"Eventually it's going to all get repealed and changed," Rosenberg says. "Who knows what's going to happen?" In light of today's tax uncertainty and low real estate values, accepting a 15% capital gains tax now may not be such a bad deal.
Some important lessons were learned in an era of plunging real estate values.
Rosenberg says he always told clients that they had the option to cash out and pay taxes, but a lot didn't want to pay taxes under any circumstances. "You can only do so much," he says. "It's their money as to how they want to invest it. I'm just happy I tried to diversify holdings for clients. Typically I didn't put a client into one particular property. I put them into several properties."
Rosenberg says the real estate collapse caused TICs, along with most real estate, to incur losses when buildings were sold, and there are cash flow problems as building tenants fail to renew leases.
With the unforeseen national credit downturn, though, there is one thing for which Rosenberg is grateful. He specifically sought properties that had financing with fixed rates for terms as long as possible.
So despite a national credit freeze that prevented several investment companies from refinancing properties, "Thank goodness!" he says. "We haven't had any financing issues."
Darryl Steinhause, a partner with the law firm Luce Forward, San Diego, believes tenant-in-common private placement deals could stage a comeback when the real estate market rebounds. Steinhause created the TIC legal structure. His law firm is behind a January 14, 2009, no-action letter from the SEC that he says concludes tenant-in-common 1031 exchange deals are securities.
Real estate brokers have been trying to obtain an exemption, so that they can sell tenant-in-common interests as if they were real estate, he notes. Despite several proposals, the SEC had not issued a response as of this writing.
"There's nothing wrong with the tenant-in-common structure per se," Steinhause maintains. "It helps many individuals roll over built-in gains."
The problems arise if you don't have good management or the economics to back up leases.