First Tenant-In-Common Golf Deal Structured

The first ever tenant-in-common deal involving a golf course has been completed, a sign that that the commercial real estate industry should expect to see more non-traditional assets included in TIC deals. The Stallion Mountain Country Club and Gold Course in Las Vegas was sold for about $25 million by Golf Clubber Nevada to a group of TIC investors. Fairway Signature Golf was the sponsor and has a unit to focus on sponsoring TICs on golf courses.

Stephen Burr, a Boston-based partner at law firm Foley & Lardner, structured the deal and has closed about $500 million of TICs since the structure was approved by the Internal Revenue Service in 2002. "Over the next 12 months there will probably be 10 to 12 golf courses sold to TIC investors nationwide," he predicted.

TICs offer individual investors the ability to defer capital gains taxes from sales of commercial properties by redeploying proceeds into other commercial properties, either directly or through a partial ownership. The Fairway Signature deal is structured so that the investors will receive a return of between 8.25% and 8.75%. If the TIC industry is to continue its strong performance, a number of key evolutions will have to occur as investors move into more exotic asset classes such as golf courses, senior living and hotels, Burr said.

The commercial real estate industry is also seeing more interest in the development of Delaware Statutory Trusts, or DST (1/21/05). Under current laws, no more than 35 individuals can participate in a TIC, compared with the 499 individuals who would be eligible to participate in a DST.

While the most senior of lenders and major conduit programs have been comfortable in the TIC business, the greatest change that Burr has seen in terms of financing the deals is the number of new mezzanine lenders in the past six months. The pace of sales has slowed down because the pricing negotiations periods have lengthened as it has been harder to guarantee double digit returns.