The document discusses the state of commercial real estate and the economy. It notes that while the economy is still struggling, commercial real estate is relatively strong compared to other asset classes. Vacancy rates are declining and rents are mixed across property types as capital flows back into the sector. The recovery is uneven across markets, with investors seeking safety in core primary markets and spreading to secondary and inland markets where bidding and capitalization rates are more competitive. Overall, commercial real estate is seen as a stable investment relative to stock and bond alternatives in this uncertain economic environment.
2. Key Tenets(CCIM Speech 2010) Re-set expectations Re-pricing vs. liquidity CRE versus the alternatives Market Bifurcation CRE is relatively strong for the long run
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4. The Global Environment(CCIM Speech 2010) Massive asset devaluation Accelerated deleveraging Continued re-pricing Unprecedented times for our generation
5. Economic Headlines For Americans, recovery feels like recession OECD figures indicate Global economy continues to darken In this economy, productivity comes without hiring Stagnant economy biggest factor as foreclosures pile up
6. Economic Environment Unemployment rate hovering around 9% since Jan. 2010 Total employment is 7 million below peak in 2007 Long-term unemployed (without job for longer than 6 months) at 6 million In 2001 recession, this figure peaked at 2 million
7. Economic Environment Downward revisions in GDP 0.4% 1Q11, 1% 2Q11 Not strong enough for job growth Well below 20-year average of 2.7% Consumer confidence is at lowest point since spring 2009 7th lowest level in history Due to stock market, political environment, unemployment, etc.
8. Current Housing Market Housing starts at 60-year low Home sales are struggling Foreclosures at historic highs Approximately 1/5 of homeowners with mortgages are underwater
9. Glimpse of Positive Housing Market Record-high home affordability Rising apartment rents Overcorrection in home price to income and rent ratios Unsold homes inventory is declining 40-year low on newly constructed inventory
12. Financial Market Headlines Clamping down on high-speed stock trades Stock market: worst quarter since 2008 Stock market gloom spreads. Blame Greece. Buckle up: stock market volatility could get worse
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14. CRE Headlines US property investors are more bearish Commercial property on firm ground Real estate investors running for safety Property investors concentrate on prime quality assets in core markets Recovery slows in commercial real estate Commercial property values flat amid economic fears
18. Most active in providing financing: Banks: 55% Insurance Companies: 26% REITs: 12% Private Equity: 7% CCIM Members – ITQ Respondents
19. Capital Markets Increase in loans led by: health care, hotels, retail, multifamily Loans for CMBS increased 638% in 2Q11 compared to year earlier Delinquency rate for loans held in CMBS in 2Q11 reached highest level since 1997 (when started) During 2Q11, CRE mortgage originations outpaced paying off/down existing loans, for first time in 1 ½ years
20. Capital Markets CRE mortgage originations more than doubled in first half of 2011, compared to same period a year ago Life insurance companies increased loan volume by 87% Portfolio lending by banks increased 150%
21. Quarterly Commercial Mortgage Commitmentsby Life Insurance Companies Billions of Dollars Source: American Council of Life Insurance Companies (ACLI) a. Annual figures may not equal the sum of quarterly figures due to change in reporting.
32. CCIM Members – ITQ Respondents Compared real estate sales activity in their areas today compared to: 3 years ago: -21% 1 year ago: 8% Expected activity: 1 year from now: 12% 3 years from now: 26%
36. State of CRE Bid-ask spread is narrowing, especially in apartment properties Apartments are outperforming all other property types (appreciation) Lower cap rates: Low interest rates Availability of capital Safety of CRE relative to alternatives
37. Competitive bidding and low cap rates lead investors to secondary markets Also shifting to inland metros Net absorption is increasing, while vacancy rates are declining Rents are mixed across the property types State of CRE
38. 1990s vs. this Cycle 1990’s: no liquidity for CRE at any price 1990’s: out of sync with alternatives Excess supply with massive over-leverage (It was like a casino) 120% LTVs Fundamentals were deplorable: Prices at 35% of replacement costs NYC almost bankrupt; 20% obsolescence in Retail 38
39. Key Tenets(CCIM Speech 2011) Re-set expectations Re-pricing vs. liquidity CRE versus the alternatives Market Bifurcation CRE is relatively strong for the long run 39
40. “The difficulty lies not so much in developing new ideas as in escaping from old ones.”- John Maynard Keynes 40 Change Your Opinion
41. Optimist New definition of an optimist: “Things are so bad now they can’t get any worse!” 41