One of the first decisions that an investment advisor will face is whether to recommend a securitized tenant-in-common or one that is structured as a non-securitized investment. The vast majority of sponsors offers the securitized variety, which are subject to regulation by the Securities and Exchange Commission (SEC) and National Association of Securities Dealers (NASD), and may only be sold by registered securities dealers.
Two prominent sponsors specialize in non-securitized TICs. Structured as straight real estate investments, they are not governed by the SEC or NASD and may be sold, just like any other piece of property, by a real estate agent. But the SEC has yet to weigh in on the legality of non-securitized TICs.
Securitized tenant-in-commons will almost always be a better choice for investors for reasons beyond the fact that there is no uncertainty about their legal status. To begin with, securities dealers have a fiduciary duty to act in their clients’ best interest and therefore are obligated to undertake due diligence to assure that an investment is reasonably sound and that it meets the particular client’s needs.
The regulators also require the dealer to issue a private placement memorandum providing the prospective investor with full disclosure about the sponsor, details of the property offered for sale, third-party opinions about the deal and a run-down on risks associated with the investment. Investors considering the purchase of a share in a non-securitized TIC should be prepared to do much of their own due diligence and look out for their own interests.