Realtors and the National Associatioon
The Securities and Exchange Commission (SEC) may agree with the National Association of REALTORS (NAR) and other industry professionals – that commercial REALTORS should be allowed to sell Tenant in Common (TIC) securities and receive a commission. NAR has been negotiating with the SEC to determine a process by which real estate brokers can legally be paid commissions on TIC security deals. Under the SEC exemption, REALTORS, who are predominantly engaged in and have substantial experience in the commercial real estate market (see below), can offer TIC securities to all individuals; not just accredited investors, and receive referral fees from TIC broker sponsors. The SEC exemption further states that: · REALTORS must have an investor sign an agreement allowing the real estate broker to advise him/her on TIC deals being sold as securities. · The REALTOR cannot advertise TIC investments. · The securities broker dealer determines eligibility of the investor. · The seller discloses and pays the buyer’s broker a referral fee. · The REALTOR must show the buyer traditional real estate opportunities as well as TIC deals. · The REALTOR must also be familiar with commercial real estate investments.
Prior to the exemption, only real estate brokers who were registered as securities brokers with the SEC and real estate brokerage firms as securities broker-dealers were able to sell, and earn a referral, from TIC deals. Investors who like TIC deals are passive; they prefer the freedom of not having to deal with property management issues and tenant concerns. The SEC exemption application defines “substantial experience” to mean a commercial real estate professional who has received a Certified Commercial Investment Member (CCIM) designation, or a designation from the Society of Industrial and Office REALTORS, or an Accredited Land Consultant designation from the REALTORS Land Institute.
Equivalent education and transaction experience can substitute for commercial real estate professionals who do not have any of those designations.
For example, a professional who has participated in at least five commercial real estate transactions having an aggregate value of at least $3 million in the prior five years, or at least 10 commercial real estate transactions having an aggregate value of at least $10 million in the prior 10 years, can sell, and an earn a referral, from a TIC deal. The TIC investment industry has grown exponentially since the issuance of Internal Revenue Service Procedure 2002-22 in March 2002. The sale of TIC interests in commercial properties has grown from $163 million in equity placements in 2002 to over $8 billion in 2007.
The SEC exemption will open a number of opportunities for new revenue. Be cautious, however, to only work with a TIC sponsor who understands the industry and one that has a successful track record. Increased real estate commerce, controlled cap rate compression, impressive occupancy rates and expanding job growth, are all indicators of a strong market for TIC investments. But, do you have access to that specific research? The relationships? The deals? You can!