NCREIF Summer Conference 2012!

Transcription

1 NCREIF Summer Conference 2012! July 12, 2012 Presented By:

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3 Where We Are Today July April Last Year At the Worst DOW 12,641 13,160 12,763 6,626 REIT Index $65.65 $60.90 $62.19 $ YR T 1.51% 1.93% 3.33% 3.84% LIBOR (3 month).466%.47%.25% 4.056% Natural Gas $/Cu Feet $3.13 $2.89 $4.12 $9.96 OIL $85 $104 $111 $147 (2008) UNEMPLOYMENT 8.2% 8.1% 8.9% 10% CONSUMER CONFIDENCE USD/YEN (10/11) 127 U.S. Auto Sales 14.04MM 14.37MM 11.69MM 9.3MM HFF, L.P. Page 3

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6 Capital Markets Overview Rankings Market Sales Volume YOY ($M) Change Market YOY% Change Manhattan $27,846,973,164 92% $27,847 Manhattan 92% $27,846,973, DC Metro** $16,156,034,409 $16,15638% DC Metro** 38% $16,156,034, Los Angeles $14,007,733,862 $14,008 88% Los Angeles 88% $14,007,733, Chicago $10,992,120,975 $10,992 86% Chicago 86% $10,992,120, Boston $7,988,925,546 $7,989 69% Boston 69% $7,988,925, Dallas $7,712,862,959 $7,713 59% Dallas 59% $7,712,862, Houston $7,396,877,211 $7,397 48% Houston 48% $7,396,877, San Francisco $7,113,190,230 63% San Francisco 63% $7,113,190, Atlanta $6,731,685,811 $6, % Atlanta 118% $6,731,685, San Diego $5,470,862,375 $5,471 77% San Diego 77% $5,470,862, No NJ $5,450,246,990 67% No NJ 67% $5,450,246, Phoenix $5,153,673,933 $5,154 62% Phoenix 62% $5,153,673, Seattle $4,901,183,389 55% Seattle 55% $4,901,183, Denver $4,777,451, % Denver 137% $4,777,451, San Jose $4,255,827,363 $4,256 49% San Jose 49% $4,255,827, NYC Boroughs $3,871,640,190 $3,872 72% NYC Boroughs 72% $3,871,640, East Bay $3,526,189,400 53% East Bay 53% $3,526,189, Miami $3,296,317,805 34% Miami 34% $3,296,317, Inland Empire $3,108,315,511 24% Inland Empire 24% $3,108,315, Orange Co $3,003,744,347-4% -4% Orange Co $3,003,744,3 **DC, DC MD Burbs & DC VA Burbs combined

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11 Capital Markets Overview CMBS Overview Volume was well on way to reach $50 Billion until July when the following occurred: US downgrade S&P pulled rating on Goldman European volatility Result: Rated bonds % of Total 01/11 08/11 11/11 03/12 AAA 70% BBB 6-11% Unrated 6% 17% 19% 19% 18-20% 1

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13 Capital Markets Overview All Cash IRR Yield Targets by Asset Class 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 7.5% 7.5% 6.5% 9.5% Office 9.5% 7.5% 9% 6.5% Initial Yield: 6.0% - 6.5% 5.5% - 6.5% 4.5% - 5.0% 6.0% - 6.5% 4.0% - 6.0% Source: HFF, April % 6.5% 8% 11+% 9% Grocery/Discount Anchored Retail 7.5% 9% 7.5% Multi-Housing 11+% 9% 7.5% 6.5%% 9.5% 8% Industrial 11+% 9.5% 11.75% 10.75% 13.5% 12% Hotel 15+% 13.5% 2

14 Capital Markets Overview Big Themes for 2012 Continue to have flight capital to US as evidenced by fund flows into treasuries, money market funds, etc. Capital reallocating from financial assets to hard assets. Real Estate is favored asset class on a risk adjusted basis as compared to stocks, bonds and other alternatives such as private equity, hedge funds and commodities. The above factors will result in abundant capital for CRE in 2012 across both the debt and equity markets. We are expecting allocations to increase 20%-30% over 2011 levels. Equity will be plentiful across all major providers in 2012 including foreign, institutional (state plans/endowment), public REIT, private REIT, HNW investors. 3

15 Capital Markets Overview Debt capital from banks and insurance companies will also be abundant, although underwriting will remain measured. The CMBS market will stabilize and could easily reach $ 50 Billion not withstanding the negative commentary at present. Size will not be a limiting factor in 2012 either for a single asset or portfolios. Portfolio premium will likely re-emerge only for core/core plus assets which would allow buyers to gain scale in a given market(s)/product type. Capital will most certainly continue migrating up the risk curve either by market (Gateway/Primary/Secondary) or by project risk (Stabilized/Unstabilized). 4

16 Capital Markets Overview The underlying fiscal infrastructure of a state/ municipality/region will continue to gain in importance in investor allocation models. Fiscal Infrastructure being defined as the financial health of the state/city, taxation policies, historical/projected job and population growth, and cost of living. CRE pricing is highly correlated not only to interest rates but also to public market metrics including the public REIT sector and the corporate bond market. The institutional equity market uses the BBB corporate as a cap rate benchmark, and the insurance company industry looks to the BBB-AAA corporate bond pricing as its deployment benchmark. 5

17 Capital Markets Overview There will be no scarcity of product coming to the market; therefore, we expect transactional volume to approximate the level of $250-$300 Billion for The one exception being core product in gateway markets which could easily garner scarcity premiums in price. Foreign banks will continue to sell down CRE assets in larger denominations/portfolios. Domestic banks will likely continue a one-off asset sale strategy in general. 6

18 Capital Markets Overview HFF continues to emphasize the risk of rising interest rates relative to a hold/sell strategy decision. We believe cap rates and interest rates are correlated, and our regression analysis concludes NOIs must increase 10-15% to offset a 100 basis point move in interest rate/cap rates. Once again, 2012, like 2011, will be a nearly perfect capital markets environment given the abundance and low cost of available capital. HFF Recommendation: Consume capital and integrate a smart ALM strategy. 7

19 What the Pragmatists Know: End of Q US best six months of job growth since 2006 Stock market up 9% YTD (April 27) 3% (June 13) Unemployment is at a 3 year low went up in May Oil prices have fallen 7% YTD and 29% since all time high in 2008 (Nov 44%) Housing Affordability Index at the highest level ever Washington DC Metro 5th largest economy in the U.S. 1st nationally in job growth last decade 2nd largest employer of technology workers in U.S. Nation s most-educated workforce More than 50 colleges and universities Highest per capita government R and D - Global More than 530 weekly international non-stop flights More than 1,000 international firms from 50 countries Most Inc. 500 fastest growing companies Wealthiest households in the country #1 U.S port of Baltimore cargo surge Wall St. moves to Pennsylvania Ave: record 4.3MM SF of Net Absorption 2012 Actual and feared U.S. austerity and sequestration, BRAC lowest demand since 2002 HFF, L.P. Page 2

20 DC the Only Major East Coast Market that did not have a Recession Employment Growth VS DC Metro US -.8% US 1.4% DC 1.5% DC 1% Most growth in Leisure/Hospitality (12,500) and Education/Health (9,700) Historic average is 36M expected to resume in 2014 Job growth slowed in 2011: Tsunami. Greece, Debt Crisis

21 Historical Investment Sales Volume: Washington, DC Metro Area (Office) Approx. $8.2B in regional investment sales in 2011, going into 2012 with $2.6B under contract 2011 Core: 60% Core Plus: 26% Value Add: 14% 57 Deals inside the beltway (63% volume) 2010 Regional Overview DC (31 Deals) $3.4B $520 psf average MD (17 Deals) $0.4B $168 psf average VA (59 Deals) $2.2B $227 psf average 107 Deals Total, $6.0B 2011 Regional Overview DC (34 Deals) $3.9B $449 psf average MD (30 Deals) $0.9B $198 psf average VA (41 Deals) $3.4B $272 psf average 105 Deals Total, $8.2B - Peak pricing in DC and MD in deals outside the beltway (37% volume) 8

22 Historical DC Metro Office New Construction Volume Millions SF % Total Supply 4.54% 3.50% 3.69% 1.67% 2.09% 1.99% 2.65% 2.46% 2.00% 1.24% 0.98% 0.54% 0.68% *3.95 number for 2011 includes 1.75 msf Mark Center 12