Would like suggestions for TIC owner group Buy-Sell agreement…

[RealPropMan]

Hello. We are a group of 5 individual TIC owners of an apartment building of 60 units. We are writing up a Buy-Sell agreement. When one owner announces that they wish to sell their fractional interest, they must get an appraisal. Anyone who might be interested in buying also has the option of getting their own appraisal. If there are only 2 appraisals, the manager chooses a third. Assuming the 3 appraisals are within a 10% margin, they all get averaged together and this becomes the "Market Value." This "Market Value" is used in other parts of the Buy-Sell agreement, so the owners cannot simply do a "Willing Buyer/Willing Seller negotiation. I'm sure that a valuation process like this can take many forms. If anyone has some thoughts on other ways of handling this process, I would love the additional input. In our local market, one appraisal like this would likely cost more than $5,000. So, three appraisals would be a minimum of $15,000. Perhaps there is another reliable method with fewer appraisals? Thanks.

 

[PL1957]

Hello. We are a group of 5 individual TIC owners of an apartment building of 60 units. We are writing up a Buy-Sell agreement. When one owner announces that they wish to sell their fractional interest, they must get an appraisal. Anyone who might be interested in buying also has the option of getting their own appraisal. If there are only 2 appraisals, the manager chooses a third. Assuming the 3 appraisals are within a 10% margin, they all get averaged together and this becomes the "Market Value." This "Market Value" is used in other parts of the Buy-Sell agreement, so the owners cannot simply do a "Willing Buyer/Willing Seller negotiation. I'm sure that a valuation process like this can take many forms. If anyone has some thoughts on other ways of handling this process, I would love the additional input. In our local market, one appraisal like this would likely cost more than $5,000. So, three appraisals would be a minimum of $15,000. Perhaps there is another reliable method with fewer appraisals? Thanks.

I'm guessing that this procedure is spelled out in the TIC documents. If the procedure isn't followed pretty exactly, it could cause significant issues going forward. One option to reduce costs could be if all parties agree to be bound by a single appraisal, but that has its own issues. I think this just needs to be considered another cost of ownership.

 

[glenn walker]

In our partnership agreements we made the last ones much easier because once you start getting into appraisals , especially multiple ones that can get real messy. First of all there needs to be a time period for a buyout say minimum of 5 years. anything prior to 5 years outside of death is the remaining partners purchase at cost and that is ( whatever was his/her initial investment ) Less 10% for headaches and costs of transfer. You want to make it hard to get out in the first five years because if you get into a slow or down market, partners will start figuring that an-appraisal in those markets is not worth a nickel the day after its completed because just because an-appraisal comes in at $10,000,000 on a Monday does not mean it will sell for that and worse the remaining partners just got screwed because they paid on something that is going down. Now of course that is the opposite if the market is going up but you will fined very few partners who wants out if they think they are going to make more money.

As far as 3 Appraisals there is no way I would do that because it leaves too much room for disagreements and debates. The seller will always want to use the high one s and the remaining owners want to use the low one. Also if the partnership ends up in a lawsuit now there are 3 appraisals in conflict.

Anyway what ever you do like I stated make it hard to get out in the first five years , also make sure the attorney has provisions for a partners death, divorce, or judgements against a partner. GOOD luck personally our net partnership will have no provisions except buy out of initial investors share period. So if you want out you risk taking a large haircut if property goes up and a large haircut if value goes down LOL

 

[Terrel L. Shields]

I have had to testify over those kinds of deals and someone is always unhappy and goes to court. You could get 15 different appraisers and it wouldn't matter. The last one I did had 5 appraisers, 3 appraisals, and 4 testified. The 5th was at his daughters wedding and the judge ruled his was best since it lay between the others. And yes there was a spread of 30%, not 10%. Getting 3 to jive ...well, I wish you luck. Such properties should be valued annually, anyone objecting would be required to provide a minority report appraisal. So when sold, the appraisals should be submitted to an arbitration to establish value.

 

[Mark K]

Why not make it easy and have an annual meeting where the value of a share is based on a % or a multiplier of last year's gross/net profit, net rent, gross rent, assessed value, etc.? Everyone signs it and that's the value for the next 12 months.

When you say..."anyone who is interested in buying...", does this mean the other partners or anyone at all?

Do you have a first right of refusal included so the remaining partners can buy it out instead of the chance of having a stranger in the mix?

I was partners in a business (sub S corp) and our buyout amount was based on a % of the past year's total paid out dividends or net income income, whichever was greater. Keep it as simple as possible and have a good attorney write it up.