Evaluating a 1031 TIC Exchange Sponsor

How to Evaluate a 1031 TIC Sponsor

The new options available under the loosened 1031 exchange law can very powerful vehicles for personal investors.  The new 1031 exchange options allow investors to diversify geographically, to eliminate management (through exchanging into triple net leases), to increase yields (particularly if you are exchanging away from the low cap rate geographies like the Bay Area), and to reduce principal and tenant risk (if you are exchanging into institutional properties).  See nestegginvesting.com (link) for more general information on 1031 exchanges.

That's great in theory, but how should you pursue these 1031 transactions?  We're beginning to research actual firms that provide 1031 exchange options and our advice is be careful and really do your homework.  This is a new industry, and while there are some reputable firms, we've certainly found plenty of fly-night operations. 

To help you do your homework, we've created a diligence list of good questions to answer before working with a 1031 syndicator.  As always, consult your financial and tax advisor.   Also, we’ve also created a website of 1031  TIC listings at www.the1031ticexchange.com (link). Really look in depth at the sponsors websites before calling. 

1031 TIC Exchange Firm Due Diligence List

The 1031 industry is in some ways brand new.  As a result, it's pretty difficult to determine which firm you can trust.  To help sort through the wheat from chaff, we've put together a "due diligence list" below to help you more rigorously research firms to work with.  A lot of which you can determine just by pursuing the websites of sponsors: www.the1031ticexchange.com (link)

1031 TIC Exchange Firm background

Find out how long your 1031 TIC exchange firm has been in business, how many transactions they have performed, and how credible the leadership of the firm looks.  Many firms have grown out or are subsidiaries of title or brokerage companies.  So be careful about differentiation between the track record of the 1031 company and the parent company.

How big is their property portfolio?  The bigger usually will indicate a larger and more established firm.  Also, when you go to exchange it's more likely that they will have a property available.

Has the 1031 TIC exchange firm ever been sued? 

Has the 1031 TIC exchange firm ever had to make a capital call?  If the firm has had to make a capital call, that means the firm used too much leverage, did not manage the property well enough, or made a similar mistake.

Talk to prior investors: If you do anything at all, talk to private investors about their experience.  If you can find someone not referred by the 1031 firm, all the better.  It will give you confidence that the firm you are working with is legitimate.

Look at the 1031 TIC Offering

Take a look at what type of offering (Tenants in Common, Tenants in Common Triplenet Leases, UpREIT). Generally, we feel that the UPREIT still has not been approved by the IRS and is thus more risky.

Second, look at the properties themselves: 

• How is the geography? Generally avoid Texas and areas with oversupply of land
• How credit-worthy are the tenants?
• How long are the leases?
• What is the general quality of the building/ location How hard would it be to release if the tenant left?

1031 TIC Exchange Promised Return

Be careful about exactly what return the firm is promising.

Some firms advertise "cash on cash yields" which are really returns to your equity.  Others advertise capitalization rates which are returns to equity and debt.  Generally a cap rate = a higher cash on cash yield due to positive leverage

How are the rents secured?  Avoid master leases.  Many reputable firms guarantee the rents with a master lease (they create a shell company that takes rents in from the tenants and then guarantees a return to the investors). Often times these shells are thinly capitalized with no recourse to the sponsors, so your “guarantee” is a false promise

1031 TIC Exchange Fee Structure

Have a 1031 TIC firm lay out on paper their entire fee structure.  Many times they will list the fees as a percentage of assets rather than a percentage of equity.  For example, a large firm quoted us fees of 10% of the asset purchased which sounded reasonable.  However, when you consider that the building was being purchased with 50% debt, the fees equated to 20% of equity exchanged which is higher than the national capital gains tax.

At the end of the day, all you care about is what is the highest cash yield you can get, but it's worth understanding the different fees.

1031 TIC Underwriting Leverage

From what we've seen, 1031 syndicators underwrite their purchases from 0% debt all the way up to 80% debt. 

Obviously, the lower the debt, the less risky.  We generally think that around 60% debt makes sense.  With higher debt levels, there's greater chance that firm will not be able to cover debt service and deliver their guaranteed return. 

Even worse, they are not able to cover debts service and will make a capital call which requires you to put more money in

Also pay attention to how this debt is structured.  Many firms will use interest only debt in the early years.  They do this to increase their yield to investors at the cost of big principle payments and lower returns (and potentially capital calls) in the future.

1031 TIC Exchange Properties AL - AZ

Alabama
Jim Curtis  ProEquities jim.curtis@proequities.com (205) 268-6126

Arizona
Drew Grunwald  Red Door Group drew@reddoorgroup.net (602) 264-2510
Jean Harris  Greenberg Traurig harrisj@gtlaw.com (602) 445-8310
Janenne Lackey  First Financial Equity Corp. jmlackey@ffec.com (480) 998-8415
Kurt Rohrs  First Financial Equity Corp. krohrs@ffec.com (480) 812-8640
Neil Sherman  Axxiom Partners LLC  nsheman@axxiompartners.com (602) 695-6650
Brad Watt  Cole Capital   bwatt@colecapital.com (602) 778-8700
Kirk Wilson kwilson@ntrustfinancial.com (480) 222-3560
Everett E. Wrightsman Metropolitan Healthcare Properties syndications@1031healthcareproperties.com (480) 390-4583
Jeff Young First Financial Equity Corp.  jcyoung@ffec.com (480) 998-8415

1031 Exchange TIC Sponsors California #1

Joseph Abbate Real Estate Consultant saintjoecal1@yahoo.com (562) 694-3361

A. Sean Aguilar Steelhead Capital, Inc. saguilar@ccim.net (415) 397-2980

Randy K. Barkley Liberty Group, LLC randy@rbfinancial.org (951) 684-7011

David Bedke David K. Bedke daveb@dpvb.com (661) 834-7411

John Borger Royal American Financial Advisors, LLC royalamericanjohn@msn.com (951) 679-2065

Gary Bowman Gary M. Bowman CFP socalmax@yahoo.com (714) 974-8667

Pat Brennan Capital Growth Inc./IFG patb@capitalgrowthinc.com (858) 552-6960

Ryan Bristol PropPoint rbristol@proppoint.com (310) 899-2750

Susan Bullock First Bank of Beverly Hills susan.bullock@fbbh.com (818) 223-5424

John Carr CARRealty Investments johncarr@frontiernet.net (530) 547-3384

Jeffrey S. Cederberg CapWest Securities, Inc. jcederberg@capwestsec.com (805) 543-1031

Ginger Chang Steven L. Falk and Associates, Inc. cginger@harmonywayrealty.com (800) 994-9697

David Chick Capital Asset Planners, LLC dcwork@earthlink.net (510) 891-9088

Cindy Chiu Private Equity Group, LLC cindy@privateequitygrp.com (909) 576-0907

David Clinton III Sabre Syndication Services dclinton@sabre-services.com (714) 469-6925

Michael Coen Liberty Group LLC michael@libertygroupllc.com (510) 658-1880

Randal Collen Down To Earth Real Estate rcollen@sonic.net (707) 568-7000 x222

Russ Colvin CORE Realty Holdlings, LLC rcolvin@corerealtyholdings.com (949) 863-1031

Kip Congdon Congdon-Jeffers Group kip@congdonjeffers.com (805) 692-1405

Rocco Cortese Presidio Exchange Advisors rcortese@presidio1031.com (707) 935-9322

Jim Crocker Aspire Financial jim.crocker@aspire1031.com (925) 577-6159

Dan Croke The 1031 Investment Source danc@1031investmentsource.com (760) 434-6208

Michael Cruz Courtland Securities Corporation mcruz@courtlandtgroup.com (949) 251-6901

Tom Daley Emerson Equity tdaley@emersonequity.com (650) 245-7881

Walter Danley, MBA Nagle Danley Real Estate Advisors, Inc. walter@nagledanley.com (949) 357-7533

Janet Dashiell 1031 Advance, Inc. jdashiell@1031advance.com (408) 241-1031

Dawson Davenport Real Estate Partners, Inc. dawson.davenport@realestatepartnersinc.com (949) 585-7650

Marc Davis, CFP LPL Financial Service marc.davis@lpl.com (619) 697-2684

John De Maio John De Maio john@firstcalifornia.com (925) 963-1401

John Dempsey National Exchange Advisors, LLC jdempsey@neaexchange.com (818) 907-5500

Hasmig Derderian Alexander Partners hderderian@alexander-partners.com (310) 356-4681

John Dewey The Dewey Group jd@deweygroup.com (949) 474-1737

Thom Downey Affinity Real Solutions – Omni Brokerage thom@affinityrealsolutions.com (888) 665-1031

Atul C. Dubal, CFP ZenhanceFinancial.Com acdubal@zenhancefinancial.com (866) 900-8376

Andrea Dunlap White Pacific Securities andreska21@yahoo.com (949) 933-7478

Gordon Dunne Financial Services Network gdunne@fsnweb.com (650) 571-1934

David Elhoff Independent Financial Group LLC elhoff@inetworld.net (619) 435-3334

Ron Ellis CapWest Securities rellis@capwestsec.com (831) 477-1031

Jack Ellison Independent Financial Group LLC nvest4you@aol.com (760) 320-9565

Robert Estupinian Regent Capital Group robert@e-realestate.com (408) 998-6343

William L. Exeter, President & C.E.O. Exeter 1031 Exchange Services, LLC wexeter@exeterco.com (619) 615-4210

Suzanne Fahey Collage suzanne.fahey@sbcglobal.net (714) 738-1827

P. Evan Farahnik ExchangePoint Properties, LLC evanf@pointpropertiesllc.com (310) 247-2291, Ext. 205

LaVerne Fast United Securities Alliance lrfast@sbcgobal.net (858) 622-6233

Ian Lucas Filippini Filippini Financial Group, Inc. ian@filippiniusa.com (805) 969-6200

Melissa Fox Melissa J. Fox, Esq. mfox@1031results.com (949) 428-5433

Mike Franklin FORT Properties, Inc. mfranklin@fortproperties.com (213) 572-0222 , Ext. 202

David Freedman Freedman Consulting dhf@freedmanconsulting.com (858) 454-3700

Sarah Frenczak Triton 1031 sarah@emersonequity.com (415) 359-6551

Steven Friedland Sterilex, Inc. sterilex@sbcglobal.net (510) 336-3245

Tony Frisina Financial West Group tfrisina@fwg.com (626) 795-2221

Cliff Gamble ePlanning Securities, Inc. cgamble@eplanning.com (916) 677-0177

David Gaon CapWest Securities, Inc. dgaon@capwestsec.com (714) 695-1491

Martin Gates Presidio Exchange Advisors mgates@presidio1031.com (866) 811-1031

John Gates Triumph Morgage, Inc. William W. Geary, Jr. Carlsberg Management Company wgeary@carlsbergmgt.com (310) 258-9000

Paul Getty First Guardian Group, LLC pgetty@firstguardiangroup.com (408) 392-8822

Tim Gibbons T.S. Gibbons, Inc. tgibbons@firststreetco.com (415) 265-2951

Rich Giglio Alexander Partners rgiglio@alexander-partners.com (619) 522-7084

Christopher Giglio Alexander Partners cgiglio@alexander-partners.com (619) 522-7084

Kourosh Gohar Equitable Companies, LLC kouroshgohar@equitable-companies.com (310) 461-1450

Kenneth Graham 1031 Focus keng@1031focus.com (800) 536-1031

Steve Groark Charter Financial Management Company Inc charterfinancialcpa@msn.com (510) 481-7472

Anita Gross Emerson Equity agross@emersonequity.com (925) 785-4644

Eric Groth White Pacific Securities ericgroth@hotmail.com (916) 494-1386

Bryan Hakola Diversified Wealth Builders Bryan@dwb1031.com (866) 261-0104

Gary Hancock OMNI Brokerage, Inc ghancock@hire1031exchange.com (916) 971-1052

1031 Exchange TIC Sponsors California #2

David J. Hartness 1031 Exchange Strategies, Inc. - Omni OSJ Branch Office david@1031es.com (858) 597-6767
John Harvey Cornerstone Exchange Services john@cornerstoneexchange.com (714) 939-1031
Miki Hashimoto Empire Securities miki@empiresecurities.com (310) 808-7499
Kjerstin Hatch Madison Capital Management khatch@madisoncap.com (916) 939-2771
John Hess Presidio Exchange Advisors jhess@presidio1031.com (925) 407-4747
Katherine Jan Higgins LVP Marin Realtors katherine@khiggins.com (415) 883-0555 X14
Rick Hoem Davis Financial Advisors rhoem@davisfinancialadvisors.com (916) 248-5710
Mary Holcomb TIC Specialists, Inc. mary@ticspecialists.com (949) 305-3515
David Hollander Liberty Group, LLC david@libertygroupllc.com (510) 658-1880
Daryl Holzberg Private Asset Group Inc daryl@privateequitygrp.com 714-545-5002
Eddie Shu-wing Hong FSC Securities Corporation eddieswhong@yahoo.com (415) 760-4609
Bill Hoop BILL HOOP bhoop@brookstreet.com (949) 244-5547
Robert Horning Private Equity Group bob@privateequitygrp.com (310) 641-7020
Michael Hsu Michael Hsu & Associates, Broker atisf@aol.com (415) 271-9074
Gordon Huber CNP Securities, Inc. ghuber@cnpsecurities.com (714) 619-9371
Douglas Huberman Rear View Mirror Holdings, Inc. dhuberman@rvmassociates.com (626) 792-8220
Doug Huberman RVM Associates dhuberman@rvmassociates.com (626) 792-8220
Michael Hughes NGAS Securities, Inc. mhughes@ngas.com (877) 643-1230
Philip Hulme Presidio Exchange Advisors phulme@presidio1031.com (866) 811-1031
Dr. Dave Jadia, Ph.D. J.K. Financial Services, Inc. djadia@socal.rr.com (714) 963-3963
Tom Jahncke PASSCO Companies, LLC tjahncke@passco.net (949) 442-1000
Sid Jain Moneymallusa Corporation sidjain@mymoneymall.com (408) 836-3858
Katie Jansen Cap Harbor kjansen@capharbor.com (323) 653-1152
John Jeffers Congdon-Jeffers Group john@congdonjeffers.com (805) 692-1405
Lyle Johnson Liberty Group LLC ljohnson@libertygroupllc.com (510) 658-1800
Jim Johnson 1031 Real Estate Investing jjohnson@empiresecurities.com (714) 813-8733
Mark Kanter Commercial Realty Consultants mkanter@crcinc.com (877) 711-2800, ext. 210
Haynes Kendall Capital Financial Services hkendall@capitalfin.com (949) 248-8800
Stacy Kent Brookstreet Securities Corporation skent@brookstreet.com (800) 268-2578 X170
John E. King Investment Property Exchange Services, Inc. john.king@fnf.com (904) 854-8856
Steve King RK Properties steve@rkprop.com (562) 240-1023
Kim Kirkman Sunset Financial Services, Inc. kkirkman@kclife.com (866) 944-1031
Joshua Koehnen Financial Designs, Ltd. josh@financialdesignsltd.com (858) 597-6678
Royal Krieger Krieger-Campbell, Incorporated rkrieger@kriegercampbell.com (510) 444-2800
William B. Krusheski Portfolio Advisors Alliance, Inc. bkrusheski@portfolioalliance.com (760) 421-0785
Thomas Kulzak Cornerstone Exchange Services thomas@cornerstoneexchange.com (800) 781-1031
James Lamont Lamont Financial Services jlamont@sammonsrep.com (415) 897-8802
Cheryl A. Lane Chrysalis Capital Group, LLC cheryl.lane@lanegroupusa.com (415) 771-5263
Michelle Langer Tweed Financial Services michelle.langer@tweedfinancial.com (626) 588-1520
Timothy F. Leahy 1031 Exchange Strategies, Inc. - Omni OSJ Branch Office tim@1031es.com (858) 597-6767
Joe LeBlanc Financial Designs, Ltd. joe@financialdesignsltd.com (858) 597-1980
Kevin Lee MCL Financial Group, Inc. klee@mcl1031.com (800) 692-6064 X390
Aaron Leff Cap Harbor aleff@capharbor.com (323) 653-6224
Camille Lemos Tweed Financial Services camille.lemos@tweedfinancial.com (626) 588-1520
Mark Levinson Fox Rothschild LLP mlevinson@alschuler.com (310) 255-9093
Brian Levy Envoy Capital Partners blevy@envoycap.com (310) 472-8570
Peter K. Loeb, Jr. Woods, Loeb & Co. ploeb@woodsloeb.com (650) 802-1052
Rick Longpre Latitude, Inc. rick@latitude.net (805) 884-8480
Michael Lopez Envoy Capital Partners mlopez@envoycap.com (650) 233-0450
Cary Losson 1031 Exchange Options closson@1031tic.com (925) 942-1031

1031 Exchange TIC Sponsors California #3

Mark Luban 1031 Exchange Strategies Inc-Omni OSJ Br mark@1031es.com (858) 587-6767
Jim Lund Tweed Financial Services Jim.Lund@tweedfinancial.com (626) 588-1520
Harold Lustig  harold@foursteps.com (415) 472-1396
Tim Marshall TM 1031 Exchange tim@tm1031exchange.com (310) 264-0497
Alex Martinez Union Bank of California alex.martinez@uboc.com (213) 236-7526
Lawrence Mathews Alexander Partners lmathews@alexander-partners.com (415) 946-3179
Sean McCandless White Pacific Securities seanm@whitepacific.com (916) 782-6740
Luke McCarthy Evergreen Realty Group, LLC angela@evergreenrealtygroup.com (800) 990-8448
Tim McCrary Tim McCrary broker@globalnorthwest.com (661) 588-6565
Adam McNulty Liberty Group, LLC adam@libertygroupllc.com (510) 658-1880
Kathleen McPherson Brookstreet Securities Corporation kmcpherson@mail.bkst.com (800) 268-2578 ext. 103
Steven D. Meahan Tax Reduction and Investment Strategies steve@1031ticadvisor.com (888) 825-1294
J. Andy Mendell Anders 1031 TIC Real Estate amendell@anders1031.com (415) 896-1031
Don Meredith Concorde Exchange Group meredth1@san.rr.com (619) 276-5547
Marty Metzgar The Marlin Group martymet@sbcglobal.net (949) 262-0665
Doug Michie Doug Michie dougmichie@hotmail.com (805) 643-9300
Ken Miles KCM Capital Management, Inc. ken@retirementality.com (909) 888-0808
Mike Millen Michael Millen MikeMillen@aol.com (408) 871-0777
Larry Miller Turnkey 1031s turnkey1031s@aol.com (415) 459-0966
Joe Miller Independent Financial Group LLC jmiller@ifgsd.com (858) 436-3180
Patrick Miller KBS Capital Markets Group, LLC pmiller@kbs-cmg.com (949) 640-7074
John Mitchell Mitchell Montgomery Inc. johnmm@starstream.net (916) 408-0773
Paula Miterko Miterko pmiterko@comcast.net (415) 485-1332
John Moore Moore Financial Services, Inc. jdmoore@morefinancial.com (510) 494-2070
Stacey Morimoto Midpoint Financial Services stacey@midpointfinancial.com (858) 793-6737
Aubrey Morrow Financial Designs, LTD. aubrey@financialdesignsltd.com (858) 597-1980
DeVonna Murrin Empire Securities dmurrin@empiresecurities.com (562) 431-5793
Dan Mytels Sycamore Investments dmytels@1031-exch.com (415) 641-1400
Jim Nagle, CCIM Nagle Danley Real Estate Advisors, Inc. jim.nagle@sbcglobal.net (213) 505-4454
Ezri Namvar, President Namco Financial Exchange Corp. Ezri@namcocapital.com (310) 207-1000
Steve Nartker Steven L. Nartker snartker@weltonstreet.com (888) 376-1031
Larry Nebel Larry H. Nebel larryhn@alco.com (925) 699-4385
Erin Neil First Allied Securities, Inc. eneil@firstallied.com (619) 702-9766
Steven A. Nelson White Pacific Securities (949) 861) 2885 snelson@whitepacific.com
Brian Nelson White Pacific Securities, Inc. bnelson@whitepacific.com (949) 861) 2885
Patrick Nelson White Pacific Securities pnelson@whitepacific.com (949) 861-2141
Gary Newman Equity Services, Inc. newman_gary@nlvmail.com (619) 284-7788
Dave Niekamp White Pacific Securities davidn@whitepacific.com (916) 217-2284
Christina Nielson Cornerstone Exchange Services christina@cornerstoneexchange.com (714) 939-1031
Kian Nobari 1031 Exchange Options knobari@1031tic.com (650) 400-0400
Tim Noone Mellon 1st Business Bank noone.t@mfbb.com (213) 596-4213
John Notman Notman 1031 Exchange Group jnotman@notmanfinancial.com (209) 955-5955 x105
David Noudel B&H Real Estate Holding, LLC dnoudel@bh-re.com (818) 995-9490
Sheryl Onopchenko Envoy Capital Partners sonopchenko@envoycap.com (415) 290-4624
Miguel Palma MAP - Miguel A. Palma cpa@mpalma.com (408) 295-4963
Leslie Pappas Envoy Capital Partners leslie@lesliepappas.com (650) 559-0128
Darrell Pardue Gold Realty Group dp@goldtic.com 760-837-2000
Marc Paul SCI Real Estate Investments, LLC mpaul@sciproperties.com (310) 470-2600
Dryden Pence Pence Wealth Management epence111@aol.com (949) 660-8777
Gene Plessala Steven L. Falk & Associates geneplessala@sbcglobal.net (714) 754-5456