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					Real Estate 2009



    America’s Lost Decade of Growth:
What Happened and Where Do We Go From Here
          NABE RE/Construction Teleconference

                     December 3, 2009
                      Presented By
                   Douglas M. Poutasse
                    Executive Director
                         NCREIF
                   dpoutasse@ncreif.org


                                                1
               Real Estate 2007:
“Any Landing You Walk Away From Is A Good Landing”




                                                     10/2/2006
Real Estate 2008: Risk is B A C K!




                                     3
        The Lost Decade of Growth

                                                                                                                                    10 Year Job Growth


                                              50%

             Job                              45%
            Growth
                                              40%
Decad      (millions           %
e              )             Change           35%

1940s        11.927            38%            30%


1950s        10.744            25%            25%

                                              20%
1960s        16.902            31%
                                              15%
1970s        19.624            28%
                                              10%
1980s        18.351            20%
                                                  5%

1990s        21.630            20%                0%




                                                                                                                                                                                     Jan-91




                                                                                                                                                                                                                Jan-00
                                                       Jan-49



                                                                         Jan-55

                                                                                  Jan-58

                                                                                           Jan-61

                                                                                                    Jan-64

                                                                                                             Jan-67

                                                                                                                      Jan-70

                                                                                                                               Jan-73

                                                                                                                                        Jan-76

                                                                                                                                                 Jan-79



                                                                                                                                                                   Jan-85

                                                                                                                                                                            Jan-88



                                                                                                                                                                                              Jan-94

                                                                                                                                                                                                       Jan-97




                                                                                                                                                                                                                                  Jan-06

                                                                                                                                                                                                                                           Jan-09
                                                                                                                                                          Jan-82




                                                                                                                                                                                                                         Jan-03




                                                                                                                                                                                                                                                    Jan-12
                                                                Jan-52




2000s         0.200             0%




 Source: Moody’s Economy.com: Feb 2009 Forecast


                                                                                                                                                                                                                                                4
      The Lost Decade of Growth by State

                                                                           State Total Employment
                                                                  10 Year Growth Rates (January to January)

    120%

    110%
                                                                                                                                                                                      Massachusetts
    100%                                                                                                                                                                              California
                                                                                                                                                                                      Florida
     90%
                                                                                                                                                                                      Arizona
     80%

     70%

     60%

     50%

     40%

     30%

     20%

     10%

      0%

    -10%
              1949

                     1951

                            1953

                                   1955

                                          1957

                                                 1959

                                                        1961

                                                               1963

                                                                      1965

                                                                             1967

                                                                                    1969

                                                                                           1971

                                                                                                  1973

                                                                                                         1975

                                                                                                                1977

                                                                                                                       1979

                                                                                                                              1981

                                                                                                                                     1983

                                                                                                                                            1985

                                                                                                                                                   1987

                                                                                                                                                          1989

                                                                                                                                                                 1991

                                                                                                                                                                        1993

                                                                                                                                                                               1995

                                                                                                                                                                                       1997

                                                                                                                                                                                              1999

                                                                                                                                                                                                     2001

                                                                                                                                                                                                            2003

                                                                                                                                                                                                                   2005
Source: BLS


                                                                                                                                                                                                                          5
       The Lost Decade of Growth by State

                                         State Total Employment
                                10 Year Growth Rates (January to January)

      120%

      110%
                                                                            Massachusetts
      100%                                                                  California
                                                                            Florida
       90%
                                                                            Arizona
       80%

       70%

       60%

       50%

       40%

       30%

       20%

       10%

        0%

      -10%
          49
          51
          53
          55
          57
          59
          61
          63
          65
          67
          69
          71
          73
          75
          77
          79
          81
          83
          85
          87
          89
          91
          93
          95
          97
          99
          01
          03
          05
          07
          09
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        19
        20
        20
        20
        20
        20
Source: BLS,NCREIF Projection


                                                                                            6
      VACANCIES ARE NEARING A PEAK
      PPR54 VACANCY RATES
25%

                                                                                         Forecast


20%




15%




10%




5%




0%
      82   84        86   88    90   92       94    96   98    00   02   04   06   08   10    12    14

      Source : PPR

           Apartment       Office    Retail        Warehouse




                                                                                                     page 7
                      What to Expect for NOI Growth

The                    PEAK-TO-TROUGH DECLINE IN PROPERTY NOI
economy is
worse in                                         EARLY 1990s   EARLY 2000s   To 2009Q3
this cycle
                        APARTMENTS                 (10%)         (13%)        (3%)
and the
property                INDUSTRIAL                 (11%)         (14%)       (10%)
markets will            OFFICE                     (20%)         (16%)        (4%)
be weaker
                        RETAIL                     (5%)           (3%)        (9%)
Must                    TOTAL                      (12%)         (12%)        (4%)
assume
that NOI
declines will
be greater




            8   AEW Real Estate Market Outlook
NCREIF Property Index Total Return (4 Quarter Rolling)




                                                         9
NCREIF Property Index Cap Rates (Quarterly)




                                              10
           Impact of NOI and Cap Rate Changes on
           Value
                                                      CAP RATE INCREASE FROM NCREIF 2008 Q4 LEVEL OF 5.5%
                                                                        (BASIS POINTS)
                                POTENTIAL
                                               25          50        75       100      150      200         250
                               NOI DECLINE

                                      (15%)   (19%)       (22%)    (25%)     (28%)    (33%)     (38%)       (42%)

                                      (10%)   (14%)       (18%)    (21%)     (24%)    (29%)     (34%)       (38%)

                                      (5%)    (9%)        (13%)    (16%)     (20%)    (25%)     (30%)       (35%)

                                      (0%)    (4%)        (8%)     (12%)     (15%)    (21%)     (27%)       (31%)




11   AEW Real Estate Market Outlook
                          Debt Drives Real Estate Pricing
Capital                    FOUR QUARTER MOVING AVERAGE OF DEBT FLOWS AND CAP RATES
flows drive            $400                                                                                                     10.0%

pricing                $350                                                                                                     9.5%

Availability           $300                                                                                                     9.0%
more
                       $250                                                                                                     8.5%
important
than cost              $200                                                                                                     8.0%

                       $150                                                                                                     7.5%
More debt
= lower                $100                                                                                                     7.0%

yields                   $50                                                                                                    6.5%

                          $0                                                                                                    6.0%

                        -$50                                                                                                    5.5%

                      -$100                                                                                                     5.0%
                               1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008




                    As of 2008Q4
                    Source: Federal Reserve, NCREIF

               12   AEW Real Estate Market Outlook
          Excessive Leverage in the Commercial Mortgage Market

                               Commercial & Multifamily Mortgages Outstanding as % of GDP
 % of GDP

 35%


 30%


 25%


 20%


 15%


 10%


 5%


 0%
   1982      1984     1986      1988     1990     1992   1994   1996    1998    2000    2002   2004   2006   2008

       Sources: Federal Reserve; Moody's Economy.com



PPR                                                                                                           13
The Effect of Leverage on Real Estate Investment Performance


Equity: $865.3
        21.7%

Debt:   $3,120.6
        78.3%



                   NCREIF / Townsend Fund Indices




                                                               14
NCREIF/Townsend Fund Indices: Rolling 4 Quarter Performance




                                                              15
NCREIF/Townsend Fund Indices: Comparative Performance

    Gross Returns         Core Open-    Value Add   Opportunistic
      thru 2009Q2               End    Closed-End    Closed End
  One Year Return             -30.4%       -34.4%         -50.3%
  Five Year Return             4.4%         6.1%            8.4%
 Five Year Std Dev            11.21%      14.52%          22.21%

   Five Year Individual        Core     Value Add   Opportunistic
    Fund Performance
                Count            16           38              89
    Top Quartile Break         5.8%        10.2%           22.3%
               Median          4.4%         4.0%           10.7%
 Bottom Quartile Break         2.5%         -0.2%           -1.0%
           Dispersion         1.93%        8.63%          21.84%
                                                                   16
Mixing Illiquid and Liquid Investments in a Strategy

 • The great lesson of the Crash of 2008: LIQUIDITY MATTERS!
 • Conventional Wisdom: Public Market investments more liquid than
   private market
   • Was BBB CMBS more liquid than a whole loan held in portfolio?
      It depends on what you mean by liquid!
   • Hard to hold to your strategy when you have to liquidate your REITs
      to get cash to meet your opportunity fund capital calls!
 • Lesson to Learn: Mixing strategies with vastly different liquidity
   profiles must be done very carefully.
 • Oh, and LIQUIDITY MATTERS
     2008Q3-2009Q2
     ($ Millions)          Core Value Add Opportunistic
     Contributions         2,331    4,661       19,219
     Distributions         4,441      1,784            621

                                                                       17

				
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