Note: To follow is an excerpt of an interview with Adrian Arriaga CCIM CIPS, the 2008 chairman of the NAR Legislation and Regulatory Subcommittee for the Realtor Commercial Alliance, and H. Blaine Walker chairman of the NAR TIC Workgroup and 2007 chair of the NAR Realtors Commercial Alliance Legislative and Regulatory Subcommittee. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/020608.

Peter: A pending Securities and Exchange Commission exemption could allow commercial real estate professionals to receive a fee for opining on the real estate aspects of the securitized TIC or tenant in common deal. Currently, brokers and agents can receive a fee for referring an investor into a real estate TIC offering. The way I see it, many savvy realtors will be able to supplant and in some cases, if not most, earn more money via this exemption; this ability to opine on tenant in common type deals. Adrian, do you see this as a major moneymaker for realtors and of course, the real estate investing consumer?

Adrian: Thanks to the leadership of the National Association of Realtors and the RCA, Realtor Commercial Alliance, we’ve opened a door for real estate professionals in the commercial area to really have an upside. With that said, that also brings a big upside to investors that have never had the opportunity to invest in something called a TIC or tenant in common.

Blaine: Let me echo the comments of Adrian about the staff at the National Association of Realtors. They work very hard in working with the SEC to consider this exemption. The exemption could allow for a commercial real estate professional to be exempt from registering as a broker/dealer or securities rep and be able to opine on the real estate aspects of the transaction for their client. The benefits of this is to the client, he or she can now access the expertise of their commercial specialist to opine on the real estate aspects of the transaction. Of course they can’t get into the securities issues but they can opine on that aspect of it. The beauty of the tenant in common offering is it basically offers another arrow in the quiver of a commercial broker. As they present properties for a 1031 exchange, many of the buyers are moving out of smaller apartment complexes where they’ve been unable to higher professional management because of the size of the property. It doesn’t justify it. With the tenant in common offering, they’re now able to be involved with a class A type property and have professional management, which removes some of the day-to-day problems of tenants, toilets, trash etc. By affording this professional management and being able to move their money from a smaller property into a class A property still receive the tax benefits of depreciation and interest deductions and also take advantage of any appreciation that occurs over a long-term hold for the property, the investor now has opportunity to be a small investor in a large property.

Adrian: The biggest challenge and obstacle is if you have $50,000 or half a million dollars, you can not buy one property because of lending restrictions, but TICs are extremely beneficial for someone that wants to get in and have the benefits that Blaine just described.

Blaine: When you sell a property and want to do the exchange you have a 45 day period in which to identify a target property or a property to exchange into. Where the tenant in common sponsors has already identified the property, they’ve already done all the due diligence and the investor has an assurance of being able to close.

Peter: When do we expect to hear from the SEC?

Blaine: The SEC is reviewing the comments that have been put in during that comment period. The SEC will do its own due diligence and review all of the comments. From there, they will make their decision as to moving the exemption forward.

Peter: The National Association of REALTORS does a great job with its public image campaign but one of the greatest assets is they help to maintain a marketplace for investors like us and professionals like you can buy, own, and transfer real estate in a way that really is emulated globally. Their work in this effort is also a major positive to the general public and investors, do you agree?

Adrian: That’s correct. The next step for us is to educate the real estate professional to be up-to-date on TIC opportunities so they are able to help their investors.

Blaine: The national association is in the process of putting together an educational piece that will help the commercial practitioner on the TIC issues that they need to be aware of, and the pitfalls. A critical issue is, if this exemption is granted, that the real estate investor can have their real estate professional, who in most cases is selling what is commonly called the ‘down leg,’ or selling their liquidated property, they can now have the opportunity to use that same professional in analyzing another property for them to invest in. While the real estate broker can’t opine on anything that has to do with the securities aspect of the transaction, they can review the real estate aspects, they can show them comps to the property, and discuss the net operating income with them, the cash flow analysis review, the types of leases that are included in the transaction, and all aspects of the transaction where you need a real estate professional.

Peter: What are the steps a commercial real estate professional investor should look at when looking to partner with or work with a tenant in common provider?

Blaine: It’s somewhat of a loaded question, but at any rate, from the standpoint of a commercial specialist or an investor some of the questions that they should be concerned with are the length of time that a sponsors been in the business, their financial strengths, their ability to obtain financing on the properties, what their experience is in the tenant in common industry and in real estate in general. Many of these sponsors are real estate professionals in and of themselves and have been in the business for a number of years. They’ve purchased real estate over the years and now they’re providing them as tenant in common offerings, so check that experience. The types of properties they’re offering, and the reason I say the types of properties, that plays back to the interest of the client and what type of properties they are familiar with, comfortable with, also what type of properties are performing currently in the marketplace. I think a client needs to understand the ups and downs of the real estate market as a whole and the various risk factors involved in different types of properties. Lastly, the type of due diligence the sponsor has done on the property to make certain that they’ve done all the environmental testing, and the structural issues, and the civil engineering issues; all those types of things.

Peter: What is your golden nugget?

Adrian: Keep in mind that not every Tom, Delores and José can actually become an accredited investor. SEC defines an accredited investor as an individual that has a net worth of at least $1 million and more guidelines that go along with that. Times are tough and getting tougher because of the economic real estate crisis. This is one element that I think people can take advantage of, absolutely.

Blaine: We’re excited about the proposition of the exemption being issued. We think that it will benefit the investor as well as the commercial real estate broker.