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A Game Plan for Today's Real Estate Markets

A defense’s mantra: protect against the big play. In portfolio diversification, that means guarding against downside risk. Real estate is an asset class that may insulate portfolios against traditional market risks. Yet, in today’s environment, you need an even stronger defense led by true real estate experts.

Build a Blueprint to Get Past Market Roadblocks

For illustrative purposes only.

What You Are Up Against

The real estate cycle has matured, yet attractive opportunities still exist. When devising your strategy, it is important to recognize which headwinds to avoid and how to adjust.

Opposing Forces

Domestic Growth Slows

"SLEEPY" GDP MAY CAUSE ISSUES IN CORPORATE ECONOMY1

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2019 Green Street prediction falls 50 basis points below 2018 GDP growth.

New Lease Volume Falls

OFFICE HITS LOWEST LEASE VOLUME SINCE 2016 (MILLIONS)2

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Core sectors are showing their wear in a late-cycle environment.

More Construction

PIPELINE OF NEW OFFICE SUPPLY IS GROWING (MILLIONS)3

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2019 projections sit 20.6 million square feet higher than 2018 completions.

SLG's Manhattan Office Cash Leasing Spreads

S.L. Green Q1 2019 Supplemental Data.

Big Supply Concerns in the Big Apple

Core markets are a good barometer of the state of play in real estate. Manhattan alone has 15.4 million square feet of office real estate in its supply pipeline.

Despite a growing economy, Manhattan leasing spreads are falling. Why? Oversupply.

Co-working % of Net Absorption

Cushman & Wakefield. Q2 2019 Office Market Overview.

Co-working Growth in D.C. Markets

A larger share of the Washington, D.C. office market is being leased to co-working outfits.Co-working tenants are typically short term with worse credit, which may cause a re-pricing of risk in core office.

Take the Right Risks

Defensively positioning your real estate strategy does not eliminate equity opportunities. Rather than relying on organic rent growth, look to value-add and non-core strategies.

Potential play: consider the evolution of the student housing market.

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Resource Growth Lines

Income Risk Premium

Bloomberg. Bloomberg Office Property Index (Office), Bloomberg REIT Regional Mall Index (Malls). Mortgage REITs represents an equity market cap-weighted basket of publicly traded mortgage REITs, including Apollo Commercial Real Estate, Ares Commercial Real Estate, Blackstone Mortgage Trust, Granite Point Mortgage Trust, Ladder Capital, and TPG Real Estate Finance Trust. 6/30/18-6/30/19. Office had a 3.3% yield with 16.3% 360-day volatility. Malls had a yield of 6.0% with 19.2% 360-day volatility. Commercial mortgage REITs had a yield of 8.4% with 14.3% 360-day volatility. Past performance is not indicative of future results. You cannot invest directly in an index.

Look to Credit Opportunities

In today’s slow-growth, late-cycle environment, core sectors are offering lower yields with increased volatility.

Potential play: a focus on credit investments like commercial mortgage REITs. They sit higher in the capital structure and may offer a better risk premium than office or retail.

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