If Torto, principal and chief strategist of the Boston-based firm, had one piece of broad reaching advice for the crowd, it was to be cognizant of the fact that cap rates, and not income growth, accounted for the appreciation of real estate values in recent years. "The last two years, it's all been cap rate compression," he said. "Any dummy could have made money in real estate the last two years." But for investments being made now, he said, the opposite will be true as cap rate movement stalls or reverses direction and rents rise. "You want to be aware of that going forward," he said.
Another highlight from the conference's agenda included a TIC industry overview presented by Trent Broderick of Omni Brokerage Inc. and Shanon Ford of Pacific West Financial Group. Among the industry stats they shared with the audience: securitized TIC/DST sponsors totaled 72 at the end of 2005, and, based on past growth, are expected to number 100 this year; out of a total of 728 offerings since 2001, 335 were completed in 2005 alone and while 8,900 investors were placed in deals between 2001 and 2004, that figure was 8,500 in 2005.
During their presentation, the audience was polled on four questions. When asked if the TIC industry during the next 12 months will experience demand greater than supply, supply greater than demand or close to equilibrium, the majority, more than 40%, predicted greater supply. The majority (again more than 40%) said the industry over the next 12 months is more likely to see more than 10 new sponsors enter the market, the top audience choice over increased regulations in second place, consolidation among sponsors in third, and a major wirehouse broker-dealer entering the market in fourth. Roughly 40% of the audience indicated they expect commercial mortgage interest rates to increase between 25 basis points and 50 basis points, barely edging out those who predicted a 50 basis point to one percentage point increase. And the audience was virtually tied in predicting that sponsors' purchase cap rates over the next 12 months will either be within 25 basis points of today's cap rates or will see an increase of between 25 basis points and 50 basis points, with each of those answers garnering roughly 35% of the audience's vote.
Industry best practices came up at several points during the conference, where a final best practices document was distributed to attendees. During the TICA board of directors' "State of the Union" presentation, Ford encouraged the audience to embrace it as a means of ensuring a long-term, viable industry, describing it as a movement with the primary goal of putting the client first. "Let's not forget we are a very compliant industry," he said. "When it comes to TICs, general solicitation and Reg D, it's largely uncharted." Being proactive in establishing its own set of best practices, he added, "sets us apart as an industry."
The Guide to Certain TIC Best Practices was the subject of greater focus at a breakout session later in the conference. "At the core, it is a reminder and a reference of the laws that apply," said Triple Net Properties LLC's Louis Rogers. "It's not a commandment…It's an aspiration of commandment. It's not law." And while there may be uncertainty in the laws as they apply to the TIC business, he said, adopting best practices shows the industry aspires to be compliant with the laws. "Doing these types of things as an industry is looked upon very favorably by the NASD," said Welton Street Investments LLC's Mark Quam.
The final version, which will also be available to members on TICA's website, is a fine-tuned version of a draft presented to TICA conference attendees last fall in Las Vegas and the final product of much effort and debate on the part of industry participants over several years, as has been covered in past issues of TIC Monthly. At the recent breakout session, panel members were asked what they thought TICA members would find most pleasing about the revised document. Guidelines on conducting due diligence, suggested timing of a marketing cooling off period and guidance on what does and does not constitute general solicitation were some of the areas highlighted.
There is, however, bound to be some disagreement on, as well as a continued evolution of, its content. "It's a living, breathing document, and this is just the beginning," concluded Rogers.
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