real estate update - nc

Real Estate UpdateMay 26, 2021

Investment Management Division

2

Agenda

Page

3 Real Estate Team

4 Real Estate Sector Analysis

5 Role and Objectives

6 Real Estate Allocation

7 Real Estate Cash Flow

8 Manager Concentration (excludes REITs)

9 Cost Efficiency

10 Performance: Core Real Estate

11 Performance: Non‐Core Real Estate

12 Unfunded Commitment Pacing

13 Investment Strategy Objectives

14 Appendix


Real Estate Team

Troy March, CCIM, MBADirector of Real Estate

8 Years with IMD19 Years Industry Experience

Portfolio Manager

Vacant

Chris Ward Analyst

7 years with IMD

3


• WFH technology, e‐commerce, home entertainment, low‐staffing requirements• 5G adoption driving record demand that shows no sign of slowingData/Cell Tower

• Home delivery/e‐commerce/e‐grocery ‐ higher demand for cold storage• More inventory buffer, less JIT, thus increasing warehouse space demandIndustrial

• Necessity‐based with pricing power correlated to local employment• Limited stock of single‐family‐for‐sale provides buffer for multifamily sector Multifamily

• Demand is historically high; Need for temporary storage: retailers, students• Resilient in crisis, will strength continue after pandemic?Self‐Storage

• Occupancy impacted due to move‐in challenges from COVID, demand still exists• Oversupply of recent years has moderated, demographics drivers are strongSenior Housing

• Campuses operating on a mix of remote and in‐person basis• Leasing for fall 2021 is accelerating, just slightly behind a typical year Student Housing

• The effects of work‐from‐home and de‐densification on demand will be impactful• Impact is market specific; some markets benefiting at the expense of othersOffice• Neighborhood, necessity‐based retail still proving resilient• Pent up demand will provide some recovery in near term but supply overhang will hold down any rent growth for years

Retail

• Business travel remains anemic and will be slow to return• Leisure travel has picked up but staffing is very challengingHotel

4

Real Estate Sector Analysis Risk: Higher Medium Lower


Role and Objectives

CoreInflation hedge

High current income

Stabilized occupancy

Credit tenancy

Long‐term return > fixed income

Minimal risk/downside protection

Non‐CoreGrowth diversifier

Opportunity to add value

Renovation, development, leasing

Stabilized upon completion

Long‐term appreciation and returns

Low correlation to fixed income

Investment StrategyHigh Quality Well‐Located

Strong Risk‐Adjusted Returns

Core Thesis“To generate durable income and stable returns through strategic investments, with prudent use of leverage, in assets with long‐term fundamental drivers that will

endure for generations”

Non‐Core Thesis“To achieve attractive risk‐adjusted net returns through appreciation and income from a diversified

portfolio, planning for strategic exit optionality”

5


Real Estate Allocation

Real Estate is underweighted by 70 bp as of 5/17, due to rapid growth of total Pension Plan assets and fewer new commitments

NCRS data as of 3/31/2021Special Situations – Build‐to‐Core Strategy

$ in millions

6

2.59%1.56%

0.41%0.62%

4.88%4.13%

0.75%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

1 2 3 4

% of P

lan

REITs

Private Core

SpecialSituations

Value Add

Opportunistic

Legislative Cap for RE as % of Total Plan: 10.0%

Policy Target as % of Total Plan: 8.0%

SubstrategyStrategy

Core

Non-Core4.2% 3.4% 3.4% 3.1% 2.6% 2.6%

5.1% 5.2% 5.8%5.6%

4.9% 4.9%

9.3%8.5%

9.2%8.7%

7.5% 7.5%

3,7143,315 3,227

3,228 2,975 3,020

4,525 5,076 5,426

5,927

5,593 5,688

8,239

8,391

8,653

9,155

8,569 8,708

89,104 98,264 94,226 105,641 114,978 116,467

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

4Q16 4Q17 4Q18 4Q19 4Q20 1Q21

% of P

lan

Non‐Core Core


Real Estate Cash Flow

Investment StrategyHigh quality assets

Strong market locationsMeet or exceed benchmarks

NCRS data through 12/31/2020 *Commitments are considered “Vintage” the year in which the first $ of capital is drawn

Commitments ($M): 430 1,567 1,077 1,641 1,057 0 653 1,052 695 1,417 1,769 1,367 2,265 0 300 300 0(Vintage)*

Net distributions for 2020 were $602 million. 2021 YTD (as of 5/17) contributions were $61 million and distributions totaled $240 million 7

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

$ Billion

s

Funding Distributions


Manager Concentration (excludes REITs)



Contribution to Return

3 Year 5 Year 7 YearPrivate Core 5.3 6.7 7.3

HighConviction 5.1 5.9 5.4

Others 0.2 0.8 1.9

Non‐Core 6.8 9.3 11.4

HighConviction 6.3 7.9 8.9

Others 0.5 1.4 2.5

* “High Conviction” Managers are identified by the Real Estate Team as General Partners with the highest probability of meeting/exceeding expected fund‐level returns

NCRS data through 3/31/2021

90% of private market value is with high conviction managers – Concentration helps reduce complexity and fees, increases transparency and maximizes returns 8

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

‐

1

2

3

4

5

6

7

8

9

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

% of R

E Po

rtfolio

(ex‐RE

ITS)

Market V

alue

($ Billions)

High Conviction Managers Other Private RE Managers HC % Other %


Fees continue to trend lower as we leverage relationships and scale to minimize costs and enhance alignment

Cost Efficiency


2015: Convergence of delayed realization of GFC funds, early realization of post‐GFC funds, and an Industrial manager selling their entire platform

2018: Realization of a large, successful, platform investment

9

40

45

50

55

60

65

70

75

80

85

0.7%

0.8%

0.9%

1.0%

1.1%

1.2%

1.3%

1.4%

1.5%

1.6%

1.7%

1.8%

1.9%

2.0%

2.1%

2.2%

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Man

agem

ent Fee

($M)

Percen

t of M

arket V

alue

Management Fee Fee % of MV

‐9.0%

‐6.0%

‐3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '190

20

40

60

80

100

120

140

Time Weighted Net Return

Incentive Fee ($M)

Incentive Fee 5 Year Net Return


Performance: Core Real Estate



* The Core Real Estate Benchmark is comprised of 80% NCREIF ODCE Net and 20% FTSE EPRA NAREIT Global Index.NCRS data through 3/31/2021

Core Contribution to Return

3 Year Contribution

Private Core RE 4.6REITs 1.1Total Core 5.7

Major Drivers Vintage

PCLBA NC Core Industrial 2016 1.1

PC NorthRock Core 2008 0.8REIT BR World REIT 2016 0.7

5 Year Contribution Private Core RE 5.7REITs 1.0Total Core 6.7


PC NorthRock Core 2008 1.2

PCLBA NC Core Industrial 2013 0.7

PC NorthRock II Core 2016 0.6

Underweighting to REITs of 470 bp hurt in the one‐year period ending 3/31/21 as REITs were up 36.0% YOY10

5.4%5.7%

6.7%7.4%

8.4%

5.5%6.1%

7.5%

4.2%

5.3%

7.1%

8.5%

5.4%

6.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1 Yr 3 Yr 5 Yr 7 Yr 10 Yr 15 Yr 20 Yr

TIme Weighted Net Return

Core Benchmark*


Performance: Non‐Core Real Estate



* Non‐Core Real Estate Benchmark is comprised of the following Burgiss Group Private iQ indices: 80% U.S. Non‐Core Real Estate (Opportunistic and Value‐Added) and 20% Non‐U.S. Non‐Core Real Estate (Opportunistic and Value‐Added).


Non‐Core Contribution to Return

3 Year Contribution

Opportunistic 4.1Value Add 2.7Total Non‐Core 6.8


VRockwood Dev Partners 2016 1.0

O NorthCreek 2011 0.8V DRA G&I VII 2011 0.7

5 Year Contribution Opportunistic 6.0Value Add 3.3Total Non‐Core 9.3

Major Drivers VintageO NorthCreek 2011 1.3V DRA G&I VII 2011 0.8

OBlackstone Europe IV 2013 0.7

Write downs taken in 2020 are starting to bounce back, transaction volume is increasing, 2021 will be better 11

‐0.3%

6.8%

9.3%

11.4% 11.5%

6.1% 6.1%

1.1%

5.0%

6.1%6.5%

8.0%

4.1%

6.6%

‐2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1 Yr 3 Yr 5 Yr 7 Yr 10 Yr 15 Yr 20 Yr

Time Weighted Net Return

Non‐Core Benchmark*


Unfunded Commitment Pacing by Vintage Year (excludes REITs)



Of the $1.2 billion in unfunded commitments at 3/31/21, we project ~$450 million will be called and ~$750 million will be held as reserves and is unlikely to be called 12

‐

200

400

600

800

1,000

1,200

1,400

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Historical Projection

$ in M

illions

2004 (96% | 96%) 2005 (95% | 95%) 2006 (82% | 82%) 2007 (92% | 92%)

2008 (88% | 88%) 2009 (N/A | N/A) 2010 (88% | 88%) 2011 (89% | 89%)

2012 (98% | 98%) 2013 (85% | 87%) 2014 (90% | 94%) 2015 (98% | 98%)

2016 (89% | 92%) 2017 (N/A | N/A) 2018 (98% | 98%) 2019 (33% | 84%)

2020 (N/A | N/A) 2021 (N/A | N/A) *Vintage (% Called | % To be Called)


Investment Strategy Objectives Continued focus on high conviction managers and reducing manager count Minimize costs and maximize returns by favoring partnership structures

that optimize alignment of interests Increase exposure to public real estate through common and preferred

equitieso “Completion portfolio” concept for public REIT investment will help

gain exposure to sectors where we are underweight and in which gaining diversified exposure is difficult

Secondaries, both buying and selling through the secondary market Increase exposure to high growth sectors: Industrial, Data Centers, and Cell

Towers Increase exposure to low capex sectors: Industrial, Multi‐family, Self‐

Storage, and Manufactured Housing Decrease exposure to high capex and higher fee sectors: Office, Retail, and

Hotel13


Appendix

14

Page

15 Investment Approach

16 Performance as of 12/31/2020: Total Real Estate vs. REITs

17 Performance as of 3/31/2021: Total Real Estate vs. REITs

18 Leverage

19 Property Type Diversification

20 Geographic Diversification


Investment Approach•Downside protection•Eye toward current income for Core or “speed to income” for Opportunistic strategies

•Moderate leverage levels

Stay the course with our investment strategy…do not

reach for yield

•Stabilized Core portfolio•Diversify by strategy, property sector, size, vintage year and location•Balance asset risk and market risk by insisting on the highest asset quality and location

•Target specific submarkets and streets

Use thoughtful & deliberate portfolio construction

•Better terms and fees•More transparency and control•Ability to move quickly to capitalize on opportunities and dislocations•Be the founding investor for new strategies with high conviction managers

Leverage the size of our plan

• Separate accounts, Platform investments•Multiple strategies with single manager• Fee benefits, founders' discounts

Invest meaningful amounts with fewer best‐in‐class

managers

•Be involved, nimble and follow through•Deliver results•Be a leader among Limited Partners

Take a long‐term view toward investments and manager

relationships 15


Performance: Total Real Estate vs. REITs as of 12/31/2020




FTSE EPRA/NAREIT Developed Index: The index serves to represent real estate equities across developed markets of North America, Europe and Asia.FTSE EPRA/NAREIT Global Index: The index is designed to track the performance of real estate equities in both developed and emerging markets.

16

0.1%

6.3%

7.8%

9.5% 10.2%

5.4%5.9%

0.3%

6.4%

7.9%

9.7%10.5%

5.5%6.0%

‐8.2%

2.5%

4.7%5.6%

6.3%

5.2%

8.1%

‐9.2%

2.0%

5.0%5.5% 5.9%

5.1%

‐10.0%

‐5.0%

0.0%

5.0%

10.0%

15.0%

1 Year 3 Year 5 Year 7 Year 10 Year 15 Year 20 Year


NCRS Real Estate NCRS RE ex REITs FTSE E/N Developed REIT FTSE E/N Global REIT


17

Performance: Total Real Estate vs. REITs as of 3/31/2021


FTSE EPRA/NAREIT Developed Index: The index serves to represent real estate equities across developed markets of North America, Europe and Asia.FTSE EPRA/NAREIT Global Index: The index is designed to track the performance of real estate equities in both developed and emerging markets.

3.3%

6.1%7.8%

9.3% 10.0%

5.3%5.9%

0.6%

5.9%

7.9%

9.5% 10.2%

5.4%6.0%

36.0%

6.1%4.9%

5.9% 6.6%

4.7%

8.7%

34.4%

5.2% 5.2% 5.8%6.3%

4.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

1 Year 3 Year 5 Year 7 Year 10 Year 15 Year 20 Year


NCRS Real Estate NCRS RE ex REITs

FTSE E/N Developed REIT FTSE E/N Global REIT


Leverage



Maintain prudent levels of leverage and retain ability to adjust through our separate accounts.18

43%

31%

42%

55%

53%54%

46%

0%

10%

20%

30%

40%

50%

60%

Private Core REITs Total Core Opportunistic Value Total Non‐Core Total Real EstateSource: StepStone NCRS 3Q20 Portfolio Monitoring Report


Property Type Diversification

19Source: StepStone NCRS 3Q20 Portfolio Monitoring Report

30.3% 31.0%

14.9%

10.6%

2.8%

10.3%

34.0%

25.7%

17.5%

12.6%

1.5%

8.6%

33.5%

26.8%

20.4%

14.8%

0.0%

4.4%

0.0%

10.0%

20.0%

30.0%

40.0%

Office Residential Industrial Retail Hotel/Lodging Other Property

Total RE Core NFI‐ODCE

30.3% 31.0%

14.9%

10.6%

2.8%

10.3%

23.9%

40.1%

10.4%7.2%

5.1%

13.3%

31.2%28.0%

16.5%

7.8%5.7%

10.8%

0.0%

10.0%

20.0%

30.0%

40.0%

Office Residential Industrial Retail Hotel/Lodging Other Property

Total RE Non‐Core SRE Non‐Core


Geographic Diversification

20Source: StepStone NCRS 3Q20 Portfolio Monitoring Report

43.4%

26.8%

11.4%

3.6%

14.8%

44.8%

31.6%

10.4%

1.9%

11.4%

41.7%

31.0%

19.1%

8.2%

0.0%0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

West East South Midwest Foreign/Global

Total RE Core NFI‐ODCE

43.4%

26.8%

11.4%

3.6%

14.8%

40.9%

18.8%

13.1%

6.5%

20.7%

25.8%

19.6%16.7%

6.9%

31.0%

0.0%

10.0%

20.0%

30.0%

40.0%

West East South Midwest Foreign/Global

Total RE Non‐Core SRE Non‐Core

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