Joseph L. Carter Executive Vice President November 2014
Trends In Banking The problems created by the financial down turn are in the rearview mirror. The national economy remains sluggish and loan growth is difficult Banks continue to focus on efficiencies and expense control
Deposits are high (approximate ratio of loan to deposit ratio: 2007 = 100% ; 2014 = 70%) Spreads are low (rising rates will improve this) Result: pressure to get more aggressive
Trends in Investment Sales In the past 20 years, real estate has become more institutional. 1 2 years ago, the Gateway Cities (NY, DC, SF, LA, BOS) received the most attention and aggressive cap rates & capital markets execution. Some shift to the next tier of cities to pursue higher returns (though perhaps higher risk)
Presence of Sovereign Wealth Funds and foreign pension fund money continues to invest in gateway cities Asset allocation model coupled with low rates continues to push cap rates to low levels.
Gen Y Boomers 2012 Size 77.1 million 72.5 million Birth years 1978 1995 1946 1964 Age Now 19 36 50 68 Hispanic 21% 10% Black 15% 11% Asian/Other 7% 4% Live to Work 16% 28% Work to Live 85% 72% Expect Never to Retire 10% 25% Source: ULI/Lachman Associates Survey, January 2013
YPO Southern 7 Economic Forum US Housing Market Overview November 12, 2014
YPO Southern 7 Economic Forum Cyclical Mortgage Demand/Supply 8 2001 2003: The dramatic lowering of Fed interest rates fueled years of record breaking mortgage origination volume and strong housing activity which led the economic growth. 2004 2006: Mortgage lenders stretch credit guidelines to keep profits and volume demand strong setting stage for housing meltdown. 2014 and Beyond: High uncertainty in consideration of: End of Fed s MBS purchase program: Will banks and investors pick up the slack? Potential for a protracted recession in the real economy; a slow recovery in jobs and consumer confidence Expected sharp declines in refinance volume with limited recovery in the purchase market
YPO Southern 7 Economic Forum 9 Slow Growth for Housing Pre Meltdown Growth 8% Baby boom(s) Strong economic growth Strong immigration Expansion of home ownership rate Creation of a vibrant secondary market Cheap credit Product innovation/ exotic loans/loose regulation After Meltdown Growth ~ 2% Weakening demographics Tight credit & tepid economic growth Uncertain immigration policy Reduced affordability Rising health care costs (?) Rising energy costs (?) Rising PC insurance costs Slow personal income growth Demand shift towards rental housing Increased regulatory costs/uncertainty
YPO Southern 7 Economic Forum Owner and Renter Occupied Households & Homeownership Rate 10
YPO Southern 7 Economic Forum Projected Changes in the Population by Age (2012 2022) 11
YPO Southern 7 Economic Forum First Time Homebuyers Have Not Returned 12
YPO Southern 7 Economic Forum US Housing Market Overview November 12, 2014
YPO SOUTHERN 7 CHAPTER ECONOMIC FORUM Retail Market Overview
STATE OF THE UNION THE SUPPLY SIDE
U.S. SHOPPING CENTER DEVELOPMENT 40 33.0 35 31.4 34.4 33.2 30 27.7 29.4 30.6 29.6 25 24.5 Millions, SF 20 15 13.1 10 7.6 6.8 6.6 7.3 5 4.5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Shopping Center Development. Source: Reis
U.S. SHOPPING CENTERS 2013 YEAR END VACANCIES 12 Vacancy % 10 8 6 4 Vacancy % 2 0 Community/ Neighborhood/ Strip Power Centers Malls Specialty Centers All Shopping Centers. Source: Cassidy Turley
RETAIL GLA PER CAPITA Retail GLA Per Capita has been flat since 2008 26 24 22 20 18 GLA Per Capita GLA Per Capita. Source: ICSC & RBC Capital Markets
STATE OF THE UNION THE DEMAND SIDE
MIDDLE CLASS SHOPPER IN HIDING
AND THE BAD NEWS Retailers Shrinking Footprints Sharp Contraction Among Segments With Heavy E-Commerce Competition Office Supplies Consumer Electronics Bookstores Negative to Flat Growth Mid-Priced Hard Goods Mid-Priced, Unionized Grocery (Especially Smaller & Regional)
2014 RETAILER GROWTH NOT! Bookstores Video Stores Do-It-Yourself Home Stores DECLINING Mid-priced apparel Mid-priced grocery (particularly unionized) Office Supplies Stationary/Gift Shops Shipping/Postal Stores And Casual Dining (Older, Struggling Concepts Shrinking) DECLINING
THE IMPACT OF KEY ECONOMIC INDICATORS 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Housing prices TAILWIND Fuel prices TAILWIND 20% Stock or Greater prices TAILWIND 5% 10% Nashville 4% San Francisco 15% Recession Job Loses Denver 9% Colorado Springs 4% San Jose 13% Public Policy Debates Create Consumer Uncertainty Recovery HEADWIND Job Gains Atlanta 33% Sacramento 29% Las Vegas 26% Employment NEUTRAL IMPACT Jacksonville 21% Phoenix 21% Interest Lower Wage RatesU.S. Mid Wage NEUTRAL 10% IMPACT Higher Wage Industries Industries Industries Los Angeles 20% 10% 20% Orlando 19% San Diego 17% Bismarck 13% St. Louis 11% Portland 10% Grand Rapids 10% Houston 8% Austin 8% Tucson 7% San Antonio 6% Raleigh 5% 5% or Less Providence 4% DC 4% Milwaukee 4% Tampa 3% Columbus 3% New York, NY 3%
AND NOW FOR THE GOOD NEWS Retail Closures Are Down Significantly 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014* *1,100 of the 2,192 are Radio Shacks Source: ICSC, PNC
RETAIL BANKRUPTCIES WAY DOWN
MORE GOOD NEWS 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q1 2014 2014 Planned Openings Are At Historic Highs Source: ICSC, PNC
BUT DEMAND HAS SHIFTED Restaurant Other Apparel Dollar Home Grocery Drug. Source: ChainLinks Retail Advisors
SO WHO IS GROWING? Growth 2014 Retailers NOT Competing With Online Sales Restaurants Grocery/Food Related Service Related Entertainment Luxury Brands Discounters Off price apparel Specialty Retailers
2014 RETAILER GROWTH HOT Grocery (Smaller Format Concepts) Discount/Ethnic/Organic/Upscale Pet Supplies DECLINING Fast Food/Fast Casual Upscale Dining Fitness/Health/Spa Concepts Medical Automotive Parts & Services Thrift/Dollar Stores Arts and Crafts Stores Furniture/Mattress Stores Drug Stores Entertainment Specialty Retail Off-Price Apparel Luxury Apparel/Accessories Children s Apparel Sporting Goods Wireless Stores Banks. Source: ChainLinks Retail Advisors
WHO S HOT?
QUESTIONS & ANSWER SESSION