One of the most discussed and a disputed aspect of investing in a tenant in common offering is the ‘load’ or cost and fees associated with the investment. Without question, there are substantial costs inherent to a TIC investment. The real question, however, is whether those costs are greater than an investor would incur when buying a property by themselves (a ‘sole-ownership’ property); and, if those costs are higher, are they justified by the overall package that an investor is acquiring.

One very important point is that the net cash on cash returns projected in a TIC offering are net of all of these costs, or load, while they must be deducted from a sole-ownership property in order to compare apples to apples. For example, if a TIC offering projects a cash on cash return of 6.50% and has costs totaling 8% of the property value, the cash on cash return is still 6.50%. But, in a similar sole-ownership property, if the costs were 8% of the property value, the return would be reduced by a corresponding amount (simplistically speaking it would be reduced down to about 5.85%).

Within the last several years the demand for alternative investment vehicles has grown. Investors that historically would have chosen sole ownership of investment property are delving into more sophisticated real estate ownership structures. This article will discuss one popular investment vehicle, the real estate investment trust (“REIT”) and the bloom of the 1031-721 exchange (also known as an “umbrella partnership real estate investment trust” or an “UpREIT transfer”), whereby REIT ownership becomes a viable option for real estate investors performing tax-deferred exchanges.

We have instituted a new feature to our Newsletter: a summary of representative net leased transactions put together by our own Aaron Leff. Aaron focuses on serving our sole ownership clients at CapHarbor and he has developed quite an expertise in the single tenant arena. If you have any questions about single tenant or net leased properties, give Aaron a call on his direct line at (323) 653-1248.