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

  1. 1. Finding New Foundations<br />
  2. 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. 3.
  4. 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. 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. 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. 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. 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. 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. 10. Source: National Association of Realtors, Oct. 2011.<br />
  11. 11. Source: National Association of Realtors, Oct. 2011.<br />
  12. 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. 13.
  14. 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. 15. Financial Markets Comparison<br />
  16. 16. Investment Comparisons<br />
  17. 17. Availability vs. Discipline of Capital<br />
  18. 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. 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 ½ years<br />
  20. 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. 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. 22. RERC Pre-Tax Yield Rate<br />
  23. 23. RERC IRR vs. 10-Year TreasurySpread<br />
  24. 24. RERC Going-in Capitalization Rate<br />
  25. 25. RERC Going-In Cap vs. 10-Year TreasurySpread<br />
  26. 26.
  27. 27. Vacancy Rates<br />
  28. 28. Apartment Size-Weighted Average PPU (12-month trailing)<br />
  29. 29. Industrial Size-Weighted Average PPSF (12-month trailing)<br />
  30. 30. Office Size-Weighted Average PPSF(12-month trailing)<br />
  31. 31. National Transactions(12-Month Trailing)<br />
  32. 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. 33. Source: National Association of Realtors, REIS, Aug. 2011.<br />
  34. 34. Source: National Association of Realtors, REIS, Aug. 2011.<br />
  35. 35. RERC’S NCREIF Forecast<br />
  36. 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. 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. 38. 1990s vs. this Cycle<br />1990’s: no liquidity for CRE at any price<br />1990’s: 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. 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. 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. 41. Optimist<br /> New definition of an optimist: <br />“Things are so bad now they can’t get any worse!”<br />41<br />
  42. 42. Questions?<br />Thank You!<br />

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