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Real Estate 2009

Real Estate 2009. America’s Lost Decade of Growth: What Happened and Where Do We Go From Here NABE RE/Construction Teleconference December 3, 2009 Presented By Douglas M. Poutasse Executive Director NCREIF dpoutasse@ncreif.org.

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Real Estate 2009

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  1. Real Estate 2009 America’s Lost Decade of Growth: What Happened and Where Do We Go From Here NABE RE/Construction TeleconferenceDecember 3, 2009 Presented By Douglas M. Poutasse Executive Director NCREIF dpoutasse@ncreif.org

  2. Real Estate 2007: “Any Landing You Walk Away From Is A Good Landing”

  3. Real Estate 2008: Risk is B A C K!

  4. The Lost Decade of Growth Source: Moody’s Economy.com: Feb 2009 Forecast

  5. The Lost Decade of Growth by State Source: BLS

  6. The Lost Decade of Growth by State Source: BLS,NCREIF Projection

  7. VACANCIES ARE NEARING A PEAK PPR54 VACANCY RATES

  8. What to Expect for NOI Growth The economy is worse in this cycle and the property markets will be weaker Must assume that NOI declines will be greater PEAK-TO-TROUGH DECLINE IN PROPERTY NOI

  9. NCREIF Property Index Total Return (4 Quarter Rolling)

  10. NCREIF Property Index Cap Rates (Quarterly)

  11. Impact of NOI and Cap Rate Changes on Value

  12. Debt Drives Real Estate Pricing Capital flows drive pricing Availability more important than cost More debt = lower yields FOUR QUARTER MOVING AVERAGE OF DEBT FLOWS AND CAP RATES As of 2008Q4 Source: Federal Reserve, NCREIF

  13. Excessive Leverage in the Commercial Mortgage Market Commercial & Multifamily Mortgages Outstanding as % of GDP % of GDP 35% 30% 25% 20% 15% 10% 5% 0% 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Sources: Federal Reserve; Moody's Economy.com

  14. NCREIF / Townsend Fund Indices The Effect of Leverage on Real Estate Investment Performance Equity: $865.3 21.7% Debt: $3,120.6 78.3%

  15. NCREIF/Townsend Fund Indices: Rolling 4 Quarter Performance

  16. Five Year Individual Five Year Individual Core Core Value Add Value Add Opportunistic Opportunistic Fund Performance Fund Performance Count Count 16 38 89 Top Quartile Break Top Quartile Break 5.8% 10.2% 22.3% Median Median 4.0% 10.7% 4.4% Bottom Quartile Break Bottom Quartile Break 2.5% -0.2% -1.0% Dispersion Dispersion 1.93% 8.63% 21.84% NCREIF/Townsend Fund Indices: Comparative Performance Gross Returns Gross Returns Core Open Core Open - - Value Add Value Add Opportunistic Opportunistic thru thru 2009Q2 End End Closed Closed - - End End Closed End Closed End One Year Return One Year Return - 30.4% - 50.3% -34.4% 4.4% Five Year Return Five Year Return 6.1% 8.4% Five Year Std Dev Five Year Std Dev 11.21% 14.52% 22.21%

  17. Mixing Illiquid and Liquid Investments in a Strategy • The great lesson of the Crash of 2008: LIQUIDITY MATTERS! • Conventional Wisdom: Public Market investments more liquid than private market • Was BBB CMBS more liquid than a whole loan held in portfolio? It depends on what you mean by liquid! • Hard to hold to your strategy when you have to liquidate your REITs to get cash to meet your opportunity fund capital calls! • Lesson to Learn: Mixing strategies with vastly different liquidity profiles must be done very carefully. • Oh, and LIQUIDITY MATTERS

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