Sponsors struggle to meet demand as interest in alts continues to grow. Preliminary estimates suggest that 2005 was the fourth straight year of growth for the direct-participation program (DPP) industry, according to Robert A. Stanger & Co., a Shrewsbury, N.J.-based research firm.

When fully tallied, Stanger expects 2005 sales of direct-participation programs - publicly registered investments in non-traded real-estate investment trusts (REITs), limited-liability companies and partnerships - of about $7.3 billion, with sales of $8 billion in view for 2006.

If Stanger's prediction for 2006 plays out, this will be DPP industry's biggest year. DPP sales in 2004 came in at a little over $7 billion, about 8% lower than 2003's $7.6 billion.

Growing demand

Stanger analyst Keith Allaire says that aggregate assets for the DPP industry aren't tracked because such vehicles, by their nature, come in and out of existence quite rapidly. "But it's a multi-billion-dollar industry, for sure," he says.

Jack Hollander, chairman of the Investment Program Association (IPA), a Washington, D.C.-based association representing DPP investors and sponsors, says that many DPP sponsors are leaving money on the table. "Sponsors of DPPs are struggling with the difficulty of keeping pace on the investment side with the capital they are attracting as investor interest in alternative investments continues to grow."

Hollander is also senior v.p. of Atlas America, an independent energy company based in Moon Township, Pa.

Non-traded REITs continue to represent the largest of these sectors by far, accounting for $4.8 billion of the $5.3 billion in DPP sales reported through the third quarter of last year, according to Stanger. Sales of equipment-leasing programs totaled $183 million in the first nine months of last year, more than 51 percent above the same period in 2004.

Sponsors of energy programs are also raising capital in record proportions, adds Stanger. The demand for energy programs is far outpacing the supply of available product as soaring energy prices is fueling growing investor interest in this sector.

"Investors have been diversifying more and more into DPPs now for several years, and this trend is likely to continue as long as the sponsors can provide investors with the same quality investments and the stock market's performance remains underwhelming," says Hollander. "A sharp spike in rates could alter the equation, but the current rate forecast looks very favorable for DPPs." -FWR

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