Thread: T-I-Cs start with T, and that stands for Trouble.

Another cautionary tale in the world of 1031s can be found in the story of DBSI, a privately held real estate firm based in Boise, Idaho. In 2002, the firm had assets of just “several million dollars,” but by 2008, assets had exploded to $2.6 BILLION. Now it has filed for bankruptcy protection and thousands of small real estate investors are left wondering if they’ll ever recover their investments.

Why is this a cautionary tale for the 1031 market? Because DBSI, like many other companies that own/arrange T-I-C deals, also provide 1031 exchange services. They use the 1031 market to attract people to their TIC deals. The value proposition is undeniable: need to find a replacement property in 180 days? No worries. Become a tenant in common in an existing building and voila. You meet all the IRS requirements for a successful exchange. Except how many investors really do due diligence on the TIC property? Apparently DBSI bought buildings in anticipation of turning them into TIC structures. It loaded those buildings with debt and sold fractional TIC shares for well more than it paid for the building. No problem when property values kept rising...but we all know how this story turns out. The market turns, DBSI can’t meet the debt payments, and needs cash to stay afloat. Eventually it collapses and what happens to the money being held for 1031 exchanges? Tied up in bankruptcy proceedings, a real estate investor’s worst nightmare.

That’s why we started RockSolid. 1031 exchanges are all we do. We hold your money and give it back to you at closing. Simple enough. It only gets complicated when there are other “demands” for that money within the 1031 company’s corporate structure. We don’t have the problem. All we do and all we will ever do is 1031s.

Peter Wunsch
Chairman, RockSolid 1031