CREFC AFTER WORK SEMINAR CRE FUNDAMENTALS: ARE WE BREAKING NEW GROUND? KROLL BOND RATING AGENCY, INC

Transcription

1 CREFC AFTER WORK SEMINAR CRE FUNDAMENTALS: ARE WE BREAKING NEW GROUND? KROLL BOND RATING AGENCY, INC

2 PANEL Eric Thompson Moderator Senior Managing Director Jeffrey Aldridge Panelist Vice President, Capital Markets Josh Kuriloff Panelist Executive Vice Chairman Mark Owens Panelist Executive Vice President & Head of Hospitality Capital Markets Tim Komosa Panelist Economist 2

3 CURRENT RENT AND OCCUPANCY VS PRIOR PEAK Property Type Multifamily Office Retail Lodging Industrial Current 1 Rent 2 $1,42. $28.1 $18.5 $124. $6.9 Occupancy % 89.8% 94.8% 65.5% 95.% Price Index Prior Peak 4 Rent 2 $1,182.2 $26.1 $18.9 $13.2 $6.3 Occupancy % 89.7% 93.9% 65.% 92.6% Price Index Prior Peak-to-Current % Change Rent 2 2.1% 7.5% -2.% 2.2% 1.3% Occupancy 2.3%.1% 1.%.8% 2.6% Price Index % 14.8% 6.2%.3% 7.9% 1 Current period as of year-end CoStar data used for rent & occupancy; monthly STR report for lodging ADR & occupancy 3 Price Index based on the Value Weighted CoStar Commercial Repeat Sales Index except for lodging, which uses the Equal Weighted Index 4 Prior peak periods were established based on price index peak; dates range from Q4 to Q4 Sources: Kroll Bond Rating Agency, Inc., CoStar Group, STR 3

4 F F Rent ($/SF) Rent ($/SF) F F Rent ($/Unit) Rent ($/SF) RENT AND OCCUPANCY Multifamily Office Rent Occupancy Rent Occupancy 1,6 1,4 1,2 1, % 95% 94% 93% 92% 91% % 92% 91% 9% 89% 88% 87% 86% 85% 84% Rent Retail Occupancy 96% 95% 94% 93% 92% 91% Industrial Rent Occupancy 96% 95% 94% 93% 92% 91% 9% 89% 88% 87% Sources: Kroll Bond Rating Agency, CoStar Group 4

5 F F Square Feet (Millions) Square Feet (Millions) F F Units Square Feet (Millions) SUPPLY AND DEMAND Multifamily Office 3, Net Absorption Completions 2 Net Absorption Completions 25, 2, , 1, 5, Retail Industrial 2 Net Absorption Completions 25 2 Net Absorption Completions Sources: Kroll Bond Rating Agency, CoStar Group 5

6 COSTAR COMMERCIAL REPEAT SALES INDICES Multifamily Office Retail Industrial *Value Weighted Index (Dec =1) Sources: Kroll Bond Rating Agency, CoStar Group 6

7 F ADR ($/Room Night) Keys LODGING Rate & Occupancy Supply & Demand ADR Occupancy Supply Change Demand Change % 66% 64% 62% 6% 58% 56% 54% 52% 5% 48% 25, 2, 15, 1, 5, -5, -1, -15, -2, Price Index *Equal Weighted Index (Dec =1) Sources: Kroll Bond Rating Agency, CoStar Group, STR, CBRE 7

8 Spreads (Bps) RELATIVE MEASURES S&P U.S. Composite Value Weighted Pricing Index Secondary Market Spreads: 1yr 3% AAA 8% 1 Year Treasury Rate 1,6 7% 1,4 1,2 1, % 5% 4% 3% 2% 1% % Sources: Kroll Bond Rating Agency, CoStar Group, CMA, Federal Reserve, JP Morgan 8

9 PROPERTYBEAT/SECULAR TRENDS 9

10 MULTIFAMILY SECULAR TRENDS Millennials surpassed Baby Boomers in as the largest generation. Their lifestyle choices will increasingly have a much greater impact on housing demand. Lending standards for single-family housing continue to be tight. As a result, home ownership has proven difficult for millennials, which have the lowest average credit score of all generational cohorts. Baby Boomers don t want to be tied down to underutilized suburban homes as they age. As this cohort downsizes, they should provide support for multifamily demand. 1

11 OFFICE SECULAR TRENDS With baby boomers retiring, and millennials moving into the workplace, corporations are rethinking their space needs. Hybrid office, which is a mix of traditional and collaborative space is the new normal. Office space per worker fell from 6 sf in the 197 s to 225 sf in and is expected to decline to 15 sf this year. Co-working centers now seem to be the choice du jour. Complaints include that co-work space tends to be noisier with less ability to keep work private. 11

12 RETAIL SECULAR TRENDS The future of retail will be through omni-channel offerings, integrating online and bricks-and-mortar experiences. Still a place for bricks-and-mortar-retail, albeit with a digital-age makeover. E-commerce retailers continuing to open bricks-and-mortar stores. Amazon is exploring test grocery store locations. If these are successful, expect others to follow. 12

13 LODGING SECULAR TRENDS Millennials make up over one-third of the world s hotel guests, and could represent 5% of all travelers by 225. In addition to leisure travel, Airbnb estimates that 1% of its bookings are for business travel. As millennials move into the corporate world, this percentage will likely increase. Hotel consolidations have been occurring as chains look to increase scale and improve operating efficiencies. 13

14 INDUSTRIAL SECULAR TRENDS Fulfillment centers are being developed to help assure same-day delivery. Speculative development has increased due to growth in e-commerce and changes in retail distribution. Denver warehouse experienced three consecutive years of double-digit rent growth after the use and sale of recreational marijuana was approved in. 2% of the United States lives in states where recreational marijuana is legal, which should support warehouse demand. 14

15 DISCLAIMER Copyright 217, Kroll Bond Rating Agency, Inc., and/or its licensors and affiliates (together, "KBRA ). All rights reserved. All information contained herein is proprietary to KBRA and is protected by copyright and other intellectual property law, and none of such information may be copied or otherwise reproduced, further transmitted, redistributed, repackaged or resold, in whole or in part, by any person, without KBRA s prior express written consent. Ratings are licensed by KBRA under these conditions. Misappropriation or misuse of KBRA ratings may cause serious damage to KBRA for which money damages may not constitute a sufficient remedy; KBRA shall have the right to obtain an injunction or other equitable relief in addition to any other remedies. The statements contained in this report are based solely upon the opinions of KBRA and the data and information available to the authors at the time of publication of this report. All information contained herein is obtained by KBRA from sources believed by it to be accurate and reliable; however, KBRA ratings are provided AS IS. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any rating or other opinion or information is given or made by KBRA. Under no circumstances shall KBRA have any liability resulting from the use of any such information, including without limitation, for any indirect, special, consequential, incidental or compensatory damages whatsoever (including without limitation, loss of profits, revenue or goodwill), even if KBRA is advised of the possibility of such damages. The credit ratings, if any, and analysis constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. KBRA receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. Kroll Bond Rating Agency, Inc. is not affiliated with Kroll, Inc., Kroll Associates, Inc., Kroll OnTrack, Inc. or their affiliated businesses. 15

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