2. © 2002 Society of Industrial and Office REALTORS® INVESTMENT REAL ESTATE in the 21 st Century ROBERT J. NAHIGIAN, SIOR, CRE AUBURNDALE REALTY CO. NEWTON, MASS.

3. © 2002 Society of Industrial and Office REALTORS® Why Real Estate? Why do people invest in real estate? TO MAKE MONEY? Really?

4. © 2002 Society of Industrial and Office REALTORS® AVERAGE MILLIONAIRE MILLIONAIRES BET. $1-10 MILL AVERAGE INCOME: $120,000 MANY BETWEEN: $50-75,000 Source: Money Fall 2002, Millionaire Next Door/

5. © 2002 Society of Industrial and Office REALTORS® Wealth Building Biggest Consumption Category Income Taxes Lifestyle

6. © 2002 Society of Industrial and Office REALTORS® Wealth Building Income Taxes IncomeFederal EarnersRevenues 1%= 31% 5%= 53% 50%= 96% Source: Wall St. Journal 2/28/00

7. © 2002 Society of Industrial and Office REALTORS® Wealth Building Lifestyle Feds36%  39.1% State5 - 7 % Self-Employment$ Medicaid$ Deduction Phaseouts$___________  60%/92%

8. © 2002 Society of Industrial and Office REALTORS® US WEALTHY PROFILE U.S. TOP 5% EARNED = 22.4% OF 2001 INCOME U.S. HIGHEST SINCE 1967 2001 MIDDLE-INCOME = 14.6% Soiurce: Boston Globe, 7/6/03

9. © 2002 Society of Industrial and Office REALTORS® STATE 2000 INC. TAXES NY RES. EARNING $200,000+ = 50+% OF STATE PERSNL TAXES NY TAXES = 7.5% FOR $100,000 CA. 44,000 MM = 1/3 OF TAXES CT. WANTS MM TAX = 5.9% Barrons: May 19, 2003

10. © 2002 Society of Industrial and Office REALTORS® BUILDING WEALTH INCOME IS NOT WEALTH BEING RICH IS NOT BEING WEALTHY CONSUMPTION vs. ACCUMULATION

11. © 2002 Society of Industrial and Office REALTORS® Investing Discretionary Income (Surplus) Placing It/ Commodity Future Consumption

12. © 2002 Society of Industrial and Office REALTORS® Returns Double Your Investment 2/10 Rule 14 7/8 % compounded

13. © 2002 Society of Industrial and Office REALTORS® Investing Savings Rate U.S.: 2000- 1.3% LBYM U.S.: 2002 3.9% Japan 20% = $117,000 China 40% = $1 Trillion Your Client: MM 15-20% Minimum Source: Barron’s 5/28/01; US New 2/10/03; 3/24/03;

14. © 2002 Society of Industrial and Office REALTORS® WHO OWNS THE WEALTH? 2002 U.S. Average Credit Card Debt: $9,000 65 and Older Aver. CC Debt Since 1992 = $23,000 Wealthiest 10% Own 90% of U.S. Financial Assets Source: Smart Money Oct. 2001/U.S. News 6/3/02/RERC 2003

15. © 2002 Society of Industrial and Office REALTORS® WHO OWNS THE WEALTH? Elderly Own $4-42 Trillion Average American has 40% Assets in R.E. BabyBoomers have More Worth at Their Age and 73% own investments

16. © 2002 Society of Industrial and Office REALTORS® WHO OWNS THE WEALTH? 99.4% of U.S. Businesses are Small: Less than 20 Workers They produce 50% of U.S. Goods/80% of Job Growth Average Millionaire is a Small Entrepreneur Source: Investors Weekly 8/12/02; 7/7/03

17. © 2002 Society of Industrial and Office REALTORS® DEMOGRAPHIC IMPACT Seniors (pre-1938) = 35 mill/$23,048 HH War Babies (1938-45) = 24 mill/$44,992 BabyBoomers (1946-64)= 83 mill/$55,729 EchoBoomers (1965-81) = 60 mill/$38,878

18. © 2002 Society of Industrial and Office REALTORS® U.S DEMOGRAPHICS 1970-2003 NO. OF HOUSEHOLDS:-16% AVER. SIZE OF SFDU: 40% Source: Legg Mason Fall’03

19. © 2002 Society of Industrial and Office REALTORS® U.S. DEMOGRAPHICS POP. UNDER 18 YRS. OLD: 1964:36% 2003:26% 2020 Proj.:24%

20. © 2002 Society of Industrial and Office REALTORS® ENTRANCE STRATEGIES PERSONAL GOALS/OBJECTIVES W PERSONAL GOALS/OBJECTIVES W RISK THRESHOLD W AGE W MARITAL STATUS W RETIREMENT ($1,300,000.00) W TUITION ($200,000 per child)

21. © 2002 Society of Industrial and Office REALTORS® RETIREMENT v. TUITION Life Expectancy 1950s = 65-68 years 2002: Aver. 76.2; Man = 74.4; Female = 79 If 70, then Man = 81; Female 84 Source: FT Winter 2002, 1060AM 10/25/02, 5/12/03

22. © 2002 Society of Industrial and Office REALTORS® COLLEGE TUITION 2001-02 Aver. College Tuition = 5.8% 2002: $28-32,000/Year 2017: $239,576 Private 4 Year Cost Source: Barrons 4/21/03; Money 1/03; US News 1/01

23. © 2002 Society of Industrial and Office REALTORS® Benchmark 10 Year Treasury Note S&P 500/FHMA: Safe? 1 VS. 30 Demographic Impact

24. © 2002 Society of Industrial and Office REALTORS® BENCHMARK Risk v. Reward What is Risk? Year 1654 “Dead Capital”

25. © 2002 Society of Industrial and Office REALTORS® REAL ESTATE OWNED 1999:8.3 YEARS 2000:7.7 YEARS 2001:8.5 YEARS 2002:8.6 YEARS 2003est:8.8 YEARS Source: RERC Winter 2002/Winter2003

26. © 2002 Society of Industrial and Office REALTORS® Risk v. Reward (Cash) 10 Yr. T-Note + 600/700 BP (Debt) Cost of Debt + 150/200 B.P. T-Note v. Debt Gap = 200BP ( Record)

27. © 2002 Society of Industrial and Office REALTORS® INVESTMENT RETURNS 2002: T-Note = 3.8% 2002 R.E.= 11.5% 20 Yr. Record Spread = 770BP

28. © 2002 Society of Industrial and Office REALTORS® Rates of Return to Beat Inflation ( SURPLUS ) Cost of Money Index of Goal

29. © 2002 Society of Industrial and Office REALTORS® 1980 - 2000 Required v. Realized Returns R. E. : 12.9% v. 9.5% Stock Market: 11% Stock 101 Years: 10.1% Housing Averages: 5-6% Source: LM Annual 2002 Report

30. © 2002 Society of Industrial and Office REALTORS® S&P 500 RETURNS S&P 1/’50 – 3/’03 = 3.58% aver. 2002 S&P = -22.6% S&P 6/02-6/03 = 35% Source: T. Rowe Investor 6/03

31. © 2002 Society of Industrial and Office REALTORS® VALUATION BENCHMARKS T-Note 1960-02 Aver. = 7.4% Highest = 14.7% (10/81) T-Bill 1960-02 Aver. = 6.1% Highest = 14.3% (2/82) Source: T. Rowe Price Fall 2002

32. © 2002 Society of Industrial and Office REALTORS® U.S. 1982-2002 NACREIF 2002 S&P = -22.6% Commercial = 9.47% Apts. = 11.7% (best) Housing = 3-6%

33. © 2002 Society of Industrial and Office REALTORS® 2002 TOTAL INDEX RETURNS NCREIF SINCE 1977: 9.41% S&P 500 SINCE 1977: 13.73% 3 M. T-BILL SINCE 1977: 6.96% Source: RERC 2003 Outlook; SmartMoney, 2/02

34. © 2002 Society of Industrial and Office REALTORS® 2002 TOTAL INDEX RETURNS NAREIT SINCE 1984: 11.40% CPI SINCE 1977: 4.44% US HOUSE PRICE 1979-01:4.40% Source: RERC 2003 Outlook; SmartMoney, 2/02

35. © 2002 Society of Industrial and Office REALTORS® 1982-2002 NACREIF Cap Rates Aver. = 9.55% (All) Last 50 Years Caps = 9.00% Cash Return = 6.85% (All) Returns are coming down Cheap Debt Covers Sins Source: CRE Dallas 2002 Convention

36. © 2002 Society of Industrial and Office REALTORS® U.S. HOUSING 1979 Housing Price: 4.4% 50 yr. Average Housing: 5-6% aver. In 1996 Prices: 5.3% From 1997-02 Prices: 6.2% aver.

37. © 2002 Society of Industrial and Office REALTORS® U.S. HOUSING 2001 US Housing Prices Up = 5.5% 2002 US Housing Prices Up = 6.9% US May’02-May’03 Med. Prices = 7.7% Source: Money, June 2003/Boston Globe 7/5/03

38. © 2002 Society of Industrial and Office REALTORS® U.S. HOUSING 2002 U.S. Housing Ownership = 70% 2000 Mass Housing Ownership = 62% Highest U.S. Met Apprec. 10 yrs. = 9.2% 1982-2002 Income = 13.8% Aver. Incr.

39. © 2002 Society of Industrial and Office REALTORS® HOUSEHOLD GROWTH 25-29 Age Group Households Down = 1.5%Per Year Since Mid-1990’S 25-29 Age Group Household Up = 1.8% aver. 2002-2010 Source: Barrons 4/7/03

40. © 2002 Society of Industrial and Office REALTORS® US HOUSING RETURNS San Jose: 1990-95 = - 13% NYC 1989-1991 = - 3% aver. Boston, Hartford, NY sharply dropped in early 1990s Timing a housing purchase is tough Source: Money, June 2003/Boston Globe 7/5/03

41. © 2002 Society of Industrial and Office REALTORS® US 2002 1 ST TIME HOME BUYERS SINGLE WOMEN #1 = 18% SINGLE MEN = 9% Source: MAR Digest 7/23/03

42. © 2002 Society of Industrial and Office REALTORS® BOSTON HOUSING RETURNS BOSTON has been Up until 2003 1992-02 Boston Prices = 8.9% aver. Boston 1999-2002 Prices = 11.67% aver. Experts: Boston is now due to drop Source: Boston Globe 7/7/02 ; Money 10/02

43. © 2002 Society of Industrial and Office REALTORS® BOSTON HOUSING Boston SFDU Prices: July ‘01-’02 = 20.3% Mass Prices: July ‘02-Jan. ‘03 = - 7.2% Mass Prices: April ’02- April ’03 = - 10% SmartMoney: Boston 36% Overvalued Source: Inman News 4/29/03; Boston Globe 1/26/03; 7/14/02

44. © 2002 Society of Industrial and Office REALTORS® U.S. HOUSING U.S. Bankruptcy is up 50% in last 10 yrs. US ‘02 Record Foreclosures = 1.8 % of all home loans US 3 RD Q’02 Foreclosures = 1.18% US 1 st Q’03 Foreclosures = 1.20 % New Record Source: Inman News 4/29/03; Boston Globe 1/26/03; 7/14/02

45. © 2002 Society of Industrial and Office REALTORS® MASS HOME FORECLOSURES Mass ’02 Foreclosures on U.S. Backed Loans = 2.2% Mass 1 st Half ’02 = 2,409 (4,506 tot. ’02) Mass 1 st Half ’03 = 2,241 (total ’03?) Mass Foreclosure Recent Record ’91 =12,750 Source: Inman News 4/29/03; Boston Globe 1/26/03; 7/14/02

46. © 2002 Society of Industrial and Office REALTORS® MASS HOME SALES Mass ’01-’02 Home Prices Up = 18.6% Mass Home Sales Jan– May’03 to 2002 = - 9% Mass 4/02-4/03 Home Prices Down = -10% Mortgages Rates Fell ’01 TO ’03 = 7% Source: Inman News 4/29/03; Boston Globe 1/26/03; 7/14/02; Realtor Digest 6/24/03

47. © 2002 Society of Industrial and Office REALTORS® “CRYSTAL BALL?” January, 2001-2002 U.S. Housing Up = 10.2% US Home Sales 4/03-5/03 Up = 12.5% annually adjusted (New US Record of Total Sales) US May’02-May’03 Med. Price Up = 7.7% Source: Inman News 4/29/03; Boston Globe 1/26/03; 7/14/02; Realtor Digest 6/24/03;USA Today.com 6/30/03

48. © 2002 Society of Industrial and Office REALTORS® “CRYSTAL BALL” Mass Unemployment May’02 - May ’03 = UP 5.1% TO 5.5% US Dispos. Inc. ’03-’04 Est.= 2.6%-3.7% US/Mass House Borrowers Exceed 36% Debt to Income Source: Inman News 4/29/03; Boston Globe 1/26/03; 7/14/02; Realtor Digest 6/24/03;USA Today.com 6/30/03; NAR7/03

49. © 2002 Society of Industrial and Office REALTORS® U.S. HOUSING U.S. BabyBoomers Housing Owners = 76% Will They Be the Positive Catalyst? Smart Money: A House is An Expense Source: NAR 7/03

50. © 2002 Society of Industrial and Office REALTORS® Why Real Estate? Inflation - Hedge Cost of Capital Leases in Place Expenses Escalators

51. © 2002 Society of Industrial and Office REALTORS® WHY REAL ESTATE? Stable Return Diversification Hard Assets vs. Financial High Yields No Scandals

52. © 2002 Society of Industrial and Office REALTORS® WHY REAL ESTATE? It is Trust-Worthy Easy to Understand Positive Leverage Other Choices Stink Right Now Source: CRE Dallas Convention-2002

53. © 2002 Society of Industrial and Office REALTORS® WHY REAL ESTATE? No Taxes on Appreciation Less Volatile It is Cyclical: Bubbles It is not a Growth Commodity

54. © 2002 Society of Industrial and Office REALTORS® DOWNSIDE FOR 2003 Too Many Buyers Seeking 8% Returns Driving Values Up and Rates To Perhaps 4% Returns

55. © 2002 Society of Industrial and Office REALTORS® Commercial Lease Yield Model: 14.5% (DEFLAT.) – Cash Flow44/80% – Mort. Reduction(13%) – Tax Benefits6% – Appreciation63/20% –Source: Herb Krunsick, SIOR, CRE, CCIm

56. © 2002 Society of Industrial and Office REALTORS® BOI Band of Investment Approach NOI/ Cap Rate = Value Japan: 4% Brazil: 150%

57. © 2002 Society of Industrial and Office REALTORS® SIOR THANKS YOU