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November 2019Cristina Pieretti – Managing Director & Head of REIS
Victor Calanog PhD – Head of CRE Economics
Tech Disruption & Hyperlocal FactorsThe Evolution of CRE Data and Analytics
Cristina PierettiManaging Director – Head of REIS
Victor Calanog PhDHead of Commercial Real Estate Economics
Tech Disruption in CRE, November 2019 3
1. The Commercial & Multifamily Market Today2. Construction and Land Development3. Commercial Real Estate4. Multifamily5. Wrap Up
Agenda
1 The Commercial & Multifamily Market Today
Tech Disruption in CRE, November 2019 5
Commercial and Multifamily Debt OutstandingCRE Debt Markets
Commercial Banking, 51.4%
CMBS, CDO, and other ABS Issues, 8.8%
Life Insurance Companies,
12.2%
Government-Sponsored
Enterprises, 7.7%
REITs, 4.3%
Agency-and-GSE-Backed Mortgage
Pools, 8.0%
Other, 7.6%
Total Commercial and Multifamily Debt Outstanding: $4.368 Trillion
Source: Federal Reserve Flow of Funds Report, latest data available as of June 2019
Tech Disruption in CRE, November 2019 6
Banks Exposure to CRE Has Been Increasing
Source: FDIC Call Reports, Q2 2019
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
1984Q1 1988Q1 1992Q1 1996Q1 2000Q1 2004Q1 2008Q1 2012Q1 2016Q1
Total Assets (LHS) Nonfarm nonresidential (RHS)
Construction and development (RHS) Multifamily residential real estate (RHS)
Commercial Real Estate Loans, $mm
• Commercial +36%• CLD: -37%• Multifamily: +111%
Since 2009
Tech Disruption in CRE, November 2019 7
Regional & Local Lending Has Been Increasing
0
5
10
15
20
25
30
35
2009 2011 2013 2015 2017 2019
Assets > $250 Billion
Assets $10 Billion - $250 Billion
Assets $1 Billion - $10 Billion
Commercial Real Estate Loans, % of Total Assets%
Source: FDIC Call Reports Q2 2019
Tech Disruption in CRE, November 2019 8
Key Risks to CRE Portfolios
Concentration Risk Very high levels for small banks
Interest Rate Risk Rising rates will affect net interest margin quickly
Maturity Risk Borrowing short and lending long will continue as the market continues to be strong
Institution Size
Number of Institutions
% of All Banks
% of Industry Assets
% of CRE Exposure*
> $250 Billion 9 0.2% 49% 6%
$10B to $250B 135 2.5% 35% 15%
$1B to $10B 653 12.1% 10% 32%
*CRE Exposure = Commercial real estate other non-farm non-residential + Multifamily residential real estate
Source: FDIC Call Reports
123
Tech Disruption in CRE, November 2019 9
Technology Driven Change
Exponential Data Growth
Exponential Technology
Change
Increasing Customer
Expectations
Emergence of New Players
Construction and Land
Non-farm and non-residential
Multifamily
Source: Mortgage Bankers Association
2 Construction and Land Development
Tech Disruption in CRE, November 2019 11
Construction and Land Development Loans
Source: Milken Institute Capital Risk Commercial Real Estate Lending Threatens Small-Bank Solvency, Jonathon Adams-Kane; FDIC Call Reports
» Most volatile and riskiest category of CRE loans
» Typically short duration with high default and rollover risk
» Certain markets have high competition as several non-banks have entered the space
Tech Disruption in CRE, November 2019 12
Use Dashboards to Get Ahead of Delays and Potential IssuesConstruction Analytics
Source: REIS, based on New Construction data 2006-15
0 5 10 15 20 25 30 35 40
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Time in Months
Apartment New Construction (Midwest Region)
Ground break delay Completion Time Completion Delay
Tech Disruption in CRE, November 2019 13
Accurately Track New ConstructionSite Work Under Construction Completed
Use satellite imagery to better establish ground-truth on projectsSource: REIS, Bird.i
Tech Disruption in CRE, November 2019 14
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
-50
0
50
100
150
200
250
300
350
400
1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023
Vacancy Rate
Units
(In
Tho
usan
ds)
Completions Net Absorption Vacancy Percent
Forecast
National Apartment MarketSupply & Demand Trends
Source: REIS, Real Estate Solutions by Moody’s Analytics;Top 50 Primary Apartment Markets
Tech Disruption in CRE, November 2019 15
Commercial Location Score
Tech Disruption in CRE, November 2019 16
A Data-Driven Framework for Location Analysis
Economic Prosperity
Business Vitality
SpatialDemand Amenity Transportation Safety
Multifamily Office Retail Industrial Hotel
Office 13.5% 13.5% 10.0% 31.5% 18.0% 13.5%Multifamily 22.5% 4.5% 10.0% 31.5% 9.0% 22.5%Industrial 13.5% 18.0% 10.0% 18.0% 27.0% 13.5%
Retail 22.5% 9.0% 10.0% 22.5% 27.0% 9.0%Hotel 9.0% 9.0% 10.0% 22.5% 27.0% 22.5%
Factor Weights
Component Factors
CRE Types
*Samples weights for a single market
3 Commercial Real Estate
Tech Disruption in CRE, November 2019 18
A Big Story, But Still Lots of Room to GrowRetail and E-Commerce
Source: Saint Louis FRED, Aug 2019
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1999 2004 2009 2014
E-COMMERCE AS A % OF TOTAL SALES
Tech Disruption in CRE, November 2019 19
The commercial market is evolving
- Wall Street Journal, Jun 3 2019
- Wall Street Journal, Mar 6 2019
- Wall Street Journal, Sep10 2019
Real Estate Sector Linkages
Top 20 Warehouse market by projected 2023 rent
Top 20 Retail market by projected 2023 rent
Top 20 Warehouse and Retailmarket by projected 2023 rent
Tech Disruption in CRE, November 2019 21
Coworking impact to CRE Coworking helped Manhattan net absorption
to end 2018 YTD (Q3) at -2mm which would have been -3.77mm without flex leases1
Coworking has grown at 23% ARR since 2010 in the US 2
Growth rates are higher in international markets 3
Co-working represents about 5% of office space nationally
New buildings are being operated with a hybrid mix of traditional and flex spaces to boost occupancy.
Image copyright: Unsplash1. CBRE report on Co-working, Aug 20182. JLL Co-working market research (https://www.us.jll.com/en/coworking-market-growth)3. Collier’s 2019 U.S. Flexibile Workspace Outlook Report
Tech Disruption in CRE, November 2019 22
3.5
3.6
3.9
5.1
5.2
0 2 4 6
Bank of America/Merrill Lynch
Morgan Stanley
CitiGroup
WeWork
JPMorgan Chase & Co.
Millions of Square Feet
WeWork in 9 yearsManhattan’s Largest Office Tenants by Square Footage
Source: Cushman & Wakefield (As of August 2018)
WeWork
JPMorganAlso, largest in London (after the UK government)
Tech Disruption in CRE, November 2019 23
A Multiplier Effect for WeWork?A boon or a bane for nearby commercial properties?
Source: Moody’s Analytics Reis
* WeWork location at 524 Broadway, New York, NY 10012 and four surrounding office properties
Tech Disruption in CRE, November 2019 24
The WeWork EffectConvergence in Rent Growth
-20%
-10%
0%
10%
20%
30%
2013 2014 2015 2016 2017 2018
Rent Growth Comp 1 Rent Growth Comp 2 Rent Growth WeWork Rent Growth Comp 3 Rent Growth Comp 4
Source: Moody’s Analytics Reis
4 Multifamily
Tech Disruption in CRE, November 2019 26
Multifamily Market
Fastest sector growing in the CRE market
With a strong labor market and an increasing move to the city, new neighborhoods are forming with high demand for housing
Near-term fundamentals still look strong due to demographic trends
Multifamily Big Data Market Analysis
» Real estate performance data Rents, vacancies, concessions, etc.
» Current listings
» Recent sales and cap rates
» Tax and rent control data
» Building amenities
» Opportunity zone data
» Energy certification
» Climate impact data
» Market and sub-market trends
Tech Disruption in CRE, November 2019 28
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017 2018 2019
Uni
ts (T
hous
ands
)
Downtown Other Hollywood/Silver Lake Marina Del Rey/Venice/Westchester
Completions by Submarket (Los Angeles)2013-2019, Yearly
Source: REIS, Real Estate Solutions by Moody’s Analytics
Tech Disruption in CRE, November 2019 29
How Has the Analysis Changed?Market Analysis
Source: Using REIS data as of Q2 2019
Radius (2m)
Rent: $1,070
Vacancy: 3.0%
Zipcode (68131)
Rent: $976
Vacancy: 2.1%
Drive time
Rent: $727
Vacancy: 3.7%
5 Wrap up
CRE Technology Disruption: Challenge or Opportunity?
“Every aspect of the sector is at the early stages of
technology-driven change; not just the use of
technology to do what we have always done
quicker or better, but a fundamental change in the
way we do our jobs and the way we use buildings”.Source: Liquid Report: Leading the digital transformation of global real estate. A report commissioned by the British Property Federation
Access to Data is Key to Staying Ahead of Disruption
Wrap up & Action Items
» Needs to be accurate, up-to date and usable
» Should offer multiple perspectives
» Orient workflows to be more data-driven
Data is key to staying ahead of disruptions
Cristina PierettiMoody’s Analytics7 WTC, 250 Greenwich StreetNew York, NYCristina.Pieretti@moodyscom
Victor Calanog PhDMoody’s Analytics7 WTC, 250 Greenwich StreetNew York, [email protected]
Tech Disruption in CRE, November 2019 37
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