San Joaquin County Employees Retirement Association

Transcription

1 San Joaquin County Employees Retirement Association A G E N D A REAL ESTATE COMMITTEE MEETING SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD OF RETIREMENT FRIDAY, JULY 24, 2015 AT 8:30 AM Location: SJCERA Board Room, 6 S. El Dorado Street, Suite 400, Stockton, California. 1.0 ROLL CALL 2.0 APPROVAL OF MINUTES 2.01 Approval of the Minutes for the Real Estate Committee meeting of June 26, Committee to approve minutes 4.0 REAL ESTATE INVESTMENT OPPORTUNITIES 4.01 Courtland Follow-Up Memo regarding Crow Holdings Realty Partners VII, L.P Courtland Partners Evaluation of a Potential Investment in Crow Holdings Realty Partners, VII, L.P Committee to consider investment opportunity and give direction to staff and consultant as appropriate 5.0 CLOSED SESSION - CONSIDERATION OF INVESTMENT TRANSACTIONS, PURCHASES, SALES; GOVERNMENT CODE SECTION (1) 6.0 REPORTS 6.01 Report on Colony Realty Partners Annual Partners Meeting - June 25, COMMENTS 8.0 ADJOURNMENT 6 6 South El Dorado Street, Suite 400 Stockton, CA (209) (209) SJCERA Real Estate Committee Meeting 07/24/2015 Page 1

2 San Joaquin County Employees Retirement Association M I N U T E S REAL ESTATE COMMITTEE MEETING SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION BOARD OF RETIREMENT FRIDAY, JUNE 26, 2015 AT 8:15 AM Location: SJCERA Conference Room, 6 S. El Dorado Street, Suite 400, Stockton, California. 1.0 ROLL CALL 1.01 MEMBERS PRESENT: Cindy Garman, Lawrence Mills, Raymond McCray, Alternate Member J.C. Weydert and Michael Restuccia presiding MEMBERS ABSENT: None STAFF PRESENT: Chief Executive Officer Annette St. Urbain, Assistant Chief Executive Officer Patricia Pabst, Chief Investment Officer Nancy Calkins, Retirement Financial Officer Lily Cherng, Management Analyst III Greg Frank, and Senior Office Assistant Mercy Tayabas OTHERS PRESENT: Deputy County Counsel Jason Morrish, David Sancewich and John Linder of PCA and via telephone Michael Murphy of Courtland Partners and Matt Brody and Doug Welker of Walton Street 2.0 APPROVAL OF MINUTES 2.01 Approval of the Minutes for the Real Estate Committee Quarterly meeting of June 4, Committee unanimously approved the Minutes of the Real Estate Committee Meeting of June 4, WALTON STREET DUE DILIGENCE MEETING 3.01 Presentation via telephone by Matt Brody and Doug Welker, Principal from Walton Street and Mike Murphy, Senior Consultant from Courtland Partners regarding Walton Street Summary of Funds V & VI 3.02 Due Diligence Questions and Answers 3.03 Walton Street - Courtland Office Visit February 2015 (for reference) 3.04 Presenters provided an update on current assets, anticipated transactions and timing, and projected return on equity for Funds V and VI, and answered questions from the Committee members, consultants and staff. The Committee thanked the presenters for the update. 4.0 REAL ESTATE ROUNDTABLE 4.01 Courtland Partners - Real Estate Roundtable Summary June Summary of Evaluations by Board, Staff, Consultants, and Managers 4.03 Board accepted and filed reports. 5.0 CLOSED SESSION - CONSIDERATION OF INVESTMENT TRANSACTIONS, PURCHASES, SALES; GOVERNMENT CODE SECTION (1) 6 South El Dorado Street, Suite 400 Stockton, CA (209) (209) SJCERA Real Estate Committee Meeting 6/26/2015 Page 1

3 5.01 The Chair convened a Closed Session at 8:52 a.m. The Chair adjourned the Closed Session and reconvened the Open Session at 8:56 a.m. Counsel noted there was nothing to report from closed session regarding this subject. 6.0 COMMENTS 7.0 ADJOURNMENT 7.01 There being no further business, the meeting was adjourned at 8:57 a.m. Respectfully submitted: Michael Restuccia, Chair SJCERA Real Estate Committee Meeting 6/26/2015 Page 2

4 COURTLAND PARTNERS, LTD. INSTITUTIONAL REAL ESTATE SERVICES 127 PUBLIC SQUARE WILSHIRE BOULEVARD SUITE 5050 SUITE 830 CLEVELAND, OH LOS ANGELES, CA TELEPHONE: (216) TELEPHONE: (310) FAX: (216) FAX: (310) DATE: JULY 7, 2015 FROM: TO: SUBJECT: COURTLAND PARTNERS LTD. ( COURTLAND ) SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION ( SJCERA ) CROW HOLDINGS REALTY PARTNERS VII, L.P. ( ) FOLLOW-UP On June 4, 2015 Crow Holdings Capital-Real Estate ( Crow ) presented Crow VII to the SJCERA Real Estate Committee (the Committee ). Courtland provided a due diligence report on Crow VII discussing its investment merits, including recommending a potential allocation of up to $25 million. The Committee appeared interested in moving forward with an allocation. However, there were a few items raised during the discussion that put moving forward with a potential allocation on hold. Ø SJCERA s Texas Exposure. SJCERA s current Texas real estate exposure is approximately 16%. The NCREIF Property Index (the NPI ) currently has approximately 11% Texas exposure. Notably, a significant portion of SJCERA s Texas exposure is concentrated in one asset. This investment, the JW Marriott Resort in San Antonio, is expected to be sold within the next year. SJCERA s Texas exposure is reduced to approximately 11% without the JW Marriott, which is right in line with the industry benchmark. SJCERA has unfunded commitments that make it relatively difficult to project how much exposure SJCERA will have in Texas moving forward. Crow estimated that it would likely invest up to 30% of Crow VII in Texas. The overall impact on SJCERA s Texas exposure would likely be an increase of 1%-2%. This would not occur immediately and most of the increase would occur after the JW Marriott is sold. Assuming that the JW Marriott is sold within the next year, SJCERA s expected Texas exposure would be approximately 12%-13%. This would be slightly above the NPI s 11% exposure, albeit very reasonable given the current desirability of the region. Ø Crow s public pension fund exposure and California client exposure. Crow currently has ten California-based clients consisting of foundations, family offices, private pensions, financial institutions, and an endowment. Crow currently has eleven public pension fund clients and two more that will close into Crow VII within the next month. Public pension funds in North Carolina, Illinois, New Mexico, Colorado, Missouri, Rhode Island, Louisiana, and Texas are Crow investors. Public pension investors made up 24% of Fund V and 31% of Fund VI. Crow expects that 25%- 30% of Crow VII will be public pension investors. Ø Crow Headline Risk. There were some concerns expressed regarding Harlan Crow s political views and activities. Mr. Crow serves as the Chairman and Chief Executive Officer of Crow Holdings. However, Mr. Crow is not involved in the day-to-day management of Crow VII, does not sit on Crow VII s Investment Committee, and is not included in Crow VII s Key Person language. Courtland continues to believe that Crow VII represents an excellent fit for SJCERA. As an investment consultant, we base our opinion about the suitability of an opportunity for SJCERA s portfolio upon our due diligence of the people, philosophy, process, strategy, and performance of that manager. As far as any headline risk or other non-investment related concerns, it is up to each client to determine how comfortable they may be. We are not currently aware of any negative Courtland Partners, Ltd.

5 Crow VII Follow-Up impact that Mr. Crow s personal and political relationships have had on any of Crow s realty funds. In addition, we are not aware of any other interested investors walking away from an opportunity with Crow due to these other, non-investment related issues. Page 2 of 2

6 SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION EVALUATION OF A POTENTIAL INVESTMENT IN CROW HOLDINGS REALTY PARTNERS VII, L.P. MAY 2015 COURTLAND PARTNERS, LTD. CLEVELAND LOS ANGELES LONDON

7 SAN JOAQUIN COUNTY EMPLOYEES RETIREMENT ASSOCIATION CROW HOLDINGS REALTY PARTNERS VII, L.P. MAY 2015 TABLE OF CONTENTS I. EXECUTIVE SUMMARY...2 II. COURTLAND RECOMMENDATION SUMMARY.3 III. IV. ADVANTAGES AND RISKS/CONCERNS SUMMARY DUE DILIGENCE ACTIVITIES. 6 V. FIRM OVERVIEW... 7 VI. INVESTMENT STRATEGY 9 VII. TRACK RECORD.14 VIII. FEE COMPARISON.. 15 IX. MARKET CONDITIONS...16 PAGE 1

8 I. EXECUTIVE SUMMARY Courtland Partners, Ltd. ( Courtland ) prepared the following evaluation of Crow Holdings Realty Partners VII, L.P. (the Fund or Crow VII ) in consideration of a potential investment by the San Joaquin County Employees Retirement Association ( SJCERA ). The table below summarizes the principal terms of the Fund. SUMMARY OF FUND INVESTMENT TERMS/STATUS Crow Holdings Realty Partners VII, L.P. (the Fund or Crow VII ), a Delaware Investment: limited partnership. Crow Holdings Realty Advisors VII, L.P., a Delaware Limited Partnership (the General Partner: GP ). A majority of interests in the GP is ultimately owned by Crow Family Holdings. Manager: Crow Holdings Capital Partners, L.L.C. d/b/a Crow Holdings Capital-Real Estate ( Crow or the Manager ), a Delaware limited liability company. Fund Size: Targeting $1.0- $1.5 billion with a $1.6 billion hard cap. Term: Ten years with up to two additional one-year periods at the GP s discretion. Investment Period: Four years from December 10, Closings: Initial closing in November Final close by November GP Co-Investment: 0.5% from the management team plus a minimum of $100 million from Crow Family Holdings. As a limited partner, Crow Family Holdings will pay the same management fees and carried interest as the other partners in the same position. Leverage: No more than 65%. Investment Seek to create a diversified portfolio of domestic real estate that may include: Strategy: multi-family, industrial, retail, office (& medical), hotels, land and private real estate Investment Restrictions: operating companies. May include providing both equity and debt. No more than 10% will be invested in any single investment. No more than 10% will be invested in land for which there is no plan to develop improvements within twelve (12) months. No investments in publicly traded securities. No more than 10% outside the U.S. and Canada. Risk Value-Added. Categorization: Expected Returns: 13%-15% gross IRR; 10%-11% net IRR. Management Fees: 1.5% on committed/invested capital. Investors over $100 million pay 1.25%. Other Fees: None. Preferred Return: 9%. Incentive Fees: After a return of capital and a 9% preferred return to limited partners, 50/50 to the GP until it has received 20% of total distributions, thereafter, 20% to the GP. Fund-level promote. Clawback: Advisory Committee: Key Person: Termination Rights: Placement Agent: Yes. The GP will establish an Advisory Committee of at least four LPs. Any two of Anne Raymond, Robert McClain, Daniel Feeney, Carlos Rainwater and J. Dodge Carter. The GP may be removed by a majority of LPs in the event of cause and 75% in the absence of cause. HFF Securities, L.P. No amounts will be charged to the Fund. PAGE 2

9 II. COURTLAND RECOMMENDATION SUMMARY Courtland recommends that SJCERA consider an investment in Crow Holdings Realty Partners VII, L.P. after consideration of the relative Advantages and Risks/ Concerns in an amount to be no greater than $25 million. Courtland has identified the following positive attributes pertaining to potential investment by the SJCERA in the Fund: Flexible investment strategy; Proven sellers/disciplined investors; Alignment of interests; Organizational strength and continuity; Current income return; Unique strategies/early mover advantages; Consistently solid track record; Diversification of funds; and Debt structuring. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] PAGE 3

10 III. ADVANTAGES AND RISKS/CONCERNS SUMMARY ADVANTAGES 1. Flexible Investment Strategy. The Fund will seek to create a diversified portfolio of domestic real estate that may include warehouses, retail centers, retail convenience store and gas station assets, multi-family housing (including rental and for-sale housing), office buildings, medical office buildings and hospitals, hotels, land, and private real estate operating companies. Crow believes that regardless of the stage in the cycle, there will always be quality investments in the real estate asset class for those with real estate expertise and a disciplined investment strategy. For example, Crow invested heavily in multifamily in its prior two funds (over 50%). However, due to the changing market environment Crow expects to include approximately 25% exposure to the multifamily sector in the Fund. In particular, Crow prefers to focus on assets that are not as capital intensive and/or terminal value driven. 2. Proven Sellers/Disciplined Investors. Crow is always evaluating whether or not to exit its investments. Crow s basic investment premise is to be able to fix an asset within a year and then double its equity. While many other managers claim to be sellers and not asset gatherers, Crow is able to back its claim up. Fund III was formed in 2003, and owned property in major markets throughout the country comprised of 3.5 million square feet of retail, 1,729 hotel rooms, 9.3 million square feet of Class A industrial properties, 3,141 multi-family units, 350,000 square feet of office, 1,879 acres of prime, single family development sites, 160 acres of industrial land sites and various development projects, including (for sale) office condominiums and ski-in/ski-out resort townhomes and condominiums. Crow completed a sale of the entire fund portfolio to an institutional investor in January 2007 at a 40% gross IRR. This fund was less than four years old, yet Crow determined that the market was right for a portfolio exit even though Crow was in line for up to nine more years of asset management fees. 3. Alignment of Interests. Crow Family Holdings has been a large investor in each of the prior Crow funds and will continue this trend by committing $100 million to the Fund. This investment will be made as a Limited Partner; therefore, Crow Family Holdings will pay the same management fee and carried interest as the other partners as well. In addition to this investment, each of the six members of the Investment Committee will be personally (no parental loan) investing into the Fund. Finally, there are seventeen members of the investment team that will be sharing in the Fund s incentive fees. 4. Organizational Strength and Continuity. The six members of the investment committee have a diversified history of real estate experience and have been with Crow-affiliated entities an average of 22 years. The shortest tenured investment committee member has eleven years at Crow. In addition, the six product leaders average 19 years with Crow-affiliated entities. There are fifty total professionals in Crow s real estate group. Crow has a low asset per professional ratio of 2 to Current Income Return. Crow anticipates that approximately 50% of its expected return will be in the form of current income. Crow has a preference towards assets with less terminal value dependence and lower ongoing capital costs. As a result, the target allocation is over-weighted towards multi-family apartments, retail shopping centers, and warehouses as these product types have lower capital costs and stable, predictable cash flow during the hold period. 6. Unique Strategies/Early Mover Advantages. Crow began pursuing a convenience and gas strategy in Fund V as a continuation of its retail strategy. Crow identified a unique buying opportunity as Exxon was seeking to exit owning this real estate in 2009 and Crow was able to quickly understand the market and concluded that it was an attractive real estate play due to the location of the underlying real estate. This strategy has proven to be quite successful. Crow was able to generate returns in excess of 20% on these investments, which will be harder to locate going forward due to the PAGE 4

11 increase in capital that has subsequently entered the space. In Fund VI, Crow began pursuing an opportunity developing medical office/hospital campuses with an operating partner. While medical office has become institutionally accepted, the hospital component does not appear in many other institutional investment vehicles. These private-pay, pre-leased (75% before construction commences) to a physician-owned operator hospitals have been an attractive partnership opportunity for Crow. Crow is able to take a stake in the hospital operating company with control over major decisions. Crow s presence helps legitimize the strategy with lenders. The hospital component was built at a 14% cap rate and exited at a 9% cap rate, resulting in gross IRRs of nearly 30%. 7. Consistently Solid Track Record. Crow just finished up its investment period for Fund VI at the end of 2014; therefore it is too early to provide a meaningful comparison to its peers. For Funds I-V, every Crow fund is either currently a first or second quartile performer. Crow s best performing fund, Fund III, generated a 29% net IRR. Crow s worst performing fund (Fund IV), which was invested in the notoriously difficult 2006 vintage year, is a second quartile performer. Unlike other managers, which mix great successes with large failures, Crow has been able to consistently outperform its peers. The typical Crow fund can reasonably expected to generate a low teen net return to investors, which is exactly what a value manager should do. 8. Diversification of Funds. Crow invests across the property type spectrum and in major markets across the United States. Prior Crow funds have averaged 52 separate investments, which creates a diversified portfolio. Crow anticipates the Fund containing over 60 investments. The average equity investment size has been around $15 million. In its worst performing fund (Fund IV), there were a few poor investments. However, due to the size of each investment and number of investments within that fund, no single investment can drag a fund down as has been often seen with other managers. 9. Debt Structuring. Crow typically finances each asset separately on a non-recourse basis in order to avoid cross-collateralization and recourse beyond the equity invested in any single asset or portfolio. This minimizes the possibility of a mistake creating a domino effect on other holdings within a fund. RISKS AND CONCERNS 1. Competition in Major Markets. The Fund is expected to focus on investments predominantly located within the major U.S. markets (approximately 75% of the prior three Crow funds have been invested in major markets). Real estate values have been driven up by investors chasing yield in these relatively safe markets. While the Fund will pursue a value-added strategy, which has not seen the inflow of capital that core strategies have, it remains possible that as more investors become comfortable moving out on the risk-return spectrum that they will also seek value-added properties in these markets. This could potentially have an adverse impact on Crow s ability to successfully execute its strategy. Mitigation: There should be plentiful capital for the stabilized assets upon completion of the valueadded strategy in these major markets. 2. Crow Name Creating Confusion. The Crow name has a long history in real estate and many immediately associate it with the Trammell Crow Company. Notably, Trammell Crow was sold to CBRE Richard Ellis in 2006 and is no longer owned by anyone affiliated with the Crow Family. There are other businesses with the Crow name such as Trammell Crow Residential, Crow Holdings Industrial, and Crow Holdings Investment Partners. This can often be confusing when trying to determine which groups are involved in managing the institutional real estate investments. Mitigation: Crow Holdings Investment Partners does not invest in real estate. Trammell Crow Residential and Crow Holdings Industrial are managed by completely separate professionals and the Crow real estate funds do not utilize these groups in any way. PAGE 5

12 3. Institutional Demand for Certain Investments. There are not nearly as many institutional buyers for convenience and gas stations and hospitals as there are for the traditional types of property (e.g., office). While these strategies have been successfully executed by Crow in the past, there is a less readily identifiable buyer pool for these assets once they have been developed or improved. Therefore, it is possible that the Fund encounters more difficulty exiting these specialty investments, especially if economic conditions deteriorate. Mitigation: The stabilized cash flow on these investments is typically very high (e.g., 12% on hospitals), therefore the Fund will be in an acceptable position should it have to hold onto certain assets longer than anticipated. In addition, the typical fund equity investment in a hospital is $8-$10 million, which minimizes the overall exposure to such a unique strategy. 4. Retail Fund. Crow is also offering a single strategy retail fund targeting domestic retail real estate assets with a $17.5 million purchase price or less, which could potentially detract from the focus of investment personnel. Mitigation: Any potential retail investment above this threshold will be considered for the Fund. Retail is one of many strategies that Crow anticipates pursuing for the Fund. In addition, only two members of the investment team will be spending most of their time on this product. 5. Leverage. The Fund will utilize leverage up to 65% at the fund level. It is anticipated that most investments will be leveraged anywhere from 60%-70%. The addition of leverage to an investment increases the risk with respect to adverse economic factors, including rising interest rates, economic downturns, or the deterioration of investment cash flow. Mitigation: Leverage will only be undertaken in situations where the fundamentals support the use of leverage and where it is accretive to returns. 6. Development. The GP currently anticipates that the Fund could be comprised of up to 25% development across product types, with the majority of development projects being focused in the multi-family, industrial, and medical office sectors. Development increases investment risk due to the entitlement, construction, and lease-up risk. In addition, the development of hospitals is certainly riskier than the development of an apartment complex. Mitigation: The Fund does not take on entitlement risk, which helps to reduce the risk somewhat as entitlement and permits are already in place prior to Crow s involvement. IV. COURTLAND DUE DILIGENCE ACTIVITIES Courtland has completed the following due diligence activities for the evaluation of the Fund: Reviewed Crow s response to the Courtland Due Diligence Questionnaire as well as database information completed by Crow; Reviewed presentation materials, investment terms, and Private Placement Memorandum for the Fund; Conducted on-site due diligence in Crow s Dallas office and conducted property tours on February 26, 2015; Analyzed the track record of Crow s previous fund offerings; and Reviewed relevant real estate market conditions against the appropriateness of the Fund s stated investment strategy. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] PAGE 6

13 V. FIRM OVERVIEW Crow Family Holdings was formed as a family office to own and manage the capital of the Trammell Crow family. Today, Crow Family Holdings has a substantial stake in the ownership of various businesses, both real estate and non-real estate related, with a level of involvement in the management of these businesses that ranges from active to passive. Its holdings also include significant, diversified positions in financial investments. While Crow Family Holdings has interests in numerous diversified investment activities, real estate is its foundation. Trammell Crow began a career of real estate development at the end of World War II. Since that time his family has had a prominent role as developers and investors in the U.S. and international real estate markets and has always embraced long-term partnerships. Crow Family Holdings does not provide investment advisory services to any persons other than Crow family members and their affiliates. Crow is owned, indirectly through intermediate subsidiaries, by select members of its management team and various affiliates of Crow Family Holdings. Beginning in 1998, Crow sponsored the first of six real estate private equity funds. Crow is currently the investment manager to four other private equity real estate funds (Fund I, IV, V & VI). Crow currently has over $2.1 billion of net assets under management. Crow is managed and directed by a six member investment committee that has worked with Crow-affiliated entities for an average of 22 years. These six individuals have spent the majority of their careers in the real estate industry and collectively have spent over 134 years with Crow-affiliated entities in a broad range of real estate related disciplines, including acquisitions, development, dispositions, financing, leasing, and management. They will be supported by an experienced team of real estate professionals. Crow has 50 dedicated real estate professionals and a low asset to professional ratio of 2 to 1. Below are the biographies for the six members of the Crow Investment Committee (the Investment Committee ): Anne Raymond President Kevin Bryant General Counsel BIOGRAPHIES OF KEY PERSONNEL Ms. Raymond is a member of the Investment Committee and has overall responsibility at Crow for the capital markets and portfolio management groups, as well as hotel investments. Ms. Raymond has been associated with Crow Holdingsaffiliated entities for 31 years. Prior to re-joining Crow in September 2000, Ms. Raymond was the Executive Vice President and Chief Financial Officer of Wyndham International, Inc. for five years. Previously, she spent 12 years with Crow Holdingsaffiliated entities in various real estate investment and financial capacities. Before joining Crow Holdings-affiliated businesses, Ms. Raymond was with Arthur Andersen & Company. Ms. Raymond has a B.S. degree in Business Administration from the University of Missouri. Ms. Raymond is a member of the National Council of the American Enterprise Institute and the Real Estate Roundtable, and serves on the board of directors and the investment committee of Trammell Crow Residential. Mr. Bryant has overall responsibility for Crow s legal matters as well as tax planning and structuring. He is also responsible for the structuring and formation of the prior Crow Funds and Crow VII. Mr. Bryant has been with Crow Holdings-affiliated entities for over 18 years and chairs the Due Diligence Committee and sits on the Investment Committee. Mr. Bryant began his legal career at Weil, Gotshal and Manges LLP, where he focused primarily on commercial real estate, corporate finance and partnership law, and worked extensively with real estate equity funds. Mr. Bryant began his career with Arthur Andersen & Company where he became a certified public accountant. He is a graduate of Oklahoma State University and received his J.D. from Oklahoma City University where he graduated with honors. Mr. Bryant is a member of the Real Estate Roundtable Tax Policy Committee and the Real Estate Council. Additionally, Mr. Bryant serves as the chairman of Uplift PAGE 7

14 Bob McClain Head of Real Estate Investment Strategies Dan Feeney Head of Retail Investment Strategy Carlos Rainwater Head of Office and Land Strategies Dodge Carter Head of Multifamily Investment Strategy Education, and is on the Leadership Counsel for the OSU Alumni Association. Mr. Bryant has published various tax articles and co-authored several books, including the Partnership Tax Practice and Planning Guide, the Annual Tax Planning Guide for S Corporations, Partnerships and Limited Liability Companies, Matthew Bender s Tax Return Manual and The Depreciation Handbook, published by Matthew Bender. Mr. McClain is a member of the Investment Committee and has overall responsibility for the real estate investment activities at Crow. He has been with Crow Holdingsaffiliated entities for 27 years. Previously, Mr. McClain was a partner in the Northeast region of Trammell Crow Company. Mr. McClain s experience includes two years with Coopers & Lybrand LLP in New York, where he obtained his C.P.A. license. Mr. McClain received a B.S. degree, summa cum laude, in Business Administration from the State University of New York at Albany and an M.B.A. from the Harvard Graduate School of Business Administration. Mr. McClain is a member of the Urban Land Institute and the International Council of Shopping Centers. Mr. Feeney is a member of the Investment Committee and has overall responsibility for all of the retail investment activities at Crow. Mr. Feeney has been with Crow Holdings-affiliated entities for 23 years. Before joining Crow Holdings, Mr. Feeney ran the Trammell Crow Company National Retail Office in Dallas, Texas. Prior to his experience at Trammell Crow Company, Mr. Feeney headed acquisitions for Combined Properties, Inc. in Washington, D.C. Prior to joining Combined Properties, Inc., Mr. Feeney was a partner in the Northeast region of Trammell Crow Company where he managed development, marketing, construction, property management and accounting for a portfolio of shopping centers in Maryland. Additionally, Mr. Feeney s experience includes practicing law for 3 years with Frank, Bernstein, Conaway, and Goldman (Ballard Spahr) in Baltimore, Maryland. He received a B.S. degree in History from Towson University and received his law degree from the University of Baltimore. Mr. Feeney is a member of the International Council of Shopping Centers, National Association of Industrial and Office Park Owners and the Urban Land Institute. Mr. Rainwater is a member of the Investment Committee. He has overall responsibility for all of Crow s office and land investment activities. Mr. Rainwater has been associated with Crow Holdings affiliated entities for the past 26 years, including three years of involvement on the non-real estate business side, in addition to serving as the Controller of Trammell Crow Company DFW Office Group. Prior to joining Crow Holdings, Mr. Rainwater was with the accounting firm of Arthur Andersen & Company in Dallas, Texas for three years. Mr. Rainwater received a B.B.A. degree in Accounting from Texas Tech University and is currently a member of the Urban Land Institute. Mr. Carter is a member of the Investment Committee. He has overall responsibility for all of Crow s multi-family activities. Mr. Carter has been associated with Crow Holdings-affiliated entities for 11 years. Prior to joining Crow Holdings, Mr. Carter held various positions with Lomas & Nettleton, First Gibraltar Bank, GE Capital Real Estate, and Olympus Real Estate Partners, where responsibilities included construction lending, debt and equity asset management, capital markets and business development activities. Mr. Carter received a Bachelor of Business Administration from Southern Methodist University and is an active board member of the National Multi-Housing Council. PAGE 8

15 VI. INVESTMENT STRATEGY The Fund will seek to continue Crow s approach to creating a diversified portfolio of domestic real estate that may include multifamily, industrial, retail, office (including medical office), hotels, land, and private real estate operating companies. Crow believes that regardless of the stage in the cycle, there will always be quality investments in the real estate asset class for those with real estate expertise and a disciplined investment strategy. This allows Crow to pursue those product sectors offering the best risk adjusted returns available in the market at any given point in the economic cycle. Crow will target well-located properties primarily with an in-place income stream and/or an opportunity to produce appreciation over an investment s hold period by employing the following strategies, among others: Increasing net operating income: Substantial value can be created by uncovering opportunities to increase cash flow through (i) built-in rent bumps in existing leases, (ii) proactive efforts to eliminate rent concessions or roll-over of existing tenants paying below market rents to market rates, (iii) aggressive leasing of existing vacancies, (iv) expense reductions and operational improvements, and (v) converting gross leases to net. Redevelopment: Acquiring assets that provide the opportunity to expand under-utilized sites or redevelop functionally deficient properties can lead to substantial value creation. Repositioning: Repositioning under-managed or broken assets can provide for significant value creation by (i) re-tenanting properties with credit risk or bankrupt tenants, (ii) rebranding underperforming hotels, (iii) replacing existing managers with more efficient operators, (iv) implementing physical improvements, (v) addressing environmental issues through clean up or other efforts, and (vi) executing long term extensions of significant leases. Investing in recovering markets: Real estate is a local business driven by supply and demand factors that are particular to each market. Identifying the appropriate asset in a given submarket can create opportunities for value enhancement as sub-market fundamentals improve. Buying below replacement cost: Crow seeks to acquire assets at discounts to replacement cost in markets that have exhibited consistent appreciation over time or in sub-markets with significant barriers to entry. As the competition for income producing assets has increased, development projects in markets with strong job growth or in supply constrained sub-markets increasingly attract investor capital. Crow intends to target development opportunities with strategic local operating partners. In general, Crow s strategy has remained the same across funds, but the weightings of any particular product type have been adjusted to fit the prevailing economy, business conditions, and opportunities that presented themselves. The Fund is being created to continue the real estate investment activities of Crow s management team, and its proposed investment strategy is in line with the strategy of prior Crow funds. Overall, the strategy is to remain flexible so that the Fund can pursue those product sectors offering the best available risk adjusted returns. While the composition of the prior Crow funds shifted based on market conditions, each fund was well-diversified among different property types. The Fund will seek quality investments across the U.S. Crow focuses on investments in primary markets and submarkets with strong job and population growth, as these locations tend to offer the optimal risk-adjusted returns in the commercial real estate investment market. While there are no specific U.S. geographic restrictions, each of the prior Crow funds was diversified geographically in various markets throughout the U.S. In addition, these funds targeted investments in markets that consistently attract institutional capital, which generally provide the opportunity for greater liquidity upon exit. PAGE 9

16 The Fund will seek to create a diversified portfolio of domestic real estate that may include warehouses, retail centers, retail convenience store and gas station assets, multi-family housing (including rental and for-sale housing), office buildings, medical office buildings and hospitals, hotels, land and private real estate operating companies. The Fund s strategies may include providing both equity and debt for the acquisition of existing assets and investments in new development, redevelopment and assets under development. Crow has a preference towards assets with less terminal value dependence and lower ongoing capital costs, tenant finish, and commissions. As a result, the target allocation shown below is over-weighted towards multi-family apartments, retail shopping centers, and warehouses as these product types have lower capital costs and stable, predictable cash flow during the hold period. As office buildings and hotels often have high capital requirements that result in less predictable cash flow, the target allocation to these product types is underweighted. The ultimate make-up of the portfolio will be determined by the opportunities with the best risk adjusted returns during the Fund s investment period. The Fund has no allocation restrictions in terms of asset classes. Source: Crow The following table provides a snapshot of the product allocation amongst prior funds: Source: Crow PAGE 10

17 Within the various sectors, Crow intends to pursue the following opportunities: Retail Crow intends to focus on grocery-anchored shopping centers and shopping centers with little exposure to e- commerce competition. In addition, Crow will also seek to acquire shopping centers in cities and towns near colleges and universities. Crow generally intends to invest in three types of shopping centers: Grocery-anchored shopping centers with small shop space surrounding the grocer. These retail centers typically provide the necessary services to a neighborhood: family-style and take-out restaurants, dry cleaners, doctors offices, hair salons, etc. Strip retail centers primarily comprised of small shops in highly affluent neighborhoods. These centers are designed to provide convenient services to affluent communities. Community centers, which are similar to grocery-anchored centers, but typically include one or more junior anchors, such as TJ Maxx, Office Depot, etc. Industrial Crow will typically seek to invest in the following type of industrial assets: Acquisition of existing multi-tenant warehouse distribution space that currently offers stable unleveraged yields. Selective development of warehouse and industrial parks. In this arena, Crow s relationships are critical. The development process necessitates local development partners, and such developers prefer a capital partner they know and who understands the development process. Crow intends to consider development where the anticipated yield premium is great enough to compensate for the risk of development. Multifamily Crow anticipates focusing primarily on the following multifamily investment themes: The acquisition and selected repositioning of traditional garden style and urban in-fill multi-family housing. Crow intends to continue to invest in mature, well-located properties in primary and major secondary markets offering measured employment and population growth characteristics along with strong demographic profiles conducive to renting. The development of garden style, urban and select suburban in-fill multi-family housing. Crow believes garden style development not only offers less risk, but also typically results in a shorter development cycle. The development and select acquisition of purpose-built student housing communities. Crow believes that student housing initiatives will focus on proximity to campus, growing undergraduate enrollment, barriers to entry, product differentiation, and the ability to achieve substantial pre-leasing. PAGE 11

18 Office/Medical Office Crow generally targets the following types of office opportunities: Hotel Acquisition of well-located, high quality, multi-tenant office buildings in major markets with stable cash flow and strong current returns. These assets have limited lease rollover in the near-term, providing stability and an opportunity to increase rental rates as leases roll. Medical office would ideally be located on campus or near a major hospital or health care provider. Acquisition of office buildings with either existing vacancy or near-term lease expirations in major markets where historically strong job growth continues and demand is strengthening. Selective development of Class A multi-story office and medical office buildings. The opportunity may exist to capitalize on the early stages of the office development cycle, yielding returns upon stabilization considerably in excess of what Crow believes are achievable through acquisition. Crow expects most of the hotel opportunities to have one of the following attributes: Acquisition of hotels where Crow can replace an existing manager with a more efficient operator. Acquisition of hotels where Crow can convert to a better brand. Acquisition of hotels where the physical asset can be changed through capital improvements. The GP currently anticipates the Fund could be comprised of up to 25% development across product types, with the majority of development projects being focused in the multi-family, industrial, and medical office sectors. When pursuing development opportunities, Crow seeks returns upon stabilization in excess of what it believes is achievable through acquisition. Crow generally focuses on locations where demand is higher typically due to employment growth, high barriers to entry coupled with a lack of supply, as well as areas where it can develop a product below its replacement cost. The following chart details Crow s percentage of development deals in prior funds: Source: Crow The average investment size is in the $13 million to $17 million range based upon prior Crow funds. At acquisition, fund assets are typically underwritten assuming exits through a private sale. Each asset undergoes a strategic plan that includes a hold/sell analysis. As assets stabilize and approach their anticipated hold period (typically 7-10 years), selling opportunities are sought and pursued through sources such as local contacts and brokers. Factors such as capital markets, local economic conditions, and real estate fundamentals impact the process and yield on exit. Nonetheless, opportunities to sell are always monitored, both individually and as a portfolio. Asset managers continually monitor what is trading in the market across product types and locations within the U.S. Then, they compare these transactions to similar assets in the Fund s portfolio and determine if selling properties at a comparable price is attractive. If the pricing and timing generate acceptable returns, asset managers then proceed with marketing the property to sale. PAGE 12

19 Deal Sourcing/Crow VII Deals Crow generates deal flow through the following sources: Relationships Most of Crow s Investment Committee and senior investment team have been active in the real estate business for 20 years or more. Each Investment Committee member has numerous relationships through which Crow sources investments. Brokerage Community Crow cultivates deep relationships within this community through whom Crow sources investment opportunities. Crow does not vertically integrate leasing and property management services and, therefore, does not compete with intermediaries. Crow believes this gives it a competitive advantage in accessing deal flow. Source: Crow The following are currently investments of the Fund, which total $111 million of closed equity commitments. Three of the deals are development projects (2 multi-family and 1 industrial). Crow indicated that it expects to primarily develop in multi-family (60% of the Fund s development) and industrial (30% of the Fund s development). Each investment has a projected gross IRR in excess of 13%. Source: Crow PAGE 13

20 Current Pipeline The following is a pipeline of potential Crow VII investments: Source: Crow VII. TRACK RECORD Beginning in 1998, Crow sponsored the first of six real estate private equity funds. Crow is currently the investment adviser to the remaining active prior Crow funds. In addition, Crow sponsored a private industrial real estate investment trust, Crow Holdings Industrial Trust (the Industrial REIT ) in The Industrial REIT was formed by raising $125 million of new capital through the sale of shares and rolling-up the ownership of an existing portfolio of industrial assets owned by Crow Holdings and its partners. A second tranche of stock was issued in Eleven institutional shareholders invested alongside Fund I in acquiring shares in the Industrial REIT. Of the total amount raised, Fund I invested $50 million to acquire 4.9 million shares of the Industrial REIT. Fund I s returns on its investment in the Industrial REIT are included in the track record table below. In December 2002, the Industrial REIT was sold in its entirety to Clarion, a subsidiary of the ING Group. The following table shows the performance of each of the Crow funds in comparison to all other value-added funds of the same vintage in the Courtland Partners Index ( CPI ) as of December 31, Every fund is currently a first or second quartile performer. Fund VI has just completed its investment period and therefore the return comparison for a 2012 vintage fund is not meaningful. Vehicle Vintage Total Commitments % Realized Current Net IRR Current Net Multiple Fund I 1998 $280.1 million 96% 11% 1.4x 2 nd Fund II 2000 $364.8 million 100% 17% 1.5x 2 nd Fund III 2003 $595.8 million 100% 29% 1.6x 1 st Fund IV 2006 $846.5 million 65% 2% 1.1x 2 nd Fund V 2008 $951.5 million 57% 15% 1.6x 2 nd Fund VI 2012 $1.067 billion 0% 12% 1.7x N/M Source: Crow, Courtland Partners Courtland Partners quartile Index PAGE 14

21 VIII. FEE COMPARISON The following table shows a fee comparison of the Fund terms against other value-add equity funds. The Fund management fees of 1.50% on committed and invested are reasonably in line with market levels that are generally 1.25% to 1.50% on committed and invested capital. With respect to the incentive fee, the 9% preferred return is consistent with market levels of between 8% - 9% for value-add funds. The distribution waterfall, which includes a 50/50 catch-up, is also consistent with other offerings in the market. Fund Fund Size Crow VII $1B Fund I $750M Fund II Fund III Fund IV $1.0B $1.5B $1.0B Fund V $300M Management Fee 1.5% on committed and invested 1.5% on committed and invested 1.0% on committed, 1.5% on invested 1.25% on committed and invested Acquisition Fee: 50 bps on gross acquisition costs 0.90% during the first three years on gross asset cost, 0.60% on gross asset cost thereafter. 1.5% on committed and invested Fund VI $500M 1.25% on invested capital 9% Source: Courtland Preferred Return 9% 9% 8% 9% 8% 9% Distribution Waterfall 9% preferred return hurdle, then 50/50 catch-up to the GP, 80/20 thereafter. Fundlevel promote. 9% preferred return hurdle, 60/40 catch-up to the GP, 80/20 thereafter. Fund-level performance test. 8% preferred return hurdle, then 50/50 catch-up to the GP, 80/20 thereafter. Fundlevel performance test. 9% preferred return hurdle, then 80% to the LPs until a 13% preferred return, then a 50/50 catch-up, thereafter 80/20. Fund-level performance test. 8% preferred return hurdle, no catch-up, thereafter 80/20. Fund-level performance test. 9% preferred return hurdle, then 60/40 catch-up to the GP, 80/20 thereafter. 9% preferred return hurdle, no catch-up, 80/20 thereafter. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] PAGE 15

22 IX. MARKET CONDITIONS The combination of the third quarter s gross domestic product (GDP) of +5.0% and the second quarter s growth of +4.6%, represented the first time since 2003 that GDP growth exceeded 4% in two straight quarters. With a growth of 2.2% for the fourth quarter, the U.S. economy has been above the 10-Year Average reading of 1.6% for ten of the last twelve quarters. This is a marked improvement of the four years prior to that period when half of the quarters (i.e., eight of the sixteen quarters) were below average, with six in negative territory. 6.0% U.S. GDP - Quarterly 4.0% 2.0% 2.2% 1.6% 0.0% -2.0% Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep % -6.0% U.S. GDP - Quarterly 10 Year Average -8.0% -10.0% Source: Bloomberg, Courtland Partners As with the prior quarters, the gains in the fourth quarter were again led by an increase in consumer spending. The gain in spending was in turn powered by a strong employment situation, lower oil prices, and record stock prices. The employment situation delivered much better-than-expected results, with an average of about 324,000 jobs added each month during the quarter. The unemployment rate also declined to 5.6%, a new cycle low. During the fourth quarter the Federal Open Market Committee (FOMC) modified the language used regarding how long it would keep the fed funds rate low. The committee replaced text stating that rates would remain near 0% for a considerable time with language saying that it would be patient in determining the course of rates. Many economists continue to believe that the Fed will begin to raise rates sometime in the second half of U.S. real estate continues to attract strong domestic and overseas investor demand benefitting from monetary policies that are putting sustained downward pressure on long-term interest rates. The lower oil prices have caused investors to evaluate the impact nationally, and not just in the energy patch. There could be a sharp slowdown in Houston, TX, Denver, CO, and to a lesser extent Dallas, TX, but the oil price decline should not derail all growth. Current forecasts anticipate job growth slowing in each of these metros from the 3%- 4% pace of recent years to a moderate 1.5% to 2.5% range, trending closer to the national average in In a downside scenario, the Dallas Fed estimates that should oil remain below the $55/bbl range for an PAGE 16

23 extended period (two quarters), Texas growth will be substantively impacted, and Houston s growth could fall towards 1%, remaining in positive territory. NCREIF Property Index ( NPI ) returns for the fourth quarter were 3.0%, consisting of 1.8% appreciation and 1.3% of income return. This is an increase from the prior quarter (2.6%) and is the highest quarterly return since third quarter The five year annualized return for NPI through fourth quarter 2014 was 12.1%. Although much of the recent performance was driven by cap rate compression, fundamentals are having an increasingly positive impact: NOI growth was 1.7% for the quarter and over 6.5% for the year. The pace of new supply of institutional-quality real estate has been below average since the financial crisis, even as demand has picked up in recent years. Industrial had the highest return among the four major property types for the quarter (3.9%) and the year (13.4%). NCREIF Property Index Returns 4Q14 3Q14 2Q14 1 Year Total 3.0% 2.6% 2.9% 11.8% Appreciation 1.8% 1.3% 1.6% 6.2% Income 1.3% 1.2% 1.5% 5.4% Property Type Apartment 2.8% 2.5% 2.6% 10.3% Hotel 4.3% 2.9% 2.6% 11.1% Industrial 3.9% 2.9% 3.3% 13.4% Office 3.1% 2.8% 2.9% 11.5% Retail 2.7% 2.3% 3.2% 13.1% Source: NCREIF, Courtland Partners The strong returns for NCREIF are tied to the limited amounts of new supply being introduced across the board, which has led to declining availability (8.1%). Vacancy for Industrial (5.8%) is currently at its tightest level for the past ten years. The one sector where new supply has come online is the Apartment sector, and the vacancy rate (6.7%) has moved off the lows of two and a half years ago (5.0%). Very little new supply is underway in the Retail space and vacancy (7.1%) has dropped 80 basis points from the year ago period. 14.0% 12.0% NCREIF Vacancy Rate Ranges: 10 years ending 4Q % 10.0% 8.0% 6.0% 4.0% 8.1% Average Current Prior 4 Qtrs 6.7% 5.8% All NPI Apartments Industrial Office Retail 7.1% Source: NCREIF, Courtland Partners PAGE 17