Download Evolution of Institutional Investment Portfolios Evolution of

4/19/2016
Optimizing the Real Estate
Allocation … in Today’s
Presented to:
Secure Retirement for All Conference
April 21, 2016
Market Environment
Jim Clayton
Head of Investment Strategy & Analytics
Evolution of Institutional Investment Portfolios
Growing importance of “Alternative Investments”
Evolution of Institutional Investment Portfolios
= Real Estate + other “Real Assets” + …
Real Estate well established as a
“Mainstream Alternative”
‘95
‘05
‘15
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4/19/2016
Real Estate in a Mixed Asset Portfolio
Asset
class
andEstate
“risk(Private
buckets”
approaches to asset allocation
Focusing
on Real
and REITs)
Expected Return
Real Assets
Stocks
Real Estate
Bonds
Private RE
REITs
T-bills
TIPs
RISK
Risk
Liquidity
Inflation Illiquid Market Risk
Hedge
Implementing the Real Estate (RE) Allocation
Evolving and maturing menu of investment products & strategies
 Cannot invest in RE benchmark indices;
must invest in assets and/or funds
 Evolving definition of “real estate” or
composition of the “real estate bucket”
 Non-traditional or niche sectors
 Debt as part of the RE allocation
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What is Real Estate?
+ emerging, “niche” sectors = self-storage, medical office, student housing, parking …
RE Investment “Styles” or “Risk Buckets”
Expected Return
Opportunistic
Core Plus
Value-Added
REITs
Core
Institutions invest in public REITs as both a
substitute for core real estate and a liquid
complement to adjust real estate holdings.
RISK
Income Oriented
Appreciation Oriented
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Within Real Estate Investment “Styles”
= Security
Market Line
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Risk Types & Risk Management Framework
1. Market Risks (Systematic)
- economy, real estate fundamentals, capital markets
2. Property Specific Risks
- age, size, location, life cycle stage, lease structure …
3. Structural/Financial Leverage Risks
Many of the property specific & structural risks are dimensions
along which the portfolio can be diversified to lower total
portfolio return volatility.
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4/19/2016
Real Estate Has Had a Strong Recovery
The times they are a changin’ … transition time with evolving opportunities
Investment Themes Today
Intersection of cyclical and structural forces
 Economy + demographic and societal shifts
=> continued opportunity, but evolving
 Portfolio tilt away from “beta” toward “alpha”
BUT balance with downside protection
 Submarket and asset selection are key today
 Supply risks concentrated & may be “different this time”
 Urban core revitalization and densifying outer nodes
 Obsolescence of stock
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4/19/2016
Demographic & Other Structural Tailwinds
25-29 Year Olds Are
“Different” Today
% Living with Parents
% Ever Been Married
80
60
40
20
0
1980 1990 2000 2007 2013
by Lynn Fisher and Jamie Woodwell, Mortgage Bankers Association, July 2015.
Source: Cornerstone, U.S. Census and “Millennials, Baby Boomers, and Rebounding
Multifamily Home Construction,” by Jordan Rappaport, Federal Reserve Bank of
Kansas Economic Review, Second Quarter 2015
Uneven Mortgage Market Recovery
Bank and CMBS Lending Lagging and Constrained by Basel III and
Dodd-Frank Regulations
300%
Loan Originations in 2014-15 Relative to 2006-07
Share of Outstanding Loans Held 4Q 2015
60%
250%
50%
200%
40%
150%
30%
100%
20%
50%
10%
0%
0%
TOTAL
GSEs
Life Ins.
Cos.
Market share of outstanding loans held
Originations in 2014-15 as a % of 2006-07
Commercial & Multifamily Mortgage Originations
and Market Share by Lender Type
Commercial CMBS
Banks
Conduits
Bars show the relative recovery by lender type as average quarterly loan originations in 2014 and 2015 expressed as a percentage of average quarterly
originations in 2006 & 2007.
Source: Cornerstone based on data from the Mortgage Bankers Association and the Federal Reserve.
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4/19/2016
That’s it.
Thank you for your
attention!
Jim Clayton
Head of Investment Strategy & Analytics
Cornerstone Real Estate Advisers
Enjoy the rest of the
conference …
(860) 509-2237
[email protected]
Confidential
Disclosure Statement



This information provided herein is believed to be obtained from sources
deemed to be accurate, timely and reliable. However, no assurance is given in
that respect. The reader should not rely on this information in making
economic or other decisions.
This analysis does not make any recommendation about your investments, and
should not be considered investment advice. Any opinions expressed herein
reflect our judgment at this date and are subject to change. Certain of the
statements contained herein are statements of future expectations and other
forward-looking statements that are based on management's current views and
assumptions and involve known and unknown risks and uncertainties that could
cause actual results, performance or events to differ materially from those
expressed or implied in such statements.
Opinions and estimates offered herein are subject to change without notice, as
are statements of market trends, which are based upon current market
conditions.
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