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  • Updated 12/9
  • Transcript

    • 1. A Global View of Real Estate Space and Capital Markets Forums on Issues and Innovations in Real Estate (FIRE) Allgemeine HypothekenBank Rheinboden (AHBR) January 31, 2005 Dr. Tony Ciochetti MIT Center for Real Estate
    • 2. MIT Center for Real Estate (CRE)
      • Established 1984
      • Mission – “Transform the quality of the built environment and the real estate industry by providing a forum for education, research, and the exchange of ideas among the thought leaders of the global real estate community”
      • Products:
        • Master’s of Science in Real Estate Development (MSRED) program
        • Interdisciplinary Research Platform
        • Outreach Structure
    • 3. CRE MSRED Program
      • Core Courses
        • Real Estate Economics
        • The Products of Real Estate Development
        • Real Estate Finance & Investment
        • Legal Issues in the Development Process
        • Real Estate Development
        • Real Estate Capital Markets
    • 4. MSRED Program
        • Electives (CRE, DUSP, Architecture, CEM, Engineering, Sloan, Harvard)
        • Strategic Management in the Design & Construction Value Chain
        • Urban Design & Development
        • Housing and Community Development
        • Community Growth and Land Use Planning
        • Financing Economic Development
        • Real Estate Finance & Development Fundamentals
        • Urban Politics and Land Use Policy
        • Economic Analysis for Business Decisions
        • Finance Theory I
        • Finance Theory II
        • Investments
        • Advanced Corporate Finance
        • Options & Futures Markets
        • Advanced Topics in Real Estate Finance
    • 5. MSRED Program
        • Electives
        • Leadership in Real Estate
        • Housing Markets
        • Housing Finance
        • The Impact of Globalization on the Built Environment
        • E-Commerce and the Internet in Real Estate & Construction
        • International Construction Finance
        • Entrepreneurship in Construction and Real Estate Development
        • Innovative Project Delivery in the Public & Private Sectors
        • Quantitative Reasoning & Statistical Methods for Planning I
        • Site & Urban Systems Planning
        • Planning for Sustainable Development.
        • The Law and Politics of Land Use
        • Housing & Human Resources
        • Revitalizating Urban Main Streets
        • Management & Policy in the Int’l Economy
        • Designing & Leading the Entrepreneurial Organization
    • 6. Recent Employers
      • Global real estate investment banking – CS First Boston, Merrill Lynch, Goldman Sachs, Lehman Brothers, Blackstone, Morgan Stanley, JP Morgan, Deutsche Bank
      • Real estate investment management – AEW, GE Capital, RREEF, TA Associates, Lonestar, Colony Capital, Invesco, Fidelity, ING Clarion
      • Real estate finance – John Hancock, Sun Life, World Bank, Freddie Mac, Moody’s, KeyBank, Carr Capital, Prudential, , HUD, Credit Suisse, Nomura, Bank of America
      • Real estate development – Hines, Kravco, Leggatt & McCall, Trammell Crow, Related Companies, Tishman, Bovis-Lend Lease, Petrini, Taurus, Spaulding and Slye, HRO, Forest City Commercial
    • 7. Recent Employers
      • Publicly traded companies – Boston Properties, Catellus, Pro Logis, AMB, Federated, Cousins, AvalonBay
      • Commercial brokerage – CB Richard Ellis, Cushman and Wakefield, Meredith and Grew, Marcus and Millichap – corporate real estate includes Fidelity, Met Life, Boeing, Burger King, Dell, Staples
      • Non-profit sector – City of Portland, Maine, Oakland California Community Housing, Enterprise Foundation, City of Toronto, Urban Redevelopment Authority (Singapore), Office of Management and Budget (NYC)
    • 8. CRE Research Initiatives
      • Innovative, interdisciplinary, industry relevant
      • Commercial Real Estate Data Laboratory (CREDL)
      • New Century Cities Initiative
      • Housing Affordability Initiative
    • 9. CRE Outreach
      • Professional Development Courses (PDCs)
      • Fundamentals of Real Estate Finance
      • Introduction to Commercial Real Estate Development
      • Legal Issues in the Development Process
      • Real Estate Markets: Location, Product, Timing
      • Current Topics in Real Estate Finance and Investment
      • Introduction to Portfolio and Asset Management
      • Topics in Real Estate Development
      • Affordable Housing Vs Housing Affordability
      • Executive/Custom Education
    • 10. CRE Membership
      • Two-tier Membership
      • Basic Member ($10K)
      • Supporting/Sustaining Member ($20K)
    • 11. CRE Membership
      • Benefits for all Members
      • Research
      • Students (Thesis and Placement)
      • PDCs
      • Executive/Custom Education
      • FIRE
      • MITREX
      • Annual Conference
      • International Connetions
    • 12. CRE Membership
      • Additional Benefits for Supporting/Sustaining Members
      • Advisory Board
      • Private Dinner with an MIT Luminary
      • MSRED Guest Lecturer
      • Additional Participation in all events
              • www.mit.edu/cre
    • 13.
      • A Global View of Real Estate Space and Capital Markets: U.S. Perspective
    • 14. 2004: A Good Year Source: TWR Investment
    • 15. Prices per SF Trending Up Year Over Year % Source: Real Capital Analytics
    • 16. Source: RCA, PPR, RS Means Its All Relative (to Replacement Cost)
    • 17. TWR “Market Portfolio” 3yr Total Return ( Office, Industrial, Multi-Housing, Retail; NCREIF Weighted)
    • 18. Falling Cap Rates? Source: Real Capital Analytics
    • 19. Historical View Source: NCREIF Sub 8 Apts. at 6
    • 20. A Growing Disparity in Pricing Apartment Cap Rates Source: Real Capital Analytics 2001 2003 2004 2002 Top Quartile Bottom Quartile Median 100 bps 100 bps 50 bps 50 bps
    • 21. Space Markets: Office
      • Measured Recovery
      -140 -100 -60 -20 20 60 100 140 1988 1991 1994 1997 2000 2003 2006 2009 6 8 10 12 14 16 18 20 Construction Absorption Vacancy Absorption and Construction, sqft x 1,000,000 Vacancy Rate, % Includes non-market trends from 9/11 Source: Torto Wheaton Research
    • 22. Space Markets: Office
      • Problem: R.I.P. vs. Market
      Rent NOI TW Rent Index ($ per square foot) TW NOI Index ($ per square foot) Source: Torto Wheaton Research 10.00 15.00 20.00 25.00 30.00 35.00 1992.4 1993.3 1994.2 1995.1 1995.4 1996.3 1997.2 1998.1 1998.4 1999.3 2000.2 2001.1 2001.4 2002.3 2003.2 2004.1 2004.4 2005.3 2006.2 2007.1 2007.4 2008.3 2009.2 2010.1 5.00 7.00 9.00 11.00 13.00 15.00
    • 23. Office “Market Portfolio” Total Return (unleveraged)
    • 24. Space Markets: Industrial
      • Lackluster Growth
      -140 -100 -60 -20 20 60 100 140 180 220 260 300 340 1989 1992 1995 1998 2001 2004 2007 6 7 8 9 10 11 12 Construction Absorption Availability Absorption and Construction, sqft x 1,000,000 Availability Rate, % Source: Torto Wheaton Research
    • 25. Space Markets: Industrial
      • Rent Recovery, but NOI drop
      Source: Torto Wheaton Research 4.0 4.5 5.0 5.5 6.0 6.5 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 Rent NOI TW Rent Index ($ per square foot) TW NOI Index ($ per square foot)
    • 26. Industrial “Market Portfolio” Total Return (unleveraged)
    • 27. Space Markets: Retail
      • Retail Sales
    • 28. Space Markets: Retail
      • Why?
    • 29. Space Markets: Retail
      • Until Supply Kicks In
      20 22 24 26 28 30 32 34 36 38 40 2004 2005 2006 2007 2008 2009 8.0 8.2 8.4 8.6 8.8 9.0 9.2 9.4 9.6 Construction Absorption Availability Absorption and Construction, sqft x 1,000,000 Availability rate, %
    • 30. Retail “Market Portfolio” Total Return (unleveraged)
    • 31. Too Much Capital Means Continued Supply Multi-housing Source: TWR Investment
    • 32. Multi-Housing “Market Portfolio” Total Return (unleveraged)
    • 33. Real Estate Capital Markets: Equity
      • Where will the capital come from?
        • Private REITs ($8 to 10 billion)
        • 1031 Exchange Buyers ($2 to 3 billion)
        • US Pension Funds ($12 to $15 billion)
        • Public REITs ($8 to 10 billion)
        • Endowments and Foundations ($2 to 3 billion)
        • Source: LaSalle Investment Management
    • 34. TWR “Market Portfolio” Total Return (Office, Industrial, Multi-Housing, Retail; NCREIF Weighted)
    • 35. Real Estate Capital Markets: Equity
      • Real Estate Return Performance
      Source: NCREIF, LaSalle Investment Management Research 11.4% 16.1% 13.9% 10.3% 7.5% 12.0% 7.4% 6.8% 9.0% 7-9% 9-11% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
    • 36. Real Estate Capital Markets: Equity
      • Georgescu-Roegen, 1958
      • Many idle controversies involving the nature of expectation could be avoided by recognizing at the outset that man’s conscious actions are the reflection of his beliefs and of nothing else.
      Source: Torto Wheaton Research
    • 37. Real Estate Capital Markets: Equity
      • Forrest Gump, 1994
      • Stupid is as stupid does.
      Source: Torto Wheaton Research
    • 38. Real Estate Capital Markets: Debt
      • Commercial Banks
    • 39. Real Estate Capital Markets: Debt Source: Federal Reserve Commercial Real Estate Loan Delinquency Rate at U.S. Banks 0 2 4 6 8 10 12 14 19 9 1.1 1992.1 1993.1 199 4 .1 199 5 .1 19 9 6.1 1997.1 1998.1 1999.1 2000.1 2001.1 2002.1 2003.1 Percent
    • 40. US CMBS Issuance 1985 – 2004P $Bn Actual Projected 1 $77.3 billion priced as of November 12, 2004 Does not include Agency CMBS or resecuritizations. Source: Morgan Stanley Estimates, Commercial Mortgage Alert 85 87 89 91 93 95 97 99 01 86 88 90 92 94 96 98 00 02 03 04P 1
    • 41. CMBS Delinquencies 1 by Property Type Source: Morgan Stanley, Intex 0.95 1.13 1 30/60/90/Foreclosure/REO 0.80 1.73 1.56 August 1999 – October 2004 % Total Office Retail Multifamily Industrial
    • 42. . . . Subordination Levels are Plummeting . . .
    • 43. Tangent Alert!
    • 44. Economic Wildcards
      • Trade Balance
    • 45. Economic Wildcards
      • Exchange Rate
    • 46. Economic Wildcards
      • Personal Saving Rate
    • 47. Economic Wildcards
      • Federal Debt Held by Foreigners
    • 48. Implications for Commercial Real Estate
      • Plenty of debt/equity capital
      • Debt rates up slightly
      • Cap rates flat to down slightly
      • Space markets
        • Office
        • Warehouse
        • Retail
        • Multi-family
      • Where does this leave us?
    • 49. Summary
      • Forrest Gump, 1994
      • Life is like a box of chocolates, you never know what you’re
      • going to get.

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