Tenancy-in-Common Deals Grow

Ownership Structure Has Tax Advantages for Investors

SANTA ANA, Calif. -- Anthony W. Thompson has been doing some creative things with real estate investing since the 1970s. Lately his ideas have caught on, becoming a multibillion-dollar industry.

Methods used by Thompson's Santa Ana-based company, Triple Net Properties LLC, have become so popular that they are changing the way large commercial buildings are bought and sold.

Orange County is known as a hotbed of financial innovation, particularly for untraditional mortgages. Now, it's charting new territory in real estate ownership.

The ownership changes also have drawn scrutiny from regulators, whose rulings have given a boost to the industry by clarifying their status.

One of Thompson's novelties is to sell real estate as securities like stocks and bonds. In Thompson's model, investors own buildings directly rather than through a corporation or partnership. It's the age-old tenancy-in-common form of ownership, but with a twist.

Last year investors liked the innovations so much that they used them to place about $3 billion into real estate, according to Brady Flamm, a researcher with Omni Brokerage Inc. in South Jordan, Utah, which tracks the tenant-in-common industry and sells real estate securities.

Flamm said investors typically use about 60 percent debt when they buy a building. So the $3 billion in cash spent in 2005 means investors bought $7 billion to $8 billion worth of buildings.

Greg S. Paul, Omni Brokerage's president, said companies like Triple Net and Passco Cos. in Irvine, Calif., have played a critical role in developing the tenant-in-common, or TIC, industry.

"You could safely say Orange County is the birthplace of TICs," Paul said. "It's where a lot of action still occurs."

Indeed, investors pooled together by Triple Net have bought and sold a couple of marquee office towers in Orange County and San Diego for a hefty profit.

Tenancy-in-common dates to English common law. An unmarried couple, for example, may buy a home as tenants-in-common to share rights in the property.

Triple Net's innovation is to link strangers in such deals, people who own a building together but may never meet. Triple Net also is pooling such investors to buy trophy office and apartment buildings -- properties once limited to private investment funds, real estate investment trusts, pension funds and insurance companies.