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
• 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
FIXED
INCOME
PRIVATE EQUITY
HEDGE FUNDS
ALTERNATIVES
REAL ESTATE
PUBLIC
EQUITY
OTHER
ALTERNATIVES
10-Year Forward* Inflation-adjusted Returns
Annual % 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 Bonds
Source: Standard Life Investments
Volatility*
Private Real Estate
has Lower
Expected
Risk/Return Profile
than Publically
Traded Equities
20 YEAR PERFORMACE & RISK
NCREIF
ODCE
NAREIT
S&P 500
Return
7.9%
10.7%
8.5%
Risk
7.0%
22.3%
18.2%
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
Low Correlations
to Publicly Traded
Equities and Fixed
income
Source: Morningstar, Data as of 9/30/12
Correlation Coefficient
Large CAP Stocks
.17
Core Bonds
(.07)
T-Bills
.37
Commodities
.22
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 SF
of New Projects
27 Million
Man-hours of Work
$1.0 Billion
BUILD-TO-CORE
The Confluence
Denver, 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 Centers
Across 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