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    Outlook 2011 Outlook 2011 Document Transcript

    • Sponsored by
    • 2010: Active in the Halls of Government• Santa Cruz rental inspection ordinance• San Jose reduces rent control fees• San Jose protects owners liability• Menlo Park goes smoke‐free (sort of)• Campbell business license tax• Mountain View scales back relocation program• Electoral success Active in the Halls of GovernmentCAA Tri‐County’s efforts saved rental owners – $2.00/unit in San Jose – Burdensome calculations in Campbell – $38/unit in Santa Cruz – Liability for a tenant’s unruly behavior – Posting signs throughout their property
    • Rental Housing Market Outlook 2011 Steve Seligman Vice President & Regional Manager Marcus & Millichap 2011 CAA Tri-County OutlookSteven Seligman – Regional Manager
    • EMPLOYMENT TRENDS U.S. Employment Change by Sector 2010 U.S. Employment Sectors Absolute Change % Change Education & Health Services 422,000 2.2% Prof. & Business Services 366,000 2.2% Leisure & Hospitality 240,000 1.8% Trade, Transport & Utilities 227,000 0.9% Manufacturing 136,000 1.2% Natural Resources & Mining 92,000 13.6% Other Services 65,000 1.2% Total Gain 1,548,000 Information (37,000) -1.3% Financial Activities (72,000) -0.9% Construction (93,000) -1.6% Government (222,000) -1.0% Total Loss (424,000)Sources: Marcus & Millichap Research Services, BLS
    • Employment Absolute Change by Metro Forecast 2011 Top 15 Bottom 15 Markets Abs Chg % Chg Markets Abs Chg % Chg Washington, DC 85,300 2.9% Las Vegas 14,000 1.8% New York City 84,000 2.3% Oakland 13,400 1.4% Dallas-Fort Worth 77,000 2.7% Cincinnati 13,200 1.3% Houston 65,000 2.6% Kansas City 13,000 1.4% Los Angeles 56,000 1.5% Salt Lake City 12,000 2.0% Chicago 52,500 1.3% West Palm Beach 12,000 2.4% Boston 49,000 2.1% Cleveland 11,000 1.1% Atlanta 37,000 1.6% Fort Lauderdale 9,500 1.4% Orange County 36,000 2.6% Sacramento 9,500 1.2% Phoenix 36,000 2.1% Jacksonville 9,000 1.6% Seattle-Tacoma 36,000 2.2% Detroit 8,400 0.5% Austin 28,000 3.6% Tucson 7,800 2.2% Philadelphia 28,000 1.0% Baltimore 7,376 0.6% Minneapolis 25,500 1.5% Louisville 7,000 1.2% Denver 24,000 2.0% Oklahoma City 4,976 0.9% U.S. Total 2,000,000 1.5% U.S. Total 2,000,000 1.5%* San Jose: +21,000 (+2.5%), San Francisco: +20,400 (+2.2%)Sources: Marcus & Millichap Research Services, BLS Employment Trends Bay Area vs. United States 8% 2000-2008 2009 2010* 2011** Year-over-Year Percent Change 4% 0% -4% -8% San Jose San Francisco Oakland United States 2009 : -55,900 -59,600 -60,200 -4,740,000 2010* : +7,000 -11,300 -12,000 +1,124,000 2011** : +21,000 +20,400 +13,400 +2,000,000* Year-end estimate** ForecastSources: Marcus & Millichap Research Services, BLS
    • CAPITAL MARKETS Recent 10-Year Treasury Movement Reflects the Power of Market Sentiment, Expectations and Uncertainty 150K+ Monthly Private Employment Growth 4.00 “Cash for Clunkers” BP Oil Ends Spill Euro Debt 3.75 Crisis Bush-Era Tax 10-Year Treasury Rates Cuts Extended 3.50 Disappointing Private Employment Growth Healthcare Reform Bill 3.25 Signed into Law Retail Sales Exceed Expectations 3.00 1Q10 U.S. GDP QE2 Revised Down Announced 2.75 To 2.7% 2Q10 China 2.50 GDP Slows To 10.3% Lower Jobless Claims 2.25 Se 0 9 Se 9 10 Au 0 M 10 M 0 Ap 0 O 9 D 9 O 0 D 0 Fe 0 N 9 N 0 Ju 0 Ja 9 0 1 l-0 l-0 l-1 1 -1 -0 -1 -1 0 -0 1 -1 1 -0 -1 r- n- g- b- p- p- n- ov ov ar ct ct ay ec ec Ju Ju JuSources: Marcus & Millichap Research Services, Federal Reserve
    • Core Inflation vs. 10-Year Treasury Core Inflation 10-Year Treasury 20% Avg. Core Inflation Avg. 10-Year Treasury 15% Rate 10% 7.21% 4.41% 5% 0% 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20Sources: Marcus & Millichap Research Services, Economy.com, Federal Reserve U.S. Commercial Mortgage Delinquency Rates by Lender Type CMBS (30+ days and REO) Life Companies (60+ days) Fannie Mae (60+ days) Freddie Mac (60+ days) 10% Banks & Thrifts (90+ days) 8%Delinquency Rates 6% 4% 2% 0% 4Q 997 4Q 998 4Q 99 4Q 000 4Q 001 4Q 002 4Q 003 4Q 004 4Q 005 4Q 06 1Q 007 2Q 008 3Q 008 4Q 008 1Q 008 2Q 009 3Q 009 4Q 009 1Q 009 2Q 10 3Q 010 10 19 20 20 20 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 4Q Delinquency rates at the end of each period Sources: Marcus & Millichap Research Services, Mortgage Bankers Association
    • Total Commercial/Multifamily Mortgage Debt Outstanding: $3.2 trillion* State & Local Savings Govt GSEs and By Lender Types ($Bil): Institutions 3% Ginnie Mae Commercial Banks $1,428.1 Federal 6% 10% Government CMBS, CDO & Other ABS $639.9 2% GSEs and Ginnie Mae $317.2 CMBS, CDO Life Insurance Companies $298.6 and other ABS Savings Institutions $180.1 issues 20% State & Local Governments $89.9 Federal Government $78.8 Others $169.9 Commercial Others Banks 5% 45% Life insurance companies 9%* As of 3Q10Sources: Marcus & Millichap Research Services, Mortgage Bankers Association Sources of Commercial Real Estate Acquisition Financing by Dollar Volume 100% Bank -natl, intl, inv bnk 16% 30% 27% 35% Assumed Debt 75% CMBS 36% 16% 32% Regional/Local Bank Percent 25% 50% 5% 1% Insurance 35% 17% 19% 13% Seller Financed 25% 5% 12% 8% Financial 6% 2% 12% 7% 7% 13% 4% 6% 7% 4% 0% 2007 2008 2009 2010**Through OctoberSources: Marcus & Millichap Research Services, Real Capital Analytics
    • U.S. Commercial Mortgage Backed Securities (CMBS) Issuance U.S. CMBS $250 CMBS Issuance (billions) $200 $150 $100 $50 $0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20Sources: Marcus & Millichap Research Services, Commercial Mortgage Alert PROPERTY FUNDAMENTALS
    • U.S. Apartment Rent and Vacancy Trends Asking Rent Vacancy Rate $1,100 12% Asking Rent per Unit $1,000 9% Vacancy Rate $900 6% $800 3% $700 0% 00 01 02 03 04 05 06 07 08 09 10* 11*** Estimate** ForecastSources: Marcus & Millichap Research Services, Reis Average Apartment Asking Rent $2,000 2000-2008 2009 2010* 2011** Average Asking Rent per Unit $1,800 $1,600 $1,400 $1,200 $1,000 Santa Clara San Mateo Alameda * Estimate **Forecast Sources: Marcus & Millichap Research Services, Reis
    • Average Apartment Vacancy 2000-2008 2009 2010* 2011** 8% 6% Vacancy 4% 2% 0% Santa Clara San Mateo Alameda* Estimate** ForecastSources: Marcus & Millichap Research Services, Reis U.S. Office Rent and Vacancy Trends Asking Rent Vacancy Rate $30 25%Asking Rent per Square Foot $28 20% Vacancy Rate $26 15% $24 10% $22 5% 00 01 02 03 04 05 06 07 08 09 10* 11*** Estimate** ForecastSources: Marcus & Millichap Research Services, Reis
    • Average Office Asking Rent $80 2000-2008 2009 2010* 2011** Average Asking Rent per Sq. Ft. $60 $40 $20 $0 Santa Clara San Mateo Alameda* Estimate** ForecastSources: Marcus & Millichap Research Services, Reis Average Office Vacancy 2000-2008 2009 2010* 2011** 32% 24%Vacancy 16% 8% 0% Santa Clara San Mateo Alameda* Estimate** ForecastSources: Marcus & Millichap Research Services, Reis
    • U.S. Retail Rent and Vacancy Trends Asking Rent Vacancy Rate $20 12%Monthly Asking Rent per Square Foot $18 10% Vacancy Rate $16 8% $14 6% $12 4% 00 01 02 03 04 05 06 07 08 09 10* 11*** Estimate** ForecastSources: Marcus & Millichap Research Services, Reis Average Retail Asking Rent 2000-2008 2009 2010* 2011** $35 Average Asking Rent per Sq. Ft. $30 $25 $20 $15 Santa Clara San Mateo Alameda* Estimate** ForecastSources: Marcus & Millichap Research Services, CoStar Group, Inc.
    • Average Retail Vacancy 2000-2008 2009 2010* 2011** 10% 8% 6% Vacancy 4% 2% 0% Santa Clara San Mateo Alameda* Estimate** ForecastSources: Marcus & Millichap Research Services, CoStar Group, Inc. INVESTMENT TRENDS
    • National Apartment Price / Cap Rate Trends Average Price Cap Rates $125 10%Average Price per Unit (000s) $100 9% Average Cap Rate $75 8% $50 7% $25 6% $0 5% * 01 02 03 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20* EstimateIncludes sales $1Million and GreaterSources: Marcus & Millichap Research Services, Costar Group, Inc. Apartment Prices by County 2002-2008 2009 2010* $240 Average Price per Unit (000s) $180 $120 $60 $0 Santa Clara San Mateo Alameda* Preliminary EstimateIncludes Sales $500,000 and aboveSources: Marcus & Millichap Research Services, CoStar Group, Inc.
    • Apartment Cap Rates by County 2002-2008 2009 2010* 7%Average Cap Rate 6% 5% 4% 3% Santa Clara San Mateo Alameda* Preliminary EstimateIncludes Sales $500,000 and aboveSources: Marcus & Millichap Research Services, CoStar Group, Inc. National Office Price and Cap Rates Average Price Cap Rates $250 10%Average Price per Square Foot $200 9% Average Cap Rate $150 8% $100 7% $50 6% $0 5% * 01 02 03 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20* EstimateIncludes sales $1Million and GreaterSources: Marcus & Millichap Research Services, Costar Group, Inc.
    • Office Prices by County 2002-2008 2009 2010* $400 Average Price per SqFt $300 $200 $100 $0 Santa Clara San Mateo Alameda* Preliminary EstimateIncludes Sales $500,000 and aboveSources: Marcus & Millichap Research Services, CoStar Group, Inc. Office Cap Rates by County 2002-2008 2009 2010* 10%Average Cap Rate 8% 6% 4% 2% Santa Clara San Mateo Alameda* Preliminary EstimateIncludes Sales $500,000 and aboveSources: Marcus & Millichap Research Services, CoStar Group, Inc.
    • National Retail Price and Cap Rates Average Price Cap Rates $200 10%Average Price per Square Foot $160 9% Average Cap Rate $120 8% $80 7% $40 6% $0 5% * 01 02 03 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20* EstimateIncludes sales $1Million and GreaterSources: Marcus & Millichap Research Services, Costar Group, Inc. Retail Prices by County 2002-2008 2009 2010* $420 Average Price per SqFt $315 $210 $105 $0 Santa Clara San Mateo Alameda* Preliminary EstimateIncludes Sales $500,000 and aboveSources: Marcus & Millichap Research Services, CoStar Group, Inc.
    • Retail Cap Rates by County 2002-2008 2009 2010* 10% 8%Average Cap Rate 6% 4% 2% Santa Clara San Mateo Alameda* Preliminary EstimateIncludes Sales $500,000 and aboveSources: Marcus & Millichap Research Services, CoStar Group, Inc. DISTRESSED ASSETS
    • U.S. Estimated Distressed Assets Summary By Property Type Distressed $ in Bil. # of props Office $48.3 1,876 Apartment $37.9 2,728 Hotel $33.0 1,200 Development Site $29.3 1,318 Retail $24.1 1,959 Industrial $9.1 1,271 Other $4.2 402 Grand Total $186.0 10,754* As of November 15, 2010Note: Some portfolio deals may not be allocated to a single marketSources: Marcus & Millichap Research Services, Real Capital Analytics Estimated Distressed Assets Summary Major Western Markets Distressed $ in Mil. # of props Las Vegas $17,954.9 466 Los Angeles $7,749.3 593 Inland Empire $3,236.6 282 San Francisco $3,063.3 244 Orange County $3,034.3 132 Seattle $2,777.0 156 San Diego $2,437.6 172 Oakland $2,378.0 169 San Jose $2,030.6 128 Sacramento $1,976.8 211 Portland $621.6 56 Grand Total $47,260.0 2,609* As of November 15, 2010Note: Some portfolio deals may not be allocated to a single marketSources: Marcus & Millichap Research Services, Real Capital Analytics
    • Estimated Distressed Assets Summary By Property Type-San Jose Distressed $ in Mil. # of props Office $1,124.4 38 Hotel $264.6 12 Development Site $211.0 5 Retail $164.5 18 Industrial $133.6 24 Apartment $132.6 31 Grand Total $2,030.6 128* As of November 15, 2010Note: Some portfolio deals may not be allocated to a single marketSources: Marcus & Millichap Research Services, Real Capital Analytics Estimated Distressed Assets Summary By Property Type-San Francisco Distressed $ in Mil. # of props Office $1,434.1 47 Apartment $802.5 139 Hotel $366.9 15 Retail $234.7 26 Industrial $158.8 9 Development $40.0 5 Grand Total $3,037.0 241* As of November 15, 2010Note: Some portfolio deals may not be allocated to a single marketSources: Marcus & Millichap Research Services, Real Capital Analytics
    • Estimated Distressed Assets Summary By Property Type-Oakland Distressed $ in Mil. # of props Office $643.7 33 Development Site $449.1 24 Apartment $319.6 28 Hotel $285.1 13 Retail $247.6 30 Industrial $143.0 25 Grand Total $2,088.2 153* As of November 15, 2010Note: Some portfolio deals may not be allocated to a single marketSources: Marcus & Millichap Research Services, Real Capital Analytics Estimated Distressed Assets Summary By Property Type-Bay Area Distressed $ in Mil. # of props Office $3,202.2 118 Apartment $1,254.7 198 Hotel $916.6 40 Development Site $700.1 34 Retail $646.8 74 Industrial $435.4 58 Grand Total $7,155.8 522* As of November 15, 2010Bay Area includes: San Francisco, San Jose, and OaklandNote: Some portfolio deals may not be allocated to a single marketSources: Marcus & Millichap Research Services, Real Capital Analytics
    • Tri‐County Local Issues Outlook Joshua Howard Executive Director California Apartment Association, Tri‐County Division Outlook 2011 Local government finance• Local government & school district deficits – San Jose $110‐million – Mountain View $2‐million – San Mateo County $84‐million• Fee and tax increases • School parcel taxes• Government reform
    • Measure A March 8, 2011 Special Election$64,000/unit tax on new multi‐family development Outlook 2011 Local regulations • Soft story retrofits • Smoking regulations continue • Interest on security deposits • Bed bug liability
    • Outlook 2011 Local rental market• From the headlines…. Outlook 2011 Local regulations• Just cause• Late fee regulations• Rental housing database• Longer notice period to terminate tenancy
    • Outlook 2011 Partnerships for a stronger community
    • State & National Issues Outlook & Update Thomas Bannon, CEO, California Apartment AssociationDebra Carlton, Senior Vice President, California Apartment Association CAA State Legislative Affairs2010 Year In Review & Looking Forward
    • Bills Signed by the Governor Domestic ViolenceThis new law gives a tenant an option to change the locks ifhe/she has written proof that he/she is the victim of domesticviolence. It also provides that a landlord cannot terminate atenancy or fail to renew a tenancy based solely upon an act oracts of domestic violence against a tenant. The law does,however, specifically give landlords the right to evict the tenantif he/she allows the perpetrator to visit the property or theproperty owner reasonably believes that the presence of the perpetrator poses a physical threat to other tenants, guests, or to a tenants right to quiet enjoyment of the property. SB 782 (D-Yee).
    • Carbon Monoxide DetectorsThis new law requires an owner of a housing unit to install a carbon monoxide device in each existing dwelling unit that has a fossil fuel burning heater or appliance, fireplace, or an attached garage: For all existing single‐family dwelling units intended for human occupancy on or before July 1, 2011. For all other existing dwelling units intended for human  occupancy on or before January 1, 2013.  SB 183 (D‐Lowenthal). ForeclosuresThis new law requires a 90 day disclosure be given by aproperty owner, informing tenants of their rights when theproperty owner terminates a tenancy after a foreclosure action.At the same time, this new law allows an unlawful detainerlawsuit to be “masked” by the court permanently if thebuildings was involved in a foreclosure and the unlawfuldetainer action against the tenant is never taken to a finaljudgment. SB 1149 (D-Corbett).
    • Bills Vetoed by the Governor Rental Property: AnimalsThis bill would have prohibited a landlord from advertising orestablishing rental policies that required a tenant or a potentialtenant with an animal to have that animal debarked ordeclawed. AB 2743 (D-Nava).
    • RecyclingThis bill attempted to mandate commercial recycling on privatebusinesses (rental property) that produced more than fourcubic yards of waste a week. It modified existing localpermitting requirements and required the Department ofResource Recycling and Recovery (CalRecycle) to provide theLegislature with a report on the progress being made by thestate towards a 75 percent diversion goal.AB 737 (D-Chesbro). 2011 Legislative Make-Up
    • State Senate 25 Democrats ‐ 15 Republicans           (5 Moderates)• Balance of Power remained unchanged  • 10 new Senators elected (6 Dem, 4 Rep)• CAAPAC supported 10 of 10• 1 new Moderate Democrat (Vargas, D‐San  Diego)• 2 seats away from 2/3 majority  State Assembly 52 Democrats ‐ 28 Republicans           (6‐8 Moderates)• 28 new Assemblymembers elected• 17 Democrats  ‐ 11 Republicans • CAAPAC supported 24 of 28• Democrats gained 1 seat• 2 seats away from 2/3 majority (3 in 2010)
    • Looking AheadAnticipated Legislative Activity Funding, Finance & State Budget Publicly Traded Companies – Increase in Property Tax – Definitional Changes to Change in Ownership Rental Property Owner Tracking Payments to Contractors – Withholding Permanent Source of Funding for Affordable Housing – Escrow Fees 1031 Exchanges – Eliminate Tax Benefits
    • Landlord‐Tenant Source of Income – Section 8 Protected Status Just Cause Cap or Eliminate Rental Payment Late Fees Rental Housing Registry 90‐Day Notice for No Cause Evictions No‐Smoking Legislation EnvironmentalAB 32 – Changes to Agency OversightMandatory Water SubmetersProhibit RUBSMandatory Recycling
    • Substandard Housing Violations Bed Bug Legislation Lead Paint Education – Substantial Equivalency with Federal Law Employer/Employee Eliminate Arbitration Agreements Prohibit Credit Screening of Employees Prohibit Criminal Screening for some Employees
    • Governor’s 3 Point PlanSpeak the Truth. No more smoke andmirrors on the budgetNo New Taxes unless approved by peopleReturn authority to local governments Legal Cases
    • Rental Housing Inspections Rental Housing Owners Association of Southern Alameda County v. City of HaywardIssue: May a City enforce an inspection ordinance thatmandates the owner “shall” allow entry into the unit (incontradiction to state law (which strictly limits the right ofentry into an occupied unit))? • Status: Victory at Trial Level. City may not enforce requirement. Case is on appeal. CAA Filed Amicus Brief in Appellate Court in Decemberl. Section 8 Sabi v. SterlingIssue: Is an owner required to accept a Section 8 voucher from adisabled tenant? Specifically, (1) Does the prohibition against“source of income” discrimination require an owner to participate inthe Section 8 program? and (2) Is it a “reasonable accommodation”for the owner to be required to take this resident’s voucher, whenshe has been a tenant for years, and her sons, who are also on thelease (but reside elsewhere) have always paid the rent? • Status: Victory. In April, the Court of Appeal ruled in favor of the landlord, holding Section 8 vouchers do not fall within the protections of the “source of income” provisions of California law and that under the facts of this case, the owner was not required to take the voucher as an accommodation for the tenant’s disability.
    • www.caanet.org