Fisher Center-Real Estate & Economics Symposium. November 19 th, 2018

Transcription

1 Fisher Center-Real Estate & Economics Symposium November 19 th, 2018

2 SALES VOLUME AND PRIMARY MARKET CAP RATES 12-MONTHTOTALS Demand for product in major markets has driven cap rate compression, and forced investors to either accept lower yields in those markets or chase yield in non-major markets, in the form of value-add opportunities. $ % 7.0% $300 $116.4 Billion Gap 6.5% Billions $ % $ % % *Major Metros: Boston, Chicago, DC, LA, NYC, SF *Non-Major Metros: All other metro areas Primary Market CapRate Primary Market SalesVolume Secondary Market Sales Volume Source: NKF Research, Real Capital Analytics NEWMARK KNIGHT FRANK RESEARCH

3 SALES VOLUME BY MARKET 12-MONTH TOTALS; ALL PROPERTY TYPES Although the coastal gateways continue to attract large amounts of capital, Houston, Seattle, Phoenix and Denver have managed to exceed their 2017 deal volume as well as their five-year average. $80 $60 Office properties drew $23.1 billion in sales volume over the past 12 months, as trophy ($500M+) deal volume in 2018 hovers close to this cycle s high. Houston has transitioned into one of the largest multifamily markets, managing $6.5billion in the past 12 months. Billions $40 Phoenix has benefited from strong employment growth and has recorded $6.3 billion in multifamily sales in the past 12 months. $20 NYC Metro LA SF DC Metro Metro Metro Dallas Chicago Atlanta Houston Seattle Phoenix Miami Denver Boston San Diego Orlando Austin Las Vegas Tampa Charlotte Portland 12-Month Totals 5 YearAverage 2017 Volume Source: NKF Research, Real Capital Analytics NEWMARK KNIGHT FRANK RESEARCH

4 2018 BUYER COMPOSITION While the Northeast and Mid-Atlantic regions have historically seen the bulk of international investment, the Midwest has recently attracted a higher percentage of investment from Canadian, Chinese, and German groups just 4 years ago, investment from international groups only accounted for 7% of total buyer volume. 100% 4% 5% 3% 6% 3% 3% 3% 3% 4% 80% 47% 3 54% 37% 52% 37% 57% 52% 47% 60% 9% 7% 12% 40% 26% 24% 24% 9% 20% 23% 20% 19% 19% 24% 21% 1 22% 15% 25% 1 24% 13% 12% 1 0% United States Primary Markets Secondary Markets Northeast Midwest Mid-Atlantic Southwest Southeast West Source: NKF Research, Real Capital Analytics NEWMARK KNIGHT FRANK RESEARCH

5 YIELD SPREAD Commercial real estate yields currently offer a 257 basis point premium to the 10-year treasury note even as cap rates for institutional grade assets remained flat quarterover-quarter. The Fed is expected to raise rates one more time in % % 5.6% 300 4% % 2% 100 0% Yield Spread Cap Rates, All Property Types 10-Year Treasury Rate Source: NKF Research, Real Capital Analytics, Bloomberg NEWMARK KNIGHT FRANK RESEARCH

6 DRY POWDER As of 3Q18, there is an estimated $292 billion in uninvested capital accumulated by US funds opportunistic and value-add strategies account for 65% of this capital, as managers have allocated more money to higher yielding assets. $320 60% 53% 53% 52% $240 47% 47% 45% 41% 3 37% 35% 3 3 $ % 27% 25% 25% 25% 24% 24% 26% 26% 26% 30% $80 11% 14% 15% 16% 15% 15% 13% 13% 15% 7% 5% 0% YTD Univested Equity Value-add Opportunistic Core & Core Plus * Excluding Debt and DistressedFunds Source: NKF Research, Preqin NEWMARK KNIGHT FRANK RESEARCH

7 ANNUAL TOTAL RETURNS Total returns hover near the long term average as late cycle opportunities remain present in all asset classes, with industrial assets in particular recording over 14% return in 2018, driven by optimism about ecommerce and the evolution of transportation and logistics facilities across all markets. 20% 16.00% 10% 11.60% 8.50% 9.60% 4.80% 5.20% 7.00% 11.60% 12.50% 11.80% 12.30% 10.50% 7.80% 8.20% 8.80% 9.40% Average = 7.4% 5.60% 5.30% 7.20% 0% -10% -7.90% -10.3% Year Average Source: NKF Research, NCREIF NEWMARK KNIGHT FRANK RESEARCH

8 TOTAL RETURNS BY PROPERTY TYPE UNITED STATES Compared with the last cycle, where retail and multifamily properties consistently achieved the highest total returns, the current cycle has been led by the industrial sector, which has yielded the highest return over the past 6 years. Retail Retail Multifamily Multifamily Retail Industrial Industrial Industrial Industrial Industrial Industrial -5.5% -6.9% 17.7% 11.7% 8.6% 9.6% 10.4% 11.0% 9.1% 10.0% 14.1% Industrial Multifamily Retail Industrial Multifamily Retail Hospitality Hospitality Retail Hospitality Office -7.1% -9.7% 11.4% 10.9% 8.2% % 10.4% 5.9% 5.1% 6.6% Multifamily Industrial Office Office Industrial Office Office Retail Multifamily Multifamily Multifamily -8.4% -11.2% % % 9.9% 5.4% % Office Office Hospitality Retail Office Multifamily Retail Office Office Office Hospitality -9.1% -12.1% 9.4% % 7.6% 8.5% 8.9% 4.7% 4.7% 6.3% Hospitality Hospitality Industrial Hospitality Hospitality Hospitality Multifamily Multifamily Hospitality Retail Retail -10.6% -13.0% 8.7% 9.4% 6.6% 6.5% 7.9% 8.9% 3.5% 4.0% 4.6% All Properties All Properties All Properties All Properties All Properties All Properties All Properties All Properties All Properties All Properties All Properties -7.9% -10.3% 12.3% 10.5% % % 5.6% 5.3% 7.2% Source: NKF Research, NCREIF NEWMARK KNIGHT FRANK RESEARCH

9 Logistics real estate delivers consistent returns TOTAL RETURNS FORECAST, E %, Unleveraged Pre-fee and Before Tax Logistics Retail Office Apartment Logistics Apartment Retail Office Logistics is projected to be the highestperforming property type through 2022 Historically, logistics consistently delivered one of the highest returns and had one of the lowest standard deviations Income Appreciation Source: PREA Consensus Forecast Survey as of September 30, 2018; historical returns provided by NCREIF

10 INDUSTRIAL DASHBOARD Large investors, both domestic and international, have increasingly sought out industrial portfolio/entity deals that allow them to scale up quickly. Prologis acquisition of DCT Industrial, for $8.4 billion dollars and Blackstone s pending acquisition of Gramercy Property Trust reinforce the sector s record amount of liquidity and demand. NATIONAL SALES VOLUME CAP RATES $90 9% $80 7% $70 6% 5.9% $60 $26.8 $18.4 5% 4.6% Billions $50 $17.6 $22.6 4% Primary Markets Secondary Markets $40 $14.8 $15.5 PRICE PER SQUARE FOOT $30 $20 $10 $250 $200 $150 $100 $50 $236 $ Q 2Q 3Q 4Q Primary Markets Secondary Markets Source: NKF Research, Real Capital Analytics NEWMARK KNIGHT FRANK RESEARCH

11 All-time low vacancy

12 OFFICE DASHBOARD Office volume increased by 16.4% quarter-over-quarter, led by suburban value-add product in secondary markets. Non-major markets as a whole recorded 32.1% quarterover-quarter growth, with metros such as Houston, San Diego, and Phoenix attracting the most capital of secondary markets. NATIONAL SALES VOLUME CAP RATES $160 10% 9% $120 $39.9 $42.0 $41.7 $36.6 7% 6% 5% 6.6% 5.5% Billions $80 $39.7 $33.4 4% Primary Markets Secondary Markets PRICE PER SQUARE FOOT $600 $40 $500 $400 $300 $200 $100 $456 $ Q 2Q 3Q 4Q Primary Markets Secondary Markets Source: NKF Research, Real Capital Analytics NEWMARK KNIGHT FRANK RESEARCH

13 MULTIFAMILY DASHBOARD Multifamily volume surged by 33.0% quarter-over-quarter, as investors continue to chase yield into suburban, value-add deals located in the Southeast and Southwest. Multifamily has attracted the highest sales volume of any property type for the past 6 quarters, surpassing office. NATIONAL SALES VOLUME CAP RATES $160 7% $120 $52.3 $45.8 $46.0 6% 5% 5.6% 4.7% Billions $80 $30.9 $34.5 $47.4 4% Primary Markets Secondary Markets PRICE PER UNIT $375,000 $40 $300,000 $225,000 $150,000 $75,000 $294k $137k Q 2Q 3Q 4Q Primary Markets Secondary Markets Source: NKF Research, Real Capital Analytics NEWMARK KNIGHT FRANK RESEARCH

14 RETAIL DASHBOARD Despite concerns about brick and mortar retail, retail volume increased by 32.4% quarter-over-quarter and posted a near record quarterly volume. Brookfield s $15 billion dollar buyout of GGP this quarter, coupled with last quarter s close of the Unibail-Rodamco s buyout of Westfield malls have contributed over $30 billion in volume. NATIONAL SALES VOLUME CAP RATES $100 9% $90 7% $80 $70 $25.0 $23.4 $18.8 6% 5% 6.5% 5.7% Billions $60 $50 $20.1 $15.3 $27.7 4% Primary Markets Secondary Markets $40 PRICE PER SQUARE FOOT $30 $20 $10 $600 $500 $400 $300 $200 $100 $467 $ Q 2Q 3Q 4Q Primary Markets Secondary Markets Source: NKF Research, Real Capital Analytics NEWMARK KNIGHT FRANK RESEARCH

15 HOSPITALITY DASHBOARD Hospitality volume has rebounded in 2018 and reached $27.2 billion, nearly surpassing 2017 s total of $27.9 billion. Large sales have returned to primary markets, with Manhattan in particular recording 2.4 billion in year-to-date volume, a 205.4% increase from the first three quarters of NATIONAL SALES VOLUME CAP RATES $60 11% 10% 9% $50 7% 7. $40 $14.6 6% 5% 5.9% Billions $30 $9.8 $9.5 4% Primary Markets Secondary Markets $8.4 $6.3 $7.5 PRICE PER KEY $20 $450,000 $350,000 $355k $10 $250,000 $249k $150,000 $50, Q 2Q 3Q 4Q Primary Markets Secondary Markets Source: NKF Research, Real Capital Analytics NEWMARK KNIGHT FRANK RESEARCH

16 DEBT DASHBOARD Refinancing activity continues to accelerate as debt capital remains plentiful and owners seek to hold assets, in anticipation of higher cost of debt in the future. Debt funds have accumulated over $58 billion in dry powder as of 2018, increasing their share of total dry powder to just under 20%. NATIONAL QUARTERLY FINANCING DEBT FUND DRY POWDER $300 $272 $320 $292 60% $282 $229 $237 $240 45% $250 $200 $214 $230 $160 $80 14% 17% 1 20% 30% 15% Billions $150 $ YTD Univested Equity NATIONAL HISTORICAL REFINANCING Debt 0% $100 $ % % 1Q 2Q 3Q 4Q Source: NKF Research, Real Capital Analytics, Preqin NEWMARK KNIGHT FRANK RESEARCH

17 MORTGAGE MATURITIES BY LENDER GROUP; DOLLARS IN BILLIONS While 2017 saw a spike in mortgage maturities, 2021 and 2022 are pegged to surpass the $400 billion level additionally, nearly $2.0 trillion is set to mature over the next five years will support robust levels of financing activity. $500 $400 COMMERCIAL 67.1% MULTIHOUSING 32.9% $322 $327 $335 $367 $372 $372 $363 $353 $401 $342 $358 $384 $406 $426 $378 $300 $268 $223 $200 $ Banks CMBS Life Insurance Other Source: NKF Research, Trepp, Federal Reserve NEWMARK KNIGHT FRANK RESEARCH

18 GLOBAL INTEREST RATES Rates reflect low leverage institutional-level borrowing.

19 CURRENT RATES CURRENT INDEX RATES 5-Year Treasury 3.04% 7-Year Treasury 3.11% 10-Year Treasury Month LIBOR 2.32% 10-Year Swap 3.24% Multifamily FREDDIE MAC-CONVENTIONAL TERM LTV DSCR SPREAD RATE 10-Year 55% 1.55x %-4.70% 10-Year 65% 1.35x Year 80% 1.25x %-5.13% 7-Year ARM 80% 1.25x %-4.94% FANNIE MAE-CONVENTIONAL TERM LTV DSCR SPREAD RATE 10-Year 55% 1.55x % 10-Year 65% 1.35x %-4.8 Commercial LIFE COMPANIES TERM AMORTIZATION LTV SPREAD RATE 5-Year %-65% %-4.64% 5-Year %-75% %-5.14% 10-Year %-65% % Year %-75% CMBS TERM AMORTIZATION LTV SPREAD RATE 5-Year 30 65%-75% %-6.09% 10-Year 30 65%-75% %-5.33% 10-Year 80% 1.25x Year ARM 75% 1.00x %-5.46% LIFE COMPANIES TERM AMORTIZATION LTV SPREAD RATE 5-Year %-65% %-4.54% 5-Year %-75% %-4.84% 10-Year %-65% % Year %-75% CMBS TERM AMORTIZATION LTV SPREAD RATE 5-Year 30 65%-75% %-5.99% 10-Year 30 65%-75%