TSG Real Estate Losing Favor With Investors?
Founded in 2001 by Wayne “Rob” Hannah III, TSG Real Estate LLC of Chicago has built a reputation for itself by taking on creative business ventures. Hannah, TSG’s president and CEO, is a former bond trader who later ventured into commercial real estate. Among other things, Hannah is credited with helping to develop an IRS Revenue Procedure on tenants-in-common (TIC) compliance with 1031 Exchanges and, in 2008, for spearheading plans to launch the nation’s first eco-friendly real estate investment trust (REIT), Green Realty Trust, Inc.
Along the way, Hannah garnered credit for something else: Allegations by investors and regulators of operating an investment vehicle to partly finance personal obligations. As reported March 9, 2009, by Crains Chicago Business, investors allege that Hannah used their money to help pay for a $5.2-million, 10,000-square-foot vacation home near Park City, Utah.
According to the article, that accusation follows several other allegations charging Hannah of mismanaging properties, misleading investors and violating Illinois securities laws. On Jan. 30, 2009, the Illinois Securities Department issued a temporary order (File No. 08-00157) prohibiting Hannah and TSG Real Estate from selling securities in the state of Illinois. Among the allegations outlined in the complaint, Hannah failed to inform new investors about charges stemming from two prior lawsuits.
In those lawsuits, Illinois regulators cite a number of allegations pending against Hannah and various entities for which he served as an officer or director, including violations of the Illinois Securities Law of 1953, violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, common law fraud, racketeering, mail and wire fraud, and conspiracy.
TSG Real Estate first established its niche in the real estate industry as a sponsor of tenants-in-common investments (TICs). Unlike real estate investment trusts, sponsors of TICs sell interests in individual properties. TIC investors then buy a percentage interest in the commercial or investment property, allowing them to invest in properties they might not otherwise be able to afford.
TICs were especially popular during the boom time of the real estate market in the 1990s. Today, however, amid a housing downturn and recession, many firms that sponsored TICs are hurting, and TSG in particular reportedly is beset with problems.
According to the Crain’s Chicago Business article, investors in about 15 TSG properties want TSG replaced as manager. As for the lawsuit involving Hannah’s Utah vacation home, the article cites allegations in the complaint that contend Hannah and TSG used money from a $13.4-million investment fund for unauthorized purposes. Those “purposes” reportedly included Hannah using more than $800,000 to pay back a loan to his father and nearly $5 million to finance the Utah vacation home, which was acquired by a TIC for his “friends and family.” Neither transaction was allowed under the fund’s operating agreement, the suit says.
More than 87% of the fund’s investors have voted to replace Hannah as the fund’s manager, and about 60 are named as plaintiffs in the suit.
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