Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/206598
FINANCING FOCUS Partial-Interest Plan Can you close real estate's most difficult sale? p by Aaron Aftergut Partial-interest properties can seem like a myth in the real estate world. These properties are not only rare, but also notoriously difficult to sell. If you ever happen across a partial-interest property, here's how to work with the seller and find a buyer. Partial Interest Defined Partial-interest properties divide ownership into smaller fractional percentages held by multiple owners. Tese properties may have two owners with 50-50 stakes, fve 20-percent owners, or any other combination. Partial interests typically stem from estate planning. Owners might parse a property among multiple inheritors, usually family members. Splitting the property this way ofen prevents the partial interests from ever entering the market, since the transfer of shares usually occurs within the owning group. One of the most popular partial-interest structures is the tenant-incommon ownership, or TIC. Prior to the 2008 fnancial crisis, fnancing for the acquisition of partial interest in real estate was more readily available than it currently is in many regions of the country. Today, many partial-interest transactions are completed as cash purchases out of necessity. However, in regions of the country where partial-interest ownerships are more common, and the lending community is therefore more familiar and comfortable with partialinterest transactions, it is still possible to obtain a loan on the acquisition of partial interest in real estate. Brokers struggle to fnd buyers for partial-interest properties because most real estate buyers understandably desire 100 percent ownership. If the buyer holds only a partial interest, any modifcations require the input and approval of the other owners. Even if a broker beats the odds and fnds a willing buyer, the list of potential buyers narrows further because in many markets it's nearly impossible to obtain a loan to purchase a partial interest. Most banks view such fnancing as too risky because it's impossible to foreclose on a piece of a property if the borrower fails to maintain payments. As a result, many banks turn down such loan requests, and the limited fnancing shrinks the potential purchasing feld to cash buyers. Selling partial-interest properties is a complicated dance between appeasing the client and making the sale. Te frst step for selling brokers is determining a discount percentage to apply to Commercial Investment Real Estate Martin Poole/Getty Images; William Andrew/Getty Images A Hard Sell