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Is Your TIC Client a Candidate for Conversion to DST?

By Michael Donovan and Andrea Patton

Under existing IRS guidance, taxpayers disposing of real estate may invest in real property owned through a tenancy in common (TIC) or a Delaware Statutory Trust (DST) as part of a qualifying tax-deferred like-kind exchange, so long as the TIC or DST arrangement meets certain requirements. Many commercial loans financing TIC arrangements are reaching maturity. As a result of the crash of the real estate market in 2008, and certain features of TIC arrangements that may make them less attractive to lenders, some TICs may face difficultly in refinancing. In such cases, one option for dealing with refinancing issues may be to convert the TIC to a DST. This article explains the reasons converting to a DST may facilitate a refinancing and discusses factors to keep in mind when considering the conversion of a TIC to a DST, most notably, for purposes of this article, certain leasing limitations.

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