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Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
Commercial Real Estate and Economic Outlook
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Commercial Real Estate and Economic Outlook

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Presentation at NAR Annual Convention Orlando, FL, November 2012 …

Presentation at NAR Annual Convention Orlando, FL, November 2012

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  • 1. Commercial Real Estate and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Annual Convention Orlando, FL November 9, 2012
  • 2. Don Faught ChairCommercial Real Estate Forum
  • 3. Commercial Investments Sales Slowly Recovering for Large/Expensive Properties Source: Real Capital Analytics billions $ Volume $80 $70 $60 $50 $40 $30 $20 $10 $0 01 02 03 04 05 06 07 08 09 10 11 12200% Year-Over-Year % Change100% 0%-100% 01 02 03 04 05 06 07 08 09 10 11 12
  • 4. Apartment Investments – Fast Comeback $40Billions $35 $30 $25 $20 $15 $10 $5 $- Source: Real Capital Analytics
  • 5. Billions $- $10 $40 $50 $60 $70 $80 $90 $20 $3001Q101Q201Q301Q402Q102Q202Q302Q403Q103Q203Q303Q404Q104Q204Q304Q405Q105Q205Q305Q406Q106Q206Q306Q407Q107Q207Q307Q408Q108Q208Q308Q409Q109Q209Q309Q4 Office Investments – Slow Steps10Q110Q210Q310Q411Q111Q211Q311Q412Q112Q212Q3 Source: Real Capital Analytics
  • 6. 100 150 200 250 300 350 400 0 50 2002.Q1 2002.Q2 2002.Q3 2002.Q4 2003.Q1 2003.Q2 2003.Q3 2003.Q4 2004.Q1 2004.Q2 2004.Q3 2004.Q4 2005.Q1 2005.Q2 2005.Q3 2005.Q4 2006.Q1 2006.Q2 2006.Q3 2006.Q4 2007.Q1 2007.Q2 2007.Q3 2007.Q4 2008.Q1 2008.Q2 2008.Q3 2008.Q4 2009.Q1 2009.Q2 2009.Q3 2009.Q4 Origination Volume Index (2001 Qtr Avg=100) 2010.Q1 2010.Q2 Commercial Loan Originations 2010.Q3 2010.Q4 2011.Q1 2011.Q2 2011.Q3 2011.Q4 2012.Q1 2012.Q2Source: Mortgage Bankers Association
  • 7. Commercial Financing from CMBS - Faint Life CMBS Issuance ($ Mil.)80,000.0070,000.0060,000.0050,000.0040,000.0030,000.0020,000.0010,000.00 0.00 2000.1Q 2001.1Q 2002.1Q 2003.1Q 2004.1Q 2005.1Q 2006.1Q 2007.1Q 2008.1Q 2009.1Q 2010.1Q 2011.1Q 2012.1Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q 3Q Source: CRE Financie Council
  • 8. Commercial Financing from REITs Public Equity Monthly US REIT Equity Issuance ($ Mil)14,00012,00010,000 8,000 6,000 4,000 2,000 - J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S 06 07 08 09 10 11 12 Source: SNL Financial, NAREIT
  • 9. 110 130 150 170 190 210 90 2000 December April August 2001 December April August 2002 December April August 2003 December April August 2004 December Apartment April August 2005 December April Retail August 2006 December April August 2007 December Industrial April August Property Prices Rising Moodys/RCA CPPI - Composite Indices 2008 December April Office August 2009 December Apartment with the strongest gain April August 2010 December April August 2011 December AprilSource: Real Capital Analytics
  • 10. 25,000 29,000 31,000 33,000 35,000 39,000 41,000 27,000 37,0001980 - Q11981 - Q31983 - Q11984 - Q31986 - Q11987 - Q31989 - Q11990 - Q31992 - Q11993 - Q31995 - Q11996 - Q31998 - Q1 Rental Households1999 - Q32001 - Q12002 - Q32004 - Q12005 - Q32007 - Q1 Rental Occupied Housing Units2008 - Q32010 - Q12011 - Q3
  • 11. Cap Rates Continue Downward Trend: Apartment/CBD Office with Lower Yields Avg Cap Rates by Sector10.0%9.5% Sub - Office9.0% Industrial8.5% Retail8.0%7.5%7.0%6.5%6.0% CBD - Office Apartment5.5% Source: Real Capital Analytics5.0% 01 02 03 04 05 06 07 08 09 10 11 12
  • 12. 10 12 14 16 0 2 4 6 81982 - Aug1983 - Oct1984 - Dec1986 - Feb1987 - Apr1988 - Jun1989 - Aug1990 - Oct1991 - Dec1993 - Feb1994 - Apr1995 - Jun1996 - Aug1997 - Oct1998 - Dec2000 - Feb 10-year Treasury Yield2001 - Apr2002 - Jun2003 - Aug2004 - Oct2005 - Dec2007 - Feb2008 - Apr2009 - Jun than Treasury Yields or Bank CDs2010 - Aug Cap Rates Still Much Better Yielding2011 - Oct
  • 13. Monetary Policy by Federal Reserve (no change to 2015?) % Fed Funds6543210
  • 14. 200 400 600 800 1000 1400 1600 1800 2000 1200 01976 - Jan1977 - Jan1978 - Jan1979 - Jan1980 - Jan1981 - Jan1982 - Jan1983 - Jan1984 - Jan1985 - Jan1986 - Jan1987 - Jan1988 - Jan1989 - Jan1990 - Jan1991 - Jan1992 - Jan1993 - Jan1994 - Jan1995 - Jan1996 - Jan1997 - Jan1998 - Jan1999 - Jan2000 - Jan2001 - Jan2002 - Jan2003 - Jan2004 - Jan2005 - Jan Gold Price: Leveling off?2006 - Jan2007 - Jan2008 - Jan2009 - Jan2010 - Jan2011 - Jan2012 - Jan
  • 15. 1000 1500 2000 2500 3000 3500 2005 - Jan2005 - May 2005 - Sep 2006 - Jan2006 - May 2006 - Sep 2007 - Jan2007 - May 2007 - Sep 2008 - Jan2008 - May 2008 - Sep NASDAQ 2009 - Jan2009 - May 2009 - Sep 2010 - Jan2010 - May 2010 - Sep 2011 - Jan S&P 500 (Almost 100% from low point)2011 - May 2011 - Sep Strong Stock Market Recovery NASDAQ (More than 100% increase from low point) 2012 - Jan2012 - May 2012 - Sep
  • 16. 0 5 10 20 25 30 35 151988 - Oct1989 - Oct1990 - Oct1991 - Oct1992 - Oct1993 - Oct1994 - Oct1995 - Oct1996 - Oct1997 - Oct1998 - Oct1999 - Oct2000 - Oct2001 - Oct2002 - Oct S&P 500 stocks2003 - Oct2004 - Oct2005 - Oct2006 - Oct2007 - Oct2008 - Oct2009 - Oct2010 - Oct Price-Earnings Ratio is Reasonable2011 - Oct2012 - Oct
  • 17. What about CommercialReal Estate Opportunities?
  • 18. Office Market Fundamentals and Outlook Office Fundamentals Completions Absorption Vacancy 150,000 20.0 18.0 100,000 16.0 14.0 50,000Square Feet (000s) 12.0 Percentage 0 10.0 2012.1 2012.2 2012.3 2013.1 2013.2 2013.3 2013.4 2012.4 2003 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 8.0 -50,000 6.0 4.0 -100,000 2.0 -150,000 0.0 Source: NAR / REIS
  • 19. Industrial Market Fundamentals and Outlook Industrial Fundamentals Completions Absorption Vacancy 150,000 14.0 12.0 100,000 10.0Square Feet (000s) 50,000 8.0 Percentage 6.0 0 4.0 -50,000 2.0 -100,000 0.0 Source: NAR / REIS
  • 20. Retail Market Fundamentals and Outlook Retail Fundamentals Completions Absorption Vacancy 50,000 12.0 40,000 10.0 30,000 8.0Square Feet (000s) 20,000 Percentage 10,000 6.0 0 4.0 -10,000 2.0 -20,000 -30,000 0.0 Source: NAR / REIS
  • 21. Apartment Market Fundamentals and Outlook Multifamily Fundamentals Completions Absorption Vacancy Rate 250,000 9.0 8.0 200,000 7.0 150,000 6.0 Percentage 5.0Units 100,000 4.0 50,000 3.0 2.0 0 1.0 -50,000 0.0 Source: NAR / REIS
  • 22. Commercial Rents Rising: Only Apartment Rents outpacing Inflation National Rents Office Industrial Retail Multifamily14.012.010.0 8.0 6.0 4.0 2.0 0.0-2.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-4.0-6.0 Source: NAR / REIS
  • 23. Economy Supports Commercial Market Recovery
  • 24. Economy Growing, though Slowly(No Fresh Recession because of Housing Recovery) Real GDP Growth Rate4 %3210 2005 2006 2007 2008 2009 2010 2011 2012 2013-1 forecast forecast-2-3-4
  • 25. Payroll Jobs Changes (December to December) In millions3210 2005 2006 2007 2008 2009 2010 2011 2012 2013-1 forecast forecast-2-3-4-5-6
  • 26. 54% 58% 60% 64% 66% 56% 62%2000 - Jan2000 - Jul2001 - Jan2001 - Jul2002 - Jan2002 - Jul2003 - Jan2003 - Jul2004 - Jan2004 - Jul2005 - Jan2005 - Jul2006 - Jan2006 - Jul2007 - Jan2007 - Jul2008 - Jan2008 - Jul Employment Rate2009 - Jan2009 - Jul2010 - Jan2010 - Jul2011 - Jan2011 - Jul2012 - Jan (How many are working, rather than how many are unemployed)2012 - Jul
  • 27. % 10 20 30 40 50 60 70 80 90 0 100 1948 - Jan 1951 - Jan 1954 - Jan 1957 - JanSource: BLS 1960 - Jan 1963 - Jan 1966 - Jan 1969 - Jan 1972 - Jan 1975 - Jan 1978 - Jan 1981 - Jan 1984 - Jan 1987 - Jan 1990 - Jan 1993 - Jan Women 1996 - Jan Men 1999 - Jan Labor Force Participation Rate 2002 - Jan 2005 - Jan (Men are dropping out, Women are joining) 2008 - Jan 2011 - Jan
  • 28. -500 500 1000 1500 2000 2500 02000 - Q1 $ billion2000 - Q32001 - Q12001 - Q32002 - Q12002 - Q32003 - Q12003 - Q32004 - Q12004 - Q32005 - Q12005 - Q32006 - Q12006 - Q32007 - Q12007 - Q32008 - Q12008 - Q32009 - Q12009 - Q32010 - Q1 Corporate Profits … Sky High2010 - Q32011 - Q12011 - Q32012 - Q1
  • 29. 10 20 30-40 -30 -20 -10 0 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 Non-residential fixed investment growth rate 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 Business Spending … Grew but now Pausing 2012 - Q1
  • 30. Existing Home SalesIn million units
  • 31. Rising Median Price Helps Improve Bank Balance Sheets
  • 32. 50000 100000 150000 200000 250000 0 1992 - Jan 1993 - Feb1994 - Mar 1995 - Apr1996 - May 1997 - Jun 1998 - Jul1999 - Aug 2000 - Sep 2001 - Oct2002 - Nov2003 - Dec 2005 - Jan 2006 - Feb2007 - Mar 2008 - Apr2009 - May 2010 - Jun (Doubles every 10 years) 2011 - Jul2012 - Aug U.S. International Trade Going Strong Exports Imports
  • 33. Economic Forecast 2011 2012 2013 2014 History Forecast Forecast ForecastGDP Growth +1.8% +2.0% +2.5% +3.1%Payroll Job +1.7 million +1.8 million +2.5 million +2.6 millionGainsFed Funds 0.1% 0.1% 0.1% 0.1%Rate10-yr 2.8% 1.9% 2.2% 3.0%Treasury
  • 34. Huge Federal Budget Deficit … Future Borrowing Cost will be High (Deficit as % of GDP) 4 2 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 -2 - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan -4 -6 -8-10-12
  • 35. Risks to Economic Forecast– Fiscal Cliff on January 1, 2013 … if no new compromised budget then … • Automatic deep cuts to military and domestic spending • Automatic higher taxes • 3% shave off GDP growth, which is currently growing at 2%– Smaller Players Knocked Out of Commercial Real Estate Deals
  • 36. What about Smaller/Inexpensive Properties?• Not captured in data• No consistent measurement• REALTOR® members deals are generally under $2 million properties• Survey indicated only slight increase in transactions
  • 37. Realtors® Commercial Market SurveyREALTORS® Commercial Activity – 2012.Q3Sales Volume Compared with Previous Year Up 6%Sales Prices Compared with Previous Year Down 4%Rental Volume Compared with Previous Quarter Down 1%Rental Rates Compared with Previous Quarter Down 3%Level of Rent Concessions Compared with Previous Quarter Down 1%Volume of New Construction Compared with Previous Quarter Down 2%Direction of Business Opportunities Compared with Previous Quarter Up 0.3% Source: National Association of REALTORS®
  • 38. SIOR Member Survey of Market Activity SIOR Commercial Real Estate Index160.0 Northeast Midwest South West140.0120.0100.0 80.0 60.0 40.0 20.0 0.0 Source: SIOR, NAR
  • 39. REALTORS® Commercial Market Survey (Nearly all are under $2 million properties) Dollar amount of last transaction Under $250K 33%Between $250K and $500K 23%Between $500K and $1 M 19% Between $1 M and $2 M 17% $2 M and $5 M 6%Between $5 M and $10 M 1% Over $10 M 1%
  • 40. Small Banks Important to REALTORS® Current sources of financing for commercial deals National banks (“Big four”) 3% 8% Regional banks 1% 11% Local banks Credit unions 17% Life insurance companies REITs 18% Private investors Public companies Small Business Administration 4% 25% Other, please specify 6% 7%Source: NAR
  • 41. Big Banks getting Bigger Top 10 Banks Share of Total Deposits 60% 54.30% 50% 40% 30% 20% 10% 0% 1970 1980 1990 2000 2012Source: Janicki and Prescott, BankRate.com
  • 42. Regulation Consistently Cited as Top 5 Concern for Bankers Since 2009• 2008-’09: Legislative and regulatory action (i.e. bankruptcy cram-downs, TILA, RESPA,HMDA)“• 2009-’10: Regulatory burden and examiner scrutiny• 2010-’11: Regulatory burden and compliance costs• 2011-’12: Regulatory burden and compliance costsSource: American Bankers Association
  • 43. Commercial Financing—Lending Remains Tight Changes in lending conditions over past 12 months Eased significantly 1% Eased somewhat 27% Not changed 30% Tightened somewhat 20%Tightened significantly 23% Source: National Association of REALTORS®
  • 44. Commercial Financing—Lending Hampers SalesHave you had a sales transaction fail Have your clients failed to complete a during the past 12 months due to re-financing transaction during the lack of financing? past 12 months?33% Yes Yes No 50% 50% No 67%Source: National Association of REALTORS®
  • 45. Commercial Market ForecastOFFICE 2011 2012 2013 Vacancy Rate 16.6% 16.1% 15.7% Net Absorption (000 sq. ft.) 20,714 24,064 47,821 Completions (000 sq. ft.) 12,324 13,746 34,146 Rent Growth 1.6% 2.0% 2.6%INDUSTRIAL 2011 2012 2013 Vacancy Rate 12.0% 10.8% 10.5% Net Absorption (000 sq. ft.) 78,118 59,889 67,169 Completions (000 sq. ft.) 15,700 28,386 57,086 Rent Growth -0.5% 1.7% 2.4%RETAIL 2011 2012 2013 Vacancy Rate 12.5% 11.0% 10.7% Net Absorption (000 sq. ft.) 4,297 10,252 20,106 Completions (000 sq. ft.) 4,899 5,567 15,899 Rent Growth -0.2% 0.8% 1.3%MULTI-FAMILY 2011 2012 2013 Vacancy Rate 5.2% 4.3% 4.2% Net Absorption (Units) 200,720 219,318 236,559 Completions (Units) 37,678 79,845 148,623 Rent Growth 2.2% 4.1% 4.4%
  • 46. For Daily Update and Analysis• Twitter @NAR_Research
  • 47. Commercial Real Estate and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Annual Convention Orlando, FL November 9, 2012
  • 48. Commercial Real Estate Business Trends Forum National Association of REALTORS® November 9, 2012 Calvin Schnure VP, Research & Industry Information NAREIT®
  • 49. Vacancy rates are elevated, apartments are the bigexception 20 Percent Apartment 18 Office Retail 16 14 12 10 8 6 4 2 Annual Top 50 Market Data Quarterly Metro Data 0 1980 1986 1992 1998 2001 2002 2004 2005 2007 2008 2010 2011 49Source: Reis
  • 50. Rent growth is sluggish for retail and office, slowing forapartments15 Percent, Ann ualized Retail Office10 Apartment 5 0 1988 1992 1996 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -5-10-15 Annual Top 50 Market Data Quarterly Metro Data 50 Source: Reis
  • 51. The State of Commercial Real Estate• Q3 saw modest improvements nationwide; – Multifamily: vacancy rates slide lower still, rent growth slows; – Office: vacancies edging down, rent growth weak. CBD vs suburban; – Retail: regional malls seeing improvements in vacancies, rents, while neighborhood and community centers lag.• A puzzle: the macro economy is at a crawl; why did CRE show any improvement? – New supply is negligible, so even a tiny bit of absorption yields improvements. – But robust gains will need a robust macroeconomy.• Rates are low but access to financing still tight. 51
  • 52. Construction at decades-low levels generates morepent-up demand Private Construction70 (SAAR, Mil. $)60 Retail5040 Office302010 Multifamily 0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011Source: U.S. Census Bureau, Haver Analytics. 52
  • 53. Apartments and CBD Office prices leading the way;Retail and Suburban Office lagCommercial Property PricesPeak = 100 100 National All-Property Apartment 90 Retail Office-CBD Office-Suburban Industrial 80 70 60 50 2007 2008 2009 2010 2011 2012 53 Source: Moody’s/RCA
  • 54. The “Tug of War” on economic growth: Drags Sources of strength • Housing crisis/ mortgage mess/ • Productivity growth deleveraging • Wealth effect • Fiscal drag, incl. state & local • Monetary policy • Uncertainty, lack of confidence… • Growing pent-up demand and Europe, US fiscal cliff 54
  • 55. When did the “New Normal” begin?112 Payroll employment, past 6 recessions/recoveries110 Job market trough = 100108106104102100 2008 98 2001 1991 96 1982 1975 94 1970 Trough -6 -9 -3 3 6 9 -36 -33 -30 -27 -24 -21 -18 -15 -12 12 15 18 21 24 27 30 33 36 Months since troughSource: Bureau of Labor Statistics, Haver Analytics. 55
  • 56. Productivity growth hasn’t flagged 6 Percent 1-year change 5 4 3 2 1 5-year change 0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012-1 “Stagflation” was the original “New Normal”-2Source: U.S. Census Bureau, Haver Analytics. 56
  • 57. Productivity growth stagnated during Japan’s “Lost Decade” Percent change 8 6 1-year change 4 3-year change 2 0 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 -2 The "Lost Decade" is into re-runs -4 -6Source: Haver Analytics 57
  • 58. Pent-up demand continues to drive multifamily sector,while new supply still falls short Focus on Multifamily• Market conditions in multifamily rental housing have tightened since the housing crisis began;• Sustained low household formation has caused unprecedented pent-up demand;• New supply falls far short of potential demand;• Key factor limiting rent growth: wages. 58
  • 59. Household formation plunged during the GreatRecession, well below its trend pace Focus on Percent change over year ago Multifamily 3 2 Fitted Trend 1 0 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010Source: U.S. Census Bureau, Haver Analytics. 59
  • 60. Millions have moved in with parents, other family, ornonfamily housemates Focus on Shared households, percent of total Multifamily2524 The number of shared households, defined as those with an extra adult, rose 2.9 million in 2008-2010.23222120 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010Source: U.S. Census Bureau, Haver Analytics. 60
  • 61. Multifamily housing construction since 2008 has totaled700,000 below the prior trend pace Focus on Thousands of units, seasonally-adjusted annual rate Multifamily600500400 Average, 2000-2007300200100 0 2000 2002 2004 2006 2008 2010 2012 Source: U.S. Census Bureau, Haver Analytics. 61
  • 62. Pent-up demand is driving rental occupancy higher,even as the macro economy drifts 6 Household formation Percent change 5 4 3 2 1 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012-1-2 Owner-3 Renter Owner: 3 yr ave Renter: 3 yr ave-4 62Source: U.S. Census Bureau, Haver Analytics
  • 63. Borrowing demand for commercial mortgages is gainingmomentum 63Source: Federal Reserve Board Senior Loan Officer Survey, October 2012.
  • 64. But standards are still tight 64Source: Federal Reserve Board Senior Loan Officer Survey, October 2012.
  • 65. The CMBS market continues to contract1,000 $ Billions 900 800 700 600 500 400 300 200 100 0 65 Source: SIFMA
  • 66. Forecasters have been expecting long term interest rates to rise… for a decade, now. Percent Percent 6 6 5 5 4 4 3 3 2 2 Actual 10-year Treasury yield (solid black line) 1 Predictions out to five quarters ahead of professional forecasters (hatched lines) 1 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: Philadelphia Federal Reserve Survey of Professional Forecasters, Bloomberg 66
  • 67. REITs are raising record amounts of capital Focus on Acquisitions 60 Billions of dollars Debt Preferred shares 50 IPO Secondary equity offerings 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012**2012 offerings through September. Source: SNL Financial, NAREIT. 67
  • 68. REIT acquisitions benefit from access to capital, marketdiscipline Focus on Acquisitions• The REIT business model influences property acquisitions in two ways: – Access to capital allows REITs to buy properties when they are available at attractive prices—rather than being rationed by credit standards or driven by investment fund flows; – Market discipline discourages REITs from over-paying at the market peak—in fact, REITs sold at the top of the 2000s boom.• REIT acquisitions early in a price cycle add value over the long haul… and REITs are the main buyers today. 68
  • 69. Commercial Property Prices Focus on Percent change over year ago AcquisitionsSource: NAREIT Pure Property Index® 69
  • 70. Net Acquisitions Adjusted* Focus on Acquisitions * Adjusted to remove the Equity Office and Archstone transactionsSource: RCA 70
  • 71. Net Acquisitions… buy low, sell high Focus on Acquisitions Pre-boom Boom and Bust Recovery market peak 2001-2003 2004-2007 2008-2009 2010-Current Total $ Millions $ Millions $ Millions $ Millions $ MillionsREITs 15,400 (20,898) (7,425) 27,313 14,390Private 11,760 (81,483) 9,120 (22,957) (22,360)Instl/Eq (13,101) 141,731 5,579 (2,439) 131,771Cross-Border 736 38,140 2,533 1,054 42,464Other (14,795) (77,490) (9,808) (2,971) (166,264)Source: RCA 71
  • 72. REITs have posted a strong performance in 2012 72
  • 73. Disclaimer NAREIT is the worldwide representative voice for REITs and listed real estate companies with an interest in U.S. real estate and capital markets. Members are REITs and other businesses that own, operate and manage income-producing real estate, as well as those firms and individuals who advise, study and service those businesses. NAREIT is the exclusive registered trademark of the National Association of Real Estate Investment Trusts, Inc.®, 1875 I St., NW, Suite 600, Washington, DC 20006-5413. Follow us on REIT.com. Copyright© 2012 by the National Association of Real Estate Investment Trusts, Inc.® All rights reserved. This information is solely educational in nature and is not intended by NAREIT to serve as the primary basis for any investment decision. NAREIT is not acting as an investment adviser, investment fiduciary, broker, dealer or other market participant, and no offer or solicitation to buy or sell any security or real estate investment is being made. Investments and solicitations for investment must be made directly through an agent, employee or representative of a particular investment or fund and cannot be made through NAREIT. NAREIT does not allow any agent, employee or representative to personally solicit any investment or accept any monies to be invested in a particular security or real estate investment. All REIT data are derived from, and apply only to, publicly traded securities. While such data are believed to be reliable when prepared or provided, such data are subject to change or restatement. NAREIT does not warrant or guarantee such data for accuracy or completeness, and shall not be liable under any legal theory for such data or any errors or omissions therein. See http://reit.com/TermsofUse.aspx for important information regarding this data, the underlying assumptions and the limitations of NAREIT’s liability therefore, all of which are incorporated by reference herein. Performance results are provided only as a barometer or measure of past performance, and future values will fluctuate from those used in the underlying data. Any investment returns or performance data (past, hypothetical or otherwise) shown herein or in such data are not necessarily indicative of future returns or performance. Before an investment is made in any security, fund or investment, investors are strongly advised to request a copy of the prospectus or other disclosure or investment documentation and read it carefully. Such prospectus or other information contains important information about a security’s, fund’s or other investment’s objectives and strategies, risks and expenses. Investors should read all such information carefully before making an investment decision or investing any funds. Investors should consult with their investment fiduciary or other market professional before making any investment in any security, fund or other investment. For more information please visit: www.reit.com 73
  • 74. Commercial Real Estate and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at NAR Annual Convention Orlando, FL November 9, 2012

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