the economic outlook for real estate investors and decision makers - ccim live! session

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

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  • 1. Finding New Foundations

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