REAL ESTATE VALUE FUND

AS OF JUNE 30, 2021

INSTITUTIONAL: TAREX | INVESTOR: TVRVX | Z: TARZX

PORTFOLIO MANAGER COMMENTARY JASON WOLF, CFA | RYAN DOBRATZ, CFA

Dear Fellow Shareholders: ACTIVITY

We are pleased to provide you with the Third Avenue Real One of the most insightful publications for global real estate
Estate Value Fund’s (the “Fund”) report for the period ended professionals each year is Emerging Trends in Real Estate®.
June 30, 2021. Through the first half of the calendar year, the Published by PwC and the Urban Land Institute (ULI), the 2021
Fund generated a return of +17.71% (after fees) versus +16.11% Report canvases a number of key trends within global real
(before fees) for the Fund’s most relevant benchmark, the FTSE estate including “the shift of capital into sheds and beds being
EPRA NAREIT Developed Index.1 turbocharged during the pandemic.”

The most notable contributor to performance during the period To paraphrase, institutional capital is increasingly targeting
was the Fund’s investment in the common stock of St. Modwen investments in industrial real estate and residential businesses
Properties plc—a unique U.K.-based real estate operating given the favorable supply-and-demand dynamics for these
company that has been held in the portfolio since 2018. The sectors (and where the Fund has more than 50% of its capital
primary detractors during the quarter included the Fund’s invested). It is also a trend that seemed to be the driving force
investments in the preferred equity and common stock of the behind the Blackstone Group’s (“Blackstone”) bid to acquire
Federal National Mortgage Association (“Fannie Mae”)—a St. Modwen Properties plc (“St. Modwen”) during the quarter.
leading provider of residential mortgage financing in the U.S.
Further details on these holdings, as well as the Fund’s recent Held in the Fund since 2018, St. Modwen is a U.K.-based real
investment in Stratus Properties Inc., are included herein. estate operating company primarily focused on industrial
real estate ownership and homebuilding in the Midlands and
Recognizing that security prices can fluctuate from quarter-to- Northern regions. The company’s key assets include (i) a
quarter, and that true value-oriented investments oftentimes 7.6 million square foot commercial real estate portfolio that
take years to materialize, Fund Management maintains the is industrial centric and benefiting from significant demand
view that the Fund’s long-term results are the most relevant alongside e-commerce and last-mile fulfillment and (ii) a
gauge of performance. Since the Fund’s inception in 1998, it homebuilding business that delivers nearly 1,000 units per
has earned an annualized return of +9.63% (after fees). As year with accelerating demand given its focus on the regions
highlighted in the chart below, this performance indicates that at affordable price points. Notably, the company also controls
an initial investment of $100,000 in the Fund would have a a land bank that can accommodate an additional 19 million
market value in excess of $810,000 (assuming distributions square feet of industrial real estate and 26,000 homes.
had been reinvested), or more than the same $100,000 would
be worth had it been placed into a passive fund tracking the While St. Modwen’s management team had undertaken a
Fund’s most relevant benchmark (as well as the S&P 500). significant transformation in recent years, and wisely refocused
around the core logistics and residential platforms, the
VALUE OF $100,000 SINCE SEPTEMBER 1998 company’s stock price remained at a significant discount to
As of June 30, 2021 its Net-Asset Value (“NAV”). Insofar as Fund Management
TAREX $812,774 NAREIT1 $754,082 S&P 500 $649,537 can gather, this was largely due to its diversified nature (the
$900K
800 public markets tend to place a premium on “pure play” entities
700
600
focused on a single property type) and lack of a substantial
500
400
dividend (real estate operating companies tend to retain
300
200
their earnings and reinvest in the business as opposed to
100 REITs which distribute the vast majority of their earnings
0
via dividends). Regardless, when the public markets fail to
9/30/98

12/31/99

3/31/01

6/30/02

9/30/03

12/31/04

3/31/06

6/30/07

9/30/08

12/31/09

3/31/11

6/30/12

9/30/13

12/31/14

3/31/16

6/30/17

9/30/18

12/31/19

3/31/21
6/30/21

recognize value for a company with such a strategic set of

assets, the private markets often do.
Hypothetical Investment since September 30, 1998 (Fund Inception
Date September 17, 1998). Past performance does not guarantee future
performance results.

1
 THIRD AVENUE REAL ESTATE VALUE FUND | AS OF JUNE 30, 2021

In this case, Blackstone’s offer to acquire St. Modwen in an viewed as a conservative figure when considering the recently
all-cash deal for $1.7 billion USD and a 30% premium to the announced plans at the Holden Hills phase of Barton Creek
“undisturbed price” served to surface value. As a result, the are yet to be factored in. It is also Fund Management’s view
Fund began to pare back its position (which exceeded 4.0% that the discount could narrow with a further improvement
after the offer) and is expecting to exit the remaining portion in fundamentals and potential resource conversion activities
alongside the closing of the transaction in July 2021. Through (e.g., selling Block 21 to a live-event operator and converting to
the end of the quarter, the Fund’s investment in St. Modwen a REIT following anticipated land sales).
common had generated a 13.6% internal rate of return (IRR)
over the three-plus year holding period. With this addition, the Third Avenue Real Estate Value Fund
seems to have a distinctive exposure in listed real estate
Fund Management anticipates additional privatizations in the with investments in some of the largest residential land
quarters ahead. To wit, Real Estate Private Equity Funds were owners and homebuilders in Austin, TX through Stratus
estimated to have more than $300 billion of available capital at Properties, Brookfield Homes (a subsidiary of Brookfield
the end of the most recent fiscal year (per Preqin’s 2021 Global Asset Management), and Lennar Corp. As our on-the-ground
Real Estate Report). Further, as observed in the 2021 Emerging due-diligence efforts support, all three entities seem well-
Trends in Real Estate® report: “If you look at the global placed to capitalize on the need for more housing in this
themes of a negative interest rate, low return environment metropolitan area given the outsized population growth (more
and challenges in fixed income, fundamentally every investor than 140 people moved to Austin, TX per day last year) and
around the world that you speak to wants to increase their anticipated job growth stemming from corporate investment
allocations to alternatives, whether that’s infrastructure, debt and relocations (e.g., Tesla’s “Gigafactory”, Apple’s “HQ-2”, a
or real estate.” potential Samsung chip factory, Oracle’s relocation, expanding
venture capital, et al).
A portion of the proceeds from St. Modwen were utilized to
establish a position in the common stock of Stratus Properties The Fund also adjusted its holding in the Federal National
Inc. (“Stratus”). This U.S.-based real estate operating company Mortgage Association (“Fannie Mae”) during the period. As
was spun-out of Freeport McMoran, Inc. in the early 1990’s and noted in previous shareholder letters, the Fund established
subsequently sold its oil and gas assets to primarily focus on a position in the preferred equity and common stock of
unlocking value from its extensive land holdings in Austin, Texas. Fannie Mae in 2020. It was Fund Management’s view that
this enterprise (along with the Federal Home Loan Mortgage
Since that transformation, Stratus has (i) built out a diversified Corporation or “Freddie Mac” and collectively the government-
portfolio of income-producing properties with more than sponsored entities or “GSEs”) was (i) a critical source of
600,000 square feet of primarily grocery-anchored retail financing for sustainable homeownership and affordable rental
centers and 1,000 multifamily units in central Texas, (ii) housing in the U.S., (ii) among the most profitable real estate
undertaken the development of residential-led master planned firms globally when measured by operating profits, and (iii) had
communities including the sale of more than 4,000 lots in its securities trading at fractions of their underlying value due to
Barton Creek and Circle C projects in the Austin area, and (iii) the GSEs having operated under conservatorship since 2008.
delivered a prominent mixed-use location in downtown Austin
anchored by the 251-room W Hotel and 3,000-plus seat Austin Further, it was Fund Management’s opinion that the GSEs
City Limit (ACL) Live Amphitheatre known as “Block 21.” would ultimately exit this framework while further rebuilding
capital as outlined in the Federal Housing Finance Agency’s
Stratus was, however, undoubtedly hard hit by measures taken (“FHFA”) Strategic Plan—a process that could be expedited
to stem the spread of the Covid-19 pandemic, including “stay- once legal rulings addressed controversial changes to its
at-home” orders and restrictions on travel and live events. Not Senior Preferred Stock Purchase Agreement (i.e., the “Net-
only did this lead to a meaningful reduction in the company’s Worth Sweep”). However, given the significant “process risk”
revenues in the ensuing period, but its previous agreement to associated with such a substantial repositioning, the Fund
sell Block 21 to Ryman Hospitality, Inc. for $275 million in gross would limit the amount of capital invested in the entities
proceeds fell through. As a result, Stratus has been required despite an unrivaled price-to-value proposition.
to utilize Ryman’s forfeited purchase deposit (as well as other
cash proceeds) to cover lost hotel revenues and foregone During the quarter, the Supreme Court of the United
tickets sales at Block 21 in recent quarters. States (“SCOTUS”) issued orders relating to two of the
legal challenges outstanding. In Collins v. Yellen, SCOTUS
Having managed through this challenging period, Stratus upheld the plaintiffs’ claims that the conservatorship was
has reported substantial progress in recent months. Most unconstitutionally structured, remanded the case to the
notably, the company has sold its Saint Mary multi-family Fifth Circuit of Appeals for potential “retroactive relief”, but
complex thus stabilizing its liquidity profile, received planning declined to deem the entire Net-Worth Sweep void through
permissions for the final phase of its acclaimed Barton Creek this particular constitutional claim. While this order fell short
project, and reported an uptick in activity at Block 21. Despite of providing outright relief, other challenges relating to “The
these improvements, the price of Stratus common stock has Implied Covenant of Good Faith and Fair Dealing” and a
remained well below pre-pandemic levels, granting the Fund “Takings, Illegal-Exaction, and Breach-of-Implied Contract
the opportunity to initiate a position at a significant discount Claim” remain ongoing in District Court and Federal Claims
to the company’s published NAV estimate—which could be Court, respectively. These cases have yielded important
discovery and will progress through the remainder of 2021.

2
 THIRD AVENUE REAL ESTATE VALUE FUND | AS OF JUNE 30, 2021

Notwithstanding a more extended timeline, Fund Management point (both for-sale and for-rent). Therefore, these holdings
continues to hold the view that administrative action would be seem poised to benefit from a further recovery in residential
the most prudent path forward. Put otherwise, recapitalizing construction and ancillary activities. At the end of the quarter,
the entities and releasing them as quasi-utilities with these positions included a diversified set of businesses
enhanced capital ratios accomplishes key objectives. This including homebuilding (Lennar Group and Berkeley Group),
primarily includes (i) moving the U.S. taxpayer out of the timberland ownership and management (Weyerhaeuser and
“first loss position” for the $6.5 trillion of mortgages the Rayonier), land development (Five Point Holdings and Stratus
entities guarantee, (ii) providing more stability and capital Properties), the ownership and development of rental properties
for the enterprises to pursue their mission of promoting (American Homes 4 Rent, Grainger plc, and Essex Property
affordable housing, and (iii) respecting property rights while Trust), as well as other ancillary businesses (Lowe’s and Trinity
also preserving value for GSE stakeholders (including the U.S. Place Holdings).
Treasury).
The Fund also had 38% of its capital invested in Commercial
Such a plan has recently been populated in the Brookings Real Estate enterprises that are involved in long-term wealth
Institute Report: Government Sponsored Enterprises at the creation. These holdings are largely capitalizing on secular
Crossroads. It is also one that has been carefully assessed trends, including structural changes that are driving more
by the Congressional Budget Office (CBO) in its Effects demand for industrial properties and self-storage facilities
of Recapitalizing Fannie Mae and Freddie Mac Through (Prologis, Segro plc, First Industrial, U-Haul, Big Yellow, and
Administrative Actions. As noted within this analysis, “CBO’s National Storage) as well as the further densification and
model incorporates the judgment that in scenarios in which improvements taking place in select urban corridors (CK Asset
the GSEs’ common-stock sale did not raise enough funds to Holdings, JBG Smith Properties, Derwent London, Henderson
redeem the full face value of both the senior preferred and Land, Wharf Holdings, and Vornado Realty Trust). In Fund
junior preferred shares, the Treasury would take a reduction in Management’s view, each of these enterprises is very well-
the value of its senior preferred stake before requiring junior capitalized, their securities trade at discounts to private-
preferred shareholders to do so.” market values (especially in light of the prevailing interest rate
environment), and they seem capable of increasing NAV—
When factoring in all of these items, as well as the pricing primarily by increasing rents, undertaking development and
anomalies throughout the capital structures, the Fund’s redevelopment activities, as well as by making opportunistic
remaining investment in the GSEs is now exclusively focused acquisitions.
on the preferred equity. At the end of the quarter, these
holdings accounted for approximately 2.0% of the Fund’s An additional 16% of the Fund’s capital is invested in Real Estate
capital and the securities traded at prices that represent less Services. These businesses are generally less capital-intensive
than 10% of their Liquidation Preference (e.g., “par value”). than direct property ownership and as a result have historically
Meanwhile, the entities remain quite profitable and are offered much higher returns on capital—provided the business
rebuilding significant capital while the matters are addressed. has a favorable competitive positioning within the real estate
value chain. At the present time, these holdings primarily include
The Fund’s other activity during the period was modest in franchises involved with asset management (Brookfield Asset
nature and included (i) participating in a capital raise for Management and Patrizia Immobilien), brokerage and property
National Storage REIT (the leading owner and manager of management (CBRE Group and Savills plc), as well as mortgage
self-storage facilities in Australia and New Zealand), (ii) and title insurance (FNF Group and the GSEs).
selling “covered calls” relating to a portion of its position in
Lennar Corp. A shares (while retaining a more meaningful The remaining 2% of the Fund’s capital is in Cash & Equivalents
investment in the B shares that remain at a 20% discount to and expected to increase to approximately 4% following the
the A shares despite equal economics), (iii) exiting BAM Re closing of the St. Modwen transaction. The Fund also has
upon its distribution from Brookfield Asset Management, and certain hedges in place, primarily relating to its foreign currency
(iv) trimming back existing positions in the common stock of exposures (Hong Kong Dollar) and individual holdings (Lennar
Prologis, Lowe’s, and Seritage Growth Properties for portfolio Corp. A shares).
management purposes.
The Fund’s allocations across these various business types are
outlined in the chart on the following page. In addition, Fund
POSITIONING Management reports the Fund’s exposure by geography (North
After incorporating the activity in the period, the Fund had 44% America, Europe, and Asia-Pacific) and strategy (Core/Core-Plus,
of its capital invested in Residential Real Estate companies that Value-Added, Opportunistic, and Debt) for comparison with
have strong ties to the U.S. and U.K. residential markets, where institutional reporting standards for direct real estate allocations.
there are serious supply deficits after years of under-building.
In conjunction with record-low inventory levels, there is also
very substantial demand for new product at an affordable price

3
 THIRD AVENUE REAL ESTATE VALUE FUND | AS OF JUNE 30, 2021

ASSET ALLOCATION AS OF JUNE 30, 2021 Within that context, it is worth expounding on two areas where
Swensen’s expertise is nearly unmatched.
(allocations subject to change)

1. The Role of Real Assets Within a Portfolio

BY BUSINESS TYPE
2.1%
As described in detail within Pioneering Portfolio
16.2% 43.6% Management, “real assets consist of ownership interests
in investment vehicles that exhibit a high correlation to
Residential
inflation and include Treasury-Inflation Protected Securities
Commercial (“TIPS”), Real Estate, Timberlands, and Oil and Gas.”
Real Estate Services Furthermore, “real assets play an important role in portfolios,
Cash, Debt & Options particularly for investors who seek to satisfy inflation-
sensitive liabilities.”
38.1%

While more traditional model portfolios may have historically

called for a 5-10% allocation to real assets, the Yale Model
BY GEOGRAPHY Cash & went much further. In fact, within Swensen’s other widely
Options
2.1%
recognized book, Unconventional Success: A Fundamental
Approach to Personal Investment, he outlines “policy targets”
64.5% 20.4% 13.1% of 35% to such holdings—the largest of which is real estate
at a 20% allocation as included in the chart below.
North America Europe Asia

UNCONVENTIONAL SUCCESS: POLICY TARGETS

BY STRATEGY Cash &
5%
Options
2.1%
15% 30%
Domestic Equity
61.5% 23.6% 12.8%
Real Estate
Core/Core Plus Value Added Opportunistic Foreign Developed Equity
U.S. Treasury Bonds
15%
U.S. TIPS
FUND COMMENTARY Emerging Market Equity

In May 2021, the investment community lost one of its most 15% 20%

influential members: David Swensen. The long-time Chief

Investment Officer of Yale University’s Endowment, and author of Source: Unconventional Success: A Fundamental Approach to Personal
Pioneering Portfolio Management: An Unconventional Approach Investment by David Swenson
to Institutional Investment, had a remarkable impact on the
profession during his career. 2. The Selection of Investment Managers

While Swensen’s professional and philanthropic contributions Swensen, and his highly regarded team, are also considered
are vast, he is most widely credited with transforming the to be one of the premier groups when it comes to manager
conventional asset allocation framework to include alternative selection. Three areas heavily emphasized within the
investments that historically resided outside of the more manager selection portion of the “Yale Model” seemingly
traditional “60-40” model (i.e., 60 percent stocks and 40 percent include manager specialization, investment process, and an
bonds). In the process, Yale’s Endowment generated industry- alignment of interest.
leading investment returns and provided its constituents with
substantial resources to pursue various endeavors. While not all-inclusive, some of the key factors Swensen’s
team has sought out in managers over the years include
This more modern-approach to asset allocation is known those that are (i) grounded in a disciplined framework
within the industry as the “Yale Model” and has been widely and supported with a rigorous investment process, (ii)
adopted by other endowments over recent years. It has specialists within a field and especially those exhibiting
however gained significant traction in other segments of the contrarian behavior, and (iii) meaningfully aligned with
investment management field more recently, including pensions clients through co-investments, with an emphasis on those
and wealth management. Reason being, the return prospects at boutique firms who are more tied to the success of their
for more traditional equity and fixed-income allocations don’t individual strategies.
necessarily seem to satisfy targeted return requirements for its
beneficiaries—as already referenced within the Emerging Trends
in Real Estate® report and dissected in greater detail within the
Third Avenue Value Fund’s shareholder letter.

4
 THIRD AVENUE REAL ESTATE VALUE FUND | AS OF JUNE 30, 2021

When viewed in this framework, Fund Management is of the However, as Swensen has also observed, “discrepancies
opinion that the Third Avenue Real Estate Value Fund is a between market price and fair value create opportunities for
compelling vehicle in which to gain exposure to the real estate investors to build portfolios using relatively attractively priced
(and timberlands) portion of a real asset allocation. That is to assets.” It is here that the Third Avenue Real Estate Value
say, not only is the Fund positioned as a real estate alternative Fund also seems to be aligned with this pioneer’s framework.
that can guard against the prospects of inflation over time For this has been the modus operandi of the Fund since its
as outlined in the Fund’s previous shareholder letter, but the inception in 1998.
strategy is also overseen by a Portfolio Management team
that specializes in real estate centric enterprises and has We thank you for your continued support and look forward to
meaningful personal capital invested in the strategy. writing to you again next quarter. In the meantime, please don’t
hesitate to contact us with any questions, comments, or ideas
This comparison is not meant to imply that the Fund (and other at realestate@thirdave.com.
listed real estate strategies) is without shortcomings. As Fund
Management has noted numerous times over the years, one Sincerely,
of the major drawbacks to investing in real estate securities is
the lack of “control” that one has in terms of decisions at the The Third Avenue Real Estate Value Team
property and corporate level. Further, publicly traded real estate
securities tend to exhibit more volatility than direct property
ownership given daily fluctuations in security prices for what is
otherwise a very long-term asset class. Sometimes these price-
to-value disconnects can be substantial and long lasting.

Jason Wolf, CFA Ryan Dobratz, CFA

5
IMPORTANT INFORMATION
This publication does not constitute an offer or solicitation of any transaction in any securities. Any recommendation contained
herein may not be suitable for all investors. Information contained in this publication has been obtained from sources we believe to be
reliable, but cannot be guaranteed.

The information in this portfolio manager letter represents the opinions of the portfolio manager(s) and is not intended to be a
forecast of future events, a guarantee of future results or investment advice. Views expressed are those of the portfolio manager(s)
and may differ from those of other portfolio managers or of the firm as a whole. Also, please note that any discussion of the Fund’s
holdings, the Fund’s performance, and the portfolio manager(s) views are as of June 30, 2021 (except as otherwise stated), and
are subject to change without notice. Certain information contained in this letter constitutes “forward-looking statements,” which
can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,”
“estimate,” “intend,” “continue” or “believe,” or the negatives thereof (such as “may not,” “should not,” “are not expected to,” etc.)
or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual
performance of any fund may differ materially from those reflected or contemplated in any such forward-looking statement. Current
performance results may be lower or higher than performance numbers quoted in certain letters to shareholders.

Date of first use of portfolio manager commentary: July 15, 2021

1 The FTSE EPRA/NAREIT Developed Real Estate Index was developed by the European Public Real Estate Associa on (EPRA), a
common interest group aiming to promote, develop and represent the European public real estate sector, and the North American
Association of Real Estate Investment Trusts (NAREIT), the representative voice of the US REIT industry. The index series is
designed to reflect the stock performance of companies engaged in specific aspects of the North American, European and Asian
Real Estate markets. The Index is capitalization-weighted. Please see Appendix for performance table and information.
 REAL ESTATE VALUE FUND
AS OF JUNE 30, 2021
INSTITUTIONAL: TAREX | INVESTOR: TVRVX | Z: TARZX

FUND PERFORMANCE
As of June 30, 2021
3 mo 1 yr 3 yr 5 yr 10 yr Inception Inception Date
Third Ave Real Estate Value Fund (Inst. Class) 6.33% 36.81% 2.79% 5.97% 6.98% 9.63% 9/17/1998
Third Ave Real Estate Value Fund (Inv. Class) 6.23% 36.51% 2.52% 5.70% 6.71% 7.71% 12/31/2009
Third Ave Real Estate Value Fund (Z Class) 6.34% 36.97% 2.88% N/A N/A 2.59% 2/28/2018

TOP TEN HOLDINGS

Allocations are subject to change without notice
TAREX
Lennar Corp. 7.6%
Five Point Holdings, LLC, Class A 7.5%
Brookfield Asset Management, Inc. 6.8%
CK Asset Holdings, Ltd. 5.3%
Prologis, Inc. 4.9%
Rayonier, Inc. 4.8%
Weyerhaeuser Co. 4.6%
Berkeley Group Holdings PLC 4.3%
Segro PLC 4.1%
AMERCO 4.1%
Total 54.0%

Past performance is no guarantee of future results; returns include reinvestment of all distributions. The above represents past performance and
current performance may be lower or higher than performance quoted above. Investment return and principal value fluctuate so that an investor’s
shares, when redeemed, may be worth more or less than the original cost. For the most recent month-end performance, please visit the Fund’s
website at www.thirdave.com. The gross expense ratio for the Fund’s Institutional, Investor and Z share classes is 1.18%, 1.47% and 1.08%,
respectively, as of March 1, 2021. TAM has agreed to waive all accrued entitlements related to the fiscal periods Oct 31, 2017 and Oct 31, 2018, which
would have been subject to repayment until Oct 31, 2020 and Oct 31, 2021, respectively.
Risks that could negatively impact returns include: overbuilding and increased competition, increases in property taxes and operating expenses,
lack of financing, vacancies, environmental contamination and its related clean-up, changes in interest rates, casualty or condemnation losses, and
variations in rental income.
Third Avenue Funds are offered by prospectus only. The prospectus contains important information, including investment objectives, risks, advisory
fees and expenses. Please read the prospectus carefully before investing in the Funds. Investment return and principal value fluctuate so that an
investor’s shares, when redeemed, may be worth more or less than the original cost. For updated information or a copy of our prospectus, please call
1-800-443-1021 or go to our website at www.thirdave.com. Distributor of Third Avenue Funds: Foreside Fund Services, LLC.
Current performance results may be lower or higher than performance numbers quoted in certain letters to shareholders.

Third Avenue offers multiple investment solutions with unique exposures and return profiles. Our
core strategies are currently available through '40Act mutual funds and customized accounts. If
you would like further information, please contact a Relationship Manager at:

622 Third Avenue, 32nd floor E: clientservice@thirdave.com

New York, New York 10017 P: 212.906.1160
/third-ave-management
/third-ave-management www.thirdave.com