here - AFL-CIO Building Investment Trust

AFL - CIO BUILDING
INVESTMENT TRUST
Annual
Report
2 015
TABLE OF CONTENTS
Message from the AFL-CIO President . . . . . . . . . . . . . . . . . . . 1
Message from the AFL-CIO
Investment Trust Corporation President . . . . . . . . . . . . . . 2
Message from PNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
About the AFL-CIO Building Investment Trust . . . . . . . . . . . 4
2015 Year in Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
AFL-CIO Building Investment Trust Performance . . . . . . 6
AFL-CIO Building Investment Trust Portfolio Activity . . 8
Portfolio Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
U.S. Commercial Real Estate Markets . . . . . . . . . . . . . . . 11
2016 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Building Security, Creating Jobs, and Investing
in America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Tides in Chicago, IL
On the cover: Riverside Center, under construction in New York, NY
MESSAGE FROM THE AFL-CIO PRESIDENT *
The AFL-CIO Building Investment Trust (BIT) demonstrates that union
members’ pension funds can be invested in accordance with our values as a
labor movement. The AFL-CIO proudly supports the BIT’s primary objective
of generating risk-adjusted returns for pension fund investors while creating
benefit-providing jobs for union members.
Over the last five years, the BIT has seen record new participant investment,
raising more than $280 million in 2015 alone. This new investment helps the
BIT maintain a development pipeline of new construction projects, including
those in New York City, Los Angeles, and Chicago.
BIT’s latest projects include Riverside Center in Manhattan, a 40-story, $480
million superstructure, with 616 residential units and retail space. Riverside
Center is expected to open in early 2016. Los Feliz Apartments is a 220-unit,
$96 million investment under construction in Glendale, a Los Angeles suburb.
Wolf Point West, a 507-unit, $160 million residential tower in a premier
location on the Chicago River will also soon begin leasing.
These projects alone have helped to generate more than 3,000 union
construction jobs. With a union labor policy among the most comprehensive in
the commercial real estate industry, the BIT continues to create safe jobs with
benefits. In addition to employing the skilled men and women of the building
and construction trades, BIT investments create jobs for union members who
service and maintain completed BIT projects.
The BIT enters 2016 with a pipeline of world-class construction projects. With
more investment, the BIT can continue to expand its portfolio and positive
impact in communities across America. I encourage all union leaders, pension
trustees, and financial consultants to give the BIT careful consideration.
Richard L. Trumka
President
AFL-CIO
2015 ANNUAL REPORT
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1
MESSAGE FROM THE
AFL-CIO INVESTMENT TRUST CORPORATION PRESIDENT*
The BIT experienced a record year of new participant investment and union
job creation in 2015. We at the AFL-CIO Investment Trust Corporation (ITC)
could not be more proud to be a part of this success. Our team at the ITC
continues to raise awareness of the potential that BIT investments have to bring
economic development and job creation to communities.
Throughout the year, I visited BIT construction sites and had the privilege
of meeting the men and women on the job who use their skills as union
tradespeople to help build the world-class real estate projects across the country
that compose the BIT portfolio. Not only are these thousands of men and
women contributing to their pensions through their work at BIT properties,
but they are often times members of a pension plan that invests with the BIT.
They are working to bring economic development to their communities and
retirement security to themselves and their fellow brothers and sisters in the
labor movement.
This is the great power of the BIT—allowing union members to invest for their
retirement in a fund that represents their values and union objectives, one that
allows them to deeply impact the neighborhoods in which they and their fellow
union members across the U.S. live. When unions work together, when they
pool their resources as one, and when they are the architects of their future,
anything is possible.
With your continued support in 2016, the BIT will grow as an investment
vehicle for union pension and retirement plans.
Mike Stotz
President
AFL-CIO Investment Trust Corporation (ITC)
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AFL-CIO BUILDING INVESTMENT TRUST
MESSAGE FROM PNC
PNC Bank, National Association (“PNC”) and PNC Realty Investors, Inc.
(“PRI”) are honored to serve as the Trustee and the investment manager
respectively for the AFL-CIO Building Investment Trust (the “BIT”). In those
capacities, PNC and PRI acts as a fiduciary for the BIT Participants, including
retirement and pension plans. We at PNC and PRI recognize that the money
we manage on behalf of those plans includes monies invested by and on behalf
of workers to help to provide them a safe retirement. Each day we strive to
manage the fund in a prudent manner and in a way that is befitting of a fund
that bears the AFL-CIO’s name.
While past performance does not guarantee future results, for the calendar year
ended December 31, 2015 the BIT gross return of 15.35% exceeded the gross
return of the NFI-ODCE equal weight index by 18 basis points. This was the
second consecutive calendar year that the BIT outperformed the benchmark.
Since its inception in 1988, the Fund has generated a gross return of 7.98 percent.
We are especially proud of the fact that we have developed over $6.0 billion of
real estate over the past 27 years, with nearly $ 2 billion of that occurring over the
last five years. Those investments not only assist in satisfying performance goals,
but they also assist in achieving the BIT’s collateral objective of job creation.
As a leading Main Street bank, PNC has the experience, resources and
consistent management that benefit the BIT and it Participants. As the fund
grows, we continue to invest in the people, the systems and the resources
dedicated to managing the BIT.
Thank you for placing your confidence in PNC and PRI, and for your support
of the AFL-CIO Building Investment Trust.
Alistair Jessiman
Executive Vice President
PNC Bank, N.A.
Kevin P. McCarthy
President
PNC Realty Investors, Inc.
2015 ANNUAL REPORT
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ABOUT THE AFL-CIO BUILDING INVESTMENT TRUST
The AFL-CIO Building Investment Trust (BIT)
is a bank collective trust for which PNC Bank
is trustee. The BIT is comprised of qualified
union pension and retirement plan assets.
The primary mission of the BIT is to provide
investors with competitive risk-adjusted returns
through investments in institutional quality
commercial real estate that seek to generate
competitive levels of income and long-term
capital appreciation. The BIT also provides
collateral benefits such as union job creation and
economic development by utilizing one of the
most comprehensive union labor policies in the
U.S. real estate industry.
Over its 27-year history, the BIT has directly
or indirectly invested over $6.3 billion for the
Playhouse Plaza in Pasadena, CA
development and acquisition of more than 200
office, retail, multifamily, hotel, warehouse, and
mixed use properties across the country. These
investments have generated approximately 72
million hours in union construction work and
created thousands of union jobs in the service,
maintenance, and operations of facilities owned
by the BIT.
The BIT is managed and sponsored by PNC
Bank, National Association (PNC Bank or
Trustee), as Trustee, with its headquarters
located in Pittsburgh, Pennsylvania. PNC
Preserve at Cantera in Chicago, IL
Realty Investors (PRI or Advisor), based in
Washington, D.C., provides investment advisory
and management services to PNC Bank in
connection with the BIT. PRI is indirectly
owned by The PNC Financial Services Group,
Inc. (PNC). The AFL-CIO Investment Trust
Corporation (ITC), located in Washington,
D.C., provides investor relations, marketing, and
labor relations services. PNC Bank licenses the
ability to use the AFL-CIO name in the name of
the Trust and in conjunction with the activities
of the Trust.
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AFL-CIO BUILDING INVESTMENT TRUST
The BIT At a Glance
AS OF DECEMBER 31, 2015
Gross Asset Value
$5.26 billion
Net Asset Value
$4.26 billion
One-Year Gross Return
15.35%
One-Year Net Return
14.30%
Number of Investors
215
Number of Properties
56
Total Square Footage
11.9 million
Multifamily Units
6,312
Occupancy, Commercial
95.2%
Occupancy, Multifamily
93.5%
Portfolio Leverage
19.0%
Cash Position
1.1%
Park Place in Hoboken, NJ
Year of Achievements – 2015 BIT Highlights
• Investor Activity: Raised $234 million in net new contributions to BIT in 2015,
the third consecutive year of record net fundraising.
• Property Investment: Committed to one new office acquisition, three industrial acquisitions, and two new developments, totaling over $600 million.
• Growth: Increased BIT net asset value by 22%, to $4.26 billion.
• Performance: Outperformed the benchmark, the NCREIF Open End
Fund Index Equal Weight (NFI-ODCE-EW) by 18 basis points, the second
consecutive calendar year of out performance.
2015 ANNUAL REPORT
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5
2015 YEAR IN REVIEW
AFL-CIO BUILDING INVESTMENT TRUST
BIT’s Net Asset Value
Performance
as of December 31, 2015
$5,000
4,260
$4,000
3,501
$3,000
$2,000
1,775
1,863
2009
2010
2,956
2,537
2,242
end, the BIT’s net asset value was $4.26 billion,
a 22% increase from the prior year, driven
primarily by continued asset appreciation and
record net contributions. For the year, the BIT
$1,000
$0
2011
2012
2013
2014
2015
Net Asset Value ($ in millions)
15%
Capital contributions from new and existing
investors also positively impacted the BIT’s
periods ended December 31, 2015
15.35 15.17
13.04 13.62
12.91
generated gross and net returns of 15.35% and
14.30%, respectively. Appreciation totaled $415
million during the year, composed primarily of
gains in multifamily and development assets.
BIT Returns Summary
20%
The AFL-CIO Building Investment Trust (BIT)
experienced significant growth in 2015. At year-
growth in 2015. During the year, 59 investors,
including 20 new participants to the BIT,
contributed $280 million. These contributions
were partially offset by $46 million in
13.56
10%
7.98
6.65 6.28
6.95
redemptions, resulting in $234 million in net
capital raised, a record for the fund.
5%
0%
The BIT’s one-year performance exceeded its
benchmark, the NFI-ODCE-EW, by 18 basis
1-year
3-year
BIT Gross
5-year
10-year
Since BIT
inception
(7/1/1988)
NFI-ODCE-EW (Gross)
BIT Top Ten MSAs
The one-year outperformance was primarily
due to appreciation from the BIT’s multifamily
as of December 31, 2015 (Based on NAV, excluding cash)
Metropolitan
Statistical Area
New York Metro
Chicago
San Francisco Bay Area
Seattle
Washington DC Metro
San Jose
Los Angeles
Philadelphia
Miami
Portland
Total
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NAV
($ millions)
Percentage
$685
$566
$561
$415
$384
$297
$272
$204
$124
$102
16.2%
13.4%
13.3%
9.8%
9.1%
7.0%
6.5%
4.8%
2.9%
2.4%
$3,610
84.5%
AFL-CIO BUILDING INVESTMENT TRUST
points. The BIT’s gross return exceeded the
NFI-ODCE- EW by 54, 37, and 103 basis points
on the seven-year, ten-year and since inception
basis, respectively.
and development assets. The Trustee continues
to maintain an overweight position in the
multifamily sector versus the index and has
steadily increased the BIT’s development
exposure since 2010. Longer term relative
outperformance of the BIT is primarily
attributable to overweight positions in the
multifamily and retail sectors, with these
holdings providing more reliable income returns
and experiencing proportionately less value
diminution than office and industrial assets
during recessionary periods.
BIT returns over the three and five-year period
have been impacted by a handful of historically
underperforming assets, many of which
have been sold. BIT returns have also been
diminished by holdings in the suburban office
sector, which has experienced less growth than
other sectors post-recession
Return Segmentation
for periods ended December 31, 2015 (Numbers are gross)
3
Year
5
Year
10
Year
11.81%
22.37%
12.79%
18.40%
9.19%
22.29%
11.26%
15.86%
9.90%
21.04%
11.43%
16.79%
6.07%
10.63%
6.79%
7.44%
8.37%
9.60%
8.71%
9.77%
15.51%
20.08%
9.73%
11.42%
12.91%
7.05%
12.33%
4.34%
6.81%
6.65%
9.43%
9.61%
8.39%
8.77%
7.98%
13.56%
6.28%
6.95%
Name
Sorted by Region
East
Midwest
South
West
Since BIT
Inception
(7/1/1988)
1
Year
Sorted by Property Type
Industrial
19.74% 17.95%
Multifamily
21.46% 18.94%
Office
8.07%
8.45%
Retail
16.53% 10.20%
BIT Portfolio
15.35% 13.04%
NFI-ODCE-Equal Weight
15.17% 13.62%
(Gross Returns)
Portfolio Diversification by Property Type
as of December 31, 2015
50%
40%
40.7
34.0 34.8
30%
25.7
20%
18.4
17.1
13.1
12.2
10%
0%
3.9
0.0
Office
Industrial
Retail
BIT Net Asset Value
Multifamily
Hotel/Other
NFI-ODCE-EW
Portfolio Diversification by Geographic Region
as of December 31, 2015
50%
42.5
40%
30%
32.7
39.5
30.4
Dock Street Flats in Minneapolis, MN
10.6
10%
0%
19.6
17.4
20%
East
West
BIT Net Asset Value
Midwest
7.4
South
NFI-ODCE-EW
2015 ANNUAL REPORT
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2015 YEAR IN REVIEW
2015 Select Portfolio Transactions†
AFL-CIO BUILDING INVESTMENT TRUST
Portfolio Activity
N E W CO M M I T M E N T S :
• Blanchard Plaza, Seattle, WA
1Q15, purchase of 255,818 sf office = $121 million
The Trustee actively managed the BIT’s portfolio
throughout 2015 in order to take advantage of
• Preserve at Cantera, Chicago, IL
2Q15, purchase of partner interest = $8 million
attractive investment opportunities, maximize
property income and cash flow, and maintain
the BIT’s solid balance sheet.
• Dock Street Flats, Minneapolis, MN
2Q15, purchase of partner interest = $8 million
• Burlingame Industrial, San Francisco, CA
3Q15, purchase of a 56,000 sf industrial property = $31 million
• Encore at Forest Park, St. Louis, MO
3Q15, development of 246-unit multifamily complex = $51 million
• Culver City Office, Culver City, CA
3Q15, development of 281,400 sf office building = $124 million
• 333 West Wacker Drive, Chicago, IL
4Q15, purchase of an 868,000 sf office property = $320 million
• Patterson Industrial, Patterson, CA
4Q15, purchase of a 1,016,000 sf distribution center = $91 million
• HLA Portfolio, Farmingdale, NY
4Q15, purchase of a 2 building 360,000 sf complex = $45 million
DISPOSITIONS:
• Ritchie Station, Capitol Heights, MD
1Q15, sale of 107,832 sf retail development = $34 million
• Woodinville Plaza, Woodinville, WA
2Q15, sale of 170,804 sf retail center = $34 million
• West Santa Clara Street Office, San Jose, CA
2Q15, sale of 0.47 acre land parcel = $9 million
In 2015, the BIT closed one new office and
three new industrial acquisitions, for a total
commitment of $488 million: 333 West Wacker,
a 868,000 sf, 96% leased office building in
downtown Chicago; Burlingame Industrial, a
56,000 sf industrial building plus developable
land in San Francisco; Patterson Industrial, a
1,016,000 sf industrial building in Patterson, CA,
and the HLA Portfolio, a 360,000 square foot,
two-building industrial complex in New York,
New York. All of the industrial acquisitions
are 100% leased. The BIT also committed
$32 million to the acquisition of North Perris
Industrial, a 344,000 sf fully leased industrial
building in the Inland Empire East market
of California, which closed in January 2016.
The Trustee anticipates the BIT will receive
predictable income over the next several years
from these stabilized acquisitions.
Portfolio Occupancy
as of December 31, 2015
100%
• Park Meadows, Denver, CO
4Q15, sale of 518-unit multifamily property = $124 million
• St. Tropez, Fort Lauderdale, FL
4Q15, sale of 376-unit multifamily property = $86 million
95.8
95.4
• Opal at Kew Gardens, Flushing, NY
3Q15, sale of 388-unit multifamily property = $39 million
90%
93.5
90.6
93.5
95.4
88.8
86.8
80%
70%
Industrial
Office
BIT
Retail
Multifamily
U.S.
Source: CBRE Econometric Advisors
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AFL-CIO BUILDING INVESTMENT TRUST
The BIT bought out joint venture partners
to gain full control of three multifamily
Overall commercial portfolio occupancy
increased 50 basis points in 2015, ending the
investments: The Preserve at Cantera in
suburban Chicago, Dock Street Flats in
year at 95.3%. The BIT executed more than one
million square feet of new and renewal leases in
Minneapolis, and Ballard Park in Seattle.
2015, including a 160,000 sf lease with a new
tenant at Fremont Office building in downtown
San Francisco, and new leases and significant
renewals at several industrial buildings. The
The BIT also continued to build on the success
of these developments by closing on two new
developments in 2015. The BIT committed
$124 million to Culver City Office, a 281,400 sf
office development to be built in Culver City,
California and $51 million to The Encore,
a 246-unit multifamily development to be
built adjacent to the BIT’s recently completed
Highland Park property in St Louis. In 2015, one
multifamily development asset, Highland Park,
completed its lease-up and reached stabilization.
Three additional multifamily development assets
(Park Place, Lloyd District, and Centerra) were
completed and are progressing through the lease
up process.
The Trustee has a long history of successful
development investment for the BIT and believes
it will continue to benefit from a strategy that
invests at cost through development and realizes
retail value upon completion and lease-up.
In 2015, the Trustee continued to strengthen
the portfolio by constructing a well-diversified,
high quality portfolio with fewer, larger assets.
As part of that process, the BIT disposed of six
assets in 2015, generating net sale proceeds of
$285 million. Mature multifamily assets Opal
at Kew Gardens, Park Meadows, and St Tropez
were sold. The BIT also disposed of retail assets
Ritchie Station and Woodinville Plaza. Finally,
the BIT sold a land parcel adjacent to the
West Santa Clara office building which were
purchased together in late 2014. At the end of
2015, the BIT portfolio was composed of 56
holdings with an average net asset value of $75.3
million, up 16% from the average net asset value
of $64.8 million at the end of 2014.
industrial portfolio recorded the greatest growth,
increasing occupancy by 200 basis points to
95.4% at year-end. Retail occupancy was the
strongest overall, averaging 96% throughout
the year.
As of December 31, 2015, the BIT portfolio
was encumbered with direct and allocated
joint venture borrowings totaling $1.0 billion.
With a gross asset value of $5.26 billion, the
resulting portfolio leverage ratio is 19.0%, down
from 20.1% at the beginning of the year. New
borrowing activity, such as placement of new
debt on the recently acquired 333 West Wacker
property was offset by the payoff of the Opal
Kew Gardens and St Tropez loans as part of the
disposition process of these assets. With asset
values increasing, the leverage ratio therefore
decreased 110 basis points from the beginning of
the year.
With much of the 2015 acquisition activity
occuring in the Midwest, the Trustee increased
the Midwest Region net weighting by 4% in
2015, to 17%. The West region weighting, the
BIT’s largest exposure, increased 1% to 42%.
The East Region weighting fell 3% to 33%, and
the South Region decreased 2% to 7%. Property
type diversification shifted modestly as a result
of 2015 investment activities. Multifamily
weighting fell 3% due to dispositions of mature
assets while the industrial and office weightings
each increased by 3% as a result of focused
investment activity.
2015 ANNUAL REPORT
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9
2015 YEAR IN REVIEW
AFL-CIO BUILDING INVESTMENT TRUST
Portfolio Highlights
Burlingame Industrial
The BIT acquired this 55,700 square foot
industrial building near the San Francisco
International Airport for $31 million. The
property, which includes an adjoining 2.5 acre
lot suitable for development, is 100% leased to a
long-term tenant which provides food services to
the nearby airport.
Encore at Forest Park
The BIT committed $51 million to build
this 246 unit multifamily development in St
Louis. The site is adjacent to an existing BIT
investment, Highland Park, which was built in
2014 and is now fully stabilized.
Culver City Office
This $124 million office commitment is to be
built in Culver City, California. The property
will consist of a seven story creative office
building containing 281,400 square feet and an
adjacent 990 space parking structure.
333 West Wacker Drive in Chicago, IL
Patterson Industrial
The BIT acquired this 1,016,083 square foot
industrial building in northern California for
$91 million. The property, which is near a major
interstate and within an hour of major Bay Area
markets, is 100% leased to a credit tenant on a
long-term basis.
333 West Wacker Drive
The BIT acquired this 868,000 sf office building
in downtown Chicago for $320 million. The
36-story property is 96% leased with a weighted
average remaining lease term of 8 years. 333 West
Rendering of Encore at Forest Park in St. Louis, MO
Wacker Drive is centrally located in Chicago’s
West Loop, with easy access to multiple transit,
road, and entertainment options.
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AFL-CIO BUILDING INVESTMENT TRUST
HLA Portfolio
The BIT acquired these adjacent industrial
buildings totaling 360,000 square feet, in a
joint venture with an operating partner for $45
million. The properties are located on Long
Island and are leased on a long-term basis to an
established regional food service provider.
National Cap Rates
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
U.S. Commercial
Real Estate Markets
6.0%
5.5%
09 Q4
levels as institutional investors continue to favor
high quality core assets with stable cash flow and
minimal risk.
Interest rates remain at historically low levels,
allowing buyers to effectively use leverage to
enhance equity returns. However, according
to a PWC 2016 Emerging Trends Survey,
respondents tend to believe that interest rates
11 Q4
12 Q4
Industrial
13 Q4
Retail
14 Q4
15 Q4
Multifamily
Source: Real Capital Analytics
In 2015, the U.S. commercial real estate capital
markets remained strong, exceeding prior peak
pricing in many markets. According to Real
Capital Analytics, as of fourth quarter 2015, year
to date transaction volume totaled $534 billion,
up 23% from the same period in 2014. Cap rates
are approaching or exceeding historically low
010 Q4
Office
National Transaction Volume
$150
$125
$100
$75
$50
$25
$0
09 Q4
10 Q4
11 Q4
12 Q4
13 Q4
14 Q4
15 Q4
Transaction Volume ($ in billions)
Source: Real Capital Analytics
will increase moderately in 2016. Even if interest
rates rise in 2016, cap rates are not necessarily
expected to rise proportionally, as the temporary
spike in interest rates in 2013 did not result in
material cap rate movement. Cap rate spreads to
risk free Treasuries are also at historically high
levels providing some cushion for compression.
Additionally, institutional investment is expected
to remain active as equity sources from across
the globe seek the safety of U.S. real estate. This
abundance of capital is expected to keep cap rates
and return requirements at historically low levels.
Worker at Wolf Point, under construction in Chicago, IL
2015 ANNUAL REPORT
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11
2015 YEAR IN REVIEW
Development activity is also accelerating,
with new deliveries in the multifamily sector
National Vacancy Rate
20%
approaching historic averages and construction
starts in the commercial sectors more robust
16%
than in prior years. However, there are few signs
that suggest new supply is accelerating to the
point of creating market imbalances.
12%
8%
4%
0%
09 Q4
10 Q4
Office
11 Q4
Industrial
12 Q4
13 Q4
Retail
14 Q4
15 Q4
Multifamily
Source: CBRE Econometric Advisors
Operating fundamentals continue to show signs
of improvement after reaching a cyclical bottom
in 2010. According to CBRE-EA, the vacancy
rates for all three commercial sectors fell in 2015.
As of the fourth quarter 2015, the national office
vacancy rate dropped 80 basis points, while rents
rose 3.4% from fourth quarter 2014. The national
industrial availability rate has either remained
flat or fallen for 23 straight quarters, reaching
9.4% in the fourth quarter of 2015, while rents
have grown by 4.4% over the prior year. Retail
vacancy rates have fallen 20 basis points since the
fourth quarter of 2014, and CBRE-EA projects
the sector will end the year with 1.6% rent
growth, the second consecutive year of positive
rent growth. CBRE-EA anticipates continued
positive absorption in all three sectors in 2016,
along with accelerating rent growth in the
industrial and office sectors and slower, but still
positive rent growth in the retail sector.
The multifamily sector, which exhibited
the strongest performance during and after
the recession, was expected to see tempered
growth in 2015, mainly due to new supply and
improvements in the single family housing
market. However, the nationwide vacancy rate
remains below 5%, and CBRE-EA projects
rent growth of 6.2% through the end of 2015,
higher than the 5.4% growth recorded in
2014. According to CBRE-EA, rent growth on
a national level is projected to average 2.3%
over the next five years, with the vacancy rate
Ballard on the Park in Seattle, WA
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AFL-CIO BUILDING INVESTMENT TRUST
hovering between 5% and 6% over the same
time period.
2016 OUTLOOK
The Trustee anticipates that core real estate
returns will stabilize in the 6% to 8% range after
throughout the year and use modest leverage
to enhance returns and generate capital for
six years of double-digit returns averaging over
13%. These returns remain compelling on a risk
reinvestment where prudent.
The Trustee expects 2016 to be similar to 2015,
with continued strong fundraising along with
The Trustee will also continue to aggressively
lease current vacant and expiring commercial
space across the portfolio in 2016. Total
commercial space exposure (currently vacant
significant acquisition and disposition activity
or subject to lease expiration in 2016) is 12%.
to refine the composition of the portfolio. The
Trustee will continue to focus on its strategic
The Trustee has targeted total leasing activity
of over one million square feet in 2016, which,
initiatives of maintaining an overweight position
in the urban multifamily sector, continuing the
develop-to-core strategy, and seeking investments
in the target coastal and Midwest markets
that have historically delivered the best long
term performance and strongest liquidity. The
combined with the planned disposition of
certain assets, would result in a commercial
occupancy level above 95% throughout the year.
adjusted basis relative to alternative asset classes.
development program initiated in 2010 and
accelerated in subsequent years has resulted in
BIT development commitments approaching
$1.1 billion. Although the majority of these
commitments have been funded, $296 million
remains to be funded, including $214 million
in 2016. With the anticipated stabilization of
two multifamily developments in 2016, BIT
development exposure is projected to drop,
absent any new development commitment
requiring disbursements in 2016. The
Trustee will actively source new development
opportunities with anticipated construction
starts in late 2016 and beyond. Development
opportunities will likely be most prevalent in the
multifamily and office sectors.
Several property loans mature in 2016 and the
Trustee is in the process of securing replacement
debt at substantially lower rates. In total, 2017
and 2018 maturities are manageable at less than
1% of net asset value. The Trustee expects that
In addition to the stabilized portfolio, the
Trustee will also monitor the leasing progress of
the BIT’s development assets. Leasing efforts are
ongoing for two office developments, Playhouse
Plaza in Pasadena, California and National
Square in Washington, DC. Leasing efforts
also continue on several multifamily assets,
namely Centerra in San Jose, CA and Lloyd
District in Portland, OR. The Trustee will also
monitor the completion and lease up of two new
multifamily developments in 2016: Wolf Point
West in Chicago and Riverside in New York.
Lease-ups for both are expected to be in progress
throughout 2016.
Commercial Lease Expiration
as of December 31, 2015
Property
Type
Square
Feet
2016
2017
2018
2019
>2019
Industrial
5.7m
6.7%
6.6%
Office
4.3m
8.7%
4.0%
12.6%
4.3%
65.2%
13.6%
12.0%
Retail
1.9m
4.0%
57.5%
1.2%
9.9%
13.3%
65.1%
Total
11.9m
7.0%
4.8%
12.5%
8.5%
62.4%
the portfolio’s leverage ratio to remain stable
in 2016 as new financing activity is anticipated
to grow in line with asset growth. The Trustee
will monitor the interest rate environment
2015 ANNUAL REPORT
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13
BUILDING SECURITY,
CREATING JOBS, AND INVESTING IN AMERICA
At its inception in 1988, the BIT created one of
the most comprehensive union labor policies
in the U.S. commercial real estate industry.
Twenty-seven years later, the BIT still operates
by these standards.
A development project must first and foremost
meet the BIT’s strict underwriting and return
requirements. Should these criteria be met, the
BIT strives to assure that on-site construction
labor will be provided through signatory
union contractors. The BIT’s labor policies
also require that certain facilities such as
hotels, grocery stores, healthcare, and parking
facilities are operated by organized contractors
or those committed to neutrality and cardcheck recognition agreements. Further, subject
to local market availability, the BIT seeks
signatory contractors to provide on-site building
maintenance, repair services and operations.
At year-end, the BIT had ongoing construction
projects across the U.S. totaling approximately
$1.1 billion in development. In addition, the
56 BIT investments maintain 177 ongoing
service contracts with 137 local unions across
the country.
The BIT’s labor policies are implemented by
PNC Bank as Trustee with support from the staff
of the ITC and PRI. The Trustee, the Advisor,
Workers at Riverside Center in New York, NY
and the ITC are dedicated to assuring that the
BIT’s labor policies are carried out efficiently
and that projects proceed smoothly, taking full
advantage of skilled union labor.
14
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AFL-CIO BUILDING INVESTMENT TRUST
PNC BANK, NATIONAL ASSOCIATION
Trustee
Pittsburgh, Pennsylvania
PNC REALTY INVESTORS, INC.
Investment Advisor
Washington, D.C.
Kevin McCarthy
Managing Principal and President
Rinse Brink
Principal, Portfolio Manager
AFL-CIO INVESTMENT TRUST CORPORATION
Marketing, Investor Relations, Labor Relations
Washington, D.C.
Michael Stotz
President
William Little
Executive Vice President
2015 ANNUAL REPORT
|
31
DISCLAIMER
* Opinions of third parties are not representations, warranties, or opinions of PNC Bank, National Association, trustee for the BIT.
nancing, and such risks may increase volatility of a fund’s performance
and may increase the fund’s losses.
†
Transactions listed here are not a complete list of transactions for
2015 but contain a sampling of transactions during this time period.
A complete list of transactions may be provided on request.
The information contained in this material is not intended to be a
comprehensive description of any investment product or capability. Neither the information herein, nor any opinion expressed herein,
constitutes an offer to buy or sell, nor a recommendation to buy or sell,
any security or financial instrument, including an interest in the BIT,
and is not intended to serve as a primary basis for a decision with
regard to whether to invest in any security or financial instrument,
including an interest in the BIT. Investors in, or potential investors of
the BIT should consider carefully the BIT’s investment objectives, risks
and expenses before investing therein. Investors should consult their
own advisors and investment professionals to evaluate the merits and
risks of investment.
The BIT was managed by a trustee unaffiliated with PNC Bank from
July 1, 1988 through December 31, 1991, and PNC Bank is relying on
data provided by this prior trustee for this time frame.
The AFL-CIO Building Investment Trust (the “BIT” or the “Trust”) is a
bank collective trust for which PNC Bank, National Association (“PNC
Bank”) is the trustee. PNC Bank is a subsidiary of The PNC Financial
Services Group, Inc. (“PNC”). PNC may use the service mark “PNC
Institutional Asset Management” in connection with certain activities
of the Trust. PNC Bank has retained PNC Realty Investors, Inc. (“PRI”)
to provide real estate investment advisory and management services,
and the AFL-CIO Investment Trust Corporation (the “ITC”) to provide
marketing and investor and labor relation services, in connection with
the BIT. PNC Bank licenses the ability to use the “AFL-CIO” name in the
name of the Trust and in connection with the activities of the Trust.
A participant’s investments in the BIT are not bank deposits, nor are
they backed or guaranteed by PNC or any of its affiliates, and are not
issued by, insured by, guaranteed by, or obligations of the FDIC, the
Federal Reserve Board, or any government agency. Investment in the BIT
involves risk. Investment return and principal value of an investment in
the BIT will fluctuate so that a participant’s investment, when redeemed,
may be worth more or less than the original investment. A participant’s
redemption of its investment or units in the Trust, or a portion thereof,
may be delayed by Trustee for one year (or longer if permissible under
applicable law) from the date of the request for such redemption.
The BIT generally invests directly or indirectly in commercial real estate
through equity investments and occasionally through the provision
of financing. Equity investments are subject to risks inherent in or
customarily associated with the ownership of income-producing real
estate, and real estate financing involves risks inherent in or customarily associated with the risks of financing secured directly or indirectly
by income producing real estate. Due to such inherent risks, investment
returns can be expected to fluctuate and operating cash flow and the
Trust’s ability to make redemptions or distributions could be adversely
affected. Moreover, due to the nature of real estate, investments may
be illiquid. Such illiquidity may affect the Trust’s operating cash flow,
which, in turn, may delay the ability to satisfy redemption requests.
Additionally, the BIT or its investments may obtain financing. Such
investments are subject to the inherent risks arising from the use of fi-
32
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AFL-CIO BUILDING INVESTMENT TRUST
Except as otherwise disclosed, the materials, representations and
opinions presented herein are those of PNC Bank, and are of a general
nature and do not constitute the provision by PNC of investment, legal,
tax, or accounting advice to any person. Opinions expressed herein
are subject to change without notice. The information from third party
sources was obtained from sources deemed reliable. Such information
is not guaranteed as to its accuracy.
Information contained in the material above regarding or providing
past performance should not be considered representative, and is no
guarantee, of future performance or results. Forward looking statements contained in the material above involve certain assumptions,
including but not limited to the performance of the real estate market,
which could cause actual outcomes and results to differ materially
from the views expressed in the material above.
For more information regarding the investments, risks, and expenses
of the BIT, copies of the latest investment memorandum and the
applicable plan documents for the BIT, including the trust agreement
and a form of participation agreement, may be obtained by contacting
855-530-0640 or BITTrustOfficer@pnc.com. Please read the investment
memorandum carefully before investing in the BIT.
PNC does not provide legal, tax or accounting advice and does not provide services in any jurisdiction in which it is not authorized to conduct
business. PNC Bank is not registered as a municipal advisor under the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
Not FDIC Insured. No Bank Guarantee. May Lose Value.
For Institutional Use Only—Not for Use with Retail Investors.
© 2016 The PNC Financial Services Group, Inc. All rights reserved.
Workers at Park Place under construction in Hoboken, NJ
AFL-CIO BUILDING INVESTMENT TRUST
PNC Bank, National Association
PNC Realty Investors, Inc.
AFL-CIO Investment Trust Corporation
Trustee
Investment Advisor
Investor Relations, Labor Relations, Marketing
The Tower at PNC Plaza
1601 K Street, NW, Suite 1100
815 Connecticut Avenue, NW, Suite 320
300 Fifth Avenue
Washington, DC 20006
Washington, DC 20006
Pittsburgh, PA 15222
(202) 496-4700
(202) 898-9190
(412) 762-2000
www.aflcio-bit.com