We have written several articles regarding the use of financial engineering in tenant in common (TIC) transactions. We have commented that financial engineering in and of itself is not necessarily bad, it is how financial engineering is used that might cause concern. For example, I frequently use financial engineering when acquiring my personal properties, but only after establishing a price without the use of any financial engineering. That way, I can increase my cash flow while reducing the risk of overpaying for the asset in the first place. We suggest that all investors who are considering using financial engineering fully understand the financial impact of such engineering in order to make sure that such engineering is supplementing the cash flow, not creating the basis for value in the first place. In this article, we will attempt to describe a method for measuring the impact of financial engineering in TIC transactions.

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As the Tenant-in-Common ("TICs") industry continues to grow, the challenges associated with providing financing become more complex. The TIC industry has grown steadily since 1994 but really accelerated after the IRS ruling in 2002 that clarified the tax status of TICs. Knowing that a TIC investment satisfies the 1031 Like Kind Exchanges laws has increased not only the number of investors but also the number of sponsors providing these investment vehicles. The expansion of the industry coupled with increased number of lenders willing to lend on TIC sponsored deals has fueled the growth. As such, Lenders must use more scrutiny in understanding the sponsors underwriting, reserve structure, loan-to-value, load factor, and legal structures.

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When choosing a real estate agent or broker to help you sell a real estate asset, you carefully check the credentials of a number of real estate professionals and typically choose the one with the most experience, an excellent feel for the local market and responsive service. Of course, you want to get the property under contract as quickly as possible and secure the highest feasible selling price. In your mind, choosing the right real estate professional is the key to accomplishing this goal. Choosing the qualified intermediary (QI) to facilitate your 1031 tax-deferred exchange should be handed with the same care. After all, a failed exchange could result in a significant taxable event. In today's hustle and bustle, many often do a little price shopping and choose the lowest priced QI. Wise investors need to know there is more to choosing a QI than price.

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The long anticipated increase in capitalization rates appears to have begun, at least in the single-tenant, NNN-leased property market. Over the past few months we have seen capitalization rates increase by between 25 to 50 basis points (each basis point is 1/100 of one percent) for investment grade single-tenant properties. While this increase does not match the roughly 60 basis point increase in the 10-year Treasury over the past six months, it does signify the first increase in single-tenant cap rates in at least three years. Needles to say, the increased cap rates are attracting 1031 investors back to the single- tenant market in significant numbers. We have attached our latest summary of representative available single-tenant properties. We will be pleased to provide a more detailed, and/or expanded summary upon request.

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