f r e s n o co u n t y
e m p loy e e ’ s r e t i r e m e n t
a s s o c i at i o n
g e r d i n g e d l e n
g r e e n c i t i e s i i i
n ov e m b e r 4 , 2 0 1 5
firm overview
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firm overview
SEC Registered1Investment Manager with three co-mingled
institutional, value add funds and one separately managed institutional core account
Founded Investment Management Practice in 2009
Prior to that, the Firm was a Portland, Oregon based
development company for 15 years with deep expertise in urban office and residential development
Experienced management team with long tenure with firm
and industry
full-service real estate
investment, development,
and property management firm
1 This registration does not imply a specific level of expertise, skill or training. This registration does not imply a recommendation by the United States Securities and Exchange Commission or by any state securities authority.
2 Based on gross assets of Green Cities I, II, III and separate managed account and includes assets that have been sold and no longer managed.
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gerding elden
investment
management
gerding edlen
development
gerding edlen
property management
Separate Managed Accounts Gerding Edlen Green Cities I, LP Gerding Edlen Green Cities II, LP Gerding Edlen Green Cities III, LP
Experienced Developer in Office, Apartment and Mixed-use Properties
Extensive Development Expertise in Sustainability with over 60 LEED Certified Buildings Built
Apartment Property Management
Asset Management of Apartment and Office Properties
full service, fully integrated firm
1 Gerding Edlen Investment Management is a separately owned entity 2 Gerding Edlen Development, Property Management and Sustainable Solutions is owned by GEDI, Inc.
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principals
kelly saito
o Oversees the Firm’s acquisitions, development and underwriting of all properties and projects
o 20 years of experience in commercial real estate
o Joined Firm in 1996
o Member of Gerding Edlen Green Cities III Investment Committee
molly bordonaro
o Oversees the Firm’s investment management and asset management
o More than 17 years of commercial real estate
o Joined Gerding Edlen in 2009
o Member of Gerding Edlen Green Cities III Investment Committee
mark Edlen
o Founder of Gerding Edlen Development in 1996
o 32 years of experience in commercial real estate
o Member of Gerding Edlen Green Cities III Investment Committee
roger krage
o Oversees the Firm’s legal, accounting and finance including debt financing, compliance and legal
structures
o 36 years of experience
o Joined Gerding Edlen in 2003
o Member of Gerding Edlen Green Cities III Investment Committee
strong team beyond main principals this with long tenure at firm
fund investment
strategy
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f und i nves tm ent s trategy
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Niche focus on high growth markets:
o Seattle, Portland, San Francisco,
Los Angeles, Chicago and Boston
“Youth Magnet” cities with disproportionately high
growth of the Millennial population cohort
Markets with comparatively much stronger
economic growth
Markets that retain values in recessions or
downturns due to consistent limited supply and constraints to over building
Central business district, urban infill properties
(demographic shift to cities)
Transit-oriented properties
green cities iii, lp
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Rebirth of urban living and working :
Millennials prefer urban living and working with
entertainment and nightlife attractions convenient to work
and residences2
Other generations and companies are following to the
urban core
Renter population is growing :
Millennial cohort is approximately 80 million, the largest
generation in U.S. history, surpassing the baby boomers by
more than 5 million1
Millennials are preferring to rent: they are more transient,
marrying later and desiring the flexibility and financial benefits of renting
1 ULI Generation Y: America's New Housing Wave 2 ULI Emerging Trends 2012
green cities iii, lp
investment strategy: urban markets
with growing demand
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The Fund’s Targeted markets have outperformed national rent
growth and cap rates due to limited supply1
Target markets with strong government, regulatory barriers
for new development which limit future supply
Historical look back on targeted markets demonstrate
consistent low cap rates and rental market strength including through recessions due to the lack of
overbuilding or oversupply in each market1
Gerding Edlen targeted markets show that vacancy rates in
the next four years are predicted to remain at or below historic levels and below the 5% level which is considered
an owners market.2
1 Rent growth data from REIS and Cap Rate data compiled from CoStar, CBRE-EA, Real Capital Analytics and Gerding Edlen research
green cities iii, lp
investment strategy:
targeting supply constrained
markets
2 REIS and Gerding Edlen Investment Management
5.0% 4.6% 4.9% 5.1% 5.1% 6.4% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% Los Angeles San Francisco Boston Seatle Chicago US National
Target Markets Historical Cap Rates 1 Average Cap Rate 2003-2013
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green cities iii, lp
apartment investment strategy
Purchase under-managed or poorly-capitalized apartments , under leased or under performing apartment properties and retrofit, manage or lease for a value gain
Retrofit and/or add capital improvements with Gerding Edlen’s strong expertise in asset and construction management including sustainable features
Target urban markets with long-term rental demand and barriers to entry to protect supply
Take advantage of Gerding Edlen’s apartment development expertise to develop in markets where demographic growth is outpacing current and future supply
Capitalize on dislocations in market pricing of urban land by acquiring off market opportunities on option or as distressed
Utilize Gerding Edlen’s design and value add engineering expertise to design quality apartments with smaller units and greater amenities to outperform the market
Target urban markets with long-term rental demand and barriers to entry to protect supply
Build and Stabilize new apartment properties in Class A urban locations for less than current market value
retrofit, reposition, manage
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green cities iii, lp
office investment strategy
Purchase value add office properties in strong locations
that are undervalued on a price per square foot basis and well below replacement costs
Reposition properties with capital and Gerding Edlen’s
expertise on retrofitting, management, marketing and leasing
Target markets with employment growth and historical
office strength
Execute strategy to update common areas of the
building and improve the building amenities.
Renovate specific office space to make more creative,
open and better designed for today’s office renter
Turn office leases to capture higher market rents and
greater value for renovated building and office space
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Understanding the Demand for:
Properties that are sustainable, reducing energy and water
use and removing toxins from buildings
Properties that foster collaboration and community with
building spaces that increase interaction among residents and tenants
Properties that support alternative transportation
Properties that incorporate art, design and landscaping to
inspire tenants and renters
Properties and management that reflect strong values and
support the surrounding neighborhoods and communities
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green cities iii, lp
investment strategy: investing
and managing better performing
assets that meet renter’s demand
64%
of renters are willing to pay
extra for a “green apartment”
Office rental premium of approximately
5%
for LEED certification and
4%
for
Energy Star certification
Source: Strata Research – Green Apartment Offerings Wave II
Source: Franz Fuerst, “Measuring the Effects of Environmental Certification on Office Values,” Real Estate Economics, 2011
gerding edlen
competitive
advantage
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deal sourcing
and acquisition expertise
Focus on fewer markets with deeper knowledge and
research in those markets
Source deals ourselves (not through JV partnerships) to
lower cost basis and increase returns to our investors
Source off-market deals through strong partnerships with
industry professionals and owners in those markets, driving better cost basis for our investors
Experts in selecting neighborhoods that are growing in
demand
Over 2/3 of Fund I and Fund II deals were sourced
“off-market” adding value by purchasing land or properties at a low cost basis driving immediate value for our investors
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in-house research
Stronger and better research and market knowledge
allows our properties to drive rents and NOI to their optimal values
Dedicated research team tracking all competitive
properties, potential development sites and sales and rental comps
In house research provides thorough knowledge for
tracking and sourcing deals, including off-market opportunities
In house research provides real rental comps in each
market to allow for accurate underwriting
All in house research is updated on a continual basis
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in-house development expertise
Capable of executing development or retrofit
opportunities in-house without expensive JV partner splits
Leverage in house development knowledge to accurately
and quickly underwrite opportunities that require construction or retrofit
Deep experience in entitlement and permitting
processes where necessary
Uniquely incorporate sustainable, modern and unique
design into all properties to meet the preference of today’s renters and differentiate our product in the marketplace
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in house asset and property
management
Significant marketing expertise in identifying optimal
communications channels to position, market and lease properties for their optimal leasing rates
Unique management with high degree of customer
service which increases retention and rental rates
Enhance overall value of properties through efficient
management systems
Expertise in marketing and communicating
sustainability and community within our properties externally and internally to drive additional value in our assets
track record
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T RACK RECORD
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$183 M close Ended Value Add
Invested in 8 projects
o 2 West Los Angeles
o 2 San Francisco
o 2 Boston
o 2 Seattle
All Apartments (New Development or Retrofit)
o 6 properties sold
o 1 property in operation
o Last project complete and currently in lease up
green cities i, lp
overview
e t t a , s a n f r a n c i s c o
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green cities i, lp
projected gross property level
returns
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$234 M Close Ended Value Add
Invested in 7 properties
o 1 San Francisco
o 2 Seattle
o 2 Boston
o 2 Chicago
6 Apartments (New Development) and 1 Office (Reposition)
o 1 property sold
o Office property in Seattle common area retrofit
completed and fully leased and under contract
o 2 apartment properties completed and leasing
o 2 apartment properties under construction
o 1 apartment property in pre-development stage
expected to begin construction Q3 2015
green cities ii, lp
overview
t r o y b o s t o n , b o s t o n
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green cities ii, lp
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green cities ii, lp / sample investment
troy boston – 275 albany
378-unit apartment development
Purchased off market via an option until entailments were
complete
Well located opportunity in central Boston CBD served by
transit and at the nexus of established neighborhoods
Redesigned entitled site to increase number of units
greatly reducing the per door acquisition price and increasing underwritten returns
The project targeted LEED Gold and look to incorporate
energy efficiency and water efficiency features as well as a co-generation system for on-site power generation
Completed in February 2015
At current lease up pace will achieve stabilization three
months ahead of schedule with rents above proforma
BO S T O N , M A N E W CO N S T RU CT I O N A PA RT M E N T S
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green cities ii, lp / sample investment
dexter horton
Fund II purchased the Dexter Horton Building – a 336,371
sq ft office building in Seattle, WA
Opportunity to acquire a unique office building at an
attractive basis ($232 per rentable s.f.) well below replacement costs within the Seattle CBD
Property was awarded LEED Gold certification 2010
Renovated all common areas of the building to create bike
room, lockers, rooftop and penthouse amenity spaces, conference room and dog run. Updated hallways, lobby and elevators.
Turned 34% of the leases for generous rent increases, and
in most cases, through value add newly renovated, creative office space.
In contract to close for an IRR of 41.2% and equity multiple
of 2.3x
S E AT T L E , WA VA L U E - A D D O F F I CE
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investment
pipeline
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FUND III T E RMS AND INVE ST MENT PIPE L INE
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green cities iii, lp
fund offering
$350 million value-add fund with $400 million cap
First Close $85 million on February 18thwith $200 million
approved for second close in October
7 year, closed-end fund
36 month investment period that began in February, 2015
14% target net IRR to investors1
Maximum 60% leverage portfolio wide
1.5% Management Fee
8% hurdle with no catch up, 80%/20% split to LP/GP
after 8%
Strong investor communication and reporting, Annual
third party audits, Advisory Committee of LP’s 1 There can be no assurance that the Fund will achieve its return objectives.
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green cities iii, lp
156 n jefferson
chicago, illinois
Gerding Edlen Green Cities III secured an off-market land site entitled
for 199 units in the heart of Chicago’s CBD.
Purchased land for $41,000/per unit. Market value in Chicago’s West
Loop is $70,000/per unit.
The site is located in the West Loop Gateway submarket which is deep
in tech jobs including Google, Gogo, Twitter, Uber, Motorala Mobility, WeWork and more. West Loop is becoming the “cool/funky” as well as the “professional/established” neighborhood to live.
Construction will begin in 2015, complete in 18 months, with
stabilization toward end of 2017/beginning of 2018.
Deliver to market for less than existing values. Yield at stabilization
6.54% vs. market value of 4% capitalization rate.
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green cities iii, lp
1700 webster street
Gerding Edlen has entered into an option to purchase a 24,000 square
foot development site in downtown Oakland. The project will consist of 230 units and 8,000 square feet of retail
The project was sourced off-market and presents a unique opportunity
to invest in the highly competitive supply constrained bay area market at an attractive land cost.
Gerding Edlen will close on the land upon receiving entitlement
approval for $24,000/door (well below market value). Current market is $50,000-$80,000/door.
The site is located in the trendy Lake Merritt neighborhood of
downtown Oakland with lots of amenities including Whole Foods and Trader Joes within walking distance, the BART (Bay Area Rapid Transit) station within two blocks, which provides a 10 minute commute to the CBD of San Francisco. Uber just announced that it will move its corporate headquarters one block from the site.
Monthly rents will be well below San Francisco market rents and will
create an affordable option for Class A, trendy living in the Bay Area
Underwritten IRR of 16% and Equity Multiple of 1.8x O A K L A N D , CA D E V E L O P M E N T
A PA RT M E N T / G RO U N D F L O O R RE TA I L
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green cities iii, lp
200 w adams
Gerding Edlen Green Cities III is in contract for a 32-story, office
building, in the heart of Chicago’s West Loop district and adjacent to an “L” stop
Built in 1985 the LEED Gold building is 91% leased to high-quality
tenants, including the United States Government (the “GSA”) who has 29% of the building
Purchase price of $243/SF, well below an estimated replacement
cost of $450/SF
40% of the building’s leases roll to market in the first three years In place rents are in the high-teens to low-twenties on a net basis
(average $20/SF vs. market rents that are over 10% more)
Market rates are mid-twenties, allowing for a mark-to-market
opportunity
Execute improvements to common area spaces and tenant amenity
spaces; market ready available spaces
Manager will roll 50% of the building in three years, increasing NOI
by 44% by leasing at today’s market rents and improving expenses and building efficiencies
Underwritten IRR of 15% and Equity Multiple of 1.7x CH I CA G O , I L RE P O S I T I O N O F F I CE
sustainability &
community
impact
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S USTAINABIL IT Y
&
COMMUNIT Y IMPACT6
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environmental & community – added returns to investors
green cities fund i environmental and community impact report –
portfolio wide performance
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green cities iii, lp
This presentation (this “Presentation”) is provided for informational purposes only and is intended solely for the person to whom it is delivered. This Presentation is confidential and may not be reproduced or distributed without the express written consent of Gerding Edlen Investment Management.
This Presentation does not constitute an offer to sell or the solicitation of an offer to purchase any securities of Gerding Edlen Green Cities III, L.P. (the “Fund”). Any such offer or solicitation may only be made by means of delivery of the confidential offering memorandum of the Fund (as supplemented from time to time, the “Memorandum”) which will contain material information not included herein and shall supersede, amend and supplement this document in its entirety. This Presentation may contain material non-public information and should not be construed as investment advice or a recommendation to purchase or sell any particular security. Information contained in this Presentation is accurate only as of its date, regardless of the time of delivery or of any investment, and does not purport to be complete.
This Presentation also contains third party material that does not necessarily represent the opinion of Gerding Edlen. Gerding Edlen is not responsible for the accuracy of any third party information provided in this presentation and expressly disclaims any liability for the use of it.
Investors should have the financial ability and willingness to accept the financial and risk characteristics of an investment in the Fund. An investor should review the Memorandum, conduct such investigations and evaluation as it deems necessary or appropriate and consult its own legal, accounting, tax and other advisors in order to make an independent determination of the suitability and consequences of an investment in the Fund. Performance of the Fund’s investments may be volatile, and Fund investors may experience results that differ materially from those shown herein. There can be no assurance that estimated returns or projections can be realized or that actual returns or results will not be materially lower or inferior than those estimated herein. Investors may lose all or a substantial portion of their investment in the Fund. Management fees and other Fund expenses will reduce the Fund’s returns.
In considering the prior performance information contained in this Presentation, investors should bear in mind that past performance is not necessarily indicative of future results, and there can be no assurance that the Fund will achieve comparable results.
