The legacy of

Lehman IN 11 SLIDES What happened in private real estate after the collapse of the Wall Street bank Click here Where were you to read our full $605bn feature on how the when Lehman The value of global real estate financial crisis fell by $605 billion in the 15 changed private real months following Lehman’s estate. Brothers collapsed? collapse, according to an estimate from commercial real estate services firm CBRE On September 15, 2008, the Wall Street stalwart, assumed by many to be too big to fail, filed for Chapter 11 bankruptcy, rocking markets and marking a pivotal moment in the global financial crisis. Its impact for the real estate sector was first shocking, then painful and, finally, educational. 40% The drop in value of CalSTRS’ Our special section looks at how the crisis hit property portfolio in the 12-18 private real estate, and how the industry months after Lehman’s landscape has dramatically altered 10 years on. bankruptcy filing

$ 178bn Amount of real estate acquired globally by Blackstone since the global financial crisis, according to Real Capital Analytics Click here A changed landscape 2008 2018 to read our full feature on how the The longer-term effects of Lehman’s collapse can be Rank Firm financial crisis seen everywhere in private real estate. Chief among 1 Blackstone changed private real estate. them is the impact on bank-sponsored real estate 2 Real Estate Investing platforms, powerhouses in the industry prior to the 3 Tishman Speyer financial crisis. 4 Goldman Sachs Real Estate Principal Investment Area 5 Colony Capital 6 Lehman Brothers Real Estate 7 The Carlyle Group 8 ProLogis 9 Beacon Capital Partners 10 LaSalle Investment Management 11 MGPA 12 AEW 13 Rockpoint Group Our rankings: Then and now 14 Apollo Real Estate Advisors

In the inaugural PERE 30 ranking in 2008, five of the largest firms by 15 CB Richard Ellis Investors equity raised over a five-year period were banks (bolded in table). 16 RREEF Alternative Investments Three were in the top 10: Morgan Stanley Real Estate Investing at two, Goldman Sachs Real Estate Principal Investment Area at four, and 17 Grove International Partners Lehman Brothers Real Estate at six. 18 Shorenstein Properties

By contrast, just one bank-sponsored platform made the cut in this 19 The JBG Companies year’s PERE 50 ranking: MSREI, now coming in at 20. 20 Citigroup Property Investors Capital Partners New world order Click here to read more about how firms capitalized firms are behind the lion’s share of capital raised for real estate closed-ended funds since the crisis, while private equity on the recovery firms and state investment firms have been the biggest buyers of direct real estate

Top 10 private real estate fundraisers since Jan 2008 Top 10 institutional buyers of direct real estate since Jan 2008

Blackstone Blackstone

Lone Star Funds GIC

Brookfield Asset Management CBRE Global Investors

Starwood Capital Group CPP Investment Board

GLP Goldman Sachs

Fortress Investment Group Invesco

Oaktree Capital Management QIA

Pacific Investment Management Co. (PIMCO) JP Morgan

AXA Investment Managers - Real Assets Apollo Global RE

CBRE Global Investors TPG Capital

0 10 20 30 40 50 60 70 80 0 20 40 60 80 100 120 140 160 180 Capital raised ($bn) Capital deployed ($bn)

Source: PERE Source: Real Capital Analytics There’s a lot better attitude, a lot more humility in the marketplace than there was at that time because that memory was so severe. It was so harsh that I don’t think folks that sit in our chairs and have to put out investments have forgotten that we were a little too confident, thinking that markets would just continue to move up

Mike DiRé, director of real estate at the California State Teachers’ Retirement System W here were you when Lehman collapsed? Click here to read our full feature on how the financial crisis changed private real At the time I was head of European business estate. parks at Goodman. I had moved to Paris in 2007 to develop our European platform following acquisitions in Germany and France. By the time of the Lehman collapse, we had started to look at alternative funding options and the possibility of bringing in a new partner alongside Goodman to help build out the business. It became pretty clear early on in that process that the market was about to go into turmoil and create much bigger issues.

What did you learn from the crisis? Buying real estate at the wrong price is clearly not a good idea, but when you fund it with significant leverage it creates much bigger problems. That said, the importance of transparency with investors also came to the fore and we managed our way through our funding difficulties. I believe investors have rewarded those managers who were clear and open in their communication.

Rob Wilkinson, chief executive, AEW Europe Poster children GGP Click here In 2010, Brookfield Asset to read about nine Management, through its Real Estate other property deals of the crisis Turnaround Consortium, made an that had the biggest initial capital infusion of $2.6 billion to impact during, or recapitalize bankrupt US mall owner because of, the crisis. The global financial crisis hit property General Growth Properties. The markets the world over, but some investment helped to bring GGP out transactions weighed on events – or of bankruptcy protection and were shaped by them – more than contributed to the stellar most performance of the club vehicle.

Click here to read more

Hilton

When Blackstone took Hilton Hotels private in a $26 billion deal in 2007, “everyone thought it was a bust,” Hilton CEO Christopher Nassetta said in an interview this year. The deal closed shortly before the GFC and Hilton’s revenue dropped by 20 percent in response.

Click here to read more Twin peaks Land of opportunity Click here for more data showing Cycle fundraising reached its height in 2015, while More than two-thirds of the equity raised for closed-end private real estate the last decade's change fund numbers did so in 2013 vehicles in the decade after the crisis was for higher-returning strategies as investors and managers made the most of the sector’s recovery

180 400 By region By strategy

0.89% 1.35% 160 355.56 2.18% 3.15%

13.05% 13.55% 140 311.11 37.62% 40.26% 120 266.67 d e ) s

n 100 222.22 o l b c $ Capital raised ($bn) Capital raised ($bn) (

s d d e 80 177.78 n s u i f

a f r

o l

a r t i 60 133.33 e p b

a 22.66% 17.14% m C u 40 88.89 N

23.59% 24.56% 20 44.44

0 0

8 9 0 1 2 3 4 5 6 7 8 0 0 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 Multi-Regional Europe Opportunity Value Added Mezzanine / Debt 2 2 2 2 2 2 2 2 2 2 2 D T Y Asia-Pacific Latin America Core / Core Plus / Co-investment

Capital raised ($bn) Number of funds closed Middle East/Africa Secondaries

Source: PERE Source: PERE UK market mix US peak and trough Click here for more on the UK commercial property lending, indicative of the European US CMBS issuance, indicative of overall commercial real estate banking reaction the trend, plummeted after 2008, although the composition of lending activity, has not returned to peak levels, post-Lehman Lehman collapse lenders has become more mixed

240 90

220 80 200 70 180

60 160 ) n b $

( 140 50 e c n n b

a 120 £ u

40 s s i

S 100 B

30 M C 80

20 60

10 40

20 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0

0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 UK banks & building societies German banks Other int. banks 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

N. American banks companies Other non-bank lenders

Source: Cass UK Commercial Real Estate Lending Report Source: Morningstar/CREFC Click here The Lehman diaspora to read more on former Lehman real

The fourth largest US investment bank at the time of its bankruptcy had upward of 25,000 employees. estate executives, and Here is a look at what some former Lehman real estate executives are doing today where they went, including:

Mark Newman Mark Walsh Rodolpho Amboss, former managing Then: Then: director

Global co-head of real estate Head of Lehman Brothers’ global real Edmund Craston, private equity at Lehman Brothers estate group former EMEA head of real estate investment Now: Now: Natalie Howard, President of Asia at Lone Star Funds Partner and co-founder of Silverpeak former managing director Years at Lehman: Years at Lehman: 2000-10 1993-2010

Where else Lehman's execs went...

3 1 1 1 1 1 1 1 1 1

Silverpeak PCCP Lone Star LCOR Patrizia MSD Capital GreenOak Real Cairn Capital RPM Renewal DCM Capital Funds Estate Properties The legacy of Lehman

PERE’s “10 Years Since Lehman” special report written by: Jonathan Brasse Evelyn Lee Dan Cunningham Arshiya Khullar Meghan Morris Lisa Fu Hans Poulsen Doug Morrison

Design: Miriam Vysna Production: Adam Koppeser