Tenancy-in-Common Deals Grow

Thompson, the 59-year-old chief executive of Triple Net, said he and his wife have personally invested in 10 tenant-in-common acquisitions. As company chief, he has a unique perspective on the trend.

"It's nice to get checks every month and if there is a problem go down the hall and yell and scream at the property manager," Thompson said.

A selling point in the ownership structure is ease of management. Investors turn their money over to Triple Net and collect dividends.

Tax Advantages

Steve Ginder, a resident of Laguna Beach, Calif., said he has invested $1.5 million with Triple Net in office buildings in Milwaukee and Philadelphia. Ginder, who personally knows Triple Net's Thompson, said he chose the tenant-in-common structure for its tax advantages.

Many, though not all, investors in tenant-in-common deals seek to delay paying capital gains taxes when they sell. They can do so under the federal tax code known as 1031, as long as they buy a similar rental property in a certain period.

The tenant-in-common industry took off after the Internal Revenue Service weighed in on the trend in 2002. The agency outlined 15 distinctions between a tenant-in-common relationship and a limited partnership, which doesn't shield investors from capital gains taxes.

The IRS said a tenancy-in-common can include up to 35 investors. The ruling validated the work of companies such as Triple Net and Passco, according to Omni's Flamm.

"That really opened the floodgates," he said.

Flamm said that in 2001 investors placed $165 million of their money in TIC deals. By 2004, the total shot up to $1.8 billion. Last year the total was about $3 billion.

Such big numbers have drawn interest from the NASD, formerly known as the National Association of Securities Dealers, since tenant-in-common interests usually are sold as securities. In March, the association, which is an industry group that derives its authority from the Securities and Exchange Commission, ruled that companies selling such securities need to let investors know they can't count on getting their money back quickly.

There is no secondary market for tenant-in-common securities. And selling a property may require unanimous approval from all investors, the association said.

Joseph Price, a vice president with the NASD in Washington, said the association is waiting to receive a memorandum describing best practices that some TIC companies are preparing. The companies hope to get the association's approval to use it in their dealings with investors.

"This is an ever-increasing business," Price said. "We are pretty actively involved."

What are the pros and cons of tenant-in-common investing?

Pros

· Ease of management. Companies such as Triple Net Properties of Santa Ana say they manage office and apartment buildings for investors who don't have to lift a finger.

· Tax deferral. According to Internal Revenue Code 1031, investors who sell an apartment or other rental property can defer capital gains taxes if they identify another similar rental property in 45 days and buy it within 180 days.

Cons

· Less liquidity. These deals are for long-term investors. There is no secondary market for tenant-in-common securities, says the National Association of Securities Dealers. Also, unanimous consent of all investors in a property may be required to sell it.

· Government regulation. So far government input has been helpful to investors. The Internal Revenue Service set down some rules for tenant-in-common investing in 2002, which helped fuel its expansion.

But the NASD and the Securities and Exchange Commission are watching it closely. There is always a chance a government agency or Congress could change the rules.