Delaware Statutory Trust vs Tenant in Common
DST STRUCTURE TIC STRUCTURE
IRS Provision REV. Rule 2004-86 Rev. Proc. 2002-22
Maximum Number of Investors Up to 499 Up to 35
Ownership Percentage of Beneficial Undivided Tenant in Common
Ownership in a Trust (DST) Interest in Real Property
Major Decision Approval No Voting Rights Equal Voting Rights
Requiring Unanimous Consent
Number of Borrowers 1 (the DST) Up to 35
Investor Receives Deed No Yes
Tenant in Commons have two significant flaws compared to the Delaware Statutory Trust structure.
The first flaw is the limitation on ownership. With a limit of 35 potential investors, TIC deals are routinely smaller than DST offerings. For example, if a TIC bought a $100 million apartment building with 50% debt, the average investment would be $1,428,571 based on a full 35 people investing. Most DST offerings have a minimum cash investment of $25,000 and a minimum 1031 exchange investment of $100,000.
The second flaw is unanimous consent. With unanimous consent, 100% of the owners must agree to make changes such as refinancing, selling, or releasing the property. TIC investments have blown up when the ownership group could not agree to make these changes. If you have 35 owners, one of them can hold the whole group hostage on the investment.
TICs do have an advantage over DSTs in that they can be used to buy value add property with the intention to significantly increase value, through renovation, lease-ups, etc. These deals will potentially have cash calls.