commercial economic issues & trends forum

79
COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM OMNI SHOREHAM HOTEL AMBASSADOR ROOM THURSDAY MAY 16, 2013 1:00 pm – 3:00 pm LAWRENCE YUN, PhD Chief Economist, Sr. Vice President National Association of REALTORS ® H. BLAINE WALKER, CRB, GRI President & CEO Walker & Co. Real Estate DANIEL SIGHT, CCIM, SIOR Vice President, Broker Reece Commercial RANDY SCHEIDT, MAI, CCIM, GRI President Don R. Scheidt & Co. LINDA ST. PETER Corporate REALTOR® Prudential Connecticut Realty 2013: The “New Normal” Economic & CRE Trends at the Crossroads of Political Changes

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2013: The “New Normal” Economic & CRE Trends at the Crossroads of Political Changes

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Page 1: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

OMNI SHOREHAM HOTEL AMBASSADOR ROOM

THURSDAY • MAY 16, 2013 • 1:00 pm – 3:00 pm

LAWRENCE YUN, PhD

Chief Economist, Sr. Vice President

National Association of REALTORS®

H. BLAINE WALKER, CRB, GRI

President & CEOWalker & Co. Real

Estate

DANIEL SIGHT, CCIM, SIOR

Vice President, Broker

Reece Commercial

RANDY SCHEIDT, MAI, CCIM, GRI

PresidentDon R. Scheidt & Co.

LINDA ST. PETER

Corporate REALTOR®Prudential Connecticut

Realty

2013: The “New Normal”Economic & CRE Trends at the Crossroads of Political Changes

Page 2: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

How do you feel about the economy today vs. one year ago?

A) WorseB) About the sameC) A little betterD) Big improvement

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 3: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Record High Stock Prices(but only ½ of population have stock exposure)

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Stock Price Index: Standard & Poor's 500 Composite

1941-43=10

1005009590858075706560

Source: Wall Street Journal /Haver Analytics 05/10/13

1600

1200

800

400

0

1600

1200

800

400

0

Page 4: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Falling Unemployment Rate

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Civilian Unemployment Rate: 16 yr +

SA, %

12111009080706050403020100Source: Bureau of Labor Statistics /Haver Analytics 05/10/13

10

8

6

4

2

10

8

6

4

2

Page 5: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

But Very High Number of Part-time Workers

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Work Part Time: For Economic Reasons: All Industry

SA, Thous

12111009080706050403020100

Source: Bureau of Labor Statistics /Haver Analytics 05/10/13

10000

8000

6000

4000

2000

10000

8000

6000

4000

2000

Page 6: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Are employers in your market expanding?

A) Yes, a lotB) A littleC) Staying the courseD) No; they are shrinking

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 7: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Indiana Total Jobs

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr2500

2600

2700

2800

2900

3000

3100

Page 8: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Kansas Total Jobs

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr1300

1320

1340

1360

1380

1400

1420

Page 9: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Connecticut Total Jobs

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr1500

1550

1600

1650

1700

1750

Page 10: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Utah Total Jobs

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr1000

1050

1100

1150

1200

1250

1300

1350

Page 11: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

D.C. Metro Total Jobs

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr2000

2100

2200

2300

2400

2500

2600

Page 12: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Texas Total Jobs

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr8000

8500

9000

9500

10000

10500

11000

11500

Page 13: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Jobs in Commercial Construction and Contractors

2001 - Jan 2002 - Oct 2004 - Jul 2006 - Apr 2008 - Jan 2009 - Oct 2011 - Jul 2013 - Apr2500

2600

2700

2800

2900

3000

3100

3200

3300

3400

3500

Page 14: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

How do you feel about the CRE markets today vs. one year ago?

A) WorseB) About the sameC) A little betterD) Big improvement

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 15: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

2012 Global CRE Investments Rise 4%

Source: Real Capital Analytics

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 16: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

15 of Top 30 Global Markets are in U.S.

Source: Real Capital AnalyticsREALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 17: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Cross-border Capital Flows into U.S. Rise

Source: Real Capital Analytics

Yes; 18%

No; 82%

2012 REALTOR® CRE Sales to International Clients/Investors

Source: REALTORS® 2012 CRE Lending Survey

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 18: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

U.S. Sales Rise 24% in 2012; 35% in 2013.Q1

'06 '07 '08 '09 '10 '11 '12 '12 '12 '12 '13$0

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

$140,000,000,000

$160,000,000,000

$180,000,000,000

Individual Portfolio Entity

Source: Real Capital Analytics

2012: $283 B

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 19: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

REALTOR® Markets & Deal Size

< $250,000

$250,000 - $500,000

$500,000 - $1,000,000

$1,000,000 - $2,000,000

$2,000,000 - $5,000,000

$5,000,000 - $10,000,000

> $10,000,000

21%

22%

26%

17%

12%

1%

2%

2013 CRE Lending Survey: Value of most recent sales transaction

Source: NAR

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 20: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Tale of Two Commercial Markets

2008.Q4

2009.Q1

2009.Q2

2009.Q3

2009.Q4

2010.Q1

2010.Q2

2010.Q3

2010.Q4

2011.Q1

2011.Q2

2011.Q3

2011.Q4

2012.Q1

2012.Q2

2012.Q3

2012.Q4

-100%

-50%

0%

50%

100%

150%

200%

Sales Volume (YoY % Chg)

Major CRE Markets Realtor CRE Markets

Deals < $2M +

Deals > $2M

2008.Q4

2009.Q1

2009.Q2

2009.Q3

2009.Q4

2010.Q1

2010.Q2

2010.Q3

2010.Q4

2011.Q1

2011.Q2

2011.Q3

2011.Q4

2012.Q1

2012.Q2

2012.Q3

2012.Q4

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Sales Prices (YoY % Chg)

Moody’s/RCA CPPI - Major MarketsRealtor CRE Markets

Source: NAR, Real Capital AnalyticsREALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 21: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Low Interest Rates Encourage Lending?

A) Yes, low rates encourage more borrower to seek credit

B) No, low rates do not excite the bankers from lending

C) Unsure

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 22: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Monetary Policy by Federal Reserve (zero rate policy to 2015 ?)

20052006

20072008

20092010

20112012

2013 foreca

st

2014 foreca

st

2015 foreca

st0

1

2

3

4

5

6

Fed Funds %

Page 23: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Federal Reserve Balance Sheet from Quantitative Easing

1-Aug-0

7

7-Nov-0

7

13-Feb-08

21-May

-08

27-Aug-0

8

3-Dec-0

8

11-Mar-

09

17-Jun-09

23-Sep-09

30-Dec-0

9

7-Apr-1

0

14-Jul-1

0

20-Oct-

10

26-Jan-11

4-May

-11

10-Aug-1

1

16-Nov-1

1

22-Feb-12

30-May

-12

5-Sep-12

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

Total Assets

$ million

Page 24: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Feeling Inflationary Pressure? Particularly in Property Management

A) Virtually No inflationB) Rents rising modestly, though faster than

Costs of operationC) Rents rising modestly, but slower than Costs

of operation D) Both Rents and Costs are rising; Inflation is

building

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 25: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Consumer Price Inflation Less than 2%(% change from one year ago)

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr

-3

-2

-1

0

1

2

3

4

5

6

Core Overall

Page 26: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Rising Renters’ and Homeowners’ Rent Growth (Above 2% and On the Way to 3%)

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr

-1

0

1

2

3

4

5

Owners' Equivalent Rent Renters' Rent

Page 27: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Natural Gas Price(100% increase from one year ago)

2011 - Jan

2011 - Mar

2011 - May

2011 - Jul

2011 - Sep

2011 - Nov

2012 - Jan

2012 - Mar

2012 - May

2012 - Jul

2012 - Sep

2012 - Nov

2013 - Jan

2013 - Mar

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Page 28: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Federal Government Tax Revenue and Spending

1970 - Jan1976 - Jan1982 - Jan1988 - Jan1994 - Jan2000 - Jan2006 - Jan2012 - Jan0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

Revenue Spending

12-month tally in $ million

Page 29: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

10-Year Treasury Yields

1970 - Jan 1975 - Jul 1981 - Jan 1986 - Jul 1992 - Jan 1997 - Jul 2003 - Jan 2008 - Jul0

2

4

6

8

10

12

14

16

18%

Page 30: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

How is the Credit Availability for Commercial Deals?

A) Not a ProblemB) Not good but better than a year agoC) Extremely difficult to obtain

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 31: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Big Banks getting Bigger

1970 1980 1990 2000 20120%

10%

20%

30%

40%

50%

60%54%

Top 10 Banks' Share of Total Deposits

Source: Janicki and Prescott, BankRate.com

Page 32: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

8%

17%

25%

7%

6%

4%

18%

1% 11%

3%Current sources of financing for commercial deals

National banks (“Big four”)

Regional banks

Local banks

Credit unions

Life insurance companies

REITs

Private investors

Public companies

Small Business Administration

Other, please specify

Source: NAR

Small Banks Important to REALTORS®

Page 33: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Causes of Bank Capital Availability

Reduced net operating income, property values, and equity

A slow-down in the pooling and packaging of CMBS by financial institutions

Regulatory uncertainty for financial institutions

New and proposed US legislative and regulatory initiatives

Inability of banks to dispose of distressed assets

European debt crisis

Other, please specify

22%

6%

27%

27%

7%

1%

10%

The most relevant cause for lack of sufficient bank capital available for commercial lending

Source: NAR, 2013 CRE Lending Survey

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 34: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Legislative/Regulatory Issues

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

> Dodd–Frank Wall Street Reform and Consumer Protection Act

> Patient Protection and Affordable Care Act (Obamacare)

> Basel III

> Qualified Commercial Real Estate Mortgage• Securitizers must hold 5% of CMBS issued unless:

– 65% loan-to-value (60% if cap rate < 10-year swap + 300bp)– Debt service coverage ratio of 1.5x (stable history) to 1.7x or higher – Amortization period ≤ 20 years– 10-year minimum loan term– 80% of tenants must pay rent + taxes + insurance + maintenance– Borrower credit and income verification along with 2-year forecast– Collateral restriction limits subordinate financing– Securitizer must buy back bad loans in order to retain QCRE status

– Just 0.4% of CMBS ever issued would qualify for first 3 stipulations

Page 35: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Legislative/Regulatory Impacts

Decrease the flow of capital into U.S. real estate

Have no effect on the flow of capital into U.S. real estate, but change the way in which transactions or loans are structured

Have no effect on the flow of capital into U.S. real estate

Increase the flow of capital into U.S. real estate

59%

31%

8%

3%

Impacts of new/proposed U.S. legislative and regulatory initiatives

Source: NAR, 2013 CRE Lending Survey

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 36: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

What is HOT in your market?

A) Office Investment SalesB) Industrial Investment SalesC) Retail Investment SalesD) Are you kidding? Nothing is hot

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 37: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Apartments Gain Market Share

Office - CBD14%

Office - Sub13%

Flex4%

Warehouse9%

Mall & Other11%

Strip7%

Garden19%

Mid/Highrise11%

Full-Service5%

Limited Service2%

Land4%

Source: Real Capital Analytics

Office $77.6BIndustrial $36.9BRetail $52.8BApartment $84.6BHotel $19.6BLand $11.8B

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 38: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Prices Advance – Apartments Lead20

01 Ja

nuar

yA

pril

July

Oct

ober

2002

Janu

ary

Apr

ilJu

lyO

ctob

er20

03 Ja

nuar

yA

pril

July

Oct

ober

2004

Janu

ary

Apr

ilJu

lyO

ctob

er20

05 Ja

nuar

yA

pril

July

Oct

ober

2006

Janu

ary

Apr

ilJu

lyO

ctob

er20

07 Ja

nuar

yA

pril

July

Oct

ober

2008

Janu

ary

Apr

ilJu

lyO

ctob

er20

09 Ja

nuar

yA

pril

July

Oct

ober

2010

Janu

ary

Apr

ilJu

lyO

ctob

er20

11 Ja

nuar

yA

pril

July

Oct

ober

2012

Janu

ary

Apr

ilJu

lyO

ctob

er

90.00

110.00

130.00

150.00

170.00

190.00

210.00

Moody’s/RCA CPPI

Apartment Retail Industrial Office

Source: Real Capital Analytics

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 39: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Renter Households

1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q425,000

27,000

29,000

31,000

33,000

35,000

37,000

39,000

41,000In thousands

Page 40: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Large Spread between Cap Rates and Treasuries

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '121%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

100

200

300

400

500

600

700

10yr UST* Cap Rate Spread (bps)

Source: Real Capital Analytics

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 41: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Apartments and CBD Office Attracting investors as evidenced by low cap rates

Source: Real Capital Analytics

'06 '07 '08 '09 '10 '11 '12'12'12'12'135.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

Suburban Office

Industrial

CBD OfficeApartment

Retail

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 42: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

What is HOT in your market?

A) Office LeasingB) Industrial LeasingC) Retail LeasingD) Are you kidding? Nothing is hot

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 43: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Commercial Fundamentals – Apartments

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 44: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Commercial Fundamentals – Office

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 45: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Commercial Fundamentals – Retail

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 46: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Who is buying CRE in your market?

A) Institutional/REIT InvestorsB) Private local investorsC) National BanksD) Regional/Local BanksE) No one has any money to buy

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 47: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Cross-Border Inst'l/Eq Fund Listed/REITs Private User/other

$-

$50,000,000,000

$100,000,000,000

$150,000,000,000

$200,000,000,000

$250,000,000,000

$300,000,000,000

Who Is Buying?

Source: Real Capital Analytics

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 48: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Lending Environment

2009

2010

2011

2012

2013

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

Commercial Mortgage Rates

Commercial Multifamily

Fixed rate loans with 7-10 year terms; 3 mo. avg.

Source: Real Capital Analytics

Tightened significantly

Tightened somewhat

Not changed

Eased somewhat

Eased significantly

23%

20%

30%

27%

1%

14%

23%

32%

30%

1%

Credit Availability

2012 2011

Source: NAR

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 49: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Lending Environment – REALTOR® Markets

Financing: 90% LTV

Financing: 85% LTV

Financing: 80% LTV

Financing: 75% LTV

Financing: 70% LTV

Financing: 65% LTV

Financing: 60% LTV

Financing: 55% LTV

Financing: 50% LTV

100% Cash

5%

4%

20%

14%

8%

7%

5%

0%

3%

33%

CRE Financial Terms

Source: NAR, 2013 CRE Lend-ing Survey

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Yes; 52%No; 48%

Sales transaction fail during past 12 months due to lack of financing?

Page 50: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Who Is Lending for Large Deals?

2012

2011

2010

2009

2008

2007

Major

Secondary

Tertiary

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Lender Composition ($2.5M+)

CMBSFinancialGov't AgencyInsuranceInt'l BankNat'l BankReg'l/Local BankPvt/Other

Source: Real Capital Analytics

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 51: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Who Is Lending in REALTOR® Markets?

National banks (“Big four”)

Regional banks

Local banks

Credit unions

Life insurance companies

REITs

Private investors

Public companies

Small Business Administration

Other, please specify

9%

17%

25%

9%

8%

4%

13%

1%

12%

2%

2013 REALTORS® Commercial Real Estate Lending Survey

Source: NAR

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 52: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

For CRE investors, how is the debt market?

A) Doing deals (a lot more paperwork)B) Still hard, but you can find itC) Not availableD) I am trying to get rid of all my debt

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 53: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Net Operating Income

Increased 1% - 4%

Increased 5% - 9%

Increased 10% - 15%

No Change

Decreased 10% - 19%

Decreased 20% - 24%

Decreased 25% - 29%

Decreased 30% - 34%

Decreased 35% - 39%

Decreased 40% - 49%

Decreased 50% - 75%

0% 5% 10% 15% 20% 25% 30%

How did net operating income ($/SF) of sold/leased properties change from the 2007 to 2012?

Source: NAR, 2013 CRE Lending Survey

35%

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 54: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Valuation = Appraisals and/or BPOs

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Yes; 36%

No; 64%

Sales transaction fail during past 12 months due to appraisals?

Source: NAR, 2013 CRE Lending Survey

Current valuation issues

Impact of distressed properties

Valuation of “high risk” business models

Page 55: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

How optimistic are you about the CRE markets in 2014?

A) WorseB) About the sameC) A little betterD) Big improvement

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 56: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Apartments Markets

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 57: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Office Markets

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 58: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Retail Markets

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 59: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Commercial Fundamentals – Industrial

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 60: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Is there new development in your market?

A) Yes, best in many yearsB) Only few projectsC) What is development?

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 61: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Commercial Construction/Development

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

2000 - Q1

2000 - Q3

2001 - Q1

2001 - Q3

2002 - Q1

2002 - Q3

2003 - Q1

2003 - Q3

2004 - Q1

2004 - Q3

2005 - Q1

2005 - Q3

2006 - Q1

2006 - Q3

2007 - Q1

2007 - Q3

2008 - Q1

2008 - Q3

2009 - Q1

2009 - Q3

2010 - Q1

2010 - Q3

2011 - Q1

2011 - Q3

2012 - Q1

2012 - Q3

2013 - Q1

-40

-30

-20

-10

0

10

20

30

40

Real Private Nonresidential Investment: Structures (% Chg Annual Rate)

Source: BEA

Page 62: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Value of Construction Put-in-Place

2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

OfficeCommercial

Page 63: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

CRE REOs: How active are banks and special servicers in your market?

A) Selling a lotB) They already sold itC) They are in a holding patternD) I just got a new toaster to buy a bank REO

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 64: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

CRE Debt Maturities Peak

Source: Trepp, LLC

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 65: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

When will CRE markets be HOT again?

A) Beginning to feel HOT this yearB) In 1 to 3 yearsC) In 4 to 5 yearsD) Never again (I am going to sell cars)

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 66: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Vehicle Sales

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr8

10

12

14

16

18

20

22 In million units annualized

Page 67: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Green Street Advisor Price Index(Class-A Expensive Properties for REITs)

1998 - Jan 2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan0

20

40

60

80

100

120

Page 68: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Secondary Markets in Spotlight

Sour

ce: R

eal C

apita

l Ana

lytic

s

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 69: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

How optimistic are you about the economy in 2014?

A) WorseB) About the sameC) A little betterD) Big improvement

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 70: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Economic Forecast

2011 2012 2013Forecast

2014Forecast

GDP Growth +1.8% +2.1% +2.1% 3.0%

Net New Jobs 1.6 million 2.2 million 2.0 million 2.4 million

CPI Inflation 3.1% 2.1% 2.3% 3.4%

10-year Treasury

2.8% 1.8% 2.0% 2.7%

Fed Funds Rate 0.1% 0.1% 0.1% 0.1%

Page 71: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Government Spending Growth

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-4

-2

0

2

4

6

8

StateFederal

%

Page 72: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Corporate Profits($ billion)

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

0

500

1000

1500

2000

2500

Page 73: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Consumer and Business Spending Growth

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-20

-15

-10

-5

0

5

10

15

Business Consumer%

Page 74: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

U.S. Coal Production(Reaching 20-year Low)

1990 - Jan 1993 - Jul 1997 - Jan 2000 - Jul 2004 - Jan 2007 - Jul 2011 - Jan70000000

75000000

80000000

85000000

90000000

95000000

100000000Short tons; 12-month average

Page 75: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Shrinking Trade Deficit($ billion in 2005 dollars)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-800

-700

-600

-500

-400

-300

-200

-100

0

Page 76: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Commercial ForecastOFFICE 2013 I 2013 II 2013 III 2013 IV 2014 I 2013 2014Vacancy Rate 16.0% 15.9% 15.7% 15.6% 15.6% 15.9% 15.7%Net Absorption ('000 sq. ft.) 10,268 6,310 8,955 8,440 13,128 33,973 42,349Completions ('000 sq. ft.) 7,220 7,275 6,030 5,494 8,598 26,019 30,986Rent Growth 0.6% 0.6% 0.7% 0.7% 0.7% 2.6% 2.8%

 INDUSTRIAL 2013 I 2013 II 2013 III 2013 IV 2014 I 2013 2014Vacancy Rate 9.6% 9.5% 9.5% 9.4% 9.2% 9.5% 9.0%

Net Absorption ('000 sq. ft.) 24,354 21,919 38,966 36,531 20,695 121,770 103,475Completions ('000 sq. ft.) 12,643 13,448 8,787 8,362 18,849 43,241 64,467Rent Growth 0.5% 0.6% 0.5% 0.7% 0.6% 2.3% 2.6%

 RETAIL 2013 I 2013 II 2013 III 2013 IV 2014 I 2013 2014Vacancy Rate 10.7% 10.6% 10.6% 10.5% 10.4% 10.6% 10.1%Net Absorption ('000 sq. ft.) 4,297 2,865 1,910 2,865 5,899 11,935 16,387Completions ('000 sq. ft.) 1,981 1,712 1,923 1,964 3,328 7,580 12,735Rent Growth 0.2% 0.3% 0.5% 0.5% 0.5% 1.5% 2.1%

 MULTI-FAMILY 2013 I 2013 II 2013 III 2013 IV 2014 I 2013 2014Vacancy Rate 4.0% 3.9% 3.9% 3.8% 3.9% 3.9% 4.0%Net Absorption (Units) 64,954 67,661 56,835 81,193 60,759 270,643 253,161Completions (Units) 31,851 40,457 36,945 39,205 36,251 148,458 168,962Rent Growth 1.0% 1.1% 1.2% 1.3% 1.2% 4.6% 4.7%

Sources: National Association of REALTORS® / Reis, Inc.REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 77: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Will China overtake the U.S. in GDP?It depends on Singapore

19291934

19391944

19491954

19591964

19691974

19791984

19891994

19992004

20092014

20192024

0

5000

10000

15000

20000

25000

U.S. (growing 3%) China (growing 8%)

Page 78: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

If you had $10 Million, what would you buy?

A) OfficeB) IndustrialC) RetailD) MultifamilyE) OtherF) If I had $10M, I’d move to Hawaii and hang it up

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Page 79: COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

Research Resources

REALTORS® Commercial Economic Issues & Trends Forum | May 2013 | Washington, DC

Web: www.realtor.org/research-and-statistics

Blog: economistsoutlook.blogs.realtor.org

Facebook: www.facebook.com/narresearchgroup

Twitter: twitter.com/#!/NAR_Research