April 16, 2009
To whom it may concern in reference to who should be able to sell TICs,
Iíve been reading through a lot of the letters and comments sent into the SEC by different individuals with different licenses. So far what Iíve seen is that most of them want the scales tipped in favor of their profession and both have valid arguments to reach their purpose.
The basic problems come down to, most Realtors donít understand investment analysis in depth, but at the same time, most securities agents are clueless on real estate investment once you get past the numbers. Obviously there is so much more to TIC investments than just a cap rate or an IRR. Tenant solvency, business type and lease structure reviews should be performed. Most Securities agents are not familiar with local real estate laws or paths of development. Because so much of a TIC relates to the actual ďreal estateĒ portion of the investment, itís ludicrous to think a securities agent alone could provide quality and substantive advice.
I agree that most realtors tend to give bad advice when it comes to investment analysis, because they donít see past pro forma cash flows for the most part. I see properties sold every day (not TICís) that are sold on false performance assumptions. So my question is, if realtors can give bad advice on stand alone properties and everybodyís fine with that, then what is the big deal with them giving bad advice on TICís. TICís if sold by realtors, would likely become much more liquid as it would open up a lot more selling options. Even with the bad advice, because they would be easier to sell, itís likely that you could sell them at less of a loss with a wider market of buyers than if they had to work through a local securities agent who otherwise is not involved in the local real estate market and for the most part would not know individual real estate investors.
My solution is that option which allows the greatest access to capital markets and buyers, should be the course pursued as the market will dictate the conditions rather than regulations, which we all know can sometimes do more damage than good. In commercial real estate the rule has always been ďcaveat emptorĒ, which this is any different makes no sense. If TICís really sold more like securities, then it would make sense, but the fact that you canít have more than 35 TICs in an investment says the buyer knows heís not investing into a large corporation and should do some due diligence for himself. Realtors currently donít offer accounting, legal or other professional advice, so why do we automatically assume that they would offer other unqualified advice or at least more than they currently do on other commercial property?
In summary, my recommendation is that market which can deliver the greatest number of buyers, should be the market of choice. We need to think about the investor, rather than the commission seeking agent. If that leans in the favor of the securities licensee, then that should be how itís determined. Market conditions can be as much of a control as a new regulation.
Thanks for taking the time to acknowledge all perspectives.
Associate Broker, GRI
PRS Real Estate & Axiom Property Management
Investment Real Estate Sales/Commercial Property Management