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Are TICs Real Estate Product or Securities

February 11, 2009

There’s been debate – for years – about who can sell a TIC.

TIC stands for Tenants in Common and has been used as a way to hold title on real estate. This fractional ownership has been used in the last 8 +/- years for small investors to be able to pool their money and buy large class A buildings that the little guy could never get into before.

Realtors thought this type of sale was real estate and stock brokers though this type of sale was securities.

On January 14, 2009, the SEC published its response to a request for a no action letter. The request, which was submitted to the SEC in 2006, described two TIC structures (using a master lease or a property management agreement) that are commonly used by sponsors who take the position that they do not need to comply with the securities laws. The letter urged the SEC to rule that such transactions should not be considered securities under Section 2(a)(1) of the Securities Act of 1933. In its response, the SEC said that it disagreed with that view and could not assure the taxpayers requesting the opinion that a sponsor adopting these structures would not be subject to an enforcement action by the SEC.

This recent statement confirms the SEC’s view that TICs should be marketed and sold as securities. It is likely that some sponsors who sell TICs as real estate will stop doing so out of concern about being the subject of an enforcement action; however, some sponsors will probably continue to sell TICs as real estate.

What do you think?

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