Slide 1: The Role Of Real Estate In The Family Office Portfolio
Forums on Issues and Innovations in Real Estate (FIRE) MIT Center for Real Estate and Taurus Investment Holdings, LLC
October 27, 2006 Professor Tony Ciochetti, Chairman MIT Center for Real Estate
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Slide 2: Agenda
" " " " " " " " " Overview of MIT Center for Real Estate Prof. Dr. Tony Ciochetti, MIT Center for Real Estate - Real Estate as an Investment Prof. Dr. Rolf Tilmes, European Business School - Background on the Family Office Portfolio Thomas Brown, Deutsche Bank AG Private Wealth Management - Global Products and Sources for Real Estate Capital Dr. Jürgen Schäfer, MRICS, FERI Finance AG - Direct Investments in German Real Estate Gerard de Gunzburg, Macquarie Capital Partners Ltd. - Co-Investing with Specialist Real Estate Operator Caspar Noble, Deloitte & Touche LLP - Tax Issues Associated with Real Estate Investment Question and answer Reception
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Slide 3: MIT Center for Real Estate
" 1984 - Based in MIT s School of Architecture and Planning " With a mission to: Improve the global built environment Elevate the real estate industry " Through the means of: Educational programs MSRED Research Industry outreach
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Slide 4: Core Values
Education
Research
Industry
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Slide 5: Center for Real Estate
" MSRED
Core courses, electives, thesis, global orientation
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Slide 6: Recent Employers
" Global real estate investment banking CS First Boston, Merrill Lynch, Goldman Sachs, Lehman Brothers, Blackstone, Morgan Stanley, JP Morgan, Deutsche Bank " Real estate investment management AEW, Taurus Investment Holdings, LLC, GE Capital, RREEF, TA Associates, Lonestar, Colony Capital, Invesco, Fidelity, ING Clarion " Real estate finance John Hancock, Sun Life, World Bank, Freddie Mac, Moody s, KeyBank, Carr Capital, Prudential, HUD, Credit Suisse, Nomura, Bank of America " Real estate development Hines, Kravco, Leggatt & McCall, Trammell Crow, Related Companies, Tishman, Bovis-Lend Lease, Petrini, Taurus Investment Holdings, LLC, Spaulding and Slye (JLL), HRO, Forest City Commercial CENTER FOR
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Slide 7: Recent Employers
" Publicly traded companies Boston Properties, Pro Logis, AMB, Federated, AvalonBay, Equity Office Properties, Regency " Commercial brokerage Jones Lang LaSalle, CB Richard Ellis, Cushman and Wakefield, Meredith and Grew, Marcus and Millichap " Corporate real estate Dell, Fidelity, Met Life, Boeing, Burger King, Staples
" Non-profit sector Oakland California Community Housing, Enterprise Foundation, City of Toronto, Urban Redevelopment Authority (Singapore), OMB (NYC)
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Slide 8: Center for Real Estate
" MSRED
Core courses, electives, thesis, global orientation
" Research
HAI, CREDL, NCD
" Industry involvement
Research initiatives, hiring students, advisory board, international outreach, PDC/Executive education, Forums on Issues and Innovations in Real Estate (FIRE)
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Slide 9: Catching the FIRE
Stockholm London Berlin Chicago Paris New York San Francisco Los Angeles D.C. Munich Frankfurt Beijing Tokyo Hong Kong Shanghai
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Slide 10: Real Estate and Family Offices
" > 750,000 HNWI in Germany " UHNWI control > $1tn in assets " Role of real estate in these portfolios?
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Slide 11: Why Real Estate
Why Any Asset?
" Do I receive appropriate returns? " What is the risk profile of those returns? " By adding this asset - will it help my portfolio performance? " How much hassle is it to play in the space ?
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Slide 12: Fundamental Issues
" Will I get my money back? " Keeping up with inflation? " Will the asset help my portfolio? " How do I do it?
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Slide 13: Capital Preservation?
406 Investment Periods, 11 with Negative Return (2.7%)
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 16.11 18.27 18.20 17.81 16.08 15.58 15.33 14.81 14.07 13.45 13.10 12.64 11.81 10.47 9.42 8.90 8.75 8.68 8.76 9.02 9.35 9.44 9.56 9.47 9.36 9.34 9.53 9.89 1978 20.46 19.26 18.38 16.08 15.48 15.20 14.63 13.82 13.16 12.80 12.33 11.46 10.04 8.95 8.43 8.30 8.26 8.37 8.65 9.02 9.13 9.27 9.18 9.08 9.08 9.28 9.66 1979
18.07 17.35 14.65 14.27 14.18 13.68 12.90 12.27 11.98 11.55 10.67 9.22 8.12 7.62 7.54 7.54 7.70 8.03 8.45 8.59 8.77 8.70 8.61 8.63 8.86 9.27 1980
16.63 12.97 13.02 13.23 12.82 12.06 11.47 11.24 10.85 9.96 8.45 7.32 6.86 6.82 6.87 7.08 7.47 7.94 8.12 8.32 8.27 8.20 8.24 8.49 8.93 1981
Bought 83 Sold 86 = 11.60% Avg.
9.44 11.26 12.11 11.89 11.17 10.63 10.49 10.14 9.24 7.66 6.52 6.08 6.10 6.20 6.47 6.92 7.45 7.66 7.90 7.87 7.82 7.87 8.15 8.62 1982 13.12 13.48 12.73 11.60 10.87 10.66 10.25 9.22 7.46 6.23 5.78 5.83 5.96 6.26 6.76 7.33 7.56 7.82 7.79 7.73 7.79 8.09 8.58 1983 13.83 12.53 11.10 10.32 10.18 9.77 8.67 6.78 5.49 5.07 5.19 5.38 5.75 6.32 6.95 7.22 7.51 7.50 7.46 7.53 7.86 8.38 1984
Returns: > 10%
11.23 9.76 9.17 9.28 8.98 7.83 5.80 4.49 4.14 4.36 4.65 5.11 5.76 6.48 6.79 7.13 7.14 7.12 7.21 7.57 8.13 1985
Returns: 0 - 10%
8.30 8.15 8.64 8.42 7.17 4.93 3.56 3.29 3.63 4.01 4.57 5.31 6.12 6.48 6.86 6.89 6.88 6.99 7.38 7.98 1986 8.00 8.81 8.46 6.88 4.26 2.79 2.59 3.06 3.54 4.20 5.05 5.94 6.35 6.76 6.79 6.79 6.92 7.32 7.96 1987 9.63 8.69 6.52 3.35 1.78 1.71 2.37 3.00 3.79 4.76 5.75 6.21 6.66 6.71 6.71 6.85 7.29 7.96 1988
7.76 4.99 1.34 -0.09 0.20 1.21 2.09 3.08 4.23 5.37 5.90 6.42 6.49 6.50 6.67 7.14 7.86 1989
2.29 -1.73 -2.58 -1.61 -0.06 1.17 2.43 3.79 5.11 5.72 6.30 6.38 6.41 6.59 7.10 7.87 1990
-5.59 -4.93 -2.87 -0.64 0.95 2.45 4.01 5.47 6.11 6.71 6.76 6.76 6.93 7.45 8.25 1991
Returns: Negative
-4.26 -1.48 1.07 2.65 4.14 5.70 7.15 7.67 8.17 8.08 7.96 8.04 8.53 9.31 1992 1.39 3.85 5.07 6.35 7.82 9.18 9.49 9.83 9.55 9.26 9.24 9.67 10.43 1993
Year Sold
6.38 6.96 8.06 9.49 10.81 10.90 11.09 10.61 10.17 10.06 10.45 11.22 1994
7.53 8.91 10.55 11.95 11.83 11.90 11.23 10.66 10.47 10.87 11.67 1995
10.30 12.09 13.46 12.93 12.79 11.86 11.11 10.85 11.24 12.10 1996
13.90 15.07 13.82 13.43 12.17 11.25 10.92 11.36 12.30 1997
16.25 13.78 13.27 11.74 10.72 10.43 11.00 12.10 1998
11.36 11.81 10.28 9.38 9.31 10.15 11.52 1999
12.25 9.74 7.29 8.73 7.01 6.75 8.80 7.67 7.87 9.91 9.34 10.03 11.54 11.40 12.46 2000 2001 2002
9.00 11.71 14.49 14.43 17.24 20.06 2003 2004 2005
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Source: NCREIF
Year Purchased
Slide 14: Inflation Protection?
(10 year rolling returns)
16 14 12 10 Return (%) 8 6 4 2 0 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Acquisition Year
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NCREIF CPI
Slide 15: Inflation Protection?
(7 year rolling returns)
18 16 14 12 Return (%) 10 8 6 4 2 0
19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99
NCREIF CPI
Acquistion Year
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Slide 16: Risk/Return Profile
(1982 2006)
CASH Mean Std.Dev. CV 5.30 2.51 2.11
NCREIF 8.98 6.62 1.36
LGB 9.88 7.70 1.28
REIT 15.20 15.74 0.97
SP 11.20 17.00 0.66
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Slide 17: Cross - Correlation of Return
NCREIF NCREIF LGB SP CASH REIT 1.00 -0.18 0.12 0.01 0.09
LGB 1.00 0.22 0.33 0.31
SP 1.00 0.11 0.50
CASH 1.00 -0.13
REIT 1.00
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Slide 18: Does Real Estate Help Portfolio?
Efficient Frontier
16
10.1%
14
12
Return (%)
10
St_Bd_Ca_ RE
8
St_Bd_Ca
9.6%
6
St_Bd_Ca_RE_RT
4
8.14%
2
0 0 2 4 6 8 Ris k 10 12 14 16 18
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Slide 19: What About Volatility of Real Estate?
Efficient Frontiers
4.50
4.00
Return (Qtr.)
3.50
ST_BD ST_BD_RE7 ST_BD_RE10 ST_BD_RE12
3.00
2.50
2.00 3.00
3.50
4.00
4.50
5.00
5.50 Risk (Qtr.)
6.00
6.50
7.00
7.50
8.00
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Slide 20: Take Away?
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Slide 21: Global Real Estate: Why?
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Slide 22: What s Driving Global Real Estate Demand?
" Weight of domestic capital
" Attractiveness of real estate " Improving property fundamentals " Interest rates
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Slide 23: Surplus of Financial Capital to US Commercial Real Estate
US Property Acquisitions
volume cap rate
$300
b illio n s
9.5%
$250
9.0%
$200
8.5%
$150
8.0%
$100
7.5%
$50
7.0%
$0
6.5%
2001
2002
2003
2004
2005
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Core property types $5 million and greater
Source: Real Capital Analytics an MIT/CRE Partner
Slide 24: Growth in Foreign Investment in US&
$20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $Q1 2 '02 3 4 Q1 2 '03 3 4 Q1 2 '04 3 4 Q1 2 '05 3 4 Australia German Euro CN Mid East billions Other UK
Source: Real Capital Analytics
an MIT/CRE Partner
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Slide 25: What s Driving Global Real Estate Demand?
" Weight of domestic capital
" Attractiveness of real estate " Improving property fundamentals " Interest rates
" " " "
Search for yield Expand opportunity set Diversification Global economy-customer driven
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Slide 26: Global Opportunities
" The investable universe of global real estate is approximately USD 8.0 trillion, or 16% of the total investable universe including global stocks and bonds The largest market, the US, comprises only about 39% of the total universe of real estate, so even for US investors significant opportunities exist outside of the country
So u rc e : U Glo b a l As s e t M n a g e m e n t, Re a l Es ta te re s e a rc h a s a t 3 1 De c e m b e r 2 0 0 5 . Th is d a ta BS a d o e s n o t in c lu d e s in g le -fa m ily h o m e s
"
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Slide 27: Expanding REIT Universe: $240 bn -> $650 bn
So urc e : U Glo b a l As s e t M n a g e m e n t, Re a l Es ta te re s e a rc h BS a
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Slide 28: Global Growth in CMBS
Issuance 1991 – 2006P
$Bn
80.0 70.3
22.7 0.6 0.0 0.3 2.8 1.1 0.9 3.6 0.6
91 92 93 94 95 96 97 98
28.7 20.8
35.2
9.4
99
12.1
00 01 02 03 04 05 06P1
$11.861 billion priced as of March 31, 2006 Source: Morgan Stanley Estimates, Commercial Mortgage Alert
1
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Slide 29: Global Challenges
" " " " " Transparency > comfort level Emergence of debt markets f (title/property rights) Yield compression Local nature of real estate -> partnerships Investment segmentation
Opportunity/hedge funds Private equity Value added/core plus/core?
" Role of global integration on investment strategy?
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Slide 30: How Do I Do It?
" Equity
Private: Core, Core Plus, Value Added, Opportunity, Hedge, P/E Public: REITs, REOCs, OE/CE funds
" Debt:
Private: CM s Public: CMBS, CDOs
" Derivatives Swap products
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Slide 31: How Does This Relate to Family Offices?
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