Jonathan f.p. rose

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TBLICONFERENCE Europe 2011

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  • SLIDE 25
  • SLIDE 27
  • Jonathan f.p. rose

    1. 1. Green Building Retrofits:Smart Investing, Sustainable SolutionsJonathan F.P. RoseNovember 11, 2011 SMART INVESTING. SMART GROWTH. VALUE CREATION
    2. 2. Jonathan Rose Companies Overview
    3. 3. Jonathan Rose Companies Overview Today’s world is … Volatile Uncertain Complex Ambiguous
    4. 4. Jonathan Rose Companies Megacities
    5. 5. Jonathan Rose Companies Top 600 Cities Top 600 Global Cities 2007 2025 Population 1.5 Billion 2 Billion GDP $30 Trillion $64 Trillion Middle Class 450 Million 750 Million
    6. 6. Jonathan Rose Companies Top 600 Cities The Global 600 Cities Will Change 2007 2025 Developed World 380 250 USA 190 125 % World’s GDP from 73% 34% Developed World and Mega Cities
    7. 7. Jonathan Rose Companies Top 600 Cities Most of these are Cities you may never heard of: Brazil: Forteleza, Manaus, Reclife Africa: Huambo, Casablanca Middle East: Sharjah China: Chengdu, Foshan Xi’an India: Nagpur, Vadodara, Visakhapatnam
    8. 8. Jonathan Rose Companies Overview We are seeking investment opportunities that respond to VUCA conditions Volatile Stable Uncertain Safe Complex Simple Ambiguous Supple
    9. 9. Jonathan Rose Companies Overview The 4 S’s of a Real Estate Investment Strategy • Strong, connected cities Stable • Controlled supply, deep market demand • Focus on cash flow Safe • Appropriate leverage Simple • Clear value proposition • Few dependent factors Supple • Responds to volatile markets • Adapts to changing energy and climate conditions
    10. 10. Jonathan Rose Companies Investment Thesis Two Investment Strategies Affordable Housing Strategy Office Retrofit Strategy • Core-like risk/return • Moderate risk, value-add return • 8-12% net IRR / 11-15% gross IRR • 12-15% net IRR / 15-18% gross IRR
    11. 11. Jonathan Rose Companies Target Markets High cost-of-living, high barrier-to-entry cities: Seattle Portland Boston New York City San Chicago Francisco Denver Washington, DC Los Angeles
    12. 12. Jonathan Rose Companies Investment Thesis Strong cash flow and low-risk returns through green affordable housing. • Affordable housing in the right cities = strong and reliable income • Plentiful supply of low-cost, long-term, non-recourse debt • Green strategies and hands-on asset management reduce/control expenses & lead to strong capital appreciation • Passive resilience provides a hedge against volatile energy prices availability of resources • Target IRR: 8-12% net / 11-15% gross • 4-6% annual cash-on-cash return
    13. 13. Jonathan Rose Companies Investment Thesis Opportunity for strong cash flow and significant capital appreciation through acquisition of high-demand product. • Supply / Demand Imbalance ° High cost-of-living in major urban markets creates affordability burden ° 95%-100% occupancy rates and long tenant waiting lists ° National average vacancy rate in project-based Section 8 < 5% • Steady income stream  access to low-cost, long-term financing
    14. 14. Jonathan Rose Companies Opportunity The Transportation + Housing Affordability Burden 70% 60% 50% 27% 30% 32% 28% 27% 30% 31% 29% 24% 40% 33% 31% 29% 27% 32% 30% 20% 35% 32% 32% 32% 31% 29% 29% 28% 29% 28% 25% 26% 27% 10% 23% 0% % Income Spent on Housing % Income Spent on Transportation* Source: Center for Neighborhood Technology
    15. 15. Jonathan Rose Companies Investment Strategy: Target Product Acquire well-located affordable housing with in-place cash flow Project Types: • Federally subsidized rent contracts (project- based Section 8) • Tax credits leveraging private capital (Low- Income Housing Tax Credit) • Mixed-Income (50/30/20 and 80/20 programs) • Rent Stabilized / Rent Controlled
    16. 16. Jonathan Rose Companies Investment Strategy: Tailored Capital Improvements Implement practical green capital improvements that yield paybacks • High-leverage, low-cost technologies • Grants / incentives that defray costs • Reduced energy costs, reduced R&M costs, reduced environmental impact • Retrofits can yield 25-40% efficiency gains with modest investment** Source: Government Accountability Office
    17. 17. Jonathan Rose Companies Investment Strategy: Active Asset Management Encouraging tenant behavior that reinforces green capital investments and creates sense of community. • Energy Benchmarking • “Living Green” Guides • Smart-Plug Technologies • Tenant Meetings
    18. 18. Jonathan Rose Companies Case Study: 107-145 West 135th Street
    19. 19. Jonathan Rose Companies Case Study: 107-145 West 135th Street Harlem YMCA Public Library Public School Harlem Hospital
    20. 20. Jonathan Rose Companies Case Study: 107-145 West 135th Street Before After
    21. 21. Jonathan Rose Companies Case Study: 107-145 West 135th Street
    22. 22. Jonathan Rose Companies Case Study: 107-145 West 135th Street Project Summary Acquisition Date: 12/22/2008 Purchase Price: $26.5 million Appraised Value: $39.4 million Occupancy: 98% NOI Increase 84%
    23. 23. Jonathan Rose Companies Investment Thesis Class B Office Retrofits = Prime Value-Add Investment • Assets can be acquired at below replacement cost • Potential for high-multiple returns through well-executed capital and leasing programs • Diverse multi-tenant rent rolls that spread risk & preserve cash flow • Hedge against volatile energy prices • Target IRR: 12-15% net / 15-18% gross
    24. 24. Jonathan Rose Companies Opportunity Urban markets outperform suburban markets U.S. Office Vacancy Rates 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 CBD Vacancy Non-CBD Vacancy* Source: Cushman & Wakefield
    25. 25. Jonathan Rose Companies Opportunity Value-add opportunity Market Class A Stabilized Cap Rate Class B Value-Add Cap Rate Boston 6.50% - 7.00% 8.00% - 9.00% Chicago 6.25% - 6.75% 7.75% - 8.25% Denver 6.25% - 7.25% 8.50% - 9.50% Los Angeles 5.50% - 6.50% 7.00% - 8.00% New York City 5.50% - 6.00% 6.50% - 7.50% Philadelphia 6.50% - 7.50% 9.00% - 10.00% Portland 7.50% - 8.50% 9.00% - 10.00% San Francisco 6.00% - 7.00% 7.00% - 7.75% Seattle 6.25% - 7.00% 8.25% - 8.75% Washington, DC 5.50% - 6.25% 7.00% - 8.00%* Source: CBRE
    26. 26. Jonathan Rose Companies Investment Strategy: Target Locations Smart Growth = Smart Investing • Enable businesses to attract top talent • Class A locations for companies seeking downtown amenities at Class B rents • More resilient markets with steadier occupancy
    27. 27. Jonathan Rose Companies Investment Strategy: Target Product Acquire well- located, underperforming office assets • Centrally located Class B buildings • Underperforming assets that offer opportunity for repositioning & rebranding • Frequently with historic elements that can be leveraged to enhance tenant appeal • $15-50 million range
    28. 28. Jonathan Rose Companies Investment Strategy: Repositioning Perform Value-add Repositioning and Rebranding • Strategic building upgrades to enhance appeal ° Competitive leasing advantage • Green retrofit to control operating expenses ° Up to 35% reduction in energy use ° $.50 p.s.f. in cost savings • Green, hands-on asset management ° Reduce turnover ° Drive NOI (growth as high as 76%)
    29. 29. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA
    30. 30. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA Pike Place Market V Benaroya Hall
    31. 31. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA Source: ARUP
    32. 32. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA
    33. 33. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA
    34. 34. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WASource: Effective Design Studio | Francis Zera
    35. 35. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA
    36. 36. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA
    37. 37. Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA AIA SEATTLE WHAT MAKES IT GREEN? 2009 REGIONAL TOP 10 AWARDS
    38. 38. Jonathan Rose Companies Case Study: 107-145 West 135th Street Project Summary Acquisition Date: 4/12/2006 Purchase Price: $23.1 million Improvement Cost: $3.5 million Appraised Values: $25.2 MM, 3/10 $34.5 MM, 1/08 Occupancy: 90% NOI Increase: 36%
    39. 39. Green Building Retrofits:Smart Investing, Sustainable SolutionsJonathan F.P. RoseNovember 11, 2011 SMART INVESTING. SMART GROWTH. VALUE CREATION

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