PASSCO Companies is creating opportunities in todays' commercial real estate market

Although still in its youth, the tenant in common (TIC) industry is already in the midst of a significant shift, as the commercial real estate industry enters a period of uncertainty. While the "credit crunch" has the entire real estate industry treading lightly, lenders waiting for the dust to clear have tightened underwriting standards and put the brakes on lending. Meanwhile, TIC transaction volume has been trending downward, mirroring the general dynamics of the market. All signs point to change a TIC industry, with some sponsors adapting to shifts in the marketplace, while others are not. Over the next five years, PASSCO sees the TIC industry entering a maturity phase, where sponsors' capabilities, resources, financial strength and strategic vision will be put to the test. Our plan is to adhere to the investment strategy and risk philosophy that has served PASSCO and its investors extremely well for more than a decade. To that end, we will continue to acquire well-located assets in a variety of product types which are located in markets that show the potential for long term value creation. At the same time, we will continue to remain fluid and act on a wide range of opportunities that may emerge as conditions change and/or fit our investors' risk/return needs. One of the primary objectives of PASSCO's investment strategy is, to the fullest extent possible, being proactive rather than reactive to the markets in which we invest. As such, we regularly analyze available information and projections to identify markets wherein we believe investor returns are more likely than not to be realized over the holding period. PASSCO's market analysis focuses upon key demand drivers of real estate success including demographic patterns, job and population growth projections, income trends and projections. From the supply side, we look at land availability, the ease or difficulty of permitting processes, and any marketplace propensities relative to existing and/or proposed growth control initiatives. That being said, we also realize that it is not likely that all of the opportunities presented to us within the course of the year will be located within our annual target markets. Real estate remains a very micro market investment and therefore we do not view our markets as absolutes. Consequently, we will always remain open to securing for our investors exceptional properties located outside the target list that pass the detailed due diligence and screening of our acquisition team professionals. Multifamily- Demographics are Key PASSCO's approach to identifying multifamily markets is three pronged: * Capitalize on population growth trends and the emergence of the "echo boom" generation into their prime renter age bracket. Throughout the next decade, there will be tremendous overall population growth as well as growth in the number of potential renters in the 18-32 year old segment (the echo boom). We believe that knowing where such demand growth is occurring, and is pro­jected to grow provides an investment edge to astute investors. Our population and echo boom markets have been identified by analyzing projections for both relative and abso­lute growth. Somewhat consistent with where the baby boomer generation migrated, these markets are primarily centered across the west, southwest and southeast. There are a few markets, however, that buck this trend in the more heavily populated areas of the east and midwest. * Capture the steadying demand influence generated in select state capitals. Although the government employment sector is susceptible to intermittent budget in­duced staffing compression, state capitals do possess a certain resiliency and also can have a vibrant base of private sector employment. Other capitals, we believe, are posi­tioned to see growth from baby boomer retirements as that age bracket seeks out locales providing quality of life and access to amenities such as the arts. We believe that all of these movements create a demand base for potential renters that are sustainable over the long term horizon. * Take advantage of rental housing demand in select major university locales. Taking into account both university-related employment and student off campus hous­ing needs, so-called major university towns represent apartment investment locations capable of generating ongoing demand and opportunities to increase rents over time. Direct university staffing needs and indirect employment from ancillary support services both produce pressure on available housing stock. Add in the perennial need for off campus student housing and the likelihood to realize growth in net effective rents should be enhanced. The now expected normalcy of seeing fees and tuition costs rise each year also trickles over into annual rising costs in housing. Retail: The Most Localized of all Product Types Of all of the product types, retail remains the one that is most sensitive to micro-market influences. Investment success or failure is driven by a particular property's location and the specific tenants in the property rather than a broadly based set of geographic or macro economic factors. We are focused on sales per s/f, strength of the tenant in its retail category, and how the tenant serves the customer. Other factors include average household income and demographics trends and shifts in the trade area. A grocery anchored center that features an area's #1 consumer preferred chain, as an example, has the inherent potential to significantly outperform a center with a lesser preferred anchor located just across the street. Due to these micro-market influences, retail is not a product sector that adapts well to a target market strategy. Although we have identified markets for retail properties that we believe possess the necessary success requisites of strong income and per capita spending pro­files, we believe it more prudent to be open to seeking retailing investment opportunities on a more specific case basis. That said, we do target those specific investments based upon screening criteria that includes: * Strong household income - preferably top 25% to 50% ; * Consumer preferred grocer anchors; * If applicable, strong non-grocer anchors and mini-anchors; * Shop space tenancies that fill local consumer needs and spending profiles; * Easy ingress/egress; and * Physical layouts that afford tenant visibility and smooth traffic flows. We would also target those investments wherein, to the extent these attributes may not be currently present, they could be attained through implementation of a value added asset management strategy. William Winn is the president of PASSCO Companies, LLC, Irvine, Calif.