0
Strategic Plays for the 2nd Half of
Market Recovery
Presented by:
Dianne P. Crocker, Principal Analyst

For presentation a...
Market in Transition
2008 2009 2010

2011

2012

2013

2014

Survival Mode
True start of
market rehabilitation

Year of
re...
© 2013
Status of Commercial Real Estate
The year 2014 may well be the year that
the real estate markets “recover from the
recover...
View of Market: 50,000 Feet
CRE Lending
-SBA Lending

+14%
+13%

Property transactions:
-Large

+27%

-Small (<$5M)

+18%
...
Large Commercial Real Estate
Deals Up
• 4Q12: the most active
quarter since 4Q07
• By 3Q13, deal flow up
27% in 3Q YTD
• P...
Small Cap Transactions
• The velocity of small-cap sales is more than
keeping pace with the larger CRE investment
market.
...
Property Types in Favor
• Multifamily is still the “belle of the ball” (up 31%
Y-on-Y)
• Retail: sales of strip centers ar...
Properties in Flux
•
•
•
•
•
•
•
•

U.S. Retail Store Closings in 2013:
Blockbuster (460)
Fashion Bug
GameStop
Barnes & No...
Good News on the CMBS Front
• 2012:
• Post-recession high
of $48B
• 2013:
• Already surpassed
year-end 2012
issuance
• 46%...
Banks’ Sell-off of Nonperforming
Assets
Commercial Property Lending
Volume
• Lenders have returned to originating commercial real
estate loans as values and credi...
LENDING: A Positive Take
“More banks were lending on incomeproducing commercial real estate
properties in more places in t...
Bottom Line on Lending
• The comeback of commercial real estate lending is
gaining momentum, especially credits backed by
...
SBA Lending: A Bright Spot
• Supported more than $29B in loans in FY13—its third-highest
year ever.
• More than 54,000 loa...
M&A Gaining Momentum
• Slow 2012 turned corner
• Uncertainty giving way to
confidence
• Firms turn to M&A for growth on
th...
Spotlight on:
BOSTON
• Hot spots?
• Seaport District & Burlington (128 North)

9th in the US for
“Top Markets to
Watch: Ov...
Other Area “Metros to Watch”
Points in Boston’s Favor:
• Investment prospects still considered strong.
• In its favor:
• A 24-hour knowledge-based econ...
APPROACHES TO
ENVIRONMENTAL RISK
MANAGEMENT

© 2013
Banks and Risk Management

• 94% of institution’s boards now devote more time to risk
management oversight than five years...
Attitudes Toward Environmental Risk
• “I know the banks’ Environmental Risk Reviewers would like to tighten
the standards ...
Benchmarks in Environmental
Due Diligence
4Q11

4Q12

1Q13

2Q13

17%

11%

7%

5%

Liquidating
CRE loans (%
of respondent...
Phase I ESA Market Benchmarks
Mass Phase I ESA Trend

• Steady growth trend in
2013
• 13% growth in 2Q13
• Continued in 3Q
New England Region
MASS Metro Performance
Intense Pressure
Intense Pressure
Phase I ESA Pricing and
Turnaround Time
• Intense pressure on price and turnaround time continues.
• Latest results show t...
Turnaround Time and Phase I
Pricing
• “Due to demands for fast turnaround and specialized service,
we have felt justified ...
“It’s a dog eat dog world.
I say we just wait it out.”
2014 Strategic Playbook

© 2013
Strategic Plays for 2014
1.
2.
3.
4.

Pay attention to the drivers
Target the strongest opportunities
Leverage technology
...
STRATEGY:
Target Drivers of Phase I ESA
Growth:
•
•
•
•
•
•
•

Developers
Equity REITs
Foreign investors
Institutional cap...
Recent Trend:
• The universe of buyers is growing rapidly
• The number of active buyers over the past twelve months
grew b...
10 Most Active Buyers
Most Active Sellers of CRE
Top 10 Developers
BOSTON
Top Buyers/Investors in 2013:
1.
2.
3.
4.
5.
6.
7.

National Development
Divco
Artemis
Davis Companies
AEW
Spear St...
Top SBA Lenders
• Wells Fargo
•
•
•
•

1st for 5th consecutive year ($ volume)
2nd largest in 7(a) loan units (3,481 loans...
Which Lenders Are Growing
Originations?
• “We've recently seen lenders aggressively come back to
this business who retreat...
Regional Banks 3Q13 Loan Growth
• PNC Financial Services Group (PNC), U.S. Bancorp
(USB) and KeyCorp (KEY) all reported lo...
STRATEGY:
Leverage Technology
• Efficiency is KEY to data
management
• Need for constant
communication
• Better collaborat...
One EP’s Take on Technology
How has technology changed the way that you conduct Phase I
environmental site assessments?
“N...
Most Used Apps by EPs
CRE and Tech Intersect
• NYC technology conference:
“More data. More transparency. If we can all get data into
people’s ha...
STRATEGY:
Seize Opportunities to Educate
Out in Front on Education Related to
ASTM E 1527-13:
Page 52
Impact of a New ASTM Standard
• Refocuses attention on education and awareness
• Some new requirements to consider
• Valua...
Other Opportunities to Educate
•
•
•
•

Vapor intrusion awareness
New SBA SOP 50 10 5(f) as of Jan. 1st
OCC Guidance, Augu...
Playbook Strategy Summary
•
•
•
•

Watch the market barometers
Be strategic in your business targets
Leverage technology
G...
Dianne P. Crocker
Principal Analyst, EDR Insight
Research and Analytics:
www.edrnet.com/EDRInsight
Twitter:
@dpcrocker
Ema...
Strategic Plays for the 2nd Half of Market Recovery: Boston
Strategic Plays for the 2nd Half of Market Recovery: Boston
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Strategic Plays for the 2nd Half of Market Recovery: Boston

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Presented by: Dianne P. Crocker
Boston DDD, December 4, 2013

In the grand scheme of market recovery, we now stand at the start of the second act. The past five years were all about survival. 2013 was the true start of market rehabilitation. And now as we prepare for 2014, optimism has finally taken root. Business confidence, profitability and investors’ forecasts are more positive than they have been in recent years. Despite the uncertain economic outlook, the prospects for property assessment firms are more encouraging than at any time since 2008. 2014 will be a year of refocusing and repositioning in a still-challenging market. Get the latest take on the market’s new normal:

-Pricing and turnaround time benchmarks
-The new clients, new lenders, new drivers
-Trends reshaping the market
-A look at what to expect in 2014

Published in: Business, Economy & Finance
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  • The pace of the economic and real estate recovery remainsuneven across U.S. metropolitan-area markets.The recovery has clearly had more momentum in marketswith favorable demographics, exposure to growing industrysectors, and those with an attractive cost of doing business.
  • Transcript of "Strategic Plays for the 2nd Half of Market Recovery: Boston"

    1. 1. Strategic Plays for the 2nd Half of Market Recovery Presented by: Dianne P. Crocker, Principal Analyst For presentation at: Boston Due Diligence at Dawn workshop December 2013
    2. 2. Market in Transition 2008 2009 2010 2011 2012 2013 2014 Survival Mode True start of market rehabilitation Year of refocusing and repositioning
    3. 3. © 2013
    4. 4. Status of Commercial Real Estate The year 2014 may well be the year that the real estate markets “recover from the recovery.” PricewaterhouseCoopers Emerging Trends in Real Estate, November 2013 © 2013
    5. 5. View of Market: 50,000 Feet CRE Lending -SBA Lending +14% +13% Property transactions: -Large +27% -Small (<$5M) +18% -Portfolios +20% CMBS Issuance +46% • All debt spigots are open. • Growing investor confidence. • More diversity in lenders, investors. • Activity across broader spectrum of properties. • Improving property fundamentals.
    6. 6. Large Commercial Real Estate Deals Up • 4Q12: the most active quarter since 4Q07 • By 3Q13, deal flow up 27% in 3Q YTD • Poised for healthy finish to the year
    7. 7. Small Cap Transactions • The velocity of small-cap sales is more than keeping pace with the larger CRE investment market. • Up 17% YTD this year • Transactions continue to grow at a faster clip in bigger cities than smaller ones.
    8. 8. Property Types in Favor • Multifamily is still the “belle of the ball” (up 31% Y-on-Y) • Retail: sales of strip centers are up 30% • Office/industrial getting more interest • Warehouse activity, especially in port cities
    9. 9. Properties in Flux • • • • • • • • U.S. Retail Store Closings in 2013: Blockbuster (460) Fashion Bug GameStop Barnes & Noble The Gap US Cellular Sears/Kmart
    10. 10. Good News on the CMBS Front • 2012: • Post-recession high of $48B • 2013: • Already surpassed year-end 2012 issuance • 46% growth forecast for 2013
    11. 11. Banks’ Sell-off of Nonperforming Assets
    12. 12. Commercial Property Lending Volume • Lenders have returned to originating commercial real estate loans as values and credit quality improve and demand increases • Commercial and multifamily real estate borrowing and lending continued at a moderate clip in the third quarter. • Origination volumes: • 29% higher than in Q3 2012 • Flat compared to 2Q13 • Up 14% year to date
    13. 13. LENDING: A Positive Take “More banks were lending on incomeproducing commercial real estate properties in more places in the 3rd quarter. The number of lenders who plan to increase property loans in next 12 months far outnumber those who plan to lower them.” ~ Sam Chandan, president and chief economist at Chandan Economics
    14. 14. Bottom Line on Lending • The comeback of commercial real estate lending is gaining momentum, especially credits backed by apartments and leased properties. • CRE lending was a scourge for scores of community banks during the financial crisis, but more banks are warming up to it in their quest for higher returns. • However, CRE lending volumes remain well below the highs of six years ago.
    15. 15. SBA Lending: A Bright Spot • Supported more than $29B in loans in FY13—its third-highest year ever. • More than 54,000 loans backed through its 7(a) and 504 programs • The number of 7(a) loan increased to 46,399 in 2013, 4.6% over the number of loans in FY 2012. • The 504 loans produced more than 7,700 loans in FY 2013, a slight decrease from FY 2012. • 7(a) lending is picking up steam after being halted by the government shutdown.
    16. 16. M&A Gaining Momentum • Slow 2012 turned corner • Uncertainty giving way to confidence • Firms turn to M&A for growth on their own • 2nd half of 2013 expected to be active
    17. 17. Spotlight on: BOSTON • Hot spots? • Seaport District & Burlington (128 North) 9th in the US for “Top Markets to Watch: Overall Real Estate Prospects
    18. 18. Other Area “Metros to Watch”
    19. 19. Points in Boston’s Favor: • Investment prospects still considered strong. • In its favor: • A 24-hour knowledge-based economy • Job growth outperforming US average • Boston’s rank by property type as “best places to buy real estate” in 2014: • 1st for office property • 4th for multifamily • 5th for retail
    20. 20. APPROACHES TO ENVIRONMENTAL RISK MANAGEMENT © 2013
    21. 21. Banks and Risk Management • 94% of institution’s boards now devote more time to risk management oversight than five years ago • 80% percent of chief risk officers report directly to either the board or the CEO Source: Deloitte lender study
    22. 22. Attitudes Toward Environmental Risk • “I know the banks’ Environmental Risk Reviewers would like to tighten the standards on a more consistent basis, but they get a lot of pressure from the loan officers to make the deals happen.” • “I believe that clients are more aware of the potential environmental risks involved with real estate and are requiring more in-depth research and diligence before purchasing property.” • “Our projects are much more likely to go to a Phase II investigation than in past years.” • Loan closings are being delayed for environmental issues-simply because financial institutions are no longer willing to take on risk as they once were.”
    23. 23. Benchmarks in Environmental Due Diligence 4Q11 4Q12 1Q13 2Q13 17% 11% 7% 5% Liquidating CRE loans (% of respondents) 51% 38% 42% 36% Selling REO (% of respondents) 77% 69% 65% 63% Phase Is proceeding to Phase IIs 6% 10% 17% 16% % of EDD for foreclosures
    24. 24. Phase I ESA Market Benchmarks
    25. 25. Mass Phase I ESA Trend • Steady growth trend in 2013 • 13% growth in 2Q13 • Continued in 3Q
    26. 26. New England Region
    27. 27. MASS Metro Performance
    28. 28. Intense Pressure
    29. 29. Intense Pressure
    30. 30. Phase I ESA Pricing and Turnaround Time • Intense pressure on price and turnaround time continues. • Latest results show that $1,800 - $2,400 is a typical basic Phase I ESA pricing range • Higher prices on the East and West coasts. • Average turnaround: • 2-3 weeks • As short as 8-10 days on portfolio projects. • Speed has become a differentiator…
    31. 31. Turnaround Time and Phase I Pricing • “Due to demands for fast turnaround and specialized service, we have felt justified in charging more for our services. Even with increased rates, we are still being awarded the work. Might raise our prices a bit more next quarter.” • “Based on large volume of work coming in the door and the demand for quick turnaround times, we have increased our prices and are choosing the clients we want to work with.”
    32. 32. “It’s a dog eat dog world. I say we just wait it out.”
    33. 33. 2014 Strategic Playbook © 2013
    34. 34. Strategic Plays for 2014 1. 2. 3. 4. Pay attention to the drivers Target the strongest opportunities Leverage technology Seize every opportunity to stand out © 2013
    35. 35. STRATEGY: Target Drivers of Phase I ESA Growth: • • • • • • • Developers Equity REITs Foreign investors Institutional capital and equity funds Financial institutions, insurance, credit unions M&A Retail/big box
    36. 36. Recent Trend: • The universe of buyers is growing rapidly • The number of active buyers over the past twelve months grew by 3,300 participants with the private sector seeing the greatest growth. • A number of new investors from Asia and Europe are also growing in influence. = new opportunities for expanding client base
    37. 37. 10 Most Active Buyers
    38. 38. Most Active Sellers of CRE
    39. 39. Top 10 Developers
    40. 40. BOSTON Top Buyers/Investors in 2013: 1. 2. 3. 4. 5. 6. 7. National Development Divco Artemis Davis Companies AEW Spear Street Campanelli Source: Cassidy Turley MA
    41. 41. Top SBA Lenders • Wells Fargo • • • • 1st for 5th consecutive year ($ volume) 2nd largest in 7(a) loan units (3,481 loans in FY13) Approved 18% more 7(a) loans over prior year 504 loan dollars up by 38 percent in 2013 • Chase • 1st for 4th consecutive year (# of loans) • Approved 4,104 7(a) loans in FY13 • At state level: top in Arizona, Illinois, Louisiana, New Jersey and New York. • Huntington, TD, US Bank
    42. 42. Which Lenders Are Growing Originations? • “We've recently seen lenders aggressively come back to this business who retreated during the crisis," said Philip B. Flynn, CEO of Associated Banc-Corp. • SunTrust Banks: • “We’ve put our distress problems behind us and are back to focus on growth." • Growing its retail, office, multifamily and industrial CRE relationships. • Also building out its REIT business • GE Capital Real Estate is increasing lending by 40% this year
    43. 43. Regional Banks 3Q13 Loan Growth • PNC Financial Services Group (PNC), U.S. Bancorp (USB) and KeyCorp (KEY) all reported loan growth of at least 5% in the third quarter • Loan growth for the regional banks is outpacing the growth of the industry overall
    44. 44. STRATEGY: Leverage Technology • Efficiency is KEY to data management • Need for constant communication • Better collaboration • Reduced cost/time • More engagement with clients
    45. 45. One EP’s Take on Technology How has technology changed the way that you conduct Phase I environmental site assessments? “Now I can go on a site visit, take photos on my smartphone or tablet, record my notes in real time, go to a coffee shop, upload everything to my computer and write my report. I can do all of this in between site visits, especially if I’m on the road or out of town. I used to carry around too much clutter to a site visit. Each time I performed a new function, I would have to put down one object to use another, distracting me from my greater purpose. Going into the field with just a smartphone or tablet is one of the most enlightening experiences for me.” Duncan Anderson, Odic
    46. 46. Most Used Apps by EPs
    47. 47. CRE and Tech Intersect • NYC technology conference: “More data. More transparency. If we can all get data into people’s hands faster, it’s a win-win for everyone. And these apps need to be rapidly deployed. They can’t take users even one second longer to use.” • Xceligent has a mobile app, eXplore™ iPad App, that gives commercial real estate professionals real-time access to over 50 fields of data by using a set radius or by drawing a polygon around a customized search area.
    48. 48. STRATEGY: Seize Opportunities to Educate
    49. 49. Out in Front on Education Related to ASTM E 1527-13:
    50. 50. Page 52
    51. 51. Impact of a New ASTM Standard • Refocuses attention on education and awareness • Some new requirements to consider • Valuable reminders on certain areas of EDD (e.g., user responsibilities) that risk managers may not have given much thought to in the past eight years Page 53
    52. 52. Other Opportunities to Educate • • • • Vapor intrusion awareness New SBA SOP 50 10 5(f) as of Jan. 1st OCC Guidance, August 2013 Real-world examples/reminders of why environmental due diligence is critical
    53. 53. Playbook Strategy Summary • • • • Watch the market barometers Be strategic in your business targets Leverage technology Get your name out there as a technical expert
    54. 54. Dianne P. Crocker Principal Analyst, EDR Insight Research and Analytics: www.edrnet.com/EDRInsight Twitter: @dpcrocker Email: dcrocker@edrnet.com
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