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HomeMy WebLinkAbout2007 03 29 Handout Given by Bogdahn Consulting for Agenda Item 300 (2) March 29,2007 Handout given to Board of Trustee members from Bogdahn Consulting, LLC at the March 29, 2007 Special meeting as an addition to the Handout already given for Agenda Item 301. CITY OF WINTER SPRINGS EMPLOYEES' RETIREMENT SYSTEM Core Real Estate Mandate Review Presented March 29, 2007 ~"ab~ ~~` o~fer~t ~earcl~ Qverview Index Gle~nitions Analysis P'ac~e: l~'ac~as: 3 Faces: 4- ~o~n consulting, L.~. ~~arc v~~ew __ As a part of our search fora "core" real estate manager, Bogdahn Consulting posted the following announcement on Public Pensions Online: The City of Winter Springs Employees Retirement System (Florida) RFP The City of Winter Springs Employees Retirement System (Florida) is searching for a institutional, managed direct Real Estate product to fill a mandate totaling approximately $1 million. Response inquiries should be addressed to Bogdahn Consulting, LLC. Attention: Rob Little (robl@bogdahnconsulting.com). Completed responses should be received by close of business March 16, 2007. Four firms responded to announcement. Only two of the firms (American Realty and Intercontinental Real Estate Corporation) proposed adirect-investment ,core rest estate strategy; however, Intercontinental's U.S. Real Estate Investment Fund's (US REIF) inception date was July 2006, it only has two assets, and does not have any performance history. BCOM, Inc. and Naples Asset Management Company, LLC also responded to the RFP, but each firm proposed a mezzanine loan (mortgage) strategy and BCOM also proposed a "developmental" real estate strategy, which are not what we are recommending at this time. In addition to posting the search, Bogdahn also screened the PSN REIT/Real Estate Universe for strategies that would meet the requirements of the proposed mandate. As of 12/31/06, there were only 17 core, non-REIT real estate strategies in the universe that consisted of 109 investment products. Based on our review of the 17 products in the universe, American Realty was the only firm that would accept the Plan's $1 million mandate size. BiQ~t~a.~lil QI1S>Fl~lil~,~ ~.~. BlackRock did not populate the Granite Property Fund in the PSN universe, but we knew they had adirect-investment, core real estate strategy and they acknowledged they would accept a $1 million mandate. i,~rv~~x Deinifr~ NCREIF Property Index: The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. NCREIF ODCE: Short for NCREIF Fund Index -Open End Diversified Core Equity and is the first of the NCREIF Fund Database products and is an index of investment returns reporting on both a historical and current basis the results of 26 open-end commingled funds pursuing a core investment strategy, some of which have performance histories dating back to the 1970s. The NFI-ODCE Index is capitalization-weighted and is reported gross of fees. Measurement is time-weighted. NCREIF will calculate the overall aggregated Index return. Source: National Council of Real Estate Investment Fiduciaries (NCREIF) B©gdahn ansultng, LLB. 3 American Real#~ CQre Beatty Location --- Glendale, California - Corporate History --- American Realty Advisors was founded over 18 years ago. - Firm Assets --- The firm manages over $4.0 billion in institutional real estate assets. - Firm Management --- Domestic real estate focus. Senior management owns 100% of the firm. In addition to the headquarters in Glendale, the firm also has an office in Atlanta, GA and Santa Fe, NM. Y Strategy Process --- American Realty Advisors focuses on quality core investment properties that have the following characteristics: stable income, low risk, long-term appreciation potential. The combination of targeting properties with high current cash flow and acquiring properties at prices below their estimated intrinsic value results in arisk-controlled investment portfolio. Leverage is targeted to be between 20% to 40%. The income component has averaged 5.4% per year for the three-year period ended 12/31/06. Their most recent allocations to property types were: Office 34% Industrial 29 Multi-family 22 Retail 15 12.7% of the properties are in the Mid West, 32.1 % in the West, 29% in the East, and 26.2% in the South. B©~d~hn a-nsuiti~g, LLB. 4 BIaGkRQCk: Grar-ite Pt'Q ~ FunQl - Location --- New York, New York (the headquarters for the real estate group is Florham Park, NJ). - Corporate History ---Established in 1988, BlackRock is a publicly traded company with over 4,500 employees. In February 2006, BlackRock and Merrill Lynch announced the two firms approved a merger. - Firm Assets ---Total firms assets were approximately $1.1 trillion as of December 31, 2006, with approximately $21 billion in real estate assets under management. - Firm Management --- BlackRock has over 25 years experience investing in real estate in the US and Europe. The real estate team is organized to act quickly on perceived opportunities with more than 75 senior professionals generating quality deal flow and over 270 people with on-the-ground experience in the local markets. - Strategy Process ---The BlackRock Granite Property Fund focuses on quality, income producing properties in four major property types (office, retail, apartments, and industrial). Risk is controlled through diversification by property type, geography, economic base and life cycle. Investments are primarily in major and regional markets, with limited secondary market investments. Property fundamentals are important when evaluating properties, as well as financing and structuring. Leverage is targeted at 25%, but can reach 40% with short term exceptions. The income component of recent returns has averaged 5.4%/year for the three-year period ended 12/31/06. Their most recent allocations to property types were: Offices 44.5% Industrial 11.4 Retail 26.7 Apartments 17.4 2% of their properties are in the Midwest, 54% in the West, 32% in the East, and 12% in the South. Bogdahn ansultin, L~. ~~~ For the Seven-Year Period Ended 1 x/31 /Q6 Returnset and Index ^ ^ • • • ^ American Realty -American Stable Value/Core Composite 1.00 0.55 0.74 0.29 -0.34 ^ BlackRock -Granite Property Fund 0.55 1.00 0.76 0.15 -0.21 • NCREIF NPI 0.74 0.76 1.00 0.19 -0.18 • S&P500 0.29 0.15 0.19 1.00 -0.52 • LBAB -0.34 -0.21 -0.18 -0.52 1.00 ', Timeframe: 7 Years Trailing Topic: Correlation For the Three-Year Period Ended ~ 231 ff76 Returnset and Index ^ ^ ^ American Realty -American Stable Value/Core Composite 1.00 0.36 0.79 0.19 -0.27 ^ BlackRock -Granite Property Fund 0.36 1.00 0.53 0.23 -0.25 • NCREIF NPI 0.79 0.53 1.00 0.28 0.04 • S&P500 0.19 0.23 0.28 1.00 0.08 •LBAB -0.27 -0.25 0.04 i 0.08 1.00 Timeframe: 3 Years Trailing Topic: Correlation Bogd~hn Qns~itin, Imo. ,, 6 Risk vs. Return Benchmark Index: NCREIF National Property Index 3 Years Trailing ending 12/31/2006 S Years Trailing ending 12/31/2006 20 19 { I { ~ o i-----_ 15 ~ ~ ____ I ~ j I 18 ' i 14 1 'i i 17 i I ~ 13~ - _._. _ -- -- -- - ; ~ 1s- ~ ~ tzj ~ ~ ~ ii 15y ~ ( ~ 11 ' II ~ ~ .._....~.._ ___._.,_..,___.~.-_._...._..____ _~_..y.,._..__....~___ ___ 10 ~.._ .__._....___....,..._ _.______.T._._._._... __...~ 0 1 2 3 4 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Standard Deviation Standard Deviation 7 Years Trailing ending 1 213 112 0 0 6 15 i---- -_____ ~ ~ .._ _.____....__...~..,~ 14~ ' 13 m 12-j ~ I i „1 ~ ~ _.____ ,o _ _ ~ ___.. . 1.0 1.5 2.0 2.5 3.0 3.5 Standard Deviation 3r 5r 7Yr Returns Standard Returns Standard Returns Standard Deviation Deviation Deviation American Realty 14.07 3.51 11.98 3.01 11.23 2.73 BlackRock 15.22 3.40 10.78 3.78 10.49 3.42 i NCREIF National Property hdex 17.02 1.76 13.27 2.55 12.25 2.43 - NCREIF National Propertylndex ^ American Really-American Stable Value/Core Composite ^ BlackRock -Granite Property Fund F2rforrrence Calculations by PSWtvLSearch using Quarterly Data Bogdahn onsiting, LLB. Performance: Calendar-Year Benchmark: NCREIF National Property Index r~t~rog ~ 2008 2005 2004 2003 2002 2001 2000 ~ 199 9 1998 1997 ~ American Realty -American Stable Value/Core Composite -Gross S¢e T i 11 04 19 26 12 09 10.32 ~ 7.50 7.09 11 71 _ 9 88 15 52 '. ~ BlackRock -Granite Property Fund -Gross Size 18.69 20.92 6.58 7.04 1.91 5.83 _ 13.83 12.72_ _ _ 15.29 s 12.23 ~ NCREIF National Property Index ~ 16.59 ~ 20.06 14.48 j 8.98 ! 6.74 7.29 12.24 I 11.36 t 16.24 j 13.90 _ Returns Perforrrence Calculations by PSWIvI-Search using Quarterly Data BQ~hri ~Qnsulting, LLB. s Performance: Trailing Performance Benchmark: NCREIF National Property Index Trailing periods ending 12/31/2006 Data calculated using Quarterly returns Qfr tYr 2Yr 3Yr 4Yr SYr 6Yr 7Yr ~~ 10Yr ^ American Realty -American Stable Value/Core Composite -Gross Size 1.91 11.04 15.08 14.07 13.12 11.98 11.15 11.231 __ _ ~ ~~_ ^ BlackRock -Granite Property Fund -Gross Size 4.30 18 69 19.80 15.22 13 12 10 78 9.94 _ 10 49 11.36 ~ NCREIF National Property Index 4.51 16.59 18.311 17_02 14.96 13 271 1225 12 25 12 72 Returns f~rforrtence Calculations by PSWfv~Search using Quarterly Data Bo~d~hn ~©ns~iting, L~f. Performance: Risk Analysis Benchmark: NCREIF National Property Index For the 7 Years Trailing Period Ended 12/31/2006 Returns o. t o. o 7Vr Standard Deviation q ~...w 4 ~~~___.__._....__......~ 3 i _ 1 2 f i. ~ ~ ~ ( ~ ~ jC I I ~ E ~ 1 0 7Yr Negative Quarters Worst Quarter 7Vr 7Vr Sharpe Ratio 7V r Returns i ~ Standard Deviation Sharpe Ratio Negative Quarters Worst ~ Worst4 Quarter Quarters ^ American Really-Pmerican Stable Value/Core Composite~Gross Size ~T 11.2 2.73 ~ 2.91 0 ~~ 5.61 '. ®BlackRock Granite Property Fund -Gross Size _ _ ~~~~~ ~~ ~ ~ 10.49 3.42 2.12 0 0.03 1.91 !. •NCREIF National Property Index 12.25 2.43 3.68 0 0.68 5.51 limetfame: ~ Years Iraning Performance Calculations by PSWIv~Search using Quarterly Data Bogdahn ©nsuitin~;T L~.,t. 10 7Yr Worst 4 Quarters Performance: Rolling Three-Year Statistic Benchmark: NCREIF National Property Index 10 Years Trailing Returns F2rforrronce Calculations by PSt~Search using Quarterly Data ©~tdil QriSli~tlil~, ~..«~ D99 J00 D00 J01 D01 J02 D02 J03 D03 J04 D04 JO5 DO5 JO6 D06 12 Quarters Ending • NCREIF National Property Index ^ BlackRock -Granite Property Fund -Gross Size ^ American Realty -American Stable Value/Core Composite -Gross Size Performance: Rolling Three-Year Risk Statistic Benchmark: NCREIF National Property Index 10 Years Trailing Standard Deviation Analysis Period: 01/01/1997 - 12/31/2006 ® NCREIF National Property Index ^ BlackRock -Granite Property Fund -Gross Size ^ American Realty -American Stable Value/Core Composite -Gross Size F2rformance Calculations by PShYN}~Search using Quarterly Data Bodahn a-nsuitn~, I~ 1~ D99 J00 D00 J01 D01 J02 D02 J03 D03 J04 D04 JOS DOS JO6 DO6 12 Quarters Ending Performance: Rolling Three-Year Statistics Benchmark: NCREIF National Property Index 10 Years Trailing Up-Market Ratio Index: NCREIF National Property Index Analysis Period: 01/01(1997 -12/31/2006 io i0-~ 0~ M00 S00 M01 SOi M02 S02 fv103 S03 M04 S04 fu105 S05 MD6 SO6 D99 J00 D00 J01 D01 J02 D02 J03 D03 J04 D04 J05 D05 JO6 DO6 12 Quarters Ending ^ American Realty -American Stable Value/Core Composite -Gross Size ^ BlackRock -Granite Property Fund -Gross Size F~rforrrence Calculations by PSWAMSearch using Quarterly Data Bal~.~~ ansuitn~, LI.,. 13 14 ,.., _ _~_ Performance: Rolling Three-Year "Income" Performance Benchmark: NCREIF National Property Index (Income) 10 Years Trailing Returns Analysis Period: 01/01/1997 -12/31/2006 o ~___...~_~.____~_.__~________e__. ~_ _ ~___.._.___.____m~_____a_-___~.-.._._ ~ -- ----~ s~ s{ 1 '~ s~ j 1 k SE E I 4- 3~ ~ IIII 2-j i 1-~ .r.._._~._. .-~.~._______-._...___.-----?-~ MDO S00 M01 SOt MJ2 S02 MD3 ~S03 -~ N104 S04 MO5 SOS M06 SO6 D99 J00 D00 J01 D01 J02 D02 J03 D03 J04 D04 J05 D05 J06 IX 12 Quarters Ending • NCREIF National Property Index (Income) ^ BlackRock -Granite Property Fund-Income Component (g) -Gross Size ^ American Realty -American Stable Value/Core-Income Component -Gross Size F~rforrrence Calculations by PSWA4Search using Quarterly Data Bod~h~n ~onsultin, I~~. IS Performance: Trailing Performance Benchmark: NCREIF National Property Index (Income) Trailing periods ending 12/31/2006 Data calculated using Quarterly returns Returns _ Qtr 1Yr 2Yr 3Yr 4Yr 6Yr 6Yr I 7Yr 10Yr I. ~I American Realty -American Stable Value/Core-Income Component -Gross Size 1.16 5.44 5.51 5.37 6.20 6.69 7.15 7.48 ock -Granite Property Fund-Income Component (g) -Gross Size ^ BlackR 1.23 4.35 4.68 5.41 5.82 6.25 6.71 7.03 7.46'. _ _ _ /9 NCREIF National Property Index (Income) ' ~ 1.48 6.22 6.49 6.81 7.10 7.36 7.581 7.72 • NCREIF ODCE Index-Income (Gross) ~' 1.40 5.82 6.19 6.50 6.70 6.99 7.25 7.44 Returns Performance Calculations by PSWb}.Search using Quarterly Data Qgd~hn ansu~ting, I.La t6