THE PERFORMANCE AND DIVERSIFICATION BENEFITS OF EUROPEAN NON-LISTED REAL ESTATE FUNDS PROFESSOR GRAEME NEWELL University of Western Sydney June 2015

Significance of unlisted real estate funds Focus: Europe  INREV : Europe : Q – Q Risk-adjusted performance Portfolio diversification Real estate investment implications PURPOSE OF PAPER

Access to expert management  Diversification benefits Easier implementation than direct real estate Access to new markets International diversification Access to specific sector Risk-return profile Stable income return Access to leveraged investments REASONS FOR UNLISTED REAL ESTATE

Availability of suitable product  Alignment of interest with fund manager  Costs Current market condition Transparency Resources required CHALLENGES FOR UNLISTED REAL ESTATE

Liquidity Alignment of interest with co-investors Regulatory issues Currency risk Availability of debt CHALLENGES FOR UNLISTED REAL ESTATE

GLOBAL INVESTABLE UNIVERSE OF REAL ESTATE Source: CBRE (2011)

PLAYERS IN THE GLOBAL REAL ESTATE INVESTMENT LANDSCAPE  Local  International  REITs/PCs  Unlisted RE funds  Private equity funds  Pension funds  Sovereign wealth funds  Insurance companies  High wealth individuals

High transparency (5/9): UK (1), France (5), Netherlands (7), Ireland (8), Finland (9) Transparent (13/19): Switzerland (10), Sweden (11), Germany (12), Belgium (15), Denmark (16), Poland (17), Spain (18), Norway (19), Austria (21), Italy (22), Portugal (23), Czech Republic (24), Hungary (25) Semi-transparent (8/33): Romania (30), Israel (31), Slovakia (32), Greece (33), Turkey (34), Russia – Tier 1 (37), Croatia (46), Russia – Tier 2 (59) Low transparency (5/21): Slovenia (62), Serbia (65), Bulgaria (66), Russia – Tier 3 (70), Ukraine (74) Opaque (2/20): Kazakhstan (84), Belarus (94) EUROPEAN REAL ESTATE MARKET TRANSPARENCY: 2014

Asia-Pacific: $774B; 17% market share Americas: $1,977B; 46% market share Europe/MEA: $1,588B; 37% market share Global: $4,344B SIGNIFICANCE OF EUROPEAN TRANSACTIONS: SIGNIFICANCE OF EUROPEAN TRANSACTIONS: Source: Real Capital Analytics (2015)

# 1 : US : $ % # 2 : UK : $ % # 3 : Germany : $ 317 7% # 4 : Japan : $ 243 6% # 5 : France : $ 190 4% EUROPEAN TRANSACTIONS: Source: Real Capital Analytics (2015)

# 2 : Paris ; office ; $1.8 B # 4 : London ; office ; $ 1.7 B # 10 : London ; office ; $ 1.2 B # 12 : London ; office ; $ 1.2 B # 14 : London ; retail ; $ 1.1 B MAJOR GLOBAL TRANSACTIONS : 2014

RANKING OF THE MAJOR GLOBAL COMMERCIAL REAL ESTATE MARKETS: TRANSACTION VALUE City New York11113 London22222 Tokyo33331 Los Angeles44458 San Francisco Paris67644 Washington76867 Chicago Sydney Dallas Source: Real Capital Analytics (2015)

RANKING OF THE MAJOR EUROPEAN REAL ESTATE MARKETS: TRANSACTION VALUE City London11111 Paris22222 Rhine-Ruhr35755 Frankfurt46678 Stockholm57463 Berlin63346 Amsterdam Munich Madrid Dublin Source: Real Capital Analytics (2015)

2014: CAPITAL RAISED: CLOSED FUNDS $ 91 billion - 18% Private Equity market share 2014: RAISING CAPITAL: “IN MARKET” $174 billion Major players - Blackstone (#1) - Lone Star (#2)- Brookfield (#3) - CBRE GI- Prudential REI- LaSalle 2007 – 2014 : CAPITAL RAISED funds $669 billion Investor appetite : pension funds  SIGNIFICANCE OF UNLISTED REAL ESTATE

2014: CAPITAL RAISED: CLOSED FUNDS - $36 billion - 40% market share 2014: RAISING CAPITAL: “IN MARKET” - $40 billion - 23% market share 2007 – 2014 : CAPITAL RAISED funds $142 billion - 21% market share Blackstone REP Europe IV : € 6.6 B Lone Star Fund IX : $7.2B (50% Europe) Investor appetite  EUROPEAN UNLISTED REAL ESTATE

International players - Blackstone - CBRE GI- Heitman - Invesco- LaSalle- ProLogis - TIAA Henderson- Tishman Speyer- UBS Local players - Aberdeen - AEW Europe- Aviva - AXA- Credit Suisse- L&G - M&G- Patrizia- Patron - Standard Life- Schroders- Union EUROPEAN UNLISTED REAL ESTATE

Strategies - Core, value-added, opportunistic, distressed, debt - Country specific, multi-country, regional, global - Sector specific, diversified - Closed-end, open-end Termination strategies EUROPEAN UNLISTED REAL ESTATE

CORE AND NON-CORE REAL ESTATE STRATEGIES Source: Russell (2014)

KEY RESEARCH: UNLISTED Commingled real estate funds Transparency Performance analysis Drivers   Style   Blended portfolios General portfolio issues

KEY REPORTS: INDUSTRY INREV ANREV PREA ULI Preqin Russell CBRE

European Association for Investors in Non-Listed Real Estate Vehicles

European unlisted real estate funds Q1 : 2010 – Q4 : €148 billion GAV Inclusion criteria Sub-indices (22) - Style (2) - Country (7)- Region (6) - Sector (5)- Structure (2) INREV annual index : INREV UNLISTED REAL ESTATE FUNDS INDEX

INREV INDEX: STRUCTURE

CONTRIBUTORS: EXAMPLES Aberdeen Aviva CBRE Global Investors Credit Suisse Grosvenor AEW Europe Bouwinvest Cordea Savills Deutsche Hines

CONTRIBUTORS: EXAMPLES Legal & General Patrizia Schroders UBS Valad Europe M&G ProLogis Standard Life Union Warburg-Henderson

UNLISTED FUNDS: EXAMPLES Aberdeen European Balanced Property Fund Aviva Investors Central European Property Fund BlackRock UK Property Fund Bouwinvest Dutch Institutional Office Fund CBRE Strategic Partners Europe Fund II CBRE Nordic Property Fund Cornerstone German Retail Fund Grosvenor French Retail Investments Heitman Europe Property Partners II M&G European Property Fund

UNLISTED FUNDS: EXAMPLES Morgan Stanley Eurozone Office Fund ProLogis European Properties Fund II Schroder European Property Fund I Schroder UK Property Fund Standard Life UK Shopping Centre Trust Tishman Speyer European Core Fund UBS Central London Office Value Added Fund Nordic Aktiv Property Fund UniInstitutional European Real Estate Warburg - Henderson Pan-Europa Fonds III

SectorNumber of funds Total GAV(€) Total 223 € 148.1B Style Core 175 € B Value-added 58 € 20.8 B INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014

Country Number of funds Total GAV(€) UK 44 € 50.0B Germany 17 € 5.0B France 12 € 3.4B Netherlands 27 € 17.2B Italy 5 € 0.9B Finland 4 € 0.9B Multi-country107 € 56.5B INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014

Sector Number of funds Total GAV(€) Regions CEE 11€3.9B Continental Europe 189€98.1B Nordic 21€8.1B Sth. Europe 12€2.8B West. Europe 116€89.3B Pan-Europe 73€44.0B INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014

Sector Number of funds Total GAV(€) Office 29€13.5B Retail 37€22.6B Industrial 20€14.9B Residential 17€13.9B Multi-sector 117€71.9B Structure Closed end 105€47.3B Open end 128€100.8B INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014

Sector Average annual return Annual risk Reward-to-risk ratio Total4.66%1.91%2.44 Style Core4.82%1.68%2.87 Value-added4.00%3.18%1.26 RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014

Sector Average annual return Annual risk Reward-to-risk ratio Country Finland7.25%3.32%2.18 France4.54%3.62%1.25 Germany2.94%1.83%1.61 Italy0.25%2.16%0.12 Netherlands1.58%1.08%1.46 UK9.10%3.53%2.58 Multi-country1.64%2.25%0.73 RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014

Sector Average annual return Annual risk Reward-to-risk ratio Region CEE2.04%4.66%0.44 Continental Europe2.24%1.48%1.51 Nordic5.03%3.54%1.42 Southern Europe-3.84%6.38%-0.60 Western Europe6.18%2.20%2.81 Pan-Europe1.94%1.75%1.11 RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014

Sector Average annual return Annual risk Reward-to-risk ratio Sector Office3.19%2.53%1.26 Retail5.79%2.60%2.23 Industrial5.47%3.99%1.37 Residential1.20%1.26%0.95 Multi-sector5.20%1.83%2.84

RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014 Sector Average annual return Annual risk Reward-to-risk ratio Structure Closed end4.93%2.76%1.78 Open end4.52%1.48%3.05

DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014 Style Core / Value-added: r = 0.94

Country Fin.Fra.Ger.Ita.Neth.UKMulti. Fin Fra Ger Ita Neth UK Multi DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014

Region CEECont.Nord.Sth.West.Pan-E. CEE1.00 Cont Nord Sth West Pan-E DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014

Sector Off.Ret.Ind.Res.Multi. Off Ret Ind Res Multi DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014

Average annual return Annual risk Reward-to-risk ratio Europe4.66%1.91%2.44 Asia-Pacific9.14% 1.38%6.61 US13.30% 2.26% 5.87 EUROPE Vs ASIA-PACIFIC Vs US Q1:2010 – Q4:2014

European unlisted real estate   - Performance-Diversification Investor landscape  Real estate strategy  Challenges: going forward Fund vs Separate account vs Club deal? Europe vs Asia-Pacific vs US? REAL ESTATE INVESTMENT IMPLICATIONS

FUTURE OPPORTUNITIES FOR THE EUROPEAN REAL ESTATE MARKETS Increased levels of European real estate in institutional investor portfolios Enhanced quality of real estate assets available to investors Increased stature for European real estate assets in global portfolios Further development of REIT markets in Europe Further development of unlisted real estate products Increased opportunities for skilled real estate professionals Increased levels of real estate market information and added-value real estate services

Role of unlisted versus listed RE in European real estate portfolio; “blended” portfolio  Role of unlisted real estate in European mixed-asset portfolio Asia-Pacific unlisted RE analysis: ANREV  Global unlisted RE analysis -Europe, Asia-Pacific, US FUTURE RESEARCH

ACKNOWLEDGEMENT INREV   Real Capital Analytics