Michelle Napoli is editor of TIC Monthly, from which this article is excerpted.

Calabasas, CA—New sponsors continue to swell the industry's ranks, despite the fact that other sponsors have sidelined their TIC businesses, failed to make a successful go of their first deal or are simply putting greater attention on other investment platforms. It's counter-intuitive, but, as Daniel Oschin, director of real estate services and due diligence at Calabasas, CA-based broker-dealer AFA Financial Group, notes, "You're seeing new people come into the business, but they really aren't coming in now. They were coming in a year ago or 18 months ago when they said, 'The business is fantastic and everything's flying off the shelves. Let's get into the TIC business.'"

It's only now that these new sponsors are actually coming out with their first or second deal in a rather different market environment--particularly in terms of equity for many deals that are taking longer to sell out, notes Oschin, whose firm is currently a managing BD for newer TIC market entrants such as DeSanto Realty Group and Franklin Capital Group.

"It will be 10 months for our first deal to close from the time we set up shop," says Thomas W. Lewis III, principal of Pennbridge Capital LLC in Lehi, UT. "We spent a lot of time doing our due diligence on the industry. It's not just real estate, it's investor relations, it's securities, it's all those combined into one business. It's a little more complex than some other types of transactions."

"Am I surprised they're out there? No," says Oschin on new sponsors. "I think like in any industry, when the bubble starts to burst or the trend starts going down, you still see an increase in activity until there's suddenly a drop. So you have all these new TIC sponsors coming up with their business plans, but the industry is changing."

Here's information on some of the newest sponsors, from coast to coast:

•DeSanto in Media, PA has experience in all phases of apartments, warehouse, office and retail properties, mostly in its backyard of the Mid-Atlantic region. The company started looking at the business about two-and-a-half years ago. It closed its first TIC deal, a $13.5-million, 90,000-sf office/warehouse flex space in Harrisburg, PA, last August.

•Equitable Cos. in Los Angeles was established over a year ago and closed its first TIC deal at the end of 2005, a 90,000-sf office/retail property in Victorville, CA, which had an approximately $7-million equity raise. A second deal is close to completion.

•Fairway Signature Golf recently closed its first TIC deal with Stallion Mountain Country Club and Golf Course in Las Vegas, a roughly $25-million offering.

•Franklin Capital Group, with offices in Alexandria, VA and Peabody, MA, has financed multifamily deals though institutional investors for more than 10 years, but saw the opportunity to bring its expertise to the TIC equity market.

•Lewis and Jared R. Smith set up Pennbridge Capital in September 2005. Lewis began his due diligence on the TIC business in late 2003, when he was with W.P. Carey & Co., which was examining the possibility of entering the business (but ultimately opted against it).

Many new sponsors seem to be differentiating themselves by such factors as property type specialty or geographic location and focus. Other common challenges or hurdles first-time sponsors are likely to come across include putting together a selling group on that first deal—when a sponsor has not yet proven itself as a TIC sponsor.

And of course, there are the complexities and many layers of this business—the legal and organizational costs; the third-party due diligence reviews; the road shows to get to know broker-dealers and reps, traveling that Nelson called "exhausting" and distracting from looking for good properties. "It takes a lot of understanding of the industry," says Lewis, "including the different perspectives of BDs, registered reps, individual investors, lenders, securities/tax attorneys etc., in order to structure transactions that meet the needs of the various interested parties in a TIC deal."

"The real estate part is important, but at the same time you need to build your selling group, and that part of it takes time," says Gohar. "We did a lot of research, and spent time to put the people and the company together."

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