2009 First Quarter + (April+May) Real Estate Commentary
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2009 First Quarter + (April+May) Real Estate Commentary

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2009 First Quarter + (April+May) Real Estate Commentary 2009 First Quarter + (April+May) Real Estate Commentary Presentation Transcript

  • Real Estate Commentary May 15, 2009
  • Theme: Public Securities Debt, Equity, capital markets are now Open. New issuance helping to de-lever. Global REITsREIT in March and April as “value” prices March 9, brought large buyers and short Global rallied Markets covering (see below) Investors should be more positive, but perhaps now, wait for a pull back to deploy into liquid investments and Start to Buy direct property with 8-9% Cap Rates with long leases in DC, Boston, London. YTD 5/14/09 EPRA NAREIT Global index -5..25% S&P 500 +0.21% EPRA NAREIT Asia Index +2.18% U.S. NAREIT Equity Index -14.12% Major EPRA NAREIT Indexes YTD 5/8/09 Total Return to 5/8 Asia REIT Index +4.73% European REIT Index +4.89% YTD Global RE Index +.54% U.S. Equity REIT Index -6.27 YTD
  • Driver of past Valuations in commercial real estate was cheap and plentiful Loans Fitch is forecasting total U.S. CMBS issuances to be about $12 billion in 2009, with most of it coming in the second half, a stark contrast to the record $230 billion issued in 2007. Loan Market will need a fully functioning CMBS capital markets capability by 2015 to absorb maturities. Loan Vintages: CMBS Loan Maturities Source: DB, Trepp
  • Corporate Restructuring are affecting occupancy. Office Vacancy Rate % 17% 16% 15% 14% 13% 12% 2002 2003 2004 2005 2006 2007 2008 2009 Vacancies of Office buildings has not peaked as of March ‘09. (Source: CBRE U.S. Office vacancy rates)
  • Cost of capital improving 3 Mo Libor Rate % Under 1 % for the First time May 5, 2009 was 10% in 1989 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2002 2003 2004 2005 2006 2007 2008 2009 Lower LIBOR will certainly help fuel a recovery in corporate strength and RE financing.
  • Corporate Bonds Issued by RE Companies and REITS reached 14% Yield Q4 ’08 now 8.5% Yield May 14, 2009 U.S. Real Estate 1450 Corporate Bond Spreads 1250 1267 1050 1042 987 1020 923 850 825 OAS 650 650 559 450 444 437 363 258 306 250 50 93 85 Mar-06 Feb-07 Dec-07 Jan-08 Mar-08 Jun-08 Jul-08 Aug-08 Sep-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Real Estate Corporate Bond Spreads widened in have tightened dramatically As REITS are retiring debt and improving balance sheets. REIT Bonds +20% YTD 4/30/09 (Source: ML index 3/31/09)
  • April has proven to be one of the best Months based on past 59 years of S&P data January 1950 to April 2009 (Source: Dr. Robert Shiller,INetBridge Plexus
  • Good News in April: Lodging/Resorts Regional Malls Simon Property Group Retail Prologis Diversified Office FTSE NAREIT U.S. Apartments Self Storage EPRA Nareit Global EPRA Nareit Europe (USD) Healthcare Straits Times Index DAX Germany Brazil Bovespa Index Hang Seng Index GCC Bloomberg Index EPRA Nareit Asia MSCI World Index 0% 10% 20% 30% 40% 50% 60% 70% % Total Return
  • Good News: Capital Markets opened. $7+ Billion securities issued to improve Bal Sheets REIT equity bottomed March 9, ’09 REIT preferred +46% from 3/9 to 5/14 FASB rule on mark to market is a big Plus for RE debt. LIBOR improved, CMBS Total Return +16.7% 3/9/09 to 5/14/09 AAA rated Job losses are stabilizing, peak continuing claims may have been 3/27/09 Caution: Structured Finance Market remains a broken foundation for RE General Growth Properties files Bankruptcy 4/16/09 Bounce could be temporary. Sun Hung Properties (Hong Kong) +48%, Starwood REIT +110% from 3/9/09
  • Real Estate Commentary 2009 Outlook: until the global economy and CMBS market is functioning REIT: Defense/Liquidity 56% rally in EPRA NAREIT Global Index 3/9/09 to 5/9/09 and 30% April rally in the US REIT index may be ahead of itself, but capital Markets opened, relieving many Bankruptcy worries. Direct Commercial Property: High Quality and longer leased property began to be “value” March. 8% Caps are attractive. DC is the best market to start buying. a Fund Manager that returned +47% is opening again. Great time to consider getting back into direct RE for longer horizon. Liquid markets have had the best opportunities for the past 6 months. CMBS: Yields have dropped 400+ basis points. This seems correct but with little room to continue. Long/Short:: Until job losses subside and CMBS markets flow to RE again, Volatility can be taken advantage in hedge funds. Also, there are opportunities now in separate accounts as a vehicle to add Transparency and Liquidity. This could be a trend for 2009, out of HF’s and to same manager but as a Separate acct. We welcome Client questions and requests for further details. - Harry Milne, Managing Director Strategia Investors 203-722-6974