The Influence of VolatilityOctober 1, 2019

SteveHagenbuckle

Volatility Here To

Stay?

2

The Internet Has Democratized Information

3

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

% OF U.S. ADULTS WHO USE THE INTERNET

90%

Source: PEW RESEARCH CENTER, Surveys conducted 2000-2019. Data for each year based on a pooled analysis of all surveys conducted during that year. https://www.pewinternet.org/fact-sheet/internet-broadband/ https://www.internetlivestats.com/total-number-of-websites/

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

26

35

52

61

56 55

5149 48.5 49

5254.5

51.5

HIGH FREQUENCY TRADING% of US equity average daily share volume traded

High Frequency Trading:

Half of US Stock Market Trading Volume for Past Decade

Source: Tabb Group estimate. There is no assurance that any estimate, forecast or projection will be realized.

The first tweet was posted by Jack Dorsey (creator) at 12:50 PM PST on March 21, 2006 and read "just setting up my twttr".

4

Volatile Markets: Are High-Frequency Traders (HFTs) to Blame?

5

Algorithms don’t typically consider long-term

company fundamentals when making trades1

Algorithmic trades are usually based on their expectation of how other market participants will react to news feeds1 or momentum triggers

On November 17, 2016, The Commodity Futures Trading Association concluded that HFTs do not improve liquidity in markets and amplify price volatility.2

1) https://www.cftc.gov/PressRoom/PressReleases/pr7486-162) Stephen Dover, “Volatile Markets: Are High-Frequency Traders to Blame?”, Franklin Templeton Investments, 2019

Algorithmic trades are said to contribute vital liquidity to markets…

6

Sentiment reflected in news stories impacts pricing

IBM Announces HR Services Agreement with Unilever in Latin America

IBM Corporation Not Bidding For Satyam Computer

IBM Corporation Not Interested in Sun Microsystems

IBM Corporation introduces Products and Services to Combat New Security Threats

IBM Corporation Approves 10% Increase in Quarterly Cash Dividend

IBM Corporation Raises FY 2009 EPS Guidance

Case Study for IBM: Analysis of Senti_Impact

1500

1000

500

0

-500

-1000

-1500

-2000

senti_impact

Source: Daniel Lam, Sentiment impact on stock prices of news with selected topic codes: Part One, Bloomberg L.P., February 2018

Source: Robert Giannini, “Twitter: An Investigation of the Impact of Network Communication”, University of Georgia, August 2011

7

SEC Says Social Media OK for Company Announcements if Investors Are Alerted

Washington, D.C., April 2, 2013 —

The Securities and Exchange Commission today issued a

report that makes clear that companies can use social

media outlets like Facebook and Twitter to announce key

information in compliance with Regulation Fair Disclosure

(Regulation FD) so long as investors have been alerted

about which social media will be used to disseminate

such information.

Source: https://www.sec.gov/news/press-release/2013-2013-51htm

8

S.E.C. Press Release

#Bloomberg April 04, 2013 | Bloomberg Integrates Live Twitter Feeds With Financial Platform

July 18, 2018 | Bloomberg Launches a Twitter Feed Optimized for Trading

• Bloomberg and Twitter expand relationship to provide clients with a feed of financially relevant Tweets, designed for algorithmic tradingSource: Bloomberg.com

9

Alternative Investments

Cryptocurrency Timberlands Infrastructure

Private Equity Hedge FundsPrivate Real

Estate

10

Equities Allocation reduced from 60% to 40%

Alternatives increased from 7% to 26%

11

Equities Bonds Alternatives/Other Cash

Historical Income

6.10%5.50%

3.90%

2.00% 1.80%

CRE PUBLIC REITS BONDS CASH EQUITIES

AVERAGE ANNUAL INCOME RETURNS20 YEARS ENDED DECEMBER 31, 2018

Commercial real estate has historically delivered higher income returns than other major asset classes

For 20 years, more than 70% of the total returns from commercial real estate were comprised of current income Source: Bloomberg, NCREIF, and NAREIT

12

CRE Correlation: Low Compared to Other Assets

20 Years Ended December 31, 2018

CRE Equities Bonds Public REITs

CRE 1.00 0.15 -0.16 0.17

Equities 1.00 -0.40 0.63

Bonds 1.00 0.06

Public REITs 1.00

Commercial Real Estate has exhibited historically low or negative correlation to equities, bonds, and public REITs.

Public REITs are more highly correlated to equities than commercial real estate by 4x.

Source: Bloomberg, NCREIF, and NAREIT

13

Real Asset Value not Reflected in Public REIT Pricing

Valuations of Physical Assets

Comparable Sales

Replacement Value

Income Approach

Valuations of Public REITS

Largely influenced by Sentiment

Public Market Momentum

Value influenced by Public Information – Not Long Term Leases

14

Long Term Leases Backed by Contract Law

15

Cost of Construction Continues to Climb

16

95

100

105

110

115

120

125

130

POURED CONCRETE INDEX

90

100

110

120

130

140

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

PRICE INDEXES OF NEW SINGLE-FAMILY HOUSES UNDER CONSTRUCTION

Laspeyres (Fixed) Fisher (Deflator)

Source: U.S. Bureau of Labor Statistics, PPI - New nonresidential building

construction, Poured concrete foundation and structure contractors,

https://data.bls.gov/timeseries/PCU236400236400224

Source: Census Bureau, January 2005 – Aug 2019,

https://www.census.gov/construction/cpi/

Rent Gap Holds Off Speculative Multi-Tenant Supply

New Construction Existing Supply

$42/PSF $26/PSF

Comparable Office Space in Atlanta, GA

17

Which States Do or Don’t Have Rent ControlCalifornia has just followed Oregon in enacting statewide rent control.

No rent control; state assent needed

No rent control; but local option

Rent control in some places

StatewideSource: https://www.nytimes.com/2019/09/11/business/economy/california-rent-control.html

18

Following Population

-1,197,600

-761,837

-710,393

402,389

314,775

321,782

362,015

1,019,434

1,160,387

205,405

NY

IL

CA

NC

SC

CO

AZ

TX

FL

GA

-1,500,000 -1,000,000 -500,000 0 500,000 1,000,000 1,500,000

Domestic Migration by State: 2010 - 2018

0.02%

0.33%

1.03%

1.26%

1.40%

1.60%1.55%

1.93%

2.04%

2.18%

2.66%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

NY IL US TN VA CA NC GA CO TX FL

Compound Annual Growth Rate: 1970 - 2017

CA

IL

NY

Source: U.S. Census Bureau, 2017

TerraCap Areas of Focus shown in green

Source: U.S. Census Bureau, Population Division, 2017

TerraCap Areas of Focus shown in green

19

Domestic Migration by State: 1995-2017

AZ+1.3M

NC+1.3M

CA-2.4M

TX+1.7M FL

+2.4M

Source: U.S. Census Bureau, Dec. 2017 American Community Survey

NY-3.5M

20

Millennials Looking To 18-Hour Cities for Growth:Talent and Economic Diversity

Sources: U.S. Census Bureau. Penske Truck Rental’s list of Top Moving Destinations 2017. U.S. Department of Labor. Site Selector/Conway Projects Database. VisitOrlando.com. AtlantaAirport Source: Airports Council International

21

Millennials Return to Suburbs

4th Consecutive Year That Big Cities Saw Population of Young Adults Shrink.

22

Source: Adamy, Janet, “Millennials Continue Their Exodus From Big U.S. Cities”, The Wall Street Journal, Sept. 26, 2019

Cost of Living Index Comparison

23

Primary Gateway Market 18-Hour City

Source: 2009-2019 Numbeo, https://www.numbeo.com/cost-of-living/region_rankings.jsp?title=2018&region=021

100.0097.84

88.04 87.05 86.0182.30

80.1677.31 77.01 76.63 76.53 75.35 74.97

65.94

New York SanFrancisco

Seattle Boston Miami LosAngeles

Chicago Denver San Diego Orlando Tampa Charlotte Atlanta Dallas

U.S. Commercial Real Estate:A Mainstream Alternative.

Has historically delivered higher income returns

Low correlation to other asset classes

Continued job & population growth demand drivers in select markets

Limited development financing leads to reduction in new supply

CRE continues to experience positive occupancy and rent growth

24