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Real Estate Investing “ Now More Than Ever”. 2013 IBEW Eighth District Progress Meeting Jackson Hole, Wyoming May 28 - 30 . A New Reality. World Emerging from the Worst Economic Crisis Since the Inception of “Globalization” Most Developed and Developing Economies Inextricably Linked - PowerPoint PPT Presentation
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Real Estate Investing“Now More Than Ever”
2013 IBEW Eighth District Progress MeetingJackson Hole, Wyoming
May 28 - 30
A New Reality
• World Emerging from the Worst Economic Crisis Since the Inception of “Globalization”
• Most Developed and Developing Economies Inextricably Linked
• Prosperity Lifts All Boats but No One is Immune From Geo-political and/or Financial Contagions
The Search for a New Equilibrium• U.S. Economy is Facing a Protracted Economic Slump, One that Could Last a
Decade or More
• The Recent Rally in the “Dow” has been Accompanied by the Weakest U.S. GDP Growth of All the Bull Markets since 1949
• Paul Volcker Predicts that U.S. Structural Employment will Eventually Stabilize
Significantly Above the Historical* Rate of 5.81%
• Warren Buffett Warns that Bond Prices are a Terrible Investment Today with Prices Artificially Inflated due to the FED Buying $85 Billion of Bonds a Month
• This Suggests a Challenging Investment Environment Especially for Those Programs with Actuarial Targets such as Pension Funds * Year 1948 through 2012
Not-So-Great Expectations
Expected Real Returns on 60/40 Equity/Bond Portfolios (%)
Source: AQR Capital Management
Typical Pension Fund Asset Allocation
HEDGE FUNDS
FIXED INCOME
PUBLIC EQUITY
ALTERNATIVES
PRIVATE EQUITY
REAL ESTATE
OTHER ALTERNATIVES
10-Year Forward* Inflation-adjusted ReturnsAnnual % Change, Low/High
ASSET UNITED STATES EUROPE BRITAIN
Cash -0.25/1.50 0.50/1.75 0.75/2.50
Government Bonds -4.00/1.25 -2.50/1.25 -3.75/0.50
Credit ** -3.00/3.25 -2.75/3.00 -3.50/2.50
Equities -1.00/8.00 0.75/9.50 1.00/9.00
Property 0.25/8.75 1.00/9.50 0.65/8.00
* 12/31/12** Investment-grade Corporate BondsSource: Standard Life Investments
Volatility*
20 YEAR PERFORMACE & RISK
NCREIF ODCE
NAREIT S&P 500
Return 7.9% 10.7% 8.5%
Risk 7.0% 22.3% 18.2%
Private Real Estate has Lower Expected Risk/Return Profile than Publically Traded Equities
Source: FTSE NAREIT All REITS, NCREIF (Open-end CORE Equity Index), Morningstar, as of 9/30/12* METRIC: Units of Return for Unit of Risk
Diversification
Correlation Coefficient
Large CAP Stocks .17
Core Bonds (.07)
T-Bills .37
Commodities .22
Low Correlations to Publicly Traded Equities and Fixed income
Source: Morningstar, Data as of 9/30/12
Inflation Hedge
Total Return is a Function of Income + Appreciation
Construction Costs Tend to Increase with Inflation
Lease Provisions Tend to Allow Rents to Move with Inflation
Collateral Benefits
Job Creation for Plan Beneficiaries
Support for Contributing Employers
Contributions to Benefit Plans
A Significant Asset Class
• 2012 Total US Real Estate Investing and New Construction Equals $2.3 Trillion
• This Activity Created Jobs for 6.9 Million Domestic Workers in 2012
• This Activity Generates 15% of US Gross Domestic Product
Sources: U.S Bureau of Economic Analysis / U.S. Bureau of Labor Statistics
Pension Fund Commitments Increase • In 2012 US Pension Funds Increased Equity Commitments to
Real Estate Investments by 29% • This Represents a $31 Billion Increase in Total Investment over
2011
• Commingled Funds Accounted for 58% of all Equity Committed
• Commingled, Open-ended Funds Became Much More Popular in Second-half of 2012 When They Accounted for 20% of All Investments
Source: FPL Associates Consulting
Progressive
• NEBF Pension has been Investing in Real Estate since 1947
• This is 20 years before Real Estate was Recognized as an Acceptable “Asset Class” for Pension Plans
• NEBF Real Estate, an In-house team of Real Estate Professionals, was established in 2000
Foresight
• In 2010 NEBF Real Estate Transitioned to National Real Estate Advisors LLC
• NREA is a Wholly-owned Subsidiary of NEBF
• NREA Now is Able, Under SEC Regulations, to Offer its Advisor Services to the Electrical Industry At-large
• This includes IBEW Local Plans
$1.4 Billion
12.04% *
* Past Performance is No Guarantee of Future Success
$5.25 Billion in New Construction
14 Million SFof New Projects
27 MillionMan-hours of Work
$1.0 Billion
BUILD-TO-CORE
PENSION PLANHEALTH PLAN GENERAL FUND
The ConfluenceDenver, CO
• 34-story High-Rise• 291-Unit Class A Units• 8,300 GF Retail• 300 Above Ground
Parking Spaces• NREA = $34.5 Million
Equity• TPC = $98.6 Million
Sabey Data CentersAcross the U.S.A.• Largest Privately Held Domestic
Data Center Company• 1.5 Million SF of Stabilized
Property• 2.0 Million SF under
Development• $125 Million Preferred-Equity
Investment• $100 Million Debt Investment
