State of the Market:Ten Key Developments and ForecastDue Diligence at Dawn WorkshopApril 3, 2012                          ...
“After the marketgave us a rocky ridein 2011, commercialreal estate is back inthe saddle for 2012.” ~John Levy, founder of...
• Ten Key Market Trends• Phase I ESA Market Trend Lines• What to Expect in 2012                                   Page 3
TREND 1. Property Transactions onUpward Trajectory                    Source: Real Capital Analytics   Page 4
1. CRE Transaction Volume• 2011 volume increased 52% year-on-year.• Jan/Feb 2012 up 20% year-on-year.• Improvements expect...
TREND 2: Multifamily Attracting the MostDemand…• Fundamental shift away from home  ownership.• Freddie Mac, Fannie Mae, le...
…Retail in Flux• Major retail chains are downsizing.• 6,000-9,000 store closings expected in 2012.• More strategic acquisi...
TREND 3. The Refi Heartache                              Page 8
Maturities Bring Environmental Issues toSurface                                       Page 9
Refi Heartache • Prospects for refinancing all of these loans are pretty grim. • Good news for distressed asset investors,...
TREND 4. CRE Property Prices: Erratic,Stabilizing                                         Page 11
4. CRE Property Prices• Investors can no longer assume price appreciation.• Every dollar counts.• Buyers are risk averse. ...
TREND 5: CMBS Coming Off Dry Spell                                     Page 13
CMBS: Down But Not Out• 2012 forecast calls for moderate growth.• Recent originations marked by more conservative  underwr...
TREND 6. Lending Thaw Underway            Status of CRE Lending by Source:     Commercial banks           Improving     Go...
Who‟s Lending? Life Insurers                 Life insurance companies returned                 in a big way in 2011.      ...
Who‟s Lending?• Originations expected to increase in 2012• Stiff competition for underwriting small volume of viable, low-...
TREND 7. Loan Dispositions Are Up                    • Banks‟ asset disposition                      plans picked up momen...
Loan Dispositions Are Up• Sales of nonperforming loans and REO offerings—  especially from community and regional banks—ar...
TREND 8. Bank Failures Slowing2011                 922010                             1572009                             ...
8. Bank Failures to Continue• Trepp still has more than 200 banks categorized as high  risk of failure:   • "Losses will p...
TREND 9. The War Chests of REITs                        • Fundraising up 32%                          in 2011             ...
Page 23
The War Chests of REITs• Commercial real-estate acquisitions by REITs up 40% in  2011.• Accounted for one-third of propert...
TREND 10. Risk Aversion Index Up in „11                                                     Last year‟s                   ...
Risk Aversion Up in „11 • Last year‟s “summer of discontent” continued the upward   trend in the Risk Aversion Index. • Ex...
Phase I ESA Market Metrics                             © 2011 Environmental Data Resources, Inc.                          ...
Slow Recovery in Phase I Volume                     2011 vs prior year: 7% growth                                         ...
Location, Location, Location• Significant geographic disparity in Phase I volume.• Stand-outs in an otherwise struggling c...
Metro Activity: Chicago and DC    Metro     Rank in Top   4Q on 4Q   Jan/Feb 2012     Investment               50 Metros  ...
ILLINOIS Phase I ESA Trend Line                    • Moderate 4Q decline                    • Jan-Feb up 24% over prior   ...
MARYLAND Phase I ESA Trend Line                     • Flat 4Q decline followed by                       Jan-Feb up 14% ove...
VIRGINIA Phase I ESA Trend Line                      • Moderate 4Q decline followed                        by Jan-Feb flat...
Forecast for 2012                    © 2011 Environmental Data Resources, Inc.                       Page 34
2012: No Shortage of Uncertainty                                   Page 35
Year of „Brake and Throttle‟• Ingredients for a busy year.• Market fragility will magnify setbacks.• Stop and start activi...
Positive Forces in 2012• Property transactions forecast to increase by 50 percent  “with a good chance for a surprise to t...
Lenders‟ Expectations for CRELending, 2012 • 72% expect higher origination levels this year.        Source: EDR Insight. 4...
Sectors Driving Phase I ESA Growth in 1Q:•   Equity REITs•   Foreign investors•   Developers•   Institutional capital and ...
• EDR Insight, a source of:   • Short, frequent research notes on strategic     and technical topics   • Market metrics   ...
Questions?             41
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State of the Commercial Real Estate Market Chicago April 2012

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Dianne Crocker of EDR presention on the state of the Chicago Commercial Real Estate Marketing in April 2012.

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  • TREND 2 is about property types. Multifamily is the darling of CRE right
  • State of the Commercial Real Estate Market Chicago April 2012

    1. 1. State of the Market:Ten Key Developments and ForecastDue Diligence at Dawn WorkshopApril 3, 2012 Dianne P. Crocker Principal Analyst, EDR Insight © 2011 Environmental Data Resources, Inc.
    2. 2. “After the marketgave us a rocky ridein 2011, commercialreal estate is back inthe saddle for 2012.” ~John Levy, founder of John B. Levy & Company Page 2
    3. 3. • Ten Key Market Trends• Phase I ESA Market Trend Lines• What to Expect in 2012 Page 3
    4. 4. TREND 1. Property Transactions onUpward Trajectory Source: Real Capital Analytics Page 4
    5. 5. 1. CRE Transaction Volume• 2011 volume increased 52% year-on-year.• Jan/Feb 2012 up 20% year-on-year.• Improvements expected to continue. Page 5
    6. 6. TREND 2: Multifamily Attracting the MostDemand…• Fundamental shift away from home ownership.• Freddie Mac, Fannie Mae, lenders showing more willingness underwriting apartment buildings than any other property type.• Due diligence often involves vapor migration screening, LBP, asbestos.
    7. 7. …Retail in Flux• Major retail chains are downsizing.• 6,000-9,000 store closings expected in 2012.• More strategic acquisitions by retailers.• More expansion by dollar stores, pharmacies. Page 7
    8. 8. TREND 3. The Refi Heartache Page 8
    9. 9. Maturities Bring Environmental Issues toSurface Page 9
    10. 10. Refi Heartache • Prospects for refinancing all of these loans are pretty grim. • Good news for distressed asset investors, bringing life to “zombie properties.” • Major re-evaluation of properties ahead. • Driver for services that will inform the process of estimating property value. Page 10
    11. 11. TREND 4. CRE Property Prices: Erratic,Stabilizing Page 11
    12. 12. 4. CRE Property Prices• Investors can no longer assume price appreciation.• Every dollar counts.• Buyers are risk averse. Page 12
    13. 13. TREND 5: CMBS Coming Off Dry Spell Page 13
    14. 14. CMBS: Down But Not Out• 2012 forecast calls for moderate growth.• Recent originations marked by more conservative underwriting. Page 14
    15. 15. TREND 6. Lending Thaw Underway Status of CRE Lending by Source: Commercial banks Improving Government Active (Fannie/Freddie) Credit Unions Active CMBS Improving Life Insurance companies Robust Page 15
    16. 16. Who‟s Lending? Life Insurers Life insurance companies returned in a big way in 2011. Expected to account for 20% of the lending market in 2012. Page 16
    17. 17. Who‟s Lending?• Originations expected to increase in 2012• Stiff competition for underwriting small volume of viable, low- risk loans• Expect more underwriting on construction loans in 2012, particularly resuscitated multifamily projects Page 17
    18. 18. TREND 7. Loan Dispositions Are Up • Banks‟ asset disposition plans picked up momentum in 2011. • Unlike 2010 when FDIC was the only seller in town: • Sell-off of distressed loans, properties involves broader base of lenders • Can involve large portfolios in multiple states • Good news for investors Page 18
    19. 19. Loan Dispositions Are Up• Sales of nonperforming loans and REO offerings— especially from community and regional banks—are up.• In the early innings of banks clearing debt on their balance sheets.• Need for speed on due diligence—and caution. Page 19
    20. 20. TREND 8. Bank Failures Slowing2011 922010 1572009 2502008 25 0 50 100 150 200 250 300 Page 20
    21. 21. 8. Bank Failures to Continue• Trepp still has more than 200 banks categorized as high risk of failure: • "Losses will pile up again in 2012. We estimate that banks are about 60% to 70% of the way through their loss recognition, with another $40 billion to $80 billion in losses to be written off going forward.“• Shift toward FDIC having acquiring bank lined up or asset disposition via private firms, auctions. Page 21
    22. 22. TREND 9. The War Chests of REITs • Fundraising up 32% in 2011 • Very strong market position • Skittishness giving way to confidence Page 22
    23. 23. Page 23
    24. 24. The War Chests of REITs• Commercial real-estate acquisitions by REITs up 40% in 2011.• Accounted for one-third of property deals in 2012.• Expect REITs to be the big headline makers this year. Page 24
    25. 25. TREND 10. Risk Aversion Index Up in „11 Last year‟s uptick: the result of market instability This time last year: the lowest reading in 4 years © 2011 Environmental Data Resources, Inc.
    26. 26. Risk Aversion Up in „11 • Last year‟s “summer of discontent” continued the upward trend in the Risk Aversion Index. • Expect “risk on-risk off” attitude as market instability continues. Page 26
    27. 27. Phase I ESA Market Metrics © 2011 Environmental Data Resources, Inc. Page 27
    28. 28. Slow Recovery in Phase I Volume 2011 vs prior year: 7% growth Page 28
    29. 29. Location, Location, Location• Significant geographic disparity in Phase I volume.• Stand-outs in an otherwise struggling commercial real estate market.• All “global gateways” outperformed average Phase I ESA growth among top metros in 2010… PricewaterhouseCoopers Top 10 Metros for CRE Investment New York City Seattle Los Angeles San Diego Washington, DC San Francisco Houston San Jose Boston Austin Page 29
    30. 30. Metro Activity: Chicago and DC Metro Rank in Top 4Q on 4Q Jan/Feb 2012 Investment 50 Metros Growth vs prior year Prospects for CRE (PwC)Chicago 3rd -7% +29% Good (21st)Washington, 10th -6% + 2% Good (1st)DC Page 30
    31. 31. ILLINOIS Phase I ESA Trend Line • Moderate 4Q decline • Jan-Feb up 24% over prior year. Page 31
    32. 32. MARYLAND Phase I ESA Trend Line • Flat 4Q decline followed by Jan-Feb up 14% over prior year. • Outperforming U.S. average. Page 32
    33. 33. VIRGINIA Phase I ESA Trend Line • Moderate 4Q decline followed by Jan-Feb flat over prior year. Page 33
    34. 34. Forecast for 2012 © 2011 Environmental Data Resources, Inc. Page 34
    35. 35. 2012: No Shortage of Uncertainty Page 35
    36. 36. Year of „Brake and Throttle‟• Ingredients for a busy year.• Market fragility will magnify setbacks.• Stop and start activity likely.• Environmental due diligence has important role to play. "As mortgage production ramps up, investors will see banks being more competitive, but with far more stringent underwriting standards." (Colliers) Page 36
    37. 37. Positive Forces in 2012• Property transactions forecast to increase by 50 percent “with a good chance for a surprise to the upside.”• Maturing loans will drive deal volume.• Equity capital, led by REITs, will be more plentiful and more motivated this year.• CMBS market gaining traction after „11 setback.• Environmental firms are hiring again.• Originations by lending institutions should increase gradually… Page 37
    38. 38. Lenders‟ Expectations for CRELending, 2012 • 72% expect higher origination levels this year. Source: EDR Insight. 4Q11 Quarterly Survey of Financial Institutions. Page 38
    39. 39. Sectors Driving Phase I ESA Growth in 1Q:• Equity REITs• Foreign investors• Developers• Institutional capital and equity funds• Financial institutions, insurance, credit unions• M&A• Retail/big box• Transfer of oil/gas assets Page 39
    40. 40. • EDR Insight, a source of: • Short, frequent research notes on strategic and technical topics • Market metrics • Intell from outside subject matter experts • This month: • 1Q12 capsule summaries of key Phase I markets• Sign up for free biweekly emails at www.edrnet.com/edrinsight Page 40
    41. 41. Questions? 41

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