A Look Into the TIC Industry

By Tim Husson, PhD and Carmen Taveras, PhD

So far, we've discussed some of the concerns we have with TIC investments and shown how to use discounted cash flow analysis to value a TIC interest with our handy spreadsheet.  But you might be asking, just how prevalent are these concerns across all TICs?

To answer that, we examined 194 sets of offering documents for TICs sold from 2004-2009.  This totaled $2.2 billion in equity, which amounts to approximately 19% of all equity issued by TICs in that period, and included properties from 32 states.

Year	Name	Issuer	State	Equity (MM)
2005	Atlantic Boulevard	DBSI	Florida	$4.99
2007	Beacon Point	DBSI	Ohio	$3.60
2008	Belton Town Center	DBSI	Missouri	$3.62
2006	Colonnade at West Lake	DBSI	Texas	$4.95
2007	Colony Commons	DBSI	Texas	$3.67
2008	Houston Levee Galleria	DBSI	Tennessee	$9.80
2004	Southtrust Tower	DBSI	Florida	$34.24
2006	East 21st Street Buildings	DBSI	Kansas	$11.28
2005	Friar's Branch Crossing	DBSI	Tennessee	$7.82
2007	Goshen Village	DBSI	Indiana	$4.74
2007	Haverford Place	DBSI	Kentucky	$7.15
2005	Lakeview & Sojourn Centers	DBSI	Texas	$16.65
2008	Landmark Towers	DBSI	Minnesota	$16.50
2008	North Stafford	DBSI	Virginia	$13.22
2006	Northpointe Tower	DBSI	Missouri	$6.74
2007	Park Plaza Retail Center	DBSI	Texas	$8.30
2008	Peachtree Corners Pavilion	DBSI	Georgia	$3.95
2008	Pinehurst Square East	DBSI	North Dakota	$10.15
2008	Pinehurst Square West	DBSI	North Dakota	$6.36
2005	Renaissance Center	DBSI	Tennessee	$13.21
2004	Republic	DBSI	Texas	$18.10
2008	Romence Village	DBSI	Michigan	$6.51
2007	Sherwood Village	DBSI	Texas	$1.94
2008	Shoppes at Trammel	DBSI	Georgia	$3.72
2007	Shops @ Katy	DBSI	Texas	$4.88
2006	Silver Lakes	DBSI	Florida	$7.10
2007	Village at Old Trace	DBSI	Georgia	$9.42
2007	Willow Bend	DBSI	Tennessee	$2.87
2008	Wisdom Pointe	DBSI	Georgia	$3.35
2006	Bridford Lake Apartments	Core Realty Holdings	North Carolina	$10.13
2006	Brookfield Lakes Corporate Center	Core Realty Holdings	Wisconsin	$32.00
2006	Cardinal Apartments	Core Realty Holdings	North Carolina	$6.34
2006	Chatham Wood Apartments	Core Realty Holdings	North Carolina	$4.39
2007	Governor's Pointe	Core Realty Holdings	Ohio	$8.13
2006	Hickory Creek Apartments	Core Realty Holdings	Virginia	$10.90
2007	Hidden Lakes Apartments	Core Realty Holdings	North Carolina	$10.50
2008	Hunters Chase Apartments	Core Realty Holdings	North Carolina	$4.93
2006	Madison at Adams Farm Apartments	Core Realty Holdings	North Carolina	$11.62
2008	Minneapolis Industrial Portfolio	Core Realty Holdings	Minnesota	$14.81
2007	Promenade at Northridge	Core Realty Holdings	California	$11.13
2006	Park West Apartments	Core Realty Holdings	Virginia	$9.89
2007	Revere Holdings	Core Realty Holdings	Nevada	$17.50
2006	Riverbend Apartments	Core Realty Holdings	Indiana	$30.50
2007	San Antonio Airport Industrial	Core Realty Holdings	Texas	$15.10
2006	Sonoma Ridge Apartments	Core Realty Holdings	California	$16.00
2005	West Michigan Industrial	Core Realty Holdings	Michigan	$23.60
2005	Westridge Executive Plaza	Core Realty Holdings	California	$8.50
2006	Westwind Office Park	Core Realty Holdings	California	$17.48
2007	Griffin Capital (Independence) Investors	Griffin Capital	Ohio	$13.10
2006	Griffin Capital (Naperville) Investors	Griffin Capital	Illinois	$14.33
2006	Griffin Capital (Q Street) Investors	Griffin Capital	California	$21.28
2006	Griffin Capital (St. Paul) Investors	Griffin Capital	Minnesota	$19.73
2006	Griffin Capital (Naperville) Investors	Griffin Capital	Illinois	$14.33
2007	Marriott Courtyard-Columbus Airport	Moody National Companies	Ohio	$10.81
2007	Marriott Courtyard-Columbus Downtown	Moody National Companies	Ohio	$5.85
2007	Marriott Courtyard-Lyndhurst	Moody National Companies	New Jersey	$19.22
2007	Marriott Fairfield Inn Meadowlands	Moody National Companies	New Jersey	$11.51
2007	Marriott Residence Inn-Perimeter Center	Moody National Companies	Georgia	$7.08
2007	Marriott Residence Inn-Torrance	Moody National Companies	California	$23.02
2007	Marriott SpringHill Suites	Moody National Companies	Washington	$5.83
2008	Marriott TownePlace Suites-Portland	Moody National Companies	Maine	$9.69
2007	Fairfield Inn Denver (Denver One)	Moody National Companies	Colorado	$8.63
2006	Philips Office	Moody National Companies	New Jersey	$21.04
2007	Renaissance Meadowlands	Moody National Companies	New Jersey	$22.39
2007	TownePlace Suites Fort Worth	Moody National Companies	Texas	$4.58
2007	TownePlace Suites Mount Laurel	Moody National Companies	New Jersey	$5.60
2006	Weatherford Plaza	Moody National Companies	Texas	$9.53
2007	Beamer Place Apartments	Geneva	Texas	$10.16
2005	Bridle Creek Apartments	Geneva	Kentucky	$13.79
2006	Chesterfield Valley Medical Office Building II	Geneva	Missouri	$8.15
2008	Cooper Glen Apartments	Geneva	Texas	$6.44
2005	Honey Creek Corporate Center II	Geneva	Wisconsin	$11.92
2006	Honey Creek Corporate Center III	Geneva	Wisconsin	$10.45
2007	International Market Square	Geneva	Minnesota	$13.63
2007	Carrington Ridge Apartments	TIC Properties	Georgia	$8.55
2007	Duncan Distribution Center	TIC Properties	South Carolina	$7.25
2007	TIC N. Central Dallas Investors	TIC Properties	Texas	$5.95
2007	SBC Fenton	TIC Properties	Missouri	$6.90
2006	Acropolis Office Park	TIC Properties	Ohio	$11.95
2005	Southfield Office Building	TIC Properties	Texas	$8.85
2006	302 West Third Street	TIC Properties	Ohio	$8.54
2007	NNN 824 North Market Street	Triple Net Properties	Delaware	$15.00
2007	NNN Central Plaza	Triple Net Properties	Arizona	$32.80
2007	NNN Darien Business Center	Triple Net Properties	Illinois	$13.20
2007	NNN Eastern Wisconsin Medical Portfolio	Triple Net Properties	Wisconsin	$12.94
2007	NNN Exchange South	Triple Net Properties	Florida	$12.34
2007	NNN Harbour Landing	Triple Net Properties	Texas	$7.38
2008	NNN Jacksonville Medical Plaza	Triple Net Properties	Florida	$14.04
2007	NNN Mainstreet at Flatiron	Triple Net Properties	Colorado	$5.85
2007	NNN Old Line Professional Centre	Triple Net Properties	Maryland	$6.65
2007	NNN One Ridgmar Centre	Triple Net Properties	Texas	$11.85
2007	NNN River Ridge	Triple Net Properties	North Carolina	$10.85
2008	NNN Six Forks Station	Triple Net Properties	North Carolina	$11.70
2007	NNN Three Resource Square	Triple Net Properties	North Carolina	$11.48
2008	NNN Washington Park	Triple Net Properties	Ohio	$12.07
2006	116 Defense Highway	Direct Invest	Maryland	$7.62
2007	246 Omni Way	Direct Invest	Massachusetts	$12.59
2007	2810 North Parham Road	Direct Invest	Virginia	$7.82
2007	500 East Main	Direct Invest	Virginia	$16.90
2007	Braintree Park	Direct Invest	Massachusetts	$21.94
2008	Heron Cove	Direct Invest	New Hampshire	$10.63
2007	Cummings Research Park - Portfolio II	Bluerock Real Estate	Alabama	$21.28
2007	Summit at Southpoint	Bluerock Real Estate	Florida	$13.55
2008	1600 Barberry Lane	Grubb & Ellis	Georgia	$19.07
2008	5001 Enclave	Grubb & Ellis	Texas	$11.22
2008	Oak Park Office Center	Grubb & Ellis	Texas	$18.65
2008	2650 Old Norcross	Grubb & Ellis	Georgia	$13.66
2008	One Live Oak	Grubb & Ellis	Georgia	$17.49
2008	Plantations at Haywood	Grubb & Ellis	South Carolina	$21.36
2008	7207 Snowden Road	Grubb & Ellis	Texas	$12.36
2008	1650 Sunflower	Grubb & Ellis	California	$14.93
2008	5200 Upper Metro	Grubb & Ellis	Ohio	$6.33
2007	Houston Office Buildings	Argus Realty Investors	Texas	$13.62
2008	IBP	Argus Realty Investors	Texas	$55.00
2007	Hendersonville	Desanto Realty Group	Tennessee	$13.32
2007	Cypress Medical	Desanto Realty Group	Kansas	$10.81
2007	Clearview	Desanto Realty Group	Michigan	$9.91
2007	Fox Chase	Desanto Realty Group	Ohio	$9.77
2008	Hunter’S Chase	Desanto Realty Group	Ohio	$11.44
2007	Perry's Crossing	Desanto Realty Group	Ohio	$10.07
2007	Ashtabula Acquisition	Cabot	Ohio	$15.10
2007	Northpark Southland Acquisition	Cabot	Indiana	$22.00
2007	Creekside Acquisition	Cabot	Georgia	$17.50
2005	Trafalgar/Avion Acquisition	Cabot	Florida	$10.70
2007	Fontaine Business Park	U.S. Advisors	South Carolina	$11.50
2004	North Valley Tech Center	Argus Realty Investors	Colorado	$20.20
2006	Triwest Plaza	Argus Realty Investors	Texas	$17.00
2005	Covington Lansing Acquisition	Direct Capital Securities Inc.	Michigan	$7.38
2005	Covington Montelago Acquisition	Direct Capital Securities Inc.	Texas	$9.72
2007	Courtyard Matthews & Courtyard Rock Hill	Oxford Capital Group	North Carolina	$10.33
2007	Residence Inn & Courtyard by Marriott	Oxford Capital Group	South Carolina	$11.68
2006	Residence Inn by Marriott - Chantilly	Oxford Capital Group	Virginia	$13.05
2007	Residence Inn Charleston	Oxford Capital Group	South Carolina	$7.50
2007	SpringHill Suites Riverview	Oxford Capital Group	South Carolina	$5.52
2007	Crystal Lake & Pelican Pointe	Cabot 1031	Florida	$13.00
2007	East Town Acquisition	Cabot 1031	Wisconsin	$7.10
2006	Oak Grove Acquisition	Cabot 1031	Florida	$8.65
2007	Turfway Ridge Acquisition	Cabot 1031	Kentucky	$11.75
2007	Portland Senior Properties	Christopher Place	Oregon	$4.60
2007	Traverse Bay Senior Properties	Christopher Place	Michigan	$4.00
2006	DFW Office/Flex I	Equitable Companies	Texas	$10.85
2008	Evanston Portfolio	Equitable Companies	Illinois	$9.49
2006	DFW Office/Flex II	Equitable Companies	Texas	$12.75
2006	Barrett Woods Corporate Center	Exchange Point Properties	Missouri	$9.49
2008	Cameron Brook Apartments	Exchange Point Properties	Georgia	$17.17
2007	Mapleridge Shopping Center	Exchange Point Properties	Minnesota	$7.72
2007	Southridge Plaza	Exchange Point Properties	Texas	$6.47
2007	Dobson Ranch	Geyser Holdings	Arizona	$4.90
2009	Keaau Hawaii	Geyser Holdings	Hawaii	$4.33
2008	Showplace	Geyser Holdings	Indiana	$5.59
2007	Yuma	Geyser Holdings	Arizona	$6.00
2006	Springs - Office Investors	Meridian	Kentucky	$15.39
2006	Atlanta One	Moody National Companies	Georgia	$7.21
2006	Memphis Residence Inn	Moody National Companies	Tennessee	$6.93
2006	Residence Inn Lebanon	Moody National Companies	New Hampshire	$9.36
2006	Texas Two	Moody National Companies	Texas	$9.30
2008	Madison At Fairwood Apartments	Passco Companies	Washington	$16.90
2006	121 Airport Centre I & II	Principle Equity Management	Texas	$16.87
2007	Johns Creek Office Portfolio	Principle Equity Management	Georgia	$12.64
2007	Technology Parkway Office Portfolio	Principle Equity Management	Georgia	$13.30
2005	Thistle Landing	Principle Equity Management	Arizona	$22.35
2007	University Shopping Center	Principle Equity Management	Texas	$7.56
2005	Baylor Garland Medical Plaza	Rainier Capital Management	Texas	$5.60
2006	Business Exchange	Rainier Capital Management	Missouri	$3.19
2007	Enclave Parkway	Creekstone Partners	Texas	$11.54
2007	Woodlands	Creekstone Partners	Texas	$7.36
2004	Cypress Pointe IV	Mammoth Equities	California	$14.65
2005	Professional Building - Roseville	Mammoth Equities	California	$7.72
2007	Vista Ridge	Sequoia	Texas	$9.39
2007	Forum	Sequoia	Texas	$12.00
2006	The Best Western Airport Inn Fort Myers	Gibralter Holdings	Florida	$10.69
2006	Maunakea Marketplace	Gibralter Holdings	Hawaii	$6.30
2008	Algonquin Galleria	Nelson Bros.	Illinois	$9.54
2006	Pueblo Crossing I	ORIX EMPIRE	Colorado	$6.00
2007	Kansas City	ORIX EMPIRE	Missouri	$8.60
2007	Battle Creek I	ORIX EMPIRE	Oklahoma	$14.00
2006	Fountains II And Fountains III	Wilkinson	Illinois	$7.01
2006	State Of Michigan Building	APCA	Michigan	$3.69
2007	Landmark/Laumeier Office Portfolio	Bluerock Landmark	Missouri	$7.53
2008	Meadow Green Apartments	Delmar Equity Partners	Texas	$2.40
2007	Colonnade At King’S Grant Shopping Center	Kodiak	North Carolina	$3.85
2007	Hotel Indigo Peachtree Street	Pennbridge Capital	Georgia	$8.40
2006	RMC AutoSonic BMWN League City	RMC Property	Texas	$9.95
2007	Selina Plaza	TIC Capital	Florida	$2.54
2006	State Farm Insurance Building	TIC Capital	California	$7.05
2008	2801 East Enterprise Drive	Whitecap Real Estate	Wisconsin	$2.38
2006	Rambling Oaks Assisted Living And Rambling Oaks Courtyard	Wilkinson 1031	Oklahoma	$7.20
2007	Northgate Business Center And Blackhawk Corporate Center	Argus Realty Investor	Arizona	$20.55
2006	220 Virginia Avenue	Triple Net Properties	Indiana	$20.76
2005	Sixth Avenue West	Triple Net Properties	Colorado	$6.60
2005	Woodside Corporate Park	Triple Net Properties	Oregon	$24.65
2006	Las Colinas Highlands	Triple Net Properties	Texas	$15.40
2007	Laveen Village Marketplace	Passco Companies	Arizona	$8.50
2005	Legacy	RMC Property	Texas	$9.78

After we compiled this information, a couple of things stood out.  We have said before that TICs tend to have high upfront fees.  In our database, the average upfront fees totaled 28% (!) of total equity.  The lowest upfront fees were a still-high 17%, and the highest was a remarkable 72%.  We have also said that TICs tend to be highly leveraged (i.e., use a lot of debt).  Some TICs had no leverage, but both the average and median debt-to-equity ratio (total debt / total equity) across our sample was 1.56.

We've also talked about how TICs tend to have low net present values, even taking a sponsor's projected cash flows at face value.  When we valued all the sponsor's projections in our database, we found that the average TIC was worth only 83.6 cents on the dollar.¹  But were the sponsors' assumptions valid?

For each property, we compared the cap rate used by the sponsor to cap rates published by a real estate market analysis firm. Cap rates are used to estimate the final value of the property at sale.  The lower the cap rate, the higher the resulting property value. We found that sponsors tended to use cap rates that were lower than market rates, inflating the property value at sale, as shown in the figure below (Figure 10 in the paper):
When we value all of the properties using market cap rates rather than those assumed by the sponsors, the average present value drops to 74.5 cents on the dollar.  The distributions of present values before (blue) and after (red) correcting the sponsor's caps are shown below (Figure 12 in the paper):
These results suggest that TIC sponsors use aggressive assumptions when preparing cash flow projections for offering materials.  These cash flows are the primary justification for projected distributions and investor returns, yet even a relatively straightforward discounted cash flow analysis reveals that most TICs were exceptionally poor investments.

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¹  Sponsors often include multiple projections, especially for cap rate assumptions.  We valued each of these alternative projections and averaged the resulting values.