GENERAL INFORMATION ON TENANT-IN-COMMON (TIC) PROGRAMS

A tenant-in-common interest in real estate, also known as "tic's" (as in "ticks"), represents an undivided fractional share in property, typically an office building, retail center, stand-alone one-tenant structure, light industrial or distribution facility, multi-housing community, hotel or some other property or enterprise used for trade or a business.

Why investors invest in TICs:

a) seek to own quality property they otherwise would not likely qualify for.
b) simplify their estate planning.
c) create cash flow that is generally paid monthly.
d) move from being an active investor with all the attendant issues contained therein to a more "passive" investor.
e) defer capital gains taxes and recapture of depreciation through a tax-deferred exchange.

As property values have increased, many investors are looking for ways to take advantage of their capital gains while deferring their taxes. TICs allow them to do that. (Note that one does not necessarily need to be conducting a 1031 exchange to invest in a TIC.)

IRS Revenue Procedure 2002-22 set guidelines so that there can be no more than 35 investors in any one program to participate in Tenant-in-Common exchanges.

While the process can be onerous and complicated, and the investor would do well to seek out professional assistance for its implementation, the basics are rather simple.

HOW IT WORKS

An investor with investment property sells that property with the proceeds immediately going to a Qualified Intermediary (QI). From the transfer of the property, the investor has 45 days in which to identify typically up to three properties in which to invest. One or all of them can be a TIC, which are provided by major national sponsor companies who specialize in putting these types of deals together. Since these are Regulation D offerings, they are sold by only those with security licenses and only to Accredited Investors who meet certain qualifications of net worth and financial sophistication.

Once the investor receives and reads the Private Placement Memorandum (PPM) on the property chosen, and reviews this with his or her attorney and/or tax advisor, he then has 180 days from the transfer of the old investment property to complete the purchase. It should be noted that with the high demand for TIC's, coupled with the relatively few investors allowed to participate, there is a time compression for the completion of the purchase that rarely allows for the 180 day period. In a fact, once the investor has filled out all of the appropriate paperwork and signs the documents necessary for the TIC investment, it is usually just a matter of weeks for the final closing on the TIC to be completed.

At that time, the QI will wire the remaining assets (a deposit was usually made) to the TIC sponsor for the completion of the purchase.

Though this can be complicated, a good QI can make the process problem-free.

It will be the responsibility of the First Financial Equity Corporation's Real Estate Investment Advisors to work on behalf of the investors and find quality, non-recourse, triple-net leases programs through several reputable sponsors with whom they deal regularly.

ADVANTAGES OF THE TENANT-IN-COMMON PROGRAMS

1. Many investors have the opportunity to own quality property that they otherwise could not afford.
2. Capital gain taxes and depreciation recapture generally are deferred.
3. Estate planning is made simpler.
4. Professional managers handle day-to-day operations.
5. Consolidation (or diversification) of real estate capital.
6. TICs aim for a more predictable and dependable income stream.
7. Can add stability to an equity-weighted stock portfolio.
8. Decreased investor responsibility with triple-net leases.
9. Credit-worthy tenants help insure cash flow and can increase the value of the property.
10. Free up time formerly dedicated to operating, repairing and managing real estate.

RISKS INVOLVED

There are numerous risks associated with the purchasing and ownership of Tenant-In-Common real estate. These risks are fully discussed in the Private Placement Memorandum (PPM) that is issued for each property. These risks include, but are not limited to, loss of principal, economic downturns, and fluctuations in rent schedules, occupancy and operating expenses.

TIMELINE FOR A 1031 TENANTS-IN-COMMON EXCHANGE

1. If the sale of your relinquished property has not yet occurred: Notify your First Financial investment advisor that you are considering exchanging into a Tenants-in-Common (TIC) passive investment. (If you have already closed on the relinquished property, and the funds from the sale are at the Qualified Intermediary, notify your advisor of this fact immediately!)
2. Your advisor will suggest a Qualified Intermediary (QI) unless you already have chosen one. He or she will then make contact with your QI to advise them that FFEC will be looking for replacement investment property (or properties) for you.
3. You will receive a packet from the Advisor with pertinent information regarding 1031 exchanges, specifically TIC's.
4. Your Advisor will conduct a general interview with you, in person or by phone, to help insure that a TIC exchange is right for you.
5. It will be your responsibility to keep the Advisor current on the status of your pending sale, its probable sale price and your existing mortgage. Your sales contract should have language stating your intent to conduct a 1031 exchange. Your Advisor or QI will provide you with this language.
6. At the close of escrow, the net sale proceeds are wired to the QI. It is imperative that you, the exchanger, do not take actual or constructive receipt of the proceeds! To do so will result in you being unable to defer capital gain taxes.
7. From this date, the transfer of the property, you have forty-five (45) days to identify the replacement property. Your interests are best served by identifying three, irrespective of whether you intend to purchase your second and third choice. (In certain circumstances, more than three may be identified.)
8. Your Advisor will advise you of what properties are available for you, who the offering sponsor is, what kind of program it is and the underlying financials.
9. Upon indicating an interest, the Advisor will provide you with a Private Placement Memorandum (PPM) which you must read and discuss with your accountant and/or attorney who is familiar with such programs and your personal tax situation.
10. Once you have settled on a replacement TIC property, your Advisor will provide you with the forms and applications that must be completed and signed for the exchange to be successful. As this is a time sensitive issue, you must act with all deliberate dispatch to insure participation in the chosen program.

FFEC cannot provide advice regarding specific tax consequences. Investors considering a1031 tax deferred exchange should seek the counsel of their accountant & attorney to obtain professional & legal advice. With any Real Estate Investment, returns and principal values fluctuate, and when sold, may be worth more or less than the original cost. Please request a prospectus which contains more information, including charges and expenses. Please read the prospectus carefully before you invest.

Information provided by Wells Real Estate (1031CLTBR03-01-1000) & Old Republic. Picture provided by Wells Real Estate.