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Top Adding - TIC Syndication - Strategy For Small & Self-directed IRA Investors to Acquire High-valued Properties
Lorain is a Dentist with $900K in cash to invest in commercial real estate. She has been looking for a commercial property in the Bay Area for the last 2 years. There are few commercial properties in the $1M - $3M range for sale in the Bay Area. And if there are, they tend to be very old and in an undesirable part of town with a lot of deferred maintenance and financially-weak tenan
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
ts. She wonders who would have the courage to invest in such a property. She cannot afford the better and more expensive properties. However, she noticed many good and affordable shopping centers outside of California with brand name tenants and high income. With her busy work schedule and 2 young children, taking time off just to see these properties is a significant task. Moreov
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
r, she would not know whether the area is a good place to invest. She would have to find a reliable property manager and then make business decisions like whom to lease the vacant space to, thousands of miles away. She thought there must be a better investment solution.
Sunny has been working as an Engineer in the Bay Area for more than 15 years. Over the years he contributed to hi
Sunny has been working as an Engineer in the Bay Area for more than 15 years. Over the years he contributed to hi
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
s company’s 401K plan and has accumulated over $350K in his IRA rollover account. He notices the return on his IRA funds is underperforming. As he grows older, he is concerned about the volatility of the stock market. The recent scandals about backdating stock options and Enron shook his confidence in public corporations. He now wants to use his IRA money to invest in tangible real
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
estate where he has more comfort and control. He learns that he could put this money in a self-directed IRA to invest in real estate. As he researches more, he can use money from self-directed IRA account as a down payment. But the IRS precludes any personal guarantee for the loan — minimizing his leverage. This personal guarantee is a major restriction because virtually all reside
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
tial and commercial lenders require it. (A full-length article about how to use self-directed IRA to invest in real estate will be featured in a coming issue.) There is a solution.
What is real estate syndication/TIC? A real estate broker gathers a group of investors like Lorain and Sunny together as an investment club to purchase an income-producing property. The real estat
What is real estate syndication/TIC? A real estate broker gathers a group of investors like Lorain and Sunny together as an investment club to purchase an income-producing property. The real estat
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
e broker is called a syndicator or TIC sponsor. The syndicator is motivated to look for the best property so he may promote it to investors like Lorain and Sunny. This property is often more expensive, e.g. $7M-$15M; thus, most investors cannot purchase individually. Lorain and Sunny are happy to invest in a good property with strong income. The syndicator earns a commission from t
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
e sale and a contingent fee in the form of a 10% ownership of the property. So it’s a win-win situation for both syndicator and investors. The syndicator manages the property, provides a quarterly operating income and expense report, and distribute income to investors.
Benefits to investors: The concept behind syndication/TIC is “it’s better to own a part of a more valuable,
Benefits to investors: The concept behind syndication/TIC is “it’s better to own a part of a more valuable,
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
table, well-located property than to own 100% of a lousy property”.
1. Lorain is pleased because she can invest in a good property with strong income and strong potential for appreciation. The property is in good hands with the syndicator; so, she can focus on her dental business and family.
2. Sunny is very happy because he owns less than 30% of the property, and thus, he does not
1. Lorain is pleased because she can invest in a good property with strong income and strong potential for appreciation. The property is in good hands with the syndicator; so, she can focus on her dental business and family.
2. Sunny is very happy because he owns less than 30% of the property, and thus, he does not
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
have to provide any personal guarantee for the loan. He meets the IRS requirement and can still maximize leverage. His share of operating income will be deposited to his self-directed IRA account.
3. Since the loan amount to finance the property is substantially larger, e.g. $6-10M, and the property has superior characteristics, the interest rate will be lower, e.g. 6% instead of 7%
3. Since the loan amount to finance the property is substantially larger, e.g. $6-10M, and the property has superior characteristics, the interest rate will be lower, e.g. 6% instead of 7%
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
As a result, the investors will receive a better return from their investment.
Title under Syndication/TIC: the syndicator may form a Limited Liability Company (LLC) to take title to the property or vest title to the owners as tenants in common. An LLC will shield the property from potential liabilities exposure. For example, if one of the investors is sued, the creditors c
Title under Syndication/TIC: the syndicator may form a Limited Liability Company (LLC) to take title to the property or vest title to the owners as tenants in common. An LLC will shield the property from potential liabilities exposure. For example, if one of the investors is sued, the creditors c
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
nnot go after the property. This is because the investor has an equitable interest in the property but does not legally own it. The LLC is the legal owner of the property. The syndicator is the manager of the LLC so he can make certain decisions, e.g. sign the new lease on behalf of all investors.
The Ownership and Operating Agreement: this is a document with rules to govern
The Ownership and Operating Agreement: this is a document with rules to govern
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
the investment club that all investors have to agree to. This will minimize potential disputes among investors. Some of the key rules may be:
1. No single investor can own more than 50% of the club.
2. Major decisions, e.g. to sell the entire property will require unanimous approval among LLC members.
3. Each co-owner has the right of first refusal when any other co-owners want to
1. No single investor can own more than 50% of the club.
2. Major decisions, e.g. to sell the entire property will require unanimous approval among LLC members.
3. Each co-owner has the right of first refusal when any other co-owners want to
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
sell their share.
The operating agreement also specifies the percentage of interest in the property each investor owns as tenants in common with others.
Loan for the property: the property normally has a non-recourse loan in which the property is the only collateral for the loan. The lender cannot go after other assets of the investors in case of default. The lender will req
The operating agreement also specifies the percentage of interest in the property each investor owns as tenants in common with others.
Loan for the property: the property normally has a non-recourse loan in which the property is the only collateral for the loan. The lender cannot go after other assets of the investors in case of default. The lender will req
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
ire all investors who own more than 30% of the property to fill out loan application. So, Sunny needs to keep his ownership at less than 30% because his self-directed IRA is the owner of the property.
Income Tax: All the income may be reported by individual investors on the Schedule E. For example if Lorain owns 30% of the property, she will receive an Operating Statement wi
Income Tax: All the income may be reported by individual investors on the Schedule E. For example if Lorain owns 30% of the property, she will receive an Operating Statement wi
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
th income and expense information from the syndicator. She will report 30% of the income, 30% of the expenses, and 30% of the depreciation from the property on her schedule E. For Sunny, all the positive cash flow is deposited to his self-directed IRA account, and he defers some income.
1031 Exchange: The ownership interest can be 1031 exchange property if the co-ownership is
1031 Exchange: The ownership interest can be 1031 exchange property if the co-ownership is
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
not classified as a partnership for tax purposes. Thus the investors may get tax deferral on a like-kind exchange of their fractional ownership interest.
The Happy Ending: The syndicator suggests both Sunny and Lorain to consider investing with 2 other investors in a $7.9M, 2-year old, 30,900 SF, 12-tenant, and 100% NNN leased upscale shopping center in Lawrenceville, a fast g
The Happy Ending: The syndicator suggests both Sunny and Lorain to consider investing with 2 other investors in a $7.9M, 2-year old, 30,900 SF, 12-tenant, and 100% NNN leased upscale shopping center in Lawrenceville, a fast g
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
owing and prosperous city in the suburb of Atlanta, GA. The property is located in front of a Walmart Supercenter; so, they both know it’s in a prime location. The property currently has a $6M non-recourse loan at below market rate of 5.6% interest through 2016. So while the cap rate is respectable at 7.25%, the cash on cash return is over 10% because the interest rate is so low. A
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
fter reviewing the brochure and financial information of the property, they sign the subscription agreement to move forward with the investment.
DISCLOSURE: To ensure compliance with requirements imposed by IRS Circular 230, we hereby inform you that the U.S. Federal tax advice contained in this article is not intended to be used nor has this article been written to be used, and it c
DISCLOSURE: To ensure compliance with requirements imposed by IRS Circular 230, we hereby inform you that the U.S. Federal tax advice contained in this article is not intended to be used nor has this article been written to be used, and it c
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
nnot be used, by any taxpayer for the purpose: (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. No tax advice is being given by this article for any specific transaction. If you desire advice about any particular transaction, then please consult a professional tax advisor
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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