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

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

    • Finding New Foundations
    • 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
    • The Global Environment(CCIM Speech 2010)
      Massive asset devaluation
      Accelerated deleveraging
      Continued re-pricing
      Unprecedented times for our generation
    • 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
    • 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
    • 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.
    • 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
    • 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
    • Source: National Association of Realtors, Oct. 2011.
    • Source: National Association of Realtors, Oct. 2011.
    • 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
    • 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
    • Financial Markets Comparison
    • Investment Comparisons
    • Availability vs. Discipline of Capital
    • Most active in providing financing:
      Banks: 55%
      Insurance Companies: 26%
      REITs: 12%
      Private Equity: 7%
      CCIM Members – ITQ Respondents
    • 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
    • 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%
    • 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.
    • RERC Pre-Tax Yield Rate
    • RERC IRR vs. 10-Year TreasurySpread
    • RERC Going-in Capitalization Rate
    • RERC Going-In Cap vs. 10-Year TreasurySpread
    • Vacancy Rates
    • Apartment Size-Weighted Average PPU (12-month trailing)
    • Industrial Size-Weighted Average PPSF (12-month trailing)
    • Office Size-Weighted Average PPSF(12-month trailing)
    • National Transactions(12-Month Trailing)
    • 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%
    • Source: National Association of Realtors, REIS, Aug. 2011.
    • Source: National Association of Realtors, REIS, Aug. 2011.
    • RERC’S NCREIF Forecast
    • 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
    • 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
    • 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
    • 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
    • “The difficulty lies not so much in developing new ideas as in escaping from old ones.”- John Maynard Keynes
      40
      Change Your Opinion
    • Optimist
      New definition of an optimist:
      “Things are so bad now they can’t get any worse!”
      41
    • Questions?
      Thank You!