COLLIERS INTERNATIONAL DATA POINTS VALUATION & ADVISORY SERVICES A Monthly Meter of Real Estate Trends Manufactured Housing Valuation Group Manufactured Housing Valuation Group Colliers International Valuation & Advisory Services is a The March 2011 survey conducted by National Real Estate Inves‐ leading provider of real estate valuation and consulting tor suggests that 2011 may be a brighter year compared to 2010. services. Our Manufactured Housing Group is comprised of Loan Volume is expected to surge this year, based on Lender market experts nationwide. Whether a single property or a Predictions. portfolio of assets across the world, CIVAS’ Manufactured Housing Group has the depth of valuation experience to create superior results. With a highly efficient valuation system, CIVAS has built a reputation for excellence, cus‐ tomer service and responsiveness. Colliers International Valuation & Advisory Services (CIVAS), formerly renowned industry leader First Service PGP Valuation, has developed a strong reputation for qual‐ ity, credibility and dependability. CIVAS’ continued growth is supported by its position as a recognized leader in real estate valuation and advisory services while serving a full range of clients, geographies, and property types. Whether A similar group of lenders and borrowers also weighed in based providing services to REITs, pension funds, banks or other on their expectations for credit availability over the next 12 property owners, CIVAS expertise continues to create su‐ months. The results are encouraging. perior results that set the firm apart in the industry. Along with its unique and expanding platform, CIVAS attracts the valuation industry’s leading professionals. To learn how CIVAS can meet your unique needs, contact us today. Bruce.Nell@colliers.com Office Locations: Our growing group of offices are noted below. MHC specialists also located in Canada, Australia and the UK. A Global Snapshot: (Marketwire Press Release) ‐ Park Resorts, a dominate owner of manufactured home communities in the UK will be hosting street parties across its 30+ property UK portfolio to celebrate the wedding of Prince William and Kate Middleton. No word if either the bride or groom will attend any of the parties. Volume X, Issue #5 May, 2011
MANUFACTURED HOME COMMUNITY REAL ESTATE INVESTMENT TRUSTS (REITS) MHC REIT Comparison* Real Estate Investment Trusts (REIT) are significant players in Company ELS Sun UMH the manufactured home community industry. The primary Market Capitalization 1.81B 741.76 M 142.85 M REITs are Equity Lifestyle Properties, Sun Communities and Employees 3,600 747 130 United Mobile Homes. The chart to the right shows market Properties 302 136 35 data regarding the overall performance of each company. Total Sites 112,257 47,600 8,000 Average Community Size 372 350 229 As shown, Equity Lifestyle (ELS) is the largest REIT by a wide Revenue 505.11 M 265.96M 34.01M margin with a market cap of $1.8 Billion. Sun Communities Gross Margin 49.22% 59.12% 60.23% has a market cap of $741 Million, while United Mobile EBITDA 223.07 M 135.10M 8.45M Homes has a market cap of $142 Million. Each REIT has been publicly traded for over 10 years. Historically other Operating Margin 29.19% 25.01% 11.58% REITS have been present within this space; but were taken Net Income 42.30M ‐2.88M 6.67M private over the past 5‐10 years. They include American EPS 1.36 ‐0.15 0.52 Residential Communities, American Land Lease, Chateau P/E 42.88 ‐ 19.6 Communities and ROC Communities. PEG (5 Yr expected) 2.76 6.01 ‐ P/S 3.59 2.79 4.22 *Total prop erties current as of 12 /31/2010. All other d ata current as of 4/1/2011A review of the stock prices from October 2005 to April 2011 provides a glimpse into value trends for the manufactured housing industry. The chart below shows that stock prices held steady from the APRIL FOOLS: TOP‐10 FOOLISH REAL ESTATE 4th Qtr 2005 to 4th Qtr 2007. A general decline occurred in RELATED IDEAS OF THE PAST 20 YEARS all three stock values during 2008; consistent with overall declines in the stock market and the economy. In general By: KC Conway each stock appears to have hit bottom in the fourth Qtr 2008. Director of Market Analytics Colliers International Current stock prices represent 5 year highs for most of the sector. As stock prices continue to rise, will property values follow? GSE’s 1% Capital requirement: Government Sponsored Enterprises Freddie & Fannie were allowed to exist with a mere 1% capital requirement due to the “implicit government guarantees” with their mortgages. Recent industry chatter also suggests that 1 or 2 companies may seek to go public as a REIT over the next 12 months. ∙ FIRREA Exemption: Compounding the GSEs 1% capital structure was their ex‐ emption from the 1991 FIRREA legislation and USPAP appraisal requirements. Stock Price Oct‐05 Oct‐06 Oct‐07 Oct‐08 Oct‐09 Oct‐10 Apr‐11 This was the seed for today’s housing crisis. ELS $38.63 $45.21 $46.57 $39.52 $44.85 $56.24 $58.18SUN $16.72 $20.73 $19.59 $11.14 $15.24 $31.45 $37.23 UMH $9.94 $11.16 $9.62 $4.82 $6.74 $10.24 $10.25 ∙ Advent of “Subprime Mortgages” to appease Congress’ desire for higher home $70.00 ownership rates. These products resulted in the creation of “NINJA Loans” (No Income, No Job, No Ability to Pay – it’s OK). $60.00 $50.00 ∙ CRE concentration levels skyrocketing in banks from $800 billion in 1998 to $40.00 $3.5 trillion by 2008. The elevation of this kind of concentration risk by bank $30.00 regulators was a material risk that led to this banking and real estate crisis. $20.00 $10.00 ∙ Absence of any new “Interagency Appraisal Guidance” between 1994 and $0.00 2010 during the development of this real estate crisis. Oct‐05 Oct‐06 Oct‐07 Oct‐08 Oct‐09 Oct‐10 ∙ Collapse of Lehman without bank regulators understanding the systemic conse‐ ELS SUN UMH quences, or attempting to obtain the intervention authority to prevent the collapse of such a systemically important bank entity. A detailed analysis by our MHC experts will reveal trends spe‐ ∙ Collapse of CMBS market in 2008. It’s tough to restart. cific to your property and your location. On a local level, value is tied to performance. Rent, expense and occupancy levels ∙ Drive‐by appraisals without inspection. are the key, and understanding supply and demand in your market is critical for understanding your value. Our MHC ∙ Cap Rates below 4% and the yield for a 10‐Yr Treasury. Group is on‐call to provide expertise on local, regional, and national levels. ∙ Dodd‐Frank bank reform legislation.
DEBT AS INTOXICANT Peter Ingersoll Chief Executive of the Invest- ment Advisory Safe Harbour Equity Inc.Peter Ingersoll is Chief Executive of the investment advisory Safe Harbour Equity Inc. and a serial entrepreneur. He has an economics degree from the University of Pennsylvania Wharton School and several advanced degrees from the School of Hard Knocks. The following article is adapted from a chapter in his book, “The Real Estate Tsunami Survivors Guide,” that was published in December 2010. The book features interviews and remarks from industry leaders such as Dr. Sam Chandan, the global economist for Real Capital Analytics; Ethan Recent groundbreaking work by banker Marc R. Thompson, CRE, Penner, president of CBRE Capital Partners; and Michael J. Panzner, au CCIM, FRICS clearly shows that lax underwriting standards are a thor of “Financial Armageddon: Protecting Your Future from Four Im prerequisite to support an asset price bubble; that the emergence of pending Catastrophes” and “When Giants Fall: An Economic Roadmap for a debt bubble preceded and was the cause of the enormous price the End of the American Era.” run‐up; and that this debt bubble must deflate to its historic mean Despite recent news reports of commercial real estate transactions com‐ aggregate level. pleted at capitalization rates similar to the boom years between 2004 and Thompson’s chart illustrates the point using the Flow of Funds Ac‐2007, there are still massive numbers of loans maturing that will go into counts published by the Federal Reserve Board of Governors. The technical default in the coming years. Many market participants seem all too Fed tracks bank deposits and loans to identify geographic regions eager to readopt the notion that a bull market lays before us; however, tens and industry sectors that have elevated economic activity. The black of thousands of distressed owners remain. The inconceivable notion that line represents the Consumer Price Index. they could potentially lose their property has become reality. All this re‐ If the rate of inflation increases in 2011, 2012 and 2013, this line formed the common intoxicant we all imbibed to support the asset bubble in becomes steeper, decreasing the aggregate amount of outstanding commercial real estate: the hooch of cheap and easy loans. loans needed to return to the historical mean. That means fewer Easy money is the precedent cause of real estate asset bubbles, not the re‐ loans will have to be written off and the loans that are discounted sult. Without easy and cheap money, none of the deals at the market’s top wont be discounted as steeply. could have been contemplated or closed. Had bankers been more prudent in Practitioners of commercial real estate tend to think of debt financ‐their underwriting, far fewer loans would have been issued. Those that were ing as the caboose on the acquisition train. One must first identify issued would have had more stringent, some might say realistic terms, that the site, then do preliminary investigation, then make an offer, then would likely have required a price discount. Fewer transactions would have negotiate a successful contract, then complete preliminary due dili‐resulted, and at lower prices. gence, and then make the loan application. This sequence makes During that heady time, nearly all of us in the commercial real estate indus‐ sense because no investor wants to fork over the dough for apprais‐try drank the hooch and entered into the starry‐eyed belief that future in‐ als, property condition reports, environmental reports and loan come would be sufficient to repay the enormous loans taken out against commitment fees until it is relatively certain that something is properties bought at stratospheric prices. We also entered into the belief worth buying. However, in regards to a price bubble, its important that 85 percent loan‐to‐value, non‐recourse loans at 5.5 percent with a 30‐ to remember that access to cheap debt precedes and causes pricing year amortization would continue forever. bubbles. Most commentary about the aftermath of the commercial In hindsight this shared delusion seems comical. Yet, while the party was real estate price bubble is focused on the fall of real estate prices hopping and the music was swinging, it somehow made sense. Whats left and the return of a normal functioning debt market. We all under‐from our inebriated, multi‐year binge is the equivalent of stale beer in the stand that the return of lending will support asset prices. But if we carpet: thousands of loans once worth trillions of dollars that cannot be professionals were successful in deluding ourselves between 2004 sustained by declining real estate fundamentals and cannot be refinanced at and 2007, we should admit that we are prone to irrational exuber‐their current values. ance and pay attention to our embedded belief systems before em‐Policy makers at the FDIC, the Federal Reserve and the U.S. Treasury are barking on an aggressive acquisition campaign. working feverishly to stabilize and re‐inflate commercial property values to The mountain of commercial real estate debt will deflate on its own reduce losses on the $1.59 trillion in commercial loans currently held on the timetable until it is back to its historic mean. In the next several books of U.S. banks alone. They have been largely successful in preventing a years we will all watch the equivalent of high‐stakes musical chairs: massive fire sale of distressed commercial assets so far, and have set the not everyone is going to get a seat; not everyone is going to get a stage for the possibility of an “orderly disposition” of those distressed assets. loan. Those left without a seat will sadly see their movie end in However, stabilization is a long way from sustained asset appreciation. The tears. Those who keep their seats will see many acquisition oppor‐debt bubble must deflate and deflate it will. tunities as loans mature and are refinanced, discounted or fore‐ closed. The process equates to a marketplace processing the toxins of a hangover. It looks like we are going to have a headache until 2013.