off foreclosure and hang in there until the future uptick, you still may see a return on your investment. Even if we got our initial investment back would be a win.

Let's hope for the best in these continued tough times.

Sunday, August 22, 2010

Home Loan Modifications, some helpful info...

Since these "investments" from SUN1031 have NOT panned out as SUN stated, MANY of us have been harmed financially.

i'd like to point out some good info & reading regarding Home Loan Modifications that i saw on a segment on MSNBC.

I know of fellow owners, including myself, that have had to do this because of the poor returns from SUN 1031 properties. I've not secured a modification yet from Bank of America, but am still trying – since summer 2008.

here's a link to read others' stories  so you know you're not alone...


i HOPE this info may help someone in need regarding a mortgage modification, short sale, moral support, etc.

good luck to all of us,

Friday, April 16, 2010

Goldman Sachs 'fraud' & a Parallel to SUN 1031?

Regarding today's announcement of civil charges against Goldman Sachs via the Security and Exchange Commission (SEC). Though civil charges at the moment, criminal charges may be following.

The two statements from the SEC that's of interest for us:

"defrauding investors by misstating and omitting key facts about a financial product ..."


"defrauding investors by failing to disclose conflicts of interest".

something to think about, wouldn't you say?