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  • Based on this foundational principle, MIT established its Center for Real Estate in 1984, based it in its School of Architecture and Planning, and gave a Mission to: Improve the Built Environment Elevate the Real Estate Industry Through the Means of: Educational programs (esp. MSRED) Research Outreach
  • DAVID but we will be transitioning into Tony soon
  • More investors, with lots of money to spend, wanting to buy commercial real estate, tends to drive up prices of the physical assets, particularly as new development in much of the U.S. has been relatively restrained by historical “boom period” standards (fortunately).
  • Of course the flow goes both ways. Foreign investment into U.S. real estate has been growing rapidly, lately especially from Australian investment vehicles, as well as UK and Middle Eastern sources, while German investment remains a major element.
  • web.mit.edu

    1. 1. <ul><li>The Role Of Real Estate In The Family Office Portfolio </li></ul><ul><li>Forums on Issues and Innovations in Real Estate (FIRE) </li></ul><ul><li>MIT Center for Real Estate and Taurus Investment Holdings, LLC </li></ul><ul><li>October 27, 2006 </li></ul><ul><li>Professor Tony Ciochetti, Chairman </li></ul><ul><li>MIT Center for Real Estate </li></ul>
    2. 2. <ul><li>Overview of MIT Center for Real Estate </li></ul><ul><li>Prof. Dr. Tony Ciochetti , MIT Center for Real Estate - Real Estate as an Investment </li></ul><ul><li>Prof. Dr. Rolf Tilmes , European Business School - Background on the Family Office Portfolio </li></ul><ul><li>Thomas Brown , Deutsche Bank AG Private Wealth Management - Global Products and Sources for Real Estate Capital </li></ul><ul><li>Dr. Jürgen Schäfer , MRICS, FERI Finance AG - Direct Investments in German Real Estate </li></ul><ul><li>Gerard de Gunzburg , Macquarie Capital Partners Ltd. - Co-Investing with Specialist Real Estate Operator </li></ul><ul><li>Caspar Noble , Deloitte & Touche LLP - Tax Issues Associated with Real Estate Investment </li></ul><ul><li>Question and answer </li></ul><ul><li>Reception </li></ul>Agenda
    3. 3. <ul><li>1984 - Based in MIT’s School of Architecture and Planning </li></ul><ul><li>With a mission to: </li></ul><ul><ul><li>Improve the global built environment </li></ul></ul><ul><ul><li>Elevate the real estate industry </li></ul></ul><ul><li>Through the means of: </li></ul><ul><ul><li>Educational programs – MSRED </li></ul></ul><ul><ul><li>Research </li></ul></ul><ul><ul><li>Industry outreach </li></ul></ul>MIT Center for Real Estate
    4. 4. Core Values Education Research Industry
    5. 5. Center for Real Estate <ul><li>MSRED </li></ul><ul><ul><li>Core courses, electives, thesis, global orientation </li></ul></ul>
    6. 6. <ul><li>Global real estate investment banking – CS First Boston, Merrill Lynch, Goldman Sachs, Lehman Brothers, Blackstone, Morgan Stanley, JP Morgan, Deutsche Bank </li></ul><ul><li>Real estate investment management – AEW, Taurus Investment Holdings, LLC, GE Capital, RREEF, TA Associates, Lonestar, Colony Capital, Invesco, Fidelity, ING Clarion </li></ul><ul><li>Real estate finance – John Hancock, Sun Life, World Bank, Freddie Mac, Moody’s, KeyBank, Carr Capital, Prudential, HUD, Credit Suisse, Nomura, Bank of America </li></ul><ul><li>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 </li></ul>Recent Employers
    7. 7. <ul><li>Publicly traded companies – Boston Properties, Pro Logis, AMB, Federated, AvalonBay, Equity Office Properties, Regency </li></ul><ul><li>Commercial brokerage – Jones Lang LaSalle, CB Richard Ellis, Cushman and Wakefield, Meredith and Grew, Marcus and Millichap </li></ul><ul><li>Corporate real estate – Dell, Fidelity, Met Life, Boeing, Burger King, Staples </li></ul><ul><li>Non-profit sector – Oakland California Community Housing, Enterprise Foundation, City of Toronto, Urban Redevelopment Authority (Singapore), OMB (NYC) </li></ul>Recent Employers
    8. 8. Center for Real Estate <ul><li>MSRED </li></ul><ul><ul><li>Core courses, electives, thesis, global orientation </li></ul></ul><ul><li>Research </li></ul><ul><ul><li>HAI, CREDL, NCD </li></ul></ul><ul><li>Industry involvement </li></ul><ul><ul><li>Research initiatives, hiring students, advisory board, international outreach, PDC/Executive education, Forums on Issues and Innovations in Real Estate (FIRE) </li></ul></ul>
    9. 9. ‘Catching the FIRE’ Tokyo Beijing Shanghai Hong Kong Stockholm London Paris Berlin Frankfurt Munich San Francisco Los Angeles Chicago New York D.C.
    10. 10. <ul><li>> 750,000 HNWI in Germany </li></ul><ul><li>UHNWI control > $1tn in assets </li></ul><ul><li>Role of real estate in these portfolios? </li></ul>Real Estate and Family Offices
    11. 11. <ul><li>Do I receive appropriate returns? </li></ul><ul><li>What is the risk profile of those returns? </li></ul><ul><li>By adding this asset - will it help my portfolio performance? </li></ul><ul><li>How much hassle is it to ‘play in the space’? </li></ul>Why Real Estate – Why Any Asset?
    12. 12. <ul><li>Will I get my money back? </li></ul><ul><li>Keeping up with inflation? </li></ul><ul><li>Will the asset help my portfolio? </li></ul><ul><li>How do I do it? </li></ul>Fundamental Issues
    13. 13. Capital Preservation? 406 Investment Periods, 11 with Negative Return (2.7%) Year Sold Year Purchased Source: NCREIF Returns: > 10% Returns: 0 - 10% Returns: Negative Bought ’83 – Sold ’86 = 11.60% Avg.
    14. 14. Inflation Protection? (10 year rolling returns)
    15. 15. Inflation Protection? (7 year rolling returns)
    16. 16. Risk/Return Profile (1982 – 2006) 0.66 0.97 1.28 1.36 2.11 CV 17.00 15.74 7.70 6.62 2.51 Std.Dev. 11.20 15.20 9.88 8.98 5.30 Mean SP REIT LGB NCREIF CASH
    17. 17. Cross - Correlation of Return 1.00 -0.13 0.50 0.31 0.09 REIT - 1.00 0.11 0.33 0.01 CASH - - 1.00 0.22 0.12 SP - - - 1.00 -0.18 LGB - - - - 1.00 NCREIF REIT CASH SP LGB NCREIF
    18. 18. Does Real Estate Help Portfolio? 8.14% 9.6% 10.1%
    19. 19. What About Volatility of Real Estate?
    20. 20. Take Away?
    21. 21. Global Real Estate: Why?
    22. 22. What’s Driving Global Real Estate Demand? <ul><li>Weight of domestic capital </li></ul><ul><ul><ul><li>Attractiveness of real estate </li></ul></ul></ul><ul><ul><ul><li>Improving property fundamentals </li></ul></ul></ul><ul><ul><ul><li>Interest rates </li></ul></ul></ul>
    23. 23. Core property types $5 million and greater Source: Real Capital Analytics – an MIT/CRE Partner Surplus of Financial Capital to US Commercial Real Estate
    24. 24. Growth in Foreign Investment in US… Source: Real Capital Analytics – an MIT/CRE Partner
    25. 25. What’s Driving Global Real Estate Demand? <ul><li>Weight of domestic capital </li></ul><ul><ul><ul><li>Attractiveness of real estate </li></ul></ul></ul><ul><ul><ul><li>Improving property fundamentals </li></ul></ul></ul><ul><ul><ul><li>Interest rates </li></ul></ul></ul><ul><li>Search for yield </li></ul><ul><li>Expand opportunity set </li></ul><ul><li>Diversification </li></ul><ul><li>Global economy-customer driven </li></ul>
    26. 26. Global Opportunities <ul><li>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 </li></ul><ul><li>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 </li></ul>Source: UBS Global Asset Management, Real Estate research as at 31 December 2005. This data does not include single-family homes
    27. 27. Expanding REIT Universe: $240 bn -> $650 bn Source: UBS Global Asset Management, Real Estate research
    28. 28. Global Growth in CMBS 1 $11.861 billion priced as of March 31, 2006 Source: Morgan Stanley Estimates, Commercial Mortgage Alert Issuance 1991 – 2006P $Bn 91 93 95 97 99 01 92 94 96 98 00 02 03 04 06P 1 05
    29. 29. Global Challenges <ul><li>Transparency –> ‘comfort’ level </li></ul><ul><li>Emergence of debt markets – f (title/property rights) </li></ul><ul><li>Yield compression </li></ul><ul><li>Local nature of real estate -> partnerships </li></ul><ul><li>Investment segmentation </li></ul><ul><ul><li>Opportunity/hedge funds </li></ul></ul><ul><ul><li>Private equity </li></ul></ul><ul><ul><li>Value added/core plus/core? </li></ul></ul><ul><li>Role of global integration on investment strategy? </li></ul>
    30. 30. How Do I Do It? <ul><li>Equity </li></ul><ul><ul><li>Private: Core, Core Plus, Value Added, Opportunity, Hedge, P/E </li></ul></ul><ul><ul><li>Public: REITs, REOCs, </li></ul></ul><ul><ul><li>OE/CE funds </li></ul></ul><ul><li>Debt: </li></ul><ul><ul><li>Private: CM’s </li></ul></ul><ul><ul><li>Public: CMBS, CDOs </li></ul></ul><ul><li>Derivatives – Swap products </li></ul>
    31. 31. How Does This Relate to Family Offices?