courtland partners, ltd....2011/06/08 · source: ing reim research as of august 2010 total gross...

Copyright Courtland Partners, Ltd. 2011

Courtland Partners, Ltd.Presentation to:

June 8, 2011

COURTLAND PARTNERS, LTD.

200 Public Square, Suite 2530 10866 Wilshire Blvd., Suite 830 Cleveland, OH 44114 Los Angeles, CA 90024

216.522.0330 310.474.3040

Los Angeles Department of Water and Power Employees’ Retirement Plan

Overview

1

OpportunisticValueCore

• Ground-up development

• International/Emerging Markets

• Significant releasing/ redevelopment risk

• Non-traditional property types/ operating companies

• Distressed investments

• Up to 75% Leverage

• Some releasing/ redevelopment risk

• Domestic and Western Europe

• Traditional property types/mezz investments


• Stabilized Properties

• 5-10% vacancy

• Domestic markets

• Traditional Property types (excluding Hotel)


Risk/Reward: Low (core) to High (opportunistic)

Real Estate Asset Class – Risk/Return

2

3

Commodities

Public REITs

Timber

AgricultureCore Real Estate

Value-added Real Estate

Opportunistic Real Estate

Infrastructure

Stocks

Bonds

Cash

0%

5%

10%

15%

20%

25%

0% 5% 10% 15% 20% 25% 30%

Ret

urn

Risk

Asset Class Risk-Return Spectrum

Note: Core, value, opportunistic, and infrastructure based on Courtland’s forward-looking projections. All other asset classes based on historical date 1Q78 through 4Q2010.

WPERP Real Estate Allocation

4

Investment and Portfolio Risk/Return Ranges1

(for period ended December 31, 2010)

Risk/Return Nominal Net Return

As of12-31-2010

TargetAllocation

PolicyRange

Core 6.0%-8.0% 66.1% 70% 60%-100%

Value 11.0%-13.0% 33.9% 20% 0%-25%

Opportunistic 14.0%-16.0% 0% 10% 0%-15%

Portfolio Mix Targets

Core Core Plus Value Opportunistic

Strategy% of

Portfolio Strategy% of



Portfolio

Core 90% Core 70% Core 50% Core 30%

Value 10% Value 20% Value 20% Value 35%

Oppotun. 0% Opportun. 10% Opportun. 30% Opportun. 35%

Expected Return: 7.5% Expected Return: 8.8% Expected Return: 10.4% Expected Return: 11.6%

Unlevered Return Forecasts

5Source: ING REIM Research as of August 2010

Total Gross Unlevered Return Forecasts 2011-2014 (Per Annum)Average Annual 4-Year Core Unleveraged

Total Return Forecasts 2011-14 %pa

Region Date of Forecast Retail Industrial Office Residential

Asia (ex: Japan) Q2 2010 10.3% 10.9% 6.2% 6.7%

Japan Q2 2010 9.6% 8.9% 10.9% 9.2%

Australia Q2 2010 10.4% 11.5% 12.4% N/A

Continental Europe Q2 2010 9.9% 9.6% 10.1% 7.7%

United Kingdom Q2 2010 8.0% 7.2% 8.4% 5.7%

Canada Q2 2010 10.3% 10.0% 8.3% 8.3%

United States Q2 2010 10.8% 13.7% 15.2% 10.0%

United States 1995-1999 7.9% 13.9% 14.0% 12.4%

WPERP Market Values & Investment Review

6

SUMMARY OF PORTFOLIO RISK/RETURN PROFILEWeighted by

Market Value Market Value plus Unfunded Commitments

Core66.1%

Value33.9%

Core57.7%

Value42.4%

RISK/RETURN REVIEW - MARKET VALUES AND INVESTMENT COMMITMENTS(for period ended December 31, 2010)

Investment Commitments SummaryClient

Market Value % of Port.Original Inv. Remaining Unfund. % of Current and

Investments Incept. Commitment Commitment Unfunded Port.Core $ 77,077,797 66.1% $ 100,000,000 $ - 57.7%JP Morgan SPF 10/07 $ 38,498,277 33.0% $ 50,000,000 $ - 28.8%PRISA 12/06 $ 38,579,519 33.1% $ 50,000,000 $ - 28.9%Value $ 39,568,004 33.9% $ 61,500,000 $ 17,046,304 42.4%CBRE SP V 6/08 $ 16,968,025 14.6% $ 20,000,000 $ 4,086,658 15.8%Mesa West RE Income II 1/10 $ 6,794,783 5.8% $ 20,000,000 $ 12,959,646 14.8%PRISA II 6/07 $ 15,805,197 13.6% $ 21,500,000 $ - 11.8%Total Portfolio $ 116,645,801 100.0% $ 161,500,000 $ 17,046,304 100.0%

Note: $268 million under allocated as of December 31, 2010.

7

Real Estate Asset Class – Property Types

Traditional property types Office Retail Residential (apartments) Industrial Hotel

Non-traditional property types Infrastructure Timber Senior housing Student housing Self-storage Structured finance (mezzanine loans)

WPERP Property Type Diversification

Office43.8%

Industrial9.5%

Retail15.2%

Resid'l23.3%

Hotel5.0%

Land1.1%

Other5.3% 43.8%

9.5%

15.2%

23.3%

5.0%

1.1%

5.3%

34.4%

14.1%

24.4% 24.8%

2.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Office Industrial Retail Resid'l Hotel Land Other

LA WPERP NCREIF

(For period ended December 31, 2010)

8

WPERP Geographic Diversification

9

East34.1%

Midwest5.9%

South23.6%

West35.8%

US Not Allocated0.6%

34.1%

5.9%

23.6%

35.8%

0.6%

33.2%

10.5%

22.4%

33.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

East Midwest South West US Not Allocated

LA WPERP NCREIF

(For period ended December 31, 2010)

Issues Regarding Leverage

10

Leverage is the process of borrowing capital for (an investment/property), expecting the profits made to be greater than the interest payable. Leverage is a magnifier of returns, both positive and negative returns.

Positives Negatives

Low fixed interest rate High floating interest rate

Low fees High fees

Nonrecourse debt Recourse debt

Covenants (e.g., debt service coverage) No covenants/limited covenants

No prepayment penalty/flexibility Prepayment penalty/inflexibility

Income vs. Treasury Yields

11

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

NPI Income NAREIT Equity Dividend Yield 10-Year Treasury

WPERP Leverage

12

INVESTMENT LEVERAGE REVIEW(for period ended December 31, 2010)

Investment Market Value LeverageMesa West RE Income II Value $6,794,783 56.4%PRISA II Value $15,805,197 49.5%CBRE SP V Value $16,968,025 44.0%JP Morgan SPF Core $38,498,277 29.3%PRISA Core $38,579,519 28.1%

* Core $77,077,797 28.7%* Value $39,568,004 48.3%* Total $116,645,801 35.4%

LEVERAGE GUIDELINE TARGET

RISK/Return Category RANGE

Core Up to 40%

Value Add Up to 65%

Opportunistic Up to 75%

Total Real Estate Portfolio Up to 50%

*Based on Market Values

Liquidity and Control

13

Structure Advantages Concerns

PRIVATE POOLEDFUNDS(TRADITIONAL OPEN-END FUNDS)

Revised structures enable smaller non-institutional investors Existing or specified portfolios Historical return performance Core to Core+ strategy Management organizations and familiarity with

assets Right to redeem

Current value of assets Lack of investor control Potential illiquidity Fee structures Alignment of interests Reasonableness of values (appraisal-based) Manager/ownership changes

PRIVATE POOLEDFUNDS(VALUE ANDOPPORTUNISTICCLOSED-END FUNDS)

Finite life Incentive fees Manager co-investment Preferred returns Total return hurdle

Non-traditional property types Manager conflicts Manager organization Investment allocation issues Style creep

PUBLIC REITS ANDREOCS

Total return Dividend yields Liquidity Alignment of interests Cost of REIT management Growth of larger REITs

Actual liquidity Stock or real estate Manager talent Depth of market in certain property types

PRIVATE SEPARATEACCOUNTS

Control (manager, sell/hold) Incentive fees Exit strategies (portfolio sales, asset/stock

swaps) Valuation control Platform or REOC investing Joint Ventures

Requires large allocation ($100 Mil.+) Manager conflicts (asset allocation) Manager deal flow Property management conflicts Capturing manager value Staffing and oversight

Definitions

14

• NAV, Net Asset Value, current value of equity, net of debt. Based on updated appraisal value.

• Contribution, committed capital called by General Partners

• Distribution, proportion of the called up capital that has been returned back to the Limited Partners

• NCREIF index (Private Equity Real Estate Benchmark), is a quarterly time series composite total return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only.

•Net Operating Income, gross revenue less operating expenses.

•Capitalization rates, provide a tool for real estate investors to use for roughly valuing a property based on its Net Operating Income.

Capitalization Rate = Annual Net Operating Income

Cost (or value)

Portfolio Construction

15

Asset Class Correlations

16

Infla

tion

(CPI

)

Stoc

ks

Bond

s

U.S

. Gov

t. Bo

nds

High

Yie

ld C

orp

Bond

s

TIPS

Com

mod

ities

Publ

ic RE

ITs

NCR

EIF

Tim

ber

Farm

land

Infr

astr

uctu

re

Inflation (CPI) 1.00 0.12 -0.21 -0.33 -0.03 0.48 0.31 0.15 0.41 0.24 0.06 0.71

Stocks 1.00 0.24 0.00 0.66 -0.04 0.18 0.51 0.14 0.08 -0.13 0.89

Bonds 1.00 0.84 0.26 0.61 -0.08 0.13 -0.14 -0.37 -0.38 -0.20

U.S. Govt. Bonds 1.00 -0.15 0.01 -0.17 -0.09 -0.05 -0.18 -0.14 -0.79

High Yield Corp Bonds 1.00 0.32 0.01 0.69 -0.37 -0.14 -0.28 0.72

TIPS 1.00 0.59 0.32 -0.10 -0.38 -0.41 0.55

Commodities 1.00 0.22 0.20 0.27 0.12 0.67

Public REITs 1.00 0.13 -0.09 -0.20 0.85

NCREIF 1.00 0.01 0.11 0.31

Timber 1.00 0.41 -0.07

Farmland 1.00 0.08

Infrastructure 1.00

Note: Table based on return correlations from 1Q78-4Q210, with exception of TIPS (1Q98-4Q2010) and high yield (1Q84-4Q2010).

Inflation Protection – Correlation Analysis

17

Asset Classes: Stocks (S&P 500 Index), Bonds (Barclays U.S. Aggregate Bond Index), Long-Term Government Bonds (Ibbotson Long-Term Govt. Bond Index), Commodities (S&P GSCI Commodity Index), Public Real Estate (NAREIT Equity REIT Index), Private Real Estate (NCREIF All Property Index), Timber (Hancock Timber Resource Group 1978-1986, NCREIF 1987-2010)

Source: Ibbotson, Barclays, NAREIF, NCREIF, Hancock Timber Resources Group

Correlation Asset Total Returns to Inflation (1Q 1978 through 4Q 2010)

*Note: Farmland correlation is for the time period 1970-2010 (Hancock Broad Farmland Index 1970-1990; NCREIF Farmland Index 1991-2010)

0.12

-0.21

-0.33

0.31

0.15

0.41

0.24

0.37

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

Stocks Bonds Long-Term Govt Bonds

Commodities Public Real Estate

Private Real Estate

Timber Farmland*

Private Real Estate Returns During Inflationary Periods

18

Inflationary Period Private Real Estate Nominal Returns Consumer Price Index Private Real Estate

Real ReturnsLow Inflation 8.5% 1.4% 7.1%

Moderate Inflation 6.8% 3.1% 3.7%

High Inflation 12.6% 7.1% 5.5%

Real Estate Comparison Period 1978-2010

Inflationary Period TimberNominal Returns Consumer Price Index Timber




Inflationary Period Farmland Nominal Returns Consumer Price Index Farmland




Timber Comparison Period 1960-2010

Farmland Comparison Period 1970-2010

High Inflation = CPI 4% and aboveModerate Inflation = CPI between 2% and 4%Low Inflation = CPI less than 2%Long-term average inflation rate 4.0% Source: NCREIF, Hancock Timber Resource Group, Bureau of Labor Statistics, Courtland Partners

Investment Pacing – (Bristol SA)Value Fund

19

0%

2%

4%

6%

8%

10%

12%

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

Dec

-93…

Jun-

94…

Dec

-94…

Jun-

95…

Dec

-95…

Jun-

96…

Dec

-96…

Jun-

97…

Dec

-97…

Jun-

98…

Dec

-98…

Jun-

99…

Dec

-99…

Jun-

00…

Dec

-00…

Jun-

01…

Dec

-01…

Jun-

02…

Dec

-02…

Jun-

03…

Dec

-03…

Jun-

04…

Dec

-04…

Jun-

05…

Dec

-05…

Jun-

06…

Dec

-06…

Jun-

07…

Dec

-07…

Jun-

08…

Dec

-08…

Jun-

09…

Dec

-09…

Jun-

10…

Acquisitions Disposition Cap Rate Avg +1 std dev -1 std dev +2 std dev -2 std dev

Acq

uisi

tions

and

Dis

posi

tions

($00

0)

Cap

Rat

e

Investment Pacing – (Lone Star IV) Opportunity Fund

20

0%

2%

4%

6%

8%

10%

12%

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

Mar

-00

Jul-0

0N

ov-0

0M

ar-0

1Ju

l-01

Nov

-01

Mar

-02

Jul-0

2N

ov-0

2M

ar-0

3Ju

l-03

Nov

-03

Mar

-04

Jul-0

4N

ov-0

4M

ar-0

5Ju

l-05

Nov

-05

Mar

-06

Jul-0

6N

ov-0

6M

ar-0

7Ju

l-07

Nov

-07

Mar

-08

Jul-0

8N

ov-0

8M

ar-0

9Ju

l-09

Nov

-09

Mar

-10

Jul-1

0N

ov-1

0

Contributions ROC & Dist Cap Rate LT Avg Cap Rate +1 Std Dev -1 Std Dev +2 Std Dev -2 Std Dev

Acq

uisi

tions

and

Dis

posi

tions

($00

0)

Cap

Rat

e

Distributions

Approved 2011 Strategic Plan

21

Note: Estimated plan assets and over/under allocation based on assumed 7.75% total portfolio-level growth rate.

2010 2011 2012 2013 2014Mkt. Value Mkt. Value Mkt. Value Mkt. Value Mkt. Value

Core: JP Morgan SPF 38,498,278 38,498,278 38,498,278 38,498,278 38,498,278 Invesco Core Real Estate Fund 0 35,000,000 35,000,000 35,000,000 35,000,000 Prudential PRISA 38,579,519 38,579,519 38,579,519 38,579,519 38,579,519

Total 77,077,797 112,077,797 112,077,797 112,077,797 112,077,797 66% 66% 61% 64% 72%

Value: Bristol Value Fund II 0 7,500,000 17,500,000 25,000,000 25,000,000 Mesa West RE Income II 6,794,783 10,021,104 10,921,104 8,521,104 2,121,104 Prudential PRISA II 15,805,196 15,805,196 15,805,196 15,805,196 15,805,196 CBRE Strategic Partners Value 5 16,968,000 18,595,000 16,553,000 4,240,000 0

Total 39,567,979 51,921,300 60,779,300 53,566,300 42,926,300 34% 30% 33% 31% 28%

Opportunistic: Lone Star Fund VII 0 3,162,792 5,512,576 4,333,948 22,620Lone Star REF II 0 3,226,188 5,635,666 4,503,371 0

Total - 6,388,980 11,148,242 8,837,319 22,620 0% 4% 6% 5% 0%

Total Real Estate 116,645,776 170,388,077 184,005,339 174,481,416 155,026,717 % of Plan Assets 1.5% 2.1% 2.1% 1.8% 1.5%

Plan Assets (7.75% Growth) 7,690,137,324 8,286,122,967 8,928,297,497 9,620,240,553 10,365,809,195

Over/Under Funded (267,861,090) (243,918,071) (262,409,536) (306,530,612) (363,263,743)


22

2010 2011 2012 2013 2014Mkt. Value Mkt. Value Mkt. Value Mkt. Value Mkt. Value

Core: JP Morgan SPF 38,498,278 38,498,278 38,498,278 38,498,278 38,498,278Invesco Core Real Estate Fund 0 35,000,000 35,000,000 35,000,000 35,000,000Prudential PRISA 38,579,519 38,579,519 38,579,519 38,579,519 38,579,5192011 Allocation 50,000,000 50,000,000 50,000,000 50,000,0002012 Allocation 85,000,000 85,000,000 85,000,0002013 Allocation 60,000,000 60,000,0002014 Allocation 65,000,000

Total 77,077,797 162,077,797 247,077,797 307,077,797 372,077,797 66% 61% 61% 65% 72%

Value: Bristol Value Fund II 0 7,500,000 17,500,000 25,000,000 25,000,000Mesa West RE Income II 6,794,783 10,021,104 10,921,104 8,521,104 2,121,104Prudential PRISA II 15,805,196 15,805,196 15,805,196 15,805,196 15,805,196CBRE Strategic Partners Value 5 16,968,000 18,595,000 16,553,000 4,240,000 02011 Allocation 23,000,000 23,000,000 23,000,000 23,000,0002012 Allocation 22,000,000 22,000,000 22,000,0002013 Allocation 12,000,000 12,000,000

Total 39,567,979 74,921,300 105,779,300 110,566,300 99,926,300 34% 28% 26% 24% 19%

Opportunistic: Lone Star Fund VII 0 3,162,792 5,512,576 4,333,948 22,620Lone Star REF II 0 3,226,188 5,635,666 4,503,371 02011 Allocation 22,000,000 22,000,000 22,000,000 22,000,0002012 Allocation 22,000,000 22,000,000 22,000,000

Total 0 28,388,980 55,148,242 52,837,319 44,022,6200% 11% 14% 11% 9%

Total Real Estate 116,645,776 265,388,077 408,005,339 470,481,416 516,026,717 % of Plan Assets 1.5% 3.2% 4.6% 4.9% 5.0%

Plan Assets (7.75% Growth) 7,690,137,324 8,286,122,967 8,928,297,497 9,620,240,553 10,365,809,195

Over/Under Funded (267,861,090) (148,918,071) (38,409,536) (10,530,612) (2,263,743)

Note: Estimated plan assets and over/under allocation based on assumed 7.75% total portfolio-level growth rate.


23

2011 2012 2013 2014 Total

Funded Committed Funded Committed Funded Committed Funded Committed Funded Committed

Core $50,000,000 $50,000,000 $85,000,000 $85,000,000 $60,000,000 $60,000,000 $65,000,000 $65,000,000 $260,000,000 $260,000,000

Value $23,000,000 $26,450,000 $22,000,000 $25,300,000 $12,000,000 $13,800,000 $0 $0 $57,000,000 $65,550,000

Opportunistic $22,000,000 $27,500,000 $22,000,000 $27,500,000 $0 $0 $0 $0 $44,000,000 $55,000,000

Total Funded/Committed $95,000,000 $103,950,000 $129,000,000 $137,800,000 $72,000,000 $73,800,000 $65,000,000 $65,000,000 $361,000,000 $380,550,000

Total Real Estate $265,388,077 $408,005,339 $470,481,416 $516,026,717

WPERP Total Portfolio $8,286,122,967 $8,928,297,497 $9,620,240,553 $10,365,809,195

% of WPERP Portfolio 3.2% 4.6% 4.9% 5.0%

To Fund: To Commit:Core $260,000,000 $260,000,000Value $57,000,000 $65,550,000Opportunistic $44,000,000 $55,000,000Total Funded $361,000,000 $380,550,000

Total Allocations to Fund/Commit:

2011 Strategy Implementation/Action Plan

24

Action plan for 2011:

Commit $50 million to core real estate in 2011

Additional allocation beyond Invesco allocation, which will be called in mid 2011

Further commitment to core will need to be monitored closely due to cash flowing into core class;

Commit $20-25 million to value investments;

Commit $20-25 million to opportunistic investment;

Potentially fund dedicated international manager within opportunistic space.

Continue to evaluate distressed debt and equity opportunities.

Real Estate Market Conditions

25

Source: RealtyTrac; March 2011

U.S. Foreclosure Activity – 1Q2011

26

Top 10 Metro Areas with the Highest Foreclosure Rates 1Q2010 vs. 1Q2011

Note: The Foreclosure Heat Map is for the month of February 2011

1Q2010 % HouseholdsMetro Area, State in Foreclosure

Las Vegas-Paradise, NV 3.51Modesto, CA 2.93Cape Coral-Fort Myers, FL 2.82Riverside-San Bernardino-Ontario, CA 2.81Stockton, CA 2.77Merced, CA 2.76Phoenix-Mesa-Scottsdale, AZ 2.63Vallejo-Fairfield, CA 2.41Bakersfield, CA 2.33Orlando-Kissimmee, FL 2.30

1Q2011 % HouseholdsMetro Area, State in Foreclosure

Las Vegas-Paradise, NV 3.21Modesto, CA 2.17Stockton, CA 2.11Phoenix-Mesa-Scottsdale, AZ 2.10Vallejo-Fairfield, CA 2.06Riverside-San Bernardino, CA 2.04Merced, CA 1.91Reno-Sparks, NV 1.84Bakersfield, CA 1.72Fresno, CA 1.61

Cap Rates

Vacancy Rates

U.S. Net Capital Flows

Income vs. Treasury Yields

Source: LaSalle Investment Management

Cap Rates, Vacancy, Flows & Yields

27 Source: NAREIT, NCREIF; As of March 31, 2011

4%

5%

6%

7%

8%

9%

10%

11%

12%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Apartment Retail Industrial Office

0%2%4%6%8%

10%12%14%16%18%20%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Apartment Retail Industrial Office

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

NPI Income NAREIT Equity Dividend Yield 10-Year Treasury

U.S. Cap Rates and Spreads

28Source: NCREIF; As of March 31, 2011

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Spread Long-Term Average

NPI Cap Rate less 10-Yr U.S. Treas

1Q11 Avg. CRE Cap Rate: 7.0%1Q11 Avg. U.S.T. 10-Yr.: 3.5%

Current Spread: +354 bpsHigh Spread: +538 bpsLow Spread: -606 pbsAverage Spread: +173 bps

NCREIF All Property Cap Rates NAREIT Equity Index Dividend Yields

Private/Public Real Estate Buy/Sell Periods

29

Source: NCREIF, NAREIT, Courtland Partners, Ltd

NCREIF data as of March 31, 2011 NAREIT data as of March 31, 2011

4%

5%

6%

7%

8%

9%

10%

11%

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

5.37%1Q08

6.95%1Q10

8.64%1Q02

9.78%2Q95

6.32%4Q89

Average: 7.57%Standard Deviation: 1.05%Green Line: One Standard DeviationYellow Line: Two Standard Deviations

6.1%1Q11

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

Average: 7.22%Standard Deviation: 1.73%Green Line: One Standard DeviationYellow Line: Two Standard Deviations

13.07%May-74

11.12%Oct-90

5.85%Sep-93 5.45%

Sep-97

3.40%Jan-07 3.48%

Mar-11

10.08%Feb-09

Global Real Estate Securities Regional Performance

30

EPRA Index Performance (rebased to 100)January 1, 1990 – March 31, 2011

Source: EPRA/NAREIT

0

200

400

600

800

1,000

1,200

1,400

1,600

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Asia Europe North America Global

`

-67.70% Asia-71.56% Europe-69.12% North America-67.25% Global

Peak to Trough:111.56% Asia110.50% Europe174.19% North America136.13% Global

Trough to Current:

Debt Market Conditions

31

CRE Mortgage Debt Maturing & Outstanding

32Source: Mortgage Bankers Association, Trepp, Federal Reserve Flow of Funds and KBW Research

0%

5%

10%

15%

20%

25%

30%

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 201

y

Commercial & Multifamily Mortgage Debt % GDP Long-Term Average

Commercial & Multifamily Mortgage Debt Outstanding as % of GDP

Adjustable Rate Mortgage Reset Schedule ($ bil.)

Source: S&P Case-Shiller Index; February 2011

Home Price Percentage Decline From Market Peak

Source: Credit Suisse

Source: CMSA, JPMorgan, LoanPerformance, Trepp, Inc.

Residential Delinquencies by Loan NumberDelinquency Rates: Residential vs. Commercial (60+ day)

Mortgage Resets, Delinquencies, Home Prices

33

Source: MBA National Delinquency Survey, CMSA

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%

Composite-20

Composite-10

Las Vegas

Phoenix

Miami

Detroit

Tampa

San Francisco

Los Angeles

San Diego

Minneapolis

Chicago

Seattle

Portland

Washington

Atlanta

New York

Cleveland

Charlotte

Boston

Denver

Dallas

S&P Case-Shiller Home Prices

Annual CMBS Issuance (US$ bil.)

Source: Commercial Mortgage Alert, CMSA

CMBS Issuance & Spreads

Source: JPMorgan as of March 31, 201134

• A flight to quality has greatly reduced liquidity for allasset-backed paper.

• The collapse in investor demand has caused CMBSspreads to widen dramatically across the risk spectrum.

• CMBS issuance is down more than 90% from 2007peak levels.

• CMBS issuance is projected to total $40-$60 billion in2011, up substantially from $10 billion in 2010.

• AAA CMBS spreads are back to pre-Lehman levels.

$0

$50

$100

$150

$200

$250

$300

$350

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Non-U.S.

U.S.

AAA Rated AA Rated A Rated06-07 94 116 13807-07 129 169 18908-07 125 210 28509-07 113 188 25310-07 128 224 31411-07 170 300 45012-07 146 309 46401-08 222 513 71302-08 305 820 1,02003-08 270 915 1,14004-08 224 662 76205-08 203 665 79006-08 270 695 97007-08 311 796 1,19608-08 358 968 1,66809-08 467 1,067 1,66710-08 639 1,649 2,14911-08 1,085 4,120 4,92012-08 910 4,235 5,03501-09 1,173 4,423 5,12302-09 1,181 4,631 5,33103-09 944 4,619 5,31904-09 761 4,981 6,44105-09 719 3,739 4,80906-09 726 4,147 5,17207-09 654 3,504 4,37908-09 671 3,267 3,99709-09 595 2,965 3,41010-09 567 2,707 3,08211-09 630 2,890 3,31012-09 513 3,188 3,71301-10 502 3,232 3,75202-10 478 3,258 3,78303-10 373 3,238 3,76304-10 300 2,875 3,40005-10 414 3,129 3,59406-10 381 3,137 3,60207-10 344 3,189 3,65408-10 331 2,766 3,33009-10 316 2,716 3,36110-10 323 2,219 2,99811-10 310 2,150 2,99012-10 254 1,729 2,36401-11 225 1,355 1,93002-11 197 1,062 1,49703-11 206 1,226 1,710

CMBS Spreads to 10-Yr Treasury

REIT Metrics

35

REIT Metrics

36

Source: FTSE EPRA/NAREIT

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Global Dividend Yield

Global Dividend Yield Long Term Avg 1 std dev 1-std dev 2 std dev 2-std dev

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Global Premium/Discount to NAV

Premium/Discount Average +1 std dev -1 std dev +2 std dev -2 std dev

7

9

11

13

15

17

19

21

23

25

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Global FFO Multiple

FFO Multiple Average +1 std dev -1 std dev +2 std dev -2 std dev

5%

6%

7%

8%

9%

10%

11%

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

U.S. Capitalization Rate

Capitalization Rate Average +1 std dev -1 std dev +2 std dev -2 std dev

Madison Sullivan Debt Fund Re-Cap

37

MRC/Sullivan Debt Fund

38

Quasi-Distressed Debt Fund Execute bridge loan financing on capital-constrained

properties Invest in/dispose of mortgages written by third-parties Value add: first mortgage Opportunistic: distressed purchases $300 million of equity with 1.0x-2.0x leverage

Geographic Focus New York City New England Mid Atlantic


39

Pros of Investment Size of market opportunity for undercapitalized properties Senior position of fund’s capital structure Floating rate transactions hedge against increases in interest

rates/inflation Smaller, off-market transactions Opportunity for strong risk-adjusted returns

Cons of Investment Young management team Concentrated geographic focus Quality of properties Requirement for recovery in real estate market


40

Transaction February 2010 First mortgage loan on 53-unit apartment buildings purchased

from Citibank at 82 cents on the dollar Quality collateral but borrower default due to other financial

issues Structured transaction with borrower to provide for preferred

return to fund with 40% backend participation Madison now in control of property with borrower as JV

partner Increased rents and now in position to finance out all equity Plan is to convert units to condo units and sell within 2 years Projected IRR: 32.6%; projected multiple: 3.0x over five-year

holding period

Transaction detail/MRC

41

Transaction June 2010 and exited March 2011 Defaulted note purchase transaction First Mortgage loan on mixed-use properties comprised of 335 residential apartments with retail space. Quality Collateral but borrower default due to other financial obligations. Debt yield 10.12% Borrower sold 11 properties in Jan 2011 and refinanced the other 4 properties in March. Actual IRR: 112.13% over 8.5 year holding period Equity multiple 1.73x

Transaction detail/MRC

42

Transaction March 2011 New loan origination Loan Amount $22,500,000, first mortgage construction loan. 80% complete mixed use development comprised of residential, medical office, community facility and valet parking spaces. Borrower came to MRC to recapitalize The underwritten net sellout of the project is $43,990,000, or $504/sf. vs. MRC’s lending basis of $258/sf. Projected levered IRR: 26.6% over 21 months holding period Equity multiple 1.53x

courtland partners, ltd....2011/06/08 · source: ing reim research as of august 2010 total gross...

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