jonathan f.p. rose

Green Building Retrofits: Smart Investing, Sustainable Solutions

Jonathan F.P. RoseNovember 11, 2011

SMART INVESTING. SMART GROWTH. VALUE CREATION

Jonathan Rose Companies Overview


Today’s world is …

Volatile

Uncertain

Complex

Ambiguous

Jonathan Rose Companies Megacities

Jonathan Rose Companies Top 600 Cities

Top 600 Global Cities

Population

GDP

Middle Class

1.5 Billion

$30 Trillion

450 Million

2 Billion

$64 Trillion

750 Million

2007 2025


The Global 600 Cities Will Change

Developed World

USA

% World’s GDP fromDeveloped World andMega Cities

380

190

73%

250

125

34%

2007 2025


Most of these are Cities you may never heard of:

Brazil: Forteleza, Manaus, Reclife

Africa: Huambo, Casablanca

Middle East: Sharjah

China: Chengdu, Foshan Xi’an

India: Nagpur, Vadodara, Visakhapatnam


We are seeking investment opportunities that respond to VUCA conditions

Volatile

Stable

Uncertain Safe

Complex

Simple

Ambiguous

Supple


The 4 S’s of a Real Estate Investment Strategy

Stable

Safe

Simple

Supple

• Strong, connected cities• Controlled supply, deep market demand

• Focus on cash flow• Appropriate leverage

• Clear value proposition• Few dependent factors

• Responds to volatile markets• Adapts to changing energy and climate conditions

Jonathan Rose Companies Investment Thesis

Two Investment Strategies

Affordable Housing Strategy

• Core-like risk/return

• 8-12% net IRR / 11-15% gross IRR

Office Retrofit Strategy

• Moderate risk, value-add return

• 12-15% net IRR / 15-18% gross IRR

High cost-of-living, high barrier-to-entry cities:

Jonathan Rose Companies Target Markets

Seattle

Portland

San Francisco

Los Angeles

Denver

Chicago

Washington, DC

New York City

Boston


Strong cash flow and low-risk returns through green affordable housing.

• Affordable housing in the right cities = strong and reliable income

• Plentiful supply of low-cost, long-term, non-recourse debt

• Green strategies and hands-on asset management reduce/control expenses & lead to strong capital appreciation

• Passive resilience provides a hedge against volatile energy prices availability of resources

• Target IRR: 8-12% net / 11-15% gross

• 4-6% annual cash-on-cash return

• Supply / Demand Imbalance

° High cost-of-living in major urban markets creates affordability burden

° 95%-100% occupancy rates and long tenant waiting lists

° National average vacancy rate in project-based Section 8 < 5%

• Steady income stream access to low-cost, long-term financing


Opportunity for strong cash flow and significant capital appreciation through acquisition of high-demand product.

Jonathan Rose Companies Opportunity

0%

10%

20%

30%

40%

50%

60%

70%

35% 31% 29% 32% 29% 28% 32% 29% 25% 26%32%

27% 28%23%

27%30% 32% 28% 30% 31% 27% 29% 33% 31%

24%29% 27%

32%

% Income Spent on Housing % Income Spent on Transportation

* Source: Center for Neighborhood Technology

The Transportation + Housing Affordability Burden

Jonathan Rose Companies Investment Strategy: Target Product

Project Types:

• Federally subsidized rent contracts (project-based Section 8)

• Tax credits leveraging private capital (Low-Income Housing Tax Credit)

• Mixed-Income (50/30/20 and 80/20 programs)

• Rent Stabilized / Rent Controlled

Acquire well-located affordable housing with in-place cash flow

Jonathan Rose Companies Investment Strategy: Tailored Capital Improvements

• High-leverage, low-cost technologies

• Grants / incentives that defray costs

• Reduced energy costs, reduced R&M costs, reduced environmental impact

• Retrofits can yield 25-40% efficiency gains with modest investment*

Implement practical green capital improvements that yield paybacks

* Source: Government Accountability Office

Jonathan Rose Companies Investment Strategy: Active Asset Management

• Energy Benchmarking

• “Living Green” Guides

• Smart-Plug Technologies

• Tenant Meetings

Encouraging tenant behavior that reinforces green capital investments and creates sense of community.

Jonathan Rose Companies Case Study: 107-145 West 135th Street

Public Library

HarlemHospital

PublicSchool

HarlemYMCA



AfterBefore

Project Summary


Acquisition Date:

Purchase Price:

Appraised Value:

Occupancy:

NOI Increase

12/22/2008

$26.5 million

$39.4 million

98%

84%


Class B Office Retrofits = Prime Value-Add Investment

• Assets can be acquired at below replacement cost

• Potential for high-multiple returns through well-executed capital and leasing programs

• Diverse multi-tenant rent rolls that spread risk & preserve cash flow

• Hedge against volatile energy prices

• Target IRR: 12-15% net / 15-18% gross


* Source: Cushman & Wakefield

Urban markets outperform suburban markets

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q2110.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

U.S. Office Vacancy Rates

CBD Vacancy


* Source: CBRE

Value-add opportunity

Market Class A Stabilized Cap Rate Class B Value-Add Cap Rate

Boston 6.50% - 7.00% 8.00% - 9.00%

Chicago 6.25% - 6.75% 7.75% - 8.25%

Denver 6.25% - 7.25% 8.50% - 9.50%

Los Angeles 5.50% - 6.50% 7.00% - 8.00%

New York City 5.50% - 6.00% 6.50% - 7.50%

Philadelphia 6.50% - 7.50% 9.00% - 10.00%

Portland 7.50% - 8.50% 9.00% - 10.00%

San Francisco 6.00% - 7.00% 7.00% - 7.75%

Seattle 6.25% - 7.00% 8.25% - 8.75%

Washington, DC 5.50% - 6.25% 7.00% - 8.00%

Jonathan Rose Companies Investment Strategy: Target Locations

• Enable businesses to attract top talent

• Class A locations for companies seeking downtown amenities at Class B rents

• More resilient markets with steadier occupancy

Smart Growth = Smart Investing

Jonathan Rose Companies Investment Strategy: Target Product

• Centrally located Class B buildings

• Underperforming assets that offer opportunity for repositioning & rebranding

• Frequently with historic elements that can be leveraged to enhance tenant appeal

• $15-50 million range

Acquire well-located, underperforming office assets

Jonathan Rose Companies Investment Strategy: Repositioning

• Strategic building upgrades to enhance appeal

° Competitive leasing advantage

• Green retrofit to control operating expenses

° Up to 35% reduction in energy use

° $.50 p.s.f. in cost savings

• Green, hands-on asset management

° Reduce turnover

° Drive NOI (growth as high as 76%)

Perform Value-add Repositioning and Rebranding

Jonathan Rose Companies Vance & Sterling Buildings, Seattle, WA


VSeattle’s Prem

ier Retail C

orridor

Benaroya Hall

Pike Place Market

Four

Season

s

Source: ARUP


Source: Effective Design Studio | Francis Zera



AIA SEATTLEWHAT MAKES IT GREEN?2009 REGIONAL TOP 10

AWARDS

Project Summary


Acquisition Date:

Purchase Price:

Improvement Cost:

Appraised Values:

Occupancy:

NOI Increase:

4/12/2006

$23.1 million

$3.5 million

$25.2 MM, 3/10$34.5 MM, 1/08

90%

36%

Green Building Retrofits: Smart Investing, Sustainable Solutions

Jonathan F.P. RoseNovember 11, 2011

SMART INVESTING. SMART GROWTH. VALUE CREATION

jonathan f.p. rose

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