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EDR Insight Market Update:Navigating In An Uncertain MarketPresented by:Dianne P. Crocker, Principal AnalystAshley Gowen, ...
4 Keys to Navigating an Uncertain Market
1. MARKET METRICS                Commercial                Real Estate           Due        Diligence        Lending
Bumpy Road for Commercial Real Estate• Transactions in 3Q12:    • Up slightly from      3Q11    • Well above „09• In recen...
Multifamily, Office Drive Property Deals  • Majority of gains driven by:     • Multifamily and Class A office         • Th...
Downturn, Distress, Contamination • Distressed asset deals bringing contamination into play. • Properties and projects tha...
The Pulse of Lending on Properties  • Fewer troubled assets on their books.  • The number of “problem banks” is falling.  ...
The Liquidity Squeeze is On • Lenders face added regulatory burdens, the   need to minimize risk and compete for   borrowe...
Positive Signs in Lending• Many have worked through their distressed assets  and are ready to start growing again.• More c...
2012 YTD:                      8% above 2011 YTDUp 43% abovemarket’s Oct. 2009low point
Regional Phase I ESA Activity: 3Q on 3Q                         7%          8%    -3%         9%                          ...
Regional Phase I ESA Activity: 3Q on 3Q                                          Page 12
Georgia: Quarterly Phase I ESA Growth
METRO WATCH: Q on Q Growth (3Q12)
Reasons to Love Atlanta…7th most activemarket forproperty deals inthe US
Atlanta: 14th on list of top metros with“buy” recommendation for OFFICEproperties
…and 8th on list of top metros with “buy”  recommendation for INDUSTRIAL propertiesHigh rank is due to Atlanta‟sexpected i...
Atlanta on Investors’ Radar:• Atlanta‟s loss of employment and the housing collapse  affected interest in commercial real ...
2. ATTITUDES TOWARD PROPERTY RISK                          © 2012 Environmental Data Resources, Inc.
Risk Aversion Is High Among Investors “A negative, or rather extremely conservative, mindset is prevalent with the investo...
Risk Aversion Is High Among Lenders• More lenders paying closer attention to findings and  recommendations, considering th...
RISK is the New 4-Letter Word• Feedback from EPs:• “Banks continue to fight for no environmental  conditions at a property...
Risk Aversion (cont’d)• “My clients are demanding a more consultative approach to  ESA completion as opposed to only repor...
Risk Management is Now “Everyone’sBusiness”     • “What happens today that was not back in 2006 and 2007 is that       loa...
3. AREAS OF OPPORTUNITY
1. Focus on the Most Active Lenders                   Status of CRE Lending by Source:  Commercial banks                 F...
Focus On Who’s Lending:Top Originators
Watch for shifts toward other lendingsources:                   Status of CRE Lending by Source:  Commercial banks        ...
• The U.S. SBA could be one of only a handful of federal  agencies that winds up with a bigger budget next year  than it h...
FY13 could be the most robust year for 7(a) lendingsince FY10 (excluding FY11)
Strongest SBA Lenders in the U.S.:
REITs Are Raising Capital:        Notable Private Funding Raisings in 1H2012FIRM NAME                    CAPITAL RAISEDBla...
REITs (cont’d) • Among REITs‟ top concerns are risks related to factors that   could devalue their properties, including e...
RETAILER    CATEGORY   PLANNED OPENINGSDollar General         Dollar          625Family Dollar          Dollar        450 ...
Robust Forecast for New Store Openings•   U.S. retailer store-opening plans hit a four-year high•   78,000 new stores plan...
• 1st benchmarking report on Local Law 84 (LL84), which  requires all privately-owned properties with individual  building...
Strong Drivers for Energy Audits• Rising energy costs• Weak appreciation in property prices• Metro disclosure laws• Federa...
Foreign Investors and EB-5 Program• Old program gaining new interest as avenue to stimulate  capital investment by foreign...
4. ADOPT WINNING STRATEGIES
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Education Is Key As Market Recovers• New lending, investments are on the board for 2012.• Banks, investment firms are repl...
Topics for Client Education Efforts  •   New E 1527 standard  •   Vapor intrusion awareness  •   Updates to policies like ...
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Parting Thoughts
Positive Forces in the Forecast• Improvements in both the cost and availability of  commercial mortgage capital are expect...
Parting Thoughts•   The market is recovering.•   Market uncertainty creates aversion to risk.•   New players and new marke...
Parting Thoughts•   The market is recovering.•   Market uncertainty creates aversion to risk.•   New players and new marke...
Dianne P. CrockerPrincipal Analyst, EDR Insight   Research and Analytics:  www.edrnet.com/EDRInsight          Twitter:    ...
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EDR Insight Market Update: Navigating in an Uncertain Market - Atlanta

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Transcript of "EDR Insight Market Update: Navigating in an Uncertain Market - Atlanta"

  1. 1. EDR Insight Market Update:Navigating In An Uncertain MarketPresented by:Dianne P. Crocker, Principal AnalystAshley Gowen, Research Analyst Atlanta, GA December 5, 2012 © 2012 Environmental Data Resources, Inc.
  2. 2. 4 Keys to Navigating an Uncertain Market
  3. 3. 1. MARKET METRICS Commercial Real Estate Due Diligence Lending
  4. 4. Bumpy Road for Commercial Real Estate• Transactions in 3Q12: • Up slightly from 3Q11 • Well above „09• In recent quarters, rate of growth has declined
  5. 5. Multifamily, Office Drive Property Deals • Majority of gains driven by: • Multifamily and Class A office • The “sweet spots” • Largely viewed as low risk • Retail: • Recovering, but bifurcated • Development: • Accelerating
  6. 6. Downturn, Distress, Contamination • Distressed asset deals bringing contamination into play. • Properties and projects that failed are coming back into the market. • “We are reviewing portfolios of distressed loans with significant environmental conditions—including projects that stalled years ago because the owners defaulted and abandoned their development plans.” Senior VP at a major consulting firm
  7. 7. The Pulse of Lending on Properties • Fewer troubled assets on their books. • The number of “problem banks” is falling. • Lending up albeit moderately • Mainly for top-quality borrowers, Class-A assets and in primary markets. • Assets with any sort of risk profile and borrowers without a strong track record, however, remain more difficult to finance.
  8. 8. The Liquidity Squeeze is On • Lenders face added regulatory burdens, the need to minimize risk and compete for borrowers: • Large national banks focused on gateway markets and institutional properties. • Regional banks have slowly picked up their commercial lending. • Obstacles to lending remain for smaller community banks struggling with distressed commercial real estate assets.
  9. 9. Positive Signs in Lending• Many have worked through their distressed assets and are ready to start growing again.• More confidence, more borrowers.• There is pressure on pricing as competition for loans heats up.• However, lenders view CRE as still inherently risky Tight underwriting
  10. 10. 2012 YTD: 8% above 2011 YTDUp 43% abovemarket’s Oct. 2009low point
  11. 11. Regional Phase I ESA Activity: 3Q on 3Q 7% 8% -3% 9% 3% 7% 2% 6%
  12. 12. Regional Phase I ESA Activity: 3Q on 3Q Page 12
  13. 13. Georgia: Quarterly Phase I ESA Growth
  14. 14. METRO WATCH: Q on Q Growth (3Q12)
  15. 15. Reasons to Love Atlanta…7th most activemarket forproperty deals inthe US
  16. 16. Atlanta: 14th on list of top metros with“buy” recommendation for OFFICEproperties
  17. 17. …and 8th on list of top metros with “buy” recommendation for INDUSTRIAL propertiesHigh rank is due to Atlanta‟sexpected increases in:• manufacturing,• warehousing and• shipping.
  18. 18. Atlanta on Investors’ Radar:• Atlanta‟s loss of employment and the housing collapse affected interest in commercial real estate.• But, job growth is finally starting to show improvement• One area investor:“We will see more activity in Atlanta in 2013 as jobgrowth emerges.”
  19. 19. 2. ATTITUDES TOWARD PROPERTY RISK © 2012 Environmental Data Resources, Inc.
  20. 20. Risk Aversion Is High Among Investors “A negative, or rather extremely conservative, mindset is prevalent with the investors in the market. Many investors are analyzing assets based on the what- could-go-wrong view versus spending time focusing on what-could-go-right and this has had an impact on pricing and deal velocity." Steve Timmel, senior vice president of Colliers International
  21. 21. Risk Aversion Is High Among Lenders• More lenders paying closer attention to findings and recommendations, considering their risk if recommendations are ignored.• More clients want detailed assessment of potential risk and recommendations for mitigation of known conditions.• More community banks are attempting to develop more current risk management policies.
  22. 22. RISK is the New 4-Letter Word• Feedback from EPs:• “Banks continue to fight for no environmental conditions at a property, regardless of the findings.”• “Lenders are definitely more risk averse.”• “Banks appear to be looking for reasons not to make loans.”
  23. 23. Risk Aversion (cont’d)• “My clients are demanding a more consultative approach to ESA completion as opposed to only report delivery.”• “In the past, Phase II equaled dead transaction. Now there is more willingness to consider risking away issues through Phase IIs.”• “They want the thorough investigation but are not necessarily allowing more time for it. The lenders are very competitive with one another, so they don’t have the luxury of higher due diligence fees or longer due diligence periods.” Source: EDR Insight‟s Quarterly Survey of EPs.
  24. 24. Risk Management is Now “Everyone’sBusiness” • “What happens today that was not back in 2006 and 2007 is that loan closings are being delayed for environmental issues, simply because financial institutions are no longer willing to take on risk as they once were.” • “It has brought the opportunity—good or bad—to revisit decisions we made during the good times….to rethink our approach to due diligence.” • “What has changed is the relationship with loan officers. Years back, they tended to resist environmental due diligence. Now there is much greater awareness.”
  25. 25. 3. AREAS OF OPPORTUNITY
  26. 26. 1. Focus on the Most Active Lenders Status of CRE Lending by Source: Commercial banks Flat/moderate growth Government (Fannie/Freddie) Active Credit Unions Expanding Private Equity Expanding Life Insurance companies Peaking CMBS Securitizations Recovering
  27. 27. Focus On Who’s Lending:Top Originators
  28. 28. Watch for shifts toward other lendingsources: Status of CRE Lending by Source: Commercial banks Flat/moderate growth Government (Fannie/Freddie) Active Credit Unions Expanding Private Equity Expanding Life Insurance companies Peaking CMBS Securitizations Recovering
  29. 29. • The U.S. SBA could be one of only a handful of federal agencies that winds up with a bigger budget next year than it had this year.• Current proposal: • As much as $16 billion in loans through the popular 7(a) program • 15 percent increase over $13.9 billion in 7(a) loans so far this year.
  30. 30. FY13 could be the most robust year for 7(a) lendingsince FY10 (excluding FY11)
  31. 31. Strongest SBA Lenders in the U.S.:
  32. 32. REITs Are Raising Capital: Notable Private Funding Raisings in 1H2012FIRM NAME CAPITAL RAISEDBlackstone $6.6 billionUBS $1.8 billionCarlyle Group $1.4 billionRockpoint Group $1.3 billionGEM Capital $1.3 billionMcMorgan & Co. $977 million
  33. 33. REITs (cont’d) • Among REITs‟ top concerns are risks related to factors that could devalue their properties, including environmental liability.
  34. 34. RETAILER CATEGORY PLANNED OPENINGSDollar General Dollar 625Family Dollar Dollar 450 – 500Dollar Tree Dollar 315CVS Drug 225 – 250Walgreens Drug 150 – 175Advanced Auto Parts Auto 130 – 150AutoZone Auto 125RiteAid Drug 100
  35. 35. Robust Forecast for New Store Openings• U.S. retailer store-opening plans hit a four-year high• 78,000 new stores planned over the next 24 months• Up 11 percent from the 2-year period ended in 2011• Very focused in specific sectors, geographic areas
  36. 36. • 1st benchmarking report on Local Law 84 (LL84), which requires all privately-owned properties with individual buildings over 50,000 square feet to annually measure and report their energy and water usage.• Disclosure laws like NYC‟s create opportunities for environmental consultants in contributing data and information to this and similar reporting in growing number of metros.
  37. 37. Strong Drivers for Energy Audits• Rising energy costs• Weak appreciation in property prices• Metro disclosure laws• Federal requirements • HUD now has a requirement that all Physical Needs Assessments (its PCA equivalent) be accompanied by energy audits at all Public Housing Authority sites"Green building is not a curiosity anymore -- its a hugemarket. The green building sector will be a $280 billion globalindustry by the end of the decade.” Lux Research, Boston
  38. 38. Foreign Investors and EB-5 Program• Old program gaining new interest as avenue to stimulate capital investment by foreign investors.• NYC is a top target of foreign investors• In FY12, the number of EB-5 projects approved was triple FY09 levels.• “Typically as a condition of closing, the borrower will need to provide a clean Phase I environmental site assessment report along with other due diligence items.”• EB-5 presents a way for EPs to connect with key players: • 209 Regional Centers in 40 states.
  39. 39. 4. ADOPT WINNING STRATEGIES
  40. 40. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
  41. 41. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
  42. 42. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
  43. 43. Education Is Key As Market Recovers• New lending, investments are on the board for 2012.• Banks, investment firms are replacing past layoffs with junior staff.• Leading to a “rustiness” in engaging Phase I ESAs.• A learning curve as market adjusts to new risk aversion.
  44. 44. Topics for Client Education Efforts • New E 1527 standard • Vapor intrusion awareness • Updates to policies like SBA, HUD, Fannie Mae • Real-world examples/reminders of why environmental due diligence is critical
  45. 45. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
  46. 46. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
  47. 47. Parting Thoughts
  48. 48. Positive Forces in the Forecast• Improvements in both the cost and availability of commercial mortgage capital are expected to propel transaction volumes in Q4 and into 2013.• Real estate remains attractive to lenders, investors.• An improving picture in the jobs market is expected to boost the commercial real estate recovery in 2013.• Investors are willing to take on more risk in their portfolios in 2013 to gain greater yields: • more investment and interest in secondary and tertiary markets outside of strongholds such as New York and San Francisco.
  49. 49. Parting Thoughts• The market is recovering.• Market uncertainty creates aversion to risk.• New players and new markets are emerging.• Think critically about where and how you can compete most effectively. Page 49
  50. 50. Parting Thoughts• The market is recovering.• Market uncertainty creates aversion to risk.• New players and new markets are emerging.• Think critically about where and how you can compete most effectively. Be strategic and grow! Page 50
  51. 51. Dianne P. CrockerPrincipal Analyst, EDR Insight Research and Analytics: www.edrnet.com/EDRInsight Twitter: @dpcrocker Email: dcrocker@edrnet.com

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