2 14Pension Real Estate Association Year in Review

2 Pension Real Estate14 Association Year In Review CONTENTS 2

MISSION AND VISION 3 PENSION LETTER FROM THE PRESIDENT 4 REAL ESTATE PREA/IPD INDEX 6 ASSOCIATION YEAR IN REVIEW MEETINGS & EVENTS 2014 Introduction 7 Spring Conference 8 PREA Institute 10 Fall Conference 12 Other Educational Events 14 PREA QUARTERLY MAGAZINE Winter Issue 15 Spring Issue 16 Summer Issue 17 Fall Issue 18 RESEARCH 20 WEBINARS 21 REAL ESTATE RESEARCH INSTITUTE 22 REAL ESTATE INFORMATION STANDARDS 23 SCHOLARSHIPS 24 JOHN W. KOZA LEADERSHIP PROGRAM 25 PREA GOVERNANCE Board of Directors 26 Institutional Investor Council Executive Committee 27 Committees 28 Affinity Group Leaders 29 PREA STAFF 30 MISSION VISION & 3

To serve our members engaged in institutional real estate investment through the sponsorship of objective forums PENSION for education, research initiatives, membership interaction and the exchange of information REAL ESTATE ASSOCIATION To educate our members in the global institutional real estate investment community regarding real estate investments YEAR IN REVIEW

n Our membership is inclusive and diverse 2014 n We meet their needs by providing valuable, balanced, useful information in a technologically advanced manner

n We provide superior interactive forums n We promote high standards of industry practice and professionalism PRESIDENT’S MESSAGE 4

Dear PREA Members, PENSION Not long ago, decoupling was the buzzword most often used to describe a concept of unhinged economic fortunes: REAL ESTATE one country or group of countries could rise even as others declined. At the time, investors were especially likely to ASSOCIATION regard decoupling in terms of emerging markets’ potential to maintain robust economic growth in spite of any drag produced by weakness in developed economies, particularly the United States. In looking back at 2014 (and forward to YEAR IN REVIEW 2015), many observers now employ another d word—divergences. Varying economic performance is again the theme, 2014 but with relative positions shuffled; as encouraging signs appear in the US economy, the question is whether they can be sustained in the face of slowing economic growth in many emerging markets, stagnation throughout much of Europe, and an uneven path out of recession in Japan. A preponderance of headline figures and other data reflected the acceleration of economic recovery in the United States in 2014. Despite winter-related contraction in the first quarter, gross domestic product rebounded through the remainder of the year, increasing by 2.4% annually, the best US GDP performance in four years and strongest growth experienced by any developed economy. Job growth exceeded 200,000 during all but two months of the year, and in total about three million American jobs were created in 2014. Rising sales of new homes, solid manufacturing growth, and strong auto sales were particular bright spots. Consumer spending remained healthy as the University of Michi- gan’s consumer sentiment index hit its highest level in a decade, propelled by a precipitous decline in energy costs. The price of crude oil, well over $100 per barrel in June, was cut in half by the end of December. As economic prospects in the US brightened during the course of 2014, the figures coming out of many other global economies were less encouraging. Economic growth slowed in a number of major emerging economies including China, Brazil and Russia, as well as elsewhere in Asia, Latin America and Eastern Europe. For some of these nations, the decline in oil prices was partly responsible, as were a number of longer-term demographic and other structural factors. Much of continental Europe continued to suffer from sluggish growth, high unemployment, deflationary pressures, and currency valuation challenges widely thought to stem from a lack of fiscal union to complement the euro zone’s monetary union. In Japan, Abenomics produced mixed results in terms of effects on the yen’s strength, economic and export growth, and other targeted areas. Even in the US, a fourth-quarter slowdown in GDP growth and stubborn absence of wage growth showed that the macroeconomic picture was not uniformly positive. Political tensions from the Middle East to eastern Ukraine underscored and threatened to aggravate global economic fragility. Divergent geographic economic performance played into varying central bank movements in 2014. Even as the Bank of Japan announced further expansion of its quantitative easing program and the European Central Bank headed in the same direction (eventually making a similar announcement early the following year), the Federal Reserve concluded its program of new bond purchases in October. The so-called “taper tantrum,” which had begun in 2013, at first rattled investment markets but eventually became an accepted part of the economic landscape. The major public equities indices approached or achieved record highs in 2014, with the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite Index up 11.4%, 7.5%, and 13.4% respectively for the year. In the real estate space, major indices performed encouragingly. The PREA|IPD U.S. Property Fund (Total Net Fund) Index and NCREIF Property Index each generated an 11.8% total return, and the FTSE NAREIT All-REITs Index rose an exceptional 27%.

Understanding the drivers of real estate and broader economic performance is of critical importance to PREA members, and the Association continued to pursue its mission of investor education in 2014 through the sponsorship and development of industry-leading forums, publications, research, and analytic tools. The Spring Conference, held in Boston, was skillfully organized by event co-chairs Gabe Finke (Amstar), Patrick Halter (Principal Real Estate Inves- tors) and Allison Yager (Mercer). The conference opened with a dynamic conversation between renowned investor

Conference Attendees—5-Year Period Membership—5-Year Period

Spring Conference Fall Conference 1017 1000 998 887 893 900 860 821 802 812 693 702 713 693 Total 800 783 700 672 Members 700 689 600 600 500 500 400 400 300 181 180 300 170 172 Investor 163 Members 200 200 100 100 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 PRESIDENT’S MESSAGE 5

Howard Marks of Oaktree Capital Management and Steven LeBlanc of CapRidge Partners, and closed with a memo- PENSION rable discussion between US Defense Secretary Robert Gates and political analyst David Gergen. In between, attend- REAL ESTATE ees heard about timely subjects ranging from the real estate effects of tapering to the outlook for opportunity funds. ASSOCIATION The PREA Institute, held at the University of Chicago, kicked off with an energetic dialogue between PREA’s Greg YEAR IN REVIEW MacKinnon and celebrated economist Eugene Fama. (I would note that PREA members also heard from Fama’s 2013 Nobel co-laureate Robert Shiller, who was interviewed in the Winter 2014 issue of the PREA Quarterly). Other 2014 informative Institute sessions included discussions of the housing and credit markets and a detailed look at the city of Detroit’s progress in overcoming the challenges it has faced. As always, the Institute Committee, led by David Sherman (Metropolitan Real Estate Equity Management), was instrumental in this program’s success. PREA’s 24th Annual Institutional Investor Real Estate Conference, held in Los Angeles, showcased the industry expertise of co-chairs Anthony Breault (Oregon State Treasury), Mark Shoberg (UTIMCO), and Joy Winterfield (Allstate Invest- ments). The program brought outstanding voices to PREA audiences, from an opening keynote presentation by Martin Wolf of The Financial Times to a dinner conversation between CNBC’s Ron Insana and Flash Boys author Michael Lewis. Panel sessions also included enlightening examinations of real estate valuations, investment in cell phone towers, timberland and other alternative assets, and technological effects on retail operations and investing. The final day of the conference began with an unforgettable conversation between Bloomberg host Betty Liu and legendary hedge fund investor Daniel Och, and concluded with a pair of well-received panel discussions on the public and global real estate markets, moderated respectively by Liu and by Lawrence Schloss of Angelo, Gordon & Co.

PREA’s major conferences have provided a fitting backdrop for the new ViewPoint video series, in which Director of Re- search Greg MacKinnon sits down with industry leaders to speak about important issues in the institutional real estate marketplace. Recordings of these insight-filled conversations are available on the PREA website under the Videos tab. The Spring and Fall conferences are also the setting for PREA’s Rising Leaders series, a program designed to promote interaction among members under the age of 40. In 2014, PREA added educational sessions to Rising Leaders meetings, during which participants have an opportunity to hear from and pose questions to established industry leaders. The inaugural conversation was with David Kushner, CIO of the Los Angeles County Employees Retirement Association, and James Williams, CIO of the J. Paul Getty Trust. Toward the same objective of cultivating the industry’s next generation of leadership, PREA in 2014 added a mentoring component to its scholarship program. PREA’s focus on investor education paid dividends in 2014. Retention of current members remained above 90% as 47 new member firms joined PREA. Conference attendance was above-budget and the popular affinity groups, which facilitate smaller-scale member discussion on topics of shared interest during the major conferences, were fully sub- scribed. Extraordinary levels of participation in events planned for a wide range of specific groups, from the CEO Lead- ership Forum to breakfast meetings organized for investor members and new members, to the Rising Leaders Conver- sation Series, demonstrated the depth and breadth of engagement across member constituencies. At the center of PREA’s success in 2014 was a remarkable group of Board directors, committee and affinity group heads, and task force participants. Leading the way was Chairperson Yvonne Nelson, whose valuable contributions catalyzed the Association’s advancement on several fronts and set the stage for future institutional growth. Yvonne has played a vital role in ongoing strategic discussions of PREA’s commitment to fostering an inclusive and forward-looking real estate investment community, a priority that will continue to be a powerful guiding force for the Association and its industry. I would like to take this opportunity to thank Yvonne for her inspired service and to welcome incoming chairperson Tom Arnold. Given the strong foundation already set and certainty of sustained positive leadership on the horizon, I know we will achieve great things in the year to come.

Regards

Gail Haynes Membership Retention—5-Year Period

58 73 47 89 69 New 700 Members 600 500 655 646 400 629 Retained 624 Members 300 583 200 100 0 2010 2011 2012 2013 2014 PREA l IPD INDEX 6

2014 saw the continuation of PREA’s agreement with Investment Property Databank (IPD), the global leader in PENSION real estate performance analysis, to co-publish the PREA|IPD U.S. Property Fund Index. The Index tracks the REAL ESTATE performance of open-end real estate funds on a quarterly basis, including core and value-add strategies as well ASSOCIATION as diversified and specialized funds. Since the launch in 2012, efforts have been focused on the expansion and utilization of the index. 2014 highlights include: YEAR IN REVIEW

n PREA|IPD published quarterly index results, which provide in-depth insights into the U.S. property market. 2014 Detailed reports are made available to PREA members and IPD clients.

n Each quarter PREA and IPD jointly host a webinar announcing and discussing the results – webinars are very well attended and received.

n As of Q4, the index covered 31 open-end funds with a gross asset value of $206 billion, constituting the great majority of the eligible universe.

n Historical information on the index is available to PREA members going back to Q1 2008.

n As part of the arrangement with IPD to co-publish the PREA|IPD U.S. Property Fund Index, results for all of IPD’s real estate indices globally are available on PREA’s website, making it the most convenient source of global real estate return data for our members.

n More information on the PREA|IPD U.S. Property Fund Index can be found on PREA’s website. Members have access to additional data and benefits. MEETINGS&EVENTS 7

We host two major conferences each year, the Spring Conference and the larger Annual Institutional Investor Real PENSION Estate Conference. At each of these events, we feature leading experts from within and outside of the real estate REAL ESTATE investment community to speak on today’s critical issues. We also provide opportunities for smaller group inter- ASSOCIATION action and dialogue with peers. Our Affinity Groups, which meet at every conference, provide opportunities for more personalized discussion on issues of particular interest to attendees. At our investor constituency’s request, YEAR IN REVIEW we launched the CEO Leadership Forum in 1999. Held the day before the Spring Conference, the Leadership 2014 Forum is an invitation-only event designed to facilitate high-level communication between investors, managers and consultants. The PREA Institute is held in cooperation with major universities and real estate centers across the United States each year and is designed to explore the academic aspects of public and private real estate portfolio management. The curriculum is taught by both academicians and practitioners, blending theory and practice for a balanced understanding of the relevant issues. Occasionally, we host smaller regional meetings to offer members another opportunity for personal interaction and information exchange. These can be more formalized, such as our regional leadership summits, or can be casual, networking gatherings among local members such as our recently launched Rising Leaders program. The common thread running through these new programs is enhancement of the membership experience. SPRING CONFERENCE 8

Kicking off PREA’s 2014 Spring Conference, Steven LeBlanc of CapRidge Partners LLC sat down with distinguished PENSION investor Howard Marks of Oaktree Capital Management. The two discussed pricing, intrinsic value, and market REAL ESTATE cycles in the real estate context and broader investment world. Following this opening conversation, William ASSOCIATION Hughes (UBS) moderated a dynamic panel with researchers Jacques Gordon (LaSalle Investment Management), Martha Peyton (TIAA-CREF Asset Management), and Raymond Torto (CBRE) on Federal Reserve policy scenarios YEAR IN REVIEW and associated expectations for real estate pricing and performance. Regardless of the direction policy might 2014 take, panelists advocated attention to long-term drivers of growth in net operating income. During a timely panel discussion moderated by Steven Kohn (Cushman & Wakefield, Inc.), debt market experts Kim Diamond (Kroll Bond Rating Agency, Inc.), Greta Guggenheim (Ladder Capital Finance LLC), Spencer Haber (H/2 Capital Partners), and Michael Nash (The Blackstone Group) agreed that a credit bubble had not yet materialized, but expressed some concerns about worsening credit conditions. The group also spoke about current pricing and opportunities in various corners of the debt markets. In his second role as moderator, Steven LeBlanc spoke with leading institutional investors Edgar Alvarado (Allstate Investments LLC), Anthony Breault (Oregon Public Employees Retirement Fund), Greame Eadie (CPP Investment Board), and David Gillan (New York State Teachers’ Retirement System). Panelists described their own career backgrounds and institutions, return expectations, and projections for interest rates, nominally and relative to real estate income growth. Moderator Jeffrey Barclay (Goldman Sachs & Co.) put the role of real estate in institutional portfolios under the lens in a panel discussion with general consultants Brian Birnbaum (Mercer Investment Consult- ing), Sean W.B. Gill (NEPC), and Eugene Podkaminer (Callan Associates, Inc.). The group focused on the major advantages and drawbacks of non-listed real estate relative to other asset classes competing for allocations. Charles Ruffel (Kudu Advisors) served as moderator of a panel of defined-contribution experts: Scott Brooks (SEI), Drew Carrington (Franklin Templeton Institutional, LLC), Dirk Laschanzky (Principal Global Investors), and David Skinner (Prudential Real Estate Investors). Panelists portrayed the growth of the 401(k) market and of target-date funds particularly, as these funds are seen as potential conduits of defined-contribution allocations to alternatives including real estate. Mark Gibson (HFF LP) spoke with development leaders Charles Brindell (Mill Creek Resi- dential Trust LLC), Larry Harmsen (Prologis), and C. Hastings Johnson (Hines) about development opportunities in three major property sectors: multifamily, industrial, and office. Each identified the major trends and investment drivers in his respective area of expertise. During the dinner reception, John Hopkins international relations researcher Michael Mandelbaum put forward a number of assertions and relevant “fault lines” related to globalization. He identified historical, technological, and economic forces bound to play important roles in any future paths to global prosperity. The conference’s second day began with a panel discussion, moderated by the University of Wisconsin’s Michael Brennan, among CEOs of major public companies known for their investments in retail, multifamily, office, and hospitality: David Henry (Kimco Realty Corporation), David Neithercut (Equity Residential), Owen Thomas (Boston Properties), and Ed Walter (Host Hotels & Resorts, Inc.). Panelists shared their interest rate expectations and thoughts on how any impending rate increases might influence REIT operating activities and the broader economy. During the conference’s concluding session, David Hodes (Hodes Weill & Associates) posed thoughtful questions about global opportunity funds to a panel of leading managers: Devin Chen (PIMCO), Keith Gelb (Rockpoint Group), Sonny Kalsi (GreenOak Real Estate), Richard Saltzman (Colony Capital, LLC), and Robert Stuckey (The Carlyle Group). The group delved into market conditions in the US, Japan, and Europe, discussed the best ways to gain exposure to real estate in those markets, and described their expectations for a potential second wall of debt maturities. SPRING CONFERENCE 9 Co-Chairs PENSION Gabe Finke, CEO, Amstar REAL ESTATE Pat Halter, CEO, Principal Real Estate Investors Allison Yager, Global Leader, Real Estate Boutique, Mercer ASSOCIATION YEAR IN REVIEW Speakers Edgar Alvarado, Group Head—Real Estate Equity, Allstate Investments LLC 2014 Jeffrey Barclay, Head of the Real Estate Investment Group, Goldman Sachs & Co. Brian Birnbaum, Senior Partner, Mercer Investment Consulting Anthony Breault, Senior Real Estate Investment Officer, Oregon Public Employees Retirement Fund Michael Brennan, Executive Director, James A. Graaskamp Center for Real Estate, University of Wisconsin-Madison Charles Brindell, Chairman and CEO, Mill Creek Residential Trust LLC Scott Brooks, Managing Director, Head of Defined Contribution, SEI Drew Carrington, Senior Vice President, Head of Defined Contribution, Institutional, Franklin Templeton Institutional, LLC Devin Chen, Executive Vice President, PIMCO Kim Diamond, Senior Managing Director and Head of Structured Finance, Kroll Bond Rating Agency, Inc. Graeme Eadie, Senior Vice President and Head—Real Estate Investments, CPP Investment Board Co-Chairs Robert Gates, former Secretary of Defense, author, Duty: Memoirs of a Secretary at War Gabe L. Finke Keith Gelb, Managing Member, Rockpoint Group Patrick Halter David Gergen, Senior Political Analyst, CNN; Professor of Public Service at Harvard Kennedy School and Director of its Center for Public Leadership Allison Yager Mark Gibson, Founding Partner and Executive Managing Director, HFF LP Sean W. B. Gill, Partner, NEPC David Gillan, Managing Director, Global Real Estate Investment and Commercial Lending, New York State Teachers’ Retirement System Jacques Gordon, Global Strategist, LaSalle Investment Management Greta Guggenheim, CIO and Co-Founder, Ladder Capital Finance LLC Spencer Haber, Chairman and CEO, H/2 Capital Partners Larry Harmsen, COO Americas, Prologis David Henry, Vice Chairman and CEO, Kimco Realty Corporation David Hodes, Founder and Managing Partner, Hodes Weill & Associates William Hughes, Global Head of Real Estate Research & Strategy, Chairman of the US Strategy Team, UBS C. Hastings Johnson, Vice Chairman and CIO, Hines Sonny Kalsi, Founder and Partner, GreenOak Real Estate Steven Kohn, President, Equity, Debt & Structured Finance, Cushman & Wakefield Inc. Dirk Laschanzky, Portfolio Manager for Multi-Asset Advisors, an investment boutique of Principal Global Investors Steven LeBlanc, Founding Partner, CapRidge Partners LLC Michael Mandelbaum, Christian A. Herter Professor and Director of the American Foreign Policy Program at Johns Hopkins University Howard Marks, Chairman, Oaktree Capital Management Michael Nash, Senior Managing Director, The Blackstone Group David Neithercut, President & CEO, Equity Residential Martha Peyton, Managing Director and Head of Strategy and Research, Global Real Estate Division, TIAA-CREF Asset Management Eugene Podkaminer, Vice President, Capital Markets Research, Callan Associates, Inc. Charles Ruffel, Managing Partner and Founder, Kudu Advisors, LLC Richard Saltzman, President, Colony Capital, LLC David Skinner, Principal, Head of Defined Contribution Practice, Prudential Real Estate Investors Robert Stuckey, Managing Director, The Carlyle Group Owen Thomas, CEO and Director, Boston Properties Raymond Torto, Global Chairman of Research, CBRE Ed Walter, President, CEO, and Director, Host Hotels & Resorts, Inc. PREA INSTITUTE 10

Conversation with Eugene F. Fama PENSION Eugene F. Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago Booth REAL ESTATE School of Business, and Nobel Laureate ASSOCIATION Moderator Greg MacKinnon, Ph.D., Director of Research, PREA The efficient-market hypothesis, Federal Reserve policy, and related topics were discussed during this timely YEAR IN REVIEW conversation about economic and investment issues affecting a wide range of asset classes. 2014

Macro-Economics: Economy, Interest Rates, Productivity Erik Hurst, V. Duane Rath Professor of Economics and the John E. Jeuck Faculty Fellow, University of Chicago Booth School of Business Professor Hurst addressed the macroeconomic issues most on the minds of US and global policymakers.

Economy’s Impact on Real Estate Investment Peter Linneman, Emeritus Professor of Real Estate, Wharton School of Business, University of Pennsylvania With his customary panache, Professor Linneman delved into the real estate investment implications, from net operating income to cap rate effects, of recent macroeconomic movements.

Core vs. Value-Added vs. Opportunistic Investing A Review of the PREA Sponsored Research Joseph L. Pagliari, Jr., Clinical Professor of Real Estate, University of Chicago Booth School of Business Professor Pagliari undertook an in-depth comparison of the gross and net returns, fees, and other attributes associated with core, value-add, and opportunistic real estate investment strategies.

Equity Markets Panel Discussion Mike Kirby, Chairman and Director of Research, Green Street Advisors David Helfand, President and CEO, Equity Commonwealth Office Trust W. Seth Martin, President, Pritzker Realty Group, LLC This expert panel examined REIT pricing relative to non-listed real estate and in the context of the long-term performance of real estate securities.

Credit Markets Panel Discussion David Sherman, Co-Founder and CEO of Carlyle Real Estate Solutions, President and Co-CIO, Metropolitan Real Estate Equity Management, LLC Jeffrey B. Citrin, Managing Principal, Square Mile Capital Management LLC Keith Gollenberg, Managing Director, Oaktree Capital Management, L.P. Industry leaders shared their insights into the volume and momentum of real estate capital availability.

Behavioral Perspective Nicholas Epley, John T. Keller Professor of Behavioral Science, University of Chicago, Booth School of Business Professor Epley detailed leading-edge research taking place at the intersection of economics and psychology. PREA INSTITUTE 11

Housing Market PENSION Amir Sufi, Chicago Board of Trade Professor of Finance, University of Chicago Booth School of Business REAL ESTATE Professor Sufi surveyed the US housing market, particularly as it relates to pricing, mortgage lending, and leverage. ASSOCIATION Perspective on the Urban Environment YEAR IN REVIEW Philip Enquist, FAIA, Partner, Skidmore, Owings & Merrill LLP 2014 Urban planning expert Philip Enquist described ways of cultivating urban vitality through infrastructure enhancement.

Competition Among & Concerns About Cities & States: Financial Instability, Regulatory Burdens, Bankruptcies Kevyn Orr, Emergency Manager of the City of Detroit A lawyer by training, Mr. Orr provided timely insights into Detroit’s response to its economic challenges, including the decision to pursue bankruptcy, the current status of creditors, and the role played by businesses moving to the city.

PREA INSTITUTE LOCATIONS

1991 Massachusetts Institute of Technology 1992 Massachusetts Institute of Technology 1993 Indiana University 1994 University of California, Berkeley 1995 Massachusetts Institute of Technology 1996 Massachusetts Institute of Technology 1997 University of California, Berkeley 1998 Massachusetts Institute of Technology 1999 University of California, Berkeley 2000 Massachusetts Institute of Technology 2001 University of California, Berkeley 2002 University of Pennsylvania 2003 University of California, Berkeley 2004 University of Pennsylvania 2005 University of California, Berkeley 2006 University of Pennsylvania 2007 University of California, Berkeley 2008 Columbia University 2009 University of Chicago 2010 Columbia University 2011 University of California, Berkeley 2012 University of Texas at Austin 2013 University of Pennsylvania 2014 University of Chicago FALL CONFERENCE 12

In his fascinating portrayal of the global economic environment, opening keynote speaker Martin Wolf of the Financial PENSION Times described the capital markets distortions that led to the financial crisis and subsequent expansion of monetary REAL ESTATE policy in the developed world. He observed divergences in economic performance among developed economies ASSOCIATION and a general slowdown in developing economies from the feverish growth rates experienced previously. Following his presentation, Wolf sat down with a panel of distinguished investors: Mitchell Julis (Canyon Partners), Mark Mc- YEAR IN REVIEW Goldrick (Mount Kellett Capital Management), and Bruce Zimmerman (University of Texas Investment Management 2014 Company). The panel discussed the macroeconomic climate, associated investment risks and opportunities, and the strategies investors could use to navigate these factors successfully. Larry Schloss (Angelo, Gordon & Co.) moderated an in-depth session on global real estate investment with experts Dennis Lopez (AXA Real Estate), Maximo Pinheiro Lima Netto (HSI-Hemisfério Sul Investimentos), John Pattar (CLSA Capital Partners), and Parry Singh (Red Fort Capital). Schloss asked panelists to depict their investment activities in the geographic markets in which each specializes, and to detail the risk premia as well as political and currency hedging considerations associated with those markets. Claudia Faust (Hawkeye Partners) posed insightful questions on US property valuations to panelists David Gilbert (Clarion Partners), Darla Longo (CBRE Global Investors), and Sush Torgalkar (Westbrook Partners). The group identified the most active types of institutional real estate buyers and sellers, the market segments attracting particular investor interest, and the market dynamics underpinning either pessimistic or sanguine outlooks for future pricing.

The focus on US real estate, particularly investment opportunities therein, continued as Will McIntosh (USAA Real Estate Company) moderated a panel composed of leading managers: Peter Braffman (GCM Grosvenor), Terri Herubin (Cornerstone Real Estate Advisers), and Barry Malkin (GEM Realty Capital). Discussion touched on the property types and geographical targets considered especially appealing, the importance of disciplined leverage levels, and panelists’ return expectations for various classes of real estate. Christopher Merrill (Harrison Street Real Estate Capital) led an informative discussion of alternative investments in which panelists delved into the advantages and drawbacks of their respective niches: Jarret Cohen (Fir Tree Partners) spoke about solar, Angie Davis (Campbell Global) about timberland, David Grain (Grain Management) about cellular tower investment, and Eric Haskel (Perella Weinberg Partners) about alternatives ranging from student housing to pastoral farming.

David Mandell (PivotDesk) moderated a discussion of technological and other disruptive forces influencing real estate investment with Jeffrey Frieden (Auction.com), Tom Lockard (Fundrise), and Brandon Weber (Hightower). The four conversed about obstacles to growing their business models, the regulatory environment, and the outlook for technology’s impact in the real estate sphere. Dana Telsey (Telsey Advisory Group) led an expert panel that surveyed the factors transforming the retail landscape. With panelists Mark Stefanek (Westfield Corporation) and David Zoba (Gap Inc.) she outlined the social, technological, and demographic trends distinguishing the most successful stores and retailers. During the dinner reception, CNBC reporter and PREA conference veteran Ron Insana sat down with finance legend Michael Lewis for a discussion of Lewis’s new book, Flash Boys, a revealing portrait of high-frequency trading and of one young banker’s efforts to offer investors an exchange operating outside the influence of HFT. The second day of the conference began with a lively interview of hedge funder leader Daniel Och (Och-Ziff Capital Management Group) by Bloomberg’s Betty Liu. The two discussed Och-Ziff’s move toward multi-product asset management as well as the risks and pathways to success present in today’s investment world. Following this interview, Liu moderated the conference’s concluding session, a conversation with prominent REIT-industry leaders Ron Havner (Public Storage), Hamid Moghadam (Prologis), and Richmond Wolf (Capital World Investors). The panel addressed the current position of REITs in the real estate cycle, the importance of operating fundamentals, and the key challenges facing the industry moving forward. FALLCONFERENCE 13 Co-Chairs PENSION Anthony Breault, Senior Real Estate Investment Officer, Oregon State Treasury REAL ESTATE Mark Shoberg, Managing Director, UTIMCO ASSOCIATION Joy Winterfield, Director, Allstate Investments LLC YEAR IN REVIEW Speakers Michael Bilerman, Managing Director, Head of Real Estate Investment Research, Citi 2014 Peter Braffman, Managing Director, GCM Grosvenor Jarret Cohen, Head of Private Real Estate, Fir Tree Partners Angie Davis, Managing Director–Business Development, Campbell Global Claudia Faust, Co-Founder, Managing Partner, Hawkeye Partners LP Jeffrey Frieden, CEO, Auction.com David Gilbert, Managing Director, CIO, Head of Acquisitions, Clarion Partners David Grain, Managing Partner and Founder, Grain Management, LLC Eric Haskel, Managing Director, Perella Weinberg Partners Ronald Havner, Chairman, CEO, and President, Public Storage Co-Chairs Terri Herubin, Portfolio Manager, Cornerstone Real Estate Advisers LLC Anthony Breault Ron Insana, Contributor to CNBC and MSNBC Mitchell Julis, Co-Founder, Co-Chairman, and Co-CEO, Canyon Partners, LLC Mark Shoberg Michael Lewis, Financial Journalist and New York Times Best-Selling Author of Flash Boys Joy Winterfield Betty Liu, Editor-at-Large, Bloomberg Television and Host of In the Loop with Betty Liu Tom Lockard, Vice President, Real Estate Investment and Institutional Sales, Fundrise Darla Longo, Managing Director, CBRE Global Investors Dennis Lopez, Global CIO, AXA Real Estate Peter Lowy, Co-CEO, Westfield Corporation Barry Malkin, Senior Managing Partner, GEM and CIO, GEM Realty Properties David Mandell, Co-Founder and CEO, PivotDesk Mark McGoldrick, Co-Founder, Global CIO, Mount Kellett Capital Management LP Will McIntosh, Global Head of Research, USAA Real Estate Company Christopher Merrill, President and CEO, Harrison Street Real Estate Capital Hamid Moghadam, Chairman and CEO, Prologis Maximo Pinheiro Lima Netto, Founding Partner, HSI-Hemisfério Sul Investimentos Dan Och, Founder of the Och-Ziff Capital Management Group John Pattar, Managing Director, CLSA Capital Partners Lawrence Schloss, President, Angelo, Gordon & Co. Parry Singh, Co-Founder & Senior Managing Director, Red Fort Capital Dana Telsey, CEO and Chief Research Officer, Telsey Advisory Group Sush Torgalkar, COO, Westbrook Partners Brandon Weber, Founder and CEO, Hightower Martin Wolf, Chief Economics Commentator, Financial Times Richmond Wolf, Vice President, Investment Analyst, Capital World Investors Bruce Zimmerman, CEO and CIO, UTIMCO David Zoba, Senior Vice President of Global Real Estate and Store Development, Gap Inc. OTHER EDUCATIONAL EVENTS 14

PREA’s Affinity Groups continued to meet at both the Spring and Fall Conferences. These small group meetings PENSION are designed to provide those members with a shared interest in a specific topic an opportunity to meet at REAL ESTATE regular intervals for discussion and information exchange. ASSOCIATION The current Affinity Groups are: YEAR IN REVIEW Alternative Real Estate Investment 2014 Capital Markets Defined Contribution Plans Development Green Building & Sustainability International Real Estate Investment Reporting & Valuations Research

PREA’s Rising Leaders Group gathered again at both the Spring and Fall Conferences. This self-managed group was launched to give younger members an opportunity to network and socialize in a casual format and to introduce and encourage their ongoing participation in PREA.

Three Regional Leadership Summits were held this year, each focusing on a specific topic on the minds of institutional investors. Chicago, May 13, 2014 Getting Creative with Investment Strategy in a World Awash with Capital San Francisco, June 10, 2014 Risk On or Risk Off: Five Perspectives New York, November 13, 2014 Real Estate Investments in a Rising Interest Rate Environment

PREARISINGLEADERS

PREA Affinity Groups Program Pension Real Estate Association Pension Real Estate Association Pension Real Estate Association

Chicago San Francisco New York Cocktails Leadership Summit Leadership Summit Leadership Summit Real Estate Investments You are cordially invited to Getting Creative with Investment Strategy Risk On or Risk Off: Five Perspectives in a Rising Interest Rate Environment Los AngelesRisingLeaders A Roundtable Discussion PREA’s in a World Awash with Capital Tuesday, June 10, 2014 Breakfast: 8:30 am Thursday, November 13, 2014 Wednesday, 9:30pm October 1, 2014 Tuesday, May 13, 2014 Roundtable Discussion: 9:00 am to 11:00 am Breakfast: 8:30 am The City Club of San Francisco Guest Speaker: Roundtable Discussion: 9:00 am to 11:00 am Stock Exchange Tower David Malpass, President of Encima Global 155 Sansome Street, San Francisco, CA Board member of the Economic Club of New York and the Council of the Americas The Pink Taco Room: Penthouse, 12th Floor and the National Committee on U.S.-China Relations The Chicago Club Westfield Century City Mall, Daniel Burnham Room, 3rd Floor Moderators Perspectives The Princeton Club 81 East Van Buren Street, Chicago IL 60605 15 West 43rd Street 10250 Santa Monica Blvd. Los Angeles. CA 90067 Mike DiRe One: Financial Risk (Leverage and Structuring) New York, New York 10036 pension real estate association Director of Real Estate Mike DiRe, California State Teachers’ Retirement System Room: Nassau/Triangle/McCosh 2014 California State Teachers’ Retirement System Two: Global capital flows and “US versus the rest of the world” Please RSVP to Roy Schneiderman in terms of attractive risk adjusted returns. Principal David Morrison, CBRE Global Investors Bard Consulting LLC [email protected] Three: Property fundamentals (US focused discussion of core A property types and supply/demand risk.) Eileen Marrinan, Grosvenor Americas RisingLeaders Committee Four: “Beating Benchmarks as an Investment Strategy, Do they increase or decrease portfolio risk? Drive returns? G Ryan Krauch (Mesa West Capital), Anthony Frammartino (The Townsend Group), And are there unintended consequences?” Sara Geiger (Florida State Board of Administration), Alexandra Hill (The Blackstone Group), Andrew Nelson, Deutsche Asset & Wealth Management Lanhee C. Yung (Starwood Capital Group)Pension and Garrett Real E. EstateZdolshek Association (Investors Diversified Realty) Five: Black Swan Risk (Should it be underwritten at all; 100 Pearl Street, Hartford, CT 06103 860-692-6341 and a few hypothetical “what ifs”.) Roy Schneiderman, Bard Consulting LLC WINTER QUARTERLY 2014 15

The first of two Feature articles in the Winter Issue was based on the market insights of writers David Hodes, Douglas PENSION Weill, Adam Handwerker, and Michael Lisa (all of Hodes Weill & Associates, LP) and on the results of an investor REAL ESTATE survey administered by the firm and by Cornell University’s Baker Program in Real Estate. Among other findings, ASSOCIATION the survey demonstrated that many institutional investors are increasing their target allocations to real estate yet remain underinvested relative to targets, suggesting ample latitude for future capital flows to the asset class. The YEAR IN REVIEW second Feature was a review of a roundtable discussion, moderated by Real Estate Roundtable President and CEO 2014 Jeff DeBoer, among leading real estate investors and managers: Steven Hason (APG Asset Management), Tom Arnold (ADIA), Richard Saltzman (Colony Capital), Tom Flexner (Citi), and Chip Rodgers, Jr. (Real Estate Roundtable). The group discussed current pricing in the global property markets, central bank actions and regulatory policy. The issue also featured a roundtable discussion of a recently-released PREA-sponsored report by the University of Chicago’s Joseph Pagliari on management fee structures. PREA’s Greg MacKinnon, Jacques Gordon (LaSalle Investment Management), Martha Peyton (TIAA-CREF), and Steven Hason (APG Asset Management) spoke about the valuable ways in which the report illuminated the connections between fees and distributions of possible returns. In a Point of View contribution, William Ferguson (Ferguson Partners Ltd. and FPL Advisory Group) wrote about the institutional priority of cultivating women leaders in the real estate investment community. He detailed the current state of the industry, the benefits of augmenting diversity, and the steps firms can take, from enhanc- ing recruitment to fostering mentoring relationships, toward better accessing the leadership capabilities and perspectives of female talent. In the One-on-One interview, PREA sat down with Yale economist Robert Shiller, who had recently received the 2013 Nobel Prize for his work on asset pricing. Shiller identified how his research orientation and findings com- pare and contrast with those of fellow Nobel laureate Eugene Fama, the path toward economic recovery in the United States and globally, current equity market pricing, and the shift toward defined contribution retirement. In the Washington Update, Joseph Forte (DLA Piper LLP) traced the history of commercial securitization from pre- financial crisis through to the crisis responses undertaken by industry and governmental bodies, including SEC and Dodd-Frank rules and their CMBS implications. In Real Estate Securities, Michael Hudgins (J.P. Morgan Asset Management) looked back at the “tumultuous” response of REITs to Fed tapering in 2013, and forward to ways investors could suitably position their REIT portfolios in 2014 and beyond. In Global Markets, Justin Curlow (AXA Real Estate Research) described the risks and potential rewards of “moving up the risk curve” in the European commercial real estate debt markets. In Capital Markets, PREA’s Greg MacKin- non looked at historical outcomes to suggest, with some qualifications, that real estate can perform well in a rising-interest-rate environment. In a Market Perspective, Disque Dean, Matt Diserio, and Marc Robert (all of Water Asset Management) and Linda Assante (Jasper Ridge Partners) outlined a thesis for institutional investment in water resources, with a focus on the Western United States. The Winter Issue also contained reports on each of the popular PREA Affinity Groups, and a recap of the 23rd Annual Investor Real Estate Conference held in Chicago.

2014WINTER Quarterly FEATURE Arnold Q WINTER2014 explained that P E N S I O N R E A L E S T A T E A S S O C I A T I O N globally, ADIA Built on insight. tries to antici- ADVERTISERS INDEX The discussion began with a look at the current state Arnold explained that globally, ADIA tries to anticipate of the property markets. Steven Hason noted that strong pate trends, as it trends, as it wants to orient its portfolio “to where the capital AEW With a 40-year real estate investment heritage, an experienced team The State of US Markets wants to orient Capital Management, L.P. 7 transaction volume and continuing strong demand for US is going, not to where it is.” Explaining further, he empha- its portfolio “to Bentall Kennedy 19 assets allows investors to be not only buyers but also sellers— sized that this is often complicated by the long time it can located in 24 cities globally, and assets under management of where the capital CBRE Global Investors 37 $47.3 billion (as of September 30, 2013), our real estate investment For Investors in Real Estate: taking advantage of the positive market conditions. Because is going, not to take to gain access to a new market in real estate. As a result, of increasing interest among investors in non-core assets and ADIA generally tries to forecast trends four to five years into Clarion Partners 4 where it is.” secondary markets, Hason classified today’s conditions in the the future. CohnReznick LLP 23 business employs a disciplined investment approach and offers a US as a great time to transact, especially for those looking to An audience member asked about the perception among Deutsche diverse range of solutions designed to create value for our investors. The Real Estate Asset & Wealth Management 9 trim assets from their portfolios that are not core to a long- market participants that some sovereign wealth funds have

DRA Advisors LLC 25 term strategy. He mentioned Mexico as a market that has been acquiring assets in primary US markets at extremely low 46 90 Equus Capital Partners 35 Roundtable’s Discussion been generating serious discussion, especially over the prior cap rates, classifying some recent transactions as “bizarre” at Greenhill & Co. 31 six months or so. In terms of Latin American markets, Hason the prices paid. Arnold said that he clearly couldn’t speak for FEATURES Henderson Global Investors 6 LaSalle 46 Capital Flows to Real Estate 52 The State of US Markets for Investors Investment Management Inc. IFC to Increase and Evolve in Real Estate: The Real Estate David R. Hodes, Douglas M. Weill, Roundtable’s Discussion Monument Group 33 Adam D. Handwerker, and Steven Hason, Tom Arnold, Madison International Realty 17 Michael D. Lisa Richard Saltzman, Tom Flexner, Clifton (“Chip”) Rodgers, Jr., Morningstar, Inc.– and Jeff DeBoer Structured Credit Ratings BC Principal Real Estate Investors 21 DEPARTMENTS SelectLeaders 61 10 Chairman’s Report 56 Snapshots Talmage 29 Micolyn Magee TIAA-CREF 13 58 Capital Markets 12 Washington Update Rising Interest Rates and Real Estate: Tishman Speyer 11 Steven Hason Tom Arnold Richard Saltzman Jeff DeBoer Tom Flexner Clifton Rodgers, Jr. Commercial Securitization It’s the Economy That Matters UBS Realty Investors LLC IBC Joseph Philip Forte Greg MacKinnon explained that people are considering markets with less cur- other investors or their strategies, noting that the term sov- USAA Real Estate Company 59 In early December 2013, The Real Estate Roundtable’s Real Estate Capital Policy 20 Real Estate Securities 66 Market Perspective rency risk after some disappointments over the past couple of ereign wealth fund encompasses a wide range of funds with Yardi Systems 3 Advisory Committee held its year-end meeting in New York City. One of the REITs: Positioning for Growth in 2014 Water Resource Scarcity: years in certain markets. very different mandates and liabilities. He agreed that there is Michael C. Hudgins A New Reality Defining the 21st Century agenda items addressed the state of the markets and the regulatory environ- Asked how ADIA views the US as a destination for real es- a lot of demand from foreign capital to get into key US cities, Disque Deane, Matt Diserio, 28 Global Markets and Marc Robert ment for investors in US real estate. Participants in this discussion included tate capital, Tom Arnold explained that it looked at more than such as New York, Washington, DC, and San Francisco, with European CRE Loans: Moving Up 30 different countries for opportunities and is actively invest- demand falling off significantly after those three cities. How- the Risk Curve 71 PREA Affinity Group Program Steven Hason, Co-Head of Americas Real Estate for APG Asset Management Justin Curlow Affinity Group Leader Reports ed in 26 but that ADIA has its largest concentration of real es- ever, for many non-US investors, there has been frustration in US Inc., Tom Arnold, Head of Americas Real Estate for the Abu Dhabi In- tate assets in the US. In deciding allocations across countries, trying to break into those markets. Many investors coming to 36 Point of View 80 Conference Coverage vestment Authority (ADIA), representing the views of foreign investors, along ADIA is “agnostic” about where to invest and simply looks the US for the first time are therefore most interested in estab- Where Are the Women CEOs? PREA’s 23rd Annual Investor William J. Ferguson Real Estate Conference with Richard Saltzman, President of Colony Capital; Tom Flexner, Global at risk-adjusted performance on a net basis. Arnold pointed lishing a “beachhead” in the US as a platform to building out Jared Chase out that it is important to consider both transaction and other a broader portfolio and gaining experience in the market, and 42 PREA Research Head of Real Estate for Citi Global Markets; and Clifton (“Chip”) Rodgers, Jr., costs, as “whether it is money you pay to your managers or Roundtable Discussion: 84 PREA People they are prepared to pay a premium to achieve this. Arnold Joseph Pagliari’s An Overview of Fee Senior Vice President of The Real Estate Roundtable. Jeff DeBoer, President to the jurisdictions in which you invest,” these costs will affect pointed out that ADIA has been investing in US real estate Structures in Real Estate Funds and Their 90 One-on-One returns. Ultimately, if the US is seen as safe and returns are for 30 years, so it does not face this pressure and can be more Implications for Investors Robert J. Shiller and CEO of The Real Estate Roundtable, led the conversation. The PREA Jacques Gordon, Steven Hason, Interviewed by Jared Chase Quarterly was invited to sit in on the discussion to raise awareness of the is- high enough to offset the costs of doing business relative to selective. and Martha Peyton other jurisdictions, then capital will be attracted to US real es- Asked about where in the cycle we are currently and the interviewed by Greg MacKinnon Printed on recycled paper sues among the PREA membership. tate. ADIA’s current US strategy for primary versus secondary implications for distressed investing, Richard Saltzman ex- markets depends on the product type. For instance, while of- plained that it really depends on the part of the globe you’re fice assets tend to be in primary gateway markets, retail tends looking at. Within the US, many investors have been frus- Deutsche Asset & Wealth Management represents the asset management and wealth management activities conducted by Deutsche Bank AG or any of its subsidiaries. Clients will be provided Deutsche Asset & Wealth to be geographically more widely spread out across the US. trated by the limited amount of distressed investing oppor- Management products or services by one or more legal entities that will be identified to clients pursuant to the contracts, agreements, offering materials or other documentation relevant to such products or services. 52 PREA Quarterly, Winter 2014 PREA Quarterly, Winter 2014 53 8 PREA Quarterly, Winter 2014 © 2014 Deutsche Bank AG. All rights reserved. ARA135151 (11/13) 1-031330-1.0

ARA135151_PREA_Ad_Winter_IssueR2.indd 1 1/16/14 12:26 PM SPRING QUARTERLY 2014 16

Succession management was the guiding theme of the Spring Issue. In the first of two Feature articles, Stephen Miles PENSION (The Miles Group) and Nathan Bennett (Georgia State University) enumerated nine threats to successful leader- REAL ESTATE ship succession, from a backward-looking planning process to assuming that current CEOs will be on board for ASSOCIATION the foreseeable future, that boards of directors should take pains to avoid. In the second Feature, a case study conversation, Anthony LoPinto (Korn Ferry) spoke with Eric Adler (Prudential Real Estate Investors) about taking the YEAR IN REVIEW helm at PREI from PREA Board director Allen Smith, who had become the CEO of Four Seasons Hotels and Resorts. 2014 Adler described the recruitment process, finding his replacement as head of European Operations at PREI when he took over as the organization’s CEO, and his imperatives for succession planning, with an emphasis on working years in advance to identify and coach leading candidates both globally and deep within the organization. In a Point of View contribution, Robert Toigo Foundation President and CEO Nancy Sims shared insights, based on the foundation’s quarter century of experience, into the mutually-rewarding aspects of developing effective mentoring relationships. Sims defined the criteria used to develop good mentor-mentee pairings, with consid- eration given to the unique needs and characteristics of the millennial generation. In the Washington Update, Robert LeDuc and John Sullivan (both of DLA Piper LLP) outlined tax, regulatory, and other issues affecting the flow of foreign capital into US real estate. In Real Estate Securities, Michael Hudgins and Luigi Cerreta (both of JP Morgan Asset Management) addressed three points of contention in the debate over investing in REITs versus private equity real estate: the relative quality of underlying portfolios, exposure to alternative property sectors, and extent of asset management fees. In Global Markets, Monika Ward (AXA Real Estate) depicted an “open window” for European value-add property investment based on cyclical and secular macroeconomic factors, pricing, and a needed shift away from risk aver- sion. Her observations were broken down in terms of property types and geographic markets (both by country and by metropolitan area subsection). In Capital Markets, PREA’s Greg MacKinnon compared valuations in various secondary US office markets using two metrics: current income spreads of each market over those associated with the five largest US markets, relative to historical spreads, and that same statistic plotted against each metro area’s growth in office-intensive employment sectors. Subject to the usual caveats, MacKinnon found that some cities (Baltimore and Dallas) appeared to be underpriced relative to recent employment growth. In the One-on- One interview, PREA spoke with management expert Rosabeth Kanter (Arbuckle Professor and Director of the Advanced Leadership Initiative at Harvard University) about CEO succession planning, her concept of “vanguard companies,” and other facets of innovation-generating leadership.

PREASPRING 2014Q UARTERLY

2014 Understanding SPRING Quarterly SPRING2014 FEATURE Q Succession P E N S I O N R E A L E S T A T E A S S O C I A T I O N Built on insight. ADVERTISERS INDEX

AEW Capital Management, L.P. 7 With a 40-year real estate investment heritage, an experienced team Management Bentall Kennedy 19 CBRE Global Investors 41 located in Get22 cities the globally, Board and assets under on management Its Toes: of eadership continuity is critical to the success of any organization, and that CenterSquare * L continuity is threatened each time there is a handoff from one leader to another. Outgoing and incoming Investment Management 31 $47 billion , our real estate investment business employs a disciplined CEOs, just like runners in a relay race, have to find a way to smoothly hand off the baton without com- Clarion Partners 5 investment approach and offers a diverse range of solutions designed to promising each other’s momentum. Because CEO succession is a rare event, there aren’t opportunities CohnReznick LLP 23 create value for our investors. for either the executives involved or their boards to develop and practice routines that would make the Cornerstone process perfect. But the closer to perfect it gets, the more confidently a board can say it has met this key Real Estate Advisers, Inc. 25 Stephen A. Miles responsibility to stakeholders. The Miles Group 42 72 Deutsche Asset & Wealth Management 9 Anticipate Effective succession planning requires a disciplined approach to the design and execution of a process DRA Advisors LLC 35 for developing, identifying, and transitioning a new CEO. From our experience, we have found an all-too- FEATURES Equus Capital Partners 29 common mistake boards make is to underestimate the time, effort, and expertise required to manage this 42 Get the Board on Its Toes: Anticipate the 46 Succession Management: A Conversation process effectively. Either a bad succession plan or a bad execution can lead to outcomes short of desired Greenhill & Co. 33 Threats to CEO Succession With Eric Adler and Anthony LoPinto and can be, in fact, a complete disaster. One only has to pick up a newspaper and read the business head- Stephen A. Miles and Nathan Bennett LaSalle Investment Management Inc. IFC The Threats lines to see evidence of succession debris like that created by short-tenured CEOs such as Jack Griffin at Madison Time Warner and Ron Johnson at J.C. Penney. DEPARTMENTS International Realty 17 How can a board approach succession planning in a manner that increases the odds of getting it right? Nathan Bennett Robinson College of Morningstar, Inc.– In this article, we review nine threats to effective succession planning that our experience shows often 10 Chairman’s Report 38 Point of View Structured Credit Ratings BC Business Administration, Yvonne Nelson The Magic of Mentorship plague boards. The good news is that each can be addressed. By considering and then proactively address- Georgia State Universtity Principal Real Estate Investors 21 Nancy Sims CEO ing each of the threats, a board can build and exercise the sort of muscle that will help it get better at this 12 Washington Update SelectLeaders 57 To Strategies for Attracting 50 Snapshots infrequent, but extremely critical, exercise. Foreign Capital to US Real Estate TIAA-CREF 13 Robert LeDuc and John L. Sullivan 52 Capital Markets Tishman Speyer 11 Nine Threats to an Effective CEO Succession Relative Values in Primary and Transwestern 20 Real Estate Securities Secondary Office Markets Investment Group 15 Succession Threat One: REITs Versus Private Equity Real Estate: Greg MacKinnon Inability to Recognize and Break Bad Habits Three Topics of Debate Triton Pacific Capital 37 Michael C. Hudgins and Luigi Cerreta 60 PREA Spring Conference Coverage UBS Realty Investors LLC IBC The way most boards approach succession planning reflects what members feel worked in the past. The threat is that the business environment is much different today than it was when many board members 28 Global Markets 63 PREA People USAA Real Estate Company 6 learned those lessons. Things move much more quickly now than they did in the past. Companies, com- The Window Is Open for European Yardi Systems 3 Value-Added Property Strategies 72 One-on-One petitors, regulators, and customers are much more tightly networked than companies were before. CEOs Monika Ward Rosabeth M. Kanter and boards face much closer scrutiny than in the past. Shareholder activism is enjoying a surge. Tried- Interviewed by Jared Chase and-true approaches—we’d argue the “true” part of the cliché was never really merited—are no longer sufficient. As things have evolved, boards don’t understand their roles and can’t execute their duties based on an understanding that was generated years ago. Boards must continually stress-test their assumptions and their approaches to succession to make sure each reflects current realities. Threat Two: A Lack of CEO Selection Experience on the Board As we noted at the outset, CEO succession is a rare event. That means developing experience with the Printed on recycled paper task is difficult for boards. Although boards seem to recognize the importance of finding experienced * As of December 31, 2013 directors to lead such committees as audit and risk, often the leader of the succession planning committee Deutsche Asset & Wealth Management represents the asset management and wealth management activities PREA Quarterly, Spring 2014 1 conducted by Deutsche Bank AG or any of its subsidiaries. Clients will be provided Deutsche Asset & Wealth A Q U A R T E R L Y P U B L I C A T I O N O F T H E P E N S I O N R E A L E S T A T E A S S O C I A T I O N Management products or services by one or more legal entities that will be identified to clients pursuant to the contracts, agreements, offering materials or other documentation relevant to such products or services. 8 PREA Quarterly, Spring 2014 © 2014 Deutsche Bank AG. All rights reserved. ARA135151 (11/13) I-031330-1.0

42 PREA Quarterly, Spring 2014 PREA Quarterly, Spring 2014 43 SUMMER QUARTERLY 2014 17

The three Feature articles appearing in the Summer Issue shared the common theme of sustainability. The first was a re- PENSION cap of a roundtable discussion, moderated by Doug Poutasse (Bentall Kennedy), with industry leaders employed by REAL ESTATE signatories to the United Nations-supported Principles for Responsible Investment (PRI): Mary Brown (Principal Glob- ASSOCIATION al Investors), Jameela Pedicini (Harvard Management Company), Werner Sohier (PGGM), and Dave Zellner (Wespath). The group discussed the most important environmental, social, and governance components of the UN-supported YEAR IN REVIEW PRI, how the principles relate to socially responsible investing, and how uptake of the principles has varied across 2014 geographic lines and over time. The second Feature was a roundtable discussion of sustainability in commercial real estate among distinguished managers: Steve Furnary (Clarion Partners), Jeff Hines (Hines), Matt Khourie (CBRE Global Investors), and Rob Speyer (Tishman Speyer). These industry leaders spoke about the pace of adoption of sustainability features by the institutional real estate community, gave examples of what these features might include, considered the role of certification in the sustainability discussion, and pointed to the range of real estate now incorporating sustainable features (e.g., existing structures, office and apartment buildings). For the third Feature, we looked back at a conversation among the leaders of three prominent real estate sustainability associations: Rick Fedrizzi (US Green Building Council), Nils Kok (Global Real Estate Sustainability Benchmark), and Chuck Leitner (ULI Greenprint Center for Building Performance). Fedrizzi, Kok and Leitner portrayed their organizations’ missions and activities, pointed to environmental measurement tools that investors might consider employing, and weighed the remaining challenges facing sustainability efforts against the signs of forward progress that have appeared in recent years or can be seen on the horizon. In the One-on-One, PREA spoke with China expert Elizabeth Economy (Council on Foreign Relations) about economic and middle class growth, urbanization, and political reform movements in China, conceptions of the “Chinese dream,” cross-border investments with the United States, and related issues. In the Washington Update, Barbara Trachtenberg (DLA Piper) sketched the history of terrorism risk insurance in the United States and provided an outlook for the future of legislation in this area. In Real Estate Securities, Michael Hudgins (J.P. Morgan Asset Manage- ment) weighed the pros and cons of investing in publicly held development companies.

In Global Markets, Monika Ward (AXA Real Estate) charted the multifarious investment performance drivers in the European industrial market, from retail demand to building obsolescence and trends in warehouse size and urban proximity. In Capital Markets, PREA’s Greg MacKinnon found a positive relationship between a metro area’s change in its college-educated population and subsequent job creation performance as well as a positive relationship between an MSA’s job growth relative to national trends and its real estate returns. Though causation cannot be assumed, these findings demonstrated the links between education, employment, and property performance.

PREASUMMER 2014Q UARTERLY

2014SUMMER Quarterly SUMMER2014 FEATURE Q Perspectives on P E N S I O N R E A L E S T A T E A S S O C I A T I O N ADVERTISERS INDEX Real Estate

AEW Capital Management, L.P. 7 Adelante Capital Management LLC 15 Sustainability Bentall Kennedy 17 Jared Chase Carmel Partners 5 PREA

CBRE Global Investors 37 CenterSquare Catalyzing Industry Change: Real Estate Sustainability Associations Investment Management 27

Clarion Partners BC

CohnReznick LLP 29 Real estate investors and managers seek- Goals and Roles Kok recalled that GRESB’s start was inspired by 40 82 Cornerstone ing to enhance the environmental per- We first asked panelists to describe their in- research he had done in 2008 and 2009 on the rela- Real Estate Advisers, Inc. 23 formance of their buildings and portfolios stitutional missions and how those have tionship between the certification of green buildings Deutsche Asset FEATURES & Wealth Management 9 have partnered with a number of organi- translated into concrete involvement in the and their financial performance relative to noncerti-

40 The Broad View: Perspectives on 56 Catalyzing Industry Change: Real Estate DRA Advisors LLC 35 zations devoted to measuring, assessing, industry’s evolution with regard to sustainabil- fied peer properties. Recognizing how important the Investing Responsibly Sustainability Associations and improving such performance. Among ity. Fedrizzi observed that USGBC’s mission is availability of reliable real estate and sustainability Equus Capital Partners 31 Jared Chase with Doug Poutasse, Jared Chase with Rick Fedrizzi, the prominent institutions active in this field about “market transformation,” specifically to data was to such analysis, GRESB pursued a mission Mary Brown, Jameela Pedicini, Nils Kok, and Chuck Leitner Greenhill & Co. 33, 45 Werner Sohier, and Dave Zellner are the Global Real Estate Sustainability Bench- “transform the way buildings and communities of “measuring sustainability at the portfolio level, LaSalle Investment Management Inc. IFC mark (GRESB), the ULI Greenprint Center are designed, built, and operated” so as to em- creating transparency for institutional investors 46 Sustainability in Commercial Real Estate: for Building Performance, and the U.S. Green power the development of environments that when they make real estate investments through A PREA Roundtable Discussion Madison International Realty 21 Building Council (USGBC). To explore the are ecologically sound and promote the physi- property companies or REITs.” GRESB “operational- Jared Chase with Steve Furnary, Principal Real Estate Investors 19 Jeff Hines, Matt Khourie, and Rob Speyer roles they have played, and are poised to as- cal and economic well-being of their inhabit- izes that mission,” he continued, by way of a mul- SelectLeaders 79 sume, in industry efforts at optimizing envi- ants, investors, and operators. Since USGBC’s tifaceted benchmark through which investors can TIAA-CREF 13 ronmental outcomes, we recently spoke with 1993 founding, that mission has motivated the draw upon sustainability information the organiza- DEPARTMENTS TIAA Henderson Real Estate 39 Nils Kok, Executive Director of GRESB; Rick elaboration of a program to “define, recognize, tion has collected and validated to make better-in- 10 Chairman’s Report 62 Snapshots Tishman Speyer 11 Fedrizzi, President, CEO, and Founding Chair- and reward best practices,” namely the LEED formed investment and capital allocation decisions. Yvonne Nelson 64 Capital Markets Transwestern man of USGBC; and Chuck Leitner, Chairman (Leadership in Energy and Environmental De- Leitner responded that, during the course of the 12 Washington Update Education, Technology, Jobs, Investment Management 67 of the Greenprint Center. sign) rating systems. Greenprint Center’s five-year history, its mission has Terrorism Insurance in America— and Real Estate UBS Realty Investors LLC IBC been to help “property investors, owners, and op- What’s Next? Greg MacKinnon USAA Real Estate Company 6 erators on a global basis … collaborate and create an Barbara A. Trachtenberg Conference Coverage Villanova University 71 opportunity to measure [the] ongoing performance 18 Real Estate Securities 72 The PREA Institute Class of 2014 [of] investment properties based on environmental Yardi Systems 3 Investing in Listed Developers: 73 The Real Estate Research Institute metrics.” The practical steps taken toward achiev- The Pros and Cons ing that mission have included building an active Michael C. Hudgins 74 PREA People membership as well as “a consolidated and statis- 28 Global Markets 82 One-on-One tically meaningful database” from which industry The Want for Warehouses: Elizabeth C. Economy members can benchmark their own properties and A European Perspective Interviewed by Jared Chase Monika Ward portfolios. Emphasizing the need for truly compa- rable performance metrics (i.e., “year over year and same store”), Leitner remarked that the Greenprint database allows both asset-level and broader portfo- Rick Fedrizzi Nils Kok Chuck Leitner Printed on recycled paper lio-level comparisons. USGBC GRESB Greenprint Center

PREA Quarterly, Summer 2014 1 A Q U A R T E R L Y P U B L I C A T I O N O F T H E P E N S I O N R E A L E S T A T E A S S O C I A T I O N 8 PREA Quarterly, Summer 2014 56 PREA Quarterly, Summer 2014 PREA Quarterly, Summer 2014 57 FALL QUARTERLY 2014 18

The three Feature articles in the Fall Issue all involved sources of capital for real estate investment. In the first Feature, PENSION Janice Stanton (Cushman & Wakefield) traced the abundance of global capital targeting American real estate invest- REAL ESTATE ment and its destinations within the US. Acknowledging growing concerns about the possibility of another pricing ASSOCIATION bubble, Stanton emphasized that structural growth in the number and resources of investors seeking safe havens like the US should add to the sustainability of flows, even if cyclical movements toward the US begin to reverse. YEAR IN REVIEW In a second Feature, Michael Humphrey and Zachary Brown (both of Courtland Partners, Ltd.) took a close look at 2014 a number of large institutional investors’ preferred investment vehicles coming out of the financial crisis, among them separate accounts and direct investment vehicles including programmatic joint ventures and positions in real estate operating companies. Humphrey and Brown described the benefits, including increased control and alignment of interests, as well as the additional considerations, including increased in-house staffing require- ments, these vehicles can engender. In the third Feature, Michelle Reuter (Mercer) observed the growing inclusion of alternative asset classes including real estate as available components of defined contribution plans. She noted the advantages (such as increased risk-adjusted returns) and concerns (including liquidity and transparency issues) that come with alternative investment, and identified preferred modes (e.g., target-date funds and inflation-hedging strategies) and conditions (e.g., guardrail allocation limits) of offering alternative exposure to defined contribution plan participants. In the One-on-One, PREA caught up with Scott Malpass, Vice President and CIO of the University of Notre Dame Investment Office. Malpass spoke about his personal history at the university, his role in establishing Catholic In- vestment Services on behalf of smaller Catholic institutions, and the Notre Dame endowment’s long-term returns and real estate allocation, among other topics. In the Washington Update, Jesse Criz, Robert LeDuc, and Benjamin Briggs (all of DLA Piper LLP) outlined the implications of proposed IRS regulations that elucidate the definition of real property for REIT purposes. In Real Estate Securities, Jim Sullivan (Green Street Advisors) looked back at the tremendous growth of the US REIT industry and forward to the possibility of a new wave of REIT conversions. In Global Markets, Alan Patterson (AXA Real Estate) used economic downturn effects on the lodging sector as an example of the ways investors should remain cognizant of the risks associated with investment in alternative real estate. In a Point of View contribution, Joseph Stecher (RealConnex LLC) forecasted the expanding use of web- based search tools to facilitate investment and capital sourcing, partner selection, and other critical institutional real estate activities. In Capital Markets, PREA’s Greg MacKinnon explained how core assets could seem overpriced and fairly priced at the same time: the ultimate determination depends on the extent and value of diversification that core US real estate investment produces, and that can vary widely by capital source. In Conference Coverage, PREA’s Jared Chase reviewed the 24th Annual Institutional Investor Real Estate Conference held in Los Angeles.

PREAFALL 2014Q UARTERLY

2014 Wrap-Up: Capital Flows, Real Estate and DC Plans, 2014FALL Quarterly FEATURE Q The Changing Face of Real Estate Investor Preferences FALL2014 P E N S I O N R E A L E S T A T E A S S O C I A T I O N

The real estate investment market ADVERTISERS INDEX in the United States in 2014 is benefiting from a wave of capital that has surpassed AEW Capital Management, L.P. 7 prior peak levels. By some fund-raising metrics, 20% more capital is looking for Bentall Kennedy 19 deals today than in 2007, and the demand for product significantly outstrips sup- CBRE Global Investors 57 ply in most core markets. This has resulted in dramatic cap rate compression, most Janice Stanton Cushman & Wakefield noticeably in large gateway cities. The capital flows driving this bull market are Clarion Partners BC increasingly international and driven by a number of factors, some of them cyclical CohnReznick LLP 27 and some of them structural. Deutsche Asset & Wealth Management 9

DRA Advisors LLC 29 Cyclical Drivers of Capital Flows Dune Real Estate Partners 25 Cyclical factors exist both at the macroeconomic level and in the investment markets. 34 74 The global economy has endured a slow, choppy recovery from the crisis of the past de- Equus Capital Partners 23 cade. Most recently, Japan dipped back into recession, the German economy faltered, and the FPL Advisory Group 31

International Monetary Fund reduced its global GDP growth prediction for 2014 from 3.7% FEATURES LaSalle Upsurge of to 3.3%. The prices of commodities are falling, notably oil prices, which have dropped 30%. Investment Management IFC 34 Upsurge of Global Capital Flows 44 The Evolving Role of Real Estate in And in 2014, these negative economic trends are occurring against a backdrop of increased Benefits the US Real Estate Market Defined Contribution Plans Madison International Realty 17 geopolitical instability as evidenced by the crisis in Ukraine and the growth of ISIS in the Janice Stanton Michelle Reuter Principal Real Estate Investors 21 Middle East. SelectLeaders 59 Global Capital Flows In response to increased economic and geopolitical risk, many investors have embraced 40 Changing Real Estate Investor TIAA-CREF 13 a global flight to quality, with an increased demand for income-producing real estate gener- Preferences Since the Financial Crisis Michael J. Humphrey Tishman Speyer 11 ally and in US gateway cities in particular. Intense competition for product in gateway cities and Zachary G. Brown has pushed some investors (primarily domestic) into secondary markets and development/ Transwestern Investment Management 15 Benefits the US redevelopment plays. Although this is one of the few cycles in which aggressive capital into the US is coming Triton Pacific Capital 5 from all sectors (public, private, domestic, and international), the international capital has DEPARTMENTS UBS Realty Investors LLC IBC been the most visible, participating in some of the largest high-profile transactions this year, University of Colorado 49 10 Chairman’s Report 50 Snapshots including the largest single-asset transaction year to date: AS THIS ISSUE WAS GOING TO PRINT, Yvonne Nelson USAA Real Estate Company 6 Real Estate Market n $2.25 billion Ivanhoé Cambridge joint venture with Callahan Capital of 1095 Blackstone announced the $8.1 52 Capital Markets Yardi Systems 3 Sixth Avenue, New York City (contract) billion sale of IndCor Properties 12 Washington Update Value in the Eye of the Beholder: Can US Core Be Overvalued and n $2 billion sale of the New York Waldorf Hotel to Anbang (contract) to Singaporean investors GIC/GLP, IRS Clarifies REIT Definition of “Real Fairly Valued? n $1.5 billion Norges investment in a three-office joint venture with Boston Property” in New Proposed Regulations further demonstrating the accel- Jesse Criz, Robert LeDuc, Greg MacKinnon Properties (New York City and Boston) eration of cross-border activity and Benjamin Karr Briggs n $1.6 billion Hong Kong Monetary Authority’s investment in a Hines joint 60 Conference Coverage in particular from APAC capital venture for two Los Angeles office properties 20 Real Estate Securities 24th Annual Investor sources. While the graphics and n $1.37 billion Kokusai Kogyo buyout of its partner in San Francisco/Hawaii hotels The REIT Industry: Growing by Leaps Real Estate Conference tables in the remainder of this n $1.3 billion Related/GIC/Abu Dhabi Investment Authority joint venture for and Bounds article do not reflect the transac- Jim Sullivan 66 PREA Scholarships Time Warner Center in New York City tion, updated exhibits are avail- n $800 million, 50% interest in 1 World Trade Center retail condo by Westfield 28 Global Markets 68 PREA People able from C&W upon request. Alternative Real Estate: Attractive but Risky 74 One-on-One Alan Patterson Scott Malpass Interviewed by Jared Chase 32 Point of View “What Important Truth Do Very Printed on recycled paper Few People Agree With You On?” Joseph Stecher A Q U A R T E R L Y P U B L I C A T I O N O F T H E P E N S I O N R E A L E S T A T E A S S O C I A T I O N 34 PREA Quarterly, Fall 2014 PREA Quarterly, Fall 2014 35

8 PREA Quarterly, Fall 2014 QUARTERLY WRITERS 2014 19

Department Writers Feature Writers PENSION REAL ESTATE Chairman’s Report Capital Markets Winter 2014 ASSOCIATION Micolyn Magee Greg MacKinnon David R. Hodes YEAR IN REVIEW Yvonne Nelson Douglas M. Weill Conference Coverage Adam D. Handwerker 2014 Washington Update Jared Chase Michael D. Lisa Joseph Philip Forte Steven Hason Robert LeDuc and John L. Sullivan PREA Affinity Group Program Tom Arnold Barbara A. Trachtenberg Faye Beverett Richard Saltzman Jesse Criz, Robert LeDuc, and Benjamin Chuck Burd Tom Flexner Karr Briggs Doug Lee Clifton (“Chip”) Rodgers, Jr. Robert Byron Jeff DeBoer Real Estate Securities Stephen Coyle Michael C. Hudgins David Skinner Spring 2014 Luigi Cerreta Laurie Tillinghast Stephen A. Miles Jim Sullivan Michael Buckley Nathan Bennett Marc Weidner Eric Adler Global Markets Robert Jones Anthony LoPinto Justin Curlow Vance Voss Monika Ward Lisa Amzallag Summer 2014 Alan Patterson Joshua Daitch Doug Poutasse Doug Poutasse Mary Brown Market Perspective Jim Clayton Jameela Pedicini Disque Deane, Matt Diserio, and Marc Douglas Herzbrun Werner Sohier Robert Dave Zellner One-on-One Jared Chase Point of View Robert J. Shiller Steve Furnary William J. Ferguson Rosabeth M. Kanter Jeff Hines Nancy Sims Elizabeth C. Economy Matt Khourie Joseph Stecher Scott Malpass Rob Speyer Jared Chase Rick Fedrizzi PREA Research Nils Kok Jacques Gordon Chuck Leitner Steven Hason Martha Peyton Fall 2014 Janice Stanton Michael J. Humphrey Zachary G. Brown Q Michelle Reuter

2014FALL Quarterly 2014 Quarterly SUMMER Q FEATURE Q

Although the inclusion of real estate, commodities, and The other real assets has become commonplace among institutional investors and accredited, high-net-worth individuals, the limited regulations and relative lack of liquidity of these investments has Michelle Reuter led to their almost complete absence from defined contribu- Mercer Evolving Role tion (DC) plans. However, in the past five years many investment SnapshotsJLL Global Real Estate Transparency Index, 2014 (102 Markets Worldwide) Apartment: Demand and Supply Changes (Quarter/Quarter), Vacancy Rate Apartment: Demand & Supply Changes (Quarter/Quarter) - Vacancy Rate managers have been launching alternative investment products that cater to DC plans; these funds are valued daily, carry trans- Change in Demand Change in Supply Vacancy 0.8% - 0.9% Of Real Estate parent pricing structures that meet the Labor Department’s fee - 0.8% 0.6% disclosure rules, and provide sufficient liquidity. Among these - 0.7% products are REIT strategies, daily valued direct real estate funds, e 0.4% - 0.6% Vac anc and diversified inflation-linked strategies. 0.2% - 0.5% y Rate In Defined

ercent Chang

P 0.0% - 0.4% Highly Current Utilization Transparent - 0.3% –0.2% Although the percentage of DC plans that offer alternative investments as Transparent - 0.2% stand-alone investment options is low, according to PLANSPONSOR, it Semi-Transparent –0.4% Contribution - 0.1% Low has been increasing over the past five years, with a fairly significant up- Transparency 1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006 3Q2006 4Q2006 1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 Opaque tick during 2013 (Exhibit 1). Many expect to see this percentage increase Sources: CoStar Group Inc., PPR as more attractive, DC-focused alternative options come to market. Sources: CoStar Group Inc, PPR Plans Exhibit 1: DC Plans Offering Alternatives as Stand-Alone Options Sources: JLL, LaSalle Investment Management 2008 2009 2010 2011 2012 2013

The World’s Most TransparentThe World’s Countries, Most 2014 Transparent Countries, 2014 Green Street Property Sector Indices 1.8% 2.3% 3.6% 2.7% 2.8% 5.5% Dominated by Anglophone Markets Green Street Property Sector Indicies Source: PLANSPONSOR Defined Contribution Survey, 2008–2013 140 Apartment 2014 Composite 2014 Composite Industrial Category Rank Market Score The world’s most transparent 120 Retail In years past, DC plans commonly offered extensive lineups with a 1 United Kingdom 1.25 markets are still dominated Oﬃce variety of investment options for participants to choose from. However, 2 United States 1.34 by Anglophone markets— 100 Strip 3 Australia 1.36 the UK, the US, Australia, and Lodging studies have shown that providing too wide a range of investment op- 4 New Zealand 1.44 New Zealand. 80 Highly tions makes decision making more difficult for participants. Therefore, Transparent 5 France 1.52 However, France and Finland, 60 DC plans are becoming more focused with less inclusion of real es- 6 Canada 1.52 which are at the forefront of 7 Netherlands 1.57 tate, alternatives, or other niche investment options. Further, Mercer open data initiatives, have 40 8 Ireland 1.62 consolidated their positions 9 Finland 1.69 in the top ranks. 20 10 Switzerland 1.73 Ireland has moved into the 0 11 Sweden 1.79 top tier of transparency as a

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June ’12 June ’13 13 Singapore 1.81 June ’14 14 Hong Kong 1.87 Source: Green Street Advisors Note: Property sectorSource: indices Green are Street indexed Advisors to 100 at their 2007 peak. Last observation: June, 2014. Sources: JLL, LaSalle Investment Management The world’s most transparent markets are still dominated by Anglophone markets–the UK, the US, Australia, and New Zealand. Notes: Property sector indices are indexed to 100 at thieir 2007 peaks. Last observation: June 30, 2014. However, France and Finland, which are at the forefront of open data initiatives, have consolidated their positions in the top ranks. 62 PREA Quarterly, SummerIreland 2014 has moved into the top tier of transparency as a result of a new REIT regime. PREA Quarterly, Summer 2014 63 44 PREA Quarterly, Fall 2014 PREA Quarterly, Fall 2014 45 RESEARCH 20

Research Reports PENSION Authored by PREA’s Director of Research Greg MacKinnon and published online, the PREA Research Report Series is designed REAL ESTATE to provide unbiased research on timely topics important to our members. Many times, the questions posed in the ASSOCIATION research report are generated by our members in discussion with our research department. Other reports provide updated material and additional information to previously published reports. Check www.prea.org/research for the YEAR IN REVIEW latest reports and updates. 2014 The Fee Structure Series of research reports featured the following titles in 2014: Fee Structures IV: Base Management Fees – The Base Matters Fee Structures V: A Look at Catch-Ups

Research Publications The PREA Investor Report is an annual report that represents the real estate investment activities of the universe of public and private retirement plans, endowments, foundations, and other funds, both in the industry generally and within the PREA membership specifically. The Investment Management Guide is an online publication that provides profiles of PREA’s investment management members. For each organization, it includes contact information, a company overview, and a breakdown of managed assets by property type, geographic distribution and fund name. The PREA Management Fees & Terms Study analyzes the fee structures and fee levels of private property investment funds with the aim of creating a systematic approach to gathering and reporting information on fee structures, increasing the transparency and comparability of the fee structures and levels of private real estate investment funds. PREA also uses this information in an annual comparison of the results with those obtained by the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV) and the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) in their own fees and terms studies. The Investment Intentions Survey, conducted in cooperation with INREV and ANREV, analyzes expected investment trends in the real estate industry as reported by an international group of institutional investors, fund managers, and funds of funds. The Compendium of Statistics compiles data on commercial real estate markets from a wide variety of industry sources into one comprehensive resource. This data is updated on a monthly basis or more frequently as needed. Examples of data available in the compendium include:

n NCREIF and IPD Property Returns n REIT Returns n Vacancy Rates by Geographic Region n Rent Growth by Geographic Region n Real Estate Transaction Volume n CMBS/CMBX Spreads The PREA Consensus Forecast Survey is a quarterly survey of the association’s investment manager, advisor, consultant and research company members engaged in forecasting the U.S. commercial real estate markets, as represented by the NCREIF Property Index (NPI). Participants in the survey include some of the most widely respected organizations in the industry. The PREA Consensus Forecast Summary Report contains average forecasts for returns to U.S. real estate markets from the survey, while the Detail Report contains further information on the survey responses (although all individual survey responses remain strictly confidential). Why Real Estate? This slide deck is updated regularly, providing PREA members with a quick and easy location for current information and resources on the basic arguments in favor of an allocation to real estate within a multi- asset portfolio. WEBINARS 21

Webinars are internet-based forums where members can access informational sessions and/or panel discussions PENSION complete with graphic presentations directly from their offices. These forums focus on a specific topic and REAL ESTATE provide participants with valuable perspective on current industry issues. Members can participate in real time or can access the replay of the broadcast at their convenience. ASSOCIATION YEAR IN REVIEW In 2014, the PREA Webinar Series focused primarily on the PREA|IPD U.S. Property Fund Index. Greg MacKinnon from PREA and Jim Valente from IPD discussed the most recent quarterly results including insightful analysis and 2014 commentary. Additionally, Sally Haskins, Senior Vice President-Real Assets Consulting at Callan Associates, Inc., spoke with Susan Doyle, Managing Director, Portfolio Management and Strategies at GE Asset Management Incorporated, and Dhvani Shah, Chief Investment Officer of the Illinois Municipal Retirement Fund, in a timely and important discussion of the issues most affecting investors today.

November 18, 2014 PREA | IPD U.S. Property Fund Index Consultative Release of Q3 2014 Results

August 20, 2014 PREA | IPD U.S. Property Fund Index Consultative Release of Q2 2014 Results

June 19, 2014 A Conversation with Leading Institutional Investors

May 20, 2014 PREA | IPD U.S. Property Fund Index Consultative Release of Q1 2014 Results

February 20, 2014 PREA | IPD U.S. Property Fund Index Consultative Release of Q4 2013 Results

November 18, 2014 PREA | IPD U.S. Property Fund Index Consultative Release of Q3 2014 Results August 20, 2014 PREA | IPD U.S. Property Fund Index Consultative Release of Q2 2014 Results June 19, 2014

A Conversation with Leading Institutional Investors May 20, 2014 PREA | IPD U.S. Property Fund Index Consultative Release of Q1 2014 Results February 20, 2014 PREA | IPD U.S. Property Fund Index Consultative Release of Q4 2013 Results REAL ESTATE RESEARCH INSTITUTE 22

The Real Estate Research Institute is a non-profit organization created to stimulate high quality research on real PENSION estate investment performance and market fundamentals that will elevate the quality of real estate decision REAL ESTATE making. The Institute’s mission is to encourage research that applies academic theory and analytic techniques to ASSOCIATION practical real estate investment decision making by: YEAR IN REVIEW n Establishing an agenda of issues critical to a better understanding of real estate markets, investment characteristics and performance. 2014 n Raising funds to support rigorous, objective and practical research on these key issues. n Soliciting, evaluating and funding specific proposals for research from academics, industry, and the investment community. n Communicating the results as broadly as possible. RERI’s mission is closely aligned with PREA’s mission to serve its members engaged in institutional real estate investment through the sponsorship of objective forums for education, research initiatives, membership interaction and the exchange of information. The relationship between RERI and PREA began in 1991, when PREA became a sustaining sponsor. PREA encourages the support of RERI and its research efforts. Today, RERI also receives sponsorship from many PREA member firms. The following papers were presented at the 2014 RERI Conference: The Cross Section of Expected Real Estate Returns: Insights from Investment-Based Asset Pricing Authors: Shaun Bond and Chen Xue

Overconfidence and Corporate Decision Making: Evidence from REIT Property Transactions Authors: Piet Eichholtz and Erkan Yonder

Inflation Uncertainty and Real Estate Authors: Lingxiao Li and Timothy Riddiough

Commonality in Liquidity and Real Estate Securities Authors: Martin Hoesli, Anjeza Kadilli and Kustrim Reka

Do Value-added Real Estate Investments Add Value? Authors: Liang Peng and Thomas Thibodeau

The Impact of Capital Expenditures on Property and Portfolio Performance of Commercial Real Estate Authors: Chinmoy Ghosh and Milena Petrova

Commercial Real Estate Market Property Level Capital Expenditures: An Option Analysis Authors: Shawn Bond, James D. Shilling, and Charles H. Wurtzebach

The Upgrade and Downgrade of CMBS Credit Ratings Authors: Xudong An and Joseph Nichols

How Is Leverage Determined for Commercial Real Estate? Author: Liang Peng

Lender Expectations and Real Estate Dynamics Author: Natalie Tiernan

The Extensive Margin of Credit, Housing Markets and Government Policies Author: Pedro Gete

SAVE THE DATE for our annual RReal Estate Research Conference April 29–30, 2014

EDePaul University One East Jackson Chicago, IL RRoom 8005, 8th Floor I REAL ESTATE INFORMATION STANDARDS 23

The Real Estate Information Standards were originally published in 1995 through the cooperative efforts of PREA, PENSION the National Association of Real Estate Investment Managers (NAREIM), and the National Council of Real Estate REAL ESTATE Investment Fiduciaries (NCREIF) to develop commonly-accepted methods for calculating, presenting and ASSOCIATION reporting investment results to the institutional real estate investment community in the United States. Most recently, the Standards are a joint initiative co-sponsored by PREA and NCREIF. YEAR IN REVIEW The Standards are reviewed each year and revised or amended as necessary. 2014 NOTE: Beginning in early 2015, this initiative will be known as the NCREIF PREA Reporting Standards. Real Estate Information Standards Handbook Volumes I & II SCHOLARSHIPS 24

In keeping with our educational mission, PREA awards scholarships on an annual basis to promising students study- PENSION ing real estate at the undergraduate and graduate levels. PREA also partners with the Robert A. Toigo Foundation REAL ESTATE to grant a PREA/Toigo scholarship, which is awarded to minority and women students. Since 1994, PREA has ASSOCIATION awarded nearly $612,500 in scholarships to more than 219 students studying real estate and related fields across more than forty academic institutions in the United States and Canada. YEAR IN REVIEW 2014 PREA-Scholarship PREA-Toigo Recipients Scholarship Recipients

Nicole Caithness Juan S. Agudelo Florida State Columbia

Omar El-Mofty Bria Bailey San Diego State Columbia

Zifeng Feng Kilian Toms Florida International University Harvard

Aaron Kazam Columbia

Matt Klein Northwestern

Matthew Olsen University of Chicago

Ari Parritz Northwestern

Matthew Robinson Brigham Young

Diana Siu Harvard

Stephanie Wright Yale JOHN W. KOZA LEADERSHIP PROGRAM 25

2014 saw the addition of three new Fellows to the John W. Koza Leadership Program. Named in recognition of PENSION former chairman John Koza, a respected industry leader and exponent of investor education, the Leadership REAL ESTATE Program is designed to promote engagement in PREA among up-and-coming leaders in the institutional investor ASSOCIATION community. The objective is to familiarize young investors with the organization early in their careers to ensure that they are fully aware of the educational resources available to them. The program will also be a source of the YEAR IN REVIEW association’s next generation of institutional leadership. 2014 Fellows are nominated by senior executives of their investor organizations to participate for a two-year period. Those selected as Fellows receive a conference fee waiver and travel expense stipend to attend the Spring Confer- ence, the Annual Plan Sponsor Real Estate Conference and the PREA Institute. At that time, Fellows will be asked to contribute their time and skills to the association through participation in one of PREA’s standing committees and/or affinity groups. Experience within the leadership structure will give Fellows the opportunity to maximize the benefits of membership for their own firms as well as the association at large. Additionally, their participation in PREA’s educational forums will give them opportunities to expand upon their knowledge of industry trends and developments. 2014 John W. Koza Leadership Fellows

Amilcar Grot Blue Sky Group Grot joined Blue Sky Group in 2009 and serves as a Fund Manager within the Global Real Estate Group. He is responsible for due diligence, selection of new investments, monitoring of existing investments, and market research. Prior to joining Blue Sky Group, Grot worked as a Researcher for the Ministry of Education, Culture and Science of the Netherlands, where he was researching the Dutch residential market. Grot received a BS in finance and an MS in finance with a concentration in real estate finance from the University of Amsterdam.

Rich Matheson Utah Retirement Systems Matheson is a Real Estate Investment Analyst at Utah Retirement Systems. Some of his portfolio management responsibilities include insurance, appraisal review, compliance, property monitoring/auditing, transaction underwriting and due diligence, and asset manager oversight. Matheson is a certified commercial appraiser, with extensive experience valuing investment assets throughout the Intermountain West. Prior to joining URS in 2011, he worked as an Appraiser for Integra Realty Resources. He received a BS in finance and a Master of Real Estate Development from the University of Utah, where he has also worked as an Ad- junct Professor. Matheson is actively involved in professional organizations (CCIM, NCREIF, and PREA) and in the community, serving more than six years as a volunteer on the Salt Lake County Planning Commission.

Myles Millard The Cadillac Fairview Corporation Limited Millard is an Associate within the Investments team at Cadillac Fairview, a wholly-owned subsidiary of the Ontario Teachers’ Pension Plan. This group is responsible for executing the acquisitions and dispositions for the company’s global real estate portfolio. Millard’s responsibilities include reviewing and underwriting investment opportunities as well as researching and analyzing new investment markets. Prior to joining Cadillac Fairview, he held a similar role in the Investments Group at Concert Properties Limited. He received his Bachelor of Commerce degree from the Sauder School of Business at the University of British Columbia, completing a dual specialization in finance and real estate, and has completed all three levels of the Char- tered Financial Analyst (CFA) Program. BOARD OF DIRECTORS 2014–2015 26

Yvonne Nelson, Chairman Joseph Gyourko PENSION New York City University of Pennsylvania, REAL ESTATE Office of the Comptroller Zell/Lurie Real Estate Center ASSOCIATION at Wharton YEAR IN REVIEW

Tom Arnold, Vice-Chairman Deborah Harmon 2014 Abu Dhabi Artemis Investment Authority Real Estate Partners LLC

Eric Lang, Treasurer John Kukral Teacher Retirement Northwood System of Texas Investors LLC

Jamie Shen, Secretary Matthew Lustig Callan Associates, Inc. Lazard Real Estate Partners LLC

Steven Hason, Institutional Investor Roy March Council Executive Committee Chair Eastdil Secured APG Asset Management US Inc.

Jeffrey Barclay John Powers Goldman, Sachs & Co. Stanford Management Company

Charles Carpenter Philip Riordan State of Wisconsin GE Pension Trust Investment Board

Susan Swindell Carter Allen Smith Formerly with North Carolina Four Seasons Retirement System Hotel and Resorts

Dan Cummings Barry Sternlicht Harvard Management Starwood Capital Company, Inc. Group Global, LLC

Mike DiRe Robert White, Jr. California State Teachers’ Real Capital Analytics Retirement System

Kevin Faxon Allison Yager J.P. Morgan Mercer Asset Management INSTITUTIONAL INVESTOR COUNCIL EXECUTIVE COMMITTEE 27

Steven Hason, Chairman Gloria Gil PENSION APG Asset Management US Inc. University of California REAL ESTATE ASSOCIATION YEAR IN REVIEW

Edgar Alvarado Eric Lang 2014 Allstate Investments LLC Teacher Retirement System of Texas

Jamie Behar Michelle Pak GM Asset Management Rockefeller Foundation

Susan Swindell Carter Christina Scarlato Formerly with North Carolina The World Bank Retirement System

Dan Cummings Stephen Spook Harvard Florida State Board Management Company, Inc. of Administration

Graeme Eadie CPP Investment Board COMMITTEE MEMBERS 28

CONFERENCE INSTITUTE PUBLICATIONS PENSION COMMITTEE COMMITTEE COMMITTEE Howard Margolis David Sherman Dennis Martin REAL ESTATE Chairman Chairman Chairman ASSOCIATION MRP Group Metropolitan Real Estate Prudential Real Estate Investors Equity Management LLC YEAR IN REVIEW Amachie Ackah Timothy Brosnan Clay Cove Capital, LLC Jeffrey Barclay LBA Realty 2014 Goldman, Sachs & Co. Trina Bigby-Sanders Dan Fasulo Los Angeles County Employees Peter Katseff Retirement Association Ritson Ferguson Susan Levine CBRE Clarion Securities Diego Carrillo RCG Longview California Public JoAnn Hanson Employees’ Retirement System Mary Ryan McCarthy Avanti Strategic Land Investors Hines Tom Flexner Robert Kochis Citi Global Markets Inc. Steve Orbuch The Townsend Group Och-Ziff Real Estate Advisors, LLC Spencer Haber Christopher Longee H/2 Capital Partners LLC Jennifer Wenzel University of Chicago, Teacher Retirement System of Texas Office of Investments Alison Hawkins CBRE Pamela Wright William Maher Global Investors Greenhill & Co., LLC LaSalle Investment Management, Inc. Josh Kawaii-Bogue Eric Wurtzebach California State Teachers’ Macquarie Capital (USA) Inc. Kevin Maxwell Retirement System TIAA-CREF MEMBERSHIP Steve LeBlanc COMMITTEE Everett “Skip” Miller, III CapRidge Partners, LLC Robert Vogelzang New York State Common Chairman Retirement Fund Greg Moran Triton Pacific Capital Dividend Capital Group Bleecker Seaman Victor Del Pizzo Lowe Enterprises Investors Robert Murray Alcatel-Lucent Praedium Group LLC Bret Wilkerson Patrick Kendall Hawkeye Partners, LP Caixia Ziegler Cornerstone Real Estate Advisers LLC Ford Foundation Nathan Zinn Jeffrey Kusumi CBRE Global Investors GOVERNMENT Rubenstein Partners AFFAIRS RESEARCH COMMITTEE Tuba Malinowski COMMITTEE Joel Rubin Stockbridge Real Estate Funds Jim Clayton Chairman Chairman Seyfarth Shaw LLP NEW PROGRAMS Cornerstone Real Estate Advisers COMMITTEE Scott Darling Gadi Kaufmann Jamie Behar American Realty Advisors Chairman GM Asset Management RCLCO/Robert Charles Lesser & Co. Jay Farris Jeffrey Fisher Alston & Bird Russell Appel Homer Hoyt Institute Praedium Group LLC Steven Greenspan Jacques N. Gordon JPMorgan Asset Management Linda Assante LaSalle Investment Jasper Ridge Partners Management, Inc. Lawrence J. Hass Paul Hastings LLP Julie Brenton Joseph Gyourko Dune Real Estate Partners University of Pennsylvania, Herbert Krueger The Wharton School Mayer Brown LLP Brad Creel Lockheed Martin William Hughes John H. Kuhl Investment Management Company UBS Global Asset Management Cox, Castle & Nicholson LLP Field Griffith Martha Peyton Lennine Occhino Virginia Retirement System TIAA-CREF Mayer Brown LLP Stephen Quazzo Catherine Polleys A. Kelly Ryan Pearlmark Real Estate Partners, L.L.C. Ennis Knupp Kirkland & Ellis LLP Jennifer Wenzel Tim Wang Joshua Sternoff Teacher Retirement System of Texas Clarion Partners Paul Hastings LLP AFFINITY GROUP LEADERS 29

Alternative Real Estate Investment Green Building & Sustainability PENSION Faye Beverett Robert Jones REAL ESTATE Bard Consulting GE Pension Trust ASSOCIATION Chuck Burd Vance Voss YEAR IN REVIEW Bentall Kennedy (US) LP Principal 2014 Real Estate Investors Doug Lee Metropolitan Real Estate Equity International Real Estate Investment Management LLC Lisa Amzallag LBA Advisors LLC Capital Markets Robert Byron Joshua Daitch Blue Vista Capital Mesirow Financial Management, LLC

Reporting & Valuations Stephen Coyle Doug Poutasse Bentall Kennedy Bentall Kennedy (US) LP Defined Contribution Plans Research David Skinner Michael Acton Prudential AEW Capital Management, L.P. Real Estate Investors

Paige Mueller Laurie Tillinghast RCLCO Real Estate Advisors UBS Realty LLC

Development Michael Buckley University of Texas at Arlington

Marc Weidner Franklin Templeton Realty Advisors PREA STAFF 30

Gail Haynes President PENSION Greg MacKinnon Director of Research REAL ESTATE ASSOCIATION Jack Nowakowski Director of Education and Industry Data Resources YEAR IN REVIEW Amy Laffargue Director of Meetings and Events 2014 Sandra McDermott Director of Member Services

Darlene McIntosh Accountant

Jared Chase Staff Writer and Editor

Wanda Molina Executive Assistant

Sue Marshall Consulting Director of Communications

Elizabeth Reegan Consulting Director of Advertising Sales

Dale Bates Designer Year In Review

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