Institutional Real Estate, Inc.

NAREIM Dialogues Fall 2017

The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products

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NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS 20 "It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…" While Dickens' words are timeless, they are particularly applicable to today's economic, investment and real estate markets as we move through this post-recessionary global economic expansion, which is long in duration but underwhelming in pace. The sluggish economic expansion, combined with continued geopolitical risk flare-ups, is understandably causing investors to waver between anticipating an economic recession and feeling cautiously optimistic that the cycle has further room to run. Despite these uncertainties, the amount of capital available for real estate investments remains impressive in developed markets and capital cities globally. Which begs the question: where should investors look to put their money to work today? At Barings, at any given time, we are executing in numerous strategies around the world and seeking the most attractive relative value opportunities as they emerge across regions and sectors. Based on our findings, we have identified two sectors that we believe have the potential to offer particularly attractive risk-adjusted returns in the coming years: multifamily housing (apartments) and self-storage. MULTIFAMILY HOUSING Over the past two decades, investments in multifamily housing have consistently delivered some of the best overall and risk-adjusted returns, particularly in the areas of development and redevelopment. Key drivers of this outperformance, which continue to resonate today, include: Looking ahead, there are a number of factors that suggest a continued potential for strong performance in the U.S. multifamily sector, particularly in apartments. Based on a 10-year projection, the U.S. population is slated to increase by 26 million, surpassing the pace of most other developed economies. This growth could translate to an annual increase in demand of more than 300,000 new units. Multifamily properties, with significantly lower operational and capital costs than other sectors, are also better positioned to enable investors to convert revenues to net operating income (NOI). At a time when NOI growth is expected to drive the majority of overall property appreciation, investors' ability to increase their bottom line is critical to value creation. Based on the evolution of capital and space markets, the development and redevelopment of high-quality apartment properties have delivered strong risk- adjusted returns in both urban and suburban locations. Demographic trends, both millennial- and baby boomer-driven, indicate strong and continued demand for state-of-the-art products and high levels of amenities. These can include bars, fitness centers, indoor and outdoor communal space and access to nearby transit and restaurants, to name a few. MULTIFAMILY AND A TALE OF TWO SECTORS: Value still exists in today's global real estate, but selectivity is critical Scott D. Brown, CFA, Global Head of Real Estate, Barings Real Estate Advisers 1. Stable, durable cash flow streams 2. Historically lower value erosion in downturns 3. Greater diversification and liquidity characteristics 4. Increased access to debt with lower cost of capital

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