Are condos securities? How to determine when you have a security

Condominium hotels, converted hotel/apartment condos, resort condos, and even exclusive-occupancy luxury passenger ships are some of the ventures attracting real estate investors today. At the outset, it is necessary to distinguish among other real estate ventures, e.g., cooperatives (co-op), or tenancy-in-common (TIC) interests. With TICs, the title is held by a separate legal entity. On Jan 14, 2009, the SEC responded to a "no action request," holding TICs to be securities. However, this article will discuss more traditional condo interests in hotels and apartments where relevant law is yet to be settled. In Securities and Exchange Commission v. W. J. Howey Co., the US Supreme Court found that the companies had offered and sold securities in the form of an "investment contract." This article will addresses the characteristics of a security under the Howey test, and analyze how this might apply to various real estate transactions, e.g., those involving condominium hotels.