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1
ROBERT A. STANGER & CO., INC.PRESENTATION TO APPRAISAL INSTITUTE
BY
WAYNE SOUZA
NON-LISTED REIT INDUSTRY
MARKET UPDATE
2
Market Update:
Summary of Major Events & Trends
• Regulatory-- DOL Fiduciary Rule – Phased Implementation / Uncertainty
-- NASAA REIT Guideline Amendment Delayed
-- 1st Anniversary of FINRA Account Statement/Valuation Rule
• Broker Dealer -- Re-Evaluation of IBD Business Model /Product Offerings
-- Temporary Paralysis
-- Movement toward a “Standard” Distribution Cost
• Competitive Environment-- Few New Sponsor Entrants to NL REIT Market
-- Pressure on DM & Advisory Fees
3
Market Update:
Summary of Major Events & Trends(continued)
• Industry Investment Performance
• Preserving AUM During Uncertain Times-- Slowdown of Liquidity Events
-- NL REIT Mergers
-- Contemplation of Conversions to NAV REIT Structure
• Product Line Expansions
-- Interval Funds / Private Placements / 1031s
• 2017 Fundraising
4
FINRA Account Statement
Reporting Rules • Value Must Be Reported on Account Statement
(unless deemed unreliable)
• Member Firm Can Only Participate in Offerings Where
Issuer Agrees to Disclose Valuations Conforming to Rule
(including methodology, scope, date, basis for value)
• Two Presumptively Reliable Methods
• Net Investment
• Appraised Value
• Enhanced Disclosure Re: Distributions > “Earnings”
• Accelerated Timing of First Valuation
• Became Effective April 2016
• Led to Reduction of Front-End Fees & Multi-Share Class
Products
5
Account Statement
Valuation Methodologies• Net Investment
• “Amount Available For Investment” from Estimated Use of
Proceeds In Prospectus
• Aggregate $ registered less % deduction for Sales Commissions,
Dealer Manager Fees and O&O (based on max offering,
unless reason to believe unreliable)
• May use until 150 days after 2nd Anniversary of Escrow Break
• Appraised Value
• May disclose at any time, but must disclose no later than limitation
date for Net Investment use
• Based on valuations of program assets and liabilities (“NAV”)
• Performed at least annually
• By or with material assistance/confirmation of 3rd party expert
• Methodology must conform to standard industry practice
6
Account Statement Rules
Other Provisions• Enhanced Disclosure Regarding Excess Distributions
• Prior to disclosure of Appraised Valuation, account statement must
include, if applicable, this required disclosure:
“IMPORTANT – Part of your distribution includes a return of
capital. Any distribution that represents a return of capital reduces
the estimated per share value shown on your account statement.”
• Must be prominent and proximate to disclosure of distributions and
per share estimated value.
• Acceleration of Appraised Valuations
• No later than 150 days after 2nd anniversary of escrow
• Previously was 18 months after closing of offering period.
• Implemented
• April 11, 2016
7
Valuations Trends
Among Public Non-Listed REITs
• Valuations Being Conducted Prior to
Extensions / Follow-On Offerings
• Gradual Migration Toward Quarterly
Valuations Beginning
• Valuations Compliant with IPA Practice
Guideline 2013-01: Valuations of Publicly
Registered Non-Listed REITs
• Disclosures of Methodology, Compliance and
Expert Engaged
8
Pressure on Distribution and
Advisory Fees
• 10 NL REITs Limiting Distribution Costs Below 10%
-- Range – 7.25% to 9.0%
-- Sponsors Absorbing Portion of Distribution Costs
• Five NL REITs Cutting Advisory Fees
-- Acquisition Fee Elimination
-- Subordination of Incentive with Greater Share of Upside
9
NL REIT Investment Performance at Monetization(1)
2002 – Q1 2017 (Dollars in Millions)
Range Average Aggregate
Capital Invested (2)
$4 - $5,150 $1,434 $70,246
Total Return (1)
26.0% - 216.8% 127.3% 120.2%
XIRR (1)
(62.9%) - 48.5% 6.7% 7.7%
Aggregate Value Creation
$14.2 billion
Individual Programs
(1) Based on “Mid-Point” investor.
(2) Excludes net DRIP proceeds after redemptions.
Note: Performance is for 49 NL REITs providing liquidity events during May 2002 through March 31, 2017.
10
Quarterly Liquidity Events
2013 thru March 2017
2013 - Q1 $2,235.0 2015 - Q1 $3,872.1 2017 - Q1 $0.0
2013 - Q2 8949.40 2015 - Q2 5024.6
2013 - Q3 1946.80 2015 - Q3 909.7
2013 - Q4 3196.80 2015 - Q4 3066.5
2014 - Q1 4543.70 2016 - Q1 329.9
2014 - Q2 4443.60 2016 - Q2 0.0
2014 - Q3 2096.00 2016 - Q3 953.2
2014 - Q4 4917.30 2016 - Q4 216.6
Total $46,701.2
Qtrly Avg $2,747.1
Monetizations
ROBERT A. STANGER & CO., INC.
11
Public Non-Listed REIT
Equity Under Management
2009 – Q1 2017
$48.6 $52.1
$60.4 $61.3 $63.8
$66.5 $63.7
$66.5 $68.0
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017
($ billions)
12
(1) Publicly registered as of March 31, 2017 and March 31, 2016.
(2) Does not include securities registered under dividend reinvestment plans.
Public DPP &NL REIT Offerings
($ in millions)
No. of Public
Offerings (1)
2017 2016
REAL ESTATE
Equity - LPs/LLCs 0 -$ -$ NC
- Non-Traded REITs 30 46,875.0$ 55,500.0$ -15.5%
Mortgage - LPs/LLCs 1 150.0$ 150.0$ NC
- Non-Traded REITs 2 3,500.0$ 2,800.0$ 25.0%
Total Real Estate 33 50,525.0$ 58,450.0$ -13.6%
OIL & GAS 3 3,350.0$ 3,000.0$ 11.7%
EQUIPMENT LEASING 2 400.0$ 150.0$ 166.7%
BUSINESS DEVELOPMENT COMPANIES 15 21,383.8$ 24,807.3$ -13.8%
TOTAL MARKET 53 75,658.8$ 86,407.3$ -12.4%
Amount Registered (2)
% Change
13
NL REIT Fundraising
Q1 2015-2017
$3,280
$1,403 $1,556
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Q1 2015 Q1 2016 Q1 2017
($ millions)
14
Public Non-Listed REIT Fundraising
2010 – 2017e
$8,102 $8,348
$10,332
$19,620
$15,647
$10,046
$4,492
$0
$5,000
$10,000
$15,000
$20,000
$25,000
2010 2011 2012 2013 2014 2015 2016 2017e
$4,700 e
Source: The Stanger Market Pulse
($ millions)
15
Q1 2017 Capital Flows to Public REITs
($ millions)
Non-Traded REITs $1,556 13%
Traded REIT IPOs $1,874 15%
Traded REIT Secondary Offerings $8,875 72%
Source: Robert A. Stanger & Co., SEC filings, NAREIT
ROBERT A. STANGER & CO., INC.
16
2.56 2.98 3.16
6.50 6.50
8.60
5.65
2.05
3.46
4.74
8.76
6.91
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Stanger Market Clearing Index
Public Non-Listed REITs
ROBERT A. STANGER & CO., INC.
17
NL REIT Fundraising
Q1 2017
$362
$116 $174
$22
$17
$20
$225
$208
$414
$0
$250
$500
$750
January February March
Blackstone Other NAV REITs Traditional NL REITs
($ millions)
ROBERT A. STANGER & CO., INC.
18
Public NAV REIT Fundraising
2011 – YTD March 2017
$10 $49
$241 $272
$522
$876
$710 (1)
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2011 2012 2013 2014 2015 2016 2017 YTD
Source: The Stanger Market Pulse(1) Includes $279 million of Blackstone 2016 fundraising recognized at time of escrow break in January 2017.
($ millions)
ROBERT A. STANGER & CO., INC.
19
CONFIDENTIAL MATERIALS - DRAFT
Effective NL-REITs & NL-BDCs
By Share Class
# Programs
Full-Load
Share Only
Low/No Load
Share Only
Multi-Share
Classes
Q1 2014 39 2 6
Q1 2015 43 1 6
Q1 2016 16 9 19
Q1 2017 7 10 25
20
Non-Listed REIT Share Class
Fundraising Trend
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500C Share T Share R&W Shares
($ millions)
21
Non-Listed REIT Fundraising
Full Commission Vs. No/Low Load/Trail Shares
Full Commission Product $15,213 97.2% $8,979 89.4% $1,823 40.6% $337 21.7%
No/Low Load/Trail Product
NAV 272 1.7% 522 5.2% 876 19.5% 710 45.6%
Deferred/Low/No Load 162 1.0% 545 5.4% 1,794 39.9% 510 32.7%
Total $434 2.8% $1,067 10.6% $2,669 59.4% $1,219 78.3%
2014 2015 2016 thru Mar
2017
Source: The Stanger Market Pulse.(1) Adjusted for removal of Blackstone 2016 sales which closed with breaking of escrow in January 2017.
2017 Annualized Run Rate
NAV $1,724 mm (1)
Full Commission $1,348 mm
Deferred/Low/No Load $2,040 mm
Total NL REITs $5,112 mm
($ millions)
ROBERT A. STANGER & CO., INC.
22
Public Non-Listed BDC Fundraising2010 – 2017 YTD Annualized
$94
$369
$1,011e
$1,497
$2,836
$4,845
$5,493
$3,905
$1,428
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
2009 2010 2011 2012 2013 2014 2015 2016 2017e
Source: The Stanger Market Pulse
($ millions)
ROBERT A. STANGER & CO., INC.
23
NL BDC Fundraising
Q1 2015 - 2017
$1,141
$475
$253
$0
$200
$400
$600
$800
$1,000
$1,200
Q1 2015 Q1 2016 Q1 2017
($ millions)
ROBERT A. STANGER & CO., INC.
24
2.44 2.71 3.26
2.11
3.31
6.12
14.94
17.91
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
YE 2010 YE 2011 YE 2012 YE 2013 YE 2014 YE 2015 YE 2016 Q1 2017
Stanger Market Clearing Index
Public Non-Listed BDCs
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