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The Role Of Real Estate In The Family Office Portfolio

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. Agenda.

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The Role Of Real Estate In The Family Office Portfolio

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  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 CENTER FOR REAL ESTATE

  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 CENTER FOR REAL ESTATE

  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 CENTER FOR REAL ESTATE

  4. Core Values Education Research Industry CENTER FOR REAL ESTATE

  5. Center for Real Estate • MSRED • Core courses, electives, thesis, global orientation CENTER FOR REAL ESTATE

  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 REAL ESTATE

  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) CENTER FOR REAL ESTATE

  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) CENTER FOR REAL ESTATE

  9. ‘Catching the FIRE’ Stockholm London Berlin Beijing Chicago Frankfurt Paris Tokyo New York Hong Kong Munich San Francisco D.C. Shanghai Los Angeles CENTER FOR REAL ESTATE

  10. Real Estate and Family Offices • > 750,000 HNWI in Germany • UHNWI control > $1tn in assets • Role of real estate in these portfolios? CENTER FOR REAL ESTATE

  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’? CENTER FOR REAL ESTATE

  12. Fundamental Issues • Will I get my money back? • Keeping up with inflation? • Will the asset help my portfolio? • How do I do it? CENTER FOR REAL ESTATE

  13. Capital Preservation?406 Investment Periods, 11 with Negative Return (2.7%) Bought ’83 – Sold ’86 = 11.60% Avg. Returns: > 10% Year Sold Returns: 0 - 10% Returns: Negative Source: NCREIF Year Purchased CENTER FOR REAL ESTATE

  14. Inflation Protection?(10 year rolling returns) CENTER FOR REAL ESTATE

  15. Inflation Protection?(7 year rolling returns) CENTER FOR REAL ESTATE

  16. Risk/Return Profile(1982 – 2006) CENTER FOR REAL ESTATE

  17. Cross - Correlation of Return CENTER FOR REAL ESTATE

  18. Does Real Estate Help Portfolio? 10.1% 9.6% 8.14% CENTER FOR REAL ESTATE

  19. What About Volatility of Real Estate? CENTER FOR REAL ESTATE

  20. Take Away? CENTER FOR REAL ESTATE

  21. Global Real Estate: Why? CENTER FOR REAL ESTATE

  22. Weight of domestic capital Attractiveness of real estate Improving property fundamentals Interest rates What’s Driving Global Real Estate Demand? CENTER FOR REAL ESTATE

  23. Surplus of Financial Capital to US Commercial Real Estate Core property types $5 million and greater CENTER FOR REAL ESTATE Source: Real Capital Analytics – an MIT/CRE Partner

  24. Growth in Foreign Investment in US… CENTER FOR REAL ESTATE Source: Real Capital Analytics – an MIT/CRE Partner

  25. Weight of domestic capital Attractiveness of real estate Improving property fundamentals Interest rates Search for yield Expand opportunity set Diversification Global economy-customer driven What’s Driving Global Real Estate Demand? CENTER FOR REAL ESTATE

  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 Source: UBS Global Asset Management, Real Estate research as at 31 December 2005. This data does not include single-family homes CENTER FOR REAL ESTATE

  27. Expanding REIT Universe: $240 bn -> $650 bn CENTER FOR REAL ESTATE Source: UBS Global Asset Management, Real Estate research

  28. Global Growth in CMBS Issuance 1991 – 2006P $Bn 91 92 93 94 95 96 97 98 99 00 01 02 03 04 06P1 05 1$11.861 billion priced as of March 31, 2006 Source: Morgan Stanley Estimates, Commercial Mortgage Alert CENTER FOR REAL ESTATE

  29. 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? Global Challenges CENTER FOR REAL ESTATE

  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 CENTER FOR REAL ESTATE

  31. How Does This Relate to Family Offices? CENTER FOR REAL ESTATE

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