LaSalleS16-Final

LaSalle Investment Management

Spring 2016 Private Equity Project

April 1, 2016

2

Meet The Team

Jake Hohlweg Sophomore

Finance

Managing Partner

Hodges MarkwalterSophomore

Finance

Associate

Sarah RiehlSophomore

Finance

Associate

Luc JosephJunior

Finance

Vice President

Peter MarkSophomore

Economics &

Chinese

Managing Partner

Lauren SchmidtSophomore

Finance & ACMS

Associate

Stephen JonesSophomore

Finance &

Economics

Associate

Tobias HoonhoutFreshman

Liberal Studies &

Economics

Analyst

3

1. Executive Summary 4

2. U.S. Macroeconomic Overview 6-7

3. U.S. Real Estate Market Overview 9-11

4. Fund Structure 13-14

5. Investment Strategy 16-17

6. Target Markets 19-28

4

Executive Summary

Economic Overview

Real Estate Trends

Fund Structure

Investment Strategy

Target Markets

• The U.S. is continuing to recover from the Financial Crisis

• U.S. Dollar has seen appreciable gains against the Euro and Yen

• Interest rates and stock market performance remain risks

• The overall trend is moderate growth and increased stability

• Increased absorption and construction

• The 18-hour city and tech space are emerging trends

• Commercial space will remain most profitable in up-and-coming cities

• Real estate will provide stability in light of recent stock volatility

• $850 million, closed-end fund

• Aggressive amount of leverage and 5 year holds

• Targeting university endowments, pension funds, and HNW Individuals

• Set up as a LP with 1.5% management fee and 80% payback on gains

• Aggressive targets, yet stable backbone

• Exploiting trends in Texas, Silicon Prairie, and the Southeast

• Opportunistic investments also prime target

• Targeting 13-16% IRR

• Austin, Texas

• Omaha, Nebraska

• Charlotte and Raleigh-Durham, North Carolina

• Atlanta, Georgia

5







Source: Forbes; Bloomberg Business; the NY Times; the Wall Street Journal; IHS

U.S. Macroeconomic Trends

Key Stats for 2016 Factors to Consider

Market Performance – S&P 500 Other Major Indices

2.6%

1.3%

0.5%

3.1%

• Projected Economic Expansion

• Stable and Sustainable Growth

• Inflation Growth Rate

• Sign of Growing Economy

• Expected Rise in Interest Rates

• Signals Confidence in the Economy

• Projected Rise in Wages

• Correlated with Corporate Success

Unemployment

Consumer Spending

Interest Rates Strong Dollar

Market Performance

GDP Growth

Projected economic growth and anemic market performance are creating a nurturing space for investment in

alternative assets

Symbol % Change (LTM)

DJU -0.44%

NDX -0.17%

COMP -0.14%

NYA 0.20%

SPX 0.05%

OEX 0.32%

XAU -0.39%$0

$500

$1,000

$1,500

$2,000

$2,500

1/3/2007 1/3/2008 1/3/2009 1/3/2010 1/3/2011 1/3/2012 1/3/2013 1/3/2014 1/3/2015 1/3/2016

6

7Source: tradingeconomics.com, YahooFinance

U.S. Macroeconomic Trends

Unemployment Outlook Strong Dollar

GDP Growth (% Change) Comparative Perspective

0

0.2

0.4

0.6

0.8

1

1.2

0

20

40

60

80

100

120

140

30/03/2013 27/08/2013 24/01/2014 23/06/2014 23/11/2014 25/04/2015 22/09/2015 19/02/2016

USD:JPY USD:EUR

-4

-3

-2

-1

0

1

2

3

4

5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Jan-06 Apr-07 Jul-08 Oct-09 Jan-11 Apr-12 Jul-13 Oct-14 Jan-16

Stronger employment, dollar gains, and low interest rates are fueling sustainable growth in the United States economy

which should translate to demand for real estate

Region Interest Rate

(Inter-Bank)

Region Inflation Rate

(Expected)

Europe 0.00% Europe -0.20%

United States 0.50% United States 1.30%

Canada 0.50% Canada 1.40%

Great Britain 0.50% Great Britain 0.30%

Germany 0.00% Germany 0.30%

China 4.35% China 2.30%

Japan -0.10% Japan 0.30%

8







9Source: Emerging Trends in Real Estate 2016 survey, Moody’s and Real Capital Analytics

U.S. Real Estate Trends

Strengthening U.S. macroeconomic performance is bolstering absorption and improving occupancy in the majority of

American real estate markets

• Total nonresidential building completions exploded in Q2 2014, as

107.0 million square feet of new space was completed, mostly in

the industrial sector 107.0M

• Construction GDP is rebounding more quickly than overall GDP Q4

20142.6%

• According to the NAHB, single family permits rose 6.7% from 2014.

2015 single family permits were 531,000, trailing 549,000 starts6.7%

3.78% • Vacancy Rates were 3.78% in 2015

Key Stats

Distribution of 2015 Transaction Volume

Vacancy Outlook

28.3%

17.0%

8.8%

27.7%

13.5%

4.6%

Office

Retail

Hotel

Apartment

Industrial

Dev Site

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

2012 2013 2014 2015 2016

Apartment Retail Industrial Office

Market Breakdown

0%

5%

10%

15%

20%

25%

30%Revenue Population

10Source: IBISWorld, US Treasury


10 Year Treasury Yield

Real Estate Revenue and Valuation

$-

$200

$400

$600

$800

$1,000

$1,200

$-

$100

$200

$300

$400

$500

$600

Value (billions) Revenue (millions)

1.75

1.8

1.85

1.9

1.95

2

Low interest rates, strong valuations, and increasing corporate profits are paving the way for subsequent profits in the

commercial real estate space

Change in Value by Market Category and Property Type

18.2%

11.7%

6.9%

26.9%

13.4%12.1%

13.0% 13.5%15.0%

16.8%

0%

5%

10%

15%

20%

25%

30%

Apartment Industrial Retail CBD Office SuburbanOffice

Major Nonmajor 12 months through June 2015

U.S. Corporate Profits

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000 CAGR: 2.6%

11Source: PwC Emerging Trends in Real Estate


The emergence of strong commerce in secondary markets makes them attractive markets for real estate investments

Emerging Trends

18 Hour City Offices Housing

• Strengthening employment

numbers in this maturing

recovery are contributing to

demand for office space in

many urban and suburban

markets

• Housing demand is increasing

across all residential segments

• Millennials buying first homes

• Baby boomers moving or buying

2nd homes

• Recovery from bubble burst

• Technology offers the benefits of

a larger urban area at a lower

cost

• 18-hour cities see more

moderate cap-rate compression,

and provide opportunities for

superior yields

Risk Factors

Western US, affects

agriculture, technology, and

causes wildfires

Came of age in the

aftermath of the savings-

and-loan crisis, in dire times

for real estate

Could alter where affordable

housing is built, and where

households in need of it

move

As we move into the era of

increased labor shortages

one great challenge will be

planning for career paths

Rising interest rates adds

uncertainty and increased

expenses to the market

Big Data

• Approximately 7% annualized

growth in data center

employment since 2010

• Rising wages for IT

professionals

• Estimated 14% growth in the

North American data center

market in the next two years

Top US Markets to Watch

Dallas/Fort Worth Charlotte Austin Omaha Atlanta

Interest Rates Gen X Drought Fair Housing Act Income Mobility

12







13

Fund Structure

Our Values

Transparency Responsibility

Client Focus Progressive Thinking

Our Advantages

Focused Approach Market Pioneers Fresh Perspective Rigorous Research

• Specific investment

criteria

• Operational

Improvements

• Strategic capital

allocation

• Unique investments

• Avoid saturating

markets

• Acquire desirable assets

at possible discount

• Managers that include

millennials

• Unique viewpoints and

experiences

• Dynamic market

analysis

• Quantitative and

qualitative

• Effective analysis

• Leads to informed

decisions

Result: Maximum returns

University Endowments

• Leverage Notre Dame affiliation

• Offer diversified, yet reliable portfolio

Pension Funds

• Note lower-risk targets

• Offer stable, yet impressive returns

High Net-Worth

• Note opportunistic investments with core plus backbone

• Offer high returns

Target Investors

Our firm will leverage our advantages and values to create value for a select group of investors

14Investment Law Group; West Group Real Estate; NEPC; KPMG; Bard Consulting; CaIPERS; Russell Investments

Fund Structure

Fund Parameters and Rationale Managerial Considerations

• Large amount of capital facilitates diversification

• Allows us to compete in various segments

Size:

$850 million

• Debt is currently cheap

• Increases liquidity

• Aids diversification

• Increases returns

Leverage:

60%

• Investing and Exit Phases

• Can reallocate if needed

• Allows for optimal exits

Commitment:

8 years

• Fixed, one-time capital contributions

• Allows to intimately cater to our select investors

Setup:

Closed End

Fund: Single yet diverse option

Legal Status: Limited Partnership

Horizon: 5-6 year hold of assets

Leverage: Investment-by-Investment

• Managers: 1.5% flat fee on investor commitments

• 20% of any profits after investor capital/premium paid back

Compensation and Fees

• Investors: 8% IRR Hurdle Rate; 80% after capital recovery

• Back-end waterfall distribution

Distribution

Our closed-ended fund is structured for maximum returns on unconventional CRE investments

15







16

Investment Strategy

Target ReturnAsset Class Market Type

Value Add

Opportunistic

• Seek to provide ultimate quality to drive maximum revenue

Class A

• Within Value-Add, bring new value to older construction in rejuvenated markets

Class C

Secondary

• Austin, TX

• Atlanta, GA

• Charlotte, NC

• Raleigh-Durham, NC

• Omaha, NE

• Silicon Prairie

13-16%

Diversification of risk, expenditures, and value propositions will balance our

portfolio to provide lucrative returns

Return drivers

• Slightly more opportunistic

investments

• Profitable property types

• More affordable markets

• Levered Position

Investment

(% of fund)

Leverage Target

IRR

Fund

Return

Core Plus Multifamily $425M

(50%)

50% 9-12%

13-16%Value Added Office $212.5M

(25%)

60% 12-18%

Opportunistic Data Storage $212.5M

(25%)

70% 15%+

17

Investment Strategy

Omaha

Raleigh-

Durham

Charlotte

Atlanta

Austin

18







19Source: JLL, CBRE

Office Space - Overview

Market Indicators

Market Cycle

Peaking

Phase

Rising

Phase

Falling

Phase

Bottoming

Phase

Austin

Atlanta

Charlotte

Raleigh-

DurhamOmaha

1.3x

44.2m

6.7%

• Rate at which occupancy rate is

outpacing new supply

• Vacancy is at lowest level in 8 years

despite 44 million square feet of new

construction

• Office space typically sees a

capitalization rate of 6.7%

Market Drivers

Market Comparisons

Market Rental

Rates (per

sqft)

Absorption

(sqft)

Vacancy New Con-

struction

(sqft)

Atlanta $22.54 2,578,651 17.5% 885,000

Austin $32.26 2,253,197 12.4% 2,007,666

Boston $34.04 3,045,721 13.8% 5,573,171

Charlotte $23.03 453,466 12.3% 1,987,222

Nashville $21.68 204,416 6.3% 3,276,446

Dallas $24.38 4,794,274 18.7% 7,605,715

Seattle $34.77 517,986 11% 1,808,693

Declining vacancy rates and a growing economy will continue to make

office space a wise and profitable investment

Demographics Vacancy Rates

Employment Job Growth

Net Absorption Wage Growth

20Source: Austin Business Journal, Colliers International, Transwestern

Austin, Texas

Market Indicators

Wages have grown 15% since 2008

Expected job growth is 42.10% in the next 10 years

No state personal income tax

Only city with double-digit percentage job growth

Growth Potential

Vacancy

Net Absorption

New Construction

Under Construction

$27

$29

$31

$33

$35

$37

$39

$41

$43

$45

Q2-12Q3-12Q4-12Q1-13Q2-13Q3-13Q4-13Q1-14Q2-14Q3-14Q4-14Q1-15Q2-15

CBD Rents Suburban Rents

Class A Office Rental RatesMarket Highlights

9.0m

$495k

$33.34

93.6%

• Current inventory of Office Space

• Supply will soon be below demand

• Office Space occupancy rate

• Room for absorption

• Median Listing Price

• Healthy asking price for buildings

• Class A Gross Rental Rate per sqft

• Compares well with other markets

Demonstrated growth in office rental rates with further business expansion potential makes Austin a very attractive

market for commercial real estate investment

21Source: JLL

Austin, Texas

193,598

1,188,889

453,581 422,188

1,369,744

896,877

683,724

1,164,121

2,253,197

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Citywide Total Net Absorption (s.f.) Citywide Total Vacancy Rate (%)

Citywide Indicators

32%

15%26%

7%

4%

4%

4%

2%2%

2% 2%

Northwest

Southwest

CBD

Central

East

Citywide

Southeast

Far Northwest

North

Northeast

Target Submarkets

Market Activity and Opportunity Major Companies

• Apple recently leased newly developed 217,000 and

350,000 sqft office developments in Austin

• In 2015, Austin had the second highest absorption rate

in the United States, while ranking third in

construction deliveries

• High level of education and nearby universities make

Austin a low cost, high startup opportunity for tech

• As the CBD becomes increasingly occupied and

demand continues to grow, tenants will search for

space in the emerging Northwest Austin market

Constantly growing demand and absorption is

signaling a disconnect between supply and demand

where new value can be found Target IRR 12-18%

22Source: Bloomberg, Department of Numbers, NAI FMA, LoopNet, Colliers

Omaha, Nebraska

Omaha Annual Absorption

Silicon Prairie offers a lower cost alternative to the already inflated Silicon Valley, with equal potential for growth

-137.933

225.788

62.833

273.651

151.255

197.762

341.851

-150

-50

50

150

250

350

2009 2010 2011 2012 2013 2014 2015

Annual Abso

rpti

on

(thousa

nds)

Market Overview Silicon Prairie Highlights

Companies Based in Silicon Prairie

1st

2nd

3rd

9th

• Fastest growing region for tech jobs

• 2.9% unemployment is 2nd lowest

• Ranking of best states to do business

• Ranking of overall business climate

• Omaha finds itself in what is being called Silicon

Prairie, which essentially is the new tech hotbed in

the Midwest

• Its low cost of living, education, and healthcare

combined with tax incentives make it an attractive

area to do business as well as live

• Central location of cities like Kansas City, Omaha,

Lincoln, and Des Moines makes it a natural business

center

• Companies like Google have invested billions of

dollars in data centers in Silicon Prairie

Attractive business

environment

Increased demand for tech space

Capitalizing on value

added supply

23Source: Colliers, LoopNet, Investors Omaha

Omaha, Nebraska

Inventory

(SF)

Vacancy Absorption

(SF)

Class A 6,708,870 5.3% 77,185

Class B 10,884,928 13.9% 14,026

Class C 3,676,724 22.6% (10,246)

Totals 21,270,522 12.7% 80,965

Office Expansion and Development

Capitol District•Construction of 150,000 sq. ft. building

•125,000 sq. ft. of office and 25,000 sq. ft. of retail

HDR

•290,000 sq. ft. headquarter office located adjacent to Capitol District

•16-stories with an estimated 60,000 sq. ft. available for lease

The Yard

•$50M redevelopment venture comprising of 63,000 square feet of office space, 110 unit apartment complex, and hotel space

Market Indicators

Vacancy

Net Absorption

New Construction

Rental Rate

Market Trends

Inventory Breakdown

• Median days on market has decreased 20.5%

• Absorption was 40% above the 10 year average

• Office vacancy is 360 basis points below the national

average of 16.3%

• $97.43 asking price per square foot for sale

• Recent transactions in 2015 saw eight deals over $25

million

• Unique demands of tech office space create an

exciting opportunity in value-add projects

Target IRR 12-18%

The unique startup explosion in Silicon Prairie is also

manifested in the Omaha market, which is seeing

increasing demand for cutting edge office space and

a lack of supply

24Source: Ibisworld

Cloud Computing & Data Storage

Industry Overview

Opportunity

Major Players

Percentage of Business Services Conducted Online

• The industry’s main activities include:

• Application hosting and service

• Database management

• $135.5bn industry with 5.5% growth

• Key drivers include:

• Percentage of Services Online

• Number of Mobile Internet Connections

• Internet of things: Growth in network of physical

objects gradually gaining internet capability

• Growth in data management

• Steady annual increases in revenue

• Low cost markets

• Requires temperate climate like Silicon Prairie

• Perpetually increasing demand

• Driven by expansion of the “internet of things”

Expected IRR 15+%

Future demand for server space will be driven by increased

growth in data management and fits well with cool climate

of the Silicon Prairie

0%

2%

4%

6%

8%

10%

12%

14%

CAGR:

7.11%

25Source: JLL Research, Integra Realty Resources,

Multifamily Housing - Overview

Market Cycle 2016 Multifamily Bull Markets

The StoryRegional Rates

$130.7B in 2015 multifamily

transactions – up from

2014 by

19.4%

2016 Rank City

1 Palm Beach

2 Broward

3 Minneapolis

4 St Louis

5 San Francisco

6 Inland Empire

7 Atlanta

Class A Cap Rate Vacancy

Urban 5.47% 8.85%

Suburban 5.63% 5.57%

Urban 5.23% 6.67%


Urban 6.04% 7.61%


Urban 4.62% 5.85%


South

East

Central

West

the percentage of

US markets in the

expansion phase

Expansion Indicators US

Decreasing Vacancy

Rate

Moderate Construction

Strong Employment

Growth

Med/High Rental

Growth

In short, as long as the United

States continues to see steady

employment growth the

multifamily market will continue

to be a smart investment. While some

markets are showing signs of hyper-

supply, the vast majority of U.S. markets are in the

expansion phase. In particular, markets with a strong

presence of millennials and young professionals hold many

years worth of promise for the multifamily segment. Other

top factors influencing multifamily cap rates, in addition

to a millennial presence, are a market’s specific

supply/demand interplay and future job prospects.

26Source: Cushman & Wakefield, REIS, PWC, Colliers International, **Market apartment rent divided by median mortgage payment, taxes, insurance,

maintenance.

Atlanta, Georgia

The Market The Property Type

Multifamily Indicators U.S. Atlanta

Cost of Ownership** 0.8 0.9

Rent (as % of household income) 32.4% 23.3%

Under Construction

(as % of Inventory)

1.4% 2.1%

Vacancy Rate 4.4% 5.8%

Capitalization Rate 6.0% 6.4%

• Atlanta’s low cost of living makes it an attractive

place to live and work, which in turn makes it an

exciting and profitable real estate market

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

$54,000

$55,000

$56,000

$57,000

$58,000

$59,000

$60,000

$61,000

$62,000

2013 2014 2015 2016

Household Income Unemployment Population Growth

Real Estate National Rank

Annual Rent Growth 6.8% 5th

Transaction Volume $5.7 M 4th

Expected IRR 9%-12%

Atlanta Population

Millenials

Millenial Growth - 5 Years

Other

10% cheaper – the cost of

doing business in Atlanta vs

the US Average

• The millennial

population drives the

rental housing market.

With millennials making

up 37% of the Atlanta

market in five years

multifamily investments

are strong investments

Economic Indicators

Major Companies in ATL

27Source: JLL Research, Colliers Inc, REIS, Research Triangle Region, School Websites, **Market apartment rent divided by median mortgage payment, taxes, insurance,

maintenance.

Raleigh-Durham, North Carolina


Multifamily Indicators U.S. Ral-Dur



Under Construction

(as % of Inventory)

1.4% 2.0%



The Research Triangle

Real Estate Total Units Asking

Rent

Vacancy

Class A 29,135 $1,232 9.2%

Class B 65,393 $990 4.3%

Class C 33,467 $826 3.6%

Expected IRR 9%-12%

Academic Institutions

• Duke University

• UNC Chapel Hill

• North Carolina State University

• Over 253,000 students across 16 institutions

Major Employers

• American Airlines

• IBM

• Fidelity Investments

• 3rd Best Labor Market in the U.S.

0%

25%

50%

75%

100%TotalPopulation

MillenialGrowth

Millenial

BachelorsDegree orHigher

Due to its heavy

concentration of academic

institutions, an enormous

45.7% of Raleigh-

Durham’s 2.52 million

person population holds a

bachelor’s degree or higher

Tech Sector growth in the

United State’s 3rd best

labor market drives an

optimistic outlook

high-tech jobs

Annual high-tech

job growth

53,665

3.7%

Employment

28Source: JLL Research, Cushman & Wakefield, REIS, US BLS, Statista, PWC, US Census Bureau, Charlotte Chamber, **Market apartment rent divided by median mortgage

payment, taxes, insurance, maintenance.

Charlotte, North Carolina


Multifamily Indicators US Charlotte



Under Construction

(as % of Inventory)1.4% 3.6%



0%

2%

4%

6%

8%

10%

12%

1.1

1.12

1.14

1.16

1.18

1.2

1.22

1.24

1.26

2012 2013 2014 2015 2016

Millions

Labor Force Unemployment

The Labor Market

Charlotte is the United State’s

- 22nd largest metropolitan area by Gross Metropolitan Product (GMP)

- 13th cheapest city to do business

Outp

ut

Costs

The 16th most populated city in

America is also its 2nd fastest growing

city behind Austin, TX

2015 2020

26.8

%

33.8

%In the next 5 years

Charlotte’s proportion

of millennials will

grow 12%

Real Estate Total Growth

Market Rent $883.19 5.6%

Expected IRR 9%-12%

Fortune 500

Headquarters

1. Bank of America

2. Lowe’s

3. Duke energy

4. Nucor

5. Family Dollar Stores

6. Sonic Automotive

7. Domtar

29

Executive Conclusion

Economic Overview

Real Estate Trends

Fund Structure

Investment Strategy

Target Markets

• The U.S. is continuing to recover from the Financial Crisis

• U.S. Dollar has seen appreciable gains against the Euro and Yen

• Interest rates and stock market performance remain risks

• The overall trend is moderate growth and increased stability

• Increased absorption and construction

• The 18-hour city and tech space are emerging trends

• Commercial space will remain most profitable in up-and-coming cities

• Real estate will provide stability in light of recent stock volatility

• $850 million, closed-end fund

• Aggressive amount of leverage and 5 year holds

• Targeting university endowments, pension funds, and HNW Individuals

• Set up as a LP with 1.5% management fee and 80% payback on gains

• Aggressive, yet stable backbone

• Exploiting trends in Texas, Silicon Prairie, and the Southeast

• Opportunistic investments also prime target

• Targeting 13-16% IRR

• Austin, Texas

• Omaha, Nebraska

• Charlotte and Raleigh-Durham, North Carolina

• Atlanta, Georgia

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