2009 San Diego Apartment Perspective

Transcription

1 2009 San Diego Apartment Perspective Graham Bryan, CRB, CCIM, SIOR President, CCIM San Diego Chapter Linda Morris, ARM President, San Diego County Apartment Association

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3 National and Local Economic Overview Alan Gin Associate Professor of Economics School of Business Administration University of San Diego

4 For a copy of this presentation, please contact Professor Alan Gin at agin@san.rr.com

5 U.S. Economic Outlook

6 8.0% U.S. GDP Growth ( ) 6.0% 4.0% 2.0% 0.0% -2.0% Source: Bureau of Economic Analysis

7 Change in Employment Tho ousands Source: Bureau of Labor Statistics

8 National Unemployment Rate Present 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% Source: Bureau of Labor Statistics

9 Financial Crisis Worst situation since the 1930s Bear Stearns, Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers, AIG Who s next? Damage: Jobs Liquidity Budget deficit Consumer confidence

10 Other Areas of Concern Weak housing market Falling prices Foreclosures Turmoil in financial markets High oil and gas prices Stagflation?

11 30.0% Inflation Rate 12 Months Ended August % 20.0% 15.0% 10.0% 5.0% 0.0% Energy Food All Items Housing Core

12 National Economic Forecast GDP growth of % for rd Quarter may be negative Weak Christmas buying season Inflation to moderate Price of oil dropping World economic slowdown will reduce demand

13 National Economic Forecast Fed in a bind on interest rates Worried about inflation, value of dollar Financial crisis may require further cuts Moderating inflation will give Fed some room to maneuver Less likely to increase rates, possibility of a decrease Mortgage rates already edging down with Fannie Mae and Freddie Mac bailouts

14 Interest Rates Short-Term vs. Long-Term % Source: Economagic Federal Funds 10-Year Treasury 30-Year Mortgage

15 San Diego Economic Outlook

16 Index of Leading Economic Indicators San Diego County, J05 J06 J07 J08 Source: Burnham-Moores Center for Real Estate, University of San Diego

17 USD Index of Leading Economic Indicators for San Diego County Designed to lead local economy Short-term term forecasting tool 6-12 month outlook Down 27 of the last 28 months 10 consecutive significant declines Signals continued weakness for local economy through at least the first half of 2009

18 Employment Growth San Diego County ( ) 60,000 50,000 40,000 30,000 20,000 10,000 0 (10,000) (20,000) Source: Employment Development Department

19 Job Growth January - July (2007 vs. 2008) Construction Credit Intermediation Real Estate Retail Trade Manufacturing Source: Employment Development Department

20 Unemployment Rate San Diego County ( Present) 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% Source: Employment Development Department

21 Outlook for San Diego Recession, San Diego-style Employment decreased only 4 times in the last 30 (3 years in the 1990s) Increased weakness in recent months Slowdown started in June 2007 Largely confined to real estate and real estate- related sectors at this point

22 Job Growth January - May (2007 vs. 2008) Leisure and Hospitality Professional, Scientific, and Technical Services Government Health Care Services Source: Employment Development Department

23 Job Growth January - July (2007 vs. 2008) 14,000 12,000 10,000 8,000 6,000 4,000 Job growth if real estate related jobs were unchanged 2,000 0 (2,000) Source: Employment Development Department

24 Some relief at the pump $3.78 per gallon Each $0.10 per gallon increase in the price of gasoline takes $7 million per month out of the local economy Peak was $4.62 per gallon => Impact on economy reduced by $60 million per month

25 Real Estate Market Outlook

26 S&P/Case-Shiller Home Price Index San Diego ( Present) November % Source: Standard & Poor's

27 20000 Residential Units Authorized San Diego County ( Present) % % Source: Construction Industry Research Board

28 Residential Units Authorized 2008 Projected with Data Through July -32% % -27% 0 Single-Family Multi-Family Total Units Source: Construction Industry Research Board

29 Problems Large inventory, including foreclosures Credit availability Stricter standards Larger down payments Problems with financial institution Weak economy

30 Residential Units Authorized 2008 Projected with Data Through July -32% % -27% 0 Single-Family Multi-Family Total Units Source: Construction Industry Research Board

31 16.0% 14.0% 12.0% 10.0% Commerical Real Estate Vacancy Rate San Diego County ( Present) 8.0% 6.0% 4.0% 2.0% 0.0% 06 Q1 Q2 Q3 Q4 07 Q1 Q2 Q3 Q4 08 Q1 Q2 Source: Grubb & Ellis Research

32 Nonresidential Building Permits San Diego County ( ) $700 $600 $500 Va aluation ($millions) $400 $300 $200 $100 $ Source: Construction Industry Research Board Commercial Industrial Other Alterations/Additions

33 2009 Outlook for San Diego Local economy to remain weak Job growth flat Unemployment approaching 7% Slow economic activity (home sales, retail sales, income growth) Tourism, military spending to mitigate downturn

34 2009 Outlook for San Diego Housing market not likely to bottom out until late 2009 at the earliest Continued downward pressure on prices Foreclosures to remain at high levels Location, location, location Cost of construction to remain high

35 2009 Outlook for San Diego Commercial real estate likely to be sluggish due to high vacancy levels Positive is continued growth in professional, scientific and technical services No softening in commercial rents yet Pressure on apartment rents as economy weakens and price of owner-occupied occupied housing drops

36 May you live in interesting times. - Chinese Curse

37 For a copy of this presentation, please contact Professor Alan Gin at agin@san.rr.com

38 The Credit Crunch 2008 David Smyle

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41 Where have all the Lenders gone? Where are we today? Treasuries are low, why not rates?

42 What a difference a year makes 6 Mo Prime 12 5 yr 10 yr Libor MAT CMT CMT 9/14/ /16/

43 Comparing Rates from 9/07 to 9/08 Banco Pop Adj / /

44 Comparing Rates from 9/07 to 9/08 Luther Burbank Adj 3 yr 5 yr 9/ /

45 Comparing Rates from 9/07 to 9/08 UBOC Adj /2007 NA /2008 NA

46 Comparing Rates from 9/07 to 9/08 DOWNEY Adj 3 yr 5 yr 10 yr 9/ NA 4/ /

47 Comparing Rates from 9/07 to 9/08 WAMU Adj 3 yr 5 yr 10 yr 9/ /

48 Who said change is good? In the past 12 months, we have seen the following: Maximum Loan Amounts reduced Lending buckets have filled up Margins and spreads have widened offsetting lower Treasuries Conduits have mostly exited the market with the few remaining requiring bp spreads FNMA programs are now being offered with fewer exceptions and wider spreads although rates are still good

49 Who is out? Citibank Wachovia ABN AMRO IMPAC Lehman JP Morgan Greenpoint

50 Who is on the watch list? Affinity Bank Banco Popular Downey Rabo Bank WAMU

51 FNMA Business as usual Wider spreads Fewer exceptions due to volume of deals Large volume of transactions due to exit of Conduits and less Competitive Insurance Companies Lowest rates on long term fixed Now has float to fixed program Multitude of Banks and others offering FNMA

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53 Lender Survey How has the current credit environment changed your lending parameters and underwriting if at all? The typical answer was: Have become more conservative in underwriting Lower Max Loan Amounts, LTVs More emphasis on Borrower Financial Statement

54 We have seen quite a spike in margins in the past months even though the Treasuries and short term indexes remain relatively low. What do you attribute that to relative to your institution Raised margins to account for perceived risk in the market Raised margins to be able to sell loans in the secondary market Raised margins to slow down the volume of loan originations

55 We have seen many Lender s shut off the faucet or raise rates substantially to reduce volume with respect to new originations. Is this true of your institution and if so, what is the estimated time frame to resume normal operations? About half the respondents said they did not raise rates to reduce volume or stop lending The other half said they intentionally raised rates to slow production or to make the loans salable in the secondary market Many lender s said their loan origination volume in the first 4-6 months basically met their annual goal and they had no more liquidity to lend

56 Is your loan volume down? If up or down, what do you attribute that to? Most Lenders responded in a two part answer, up the first half, down the 3rd quarter. The up was due to many more applications coming in due to the lack of Conduit funds The down is due to fewer secondary market buyers, fewer sales transactions and generally maxed out loan origination budgets.

57 How has the fall of the Conduit market affected your loan volume, pricing, and underwriting if at all? Most lenders indicated a higher volume of transaction that might have gone to Conduits in the past Many said that although volume was up, the market dictated a rise in rates for perceived risk and to sell in the secondary market Many lenders said they had to reduce the max loan amount to make room for more transactions and to reduce risk

58 Has the regulatory environment changed they way you underwrite loans? If so, how? What changes if any have occurred in the regulatory environment? Most answered there has been no change due to the current regulatory environment Several reported tighter underwriting standards

59 Have other aspects of your institution s operations affected your lending operations with respect to pricing and volume or are the changes more related to the economy and overall yield requirements of investors? Most of those surveyed said while other bank operations may have had losses, it did not affect their apartment lending platform Most all said the general economy and lack of available credit in the capital markets affected pricing and yields required

60 In general, what percent of your loan originations are kept on book versus sold to investors or participants and how has this affected the level of loan volume and pricing/terms you are able to offer? Most the lenders were portfolio lenders and keep nearly 100% of what they originate on book Many of the Credit Union lenders were significant sellers of loans they originated to other participants which slowed volume due to fewer participants available and those buying wanting higher yields

61 What do you see in store for 2009 within your institution as it relates to lending practices, procedures, underwriting, origination volumes? The most prevalent response was more of the same meaning: Decreased volume Tighter underwriting standards Emphasis on quality Borrower financial statements and liquidity

62 The Credit Crunch 2008

63 The Rental Market: Point & Counter-Point Joe Greenblatt, CPM President, Sunrise Management Tina West Chief Operating Officer, Sunrise Management

64 Questions From the Audience ~ Concluding Comments Thank you for participating. Premier Sponsor: Chicago Title