TICs, TICs, & TICs.
“TIC”, as a term, is profligate: it is used in many different ways. Its profligacy is here ruminated upon.
The term can be used to refer to a kind of investment, a kind of property, or a kind of investor.
TIC Investment
Most often “TIC” is used to refer to the Tenant-in-Common investment itself. A TIC Investment is, in essence, a way of owning real estate, sometimes referred to as “fractional ownership”. Under this method of taking title to real property, each investor is a co-owner of the property, owning an “undivided fractional interest” in the whole. A main reason why this kind of investment is popular is that, since it can count as a “replacement property” in a 1031 exchange, it may be used to defer capital gains tax. (More about this here.)
TIC Property
Sometimes “TIC” is used more loosely to refer to the property that is being taken title to. So, for example, if the object of a given TIC investment is a skyscraper in Chicago, one might say “The TIC is in Illinois, so we’ll need to be Qualified to Do Business in that state.”
I can think of two possible linguistic explanations for this naming practice.
The first, and most interesting explanation, is that this nomenclature might be due to the unintentional use of the figure of speech known as synecdoche, in which “something is used to refer to the whole (and vice versa)”. An example of unintentional synecdoche is the trend to refer to the clock tower at the Palace of Westminster as “Big Ben”, where, actually, Big Ben is the name given to largest of the clock’s bells, and the clock tower is simply called “the clock tower”. In this example, the name for a part of the object, (the big bell) is used to refer to the object itself. The inverse of this, in which a whole is used to refer to the part, is also a case of synecdoche, called “totum pro parte”. Any given property may be the object of an investment, and therefore, in a sense, a part of the investment, but the investment itself is distinct. Investments are financial arrangements; real estate properties are areas of land, sometimes with buildings on top of them. Different things. So, to call the property the “TIC” may be to play slipshod with our terms, calling a part of the investment by the investment’s name.
The second and more natural explanation is that “TIC” is just short for “TIC Property”.
TIC Investor/TIC Entities
Sabre has more occasion to refer to individual investors, or, more specifically, individual legal entities used by individual investors, by the term “TIC”. Investments, surprise surprise, have investors. Tenant-in-Common investments can have up to 35 individual investors, all taking part of an undivided fraction of the property. Lenders require that each of these investors takes hold of their portion of a TIC investment by means of a Single Purpose Entity, typically a LLC (for more on this, see here).
These LLC’s, which Sabre can Form and Maintain on behalf of Sponsors, are named in such as way to reflect that their sole function is a vehicle for Tenant-in-Common investors to take hold of their interest of the investment. Sabre deals with thousands of such entities. Accordingly, seeing scores of legal entities all with “TIC” in the name, a natural linguistic evolution is to call the LLC’s just that: TIC’s.
TIC investments are the mechanisms by which TIC properties and TIC investors come together. Or, to put it recklessly, TIC’s are the means by which TIC’s invest in TIC’s.
Tags: 1031 Industry, TIC Industry
