Inland Real Estate Exchange's Patricia DelRosso

The coming year, she says, will either stay the same or be slightly better. DelRosso, an industry veteran since the mid-1980s, has her eyes fixed on 2011, when she believes recovery in the TIC space will take off. Many of the economic and institutional issues hindering investment will have been addressed – meanwhile demand for these investments will have been pent up for a few years and ready tobe released. "I think by 2011 we could be back big time – at least upto $1 billion to $1.5 billion," she tells GlobeSt.com.

GlobeSt.com: Tell me more about how you see 2011 unfolding.

DelRosso: To begin with, some 78 million baby boomers are going to be retiring – that is a significant number of people and they will be looking for investments to enhance their overall retirement incomes. Investors like that have fueled TIC deals in the past and that is notgoing to change.

GlobeSt.com: You don't think these people -- who are very conservative investors – have been permanently spooked by what has happened? What if they decide to stay away from anything real estate?

DelRosso: No, these folks understand that the economic downturn was caused by Wall Street and that real estate is still a solid investment.

GlobeSt.com: Also, the TIC industry itself has been tarnished byevents: Edward Hugh Okun of the now-defunct Investment Properties of America and 1031 Tax Group was convicted in a $126 million scam. Also LandAmerica Financial terminated its 1031 operations when it couldn't access investors' 1031 funds, which had been invested in illiquid auction rate securities.

DelRosso: Protections that are expected to be established under the Consumer Finance Protection Act will be very important. In those events you mentioned investors' money werenot protected with the Qualified Intermediaries [entities that holdinvestors' funds until a replacement property is found]. We are verypleased to see QIs receiving regulatory attention under this Act andthink it will be very beneficial to the industry.

GlobeSt.com: Going back to the question of what events will trigger greater TIC activity, do you think the small signs of life we've seen in the CMBS market will have an impact? I know in the past a lot of lending for these programs came from the CMBS space.

DelRosso: The recent CMBS activity has not focused on TICs -- at all. But the fact that there is any activity is hopeful for us. We do expect some CMBS lending to occur in 2010 for TICs just because there is so much pent up demand.

GlobeSt.com: Speaking of which I understand you will be chairing the capital markets committee at the Real Estate Investment Securities Association in 2010. Is there anything in particular on which you will be focusing?

DelRosso: Yes, I want to put a fire under Fannie and Freddie. We are planning a big educational push with them. They have shied away from investing in TICs and I believe a comprehensive dialogue is in order. Lenders in general, of course, have become very conservative, very skittish and look for any excuse not to make a loan. One of our goals is to help them understand exactly how TICs work and what protections they offer investors.

GlobeSt.com: I know Inland has fared well over last year -- to what do you attribute that?

DelRosso: We have maintained our position as number one in theindustry in terms of market share for 2009. We did that by adhering toTIC best practices, and practicing – as we always have – conservativeunderwriting. For example, when we buy a retail property that is 100%occupied, we build in a vacancy factor, which brings down the returnfor the investor but also provides a cushion for contingencies such asa tenant leaving or asking for a rent reduction.

GlobeSt.com: Tell me more about the portfolio's performance.

DelRosso: We have 100 assets worth over $2 billion. Of that, 90% are meeting or exceeding investment objectives. We have only a fewproperties requiring re-tenanting or where a tenant has filed forbankruptcy. There is one asset where we need to take some actionbecause it doesn't appear that its value will come back to where itoriginally was. Our average annual return is over 7%.