Why Private Real Estate?

Question 1

Why PE? Inflation Hedge

Answer 1

Real estate is a hedge for inflation. Bc of inflation we’ve been able to reset rents and that drives value in our assets.
As material costs go up (lumber, drywall, etc), you’re accumulating value bc the replacement cost goes up

If you think about CPI numbers right now, 20% of it is cost of housing and its determined by the cost of rent.

Question 2

Reduces portfolio volatility

Answer 2

Most public REITS are down as low as 40%. Although the underlying fundamentals are not deteriorating, you are still subject to the volatility. With private real estate, you are truly getting an asset with low correlation to the stock market.

Question 3

BETTER Portfolio Performance.

Answer 3

With that being said, it makes your portfolio perform better: Real estate has outperformed the S&P 500 and the public markets in the last 10-20 years.
In a downturn, people first stop spending money on discretionary things..

Multifamily is an essential asset and that will continue to the case due to the massive undersupply of homes since 2007

Question 4

TAX EFFICIENT

Answer 4

Proven over and over to build substantial wealth in a tax efficient manner

Question 5

Supply/ Demand Imbalance

Answer 5

All Cities we invest in have supply/ demand imbalances…
More people are being forced to rent as mortgage rates continue to rise. We call this demographic “trapped renters”

This LARGE supply / demand imbalance has been stemming from 08-09… There is ac shortage of 600,000 apts homes

Job and population growth has never been stronger and there is a ton of demand that can’t meet the supply right now

Multifamily is the only asset class that will continue to outperform in this market cycle.

Question 6

BREIT vs Origin?

Answer 6

1. OFFICE. BREIT has a large allocation to office. We are entering a period of economic uncertainty, and we believe multi family is the most risk adverse and most conservative asset class to be in.
2. CASH DRAG. REITs like BREIT who provide that liquidity creates a cash drag. If you think about what real estate is at its core…It’s an illiquid investment meant for long term hold to reap its full benefits.
3. DISCIPLINED Investment Strategy. BREIT raises a $1 billion a quarter so it’s really difficult to have a disciplined investment strategy with that type of capital velocity.

Question 7

Public REIT vs Origin?

Answer 7

1. VOL. Most public REITS are down as low as 40%. Although the underlying fundamentals are not deteriorating, you are still subject to the volatility. With private real estate, you are truly getting an asset with low correlation to the stock market.
   The asset is marked at what the NAV is vs public REITS which are typically trading at some discount premium to NAV. At the end of the day, do you actually know what you’re buying into?
2. We are more NIMBLE. Income Plus is a smaller fund which allows us to still be able to find those diamonds in a rough. Public REITS can only buy public which limits what they can actually buy.
3. TAX EFFICIENT. Private structures like IPF are more tax efficient. When you get 4% from public REIT, you pay ordinary income and get 20% deduction. In private structure, we pass the depreciation to you & you get 20% deduction.
   In 2021, 94% of the Income Plus dividends were tax deferred

Question 8

IRR

Answer 8

is the annual return accounting for the time value of money.

Question 9

Equity multiple

Answer 9

doesn’t acct for the TVM

Question 10

Discount rate

Answer 10

At its CORE, discount rate is the required rate of return the investor wants to receive; Risk free rate + Risk premium. Risk Premium = represents compensation for investment risk (Liquidity Risk + Credit Risk)… You can create a discount rate to back into IRR