EDR Insight Market Update:Navigating In An Uncertain MarketPresented by:Dianne P. Crocker, Principal Analyst              ...
4 Keys to Navigating an Uncertain Market
1. MARKET METRICS
Bumpy Road for Commercial Real Estate• 4Q12: the most active  quarter since 4Q07.• Deal flow increased  37% for the year.•...
Multifamily, Office Drive Property Deals  • Majority of gains driven by:     • Multifamily            +47%     • Class A o...
Good News on the CMBS Front• Post-recession high of $48B in 2012• Robust start to 2013.   • January saw the highest monthl...
Capital Remains Concentrated inLargest Metros
LENDING: Positive Signs“By almost every observable metric, theAmerican banking system will enter 2013 withits strongest ba...
Commercial Real Estate Loan Volume                      • Commercial and                        multifamily mortgage      ...
Lending in 2013•   Glacial deleveraging continues.•   More confidence, more borrowers.•   Competition for loans heating up...
Environmental Due Diligence:What‟s Up With Lenders?
Cincinnati Spotlight:Commercial Real Estate, Lending, Phase I ESA Volume
Cincinnati Deal Flow                       • 2012:                          • Closely mirrored U.S.                       ...
Cincinnati: Top Property Types                    • Multifamily 1st                    • Industrial 2nd                   ...
Spotlight: Cincinnati• Slow recovery underway• Developers:   • Starting to dust off plans which were created before     20...
Top Multifamily Buyers
Top Industrial Buyers
Top Buyers: Office
Cincinnati: Top CRE Deals in 2013
Cincinnati‟s Top Developers• Industrial Development International:   • Ranked 1st with 17 million square feet.• Miller-Val...
Cincinnati Lenders• Greater Cincinnati and Northern Kentucky banks:   • Mostly profitable in 2012   • Nearly half outperfo...
2013 Forecast• The Cincinnati market, by all accounts is getting healthier.• Job levels are nearly back to pre-recession l...
2012 volume:                     12% above 2011Now 50% abovemarket‟s Oct. 2009low point
OH Quarterly Phase I ESA Activity                       4Q12:                       24% over 3Q12                       28...
OH Metro Performance
2. ATTITUDES TOWARD RISK
Risk Aversion Is High Among Investors  “A negative, or rather extremely conservative, mindset  is prevalent with the inves...
Risk Management is Now “Everyone‟sBusiness”    • “What happens today that was not back in 2006 and 2007 is that     loan c...
Feedback from EPs• “My clients are demanding a more consultative approach to  ESA completion as opposed to only report del...
3. AREAS OF OPPORTUNITY
1. Focus on the Most Active Lenders                   Status of CRE Lending by Source:  Commercial banks                 F...
Focus On Who‟s Lending: CoStar Analysis on Loan Growth by Bank Size                                % Change in PropertyCRE...
Watch for shifts toward other lendingsources:              Status of CRE Lending by Source:   Commercial banks            ...
Focus On What Lenders Value Most
• The U.S. SBA is one of only a handful of federal  agencies with a bigger budget in FY13 than in FY12:   • As much as $16...
Strongest SBA Lenders in the U.S.:
REITs Are Raising Capital:Notable Private Funding Raisings in 1H2012    Firm Name         Capital Raised    Blackstone    ...
REITs (cont‟d) • Among REITs‟ top concerns are risks related to factors that   could devalue their properties, including e...
Retailer             Category   Planned Openings                                   through 2015Dollar General        Dolla...
Robust Forecast for New Store Openings•   U.S. retailer store-openings in 2012 reached 5-year high•   81,990 new stores pl...
Foreign Investors and EB-5 Program• Old program gaining new interest as avenue to stimulate  capital investment by foreign...
4. ADOPT WINNING STRATEGIES
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Education Is Key As Market Recovers• New lending, investments are on the board for 2012.• Banks, investment firms are repl...
Topics for Client Education Efforts  •   New E 1527 standard  •   Vapor intrusion awareness  •   Updates to policies like ...
Challenge of Education:New E 1527 Standard• How aware are you of the proposed revisions to the ASTM  Phase I ESA standard?...
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
Strategies to Win  You get out there.  You stay on the cutting edge of technical knowledge.  You educate clients, connect ...
2013 Forecast• Improvements in both the cost and availability of  commercial mortgage capital are expected to drive  incre...
Forecast for Risk Management1. Continued focus on modeling the downside2. More emphasis on technology, streamlining3. Repu...
Parting Thoughts•   The market is recovering.•   Market uncertainty creates aversion to risk.•   New players and new marke...
Parting Thoughts•   The market is recovering.•   Market uncertainty creates aversion to risk.•   New players and new marke...
Dianne P. CrockerPrincipal Analyst, EDR InsightResearch and Analytics:www.edrnet.com/EDRInsightTwitter:@dpcrockerEmail:dcr...
EDR Insight Update: Navigating in an Uncertain Market- Cincinnati
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  • So that’s how things look from where I’m sitting…and that gives you a sense of the type of research we’re doing.Everything we publish is readily available here.And my contact info is there if you ever have any questions about the market or areas of opportunityIf you have an appetite for the types of information here, jot your email address on your evaluation and you’ll get our biweeklies With that, we have a few minutes for questions…Here during the break and after, so feel free to approach me or email me anytime.
  • EDR Insight Update: Navigating in an Uncertain Market- Cincinnati

    1. 1. EDR Insight Market Update:Navigating In An Uncertain MarketPresented by:Dianne P. Crocker, Principal Analyst For presentation at: Cincinnati Due Diligence at Dawn workshop March 2013
    2. 2. 4 Keys to Navigating an Uncertain Market
    3. 3. 1. MARKET METRICS
    4. 4. Bumpy Road for Commercial Real Estate• 4Q12: the most active quarter since 4Q07.• Deal flow increased 37% for the year.• Now well above „09 trough.
    5. 5. Multifamily, Office Drive Property Deals • Majority of gains driven by: • Multifamily +47% • Class A office +20% • The “sweet spots” • Largely viewed as low risk • Retail: +19% • Recovering, but bifurcated
    6. 6. Good News on the CMBS Front• Post-recession high of $48B in 2012• Robust start to 2013. • January saw the highest monthly volume since December 2007.
    7. 7. Capital Remains Concentrated inLargest Metros
    8. 8. LENDING: Positive Signs“By almost every observable metric, theAmerican banking system will enter 2013 withits strongest balance sheet position sincebefore the financial crisis.”
    9. 9. Commercial Real Estate Loan Volume • Commercial and multifamily mortgage originations hit their highest levels since 2007 in 4Q12. • Originations in 2012 increased 24 percent over 2011.
    10. 10. Lending in 2013• Glacial deleveraging continues.• More confidence, more borrowers.• Competition for loans heating up.• Certain large financial institutions are extremely bullish about CRE lending.
    11. 11. Environmental Due Diligence:What‟s Up With Lenders?
    12. 12. Cincinnati Spotlight:Commercial Real Estate, Lending, Phase I ESA Volume
    13. 13. Cincinnati Deal Flow • 2012: • Closely mirrored U.S. • Highest sales since „07 • 3rd straight year of growth
    14. 14. Cincinnati: Top Property Types • Multifamily 1st • Industrial 2nd • Office/Retail tied for 3rd
    15. 15. Spotlight: Cincinnati• Slow recovery underway• Developers: • Starting to dust off plans which were created before 2008 • Looking toward underutilized properties as potential opportunities for redevelopment into apartment uses.
    16. 16. Top Multifamily Buyers
    17. 17. Top Industrial Buyers
    18. 18. Top Buyers: Office
    19. 19. Cincinnati: Top CRE Deals in 2013
    20. 20. Cincinnati‟s Top Developers• Industrial Development International: • Ranked 1st with 17 million square feet.• Miller-Valentine Group: • Ranked 2nd with 11 million square feet• Colliers International: • Added 5 million square feet to its portfolio.• Neyer Management/Neyer Commercial Real Estate: • Added 18.2 million square feet to its portfolio
    21. 21. Cincinnati Lenders• Greater Cincinnati and Northern Kentucky banks: • Mostly profitable in 2012 • Nearly half outperformed national average• 22 of the 46 institutions with operations based in the region had year-over-year net income growth of 19% or more.• Top banks posting profits here: • PNC Bank • Huntington National Bank • JPMorgan Chase Bank
    22. 22. 2013 Forecast• The Cincinnati market, by all accounts is getting healthier.• Job levels are nearly back to pre-recession levels• Strong demand for rental properties will keep the multifamily sector as the safest option for investment here.• Office properties will continue to be looked at as possible redevelopment opportunities for repurposing into apartment uses.• An increase in demand should occur in the second half of the year. Construction will continue to perk up and rental rates should remain relatively flat.
    23. 23. 2012 volume: 12% above 2011Now 50% abovemarket‟s Oct. 2009low point
    24. 24. OH Quarterly Phase I ESA Activity 4Q12: 24% over 3Q12 28% over 4Q11
    25. 25. OH Metro Performance
    26. 26. 2. ATTITUDES TOWARD RISK
    27. 27. Risk Aversion Is High Among Investors “A negative, or rather extremely conservative, mindset is prevalent with the investors in the market. Many investors are analyzing assets based on the what- could-go-wrong view versus spending time focusing on what-could-go-right and this has had an impact on pricing and deal velocity." Steve Timmel, senior VP of Colliers International
    28. 28. Risk Management is Now “Everyone‟sBusiness” • “What happens today that was not back in 2006 and 2007 is that loan closings are being delayed for environmental issues, simply because financial institutions are no longer willing to take on risk as they once were.” • “It has brought the opportunity—good or bad—to revisit decisions we made during the good times….to rethink our approach to due diligence.” • “What has changed is the relationship with loan officers. Years back, they tended to resist environmental due diligence. Now there is much greater awareness.”
    29. 29. Feedback from EPs• “My clients are demanding a more consultative approach to ESA completion as opposed to only report delivery.”• “In the past, Phase II equaled dead transaction. Now there is more willingness to consider risking away issues through Phase IIs.”• “They want the thorough investigation but are not necessarily allowing more time for it. The lenders are very competitive with one another, so they don’t have the luxury of higher due diligence fees or longer due diligence periods.” Source: EDR Insight‟s Quarterly Survey of EPs.
    30. 30. 3. AREAS OF OPPORTUNITY
    31. 31. 1. Focus on the Most Active Lenders Status of CRE Lending by Source: Commercial banks Flat/moderate growth Government (Fannie/Freddie) Active Credit Unions Expanding Private Equity Expanding Life Insurance companies Peaking CMBS Securitizations Recovering
    32. 32. Focus On Who‟s Lending: CoStar Analysis on Loan Growth by Bank Size % Change in PropertyCRE Lending for the 5 LoansLargest Banks in U.S. (>$50B) (2012 vs. 2011) Largest banks:PNC Bank 15% Down 0.4%JPMorgan Chase 13%Bank of America 9%U.S. Bank 2%Branch Banking and Trust 2% Mid-size banks:Wells Fargo 1% Up 7%
    33. 33. Watch for shifts toward other lendingsources: Status of CRE Lending by Source: Commercial banks Flat/moderate growth Government (Fannie/Freddie) Active Credit Unions Expanding Private Equity Expanding Life Insurance companies Peaking CMBS Securitizations Recovering
    34. 34. Focus On What Lenders Value Most
    35. 35. • The U.S. SBA is one of only a handful of federal agencies with a bigger budget in FY13 than in FY12: • As much as $16 billion in loans through the popular 7(a) program • 15 percent increase over FY12.
    36. 36. Strongest SBA Lenders in the U.S.:
    37. 37. REITs Are Raising Capital:Notable Private Funding Raisings in 1H2012 Firm Name Capital Raised Blackstone $6.6 billion UBS $1.8 billion Carlyle Group $1.4 billion Rockpoint Group $1.3 billion GEM Capital $1.3 billion McMorgan & Co. $977 million
    38. 38. REITs (cont‟d) • Among REITs‟ top concerns are risks related to factors that could devalue their properties, including environmental liability.
    39. 39. Retailer Category Planned Openings through 2015Dollar General Dollar 1,300Family Dollar Dollar 1,000Dollar Tree Dollar 600CVS Drug 600Walgreens Drug 400Advance Auto Parts Auto 320AutoZone Auto 125
    40. 40. Robust Forecast for New Store Openings• U.S. retailer store-openings in 2012 reached 5-year high• 81,990 new stores planned over the next 24 months• Up 11 percent from the 2-year period ended in 2011• Very focused in specific sectors, geographic areas
    41. 41. Foreign Investors and EB-5 Program• Old program gaining new interest as avenue to stimulate capital investment by foreign investors.• Boston is a top target of foreign investors• In FY12, the number of EB-5 projects approved was triple FY09 levels.• “Typically as a condition of closing, the borrower will need to provide a clean Phase I environmental site assessment report along with other due diligence items.”• EB-5 presents a way for EPs to connect with key players: • 209 Regional Centers in 40 states.
    42. 42. 4. ADOPT WINNING STRATEGIES
    43. 43. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
    44. 44. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
    45. 45. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
    46. 46. Education Is Key As Market Recovers• New lending, investments are on the board for 2012.• Banks, investment firms are replacing past layoffs with junior staff.• Leading to a “rustiness” in engaging Phase I ESAs.• A learning curve as market adjusts to new risk aversion.
    47. 47. Topics for Client Education Efforts • New E 1527 standard • Vapor intrusion awareness • Updates to policies like SBA, HUD, Fannie Mae • Real-world examples/reminders of why environmental due diligence is critical
    48. 48. Challenge of Education:New E 1527 Standard• How aware are you of the proposed revisions to the ASTM Phase I ESA standard? Very aware, 12“I have NOT been %privy to the taskforce or the Somewhat,pending changes Not at 25%and would greatly all, 63%appreciate anyinformation.” ~community lender
    49. 49. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
    50. 50. Strategies to Win You get out there. You stay on the cutting edge of technical knowledge. You educate clients, connect the dots for them. You embrace a “customer first” attitude. You have an active business development function.
    51. 51. 2013 Forecast• Improvements in both the cost and availability of commercial mortgage capital are expected to drive increases in 2013:• Total investment transaction volume? +10 to 20%• CMBS issuance? +50%• CRE loan originations? +11%
    52. 52. Forecast for Risk Management1. Continued focus on modeling the downside2. More emphasis on technology, streamlining3. Repurposing the oversupply of obsolescent properties4. More deferred maintenance issues arising on refis or neglected properties5. Property Condition Assessments growing in importance
    53. 53. Parting Thoughts• The market is recovering.• Market uncertainty creates aversion to risk.• New players and new markets are emerging.• Think critically about where and how you can compete most effectively.
    54. 54. Parting Thoughts• The market is recovering.• Market uncertainty creates aversion to risk.• New players and new markets are emerging.• Think critically about where and how you can compete most effectively. Be strategic and grow!
    55. 55. Dianne P. CrockerPrincipal Analyst, EDR InsightResearch and Analytics:www.edrnet.com/EDRInsightTwitter:@dpcrockerEmail:dcrocker@edrnet.com

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