Growing Pains 2006-10-20Growing Pains 2006-10-20

Although the tenant-in-common (TIC) market continues to rake in a staggering amount of money, the industry finds itself in the throes of some major changes. Securitized TICs alone are responsible for raising $1 billion in equity per quarter during the third and fourth quarters of 2005 and the first quarter of 2006, according to data from Salt Lake City-based Omni Brokerage Inc.

But the meteoric rise of TICs is beginning to show signs of leveling off. The amount of equity raised slipped to $908 million in the second quarter, and initial projections for the third quarter called for $890 million to flow into TIC investments (see chart).

The TIC industry has experienced incredibly rapid growth — roughly 100% per year since 2002. So, a change to more moderate growth was inevitable, say industry experts. “This is a year where we reached some equilibrium in the market,” says Marc Paul, president and founder of Los Angeles-based SCI Real Estate Investments. Paul estimates that total transaction volume for TIC properties industry wide — both securitized and non-securitized transactions — will rise about 20% in 2006 to between $15 billion and $20 billion.

Demand remains strong, particularly for high-quality properties, Paul adds. SCI recently filled the $29 million equity commitment for ITC Crossing South in Morris County, N.J., in less than 90 days. Built in 2000, the 372,789 sq. ft. center is anchored by strong credit tenants such as Lowe's Home Improvement, Old Navy and Bed Bath & Beyond. The power center, which sold for $65 million, will deliver first-year returns of about 6%.

Buyer's market

Even though the robust transaction volume indicates a healthy market, those numbers don't tell the whole story. The time it takes to fully sell out a TIC investment has doubled and even tripled in the past year. As of Aug. 31, securitized TIC investments needed an average of 87 days to raise the equity capital, according to Omni. That is actually a huge improvement compared to July, when the average shelf life for TIC deals was a whopping 154 days.

Properties are sitting on the shelf longer for a variety of reasons. A jump in the 10-year Treasury yield earlier this spring coupled with incredibly low cap rates has caused investors to become cautious. The lull also is a reflection of more deals coming to the market. As of Aug. 31, there were 48 securitized TIC properties on the market — more than triple the 10 to 15 options that were the norm a year ago, according to Omni.

Another factor contributing to slower deal flow is a narrow distribution channel. “The sponsor community continues to grow at a fairly rapid pace, but the broker distribution channels have not expanded,” says Manuel A. Nogales, director of business development at Omni. Securitized TIC deals are dependent on licensed broker/dealer firms. About 60 broker/dealer firms represent 80% of the securitized TIC transactions.

Buyers are benefiting from the more competitive market with a wide variety of deals to choose from and plenty of time to make decisions. The increased competition also is expected to weed out some of the weaker sponsors and less-than-stellar TIC offerings. Omni is currently tracking 63 active securitized sponsors. Eight sponsors left the TIC marketplace during the second quarter, and five more sponsors have suspended TIC activity for the time being.

The industry-wide shakeout is expected to continue into 2007. “I think you will see a pretty stable product flow and continue to see some more of the marginal people exit the business,” says Clay Womack, CEO of Santa Monica, Calif.-based Direct Capital Securities Inc.

Calling all investors

As TIC properties continue to flood the market, the industry is clearly working to boost demand for its product. One goal is to bring more licensed broker/dealers to the table. Another option is to broaden the target client base.

So far, TICs have been fueled almost entirely by 1031 exchange investors. In 2002, the IRS issued guidance that qualified TICs as “like kind” properties eligible for use in 1031 tax-deferred exchanges. The ability to defer capital gains taxes has proved to be a huge draw. Yet other TIC attributes appear to be striking a chord with non-1031 investors.

One of the big incentives of a TIC structure is that it allows investors to buy a fractional ownership interest in higher-quality properties than what they could afford on their own. Investors also like TICs for the predictable income stream and low management responsibilities.

Initially, about 95% of the capital flowing into deals brokered by Direct Capital Securities came from 1031 exchanges. Now 15% to 20% of that equity is coming from cash investors, and Womack expects that percentage could rise as high as 40%. TICs appeal to older, more established investors who have built their wealth and are in the wealth-preservation stage.

Womack adds, “My prediction over the next two to three years is that if we continue to see quality TIC offerings and a price adjustment to where interest rates are, we will see even more cash investors.”

1031 & TIC INVESTMENTS LLC

310 - 4th Ave S, Ste 1100
Minneapolis, MN 55415
Phone: 612.253.1031
Fax: 612.253.1145
Contacts: Dan Werry, Padma Chintapalli

1031 & TIC Investments, LLC, provides nationwide property for 1031 and 1033 exchange replacements, as well as for investors seeking to make new Real Estate Investments. Our properties are designed for investors looking to make a lifestyle change by avoiding day-to-day management.

1031 EXCHANGE OPTIONS

1850 Mt Diablo Blvd, 5th Fl
Walnut Creek, CA 94596
Phone: 800.675.2424
Website: www.1031exchangeoptions.com
Contacts: Cary Losson, Founder & President; Mark Johanson, Executive VP - Client Services

1031 Exchange Options is a national real estate investment consultancy that helps clients acquire tenant-in-common (TIC) and triple net leased properties, through a 1031 exchange or direct investment. Headquartered in Walnut Creek, CA, 1031 Exchange Options has completed thousands of individual TIC transactions, representing billions of dollars of institutional-grade real estate. Securities offered through Sigma Financial Corporation, member NASD/SIPC.

ACCREDITED SOLUTION, LLC

5750 Sunrise Blvd Ste 220
Citrus Heights, CA 95610
Phone: 877.4AS.1031
Contact: W. Anthony Arnold, President and COO, [email protected]

Accredited Solution, LLC, founded by William Swayne and Joseph Spagnoli, is a full service, personal financial planning firm. We specialize in bringing clarity to the otherwise complex world of 1031 Tenant in Common Real Estate transactions. Our Clients are individual investors and the clients of other Registered Representatives who desire Accredited Solution to facilitate TIC transactions with their clients. We are a client-centric organization dedicated to fulfilling the financial goals of each and every constituent. More information: call 1-877-427-1031 or attend one or our information sessions.

Securities offered through Pacific West Securities, Inc. Member NASD, SIPC. Investment advice offered through Pacific West Financial Consultants, a registered investment advisor.

ALTA INVESTMENT GROUP

9011 Soquel Dr, Ste. 100
Aptos, CA 95003
Phone: 831.688.7700
Fax: 831.688.1779
Website: www.altainvestments.com
Contact: Toni Sutherland

Alta Investment Group was founded with the goal of assisting our clients in every aspect of their financial lives. We've provided the most comprehensive and personal service available, thus earning a reputation for excellence in our industry. For each of our clients we strive to help create financial stability and security to provide financial independence.

Securities offered through Pacific West Securities, Inc. Member NASD/SIPC

ARGUS REALTY

205 Avenida Fabricante
San Clemente, CA 92672
Phone: 877.366.1031
Fax: 949.481.6748
Website: www.argusrealty.com
Email: [email protected] [email protected]
Contacts: Tim Snodgrass, President; Todd Williams, Director of TIC Offerings

Since 2001, Argus Realty Investors, LP has acquired over $900 million of commercial real estate and has more than 8 million of commercial real estate and has more than 8 million SF under management. ARI offers investors the opportunity to participate in the ownership of institutional-grade commercial real estate, without the burden of individual property management through its Tenant-In-Common and private exchange programs and real estate investment funds. Our preferred property type is institutional-grade office and industrial properties in urban and suburban markets throughout the United States.

BAKER AND ASSOCIATES, LLC

P.O. Box 18837
Spokane, WA 99228.
Phone: 509.467.1011
Email: [email protected]
Contact: David L. Baker

David L. Baker, CLU, CFP is a Real Estate Broker with 35 years experience in the financial services industry. For a copy of “The 1031 TIC Exchange Strategy” on CD-ROM send $9.95 to Baker & Associates, LLC. Securities offered through Pacific West Securities, Inc member NASD/SIPC. One Renton Place, 555 S. Renton Village #700, Renton, WA 98055, 425.271.3550.

BAKER & MACKENZIE

One prudential Plaza, 130 E Randolph Sr
Chicago, IL 60601
Phone: 312.861.7590
Fax: 312.861.2899
Website: www.bakernet.com
Email: [email protected]
Contact: Richard M. Lipton

Baker & McKenzie is the world's leading global law firm with a strong leadership in the TIC industry. We are a leader in providing legal services to TIC sponsors, including particularly tax, corporate and securities advice, and the preparation of offering materials for TIC private placements. Visit us at www.bakernet.com or call 312-861-7590 to learn more.

BEACON REALTY CAPITAL, INC.

549 W. Randolph Street, Suite 700
Chicago, IL 60661
Phone: 312.207.0060
Fax: 312.207.1827
Website: www.beaconrealtycapital.com
Contact: Jim Ablan, Principal, 312.207.8233, [email protected]; Bill Johnson, Principal, 312.207.8234 [email protected]

Beacon Realty Capital, Inc., a Chicago-based commercial real estate financial services company, is among the nation's leading mortgage banking firms. Through our team's aggressive, thorough and creative approaches, we arrange debt and equity financing with various capital sources. Since 2002, we have arranged over 40 financings totaling in excess of $400,000,000.

CAPHARBOR, LLC.

8447 Wilshire Boulevard, Suite 100
Beverly Hills, CA 90211
Phone: 877.886.1031
Fax: 323.653.6233
Website: www.capharbor.com
Email: [email protected], [email protected]
Contact: Jim Shaw, President & CEO; Katie Jansen, Vice President, Client Development

CapHarbor is a brokerage company serving the needs of 1031 investors who are seeking passively managed replacement properties (Single-Tenant, NNN-Leased properties by the whole and tenant in Common (TIC) interests on a fractional basis for accredited invstors. Visit us at www.capharbor.com or call 877-886-1031 to learn more about our services

CAPWEST SECURITIES, INC.

860 Osos St.
San Luis Obispo, CA 93401
Phone: 805.543.1031
Fax: 805.543.1038
Website: www.capwestsec.com
Email: [email protected]
Contact: Jeffrey S. Cederberg, Limited Registered Representative

CapWest Securities, Inc., established in 1992, is an independent, full-service brokerage firm with 72 licensed representatives and 11 branch offices nationwide. CapWest offers one of the finest selections of Tenant-In-Common replacement property inventories in the nation for your 1031 Exchange. Call us today to discuss your next investment opportunity.

COSTA FINANCIAL SECURITIES

1930 Harrison St., Suite 603
Hollywood, FL 33020
Phone: 866.405.1031
Website: www.1031alternatives.net
Contact: Grant Conness

Costa Financial Securities is a leading financial services firm, specializing in innovative tax- deferral strategies and 1031 Exchange replacement property solutions. Costa. Financial works in conjunction with owners of highly appreciated assets and their trusted advisors to develop a plan that will allow them to relinquish tax burdened assets more efficiently. To learn more please visit www.1031alternatives.net

COVINGTON REALTY PARTNERS

30 South Wacker Drive, Suite 2750
Chicago, IL 60606
Phone: 312.879.7560
Fax 312.669.1300
Website: www.covingtonrealtypartners.com
Email: [email protected]
Contact: Marc Goldstein, President

Headquartered in Chicago, Covington Reality Partners acquires Class A retail and multifamily properties in primary and secondary markets nationwide. In the last 12 months, Covington has increased its portfolio by more than $178 million. With its current pipeline, that number is expected to reach $250 million by year end. For more information, please visit www.covingtonrealtypartners.com.

DBSI SECURITIES CORPORATION

1550 South Tech Lane
Meridian, ID 83642
Phone: 800.678.9110
Website: www.dbsi.com
Contact: John Mayeron, Executive Vice President of Marketing and Product Development

DBSI Securities Corporation markets private offerings in real estate to independent broker-dealers and their registered reps, including 1031 exchanges/Tenant-in-Common (TIC) offerings, limited partnerships, debt offerings, and REITs. DBSI Securities is part of the DBSI Group of Companies (DBSI), which has served over 7,000 investors in 27 years. DBSI currently manages assets in 28 states valued at more than $1.6 billion.

DIRECT CAPITAL SECURITIES, INC.

1333 2nd Street, Suite 600
Santa Monica, CA 90401
Phone: 888.410.1031 toll-free
Fax: 310.395.4077
Website: www.1031Market.com www.1031EnergyMarket.com
Email: [email protected]
Conatct: Clay H. Womack, Chairman & CEO

As the original investment-banking firm in the TIC industry, Direct Capital Securities, Inc. helps Sponsors bring Real Estate and Energy Replacement Properties to market. We offer more than an industry introduction. We're an active, hands-on partner — from the initial structuring of a deal to the investors' exit, years down the road.

ELIASON 1031 PROPERTIES CORPORATION

P.O. Box 219
548 Highway 155
St. Germain, WI 54558
Phone: 1.866.ELIASON
Website: www.e1031.com
Contact: David Eliason, President; Jay Grooters, Chief Operating Officer

For over 40 years Eliason has offered high-quality real estate investment opportunities. Eliason 1031 Properties carries on that tradition with attractive retail and multi-family residential properties via Tenant-In-Common ownership. Eliason's innovative double-layered Master Lease provides enhanced protection and improved cash flow stability. Eliason TIC interests are marketed exclusively through a broker-dealer network.

EXCHANGE INTO ENERGY^™

Direct Capital Securities, Inc.
1333 2nd Street, Suite 600
Santa Monica, CA 90401
Phone: 888.271.2500 toll-free
Website: www.1031EnergyMarket.com
Email: [email protected]
Conatct: Clay H. Womack, Chairman & CEO

Diversifying into energy can provide valuable rewards. Energy replacement properties can produce stable monthly cash flow, have the potential for higher rates of return than traditional TIC investments, are historically highly liquid and offer hands-off ownership. For more information on energy replacement property — including royalties and working interests — contact us today.

EXCHANGEPOINT PROPERTIES, LLC

450 North Roxbury Dr., Suite #1050
Beverly Hills, CA 90210
Phone: 310.247.2291
Website: www.exchangepointproprties.com
Contact: Evan Farahnik, Principal

ExchangePoint Properties, LLC is a leading real estate investment firm that offers fractional real estate ownership interests to individual 1031 exchange investors, through a team of seasoned and experienced real estate professionals. With our industry leading infrastructure, systems and proprietary underwriting models, ExchangePoint and its affiliated entities have a phenomenal track record which extends for over 12 years, and has attracted Fortune 500 companies as investors and partners. From our home office in Southern California, ExchangePoint and its affiliated entities have completed transactions in excess of one billion dollars and manage a portfolio of over 5 Million square feet of office, multi-family and retail properties on behalf of institutional and private investors.

FORT PROPERTIES, INC.

601 S. Figueroa Street, Suite 2050
Los Angeles, CA 90017
Phone: 213.572.0222
Website: www.fortproperties.com
Email: [email protected]

FORT Properties is consistent and predictable. Whether you're selling or investing in institutional quality real estate, FORT Properties is the Section 1031 exchange and TIC expert. Our extensive real estate experience ensures that we purchase the highest quality property and, as a pre-capitalized sponsor, we close on time. To learn more visit www.fortproperties.com.

GEMINI REAL ESTATE ADVISORS, LLC

The Flatiron Building,
175 Fifth Avenue, Suite 715,
New York, NY 10010
Phone: 800.644.7845
Website: www.gemini-re.com
Email: [email protected], [email protected]
Contact: Will Obeid, President, 212.871.6283; Stephanie DiFrisco, Director of National Accounts, 800-644.7845 ext. 121

Gemini Real Estate Advisors, LLC is a full service real estate company. Our principals come from distinguished backgrounds in acquisitions, development, property management, asset management, finance and brokerage. As one of the nation's leading sponsors of real estate investment programs, we have a proven track record of creating value for our investors.

THE GENEVA ORGANIZATION

3750 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402
Phone: 888.746.4039
Website: www.genevawealth.com

The Geneva Organization is a national real estate wealth management firm, focused on providing tenant-in-common investment opportunities to sophisticated, high-net worth individuals and 1031 motivated investors. To learn more about Geneva's services and their unique Private Letter Ruling visit www.genevawealth.com.

GEORGE SMITH PARTNERS

10250 Constellation Blvd., Suite 2700
Los Angeles, CA 90067
Phone: 310.557.8336
Fax: 310.557.1276
Website: www.gspartners.com
Contact: Steve Bram, Principal/Senior Director; David Pascale, Jr., Vice President

GSP is a Los Angeles based mortgage brokerage company specializing in unique and creative financing structures. GSP arranged 275 loans totaling $3.6 billion in 2005, including dozens of TIC financings. We get you the lowest rate, the most money and the best terms available - and close the loans for you.

GRIFFIN CAPITAL

2121 Rosecrans Avenue, Suite 3321
El Segundo, CA 90245
Phone: 310.606.5900
Fax: 310.606.5910
Website: www.griffincapital.com
Email: [email protected]
Contact: David C. Rupert, Chief Operating Officer, 203.550.1469; Michael J. Escalante, Chief Investment Officer

Griffin Capital is one of the nation's leading sponsors of tenant-in-common real estate investment opportunities. Led by senior executives with more than two decades of real estate experience collectively encompassing over $9.0 billion of transaction value and more than 350 transactions, Griffin Capital has acquired or constructed approximately eight million square feet of space since 1996. The firm's current portfolio includes 32 assets, approximating 7 million square feet of space, located in 12 states. Additional information is available at www.griffincapital.com.

INVESTMENT PROPERTIES OF AMERICAS

10800 Midlothian Tpke, Ste 309
Richmond, VA 23235
Phone: 804.594.3550 or 877-MY-IPofA
Fax: 804.594.3556
Website: www.ipofa.com
Contacts: Kim S. Watts; B. Fisher Paty

Investment Properties of America, LLC is an exciting and diversified real estate investment and management company. IPofA acquires, develops, and manages properties leasing primarily to major national and regional retailers under net leases. IPofA offers qualified investors, ownership in institutional properties through tenant in common and LLC ownership structures.

INVESTMENT PROPERTY EXCHANGE SERVICES, INC. — IPX1031

Phone: 888.771.1031 toll free
Website: www.ipx1031.com
Email: [email protected], [email protected]
Contact: Radah Butler, President; John King, Senior Vice President

IPX1031, the nation's leading Qualified Intermediary for §1031 exchanges, specializes in every type of exchange transaction and provides quality services through its nationwide network of over 44 regional offices, a third party guarantee of funds, $100 million bond, and its specialized exchange divisions for reverse and improvement exchanges and mass asset program exchanges. Contact us at 888-771-1031 or visit us at www.ipx1031.com to find the nearest IPX1031 location.

LANDAMERICA FINANCIAL GROUP

101 Gateway Centre Pkwy
Richmond, VA 23235
Phone: 866.442.3011
Fax: 804.267.8851
Website: www.landam.com/commercial
Contact: Michelle A. Shaw, VP - Maketing Director

We have the national coverage, knowledge, and cumulative experience to give fast, accurate, and complete results. Our experts are familiar with every facet of TIC transactions as well as Delaware Statutory Trusts (DST) and the 1031 Exchange. We work closely with our customers to analyze closing scenarios in order to maximize opportunities and minimize expenses. To learn more about LandAmerica's TIC services visit www.landam.com/commercial.

LEGACY REAL ESTATE & INVESTMENTS, INC.

5550 Bates Street
Seminole, FL 33772
Phone: 866.891.1031 toll free
Fax: 347.296.3660
Website: www.ticbook.com, www.tic-investments.org, www.LegacyNNN.com
Email: [email protected]
Contact: Kathy Heshelow, President

Kathy Heshelow has authored the first and only book about TICs, “Effortless Cash Flow: the ABC's of TICs (Tenant in Common Properties).” She focuses on passive income properties for investors across the US, who are often in a 1031 exchange. She is President of a commercial real estate firm and has experience in all types of commercial property assets. www.tic-investments.org or www.ticbook.com. Toll free 866-891-1031 to learn more.

MARINER ASSET MANAGEMENT, LLC

1601 Belvedere Rd., Suite 200E
West Palm Beach, FL 33406
Phone: 866.860.1031 toll free; 561.283.0900
Fax: 561.828.5985
Contact: Michael M. Cabot

Mariner Asset Management, LLC is a privately owned real estate investment and management firm headquartered in South Florida. The company specializes in the acquisition, financing and ownership of institutional quality commercial real estate in select metropolitan areas of the United States. The principals of Mariner are seasoned real estate professionals with more than $1 billion of institutional transaction experience inclusive of $260 million with the TIC structure.

MERIDIAN REALTY INVESTMENTS, LLC

325 Fifth Ave, Ste 202
Indialantic, FL 32903
Phone: 321.956.2000 x204
Fax: 321.956.1199
Website: www.meridian1031.com
Email: [email protected]
Contact: Margustin “Tintin” Born

PACIFIC WEST FINANCIAL GROUP

PO Box 860
Renton, WA 98057
Phone: 888.236.7979
Fax: 425.255.8567
Contacts: Tony Pizelo, President & CEO; Shanon Ford, Vice President

Established in 1972, Pacific West Securities, Inc. is an independent, nationwide broker-dealer offering a full range of investment products and services. We are dedicated to supporting tenant in common investments through strong due diligence, active industry involvement and a commitment to leading with integrity. For more information on how Pacific West can support you in the TIC arena please call Tony Pizelo at 1-888-236-7979.

Disclosures: PACIFIC WEST SECURITIES, INC., MEMBER NASD/SIPC; PACIFIC WEST FINANCIAL GROUP, INC.,
Registered Investment Advisor

PASSCO COMPANIES, LLC

96 Corporate Park, Suite 200
Irvine, CA 92606
Phone: 949.442.1000
Fax: 949.442.2465
Website: www.passco.net
Contact: William H. Winn, President

PASSCO Companies, LLC acquires and manages a broad range of income-producing properties including neighborhood and community retail centers, regional malls, multi-family, and multi-tenant industrial business parks. The company's property portfolio has grown to more than 8,400,000 square feet, and continues to grow at an accelerating rate.

SAGEBRUSH REALTY HOLDINGS

777 E Speer Blvd
Denver, CO 80203
Phone: 303.865.7488
Website: www.sage1031.com
Contact: Gary Ruhl

As a sponsor of multifamily TIC offerings, Sagebrush Realty Holdings LLC is part of The Sagebrush Companies, a full service commercial real estate investment company. Specializing in domestic and international multi-family residential, hospitality, and commercial development, Sagebrush has been offering investors appreciable market value & strong returns for 12 years.

SCI REAL ESTATE INVESTMENTS

11620 Wilshire Blvd., Suite 300
Los Angeles, CA 90025
Phone: 310.470.2600
Website: www.sciproperties.com
Contacts: Adam Bryan, Senior Vice President & Corporate Sales Director
310.470.2600 ×130; Scott Derrick, Acquisitions 310.470.2600 ×128

Founded in 1994, SCI Real Estate Investments, LLC is a Real Estate Principal with a portfolio valued at over $1 billion of closed fractional-deed real estate. SCI buys Class-A, Institutional-Quality properties nationwide and, working exclusively with Licensed Real Estate Professionals, sells co-ownership real estate interests to accredited buyers.

SPECTRUS REAL ESTATE GROUP/FOR 1031

12426 West Explorer Drive, Suite 220
Boise, ID 83713
Phone: 866.587.7328
Website: www.spectrusgroup.com
Contact: Gary Bringhurst, President and CEO

Based in Boise, ID, Spectrus Real Estate Group/FOR 1031 is a leading provider of quality, diversified real estate investments. The company offers multiple options including replacement properties for 1031 Exchanges, the FOR 1031 NNN PLUS® lease, TIC property ownership, undeveloped land, whole properties, Pro PLUS(tm) (proforma) properties, and ground leases.

WESTERN AMERICA EQUITIES LLC

11235 SE 6th St, Ste 230
Bellevue, WA 98004
Phone: 425.274.8557
Fax: 425.274.8559
Website: www.westernamerica.com
Email: [email protected] [email protected]
Contact: Tristan O'Neil VP, Investment Services; Jim Clark, President

Western America Equities LLC is a privately-owned real estate investment and operating company. Headquartered in Bellevue, Washington, the company operates healthcare properties, shopping centers, office buildings, industrial business parks and other property types in the western United States. Western America Equities LLC is a founding member of the Tenant-In-Common Association.