Tenancy-in-Common (TIC) structures allow multiple commercial real estate investors to co-own undivided fractional interests in a single property, commonly used to execute individual 1031 tax-deferred exchanges. Financing a TIC requires strict adherence to IRS Revenue Procedure 2002-22 guidelines and specialized lender covenants.
Maximum Co-OwnersStrict 35-investor maximum under IRS rules (typically 5 to 20 in practice)
Ownership FormDirect undivided fractional fee simple interest on title
Lender Execution RequirementAll TIC co-owners must execute a single master promissory note and mortgage
Unanimous DecisionsLease approvals, sales, and refinancing require unanimous TIC agreement
Guarantor StructureSponsor/manager provides non-recourse bad-boy carveout guarantees for all TICs
* TIC financing involves complex tax and securities regulations; consult specialized tax attorneys and 1031 exchange accommodators.
Why Commercial Real Estate Investors Utilize TIC Structures
Under Internal Revenue Code Section 1031, tax-deferred exchange treatment is strictly restricted to real estate interests. Partnership interests or LLC membership shares do not qualify. When multiple exchange investors wish to pool capital to acquire a single institutional commercial asset (such as an $15M grocery-anchored shopping center), they cannot simply form an LLC together without disqualifying their 1031 exchanges.
Instead, investors take title as Tenancy-in-Common (TIC) co-owners. Each investor holds an undivided fractional interest in the physical real estate (e.g., a 22.5% tenant-in-common interest), satisfying IRS requirements while co-owning an institutional-grade commercial asset.
How Commercial Lenders Underwrite and Structure TIC Debt
While advantageous for tax planning, TIC ownership creates distinct underwriting challenges for institutional lenders:
Single Master Loan Facility
Lenders will not issue individual loans to each fractional owner. All TIC owners must jointly execute a single master promissory note, mortgage/deed of trust, and loan agreement. Each co-owner pledges their fractional interest, giving the lender an unencumbered first-lien mortgage across 100% of fee simple title.
One unified monthly payment collected via a master servicing account
Joint liability under loan terms (typically non-recourse execution)
Individual TIC owners cannot unilaterally encumber their fractional interest
The Tenants-in-Common Agreement (TICA)
Lenders require a comprehensive, legally binding Tenants-in-Common Agreement (TICA) governing relations among all co-owners. Crucially, the TICA must comply with IRS Rev. Proc. 2002-22 while subordinating certain co-owner rights (such as partition rights) to the lender’s mortgage.
Co-owners must waive statutory rights to partition (force a sale) during loan term
Centralized property management agreement required with institutional manager
Pre-negotiated buy-sell mechanisms if an individual TIC defaults on cash calls
Key Challenges in TIC Loan Approvals
Sponsors coordinating a TIC financing must manage several operational hurdles:
1. Unanimous Consent Bottlenecks: Under IRS safe harbor rules, leasing major space, selling the asset, or refinancing requires unanimous co-owner approval. Lenders require pre-agreed leasing guidelines to prevent deadlocks.
2. SPE Requirements: Institutional lenders mandate that each individual TIC co-owner form their own single-purpose, bankruptcy-remote LLC to hold their fractional interest, preventing outside investor liabilities from attaching to property title.
Frequently Answered Questions
Common Questions About Tenancy-in-Common (TIC) Commercial Property Underwriting & Financing
Direct, transparent answers regarding underwriting standards, documentation, and process.
Tax Structuring
Can you get a commercial mortgage on a property owned as Tenants in Common (TIC)?
Direct Answer
Yes, commercial lenders routinely finance TIC properties, but all fractional owners must jointly execute a single master loan facility and sign an approved Tenants-in-Common Agreement (TICA).
The lender places a unified first lien on 100% of the real estate title rather than issuing individual fractional loans.
1031 Exchange
Why do investors use TIC structures instead of LLCs for commercial acquisitions?
Direct Answer
Investors use TIC structures because IRC §1031 rules prohibit exchanging into LLC partnership shares, but permit exchanging into undivided fractional tenant-in-common title ownership of real estate.
This allows multiple unrelated 1031 exchange investors to pool capital into a single institutional commercial property.
Connect with our commercial underwriting team. We provide prompt indicative pricing, leverage sizing, and lender placement strategy upon scenario review.
