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May 14, 2012
Message from the President
 NAREIT maintains an active outreach program to the institutional investment community, the foundation of which is direct meetings with investment decision makers to present them with research and data that advocates for the REIT investment proposition. In our initial meetings with these investors, our presentations always begin with research making the case that REIT investment is, first and foremost, real estate investment, providing all of the benefits of the asset class in a securitized form.
That argument gained important support last week from a new report by J.P. Morgan Asset Management Real Estate Strategist Michael Hudgins, whose strategic focus includes not just REITs, but also private real estate investment.
The analysis shows that, while REITs tend to move in line with equities in the short term, over periods of more than 30 months, they diverge from equities and correlate closely with direct real estate. It goes on to demonstrate that, over the last full real estate cycle, while REITs delivered income returns much like those of core real estate, they also delivered price appreciation most like that of opportunistic investments. Additionally, the research points to the value of REITs as an inflation hedge, capable of generating increased cash flow to provide returns that outpace inflation produced by economic growth.
The J.P. Morgan report makes a powerful case for REITs as an important part of institutional real estate allocations, and as a key component of portfolios for investors from all walks of life. It gives important additional weight to the REIT story that our Investor Outreach staff takes on the road every week.
Steven A. Wechsler
President and CEO
NAREIT, REESA Express Concerns Over Lessee Accounting Proposals
 On May 9, NAREIT and its partners in the Real Estate Equity Securitization Alliance (REESA) sent comments to the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) regarding recent lessee accounting proposals.
REESA said its primary concern is operational complexity of the "Underlying Asset" Approach. Under this approach, lessees would be required to estimate the fair value of the underlying asset at inception and an expected residual value at the end of the lease term. Lessees would then calculate a percentage consumption that is equal to the expected change in asset value over the lease term divided by the initial value of the underlying asset.
REESA cited a number of issues with this approach. Among them, application of the "Underlying Asset" Approach would require lessees to make a fair value determination of portions of the building (even portions of a floor) at lease term inception and an estimated residual value. Also, tenant space is not generally held for sale apart from a sale of the entire building; thus there is no fair value of tenant space that would comply with the boards' joint Fair Value Measurement Standard.
(Contact: Christopher Drula at cdrula@nareit.com)
REIT.com Video: Calvin Schnure, NAREIT
 The multifamily sector is in good shape for the foreseeable future, according to Calvin Schnure, NAREIT's vice president of research and industry information, despite some market concerns about a rebound in new construction. He pointed out that there are approximately 3 million households that have "doubled up" since 2008, and many of those residents will be looking for a place of their own as the job market improves.
The vacancy rate for apartments fell 60 basis points in the first quarter, to 8.8 percent. Schnure said that's down more than 2 percentage points from its 2009 peak. Additionally, he said that in the first quarter alone, the number of occupied apartments jumped 8 percent, the strongest growth in demand for rental apartments since 1993.
"So we're seeing that the apartment sector still has quite a bit of momentum," he explained.
The doubled-up households will support rental demand going forward, according to Schnure. "A lot of the growth we saw in rental occupancy in the first quarter was some of these people who may have benefitted from the improving job market and were coming out signing leases."
He added that the doubled-up households currently represent enough pent-up demand to soak up most of any excess supply in the market.
This contrasts with growing concerns in some corners that the sector may run out of steam, according to Schnure, who noted that apartment REITs have performed well over the past two years.
Schnure said new construction housing is at low levels, especially when compared to what will be needed to satisfy demand. Multifamily housing starts trended over 300,000 annually in the decade before the financial crisis. Despite the recent pick-up in construction, they have yet to return to that level since the economic slowdown.
"It's going to take a lot more construction to make up the half million units in shortfall and get to any point where supply is an aggregate concern," he said.
(Contact: Calvin Schnure at cschnure@nareit.com)
Defined Contribution Association Builds Strong Membership and Influence in Third Year
 On May 8, the NAREIT Investor Outreach team participated in the third annual Public Policy Forum of the Defined Contribution Institutional Investment Association (DCIIA). The three-year-old association seeks to improve the $4.8 trillion defined contribution (DC) retirement system. Since it was established in January 2010, DCIIA has steadily built an impressive membership roster including a vast majority of the most visible thought leaders in the DC industry. As evidence of this, approximately 100 individuals attended the first Public Policy Forum in 2010, about 120 participated in last year's, and 170 attended the May forum.
Founding members include some of the largest investment consultants, such as Callan Associates, Hewitt Ennis Knupp, Ibbotson Associates, Mercer, Morningstar and Towers Watson. DCIIA members also include major investment managers such as AllianceBernstein, BlackRock, Goldman Sachs, J.P. Morgan, PIMCO, Russell Investments, T. Rowe Price, UBS, Wellington Management and Wells Fargo. NAREIT maintains an ongoing dialogue with these organizations through its direct meetings program. Plan sponsors of the largest and most influential DC plans also participate.
As a founding member of DCIIA, NAREIT has been asked to serve as a member of the organization's public policy and investment policy & design committees. Of particular importance to NAREIT is advocating for the automation of key aspects of DC plan participation as well as promoting full opportunity for the inclusion of all major asset classes and investment product formats within DC plans.
Attendees of the forum, which was held in Washington, heard presentations by individuals from congressional committees and regulatory bodies with jurisdiction over DC plans, including: Rep. Lynn Jenkins (R-KS), member of the House Ways & Means Committee and the Committee on Financial Services; Russell Sullivan, majority staff director of the Senate Finance Committee; and Mark Iwry, senior advisor to the secretary and deputy assistant secretary for retirement and health policy of the Treasury Department. A representative from the Department of Labor appeared as well.
(Contact: Kurt Walten at kwalten@nareit.com)
REIT.com Videos: Sustainability Insights
NAREIT caught up with attendees at the Leader in the Light Working Forum held last month to discuss some of the major trends in sustainability in the commercial real estate industry. Look for additional interviews from the event in the coming weeks on REIT.com.
 Tailoring sustainability efforts to a particular building's needs as part of an overall program can be challenging, said Rick Avery, Health Care REIT's (NYSE: HCN) vice president of energy management and building technologies. "One of the big issues is that there's so much good technology out there. It's a lot of choosing the right path and the one that's going to service your short term needs and long term needs in the operation of the facility."
Avery said the company's sustainability efforts started off primarily in the company's medical office portfolio, where he said a lot of people in the field were initially doing what they thought made the most sense from a building operations standpoint.
 For a sustainability strategy to work, communication with shareholders, tenants and employees is key, said Frank Burt, senior vice president and general counsel for Boston Properties (NYSE: BXP). The REIT makes sure its communication channels are open and active. One benefit, Burt said, is that "when we find something that's very effective, we're able to implement it across our portfolio."
"We also focus on trying to deliver expenses for our tenants that are reasonable so that we can attract and retain new tenants. These strategies align quite well with the efficiencies we've seen in the sustainability field," Burt noted.
 DCT Industrial Properties (NYSE: DCT) has been investigating the benefits of sustainability initiatives, particularly solar energy, and it is not the only industrial landlord to do so, said David Castro, the company's vice president of leasing.
"You might see more industrial landlords looking into solar. Currently we are looking into it, and it might be in the test phase in our Northeast market," he said. "Once it's been researched enough, we'll see where it will go." Challenges include maintenance, he added.
 While international commercial real estate companies have generally been out in front of their U.S. counterparts in their green building and operating programs, domestic companies are beginning to make up ground, according to Mary Hogan-Preusse, managing director with APG Asset Management US. APG has been one of the leaders in the development of the Global Real Estate Sustainability Benchmark (GRESB). Hogan-Preusse said the level of participation in GRESB among institutional investors has been encouraging. She also said GRESB has proven to have significant utility for investors.
Hogan-Preusse noted that she believes early movers on environmentally conscious programs will have a competitive advantage in the marketplace. Using measuring sticks such as GRESB, companies will have the ability to tangibly demonstrate their sustainability performance to investors and tenants, according to Hogan-Preusse. They will also have a head start in terms of meeting eventual regulatory hurdles, she said.
(Contact: Matt Bechard at mbechard@nareit.com)
REITWeek Mobile App to Launch Soon
 In the coming days, NAREIT will be launching the REITWeek Mobile App. Corporate Members presenting at REITWeek 2012: NAREIT's Investor Forum will have the ability to upload presentation materials as well as other documents to their profiles. We will be sending an email this week, notifying our Corporate Members, specifically the REITWeek points of contact, with passwords and upload instructions.
The REITWeek Mobile App provides attendees with a better overall experience by enabling attendees to customize their schedules, navigate the event through maps, and take notes during sessions and send them back to their office. The REITWeek Mobile App also allows NAREIT staff to communicate more effectively to attendees through the use of alerts. These alerts allow NAREIT to send attendees last-minute updates concerning schedule changes and other important event-related information.
(Contact: Jeff Henriksen at jhenriksen@nareit.com)
REIT.com Video: Tobin Cobb, LNR Property
 Activity in the market for distressed commercial real estate loans won't pick up until an element of "creative destruction" is introduced, says Tobin Cobb, co-CEO of LNR Property. A lot of capital is waiting on the sidelines to invest in this market niche. "If assets are being held around you in banks at prices that you believe are unnaturally high, you're very reluctant to go in and invest in an asset, even if you think you're getting good value today, because you don't know if a flood of assets is going to be coming in against you at prices that might reflect real values," he said.
(Contact: Matt Bechard at mbechard@nareit.com)
Collaboration the Focus at Hong Kong Event
 The Real Estate Equity Securitization Alliance (REESA) met on April 24 in Hong Kong in conjunction with the APREA Property Leaders Forum 2012. NAREIT Senior Vice President of Industry and Member Affairs Bonnie Gottlieb attended the meeting, which focused on common initiatives among REESA members, including the latest exposure drafts from the FASB and the IASB; the GRESB (Global Real Estate Sustainability Benchmark) initiative; and, the need to craft a global definition of the term "REIT."
Also, Gottlieb spoke on a panel at the APREA event focused on "The Performance and Value of REITs as an Asset Class: Views from Asia and North America." The panel discussed Graeme Newell's research on "The Benefits of an Allocation to Asian Real Estate for Institutional Investors" and several NAREIT internal and commissioned research studies, including the January 2012 Wilshire Associates study entitled "The Role of REITs and Listed Real Estate Equities in Target Date Fund Asset Allocations."
While in Hong Kong, Gottlieb also met with Ting Li, managing director-Asia, and Thomas Poullaouec, head of portfolio strategy-Asia (excluding Japan), of State Street Global Advisors Asia Ltd., to discuss common goals regarding REIT investment with an eye toward future collaboration.
(Contact: Bonnie Gottlieb at bgottlieb@nareit.com)
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