Transcript Final_RECM-2014-Slides-w_-Voting

Welcome
Join the conversation on Twitter: #RECMConf
Opening Remarks
LYNNE B. SAGALYN
Earle W. Kazis and Benjamin Schore Professor of Real Estate
Director, Paul Milstein Center for Real Estate
Columbia Business School
2
Opening Remarks
JOHN M. FERGUSON
Partner,
Real Estate Private Investment Funds
Goodwin Procter LLP
3
Audience Response System
 Using the keypad to vote:
 Press the number button that
corresponds with your answer
(there is no enter key required)
 Your screen will say “Valid”
 That’s it!
 If you change your mind or make a
mistake, simply press the “c” button
and re-submit your new answer
before time runs out
4
S&P 500 Index Returns
S&P 500 Index Historical Returns
40.0%
30.0%
20.0%
High: 12.3%
29.6%
23.5%
10.0%
13.4%
12.8%
0.0%
2013 Mean
Estimate: 7.6%
5.3%
(0.0%)
3.5%
Low: 0.1%
(10.0%)
(38.5%)
(20.0%)
(30.0%)
(40.0%)
2007
2008
2009
2010
2011
2012
2013
2014E
5
Source: Bloomberg as of 1/09/2014
Audience Participation
Question One: The Broader Market (S&P 500 Index)
Institutional investment strategists regularly predict what the S&P
500 index will return each year. This year there seems to be the
usual broad range of views with one strategist from Stifel Nicolaus
predicting a modest increase in the index of roughly 0.1% and
another strategist from J.P. Morgan predicting a return in the index
of the 12.3% range.
In 2013, the year-over-year return on the S&P 500 index was
29.6%, and the total return was approximately 32.4%.
Ready your polling devices.
6
Audience Participation
Question One: The Broader Market (S&P 500 Index)
Which do you think is the most likely result in the S&P 500
Index in 2014?
1. A decrease of 10% or more
3%
1%
2. Flat to a negative 5% decline
9%
11%
3. Flat to a positive 5% increase
53%
59%
4. An increase of 10% or more
35%
29%
Today
2013
7
10-Year Year-End Treasury Yields
(Since Lehman)
4.50%
4.00%
3.84%
3.50%
3.40%
3.30%
3.03%
3.00%
2.50%
2.21%
1.88%
2.00%
1.76%
1.50%
1.00%
0.50%
0.00%
2008
2009
2010
2011
2012
2013
2014E
8
Source: Bloomberg as of 1/09/2014
Audience Participation
Question Two: 10-Year Treasury Yields
The 10-year Treasury yield was 3.04% as of December 31,
2013. As with the broader U.S. equity market, economists
and strategists have a wide range of 10-year Treasury yield
expectations. Bloomberg compiled forecasts with a range of
year-over-year expected yields for the year ending 2014 of
between 3.94% - 2.50%, with the weighted average
Bloomberg forecast at 3.40%.
Ready your polling devices.
9
Audience Participation
Question Two: 10-Year Treasury Yields
Which do you think represents the most likely 10-year Treasury rate
on December 31, 2014?
1. A decline to about 2.50%
0%
2. A relatively flat year-over-year yield of 3.00%
21%
3. Approximately the Bloomberg average forecast
between 3.25% - 3.50%
59%
4. At the high end of the range of 3.94% or higher
20%
10
U.S. Private & Public Real
Estate Equity Raised
Summary of Equity Raised Since 2000
($ in billions)
$80
$74
$70
$61
$60
$54
$52
$50
$46
$41
$39
$40
$36
$37
$33
$30
$28
$27
$24
$26
$21
$18
$20
$15
$14
$12
$10
$10
$6
$14
$12
$11
$12
$8
$4
$1
$0
2000
2001
2002
2003
2004
2005
2006
Public Equity Raised
(1)
2007
2008
Private Equity Raised
2009
2010
2011
2012
2013
(2)
(1) Data per NAREIT as of 1/09/2014; includes IPOs and secondary common stock issuances.
(2) Data per Preqin as of 1/09/2014; includes open and close-ended funds headquartered in the U.S. targeting the core, core-plus, value-added and opportunistic strategies in real estate property and debt in
North America.
11
Historical Real Estate
M&A Volume
M&A Volume Since 2001
($ in billions)
$600
$570
$500
$422
$400
$362
$300
$305
2012
2013
$300
$231
$211
$200
$173
$147
$130
$106
$100
$89
$67
$0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Real Capital Analytics as of 1/09/2014.
Note: "Data reflects property and portfolio transactions $2.5 million and greater in size. Total volume includes U.S. transactions in the industrial, office, retail and apartment real estate sectors. For apartments,
data set includes only transactions involving 10 units or more."
(1) 2013 data does not include transactions that closed post November 30, 2013.
(1)
12
Will The Virtuous Cycle in the REIT
Market Continue?
Large-Cap REITs continue to grow as evidenced by their increasing percent composition of the RMZ. A trend
that was likely a driver behind increased M&A activity as the REITs search for scale.
2005
2013

Equity Market Cap: $271 billion

Equity Market Cap: $501 billion

Number of REITS: 111

Number of REITS: 130
38%
40%
60%
62%
Top 10 REITs within the RMZ
Remaining REITs within the RMZ
Large-Cap REITs gains 2 points in market share from 2005 - 2013
Source: MCIS as of 1/09/2014.
Note: Data based on the RMZ; price-only index that represents approximately 85% of the US REIT universe.
13
Does the Wrapper Really Matter?
Short-term noise aside, real estate and REIT prices are tightly linked over most five-year holding periods. As
expected, the vehicle that employs leverage, REITs, did better in rising markets and worse in falling markets.
Trailing 5-Year Appreciation (Annualized)
20%
10%
0%
REIT price appreciation beat property
price appreciation in ~50% of the
rolling five-year periods.
-10%
-20%
12/02
12/03
12/04
12/05
12/06
Real Estate (GSA CPPI)
12/07
12/08
12/09
12/10
12/11
12/12
12/13
REITs (Major Sectors - FTSE NAREIT Price Return Indices)
14
Source: Green Street Advisors.
Employment
“For the real estate industry there is nothing more
important than employment.”
 Unemployment rate falls to 6.7% . . . , but the labor force
participation rate of 62.8% is a 35 year low!
 Technological unemployment - unemployment due to
our discovery of means of economising the use of labour
outrunning the pace at which we can find new uses for
labour – John Maynard Keynes, 1930
15
Audience Participation
Question Three: Employment – Is this time different?
Do the mixed messages of recent employment figures
suggest merely that we are at an early stage in the
recovery/growth cycle or is a more seismic economic shift
happening?
Ready your polling devices.
16
Audience Participation
Question Three: Employment – Is this time different?
Do the mixed messages of recent employment figures suggest
merely that we are at an early stage in the recovery/growth cycle or
is a more seismic economic shift happening?
1. The economy, jobs and real estate are cyclical, and
as the labor market continues to soak up demand participation
and wages will rise
51%
2. Technological efficiencies have permanently reduced
demand and the current climate of "under-employment" is
"full employment"
49%
17
RECM
Fundamentals
Panel Participants
RECM Fundamentals
 Raymond Torto, Ph.D. CRE®, Global Chief Economist, CBRE
Research (moderator)
 Jeffrey DeBoer, President and Chief Executive Officer, The Real
Estate Roundtable
 Leanne Lachman, President, Lachman Associates and Executivein-Residence, Columbia Business School
 Glenn Mueller, Ph.D., Professor, Denver University, F.L. Burns
School of Real Estate & Construction Management and Real Estate
Investment Strategist, Dividend Capital Research
 Brian Nottage, Ph.D., CFA, Managing Director, Global Real
Assets, JPMorgan Asset Management
19
Audience Participation
Question Four: Demand for Commercial Real Estate
Which of the following do you believe will
most influence the demand for commercial
real estate over the next 2 years?
Ready your polling devices.
20
Audience Participation
Question Four: Demand for Commercial Real Estate
Please rank (1 to 5) in order of importance. Example: If you believe
“demographics” will be the primary driver of demand, select #3 first,
and then go on to your second choice).
1. Technology Impacts
404w
2. The Economy and Employment
862w
3. Demographics (including aging cohorts)
550w
4. Government Policy: Regulations/Spending/Subsidies/Taxes
402w
5. Credit Availability and Interest Rates
572w
21
Audience Participation
Question Five: Property Sectors
What property sector do you see having
the most robust buyer interest in 2014?
Ready your polling devices.
22
Audience Participation
Question Five: Property Sectors
What property sector do you see having the most robust buyer
interest in 2014?
1. Office
16%
2. Retail
7%
3. Hotel
10%
4. Industrial
15%
5. Single-Family Residential
8%
6. Apartment/Residential
42%
7. Other
2%
23
National Property Type Cycle Forecast
Phase II — Expansion
Phase III — Hypersupply
Industrial — Warehouse+1
Retail — 1st Tier Regional Malls
Hotel — Full-Service+1
Hotel — Ltd. Service+1
Apartment
Health Facility
Retail — Factory Outlet
Retail — Neighborhood/Community+1
9
7
Office — Downtown
8
10
1
2
Office — Suburban
Retail — Power Center
4
12
LT Average Occupancy
6
3
11
13
14
15
5
16
Industrial — R&D Flex
Senior Housing
Phase I — Recovery
3rd Qtr 2014
ESTIMATE
Source: Mueller, 2013
Phase IV — Recession
1
Join the conversation on Twitter: #RECMConf
Refreshment
Break
Introductions
GIL MENNA
Partner
Real Estate Investment Trusts
Goodwin Procter LLP
27
On the Ground: Public &
Private Real Estate
Capital Markets
Panel Participants
On the Ground: Public & Private Real Estate Capital
Markets
 Ross Nussbaum, Managing Director, UBS (moderator)
 Frank C. Marchisello, Jr., Executive Vice President and Chief Financial
Officer, Tanger Outlet Centers
 Guy Metcalfe, Managing Director and Chairman of Real Estate, Morgan
Stanley
 Michael Nash, Senior Managing Director, The Blackstone Group and
Chief Investment Officer, Blackstone Real Estate Debt Strategies
 Lee Purcell, Managing Director, Greenhill & Co., LLC
29
U.S. Private & Public Real
Estate Equity Raised
Summary of Equity Raised Since 2000
($ in billions)
$80
$74
$70
$61
$60
$54
$52
$50
$46
$41
$39
$40
$36
$37
$33
$30
$28
$27
$24
$26
$21
$18
$20
$15
$14
$12
$10
$10
$6
$14
$12
$11
$12
$8
$4
$1
$0
2000
2001
2002
2003
2004
2005
2006
Public Equity Raised
(1)
2007
2008
Private Equity Raised
2009
2010
2011
2012
2013
(2)
(1) Data per NAREIT as of 1/09/2014; includes IPOs and secondary common stock issuances.
(2) Data per Preqin as of 1/09/2014; includes open and close-ended funds headquartered in the U.S. targeting the core, core-plus, value-added and opportunistic strategies in real estate property and debt in
North America.
30
Audience Participation
Question Six: Real Estate Capital Markets
Taking into account the historical cash flow chart set forth
on the previous slide, on a relative basis, will there be more
real estate equity capital flows in 2014 into:
Ready your polling devices.
31
Audience Participation
Question Six: Real Estate Capital Markets
Taking into account the historical cash flow chart set forth on the
previous slide, on a relative basis, will there be more real estate
equity capital flows in 2014 into:
1. Public equity markets (with the public markets outpacing
the private equity markets on a relative basis)
25%
2. Private equity markets (with the private equity markets
outpacing the public equity markets on a relative basis)
75%
32
Audience Participation
Question Seven: 2014 Expected Sector Public Share Value Returns
Given that fundamentals generally lag share price
performance, if you are asked again which sectors will
outperform in 2014 but this time on a public share value
basis, how would you rank the following six real estate
sectors?
Ready your polling devices.
33
Audience Participation
Question Seven: 2014 Expected Sector Public Share Value Returns
Example: If you think “office” will be the highest performer, select #2
first on your keypad first, then in order of out performance from there.
1. Industrial
749w
2. Office
545w
3. Retail
388w
4. Healthcare
512w
5. Hotels
472w
6. Multifamily
376w
34
Introductions
GIL MENNA
Partner
Real Estate Investment Trusts
Goodwin Procter LLP
35
Keynote
Presentation
Keynote Presentation
Mark Zandi
Chief Economist of Moody’s Analytics
Co-Founder of Economy.com
37
Audience Participation
Question Eight: Employment
When will the economy return to full-employment?
Ready your polling devices.
38
Audience Participation
Question Eight: Employment
When will the economy return to full-employment?
1. 2015 and earlier
4%
2. First half 2016
20%
3. Second half 2016
19%
4. First half 2017
20%
5. Second half 2017
8%
6. 2018 and later
29%
39
Audience Participation
Question Nine: Treasury Yield
What will the 10-year Treasury yield be at the end of 2015?
Ready your polling devices.
40
Audience Participation
Question Nine: Treasury Yield
What will the 10-year Treasury yield be at the end of 2015?
1. Less than 3%
4%
2. 3 - 3.5%
22%
3. 3.5 - 4%
37%
4. 4 - 4.5%
28%
5. 4.5 - 5%
7%
6. over 5%
2%
41
The U.S. Economy Breaks Out
MARK ZANDI, CHIEF ECONOMIST
Housing Will Soon Be Undersupplied
Vacant homes for sale, for rent and held off market, ths
Sources: Census, Moody’s Analytics
Businesses Get Their Groove Back
U.S. business confidence diffusion index
The difference between %
positive responses and %
negative responses.
Source: Moody’s Analytics
The Fed’s Exit Will Be Tricky
Assets held outright on Fed’s balance sheet, $ bil
Forecast
Source: Moody’s Analytics
121 North Walnut Street
Suite 500
West Chester, PA 19380
610.235.5299
www.economy.com
© 2012, Moody's Analytics, Inc. and/or its licensors and affiliates (together, "Moody's"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS
PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER
TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY PURPOSE, IN WHOLE
OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All
information contained herein is obtained by Moody's from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical
error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. Under no circumstances shall Moody's
have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or
other circumstance or contingency within or outside the control of Moody's or any of its directors, officers, employees or agents in connection with the
procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special,
consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if Moody's is advised in advance of the possibility
of such damages, resulting from the use of or inability to use, any such information. The financial reporting, analysis, projections, observations, and other
information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell, or hold
any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE OF ANY SUCH OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.
Each opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each
such user must accordingly make its own study and evaluation prior to investing.
47
Thank You