3 Early 1990’s Overbuilding Resolution Trust Corporation -1989 Real Estate Fundamentals Secondary to Tax IncentivesFinancial Institutions Commercial Lending was Suspect
4 Institutional Response to the Early 1990’s – Real Estate Fundamentals Monitor overbuildingUse Real Estate forecasting tools such as Torto Wheaton, REIS and Proprietary ResearchDiversification by Property Type and GeographicallyREITs for diversification and liquidity
5 The Great Recession Real Estate was not immune to the Credit Crisis Real Estate Fundamentals couldn’t withstand the impact of the falling marketLeverage became NegativeCredit availability was significantly reduced as the CMBS market collapsed
6 Real Estate Economic Indicators NCREIF Income vs. AppreciationTypically Income > AppreciationCap Rates vs. 3 month TreasuriesNarrow Spreads indicate Real Estate overpricedCap Rates vs. Ten Year TreasuriesIncreased Real Estate Demand and PricesTen Year Treasury vs. 6 month TreasuriesInverted Yield Curve and narrow spreads are recessionary indicators
7 R. E. Economic Indicators, Cont’d NCREIF Total Return vs. NAREIT Total ReturnNAREIT is a forward indicator for Private Real EstateNAREIT Dividend vs. 10 Year TreasuryTighter Spreads indicate Public Real Estate Overpricing3 month Treasury vs. 3 month LiborTED Spread – Tighter spread indicates banks are eager to lendBaa Bond vs. 10 year TreasuryTighter Spreads indicate easy money for Higher Risk Bonds
9 Conclusions Fighting the Last War – Prepare for the next war Real Estate Fundamentals ResearchReal Estate Economic IndicatorsPREA Ltd Partnership Model ProvisionsBetter Evaluate Investment RiskCoreValue AddOpportunistic
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