Creative Ideas for 1031 TIC Deal Structures?

[Blake Salisbury]

My friend/business partner and I are working to try and set up a deal structure on a 1031 that is most equitable for both of us. There are several deals floating around but the one I can give rough details as an example is a commercial builidng where 20% is being put down on a 2.5 million dollar asset between 3 TIC equity/capital investors that are each providing roughly a third of the equity. The fourth partner is my friend/business partner who is not bringing in equity but has handled all of the negotiations and will be the sole operator on the deal. The value add will include TI's and renting out the 50% of the square feet that is vacant.

The hangup is that in a TIC structure we have learned that every person must bring money into the deal to achieve an equitable split. The solution that was initially proposed was that friend/business partner would have his 25% equity split bought out of the funds that the 3 equity/capital partners are bringing to close and then he would take 25% of the backend profits. I stewed on this for a bit but found that it was tough to stomach being diluted 25% percent from the jump as a breakeven project would equal a significant loss of capital for myself. I feel that I'd be more interested in 50/50 backside split than this (if TIC rules allow this).

Does anyone have intel on what they have seen in TIC structures for splits or asset management fees etc? Obviously each deal structure can be different based on the specific deal, we are just looking for some ideas as we haven't done TIC structures before together.

[Matt Devincenzo]

Where is the rule about equal equity coming from?...at its most basic titling the TIC, does not require equal contributions it's just a deed defining percentages. So the requirement must be from some other aspect of the deal....funds are coming from a 1031 or SDIRA etc that is driving this requirement.

As far as the contribution/buy out idea and being dilluted, I don't see how that is any different than your original proposal. In both three people end up contributing all of the equity and one manages the project. The only difference being the fourth temporarily funds equity for a few days/weeks until you refund him...