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