National Industrial Investors, Inc. - Page 13

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            Hugh had sold real estate in San Diego before and believed that                            
            the city was a good test market.  Sale By Owner opened there.                              
                  Almost immediately the business had problems.  As an                                 
            advance-fee broker the Department of Real Estate had to                                    
            preapprove all of its advertising.  The time lag destroyed Sale                            
            By Owner's marketing agility.  Furthermore, and perhaps more                               
            importantly, few homeowners in San Diego wanted the service.  The                          
            office in San Diego closed in November of 1982, and Sale By Owner                          
            moved to the Palm Springs-Rancho Mirage area (Desert Area), a                              
            resort market with seasonal buying patterns.  Hugh, who was                                
            "broke" at this point, quit the project.                                                   
                  The experiment continued in the Desert Area, using Hugh's                            
            corporate brokerage license, and began to turn a profit early in                           
            1984.  However, in the same year, both Far Western and Sale By                             
            Owner abruptly collapsed.  In August of that year, Hugh's                                  
            membership with the Board of Realtors and the Multiple Listing                             
            Service for the Desert Area, which both subsidiaries used, was                             
            canceled.  Hugh's father, McMahon, in that same month, instigated                          
            the McMahon Litigation.  As a consequence of the impending                                 
            litigation, Far Western and Sale By Owner were not able to find                            
            another corporate broker and failed to participate in the 1984-                            
            1985 selling season in the Desert Area.  Furthermore, the suit                             
            consumed much of the time of petitioner's management.  By 1985,                            
            both subsidiaries had ceased operations.                                                   

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