The Economic Outlook for Real Estate Investors and Decision Makers - CCIM Live! Session

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<ul><li> 1. Finding New Foundations<br /></li></ul> <p> 2. Key Tenets(CCIM Speech 2010)<br />Re-set expectations<br />Re-pricing vs. liquidity<br />CRE versus the alternatives<br />Market Bifurcation<br />CRE is relatively strong for the long run<br /> 3. 4. The Global Environment(CCIM Speech 2010)<br />Massive asset devaluation<br />Accelerated deleveraging<br />Continued re-pricing<br />Unprecedented times for our generation<br /> 5. Economic Headlines<br />For Americans, recovery feels like recession<br />OECD figures indicate Global economy continues to darken<br />In this economy, productivity comes without hiring<br />Stagnant economy biggest factor as foreclosures pile up<br /> 6. Economic Environment<br />Unemployment rate hovering around 9% since Jan. 2010<br />Total employment is 7 million below peak in 2007<br />Long-term unemployed (without job for longer than 6 months) at 6 million<br />In 2001 recession, this figure peaked at 2 million<br /> 7. Economic Environment<br />Downward revisions in GDP<br />0.4% 1Q11, 1% 2Q11<br />Not strong enough for job growth<br />Well below 20-year average of 2.7%<br />Consumer confidence is at lowest point since spring 2009<br />7th lowest level in history<br />Due to stock market, political environment, unemployment, etc.<br /> 8. Current Housing Market<br />Housing starts at 60-year low<br />Home sales are struggling<br />Foreclosures at historic highs<br />Approximately 1/5 of homeowners with mortgages are underwater<br /> 9. Glimpse of Positive Housing Market<br />Record-high home affordability<br />Rising apartment rents<br />Overcorrection in home price to income and rent ratios<br />Unsold homes inventory is declining<br />40-year low on newly constructed inventory<br /> 10. Source:National Association of Realtors, Oct. 2011.<br /> 11. Source:National Association of Realtors, Oct. 2011.<br /> 12. Financial Market Headlines<br />Clamping down on high-speed stock trades<br />Stock market: worst quarter since 2008<br />Stock market gloom spreads. Blame Greece.<br />Buckle up: stock market volatility could get worse<br /> 13. 14. CRE Headlines<br />US property investors are more bearish<br />Commercial property on firm ground<br />Real estate investors running for safety<br />Property investors concentrate on prime quality assets in core markets<br />Recovery slows in commercial real estate<br />Commercial property values flat amid economic fears<br /> 15. Financial Markets Comparison<br /> 16. Investment Comparisons<br /> 17. Availability vs. Discipline of Capital<br /> 18. Most active in providing financing:<br />Banks:55%<br />Insurance Companies:26%<br />REITs:12%<br />Private Equity:7%<br />CCIM Members ITQ Respondents<br /> 19. Capital Markets<br />Increase in loans led by:health care, hotels, retail, multifamily<br />Loans for CMBS increased 638% in 2Q11 compared to year earlier<br />Delinquency rate for loans held in CMBS in 2Q11 reached highest level since 1997 (when started)<br />During 2Q11, CRE mortgage originations outpaced paying off/down existing loans, for first time in 1 years<br /> 20. Capital Markets<br />CRE mortgage originations more than doubled in first half of 2011, compared to same period a year ago<br />Life insurance companies increased loan volume by 87%<br />Portfolio lending by banks increased 150%<br /> 21. Quarterly Commercial Mortgage Commitmentsby Life Insurance Companies<br />Billions of Dollars<br />Source: American Council of Life Insurance Companies (ACLI)<br />a. Annual figures may not equal the sum of quarterly figures due to change in reporting.<br /> 22. RERC Pre-Tax Yield Rate<br /> 23. RERC IRR vs. 10-Year TreasurySpread<br /> 24. RERC Going-in Capitalization Rate<br /> 25. RERC Going-In Cap vs. 10-Year TreasurySpread<br /> 26. 27. Vacancy Rates<br /> 28. Apartment Size-Weighted Average PPU (12-month trailing)<br /> 29. Industrial Size-Weighted Average PPSF (12-month trailing)<br /> 30. Office Size-Weighted Average PPSF(12-month trailing)<br /> 31. National Transactions(12-Month Trailing)<br /> 32. CCIM Members ITQ Respondents<br />Compared real estate sales activity in their areas today compared to:<br />3 years ago:-21%<br />1 year ago:8%<br />Expected activity:<br />1 year from now:12%<br />3 years from now:26%<br /> 33. Source:National Association of Realtors, REIS, Aug. 2011.<br /> 34. Source:National Association of Realtors, REIS, Aug. 2011.<br /> 35. RERCS NCREIF Forecast<br /> 36. State of CRE<br />Bid-ask spread is narrowing, especially in apartment properties<br />Apartments are outperforming all other property types (appreciation)<br />Lower cap rates: <br />Low interest rates<br />Availability of capital<br />Safety of CRE relative to alternatives<br /> 37. Competitive bidding and low cap rates lead investors to secondary markets<br />Also shifting to inland metros<br />Net absorption is increasing, while vacancy rates are declining<br />Rents are mixed across the property types<br />State of CRE<br /> 38. 1990s vs. this Cycle<br />1990s: no liquidity for CRE at any price<br />1990s: out of sync with alternatives<br />Excess supply with massive over-leverage (It was like a casino) 120% LTVs<br />Fundamentals were deplorable: Prices at 35% of replacement costs<br />NYC almost bankrupt; 20% obsolescence in Retail<br />38<br /> 39. Key Tenets(CCIM Speech 2011)<br />Re-set expectations<br />Re-pricing vs. liquidity<br />CRE versus the alternatives<br />Market Bifurcation<br />CRE is relatively strong for the long run<br />39<br /> 40. The difficulty lies not so much in developing new ideas as in escaping from old ones.- John Maynard Keynes<br />40<br />Change Your Opinion<br /> 41. Optimist<br />New definition of an optimist: <br />Things are so bad now they cant get any worse!<br />41<br /> 42. Questions?<br />Thank You!<br /></p>