Spencer Levy - Capital Markets 2.0 - Did We Speak Too Soon?

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Spencer Levy - Capital Markets 2.0 - Did We Speak Too Soon?

  1. 1. Topics Just When You Thought It Was Safe to Get Back in the Water It’s Not All Bad Market Overall Stats Prediction by Asset Type Secular vs. Cyclical Change Predictions 2
  2. 2. Just When You Thought It Was Safe to Get Back in the Water
  3. 3. Just When You Thought It Was Safe to Get Back in the Water CMBS hit another speed bump US Debt was downgraded Rioting in the streets of Europe Greece is on the precipice of default Unemployment above 9% Weak GDP Growth Maybe a double dip? 4
  4. 4. Just When You Thought It Was Safe to Get Back in the Water “Release the Kraken”  This is what the market screams at the Fed to do every time there is a negative piece of economic data 5
  5. 5. It‟s Not All Bad
  6. 6. It‟s Not All Bad Khadafy is history Banks and Corporations are far better capitalized in 2011 than in 2008 Interest Rates are at Historic Lows Price of oil/gas is down Half Full substantially 7
  7. 7. It‟s Not All Bad Ashton Kutcher saved Two and ½ Men!!! Half Full 8
  8. 8. Market Overall Stats
  9. 9. Market Overall Stats2011 National Investment Sales Likely to Hit 2003-2004 Benchmarks APARTMENT HOTEL INDUSTRIAL OFFICE RETAIL TOTAL %CHANGE 2003 $29.8 $14.3 $46.7 $28.1 $120.1 n/a $47.7 $15.3 $15.6 $54.4 $38.0 $171.0 2011 Projected 2004 $51.2 $16.5 $21.7 $75.9 $50.1 $215.4 79.4% Totals 2005 $90.7 $28.2 $39.7 $109.0 $51.7 $319.3 48.3% 2006 $91.1 $36.6 $44.8 $135.5 $51.3 $359.3 12.5% 2007 $96.2 $61.4 $51.9 $210.0 $64.5 $483.9 34.7% 2008 $38.9 $11.9 $23.4 $57.1 $20.7 $152.1 -68.6% 2009 $16.2 $3.3 $9.3 $17.7 $12.2 $58.7 -61.4% 2010 $33.6 $13.1 $18.0 $44.5 $19.8 $129.1 120.0% 1H 2011 $20.6 $8.4 $7.1 $25.0 $17.3 $78.4 YE 2011* $47.7 $15.3 $15.6 $54.4 $38.0 $171.0 32.5%Source: Real Capital Analytics *Annualized ProjectionsCBRE Trailing 12 Months - # of Sales 5,000Sale Voucher Count, Annualized 4,500 In July, trailing 12 month aggregate 4,000 was 4,772 sales, still off 2007 trailing 3,500 12-month peak of 8,000. 3,000 2,500 2,000 Jan-11 Jun-11 Dec-10 Feb-11 Aug-10 Sep-10 Jul-11 Oct-10 Apr-11 Nov-10 Mar-11 May-11Source: CBRE Sale Voucher Data 10
  10. 10. Debt & Equity Finance 1H 2011 1H 2010 % chg Office $1.16B $0.58B 100% Retail $0.55B $0.08B 588% Industrial $0.72B $0.11B 554% Multi-Housing $3.43B $1.70B 102% Hotels $0.15B $0.07B 114% Special Purpose $0.38B $0.06B 533% US Loan Origination Volume $6.39B $2.60B 146% Total Loan Activity Volume* $7.68B $4.77B 61%* Overall volume includes Loan Sales of $1.29 billion in 1H 2011 and $2.17 billion in 1H 2010. 11
  11. 11. Who‟s Buying and Who‟s SellingU.S. Acquisitions and Dispositions by Capital SectorBuyers Sellers 3% 7% 5% 3% 8% 14% 9% 11% 10% 18% 19% Lender* 31% 12% 32% User/Other 7% 6% 30% 43% 45% Private 3% 50% 51% 35% 10% 8% 6% Non-Listed REIT 36% 38% 6% 18% Listed/REITs 26% 19% 22% 10% Equity Fund 16% 7% 6% 14% 9% 7% 12% 10% 14% Institutional 4% 10% 6% 14% 5% 10% 21% 16% 14% 14% 11% 12% Cross-Border 13% 16% 10% 12% 6% 6% 6% 7% 8% 4% 5% 7% 4% 4% 07 08 09 10 H1 11 07 08 09 10 H1 11Source: Real Capital Analytics, August 2011Analysis excludes the Blackstone/Centro portfolio that sold in June„11 for $9.2B.*This group includes lenders that have taken ownership or control the disposition process.Based on independent reports of properties and portfolios $2.5 million and greater. Data believed to be accurate but not guaranteed. 12
  12. 12. Market Overall StatsQuarterly Changes to U.S. Lender-Owned Property Slowing Down or the Calm Before the Storm? transfers dispositions net inflows REO balance $10 $50 Billions $5 $25 $0 $0 -$5 -$25 08 09 10 11 Source: Real Capital Analytics, August 2011, Chart depicts data through July 2011 and all property types, including developer sites Based on independent reports of properties and portfolios $2.5 million and greater. Data believed to be accurate but not guaranteed. 13
  13. 13. Prediction by Asset Type
  14. 14. Prediction by Asset TypeFundamentals Are Recovering Vacancy and Availability Rates Year Back to Record Market Slack 2011Q1 2011Q2 “Natural Rate” "Natural Rate" (Rate/Year)Multifamily 6.0 5.4 5 to 6 2010 7.4/2009Office 16.4 16.2 13 to 15 2013 16.8/2010Full Service Hotels 62.6 71.5 62 to 66 2011 57/2009Industrial 14.1 13.9 9 to 10 2015 14.5/2010Retail 13.0 13.2 9 to 10 2016 13/2010Source: CBRE Econometric Advisors (CBRE EA)CBRE Trailing 12 Months, Number of Leases 32,000 Total Lease Count, Annualized 31,000 30,000 29,000 28,000 27,000 26,000 25,000 Oct-10 Aug-10 Sep-10 Dec-10 Feb-11 Jul-11 Jan-11 Jun-11 Apr-11 May-11 Nov-10 Mar-11Source: CBRE Lease Voucher Data (transacted 29,136 leases in 2010) 15
  15. 15. Predictions by Asset Type The Chanel Purse: A Case Study 16
  16. 16. Secular vs. Cyclical Change (a/k/a This Time is Different)
  17. 17. Secular vs. Cyclical Change (a/k/a This Time is Different) Oil Volatility The Future of Banks 18
  18. 18. Secular vs. Cyclical ChangeOil Affects CRE directly  Retail: More gas money = less spending money  Multifamily: Move closer to the city to avoid long commutes (more multis)  Industrial: A net winner? Higher price of oil = less outsourcing = more US based manufacturing? 19
  19. 19. This Time is DifferentVolatility Relative Value of Real Estate is Attractive, But Volatile IRR BPS Spread to Moody’s BAA Corporate Bonds REIT Index Returns and Volatility 800 IRR Spread over Baa Corp Bond 2009 2010 YTD 700 Subsector Name Return Return Return Beta 600 500 Retail Index 27.17% 33.41% 12.64% 1.62 400 Multi-Housing Index 30.40% 47.04% 19.50% 1.31 300 200 Office Index 35.55% 18.41% 13.59% 1.52 100 Industrial Index 12.17% 18.89% 11.42% 2.12 0 Hotel Index 67.19% 42.77% -6.62% 2.21 2008.3 2006.3 2006.4 2007.1 2007.2 2007.3 2007.4 2008.1 2008.2 2008.4 2009.1 2009.2 2009.3 2009.4 2010.1 2010.2 2010.3 2010.4 2011.1 2011.2 Equity REITs Index 27.99% 27.96% 11.89% 1.46 Industrial Office Retail S&P 500 30.03% 19.76% 9.28% 1.00 Source: CBRE EA & CBRE Institutional Group 20
  20. 20. Secular vs. Cyclical Change (a/k/a This Time is Different)The Future of Banks Because of alternative lenders (CMBS, Life Insurance, GSEs), banks have disproportionately been pushed into higher risk lending.  Taking equity risk for debt returns FDIC Insurance is a competitive advantage, government scrutiny, isn‟t. 21
  21. 21. Predictions
  22. 22. PredictionsBeware of Conventional Wisdom What was the #1 Pop Song of the 1970‟s  Stairway to Heaven  Night Fever  Born to Run  You Light up My Life 23
  23. 23. Predictions No double-dip….but slow growth indefinitely Nothing (fiscally) gets done until 2013 CRE remains an attractive investment and core yields stay low and may get lower 10 year treasury goes over 3% by June 2012 as the Fed gets really worried about Stagflation And the winner of the 2012 Presidential election is….. 24

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