SIOR FALL CONVENTIONSIOR FALL CONVENTION

““LIQUIDITY AND TODAY’S COMMERCIAL REAL LIQUIDITY AND TODAY’S COMMERCIAL REAL ESTATE MARKET”ESTATE MARKET”

Renaissance Grand HotelRenaissance Grand HotelSt. LouisSt. Louis

November 9, 2007November 9, 2007

ROBERT J. NAHIGIAN, FRICS, SIOR, CREROBERT J. NAHIGIAN, FRICS, SIOR, CRE

AUBURNDALE REALTY CO.AUBURNDALE REALTY CO.

NEWTON, MASS.NEWTON, MASS.

US CBD INVESTMENTSUS CBD INVESTMENTS

One Word: Hot and more Hot !One Word: Hot and more Hot !

Values were up in 2006Values were up in 2006

Values continue to rise in 2007Values continue to rise in 2007

LAST 2 YEARSLAST 2 YEARS

It has been all about capital !It has been all about capital !

You couldn’t fail with You couldn’t fail with real estate investments real estate investments

A lot of money chasing deals and “yields”A lot of money chasing deals and “yields”

Next 2 YearsNext 2 Years

2007 looks like another banner year !2007 looks like another banner year !

Real Estate now recognized as a 4Real Estate now recognized as a 4thth Asset Asset class with bonds, stocks and cash. class with bonds, stocks and cash.

There is a new demand and a There is a new demand and a new allocation !new allocation !

Next 2 years could be very differentNext 2 years could be very different

Next 2 YearsNext 2 Years

Success based more local (micro) rather than Success based more local (micro) rather than national (macro) environmentnational (macro) environment

Difficult to find a balanced value commercial Difficult to find a balanced value commercial investment in the USinvestment in the US

People think buying now will be cheaper than People think buying now will be cheaper than tomorrowtomorrow

Next 2 YearsNext 2 YearsToday everyone is a “genius” so Today everyone is a “genius” so demand for real estate has amplified demand for real estate has amplified

Real estate growth and differences will be Real estate growth and differences will be driven by sectors, market and not uniform driven by sectors, market and not uniform growthgrowth

Investors will need to look at real estate with Investors will need to look at real estate with true due diligence evaluationtrue due diligence evaluation

We need to get back to old-fashion growth We need to get back to old-fashion growth and focus on NOIand focus on NOI

DEMAND DRIVERSDEMAND DRIVERS

EUROPE PAYS MORE PSF; GLOBAL CAP RATES EUROPE PAYS MORE PSF; GLOBAL CAP RATES ARE LOWER (More Pricey) ARE LOWER (More Pricey)

US REAL ESTATE PRICE IS STILL CHEAP US REAL ESTATE PRICE IS STILL CHEAP COMPARED TO OTHER GLOBAL PROPERTIESCOMPARED TO OTHER GLOBAL PROPERTIES

DROP OF US $ HELPSDROP OF US $ HELPS

REPRODUCTION COST IS STILL HIGH REPRODUCTION COST IS STILL HIGH

Construction Costs = 6-10% annual increasesConstruction Costs = 6-10% annual increases

Source: Sam Zell/Hugh Kelly ’05 CRE ChicagoSource: Sam Zell/Hugh Kelly ’05 CRE Chicago

US COMMERCIAL VOLUME: US COMMERCIAL VOLUME: 2005-062005-06

2006

20052005

20052005

2006

2006 2006 2006

$0$50

$100$150$200$250$300$350$400

IndustrialRetail

Apt.Offic

e

All Properties

2005 2006 In Billions Source: CPN 2/16/07

U.S. COMMERCIAL VOLUMEU.S. COMMERCIAL VOLUME

$150

$267.6$307

$401

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2004 2005 2006 Jan.-Oct.18, 2007

Source:NAR 10/07MSNBCOct. 21, 2007Billions

PROPERTIES PURCHASED: PROPERTIES PURCHASED: 11stst Q 2007: Q 2007:Source: CPN 2007 9/1/07Source: CPN 2007 9/1/07

Sub.Office27%

Apts.23%

Retail16%

CBD Office23%

Flex3%

Industrial8%

SUMMARY ON RETURNSSUMMARY ON RETURNS

15.4 14.7 14 13.715

17.2

6.07 7.1 7.5

5.66.8 6.7 7.1

23

28

0.0

5.0

10.0

15.0

20.0

25.0

30.0

AptsSub. Office

Strip Malls

Warehouse

Harvard Endowment

Yale Endowment1995-2005 1996-20061Q 2006 2Q 2007Source: Wall St. Journal 9/27/07 CPN 10/1/07

US 10 YR. T-NOTE: ’62-’07US 10 YR. T-NOTE: ’62-’07Source: Federal ReserveSource: Federal Reserve

4.314.665.19

4.80

4.296.03

6.578.55

10.6211.43

7.997.35

4.283.95

0.002.004.006.008.00

10.0012.0014.00

1962

1965

1970

1975

1980

1985

1990

1995

2000

2005

2006

Ju

ly,2

007

Oct

. 16,

200

7N

ov. 2

, 200

7

AnnualYield

US T-Note Yields: ‘07US T-Note Yields: ‘07Source: Federal Reserve 7/07Source: Federal Reserve 7/07

4.27 4.294.80 4.65

5.04 5.19

4.31

10.410.1

9.5

6.5

0

2

4

6

8

10

12

2004 2005 2006 1-Apr-07 2Q '07 9-Jul-07 Nov. 2, 2007

T-Notes

RE Returns

IRR Average %IRR Average %Source: CRE Spring Convention 4/07Source: CRE Spring Convention 4/07

0102030405060708090

100

1977-2002

1984-2002

'96-'06

'01-'06

'03-'06 '06

1/07-6/07

NACREIFS&P

CASH-ON-SIDELINESCASH-ON-SIDELINES

Sept. 3, 2004: $ 1.9 Tril.

Jan. 30, 2005: 4.4 Tril

Aug. 1, 2006 2.16 Tril.

Nov. 11, 2006 2.27 Tril.

April 1, 2007: 2.43 Tril.

Sept. 27, 2007: 2.81 Tril.

Nov. 1, 2007: 2.93 Tril.Source: MSNBC 2/1/0/Wall Street 1/25/07, Boston Globe 4/1/07;WSJ 10/25/07

MONEY MARKET CASH-ON-HANDMONEY MARKET CASH-ON-HAND

$1.90

$4.40

2.16 2.27 2.4322.81 2.93

00.5

11.5

22.5

33.5

44.5

5

Sep

t. 3,

200

4Ja

n. 3

0, 2

005

Aug

. 1, 2

006

Nov

. 11,

200

6

Apr

il 1,

200

7S

ept.

27, 2

007

Nov

. 1, 2

007

In Trillions

CONCLUSIONCONCLUSION

CASH POSITIONS HAVE BEEN CASH POSITIONS HAVE BEEN INCREASING SINCE 2006INCREASING SINCE 2006

BUT FOR HOW LONG?BUT FOR HOW LONG?

WE MAY BE SHIFTING SIDEWAYS: WE MAY BE SHIFTING SIDEWAYS: Real Estate v. Stock Market ?Real Estate v. Stock Market ?

CONCLUSIONCONCLUSION

Debt is costing more today Debt is costing more today

And real estate prices are starting to And real estate prices are starting to dropdrop

REAL ESTATE YIELD BREAK-DOWN REAL ESTATE YIELD BREAK-DOWN V. THE DOWV. THE DOW

CONCLUSIONCONCLUSION

EUROPEANS SAVE 47% OVER U.S. EUROPEANS SAVE 47% OVER U.S. PRIME RATEPRIME RATE

JAPANESE SAVE 75% OVER U.S. JAPANESE SAVE 75% OVER U.S. PRIME RATEPRIME RATE

CONCLUSIONCONCLUSIONEURO DOLLAR WORTH 44% MOREEURO DOLLAR WORTH 44% MORE

SAVE 29-57% ON CAP RATESSAVE 29-57% ON CAP RATES

SAVE 47-75% ON BORROWING COSTSSAVE 47-75% ON BORROWING COSTS

IT’S A DISCOUNT TO BUY IN THE U.S. !IT’S A DISCOUNT TO BUY IN THE U.S. !

CONCLUSION:CONCLUSION:For the Foreign RE InvestorFor the Foreign RE Investor

U.S. IS A STABLE, SAFE AND GROWING U.S. IS A STABLE, SAFE AND GROWING MARKETMARKET

U.S. HAS LARGEST ECONOMY: GDP 3.9%U.S. HAS LARGEST ECONOMY: GDP 3.9%

U.S. $ IS CHEAP, CAP RATES ARE U.S. $ IS CHEAP, CAP RATES ARE REASONABLE AND GLOBAL PRIME RATES REASONABLE AND GLOBAL PRIME RATES ARE CHEAPARE CHEAP

ADD IT ALL UP: WINDFALL FOR ADD IT ALL UP: WINDFALL FOR THE FOREIGN INVESTOR !!!!THE FOREIGN INVESTOR !!!!

CONCLUSIONCONCLUSION

CAP RATES could increase 100 BP by the CAP RATES could increase 100 BP by the end of 2008end of 2008

The “Idiot Tax” will vanish next yearThe “Idiot Tax” will vanish next year

Focus on NOI for valueFocus on NOI for value

Liquidity is immense but not stupidLiquidity is immense but not stupid

Foreigners have an appetite but could pull Foreigners have an appetite but could pull the plug at any timethe plug at any time

HAPPINESS DEFINED:HAPPINESS DEFINED:

EXPECTATION = REALITY EXPECTATION = REALITY

OROR

REALITY IS GREATER THAN REALITY IS GREATER THAN EXPECTATIONEXPECTATION

THANK YOU !THANK YOU !SIORSIOR