NAIOP Maryland/DC Chapter Investment Market Forecast

Transcription

1 NAIOP Maryland/DC Chapter vestment Market Forecast

2 2007 vestment Market Tale of the Hare and Tortoisee? 1 st half of the year 2 nd half of the year Linda Rabbitt, Brookfield Board Member

3 Are You Ready for a Transitional Year?

4 It Started 120 Days Ago

5 Sales Volume (2007 vs. 2006) 1st half of 2007 up 37% 2nd half of 2007 down 48% Annual sales volume down 14% Regional pricing up 15% ($368/psf vs. $319/psf) Regional Sales Volume: CY 2007 Volume % Cumulative 1 st Quarter $1.9B 15% 15% 2 nd Quarter $6.0B 49% 64% 3 rd Quarter $1.9B 16% 80% 4 th Quarter $2.4B 20% 100% By Market: Total $12.2B 100% Market Volume % District of Columbia $4.3B 35% Maryland $1.0B 8% Virginia $6.9B 57%

6 We Should Have Seen It Coming vestment market got ahead of leasing fundamentals Real estate priced without a significant risk adjustment Vacancy and leasing risk overlooked Flipping occurring at record speed Debt was plentiful for acquisitions and development projects Real estate viewed as a financial commodity with less emphasis on the bricks and sticks

7 Why We Turned a Blind Eye Debt was plentiful and historically cheap Aggressive lender and rating agency underwriting Favorable terms and conditions Laying off the risk Flip Potential Fees and more fees Blackstone earned approximately $400MM in fees on the EOP transaction

8 look for 2008

9 Buyers Speculators Traders ( Flippers) Spec. Developers Low leveraged buyers REITS Pension Fund Advisors Foreign vestors Opportunity Funds

10 Sellers Everyone if the price is right REITS (Non-Core) Pension Fund Advisors (Hold Periods) Highly leveraged owners Owners facing short term refinancing issues

11 Target vestments Anything producing a current or future yield, requiring minimal equity and generating a fee Lower quality and commodity assets Buildings in marginal locations Assets in 24/7 gateway cities Washington, DC New York Boston Los Angeles Downtown and inside the beltway assets close to public transportation Flight to Quality Overleveraged assets or portfolios Value-Add Partner buy outs

12 Development Spec. projects supported by equity investors chasing yield Projects partially pre-leased located in in-fill or transit oriented locations Build-to-Suits Adding FAR to existing buildings

13 M&A Activity Active public-to-private and merger market Minimal maybe one or two deals

14 Returns Cap. Rate Compression IRR Current Yield Steady annual yields True NOI Growth

15 Pricing Record Levels Down 5 15%

16 Liquidity High leverage, low equity Cash is King

17 Debt Attractively priced > 80% leverage < 70% leverage 10-Year Treasury ranged from 3.83% (1/26/07) 5.26% (6/12/07) 1-Month LIBOR ranged from 4.60% (12/31/07) 5.82% (9/7/07) 10 Year Treasury at 3.67% (1/16/08) 1 Month LIBOR at 3.99% (1/16/08)

18 Sources of Debt Domestic Banks/vestment Banks offering highly leveraged CMBS debt Mezzanine debt on the sidelines Low leveraged CMBS debt surance Companies (Portfolio Lenders) Traditional bank loan market Foreign Banks (Syndicate Market) Seller financing

19 Cost of Debt Fixed Spreads below 100 bps. Floating Spreads between 150bps. 175bps. (Limited recourse) Fixed Spreads widened by 125bps. 140bps. Floating Spreads widened by 25bps. 50bps. (creased recourse)

20 Debt Terms Full term I/O loans Low DSC ratios Underwriting based upon projected cash flow No reserves Short period of I/O w/ amortization creased DSC ratios -place cash flow Reserves

21 Recent Brookfield Financings Property One Liberty Plaza New York, New York Dain Plaza Minneapolis, Minnesota Pre-Development Loan New York, New York 75 State Street Boston, Massachusetts Date August 2007 December 2007 December 2007 the Market Loan Type Fixed Floating Floating Fixed Spread Swaps + 70bps. Libor +150bps. Libor + 140bps. T+ 220bps bps. Terms 10/30 4 years of I/O amortization thereafter No reserves One year w/ two, one year extension options No reserves One year w/ one, one year extension option 10/30 3 years of I/O amortization thereafter Reserves Recourse None None 25% recourse None

22 Value Creation Leverage Cap. Rate Compression Upward market fundamentals Stable fundamentals offsetting increasing cap. rates Back to the Basics

23 Exit Strategies Make me an offer Recaps. Expiration of defined holding period

24 Fees M & A Fees Multiple fees on flips Leasing fees increase Stable management fees Stable investment brokerage fees

25 Who Will be Featured on Bisnow Pictures of real estate investors eating at fancy restaurants Pictures of asset managers and leasing agents working at their desks or pitching buildings

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