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8/18/2019 The O'Donnell Group Investor Guide
1/10
nvest like the big players in real estate:
nstitutions (Pensions, Endowments and Corporations)
Invest Like the Big
Players in Real Estate:Institutions (Pensions, Endowments and Corporations)
8/18/2019 The O'Donnell Group Investor Guide
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nvest Like the Big Players in Real Estate:
nstitutions (Pensions, Endowments and Corporations)
Invest like the Biggest Players in Real Estate:Institutions (Pensions, Endowments and Corporations)
1.
o truly diversiy your portolio, you need to invest in a broad array o assets – not just publicly tradedstocks and bonds, but real assets – particularly real estate. Real estate, as an asset class, has historically
had a very low correlation to other investments. It provides protection against inlation, since its income
generally rises as the general price level does. And real estate generates steady income, much like a bond,
except that you may also participate in the capital appreciation as the buildings grow in value.
Most individuals obtain their exposure to real
estate through real estate investment trusts
(REITs). For many investors, especially wealthier
individuals, this is ar rom ideal. REITs are publiclytraded portolios o real estate properties whose
prices are listed each day on the New York Stock
Exchange and other exchanges. But because they
trade like stocks, they are sometimes inluenced
by stock market movements. Their perormance
is a good deal more correlated with stocks than
direct investment in real estate. Moreover, many
REITs have been badly managed, charging high
ees or subpar perormance, and not providing
transparent, necessary details about their holdings
or portolio strategy to investors.
Thus, high end institutional investors have
historically preerred direct investment into real
estate, through private equity partnerships
managed by seasoned proessionals in the realestate space. These big investors include pension
unds, endowments and corporations.
At The O’Donnell Group, we provide you
with the opportunity to invest directly in
a speciic sector o the real estate market
— industrial real estate — which we believe
offers especially attractive investment
characteristics to the discerning investor.
In this investment guide, we’ll illustrate
why you should consider investing directly
in private equity real estate, what makes
industrial real estate compelling and how
The O’Donnell Group’s vast experience
adds value.
T
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The Benets of Direct InvestmentWhen you invest directly as a limited partner in private equity real estate like the one offered by The O’Donne
Group, you beneit rom a number o advantages over REITs, including:
Attractive risk and reward Over time, private equity real estate unds have generated higher
risk-adjusted returns than REITs — even though their absolute
perormance, when not adjusted or risk, has been slightly lower.
Consider that over the last ive years the NCREIF Fund Index
returned 13.5% per year, on average, versus 15.6% or the
FTSE NAREIT All Equity Index. However, or that additional
200 basis points o return, investors took on our times as
much volatility. Also remember that the most successul private
equity managers may signiicantly outperorm their index. Top
quartile perormers in the NCREIF Fund Index returned 15.9%
over the last ive years — easily beating the REIT managers.
Tax benefitsMost o the return generated by private equity real estate unds
is taxed at the capital gains rate, at top rates o 20%. By contrast,
distributions rom REITs is taxed as ordinary income at the top
marginal rate o 39.5%. Depreciation can offset annual rental
income as well.
Low correlation to other asset classesREITs trade in public stock markets, so they can be affected by
broad market movements. Private equity investments in realestate, by contrast, are not tied to stock market perormance.
One study, perormed at the Cass Business School in London
ound that rom 1972 to 2007, Private Equity Real Estate,
as measured by the NCREIF Property Index, had only a 0.06
correlation to large-cap stocks, while REITs had a correlation
o 0.50.
Key Benefits of PrivateEquity Real Estate
Low correlation to traditional asset classes
including REITs
Pure real estate investment vehicle
Targeted exposure to industrial real estate
Invest directly with the manager
Manager has skin in the same game you do
Fee transparency
• Disclosed in offering documents
• Stronger valuation standards
• Annual valuation by Independent
Third Party Appraisers
Vehicle structured to outperorm over
investment cycles
Direct investment, with no middlemen
or placement agents in private equity
real estate have ewer layers o ees and
payouts, increasing transparency, and
potentially returns.
2.
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Industrial Real Estate is Boring…and We Believe that is Really GoodIndustrial real estate, that is, warehouses and distribution centers, has always been viewed as the least sexy
asset class o the commercial real estate world. And, while it’s true that other sectors are more glamorous – think o
glittering hotels, architecturally signiicant office towers and opulent shopping centers – industrial real estate
has generated steady, predictable income, with ar less o the volatility that more ashionable sectors bring.
3.
Source: NCREIF, Q2 2015. All returns are reported on an unlevered basis.
INSTITUTIONAL INDUSTRIAL RETURNS FOR MAJOR MARKETSReturns or Year Ending Q2 2015 (%)
0
5
10
15
20
25
30
Total Return Appreciation Return
Income Return
L a s V e g a s
O a k l a n d
N a s h v i l l e
M e m p h i s
D e n v e r
P o r t l a n d
A t l a n t a
I n l a n d E m p i r e
S a n J o s e
A u s t i n
L o s A n g e l e s
O r l a n d o
F o r t W o r t h
O r a n g e C o u n t y
D a l l a s
C h i c a g o
S a n D i e g o
S e a t t l e
H o u s t o n
P h o e n i x
N e w Y o r k / N o .
N . J .
M i a m i
What happened to industrial real estate managed by The O’Donnell Group in 2008?
Founded in 1972, we have managed and profited through many market environments.
The global inancial crisis o 2008 created havoc in the stock and bond market, as well as many sectors o the real estatemarket. Still, industrial real estate emerged relatively unscathed. Across The O’Donnell Group unds, dividends continued
to be paid as always. There were no loan bankruptcies in our portolios – none. Our commitment to low leverage o 0% to
55% paid off with stability. For our investors in The O’Donnell Group funds, 2008 and 2009 were business as usual.
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Five Reasons to Include IndustrialReal Estate in Your Portfolio
Predictable returns in all kinds of markets. Total returns on industrial real estate investments have been ar less volatile than on other types o properties.
The chart below, or instance, shows how industrial total returns have mostly luctuated in the 10-20% range –
and have avoided most o the losses in years like 2008.
Steady cash flows. Industrial real estate investment has historically generated reliable income, month
afer month, as well as the potential or capital appreciation.
Low leverage. The O’Donnell Group doesn’t need to ampliy returns with heavy
use o leverage. Our unds, on average, have 50%-65% leverage.
Leverage is simply a mortgage. The real estate industry reers to
the percent o the purchase price borrowed as leverage. With low
leverage, your returns are less vulnerable to wild swings in value,
when interest rates change or market sentiment shifs.
Tax advantages. Our unds generate very modest tax liabilities, since dividend payments are ofen offset by
depreciation, and appreciation is taxed at Capital Gains rate.
Everything goes through a warehouse.Think about it. Warehouses are not an option! Everything you wear, everything you eat, everything you buy, use or touch has
probably spent time in a warehouse. Every other real estate sector has alternatives, and are subject to luctuations in demand.
Companies can use remote workers so they don’t have to lease office space, people can stay at an Airbnb or home instead o
going to a hotel, apartments lose their luster when home ownership become affordable, retail can be replaced by ecommerce, and
products can be sent directly rom warehouses. But the demand or warehouses and distribution centers is constant.
4.
U.S. INDUSTRIAL PROPERTY TOTAL RETURNS
-80%
-60%
-40%
-20%
0%
20%
40%
60%
NAREIT
NCREIF
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
YTD
Sources: NCREIF Fund Index Open-End Diversiied Core (ODCE) NAREIT Equity REIT Index.
*Returns as o June 30,2014.
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Expanding Demand for Industrial Properties
Industrial real estate is always a sound investment, but recent trends make iteven more compelling.
• Space is tight and rents are rising. Vacancy rates or industrial properties arebelow 10% nationally and lower than that in selected markets. Vacancies are
under 6% in 13 U.S. markets and below 5% in our others. Rents have risen
an average o 5.4% since last year, and by double that in selected markets.
• “Etail” is driving growth. E-commerce is projected to grow rom $263 billion in2013 to $414 billion in 2018, creating demand or vast new warehouse and
distribution centers across the U.S.
• The economy is improving. The U.S. industrial economy has strengthenedsigniicantly since the 2008 recession, and many industrial companies are inally
beginning to expand afer years o caution.
For all these reasons, more and more institutional investors are increasing
their allocations to industrial real estate. Now you can invest alongside them
with one o the industrial sector’s most experienced teams.
The direction of the market, The Fed,
geopolitical events or the rising or falling
fortunes of hot stocks are all noise to The
O’Donnell Group. Their perspective is
on industrial private equity real estate,
which provides income, a hedge againstinfation and interest rate movement,
and capital appreciation.“”
5.
Why Invest Now?
Source:• “An Industrial Real Estate Revolution,” by John Gates, National Real Estate Investor, May 2015 http://nreionline.com/industrial/industrial-real-estate-revolution
• “U.S. online retail sales will grow 57% by 2018; projected growth” by Allison Enright, Internet Retailer, May 12, 2014.https://www.internetretailer.com/2014/05/12/us-online-retail-sales-will-grow-57-2018
• “North American Industrial Forecast,2014-2017” Cushman & Wakeield
http://nreionline.com/industrial/industrial-real-estate-revolutionhttps://www.internetretailer.com/2014/05/12/us-online-retail-sales-will-grow-57-2018https://www.internetretailer.com/2014/05/12/us-online-retail-sales-will-grow-57-2018http://nreionline.com/industrial/industrial-real-estate-revolution
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CASE STUDY #1
Every building has a story:Crescent Corporate Center, Anaheim, California
CASE STUDY #2
Every building has a story:Cedars Sinai Building, Torrance, California
The O’Donnell Group acquired the Crescent Corporate Center, in 1999,
and sold off the buildings rom 2003 to 2004. The project was comprised
o 11 buildings. The O’Donnell Group had the buildings repainted, slurry
sealed the parking lots, completely retroitted the landscaping, and
replaced building windows and doors. The buildings were then restructured
as separate parcels and sold individually to both proessional trade
buyers in a 401 exchange, and existing tenants.
The project was akin to buying a pizza or $10 dollars and selling the
individual slices or $15.
The O’Donnell Group purchased the Crescent Corporate Center for
$18.5 million, and sold it for $29.1 million, in 5 years.
The Crescent Corporate Center brought a $10.6 million total profit.
The area around Los Angeles is the largest and
strongest market or industrial real estate, with a vastpopulation, crowded ports and vibrant retail and
manuacturing sectors. In 2000, The O’Donnell Group
purchased a warehouse space in Torrance, Caliornia
or $13.4 million.
The property was leased or six months at the time
o purchase, which allowed The O’Donnell Group
time to create a plan and budget, to bring the building
rom Class B to Class A standards. Upgrades included
painting the interior and exterior o the building, new grading and asphalt in the parking lot, improvements
to building entrances and dock space, landscaping around the building and interior enhancements. Altogether,
The O’Donnell Group invested $4.4 million on retroitting the property. The reurbished building met Class A
standards, which substantially increased its value. The irst year provided a tax deduction, due to depreciation.
Although there was a “loss o money,” it was covered by the budget and did not have capital calls. The O’Donnell
Group sold the building in 2003 or $33.9 million. The Cedars Sinai Building brought a $16.3 million total profit.
6.
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A Proven Player in Industrial Real EstateThe O’Donnell Group has the experience, specialized knowledge and market presence to give you access to
the most compelling deals in the industrial real estate space.
A tested process.We have proven success as a niche investment buyer,
manager and seller. Beore we acquire a property, wemake sure that it oers compelling value by asking
questions including:
• Is the acquisition cost below replacement cost?
• Is the asset leased at below market rents?
• Do current cash lows yield returns in excess o
market returns?
• Is the asset poorly managed?
• I there are multiple buildings, can they be sold
individually to users and investors?
• Does the property have unctional obsolescence that
can be rectiied?
• Does the property have signiicant and immediate
upside potential?
The O’Donnell Group employs timing and knowledge o the
real estate market cycle to maximize value or clients. The
O’Donnell Group has consistently demonstrated its ability
to predict and interpret the real estate market in order to
maximize the beneits to our clients.
Scale.The company currently owns and manages over 1,000,000
square eet and 85 acres o land or the development o industrial
buildings. We have a ull suite o real estate capabilities, including
property management, asset management, constructionmanagement, leasing, and accounting.
Relationships.The O’Donnell Group is uniquely positioned with the brokerage
community and private and institutional buyers to maximize
exposure o the investment to ensure the highest possible
proceeds on an individual property or portolio sale.
Experience.We have 43 years o experience in this space. The irst O’Donnell
development partnership was created in 1972, and since then,The O’Donnell Group has developed or acquired over 22 million
square eet o industrial and office business parks across the
U.S.. Over the years, we have successully managed through
economic cycles, and The O’Donnell Group has consistently
been ranked among the top developers in the State o Caliornia.
7.
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Meet Our Team Douglas O’Donnell, Chief Executive Officer
In 1992, Douglas O’Donnell started his career in commercial real estate by joining O’Donnell Property Services, andlater Insignia Commercial Group, Inc. He worked his way up through the companies, rom Leasing Coordinatorto eventually overseeing the leasing and sales activities, or the 25 million square oot portolio. He has developed
over 4 million square eet o industrial buildings.
John O’Donnell, Board Member John is the principal partner in various partnerships involved in the development o industrial real estate in Southern
Caliornia, Northern Caliornia, Seattle, Washington and Anchorage, Alaska. These partnerships operated rom
1972 to 1989 while developing over 18 million square eet o industrial space.
Shahab Taleghani, Controller
As Controller or The O’Donnell Group, Mr. Taleghani serves as an executive manager in which he
oversees all accounting or all assets and property management within The O’Donnell Group and O’Donnell Management
Company.
Mr. Taleghani has twenty years o progressive experience in both Real Estate Development and Property Management
Accounting. Prior to joining The O’Donnell Group, he served as Corporate Controller or Southern Caliornia regional
offices o Trammell Crow Company. He was responsible or managing the accounting department and administrating the
books or the regional company as well as projects under development and property management. Mr. Taleghani’spast work experience also includes tenure with Jones Lang LaSalle, COMPASS Management and Leasing and The Brinderson Corporation.
Mr. Taleghani holds a Bachelor o Science Degree in Accounting rom the University o San Francisco.
Jennifer Carroll, Head of Property Management
As Director o Property Management or The O’Donnell Group, Ms. Carroll oversees all property management, tenant
improvement, construction and leasing or The O’Donnell Group.
Ms. Carroll has ifeen years o progressive experience in both Real Estate Sales and Property Management. Prior
to joining The O’Donnell Group, she was in the Commercial Property Management Department o River Rock Real Estate
Group. She was responsible or tenant management and inancial reporting. Ms. Carroll’s past work experience
also includes tenure with Prudential Caliornia Realty, First Team Real Estate, as well as Culbertson, Adams &
Associates in Urban Planning and Development.
Ms. Carroll holds a Bachelor o Arts Degree in Social Sciences rom the University o Caliornia, Irvine. She also has a Caliornia Real Estate license
Katherine Morrison
Ms. Morrison serves as Acquisitions Manager within The O’Donnell Group. She is responsible or researching and
reviewing potential acquisitions. She provides critical inancial data analysis in pursuit o uture investments. She
also oversees underwriting special projects. Prior to joining The O’Donnell Group, she was a Project Specialist at WM Financia
Services. Ms. Morrison’s past work experience also includes tenure with Triconex Corporation and McKibben Engineering
Company.
Ms. Morrison holds a Bachelor o Arts Degree in Speech Communications rom the University o Caliornia, Long Beach.
Becky Cranford
Ms. Cranord oversees the property management or The O’Donnell Group’s Northern Caliornia properties. Ms. Cranord
has twenty-two years o property management experience through her own company, McAvoy Management which
specializes in ull service property asset management. McAvoy Management continues to oversee and manage the
ollowing mixed use properties: Bay View Business Park, Shoreline Center, The Doyle and Marilyn Buildings, The Stewart Title
Building, Saety-Kleen Buildings, McPhail Buildings, among others. Ms. Cranord attended Bowling Green University,
Ohio or two years, and completed Real Estate License and Broker courses at College o Marin in Kentield, CA.
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Benet om the Stable, PredictableReturns of Industrial Real EstateReal estate makes up an integral part o any diversiied portolio, and or sophisticated investors, there’s no
better way to gain exposure than through institutionally managed real estate private equity partnerships.
The O’Donnell Group has specialized or more than 40 years managing private equity partnerships that
invest in an ofen overlooked segment o the marketplace, industrial real estate, a sector that has deliveredsteady cash lows, strong capital appreciation, and protection rom inlation and volatility. For more inormation
about how industrial real estate private equity can add value in your portolio, contact us today at:
567 San Nicolas Drive
Suite 450
Newport Beach, CA 92660
909-718-9898
9.
For more inormation:
ODonnellGroup.com/OpportunityFundV
ODonnellGroup.Wealthorge.com
Invest Now
mailto:info%40odonnellgroup.com?subject=Request%20for%20Informationhttp://odonnellgroup.com/OpportunityFundVhttp://odonnellgroup.wealthforge.com/http://odonnellgroup.wealthforge.com/http://odonnellgroup.com/OpportunityFundVmailto:info%40odonnellgroup.com?subject=Request%20for%20Information