CAPITAL MARKETSAlternative Investments – Commercial Real Estate – Trends

2

CONTENTS

GLOBAL CAPITAL MARKETS

▪ Cross-border Activity

▪ Investor Types

▪ Yields

▪ Returns Outlook

UNITED STATES CAPITAL MARKETS

▪ Cross-border Activity

▪ Asset Type Activity

▪ Cross-border Country of Origin

▪ Cap Rates

▪ REIT yields

▪ Market Outlook

LATIN AMERICA CAPITAL MARKETS

▪ Regional Markets Levels

▪ Cross-border Summary

▪ Cap Rates

▪ Conclusions

CAPITAL MARKETS - GLOBAL

4

GLOBAL CAPITAL MARKETSCROSS-BORDER ACTIVITY

▪ 2018 surpassed 2015 as the best year for real estate capital markets in the current cycle.

▪ Global transaction volume exceeded $1 trillion globally, 6% above 2017’s volume.

• Robust activity in the US and continued growth in Europe offset slowdown in Asia Pacific.

• Asian markets softened as investor sentiment weakened due to tighter financial conditions, slower growth and trade worries.

▪ 2019 cross-border activity expected to remain robust globally with US remaining the favored destination for cross-border

capital.

GLOBAL REAL ESTATE INVESTMENT AND CROSS-BORDER CAPITAL

5

GLOBAL CAPITAL MARKETSCROSS-BORDER ACTIVITY

CROSS-REGIONAL CAPITAL FLOWS BY BUYER ORIGINS

▪ As Chinese companies are substantially reducing outbound investment, European and Americas investors will continue to

boost capital flow, driven by increased appetite of property companies.

6

GLOBAL CAPITAL MARKETSINVESTOR TYPES

MAJOR CROSS-BORDER INVESTOR TYPES

▪ Private Property Companies and Private Equity Funds were the most active contributors to cross-border property investment

activity in 2018 and are expected to remain very active in 2019. The percent and amount of cross-border capital for property

investments is expected to be lower for Private Property Companies in 2019 as the figures in 2018 were skewed by multiple

large entity level transactions.

7

GLOBAL CAPITAL MARKETSYIELDS

▪ After nine years of steady compression, property yields began to flatten in the second half of 2018.

▪ Global average yields for office, industrial and retail are expected to remain stable in 2019 and rise slightly in 2020.

▪ Investors will continue to diversify into secondary markets in search of yield.

▪ Global bond yields are expected to compress in the first half of 2019 due to the rise in economic and geopolitical risk, but

resume their climb as economic growth picks up in the second half of the year.

▪ Over 2019, the spread between real estate and bonds is expected to narrow.

COMPOSITE YIELDS BY ASSET TYPES

8

GLOBAL CAPITAL MARKETSRETURNS OUTLOOK

▪ Income growth and fair pricing are expected to drive returns.

▪ Gently rising income is expected to offset slightly higher cap rates in 2020.

▪ Capital flows will remain strong in 2019, shifting to core investments in diversified markets for more opportunistic assets as

investors seek out better pricing and more stable income growth.

GLOBAL INVESTMENT RETURN OUTLOOK

CAPITAL MARKETS - US

10

US CAPITAL MARKETS

11

US CAPITAL MARKETS

12

US CAPITAL MARKETSCROSS-BORDER ACTIVITY

▪ Cross-border activity was up by 62.8% on a year-

over-year basis. The increase was boosted by the

$17 billion entity-level transaction of Brookfield

buying GGP.

▪ Multifamily has the largest Y-O-Y increase in cross-

border investment, up by 100.8% to $6.1 billion.

The office and retail sectors also registered high

year-over-year growth in cross-border investment.

▪ Canada-based Brookfield acquisition of Forest City,

an $11 billion portfolio of office, multifamily and

retail properties, was the driving force behind

Canada’s rank as the top cross-border investor in

the US.

▪ Chinese investment in the US real estate was the

lowest annual level of US investment in many

years, down by 60% from its peak volume of $14.1

billion in 2016.

▪ Singapore outpaced China as APAC’s biggest

cross-border investor on an annual basis.

Singapore’s 2018 volume of $6.5 billion was 16%

higher than China’s total investment.

▪ Inbound Capital from China declined by 57.8%

during the four quarters ending in Q1.

CROSS-BORDER INVESTMENT BY COUNTRY OF ORIGIN

13

US CAPITAL MARKETSCAP RATES

▪ Cap rates are currently at or near historic lows across all sectors, except for certain retail segments.

▪ With yields compressed and strong competition for assets in gateway markets (including competition from foreign capital),

many investors began to diversify into secondary markets in 2018.

▪ This trend will likely continue in 2019 as wage growth picks up and investors shift to smaller markets with strong job growth.

▪ Rising interest rates have caused the cap rate spread over the 10-year Treasury yield to narrow. This may cause some

investors to reevaluate the risk-to-return ratio of their portfolios and decide they require higher cap rates.

CAP RATES AND 10-YEAR TREASURY YIELD

14

US CAPITAL MARKETSCAP RATES

15

US CAPITAL MARKETS

16

US CAPITAL MARKETSMARKET OUTLOOK

▪ With cap rates expected to hold steady and real estate a good hedge against rising inflation, an abundance of available capital

should continue flowing into CRE in 2019.

▪ Although interest rates are rising, they remain low relative to historical levels, and investors will continue to seek higher yields

than are available through the bond market.

▪ Given the volatility in the stock market and geopolitical uncertainties, both domestic and foreign investors will remain motivated

to allocate capital to US commercial real estate, returns on which have been sizable and stable.

▪ Industrial and Multifamily assets are expected to continue to attract the highest level of investor interest.

CAPITAL MARKETS – LATIN AMERICA

18

LATIN AMERICAN CAPITAL MARKETSREGIONAL MARKET LEVELS

LEVEL I – PRIMARY INVESTMENT MARKETS

▪ Significant Cross-border Activity

▪ Highly Liquid Investment Markets

▪ Brazil, Mexico, Chile

LEVEL II – EMERGING INVESTMENT MARKETS

▪ Increasing Cross-border Activity

▪ Small Investment Ticket Sizes

▪ Colombia, Peru, Panama/Costa Rica, Argentina

LEVEL II – NON-INVESTMENT MARKETS

▪ Restricted/Limited Cross-border activity

▪ Limited Investment Activity

▪ Limited Product Options

▪ Venezuela, Ecuador, Bolivia, Guatemala, Honduras, El Salvador

19

LATIN AMERICAN CAPITAL MARKETSCROSS-BORDER SUMMARY

MEXICO - remains an attractive destination for International investors

▪ Trends

• Volatile political landscape – AMLO canceling of Mexico City Airport

• Reduction in FIBRA activity and liquidity levels – reduction in transactional activity

• Active Industrial Market – following US trends

• USD currency assets (Office/Industrial) – Favored by international investors

• Emergence of Multifamily asset class

• Mexico City Investment focus for International Capital

BRAZIL – Emerging from most significant market downturn

▪ Trends

• Emerging from biggest recession in last 20+ years

• Investors remain focused on opportunistic investments

• Market rents and pricing have reset following recession

• Cross-border capital focusing on platform or partnership investments, limited direct

asset level acquisitions from cross-border sources

CHILE – most active and liquid market in region

▪ Trends

• Emergence of multifamily product class

• Reduction in Cross-Border inflow activity (increased hedging costs)

• Domestic buyers increasing allocations to US and Andean Region – chasing yield

• Lowest yields and lowest cost of debt in Latam region

20

LATIN AMERICAN CAPITAL MARKETSCROSS-BORDER SUMMARY

COLOMBIA - remains a small investment market with limited existing offerings

▪ Trends

• Limited existing investment product – improving - growth via development

• International capital dominated by regional players and North American sources

• International capital focused on platform level investment over asset level

PERU - office, industrial and retail markets are receiving increased international interest

▪ Trends

• USD property market

• Increased international activity (Chilean investors most active followed by

European/US capital sources)

• Limited investment product – Ticket sizes - BUT rapidly improving

ARGENTINA – Political Risks – Pending Presidential Elections

▪ Trends

• Highest level of new office development in region (as percentage of existing stock)

• Opportunistic investment market

• Limited liquidity – Pending elections

PANAMA / COSTA RICA - office and industrial parks investment product

▪ Trends

• USD property market

• Active local REIT market

• Strong tenant credit market – dominated by US tech firms (Nearshoring)

21

LATIN AMERICAN CAPITAL MARKETSINVESTMENT ORIGIN

United States, 45.8%

Canada, 38.3%

Israel, 6.6%

Germany, 4.0%

UK, 3.1%

Chile, 1.8%

Brazil, 0.2%

France, 0.1%

Portugal, 0.1%

▪ In 2018, the majority of sources came from

Canada (48%) and the United States (30%).

▪ Chinese investors have yet to make any significant

headway into the Latin American property

markets.

22

LATIN AMERICAN CAPITAL MARKETSCAP RATES

ARGENTINA: 8-9%CHILE: 5-6%

BRAZIL: 8-9%

MEXICO: 7-8%

COSTA RICA: 8-9%

PANAMA: 8-9%

LIMA: 8-9%

COLOMBIA: 8-9%

23

LATIN AMERICAN CAPITAL MARKETSCONCLUSIONS

MEXICO

▪ Local REITS have seen a significant drop off in

liquidity over past 12 months.

▪ AMLO has impacted market activity, pushing

many local investors looking to allocate more

capital to the US and other markets to diversify

risks

BRAZIL

▪ Brazil does not offer Core investors with direct

investment opportunities due to high costs of

Hedging and local debt.

▪ Brazil is currently an opportunistic investment

market with the majority of the investment

opportunities via platform or partnership .

CHILE

▪ Chile provides an attractive market for CORE

office product.

▪ Multifamily asset

▪ Industrial opportunities remain limited with

smaller ticket sizes.

COLOMBIA

▪ Colombia has limited current CORE investment

stock.

▪ Colombia presents a very attractive growth market,

but is expensive for cross-border capital due to

currency risks.

PERU

▪ The Peru office market appears to be emulating

the Chilean market evolution of the past 10 years.

We expect Peru to become a CRE investment

market comparable in quality, size and conditions

to Chile.

▪ Peru is the second fastest economy in the region.

▪ Limited local debt market which creates a floor for

yield compression.

COSTA RICA / PANAMA

▪ Costa Rica and Panama should be treated as one

market due to size and legal structure similarities.

▪ Increasing investor interest due to ability for

investors to acquire US multinational credit via

USD leases at yields higher than comparable

credit risks in US markets

T + 305 428 6341

Tim.gifford@cbre.com

Tim Gifford

Senior Managing Director

Capital Advisors Latin America