2011 Marketing Class Uo W
description
Transcript of 2011 Marketing Class Uo W
The Marketing of Real Estate
Amaury de Parcevaux
Chief Marketing OfficerApril 8th 2011
2
A. Falcon Real Estate Investment Company, LP
• US Commercial Real Estate firm created in 1991 by Howard Hallengren and Jack Miller,
both from JPMChase. Offers comprehensive services to high-net-worth individuals and
institutional investors. 6 US Regional offices in the United States: New York, Washington
D.C., Miami, Chicago, Dallas and San Diego. $ 2 bn AUMs of US commercial real estate.
100% Out-performance vs. its benchmark (NCREIF) in 20 years.
B. Amaury de Parcevaux, Chief Marketing Officer (New York)
• Amaury de Parcevaux is Senior Vice President for Falcon and he is based in New York.
As Chief Marketing Officer, he has overall responsibility for the Global marketing strategy
of Falcon's direct and indirect investments platforms. Mr. de Parcevaux has had over 18
years experience in marketing to high-net-worth individuals, and comes to Falcon from
Morgan Stanley, where he was a First Vice President in the Wealth Management
department. Prior to that, he worked in the Private Banking department of Merrill Lynch, at
Citibank and Deutsche Bank in New York, and at Commerzbank and Deutsche Bank in
Frankfurt. Mr. de Parcevaux graduated in 1988 from the European Business School
(Oestrich-Winkel, Paris and London) with a Master’s Degree in Finance. In addition to
French and English, Mr. de Parcevaux is also fluent in German.
Short Profile on Firm and Speaker
Class Outline
Introduction
1. Publicly vs. Privately Held Commercial Real Estate
2. The International Perspective
3. Falcon’s Case Study
Conclusion
3
Class Outline
Introduction
1. Publicly vs. Privately Held Commercial Real Estate
2. The International Perspective
3. Falcon’s Case Study
Conclusion
4
Traditional Global Asset Classes
A. Traditional • Money Market
• Bonds (CMBS)
• Stocks (Listed Real Estate Investment Trusts: “REITs”)
B. Alternative• Private Equity (“Private Equity funds”, “Private REITs” or “Club Deals”)
• Hedge Funds (“Sector Specific”: Real Estate and Macro)
• Structured Products (“Principal Protected” around RE indices or “REITs baskets”)
• Real Estate (Direct investment by one investor in one building or owner-occupied)
• Managed Futures
• Commodities
• Infrastructure
5
Traditional Global Real Estate Asset Classes
Direct PropertyInvestments
$ 23 Trillion
Real Estate
Securities
$ 2 Trillion
Whole Mortgage Structured Debt (CMOs, CLOs etc.)
Private Public
De
bt
Eq
uit
y
GLOBAL REAL ESTATE
•$ 25 Trillion (50% US)
$ 16 Investment Grade
$ 9 Non-Investment Grade
($ 10 pure investments)
•20% vs. Global Stock +
Bond Market Cap.
• 7 times bigger than
Hedge Funds
• 12 times bigger than
Private Equity
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Real Estate Evolves with Private Equity
2. Venture Capital Funding
IPO
High Yield Debt & Equity
Traditional Bank Loans
Follow-on Offerings
Public/Private Debt
Convertible Debt
Venture StagePrivate
Company
Mezzanine StagePrivate
Company
Growth StagePrivate/Public
Company
Late StagePrivate/Public
CompanyMature StagePrivate/Public
Company
1. Buyouts
Purchase of controlling interest
with substantial borrowed capital
Focuses on investing in companies
with high growth rates
Industry
Mezzanine
Distress
Real Estate
PIPE
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Class Outline
Introduction
1. Publicly vs. Privately Held Commercial Real Estate
2. The International Perspective
3. Falcon’s Case Study
Conclusion
8
Risk / Return of Real Estate Investment Strategies
Opportunistic
Value-Added
Long/Short
Public Equity
Core Property
Public Debt
Whole Mortgage
Risk Perception
Source: Fund Evaluation Group and Falcon Asset Management
Positioning Debt/Equity vs. Public/Private
Debt
Equity
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“US Housing Going down”April 26th 2007
“ Foreign Real-Estate Funds Boom Firms Unveil
Scores of New Plays, Spurred by Strong Returns
and Growth in Overseas REITs”. July 7, 2007
“Euro soars to new high against U.S. dollar”July 10, 2007
“Subprime poor practice risks turning to malpractice”July 4 2007
Pre-2008 Crisis Headlines?
10
R. Bernstein: Merrill Lynch Chief US Strategist
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• 91.5% of long-term total account performance including Stocks, Bonds, Money Markets
resulted from asset allocation decisions (statistically tested over the past 20 years)
• Mitigate the necessity of secondary market - like in REITs
Security Selection
4.6%
Market Timing
1.8%
Other Factors
2.1%
Asset Allocation
91.5%
Source: Ibbotson Associates, Inc.
Asset Allocation and Expected Return: 1
12
Source: 1995—2005 Source: BHF-BANK
HIGH
LOW MEDIUM HIGH
Risk %
Re
turn
%
LOW
MEDIUM
Private
Equity
Global
Real Estate
Hedge
Funds
CommoditiesOil
GoldGlobal Bonds
Global
Stocks
Global
Money Markets
Risk Adjusted Returns (+ Standard Deviation): 2
13
NAREIT NCREIF
Source: Falcon /NCREIF & NAREIT/ Columbia Business School
US Public vs. US Private Real Estate Returns
US Public RE Benchmark (50% leveraged) vs. Private Benchmark (Unleveraged)
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REIT NAV Premium vs. Underlying Assets
Source: Green Street Advisors, Current as of May 2007
40%
30% Long-term Average = 6.6%
20%
10%
0%
-10%
-20%
-30%
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When Real Estate > Stock Market Volatility
S&P 500 120 Day Volatility
REITs 120 Day Volatility
1994 1996 1998 2000 2002 2004 2006 2008
Source: Bloomberg / RMS & SPX 120 Day Return Volatility
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S&P 500 FTSE 100 NCREIF Index FALCON
Total Quarters 62 62 62 62
Positive Quarters 67.74% 69.35% 87.10% 98.39%
Negative Quarters 32.26% 30.65% 12.90% 1.61%
Median Quarterly Return 2.41% 2.08% 2.36% 3.44%
Average Quarterly Return 2.47% 2.27% 2.08% 3.74%
Standard Deviation 7.43% 7.09% 1.84% 1.79%
Best Quarter 20.87% 25.13% 5.43% 10.42%
Worst Quarter -17.63% -17.80% -5.33% -0.14%
Maximum Drawdown -45.60% -45.55% -9.66% -0.14%
Sharpe Ratio* -0.04% -0.07% -0.37% 0.55%
Correlation Matrix S&P 500 FTSE 100 NCREIF Index FALCON
S&P 500 1.00 0.73 -0.04 -0.04
FTSE 100 1.00 0.01 0.02
NCREIF Index 1.00 0.77
FALCON 1.00
Falcon Performance Statistics vs. Benchmarks: January 1991 - June 2006
* Risk free rate is 2.75% (the average 5-yr T-Note from Jan '91 Š June '06
Source: Falcon
Correlation Coefficients (+ covariance): 3
17
Source: 1980—2000 Source: Merrill Lynch Quantitative & Equity Derivatives Research
15.50
15.00
14.50
14.00
13.50
13.00
12.50
12.00
11.50
10.00 10.50 11.00 11.50 12.00 12.50 13.00 13.50 14.00 14.50
Risk %
Retu
rn %
Efficient Frontier without
Alternative Investments
Efficient Frontier with 5%
Alternative Investments
Efficient Frontier with 10%
Alternative Investments
Steps 1+2+3 = Efficient Frontier
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Cash
Bond
Equity
Alternative
Invest.
50-60%*
*Real assets, which includes real estate and commodities, is the largest
investment category with 31 cents of each Harvard endowment dollar.
How Much Alternative Investments?
Source: Falcon
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Synopsis of Private vs. Public Real Estate
Public Equity Advantages
Publicly traded (liquid)
Lower fees
No minimum size (individual investors)
Public Equity Disadvantages
Theoretically, lower returns
due to liquidity premium
Performance often driven by capital flows and
other non- real estate related factors
Higher correlation to public stock markets
Private Equity Advantages
Access to broader array ofinvestment opportunities
Lower correlation to stock markets
Private Equity Disadvantages
Illiquid
Higher fees
Appraisal-based valuations
Difficult to benchmark
High dispersion of returns in value-added and opportunistic sectors
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Class Outline
Introduction
1. Publicly vs. Privately Held Commercial Real Estate
2. The International Perspective
3. Falcon’s Case Study
Conclusion
21
• Financial Markets offer broader access to capital from borrowers
• Financial Markets offer more efficient pricing
• Financial Markets increase opportunities for sharing risk BUT…
• Lately securitization has led to substantial increases in leverage and greater systemic risk for the entire financial system
TOTAL
Bank Deposits
Government Debt
Corporate Debt
Equities
Global Financial Markets (Excluding Derivatives)
Source: McKinsey Global Institute
2011: Global GDP $ 60 vs. $ 180 Trillion Listed
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• 1990: 33 countries have domestic market capitalization (excluding derivatives) > GDP
• 2007: 72 countries – virtually all industrial economies and the largest emerging markets have financial markets that are two to three times the size of their GDP
Real Economy/Financial Markets Decoupling
Source: McKinsey Global Institute
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Listed Real Estate – Still in Infancy
FTSE EPRA/NAREIT Countries Listed RE
%
Vs. Stock Market Cap.
%
Australia 30 10
Hong Kong/China 25 5
Singapore 25 10
Luxembourg 12 6
Sweden 10 4
Canada 8 3
United States 7 2
Netherlands 6 3
New Zealand 5 5
Austria 5 4
United Kingdom 4 1
Japan 4 2
France 3 1
Switzerland 3 0.6
Spain 3 2
Belgium 3 1.5
Finland 1.5 0.5
Norway 1.5 1
Poland 1.5 1.3
Denmark 1 0.6
Greece 1 0.5
Italy 1 0.8
Germany 0.5 0.5
South Korea 0.5 0.2
Hungary 0.2 0.2
Ireland 0.1 0.1
Portugal 0.1 0.1
Czech Republic 0.1 0.1
World 5.6 2.8
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AustraliaHong KongJapanOther Asian
France GermanyItalySpain NetherlandsOther EurozoneUKSwitzerland SwedenC & E Europe Other European USCanadaMexicoBrazilOther
Japan 11%
Euro zone
10%
Americas 57% Europe 18%
US 53%
Australia
9%Asia-Pacific
25%
Hong Kong
5%
UK 6%
Sources: EPRA/NAREIT, LaSalle Investment Management
2007: $ 2 Trillion Listed Real Estate
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Pre Crisis Global Real Estate Markets Flow
•Invested stock
$3.2 trillion
•Mature/ Highly Mature: 83%•Maturing: 15%•Emerging: 2%
•Investable stock$6.1 trillion
Europe / Russia
•Invested stock
$4.7 trillion
•Total stock $9.2 trillion
Americas Total stock•$9.5 trillion
•Investable stock$6.6 trillion •Invested
stock$1.9 trillion
Middle East / Asia
•Investable stock$3.5 trillion
Sources: RREEF; DTZ; ULI; PwC
Pre-2008 Crisis Inter-regional capital flows of $115bn
•Mature/ Highly Mature: 9%•Maturing: 1%•Emerging: 1%
•Mature/ Highly Mature: 17%•Maturing: 72%•Emerging: 11%
•Total stock $5.9 trillion
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International RE Risk Adjusted Returns?
Returns and Risk of Public Property Securities Markets
(1993-2006, in U.S. dollars)
Source: Morgan Stanley, Global Property Research
Returns and risk for public real estate securities in various regions around the world can produce half of the returns for twice the risk and can produce twice the returns for half the risk depending what you targeted country allocation is.
Returns for Asia were for instance lower than other regions due to problems the region has faced, including a weak Japanese real estate market for more than a decade and the SARS outbreak in 2003
Return Standard
Deviation
U.S. 13.60% 14.90%
Europe 13.90% 14.40%
Asia 7.40% 33.20%
Australia 16.60% 18.20%
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Correlation in International RE Markets?
International diversification within public real estate equities is beneficial due to the low correlations of public real estate equities between various global regions
Correlation of Public Property Securities Markets
(1993-2006, in U.S. dollars)
U.S. Europe Asia Australia
U.S. 1 0.5 0.32 0.4
Europe 0.5 1 0.34 0.52
Asia 0.32 0.34 1 0.44
Australia 0.4 0.52 0.44 1
Source: Morgan Stanley, Global Property Research
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Liquid Assets: USD 5,000 billion
Revenues: USD 65 billion
Ratio = 1.3%
Liquid Assets: USD 9,000 billion
Revenues: USD 63 billion
Ratio = 0.7%
Liquid Assets: USD 9,000 billion
Revenues: USD 81 billion
Ratio = 0.9%
Liquid Assets: USD 7,000 billion
Revenues: USD 63 billion
Ratio = 0.9%
• 7 Million People Own > USD 1 Million Liquid Assets (@ 0.1% World Population)
• USD 30 (23 on shore / 7 off shore) Trillion Private Banking Market: + 2% p.a.
Today’s Global Private Banking Market
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Public and Private Real Estate Room to Grow
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Global North
America
Latin
America
Europe Asia-
Pacific
Middle
East
HNI's Real Estate Investments (2006)
REIT Commercial Residential* * Secondary Residence
Source: Merrill Lynch/Cap Gemini
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The Luxembourg Fund Center
8 426
4 542
1 839
2 176
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
USA Europe Asia & Pacific
Luxembourg is the second
largest fund center in the
world after the USA
Pre-2008 Crisis Worldwide Mutual Funds
€ billions
Sources: EFAMA & ICI
31
Luxembourg Real Estate Funds: Before the SIF
AUM and Number of RE
Funds
48
80
129
3636
0
5
10
15
20
25
30
35
40
02 03 04 05 06
AU
M
US
D b
ln
0
20
40
60
80
100
120
140
Nu
mb
er
of
su
bfu
nd
s
AUM # (sub)funds
• Huge growth since 2004
• Closed-end and Open-end funds and funds of funds
Reasons for success:
• Strong yet flexible Regulation
• Cheaper for Fund Managers than the US
• Reputation of location
• Centre of sophisticated real estate investment funds
Global promoter base
Global investor base
• Tax efficiency and stability
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SIF: Market OverviewSpecialized investment funds launched since February 13, 2007
8 1225
38
72
93
115 119
220
0
50
100
150
200
250
2007-
02
2007-
03
2007-
04
2007-
05
2007-
06
2007-
07
2007-
08
2007-
09
2007-
12
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SIF Launched in Feb. 07 is a Favored Structure
Profile of Luxembourg Investment Funds
Key criteria UCITS Non-UCITS SIF SICAR
Investment
restrictions (eligible
assets)
Restricted Flexible Flexible Moderate
Risk diversification High Medium Low None
Ease of public
distribution
High Medium Low Low
Supervisory
framework
Targeted to
retail investor
protection
Targeted to retail
investor
protection
More flexible More flexible
Time to establish Low - Medium Medium - High Very low Low
Target investors All All Institutional /
HNWI
Institutional /
HNWI
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The SIF Features are Tailored for Real Estate
Key Features UCITs Non-UCITs SIF SICAR
Umbrella structures Yes Yes Yes Yes(1)
Share-classes Yes Yes Yes Yes
Debt financing No No Yes Yes
Leverage No Yes Yes Yes
Valuation basisProbable realization
value
Probable
realization
value
Fair valueProbable
realization value
Subscription/
redemption priceNAV NAV
As per
offering
document
NAV
NAV frequency
(minimum)Monthly Monthly Annual Annual (1)
Open or closed ended Open ended Both Both Both
Annual Report Yes Yes Yes Yes
Semi-annual report Yes Yes No No
Regulatory Reporting Yes Yes No No
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The SIF: In a Nutshell
• Eligible investor base: Investment in a
SIF is reserved for “well-informed”
investors requiring a limited level of
protection and looking for investment
flexibility suitable to their particular
expertise and needs.
• Investment flexibility: the range of
assets (nature of assets and/or
associated risks) eligible for a SIF is
broad and consequently includes, but is
not limited to, equities, bonds,
derivatives, structured products, real
estate, hedge funds and private equity
type investments. The SIF should comply
with the general principle of risk
diversification.
• Light supervision
• Organisational adaptability
• Efficient tax regime
Criteria SIF
REGULATORY
Regulated vehicle? Yes
Pre-approval by regulator? No
Other than local GAAP? Yes
Investment restrictions? No
Investment in RE, PE, HF? All
Simplified prospectus
regime?Yes
TAX
Subscription tax? Yes
Income tax? No
Access to DTT? Yes / No
Withholding tax on dividends
paid? (residents / non
residents)
No
Standard VAT rate? 15 %
DISTRIBUTION
Listing possible? Yes / No
Maximum number of
investors?No
Minimum investment
amount?Min. € 125k
Minimum experience
required?Yes
LICENSING
Service providers / persons
subject to regulator's
approval?
• Directors
• Custodian
• Auditor
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Pension Funds Pooling: Use Luxembourg
• Quantitative benefits:Economies of scales at asset management & custodian bank level up to 0.70% savings
• Qualitative benefits:
Improve measurement/selection of service provider
Enable consistent/centralized corporate governance.
• Multinationals running pension funds in several countries have implemented pension
pooling vehicle
British
Pension
Fund
Irish
Pension
Fund
Chilean
Pension
Fund
Brazil
Pension
Fund
British
Pension
Fund
Irish
Pension
Fund
Chilean
Pension
Fund
Brazil
Pension
Fund
Investments Investments Investments Investments
Depositary bank
Paying agent
Administrative agent
Transfer agent
Auditors
Law consultant
Tax consultant
Asset administrator
Virtual or entity pension pooling
Investments
Shares DepositReal
EstateBonds
Converted in
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Class Outline
Introduction
1. Publicly vs. Privately Held Commercial Real Estate
2. The International Perspective
3. Falcon’s Case Study
Conclusion
38
• Highlights
• Organizational Chart
• The Founders
• An Advisory Firm
a. Falcon Real Estate
• Falcon Offices
• Institutional Relationships
• Falcon vs. NCREIF Property Index
• Current Diversified Portfolio
39
Highlights
• Formed in 1991 by Howard Hallengren and Jack Miller to advise Non-U.S. investors
• Directors with over 100 years combined experience in global real estate investing
• 6 office locations: NYC, Chicago, Miami, Dallas, Washington D.C., San Diego
• Company employs 17 professionals
• Falcon has completed transactions totaling about US$ 7 billion and provides
Asset Management services for commercial real estate in major markets throughout
the United States.
• Performance as of June 30th 2010, since inception in 1991*
13.9% average annual return vs. 6.8% NCREIF benchmark
Annual income return of 8.4%
* based on NCREIF investment performance standards
40
Organizational ChartHoward Hallengren
Chairman
Chief Executive Officer
Jack MillerPresident
MarketingAcquisitions &
UnderwritingAsset Management
Accounting
Reporting & Tax
Amaury de ParcevauxSenior Vice President
Chief Marketing Officer
Europe, Asia, North America
Dan StockalperVice President
Middle-East
Laurence DooleyVice President
Central U.S.
Kenneth LormanSenior Vice President
Senior Acquisition Officer
Eastern U.S.
Adam DoudVice President
Western U.S.
Daniel EpsteinVice President
Eastern U.S.
Norman HillFirst Vice President
Chief Financial Officer
Angela BlecknerSenior Accountant
Tamela NewtonAccountant
Scott SweeneyExecutive Vice President
Head of Asset Management
David Hill
Certified Public Accountant
Southwest & DC
Scott SweeneyExecutive Vice President
Head of Asset Management
U.S.
Laurence WelshVice President
Southeast & D.C.
Carl OmarkVice President
East Coast & Midwest
Scott BennettFirst Vice President
U.S.
Amaury de ParcevauxSenior Vice President
Chief Marketing Officer
Ken LormanSenior Vice President
Senior Acquisition Officer
Scott BennettFirst Vice President
Chief Operating Officer
Norman HillFirst Vice President
Chief Financial Officer
Daniel EpsteinVice President
Latin America, Spain, Portugal
Timothy PuhekVice President
Western U.S.
Management — Directors
Scott SweeneyExecutive Vice President
Middle-East
41
Mr. Hallengren is Chairman of Falcon Real Estate
Investment Company, LP. Mr. Hallengren has been
Chairman of Falcon since its inception and has overseen
the growth of the company and the investment strategy
which has delivered the exceptional IRR’s. Prior to forming
Falcon, Mr. Hallengren was Chief Investment Officer and
Product Manager for the International Private Banking
Department of the Chase Manhattan Bank. In that
capacity, he had overall responsibility for the bank’s real
estate investments on behalf of non-U.S. investors. Before
joining Chase, Mr. Hallengren was Chief Investment Officer
at The First National Bank of Chicago. During his tenure
there, he also served as Chairman of the Real Estate
Investment Committee, which supervised the Trust
Department’s real estate investments. Mr. Hallengren is a
graduate of Princeton University and received his master’s
degree in business administration from the University of
Chicago.
Howard E. HallengrenChairman
New York Office
The Founders
Jack D. MillerPresident
Chicago Office
Mr. Miller joined Falcon after serving as Manager of the
Real Estate Investment Division within Private Banking
International at the Chase Manhattan Bank. In that role, he
had direct responsibility for property acquisition, property
management and mortgage financing. Like Mr. Hallengren,
Mr. Miller also came to Chase from The First National Bank
of Chicago, where he served for ten years in the bank’s real
estate investment division. He is a founding member of the
Accounting Standards Committee of the National Council of
Real Estate Investment Fiduciaries, which is the
coordinating group that sets accounting standards for U.S.
institutional investors. Mr. Miller received a Bachelor of
Science degree in accounting and a master of finance in
real estate from De Paul University, as well as a master’s
degree in business administration from the University of
Chicago.
42
An Advisory Firm
We offer a complete real estate investment
management platform, including advice on purchases,
financing, and sales, as well as a comprehensive asset
management service
We customize our approach to meet our
clients’ goals
As the Client’s Advisor on Direct Real Estate
acquisitions, we receive property submissions from
every Brokerage Firm in the country and maintain
close relationships with many of the country’s most
important real estate owners and operators
Our decades-long close relationships with
Brokerage Firms and Ownership provides Clients
with the insight required to successfully bid on
properties
Falcon Real Estate is an investment management
advisory firm – not a Brokerage Firm
We represent our clients as buyers or sellers in a
transaction independent of the Brokerage Firm
We act as our Client’s Agent and Representative in the
United States
We have a fiduciary responsibility to the Client,
which means that we act according to the Client’s
best interest and instructions
Falcon’s Asset Management team selects and
supervises local leasing and property management
agents, monitors and controls all receipts and
disbursements, and provides comprehensive quarterly
reports on each property.
We customize every Asset Management
strategy and budget
Falcon is not related to any other entity of any kind in
the real estate industry in the United States
Therefore, we are totally independent and focused
on meeting the objectives of our clients.
43
Falcon Offices
Broad Coverage of U.S. Market
Chicago
Washington D.C.
New York City
Miami
Dallas
San Diego
6 Falcon Offices
Current Asset Management Assignments
44
BNP Paribas, Global (U.S. Alliance Partner)
Generali Immobiliare, Paris (U.S. Investment Advisor)
Credit Suisse Private Bank, Zürich (Invested on Behalf of Clients)
HSBC Amanah, New York (Managed Real Estate Fund)
Citi Private Bank, London, Abu Dhabi and Geneva (Invested on Behalf of Clients)
Kuwait Finance House, Kuwait (Managed Real Estate Fund)
Capital Trust, London (Advised on Purchase of Properties)
Deutsche Bank Realty Advisors, New York (Advised on Purchase of Properties)
FT Sirius Fund, Hong Kong (Created FT Falcon Asia Ltd. Joint Venture)
Institutional Relationships
45
Track Record: Falcon vs. NCREIF Property IndexAnnual Returns of Falcon vs.
NCREIF Property Index
* Inception Date — January 1, 1991
Source: Falcon Asset Management
The NCREIF Property Index is a commercial real estate index consisting of 6,066 privately
held investment properties with a market cap of $234.5 Billion.
As of June 30, 2010
46
Current Diversified Portfolio
Falcon Portfolio (Market Value)
Industrial
17.24%
Residential/
Development
28.07%
Retail
5.99%
Office:
Single-tenant
24.19%
Office:
Multi-tenant
24.51%
Market Value
Office: Multi-Tenant $401,009,827 24.51%
Office: Single-Tenant 395,835,487 24.19%
Retail 98,007,836 5.99%
Residential / Development 459,500,000 28.07%
Industrial 282,060,184 17.24%
Totals as June 30, 2010 $1,636,413,335 100.00%
Falcon Portfolio (Square Feet)
Source: Falcon Asset Management
Sq. Ft.
Office: Multi-Tenant 1,805,822 14.01%
Office: Single-Tenant 2,090,588 16.21%
Retail 396,922 3.08%
Residential / Development 1,061,327 8.23%
Industrial 7,538,969 58.47%
Totals as of June 30, 2010 12,893,628 100.00%
Industrial
58.47%
Office:
Multi-tenant
14.01%
Office:
Single-tenant
16.21%
Retail
3.08%
Residential/
Development
8.23%
47
b. Investment Process
• Highlights
• Acquisition Process
- Acquisition Process Time Line
• Asset Management
- Asset Management Duties
• Accounting and Reporting
• Case Studies
48
Highlights
Falcon Sourcing Ongoing Oversight
Risk Management
Financial Statements
ACCOUNTING &
REPORTING
ASSET
MANAGEMENTACQUISITION
Due Diligence Tax Optimization
Exit Strategy
49
Review third party reports from lenders, appraisers,engineers, and zoning & environmental agencies
Inspect property
Select on-site team
Lock-in financing and leasing strategies
Insurance review
Finalize pro formaNO
ASSET MANAGEMENT Closing
Property summary and location overview
Rationale for purchase and exit strategy
Due Diligence
Letter of Intent /
Negotiations
Acquisition Process
Full valuation and earnings projections
Analysis of market, location, tenant creditworthiness and debt coverage
Engage attorneys
YES
NO YES
NO YES
Acquisition Committee
50
Acquisition Process Time Line
*Third Party Reports Include: Appraisal, Environmental Inspection, Engineering Report,
Zoning Report, Survey, and Other/Misc. Reports
SNDA - Subordination and Non-disturbance Agreement
51
• Falcon Asset Management team has managed properties throughout the United States
• Falcon’s Asset Management team establishes an overall strategy and budget for each
property, selects and supervises local leasing and property management agents, monitors
and controls all receipts and disbursements, and provides quarterly reports
• Capabilities in all 6 offices allowing us to benefit from local market knowledge
and relationships
• Group consists of 5 senior Asset Managers with strong expertise in all areas
of Asset Management
• Review committee insures best practices to each property
• Argus software expertise allows for detailed and flexible financial projections
Asset Management
52
• Establish overall strategy for each property
• Select and supervise local leasing and
property management agents as required
• Create annual operating and capital
budgets
• Review actual financial results against
budgets on a monthly basis
• Monitor and control all receipts and
disbursements
• Make debt service payments as required
• Make real estate tax payments or confirm
payment as required
Asset Management Duties
• Secure appropriate casualty and liability
insurance coverage
• Negotiate lease terms and work with
outside legal counsel to document such
leases
• Implement a property renovation or capital
improvement program
• Carry-out property site inspections at least
on a quarterly basis
• Coordinate with outside accounting and
legal firms all tax filings and audits
• Provide client with a detailed quarterly
report with financials
53
• Asset Management Review Committee reviews each property on a regular basis and
approves all major property decisions to insure best practices
• Approval of annual operating budgets
• Review and approval of all major property decisions (e.g. sale, financing/re-financing, a major
tenant lease or capital expenditure)
• Review actual results compared to annual budget
• Update on leasing activity and property strategy
• Discussion of major issues regarding each property
• Other Asset Management Controls
• All proposed lease transactions and contracts require approval from Head of Asset
Management
• The only authorized signers to a lease document or contract are the Chairman, President,
Executive Vice President or Senior Vice President
• The handling of all cash receipts and disbursements are subject to formal cash management
policies and procedures
Asset Management Controls
54
• Accounting function is centralized in our Dallas office
• Accounting group consists of 4 experienced accounting professionals including
Certified Public Accountants (CPAs)
• Experienced in fund management accounting and the audit process
• MRI accounting software, the industry standard, is used
• Financial statements and cash account reconciliations are completed on a
monthly basis
• Financial statements are presented to clients on a quarterly basis
• Provides support to third party accountants for tax return preparation and audits
Accounting / Reporting
55
Accounting / Reporting
Bank Account Reconciliations
Loan Balances & Escrow Account Reconciliation
Monthly
Quarterly
Annually
Balance Sheet & Income Statementswith Budget Comparisons
Reporting & Analysis
Audited Financial Statements
Operating Budgets and Annual Financial
Reports
Tax Returns
56
ACQUISITION STRATEGY
• Premier global retail destination
• Undercapitalized by previous owners
• Retail spaces were outdated and inadequate for
premier tenants
FALCON ASSET MANAGEMENT VALUE-ADD
• Engaged prime leasing agents and consultants to re-position
the property as a pre-eminent retail center with smaller
boutique-like spaces
• Detailed marketing and merchandising strategy and renovation
to implement quality standards for appropriate tenant mix and
shopper profile
• Retained Tiffany & Co. as anchor tenant with 20 year lease
renewal
• Attracted additional exclusive new tenants such as Versace and
Gucci
RESULT
• Purchased for $143 MM in 2000, and sold in 2007 for $275 MM
• Investor IRR 15.8% p.a. over 7 years
Case Studies
2 Rodeo, Beverly Hills, CA
57
ACQUISITION STRATEGY
• Attractive, adjoining new buildings four blocks from the White
House
• Strong, growing Washington D.C. office market
• Separate owners; management, tenant and space allocation
inefficiencies
FALCON ASSET MANAGEMENT VALUE-ADD
• Purchased 1201 in 1999 and 1225 in 2000 joining and greatly
expanding tenant space
• Extensive property refurbishment and modernizing
• Major re-tenanting with entire building leased to tenants such
as U.S. Department of Homeland Security, Federal Elections
Commission, and Office of Government Ethics
RESULT
• Total purchase concluded at $112 MM in 2000, sold in 2005
for $215 MM
• Investor IRR 12.0% p.a. over 6 years
Case Studies
1201 and 1225 New York Avenue, Washington, D.C.
58
Class Outline
Introduction
1. Publicly vs. Privately Held Commercial Real Estate
2. The International Perspective
3. Falcon’s Case Study
Conclusion
59
Conclusion
A. Privately Held vs. Publicly Held Real Estate
• Each have their own merit, even if the Privately-held RE is likely to continue to dominate
• Clearly Commercial Real Estate in all its forms will continue to grow for all the reasons we discussed
B. International Perspective• Trend # 1: Hard Assets logic inescapable
• Trend # 2: The Global Real Estate market will continue to integrate
• Trend # 3: The Luxembourg Real Estate Funds will continue to grow
C. Falcon’s Case Study• Add Value with RE Professionals and preserve value for your clients and yourself
• Stream-line and diversify your business model
• Embrace the win-win religion
60
Career’s Feedback
• First and foremost: Carpe Diem
• Additional Feedback• Resume – spotless like a new building
• Interview – search the “win-win”… so sell yourself
• Companies to target
RE Companies
Banks (BNP Paribas Real Estate, Morgan Stanley)
• RE Teams
• Private Bank / Wealth Management
Insurance Companies (Allianz, AXA)
Sovereign Wealth Funds (ADIA)
• GREM – perfect G L O B A L platform: US-LatAm-Europe-Asia
• Does Falcon Hire?
61
Questions & Answers
Amaury de ParcevauxChief Marketing Officer
Falcon Real Estate Investment Management, Ltd.570 Lexington Avenue, New York, NY 10022
Tel: (212) 271-5445
E-mail: [email protected]
62
Appendix 1
a. Falcon Current View on Real Estate Market
b. Our Quarterly Office Market Research / www.falconreal.com
63
• U.S. Commercial Real Estate Market
• Why Invest Now?
• How to Succeed In Today’s Competitive Market
• Investment Strategy
• Conclusion
a. Real Estate Market Overview
64
Improving real estate fundamentals in most markets
• Increased demand and a reduction in sublease availability have led to the
stabilization of net effective rents (asking rents plus concessions) and vacancies
• Lack of overbuilding in major markets has supported market fundamentals and
should provide opportunities for long-term investors
The U.S. economy continues to show clear signs of improvement with declining
unemployment, 2010 GDP growth of 2.8% and 2011 GDP growth forecasted at 3.2%-
3.6%
Investment activity is increasing, particularly in the 6 major CBD markets (New York,
Washington D.C., Boston, Chicago, San Francisco, and Los Angeles)
Excellent opportunities exist in larger second-tier cities and satellite markets due to
investor focus on the 6 major CBD markets
Competitive debt financing is once again available for quality properties
U.S. Commercial Real Estate Market: OverviewMarket Overview
65
Annual CMBS Issuance and U.S. Cap Rates
Source: Commercial Mortgage Alert, PPR, NCREIF, Moody’s Economy.com, PricewaterhouseCoopers, Falcon estimates
Capitalization rates (net operating income divided by purchase price) are declining in many
markets due to greater demand, especially from international investors, limited supply of
properties available for purchase, increased availability of financing, the low interest rate
environment, and expectations of rising rental rates
Cap rates in the six major CBDs have declined from their high point in 2009 to near 2007
levels while cap rates in satellite markets have declined to a lesser degree
While CMBS issuance has not recovered from the levels at the market peak, insurance
companies and some banks have partially filled the void
U.S. Commercial Real Estate Market: Declining Cap Rates
US
D B
illio
ns
5%
6%
7%
8%
9%
0
50
100
150
200
250
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
CMBS Issuance (billions) Cap Rates
66
Moody’s/REAL Commercial Property Price Index
U.S. Commercial Real Estate Market: Historical Prices
67
1. Market Fundamentals
2. Unique Timing
3. Growing Economy
Why Invest Now?: Summary
Falcon believes this is an historic opportunity to purchase high-quality
properties at attractive prices and yields
Current Favorable Market Characteristics for Buyers:
68
Why Invest Now?: Market Fundamentals
Market Fundamentals Are Improving in Most Markets
Vacancy rates and net effective rents have bottomed out in many markets
• Three consecutive quarters of positive net absorption have been recorded
on a national basis
• Rental rates in some core CBD markets such as Washington D.C., New
York, San Francisco, and Boston are starting to increase
• Landlord concessions have stabilized and are declining in some markets
• As corporate demand begins to return, rental rates should increase more
broadly
Most markets are not suffering from the overbuilding that plagued past downturns
• Limited new construction is expected over the next 3-4 years
• Major markets are generally facing vacancy rates of 10-20%
The economy, which is a leading indicator for the real estate market, is recovering slowly but steadily
69
Office Vacancy Rates
Source: Torto Wheaton, Falcon estimates*
Why Invest Now?: Market Fundamentals
Construction as a Percentage
of Existing Inventory
0%
1%
2%
3%
4%
5%
6%
7%
8%
1980-89 1990-99 2000-07 2008-2010*
Office
Retail
Logistics0%
5%
10%
15%
20%
25%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
*
Suburban Downtown
70
Unique Opportunity To Invest As The U.S. Market Recovers
There is currently an opportunity to acquire quality properties at an attractive basis relative
to historical pricing benchmarks
Potential for capital appreciation due to expectations of future rental rate growth
Real estate investments have traditionally been an effective hedge against inflation
International investors are targeting the U.S. real estate market
• According to an AFIRE survey, foreign investors believe the U.S. offers the best market for capital appreciation
• AFIRE’s 2010 survey ranks New York and Washington, D.C. ahead of London and Paris
• International investors view the U.S. as a stable market in times of economic or political uncertainty
Foreign buyers have dominated recent acquisition activity in the major cities
• Falcon began in 1991 during a real estate crisis and advised foreign investors to take advantage of discounted prices resulting from that crisis
Source: University of Wisconsin School of Business James A. Graaskamp Center for Real Estate, Association of Foreign Investors in Real Estate (AFIRE)
Why Invest Now?: Unique Timing
71
Recent Economic Indicators Suggest That The U.S. Economy Has Been
Showing Steady Improvement
GDP has grown for 6 consecutive quarters led by increased U.S. consumer spending
The S&P 500 has nearly doubled from the lows reached in March 2009
The unemployment rate has fallen to 9.0% from a high of 10.1% in November 2009
The banking sector has regained strength after surviving the recent crisis
Housing prices appear to have bottomed out in many areas of the country
The federal government’s economic stimulus has contributed to improved consumer sentiment
Why Invest Now?: The Economy is Growing
72
How to Succeed in Today’s Competitive Market
Acquiring Properties In the Major Cities Is Very Competitive
Established credibility and a track record with sellers and brokers is crucial to winning a
bidding process
• Buyers are selected based on price, reputation, and ability to close in a timely
manner
Falcon has forged a 20+ year relationship with the brokerage community
Falcon’s successful track record advising investors is widely known
Investors need to make rapid decisions during a bidding process
• Timely internal approval process and open communication with Falcon
• Important to rely on Falcon’s expertise during the acquisition process
Rapid analysis of a large amount of information
Determination of appropriate pricing and bidding strategy
Financial, tax, and legal structuring
Coordination of due diligence
Buyers of trophy properties in major cities may need to conduct upfront due diligence to
increase their odds of winning a bidding contest
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Focus on Class A Single and Multi-Tenant Office
• Offers attractive risk-adjusted returns and long-term stability
• Highest potential for appreciation with additional value enhancement through Falcon’s Asset
Management expertise
• JV partnerships with major operators are a method to access quality properties
• Tenancy
Investment grade single-tenants with long-term leases in critical use properties and
contractual rent escalations
Multi-tenant with dispersed lease expirations and diversified tenant base
• Location
Central Business District locations in cities with growing population, a relatively
strong economy and transportation links
Satellite locations with growing nearby population centers and expanding local
economy with high concentration of office buildings and barriers to new construction
Investment Strategy: Offices
74
Retail, Apartments, Logistics, MOB
Retail
Focus on high-traffic in-fill locations with high income, high land costs, and restrictive
planning controls
Neighborhood and community centers with recession-resistant anchor tenants and
minimal in-line shop space
Select high-end retail within top markets
Rental Apartments
Well-located rental apartments are particularly attractive
Collapse of housing and condo markets has led to rising rents and occupancy rates for
apartments
Few rental apartments built in recent years due to emphasis on condominiums
Higher availability of financing
Logistics
Located in distribution hubs (e.g. rail, airports, seaports)
Modern and flexible design
Single or multi-tenant
Medical Office Buildings
Long-term leases to investment grade hospitals in a sector with strong demand
75
Boston, Massachusetts
Overview
Seventh largest metropolitan area in the U.S. with 24-hour city environment
Strong tenant base and high barriers to entry
Key industries include finance, technology, biology, education, and healthcare
Economy entered recession later than the rest of the U.S. and has been impacted by decrease in equipment and software investment
Small tenants leasing an average of 10,000 square feet dominate the market
Investment Rationale/Opportunities
Downturns tend to be short and market fundamentals usually reverse quickly and dramatically once business conditions improve
Cambridge sub-market with recession resistant biotechnology companies is particularly attractive
Investment Strategy: U.S. Office Markets
76
Chicago, Illinois
Overview
Second largest office market in the U.S.
Location at the center of the U.S. makes it a key transportation and distribution hub
Home to the largest concentration of corporate headquarters in the U.S., including sixty-seven Fortune 500 companies
Investment Rationale/Opportunities
Low amount of new development with some speculative properties nearing delivery
Higher capitalization rates present opportunities
Solid corporate tenant roster and location is favorable for future demand growth
Investment Strategy: U.S. Office Markets
77
Los Angeles County, California (excluding downtown)
Overview
Fifth largest office market in the U.S. and most populous county in the U.S.
Headquarters for seventeen Fortune 500 companies
Just about every industry sector is a major contributor to the economy
Recession resulted in increased unemployment
Investment Rationale/Opportunities
Limited speculative development
With the employment picture beginning to improve, tenant activity should increase, providing stability to investors
Historically stable office market should become more attractive as the economy continues to improve, providing upside to new investors
Investment Strategy: U.S. Office Markets
78
San Francisco, California
Overview
Fifth largest metropolitan area in the U.S.
Diverse range of industries including technology, biotechnology, and finance
Headquarters for many of the world’s leading technology companies (i.e. Google, Yahoo!, Cisco) and one of the largest oil companies, Chevron
Unemployment rate below the national and state of California average
Investment Rationale/Opportunities
Low amount of speculative development
High-growth technology companies provide future upside
Investment Strategy: U.S. Office Markets
79
Washington, D.C.
Overview
Area is home to the U.S. Federal government
Fourth largest metropolitan in the U.S. and highest median household income
Diverse range of industries including government, defense, travel, and education
Unemployment rate below the national average due in large part to the stability provided by the U.S. government
Investment Rationale/Opportunities
Relatively more stable market fundamentals
Attractive destination for domestic and foreign capital
Investment Strategy: U.S. Office Markets
80
Atlanta, Georgia
Overview
9th largest population center in the U.S., referred to as “Capital of the South”
Home to 22 Fortune 1000 companies including Coca-Cola, Home Depot, AT&T, and CNN
Significant population and employment growth over the past decade
Speculative properties scheduled for delivery in the next two years
Investment Rationale/Opportunities
Institutional buyers may pass over the market in favor of larger markets, creating pricing opportunities
Focus on properties with longer-term leases
Investment Strategy: U.S. Office Markets
81
Miami, Florida
Overview
International city serving as the headquarters of Latin American operations for numerous multinational corporations, especially banking institutions and television headquarters
The Port of Miami is one of the largest U.S. cargo ports and also services a huge cruise ship industry
Economy has been adversely impacted by the housing downturn
Unemployment above the national average
Investment Rationale/Opportunities
Relatively low contraction in rental rates and increase in vacancies
Demand from European and South American investors should support future prices
Suburban markets, such as Coral Gables, with development constraints, are particularly attractive
New properties with solid tenant rosters
Investment Strategy: U.S. Office Markets
82
Northern New Jersey (suburban New York)
Overview
Sixth largest office market in the U.S. and 18th largest economy in the world
State with the third highest number of corporate headquarters in the U.S. (54 Fortune 500 companies)
Key industries include pharmaceuticals, telecommunications, insurance, and finance
Recession impacted tenants in the finance, insurance, and real estate sectors
Investment Rationale/Opportunities
Serves as a back office area for Wall Street, benefiting from corporations’ paring back more expensive space in New York
Larger corporate submarkets have fared particularly well and present opportunities
Reduction in property prices and lack of new development is positive
Sale and leaseback opportunities may arise as corporations seek to monetize their portfolio of real estate holdings
Investment Strategy: U.S. Office Markets
83
Seattle, Washington
Overview
Major port city with relative proximity to Japan and China
Headquarters for companies including Microsoft, Starbucks, Amazon, and Costco
Rapidly growing population during the last two decades
Significant amount of speculative properties under construction
Investment Rationale/Opportunities
One of the highest historical rates of job growth
Diverse economic base
Highly educated workforce
Migration of employers to more dense districts favors investment downtown
Investment Strategy: U.S. Office Markets
84
Conclusion
Now is an Ideal Time to Invest in U.S. Commercial Real Estate:
The economy has been growing for the last 6 quarters
U.S. real estate market fundamentals have stabilized
• Vacancy rates have bottomed out in most markets
• Net effective rental rates are stabilizing in most markets and are poised for
future growth
• New construction is limited
Pricing today is below replacement cost
• Potential for value appreciation when the market returns to equilibrium
Recovery in credit markets has begun
Excellent buying opportunities are surfacing today for long-term investors
85