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The Economic Outlook for Real Estate Investors and Decision Makers - CCIM Live! Session
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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 ½ 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. RERC’S 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
    1990’s: no liquidity for CRE at any price
    1990’s: 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 can’t get any worse!”
    41
  • 42. Questions?
    Thank You!

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