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Risk Management Association\'s CRE Panel

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Risk Management Association\'s CRE Panel

  1. 1. State Of The CRE Markets Los Angeles County Risk Management Association April 29, 2010 Los Angeles Athletic Club By: Ted Simpson, MCR Executive Director Cushman & Wakefield of California, Inc.
  2. 2. TODAY’S AGENDA I. Community Bank CRE vs. Institutional CRE II. Industrial III. Retail IV. Office V. Forecast
  3. 3. Last Three Years 2007 – Forecasting end of party 2008 – Forecasting how ugly 2009 – “We’ve seen this movie before” 2010 – Recovery is the next story
  4. 4. INDUSTRY: A big bounce Source: Beacon Economics
  5. 5. PROFITS Source: Beacon Economics
  6. 6. JOBS, JOBS, JOBS Source: Beacon Economics
  7. 7. STIMULUS LEFT IN THE SYSTEM Stimulus Package to April Spent $210 billion In process $151 billion Left to spend $219 billion Tax cuts issued $119 billion Tax cuts remaining $93 billion Tax Breaks by Income Avg. tax Drop in Income savings tax bite Under $19K $476 -95.0% $19K-$38K $652 -22.0% $38K-$66K $781 -9.0% $66K-$112K $1,301 -7.5% $112K-$161K $2,549 -8.3% $161K-$227K $3,883 -8.3% $227K-$603K $5,133 -5.7% $2.8M plus $39,350 -1.4% Source: Beacon Economics
  8. 8. CALIFORNIA: A widespread hit Jan-10 Bakersfield 224,800 -5.5% Salinas 121,300 -5.7% San Diego 1,212,700 -7.3% Santa Barbara 161,200 -7.4% San Francisco 922,200 -7.7% Stockton 191,500 -8.0% Los Angeles 3,761,900 -8.2% Ventura 270,100 -8.3% San Jose 841,700 -8.5% Modesto 143,900 -9.6% Oakland 945,700 -9.6% Santa Ana 1,351,500 -10.6% Santa Rosa 168,000 -11.7% Riverside 1,102,400 -12.2% Source: Beacon Economics
  9. 9. Greater Los Angeles Industrial Market Overall Rental Rate vs. Vacancy Rate $0.70 7% $0.66 $0.60 $0.63 6% $0.60 $0.50 $0.54 $0.53 5% $0.52 $0.51 $0.49 $0.50 $0.49 $0.49 $0.50 $0.40 4% $0.30 3% $0.20 2% $0.10 1% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 Average Asking NNN Rate Vacancy
  10. 10. Los Angeles County Industrial Sales Average Price per Square Foot $160 $140 $137.56 $130.57 $120 $110.42 $100 $91.04 $89.18 $80 $84.37 $66.65 $60 $65.66 $65.21 $40 $20 $0 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 Source: Real Estate Capital Analytics, Inc. Based on transactions over $5 million
  11. 11. INDUSTRIAL CASE STUDY ADDRESS: 4633 La Palma Ave SQ. FT.: 281,548 / 11 acres PRICE: $21M PRICE PER SF: $75/SF ■ 27 Offers ■ A lot of money chasing very few industrial deals ■ CAP rates have compressed about 100 basis points in the past 6 months
  12. 12. Greater Los Angeles Retail Market Overall Rental Rate vs. Vacancy Rate $3.00 7% $2.80 $2.60 $2.40 $2.53 6% $2.43 $2.20 $2.33 $2.33 $2.00 $2.19 5% $2.04 $1.80 $1.86 $1.60 $1.71 $1.78 $1.40 4% $1.47 $1.20 $1.31 $1.36 $1.00 3% $0.80 $0.60 2% $0.40 $0.20 $0.00 1% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 Average Asking NNN Rate Vacancy
  13. 13. Los Angeles County Retail Sales Average Price per Square Foot $450 $400 $385.00 $350 $355.00 $300 $295.00 $286.00 $250 $245.00 $221.00 $219.00 $200 $179.00 $150 $100 $50 $0 2002 2003 2004 2005 2006 2007 2008 2009 Source: Real Estate Capital Analytics, Inc. Based on transactions over $5 million
  14. 14. U.S. UNEMPLOYMENT RATES U.S. Unemployment Rates March 2010 (U.S. Rate = 9.7%) 9.5% 7.1% 8.2% 4.0% 6.5% 10.6% 7.4% 7.0% 9.4% 4.8% 8.8% 8.6% 9.3% 9.2% 7.3% 14.1% 12.6% 6.8% 9.0% 5.0% 9.8% 13.4% 11.0% 7.7% 9.9% 7.2% 11.5% 7.9% 9.5% 9.2% 6.5% 9.5% 7.4% 12.6% 10.7% 11.1% 10.6% 9.6% 6.6% 8.8% 7.8% 12.2% 11.0% 0.0% to 5.0% 11.5% 10.6% 6.9% 5.1% to 7.3% 8.2% 7.4% to 9.0% 6.9% 9.1% to 10.7% 8.6% 12.3% 10.7% to 14.1% Source: U.S. Bureau of Labor Statistics, Cushman & Wakefield Research Services.
  15. 15. SOUTHERN CALIFORNIA OVERALL VACANCY ANALYSIS 30.0% 26.0% 25.6% 25.0% 20.6% 19.4% 19.5% 19.2% 20.0% 17.6% 17.8% 17.6% 16.6% 17.2% 16.9%16.6% 16.1% 16.7% 14.8% 15.0% 12.7% 12.1% 10.0% 5.0% 0.0% LA CBD LA West LA North LA South Tri Cities Orange San Gabriel Inland San Diego Bay County Valley Empire 1st Quarter 2009 1st Quarter 2010
  16. 16. LOS ANGELES OFFICE HISTORICAL Direct Direct Overall Overall Direct Average YTD Direct YTD Construction Year Total Inventory Vacancies Vacancy % Vacancies Vacancy % Rental Rate $ Absorption Completions 1991 163,417,235 31,405,413 19.2% 37,216,760 22.8% $1.67 4,997,889 1992 166,562,180 32,495,516 19.5% 38,391,913 23.0% $1.63 1,729,084 388,976 1993 165,849,906 31,241,165 18.8% 37,394,411 22.5% $1.43 (581,657) 0 1994 166,055,491 31,350,874 18.9% 37,679,239 22.7% $1.40 321,611 48,000 1995 167,427,474 30,023,036 17.9% 35,693,395 21.3% $1.64 (50,285) 169,700 1996 168,348,948 29,624,594 17.6% 33,833,734 20.1% $1.58 1,895,447 83,000 1997 169,800,024 28,095,810 16.5% 31,745,963 18.7% $1.61 1,039,910 125,632 1998 169,447,067 26,037,156 15.4% 29,479,838 17.4% $1.78 2,618,922 790,460 1999 171,847,191 21,996,440 12.8% 24,917,843 14.5% $1.86 6,859,583 2,431,315 2000 174,335,088 19,699,865 11.3% 22,140,556 12.7% $1.95 4,245,140 2,674,794 2001 175,468,677 23,337,334 13.3% 29,478,738 16.8% $2.15 (2,289,216) 3,403,793 2002 182,166,240 27,926,391 15.3% 34,292,187 18.8% $2.16 (453,037) 2,238,676 2003 183,446,813 27,780,860 15.1% 31,919,745 17.4% $2.12 453,775 1,114,336 2004 183,863,378 24,086,103 13.1% 27,211,780 14.8% $2.10 2,496,952 332,997 2005 184,607,106 20,675,996 11.2% 22,706,674 12.3% $2.14 3,517,407 791,357 2006 185,404,908 18,169,681 9.8% 19,467,515 10.5% $2.30 2,533,648 653,531 2007 186,621,198 15,912,812 8.5% 17,661,568 9.5% $2.81 3,336,945 838,000 2008 190,099,755 20,631,316 10.9% 23,747,598 12.5% $2.86 (4,499,437) 1,040,892 2009 193,096,545 28,732,185 14.9% 33,026,180 17.1% $2.65 (5,111,556) 2,249,045 1Q10 193,043,845 29,936,779 15.5% 33,896,692 17.6% $2.64 (1,174,494) 0 ■ Though overall vacancy is nowhere near the highs of the last recession, occupancy loss is the highest in history with nine consecutive quarters of negative absorption. ■ Construction completions ground to a halt for the first time since 1993. Source: C&W Research Services
  17. 17. LOS ANGELES COUNTY METRO SUPPLY & DEMAND Overall Abs. Cnst. Overall Vac 6.0 20.0% 18.0% 4.0 16.0% 2.0 14.0% 12.0% 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 mf s 10.0% -2.0 8.0% -4.0 6.0% 4.0% -6.0 2.0% -8.0 0.0% ■ Negative direct absorption continued to accelerate, finishing first quarter 2010 with negative 1.1 msf of absorption. ■ New construction is nonexistent and will help cap rising vacancies until sustained job growth returns. Source: C&W Research Services

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