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.

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.