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Arent Fox's Debbie Froling
That pesky Dodd-Frank. It's turning out to be an equal-opportunity thorn in CRE's side, impacting the little guys along with the big investors. Arent Fox's Debbie Froling tells us the law (passed last summer and giving the feds big sway over lending practices in order to prevent another Wall Street crash) is causing headaches for some tenant-in-common pools. Now, individuals must exclude the value of their primary residence when calculating net worth. Someone worth $2M who went in on a TIC property in '06, for instance, might be worth less now and no longer be an accredited investor in that TIC. That means when there's a call for capital among a TIC's members to refinance or improve a property, the now-unaccredited investor isn't allowed to pay in, leaving the entire pool in a holding pattern. That's why the Real Estate Investment Securities Association is lobbying for a grandfathering provision for existing investors, Debbie says.
It's always been a challenge to get TIC investors to agree on next steps. (Debbie points out that she can't even get consensus on anything from her three kids.) And in the days of distressed properties (most TIC properties were syndicated), it's even harder. Imagine trying to get 35 people to agree whether to sell at a loss or put more dollars in and wait for a better time to sell.