Note and debenture programs are a particularly popular product area for sponsors. Not only are they a different product with appeal to different investors, but they are often meant to provide the sponsor with a ready means to finance future acquisitions for TIC programs. Cabot Investment Properties LLC of Boston, for example, rolled out a note program earlier this year, and Salt Lake City-based Cottonwood Capital CEO Daniel Shaeffer says he and his partners are looking at a debenture for their affiliated development company. Having additional sources of income, Shaeffer adds, "creates a more stable business for us at Cottonwood."

CORE, too, has organized two debenture programs to date, both with a corporate guarantee. "Debentures seem to be a popular alternative program for TIC sponsors. They can be structured in a number of innovative ways with real estate pledged as collateral in the event of any default by the issuer," explains Cook. "There are also ways to structure debentures with a competitive fixed coupon for investors, while also providing some opportunity for upside using a contingent interest component. Contingent interest components offer investors an additional interest payment which can be tied to increases in the gross sales price of underlying real estate." That, Cook adds, provides "some level of security beyond a guarantee from the issuer, along with the potential for upside based on the performance of any underlying asset."

Other non-TIC real estate programs pursued and being contemplated by a variety of TIC sponsors include opportunity funds, development projects, REIT structures and joint ventures with other investors. In many cases these are a function of not just good business sense--i.e. not having all the eggs in one basket--but also a function of the fact that the kinds of deals most suitable for TIC investments (usually stabilized, plain vanilla deals with little or appropriate debt in place) have become that much harder to come by. Many sponsors say it's frustrating to pass up on good investments just because they don't work for the TIC structure.

There has been considerable equity raising in the non-traded REIT space in particular. According to a report issued this summer by the Investment Program Association of Washington, DC and Robert A. Stanger & Co. of Shrewsbury, NJ, $7.26 billion was raised for non-traded REITs in the first half of 2007, a dramatic increase from the same period last year, when $2.55 billion was raised. However, the first half's growth pace for direct investment programs, including those REITs, "should not be deemed a baseline for future growth," the report warns, with Stanger managing director Keith D. Allaire adding, "Expect the industry to retreat and take a breath in the second half of this year."

Two new securitized real estate investment funds readying for a formal announcement are coming from non-securitized TIC provider SCI Real Estate Investments LLC of Los Angeles. SCI president Marc Paul confirms for TIC Monthly that the company's first foray into funds will offer a mezzanine fund (to be used to be able to close rapidly on properties that will then be sold to TICs) and a student housing property fund. More details, including what firm SCI has chosen as the funds' managing BD, are expected to be announced as early as next week. "I think it's a natural evolution of bigger sponsors to want to offer more products, have more resources," says Paul.

At the same time, Paul also confirms what was undoubtedly a difficult decision for him and, potentially, a troubling sign for the broader industry: SCI recently laid off about 20% of its staff, and some wonder whether more staff cuts will come at other sponsors if the current slowdown lasts for any extended period of time.

"We were staffed to do a $1-billion level of annualized business, and with the debt market we could see that that was probably not going to happen. I really hated to do that," says Paul. "I would be shocked if you didn't see a 20% layoff or more in the majority of the tenant-in-common sponsors. There's less transactional volume going on."

While Omni Brokerage Inc.'s polling of securitized sponsors for quarterly and annual volume projections still indicates a year-over-year increase for securitized TIC product in 2007, that is being tempered by the current reality of broader commercial property market conditions. "Everyone's been thrown for a loop with these capital markets," says Greg Paul, managing director of the Salt Lake City-based broker-dealer. "Things are going to slow down severely for the next few months."

So do these trends and factors--a greater need to diversify beyond TIC product, staff layoffs, and a slowdown in TIC transaction volume--cast a gloomy outlook for the TIC market? Well, it may depend on how far out into the future you are looking. Market participants are insistent that in the long-run, the TIC business is still a vital business that is not going away.

But in the shorter term, many think the industry is facing some challenging months--maybe even quarters--ahead. "In the next four months, yes I think the debt crisis causes a lot of problems for the TIC business," says SCI's Paul. "And I think you're going to see slowing transaction volume in the residential market and the commercial market, and thus the TIC market as well."

"This quarter, because of the financing markets, everyone is going to have a difficult quarter. These shops run on volume," concurs another industry source. In the medium to long-term, though, "It's hard to say, because you're going to have a pricing adjustment. It depends on how severe it is. Does this residential market get worse before it gets better? Some people are saying, this is just the beginning of it."