Upload
hoyt-burgess
View
58
Download
0
Embed Size (px)
DESCRIPTION
Trends, Opportunities, and Risks in Commercial Real Estate. Property & Portfolio Research, Inc. www.ppr.info. The U.S. Economy. Job Growth is Increasingly Weak. U.S. Job Growth. 12-month moving average. Year-over-Year Growth. Year-over-Year Growth (%). Month-to-Month (000s). 400. - PowerPoint PPT Presentation
Citation preview
1PPR Portland State University’s Center for Real Estate
Property & Portfolio Research, Inc.
Trends, Opportunities, and Risks in
Commercial Real Estate
www.ppr.info
PPR
3PPR Portland State University’s Center for Real Estate
Job Growth is Increasingly Weak
Month-to-Month (000s) Year-over-Year Growth (%)
U.S. Job Growth 12-month moving average Year-over-Year Growth
Source: U.S. Bureau of Labor Statistics
(150)
(100)
(50)
0
50
100
150
200
250
300
350
400
Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
4PPR Portland State University’s Center for Real Estate
Percent Job Growth Year-over-Year as of March
West SouthEast Midwest
Job Losses Concentrated in Housing Bust Markets
Sources: Moody’s Economy.com; Bureau of Labor Statistics
(3%)
(2%)
(1%)
0%
1%
2%
3%
4%
Hou
ston
Ral
eigh
Aus
tinS
an A
nton
ioS
an F
ranc
isco
Sea
ttle
Sal
t La
ke C
ityD
alla
s -
For
t W
orth
New
Orle
ans
Cha
rlott
eD
enve
rN
ashv
ille
Har
tfor
dA
tlant
aC
olum
bus
New
Yor
kN
orfo
lkB
altim
ore
Por
tland
Long
Isl
and
Min
neap
olis
San
Jos
eK
ansa
s C
ityW
ashi
ngto
n -
NoV
A -
MD
Pitt
sbur
ghIn
dian
apol
isH
onol
ulu
Orla
ndo
PP
R54
Phi
lade
lphi
aR
ichm
ond
Bos
ton
Okl
ahom
a C
ityC
hica
goM
emph
isN
orth
- C
entr
al N
ew J
erse
yC
inci
nnat
iS
tam
ford
Milw
auke
eS
acra
men
toM
iam
iS
an D
iego
Jack
sonv
ille
Pho
enix
Las
Veg
asLo
s A
ngel
esS
t. L
ouis
Cle
vela
ndE
ast
Bay
For
t La
uder
dale
Tam
paP
alm
Bea
ch C
ount
yO
rang
e C
ount
yIn
land
Em
pire
Det
roit
5PPR Portland State University’s Center for Real Estate
The Severity of Market Employment Cycles Will Be Quite Different
Tampa
Stamford
Seattle
San Jose
San FranciscoSan Diego
San Antonio
Salt Lake City
Sacramento
Richmond
Raleigh
Portland
Pittsburgh
Phoenix
Philadelphia
Palm Beach County
OrlandoOrange County
Oklahoma City
New York
New Orleans
Nashville
Minneapolis
Milwaukee
Miami
Los AngelesLong Island
Las Vegas
Kansas CityJacksonville
Inland Empire
Indianapolis
Houston
Honolulu
Hartford
Fort Lauderdale
East Bay
DenverDallas - Fort Worth
Columbus
Cleveland
Cincinnati
Chicago
Charlotte
Boston
Baltimore
AustinAtlanta
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
(0.02) (0.02) (0.01) (0.01) 0.00 0.01 0.01 0.02 0.02 0.032008 Employment Growth
2009 Employment GrowthEast West SouthMidWest
Sources: Moody’s Economy.com; PPR
6PPR Portland State University’s Center for Real Estate
(4%)
(2%)
0%
2%
4%
6%
8%
10%
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
CPI (U.S. Consumer) PPI (U.S. Producer)Year-over-Year Change
Sources: BLS; Moody’s Economy.com; PPR*As of April 2008
Inflation is a Serious Concern
7PPR Portland State University’s Center for Real Estate
(10%)
(5%)
0%
5%
10%
15%
20%
25%
30%
Jan-
01
Apr-0
1
Jul-0
1
Oct-01
Jan-
02
Apr-0
2
Jul-0
2
Oct-02
Jan-
03
Apr-0
3
Jul-0
3
Oct-03
Jan-
04
Apr-0
4
Jul-0
4
Oct-04
Jan-
05
Apr-0
5
Jul-0
5
Oct-05
Jan-
06
Apr-0
6
Jul-0
6
Oct-06
Jan-
07
Apr-0
7
Jul-0
7
Oct-07
Jan-
08
Apr-0
8
Year-over-Year GrowthBasket Index CPI
Basket includes a dozen eggs, a gallon of milk, a loaf of bread, a pound of ground beef, and a gallon of gasSource: Bureau of Labor Statistics; PPR
Is CPI Still a Good Measure of Inflation?
8PPR Portland State University’s Center for Real Estate
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
10-Year Treasury Rate CPI Inflation
What Happens When Investors Demand a Real Rate of Return?
Sources: Federal Reserve; U.S. Census Bureau
9PPR Portland State University’s Center for Real Estate
Forecast for the Economy is Not Pretty
• 2008 will be tale of two halves Much like liquidity in 2007 Contracting GDP growth in first half to begin recovering in
second Policy stimulus will prevent prolonged downturn But recovery contingent on global financial market stability by
summer
• 2007 was not a great year and 2008 likely to be worse 2008 GDP will fall under 2% for the year Housing and credit crunch will continue to weigh on broader
economic growth Only a couple hundred thousand job gains in 2008
• Risks are mainly on the downside Housing has had limited impact on broader consumption to
date, but is impacting retail sales growth Foreclosures and resets will continue to be an issue Inflation
11PPR Portland State University’s Center for Real Estate
Fears are Easing
0
50
100
150
200
250
300
4/4/2007
5/4/2007
6/4/2007
7/4/2007
8/4/2007
9/4/2007
10/4/2007
11/4/2007
12/4/2007
1/4/2008
2/4/2008
3/4/2008
4/4/2008
5/4/2008
Basis PointsTED Spread
Sources: Federal Reserve Board; Daily Press
12PPR Portland State University’s Center for Real Estate
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0 10 20 30 40 50 60 70
2002 2003 2004 2005 2006 2007
Loans ARE Still Performing Well(Including foreclosure and REO)
Delinquency 60+ Days Percentage
Deal AgeSource: Trepp
13PPR Portland State University’s Center for Real Estate
Private Lenders Have Some Free Time
Number of Loans Dollar Volume ($ Millions)
100
200
300
400
500
600
700
800
900
1,000
0
2,000
4,000
6,000
8,000
10,000
12,000
12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005 12/31/2006 12/31/2007
Source: Giliberto-Levy
14PPR Portland State University’s Center for Real Estate
$ Billions
Sources: RCA; Trepp; PPR
Few Deals Getting DoneMonthly Transaction Volume
Warehouse Retail Office Apartment CMBS Issuance
0
10
20
30
40
50
60
70
Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08
15PPR Portland State University’s Center for Real Estate
NCREIF Spreads over 10-Year Treasury
(1993Q1–2008Q1)
0
50
100
150
200
250
300
350
400
450
500
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Basis Points
Me
an
Plu
s 1
Std
. D
ev.
Me
an
Plu
s 2
Std
. D
evs
.
Sources: NCREIF; PPR
16PPR Portland State University’s Center for Real Estate
Value Growth
Source: PPR
Values Will Take Their Biggest Hit This Year
Apartment Office Retail Warehouse
(10%)
(5%)
0%
5%
10%
15%
20%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
18PPR Portland State University’s Center for Real Estate
Housing Affordability Looks More Promising For Buyers
80
90
100
110
120
130
140
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Afford. Index
5
6
7
8
9
10
11
30-year Mort. Rate (%)Affordability Index 30-year Mortgage Rate
Source: Moody’s Economy.com
19PPR Portland State University’s Center for Real Estate
Net % of Banks With Tighter Prime Mortgage Loan Standards
Net % of Banks With Tighter Subprime/Non-Traditional Loan StandardsNew Home Sales
(‘000 SAAR)
The Credit Spigot Continues To Tighten For Housing
Sources: Federal Reserve; Census Bureau; PPR
(40)
(20)
0
20
40
60
80
100
1991Q1
1992Q1
1993Q1
1994Q1
1995Q1
1996Q1
1997Q1
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q10
200
400
600
800
1,000
1,200
1,400
20PPR Portland State University’s Center for Real Estate
Decline in Home Sales is Accelerating
(50)
(40)
(30)
(20)
(10)
0
10
20
30
Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08
Year-over-Year Change (%)
Existing SF Existing Condo New SF
Sources: NAR; U.S. Census Bureau *As of April 2008
21PPR Portland State University’s Center for Real Estate
Unprecedented Foreclosure Activity Further Adding to Inventory
Homeownership Rate (%) Percent of Loans Entering Foreclosure
Source: MBA; U.S. Census Bureau (Thru 07Q4)
60
61
62
63
64
65
66
67
68
69
70
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
22PPR Portland State University’s Center for Real Estate
Year-over-Year % Change in Existing SF Median Prices Net Apartment Absorption (PPR54)
Falling Home Prices ≠ Dramatic Spike In Apartment Demand
Source: NAR; PPR
(10)
(5)
0
5
10
15
20
1984Q1 1986Q1 1988Q1 1990Q1 1992Q1 1994Q1 1996Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
23PPR Portland State University’s Center for Real Estate
Quarterly Change in Demand Quarterly Change in Supply Vacancy Rate
Apartment Market Under Some Pressure
Source: PPR (08Q1)
Demand & Supply (Units) Percentage Vacant
(20,000)
(10,000)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
0
2
4
6
8
10
12
14
16
18
20
24PPR Portland State University’s Center for Real Estate
U.S. Homeowner Vacancy Rate
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Vacancy Rate (%)
Source: U.S. Census Bureau
25PPR Portland State University’s Center for Real Estate
PPR54 Apartment Spreads vs. Rent Growth
Sources: PPR; Moody's Economy.com
10-Year Treasury Rate
Spread
Quarterly Rent Growth
Falling Treasuries Helping to Keep Cap Rates Low Despite Rising Spreads
Forecast
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12(1.0%)
0.5%
0%
0.5%
1.0%
1.5%
2.0%
27PPR Portland State University’s Center for Real Estate
The Good News About Retail
This Page Intentionally Left Blank
28PPR Portland State University’s Center for Real Estate
Demand & Supply (000 SF) Percentage Vacant
Quarterly Change in Demand Quarterly Change in Supply Vacancy Rate
PPR54 Retail Market Fundamentals
(40,000)
(20,000)
0
20,000
40,000
60,000
80,000
100,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
0
5
10
15
20
25
Source: PPR (08Q1)
30PPR Portland State University’s Center for Real Estate
Quarterly Change in Demand Quarterly Change in Supply Vacancy Rate
The Market Is Weakening
Demand & Supply (000 SF) Percentage Vacant
(60,000)
(40,000)
(20,000)
0
20,000
40,000
60,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
0
5
10
15
20
25
30
Source: PPR
31PPR Portland State University’s Center for Real Estate
Some Important Markets Are Seeing Weak Growth
Percent Office-Using Job GrowthYear-over-Year as of March 08
Sources: Moody’s Economy.com; BLS
Hou
ston
Ral
eigh
Aus
tinS
an F
ranc
isco
Kan
sas
City
Dal
las
- F
ort
Wor
thC
olum
bus
Cha
rlott
eN
ew O
rlean
sS
t. L
ouis
Indi
anap
olis
Den
ver
Mem
phis
Jack
sonv
ille
Sea
ttle
Atla
nta
Sal
t La
ke C
ityM
iam
iS
tam
ford
Chi
cago
New
Yor
kW
ashi
ngto
n -
NoV
A -
MD
San
Jos
eS
an A
nton
ioP
ittsb
urgh
Phi
lade
lphi
aO
rland
oC
inci
nnat
iN
orfo
lkS
an D
iego
Pal
m B
each
Cou
nty
Sac
ram
ento
Okl
ahom
a C
ityB
osto
nN
ashv
ille
Cle
vela
ndR
ichm
ond
Hon
olul
uP
hoen
ixIn
land
Em
pire
Min
neap
olis
Long
Isl
and
Por
tland
Har
tfor
dM
ilwau
kee
Nor
th -
Cen
tral
New
Jer
sey
Tam
paLo
s A
ngel
esF
ort
Laud
erda
leE
ast
Bay
Bal
timor
eD
etro
itLa
s V
egas
Ora
nge
Cou
nty
(5%)
(4%)
(3%)
(2%)
(1%)
0%
1%
2%
3%
4%
West SouthEast Midwest
32PPR Portland State University’s Center for Real Estate
(16%)
(14%)
(12%)
(10%)
(8%)
(6%)
(4%)
(2%)
0%
2%
4%
Ne
w Y
ork
Wa
shin
gto
n -
N
oV
A -
MD
Lo
s A
ng
ele
s
Ch
ica
go
Bo
sto
n
Sa
n F
ran
cisc
o
Se
att
le
Da
llas
- F
ort
Wo
rth
Ho
ust
on
Atla
nta
Ph
ilad
elp
hia
Ora
ng
e C
ou
nty
Sa
n D
ieg
o
No
rth
- C
en
tra
l N
ew
Je
rse
y
Ph
oe
nix
2001 Recession Peak To Trough Employment 3/31/2001–9/30/2002
Forecasted/Current Peak To Trough Employment 12/31/2007–9/30/2008
Source: Moody's Economy.com, PPR*Top 15 U.S. Office Markets
But Definitely Not the Dot-Com Bust
33PPR Portland State University’s Center for Real Estate
Two Years of Flat Rents
Source: PPR
PPR54 Recent History and Forecast - Office Rent Change
(10%)
(8%)
(6%)
(4%)
(2%)
0%
2%
4%
6%
8%
10%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Rent Growth
34PPR Portland State University’s Center for Real Estate
11.1%
(6%)
(4%)
(2%)
0%
2%
4%
6%
8%
Ho
ust
on
Sa
n F
ran
cisc
oS
ea
ttle
Sa
n J
ose
Sa
lt L
ake
City
Po
rtla
nd
Bo
sto
nD
en
ver
Ho
no
lulu
Ea
st B
ay
Ch
ica
go
Sa
n A
nto
nio
Min
ne
ap
olis
Ne
w O
rlea
ns
Da
llas
- F
ort
Wo
rth
No
rth
- C
en
tra
l Ne
wO
kla
ho
ma
City
St.
Lo
uis
Ch
arlo
tte
Ind
ian
ap
olis
Ra
leig
hO
rlan
do
PP
R5
4S
acr
am
en
toW
ash
ing
ton
- N
oV
A -
MD
Atla
nta
Ric
hm
on
dJa
ckso
nvi
lleC
inci
nn
ati
Ba
ltim
ore
Co
lum
bu
sM
em
ph
isP
hila
de
lph
iaT
am
pa
Pitt
sbu
rgh
Sta
mfo
rdF
ort
La
ud
erd
ale
Milw
au
kee
Na
shvi
lleL
os
An
ge
les
No
rfo
lkL
on
g I
sla
nd
Ne
w Y
ork
Ka
nsa
s C
ityIn
lan
d E
mp
ireM
iam
iH
art
ford
Au
stin
Cle
vela
nd
Sa
n D
ieg
oP
alm
Be
ach
Co
un
tyL
as
Ve
ga
sD
etr
oit
Ora
ng
e C
ou
nty
Ph
oe
nix
2008 Rent Growth by Metro
Source: PPR
West SouthEast Midwest
35PPR Portland State University’s Center for Real Estate
Cap Rates Rising Across the Board
Primary Secondary Tertiary
Sources: PPR; Real Capital Analytics
Median Cap Rate By Quarter
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08
5.7%
7.0%
7.5%
37PPR Portland State University’s Center for Real Estate
Demand & Supply (000 SF) Percentage Vacant
Quarterly Change in Demand Quarterly Change in Supply Vacancy Rate
PPR54 Warehouse Market Fundamentals
(5,000)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 120
5
10
15
20
25
Source: PPR (08Q1)
38PPR Portland State University’s Center for Real Estate
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year-Over Growth (%)
(60)
(40)
(20)
0
20
40
60
80
Net Absorption (million SF)
Warehouse Net Absorption
Wholesale Trade Inventory Growth
Wholesale Trade Sales Growth
Total Import/Export Growth
0
Sources: U.S. Census Bureau; Moody’s Economy.com; PPR
The Demand Forecast Has Some Upside
39PPR Portland State University’s Center for Real Estate
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Annual Warehouse Supply as % of Inventory
40PPR Portland State University’s Center for Real Estate
National Distribution Hubs Are More Volatile
Source: PPR
(6%)
(4%)
(2%)
0%
2%
4%
6%
8%
1989 1990 1991 1993 1994 1996 1997 1999 2000 2002 2003 2005 2006 2008 2009 2011 2012
Local Rent Growth Regional Rent Growth National Rent Growth
Forecast
41PPR Portland State University’s Center for Real Estate
Warehouse NOI Growth vs. Cap Rate Increase (%)
Annual NOI Growth Annual Cap Rate Change (%) Value Appreciation
(3%)
(2%)
(1%)
0%
1%
2%
3%
4%
5%
2008 2009 2010 2011 2012 Average
42PPR Portland State University’s Center for Real Estate
Atlanta
Austin
Baltimore
Boston
Charlotte
Chicago
Cincinnati
Cleveland
Columbus
Dallas - Fort Worth
Denver
Detroit
East Bay
Fort Lauderdale
Hartford
HonoluluHouston
Indianapolis
Inland Empire
Jacksonville
Kansas City
Las Vegas
Los Angeles
MemphisMiami
Milwaukee
Minneapolis
Nashville
New Orleans
New YorkNorfolk
North - Central New Jersey
Oklahoma City
Orange County
Orlando
Palm Beach County
Philadelphia
PhoenixPittsburgh
Portland
Raleigh
Richmond
Sacramento
Salt Lake City
San Antonio
San Diego
San Francisco
San Jose
Seattle
Stamford
St. Louis
Tampa
Washington - NoVA - MD
(5.0%)
0%
5%
10%
15%
20%
25%
30%
(1.5%) (1.0%) (0.5%) 0.0% 0.5% 1.0% 1.5% 2.0%
08Q2 Going-in Cap Rate Relative to Average
Forecast Cumulative NOI Growth (08Q2–12Q4) Regional National Local
Cheap, relatively speaking, and a strong NOI growth forecast!
Strong NOI growth forecast, but expensive.
Low NOI growth and too expensive! Cheap, but not a lot of upside in NOI.
Warehouse Markets Are Inefficiently Priced
44PPR Portland State University’s Center for Real Estate
Conclusions
• Short-term Keys to Success (2008) Market selection and asset/risk
management Investor communication Patience
• Mid-term (2009) Be a buyer of risk and a provider of liquidity Have faith in the U.S. economy Look for signs of improvement and be ready to move
quickly
• Longer-term (2010-12) Participate in early development opportunities But be wary of next supply wave