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“Fighting the Last War” Counselors of Real Estate May 25, 2010

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Presentation on theme: "“Fighting the Last War” Counselors of Real Estate May 25, 2010"— Presentation transcript:

1 “Fighting the Last War” Counselors of Real Estate May 25, 2010
Devon W. Olson, CRE, MAI Director – Real Estate Utah Retirement Systems


3 Early 1990’s Overbuilding Resolution Trust Corporation -1989
Real Estate Fundamentals Secondary to Tax Incentives Financial Institutions Commercial Lending was Suspect

4 Institutional Response to the Early 1990’s – Real Estate Fundamentals
Monitor overbuilding Use Real Estate forecasting tools such as Torto Wheaton, REIS and Proprietary Research Diversification by Property Type and Geographically REITs 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 market Leverage became Negative Credit availability was significantly reduced as the CMBS market collapsed

6 Real Estate Economic Indicators
NCREIF Income vs. Appreciation Typically Income > Appreciation Cap Rates vs. 3 month Treasuries Narrow Spreads indicate Real Estate overpriced Cap Rates vs. Ten Year Treasuries Increased Real Estate Demand and Prices Ten Year Treasury vs. 6 month Treasuries Inverted Yield Curve and narrow spreads are recessionary indicators

7 R. E. Economic Indicators, Cont’d
NCREIF Total Return vs. NAREIT Total Return NAREIT is a forward indicator for Private Real Estate NAREIT Dividend vs. 10 Year Treasury Tighter Spreads indicate Public Real Estate Overpricing 3 month Treasury vs. 3 month Libor TED Spread – Tighter spread indicates banks are eager to lend Baa Bond vs. 10 year Treasury Tighter Spreads indicate easy money for Higher Risk Bonds


9 Conclusions Fighting the Last War – Prepare for the next war
Real Estate Fundamentals Research Real Estate Economic Indicators PREA Ltd Partnership Model Provisions Better Evaluate Investment Risk Core Value Add Opportunistic

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