Real Estate Investment Trust
Tenant-In-Common Case Studies
Bridle Creek apartment complex is a Class-A apartment community in Lexington-Fayette Metropolitan Area of Kentucky. The multi-family housing project was built in 2002 with 384 apartment units. The acquisition of Bridle Creek was syndicated to TIC investors by Geneva Multi-Family Exchange II, L.L.C. part of the Geneva Organization headed by Duane Lund on December 5, 2005. Starting in 2009 Bridle Creek began to suffer from: 1) a decline in rental income due to the national market downturn 2) a lack of attention to property maintenance due to a lack of capital available from the TIC investor group and changes in property management firms as the Geneva Organization was winding down. By the end of 2009, TIC investors had stopped receiving cash distributions and equity had declined below half its original value.
By the end of 2010, the value of Bridle Creek had plummeted from an original purchase price in 2006 of $35,000,000 to a value of $21,239,686 at a 7.0% Cap Rate in 2010. Fortunately the original loan was low leverage and for $20,315,000. The sponsor had projected a 2010 NOI of $2,601,874, but in fact, Bridle Creek’s 2010 NOI was $1,486,778.
On December 15, 2010 Maxus Properties, Inc. was hired to replace Geneva Management Services, L.L.C. as both the asset manager and property manager of Bridle Creek. With a fast approaching deadline, Maxus worked diligently to turn around the property management and raised $250,000 among the TIC Co-Owners for necessary deferred maintenance and capital expense items. In one year Maxus was able to bring occupancy from 86% to 95% and increase NOI by 21%. During that time, distributions were reinstated and investors again began to receive a monthly return.
Under Maxus management, in 2012 there was an increased NOI to $2,030,742, a 36.6% increase over 2010. Distributions have gone from 0 in 2010 to $25,000 a month by December, 2012.
Even at this increased NOI of $2,030,742, it is well below the original sponsor’s projection for 2012 of $2,760,951. The value at a 7% Cap would be $29,010,603, still well below the original purchase price.
Overall the property is in a stable and improving position. Occupancy and NOI are up and investors are again receiving a return on their investment.
|December 31, 2010||December 31, 2012||Increase|
|Cash Flow before Cap Ex||$57,854||$601,992||1040.5%|
In summary, the original TICs vastly overpaid for this asset. The projections were incredibly high and not based on reality. We still hope to recover most of the original TICS equity by the time the first mortgage comes due.
Wild Oak Apartment Complex is a Class-A luxury apartment community in Liberty, Missouri. The multi-family housing project was built in 2001 with 348 apartment units. The original third party acquisition of Wild Oak was a syndication to TIC investors by Evergreen Realty Group, who was a major TIC sponsor, in July of 2002. By 2008, the national market downturn had caused a major decline in rental income and net operating income. Wild Oak was also suffering from an inattention to property maintenance due to lack of funds from the sponsor and TIC investors. These issues, combined with the mismanagement of the property, caused occupancy to dip to 78%. TIC distributions had ceased and the TIC members were in serious danger of losing their asset to foreclosure.
On December 29, 2010 an affiliate of Maxus Realty Trust purchased the first mortgage on the property after it had matured. Maxus Properties, Inc. was appointed receiver and over the next 6 months was able to increase occupancy to the mid 90%’s. With a foreclosure looming, Maxus was able to lead a restructure of the TIC into an LLC and get the new LLC refinanced with Freddie Mac at a much lower interest rate for 10 years. The roll-up did not require the TICs to contribute any additional cash.
Since taking control of the property, Maxus has increased NOI by 26%. Occupancy is now at 94%. The property is in a much more stable position (even after absorbing 2 new complexes in the market). TIC investors, who less than two years ago were in danger of being foreclosed, are now safely in a long term LLC with a property that has positive cash flow. No TIC suffered any adverse tax consequences as a result of the roll up.