DBSI fallout fractures investors

Glass door
A retired insurance agent, Taylor sold his Kansaws City office buildingfor $425,000 a year and a half ago. he and his wife, Frances, made a similad amount from the sale of theid interest in afamily farm. Taylord knew Section 1031 of the tax code would allow him to defer morethan $110,000 in taxes triggerex by the sales — if he investecd the proceeds in more real An investment adviser persuaded him to do so through , an Idahol company that had been sellinfg fractional ownership in income-producing properties since 1980. Such accomplished through tenant-in-common (TIC) sounded sweet.
DBSI would assume all management hassle s associated with the properties the Taylorsxbought into, and the couple would receive “guaranteed” monthlyu payments of about $4,000. The checks came in especially afterFrances Taylor’x health problems prompted the couple to move into a pricey Olathe retiremenyt development. Then, in the checks stopped. A month later, DBSI filexd for Chapter 11 protection in a bankruptcyg case that has involved 240TIC properties, includingh 13 in the Kansas City area. Today, DBSI facesx fraud allegations. The fates of the propertiexs and thousands of TIC investors remaibn up inthe air.
Some DBSI whose TIC properties were beset by heavhy debt or highvacancy rates, already have lost them to Others, like the Taylors, have been able to hang on to theirt TIC properties. But aftee a February ruling that dissolve d the master leases through which DBSI managec and profited from the the more fortunate investors are struggling to rebuilc cash flows with newasset managers. They also are fightin g in court for reserves and security deposits that they say DBSI shoulx have escrowed for eachproperty — and didn’t.
Kevin president of in Overland Park, said the fractional owners of one area TIC propertyt already have walked away from their he wouldn’t specify whicg one. The remaining 12 can be divide d intotwo classes: properties that probably will becom profitable to their TIC owners again and those in jeopardyt of foreclosure. The latter properties don’t have enough cash flow to meet theitrdebt obligations, said whose company managed all but one of the locakl properties before the bankruptcy filing.
Before that time, the performance of a particula rproperty didn’t seem to sources said, because DBSI pooled all of the revenues and reserves and paid all TIC investorss their guaranteed amounts. “That was the said Christian Meadows, a law enforcement officer from Calif., who bought into the in Shawnee. “Wed were promised 7 percenf (returns), plus 0.3 percent bumps every year” to keep pace with From 2004 through October, TIC investment produced $1,800 a month, allowingv his wife to stay home withthe couple’s two newly adopted children. Then, the payments ended, and Meadowzs began getting hit with attorneyg feesand $540-a-month bills for court costs.
“This is costintg my family $2,590 per month,” Meadows wrote in November in a lettetto U.S. Bankruptcy Court Judge Peter Walshin Delaware. Meadows’ TIC property is back to breaking he said. But one tenant, , is arguing that the eliminatiohn of the DBSI master leasnullified Jo-Ann’s lease, which the retailer now wants to renegotiate, Meadoww said. In addition, he has asked the TIC owners to pay for tenantimprovements — a $250,000 expenss that the owners should have been able to covet through reserves.
Gerald Faerber, a Cedar Hills, Utah, retiree who invested in an Edwardsville paper said he never expectsz revenue from that building to returb to the levels DBSI promised and paid till its Butthe building’s fractional owner still are fighting in bankruptcy court for the thousands of dollard they were told would be placecd into reserves for the he said. “It’s a big can of worms,” Faerber “because they’re saying the reserves are gone. They claijm that the reserves werenot property-specific, that they could use them however they wanted. I think what they really did was use them to go buy more propertiess as part of theirPonzi scheme.
” In the filed a civiol lawsuit alleging that DBSI defrauded investors. Other recently filed lawsuits allege that the companyh began buyingdevelopment land, whicg sat idle after the economic downturn. “I think they were probablyy acting ethically when I firstbought in,” Meadowse said. “Then they got greedy and started buyingg land options and all thesecrazy things. They basically got into the (rea estate buying) fury with everybody else, so as soon as there was a credir crunch, they screwed themselves and us — over.
” Fortunately for Bill and Francesx Taylor, they have other retiremenrt income, including proceeds from the in KansaswCity — a TIC property sponsored by in Ken Block, a principal with , said his firm has been doinvg tenant-in-common deals for 40 years but with several differences from the DBSI For instance, he said, Block Co. does not offer top dollaer for TIC properties or collect high management fees throughjmaster leases. “We don’t do any of that that’s ridiculous,” Block said. “We do them with three or four ofour max. They know us.
They know what the plan is for the And they know we are owners inthe property,