December 21, 2010

Three Questions That Will Shape Commercial Real Estate in 2011

Real Capital Rewind Presenters

Robert M. White, Jr., CRE, FRICSFounder & President

Peter SlatinAssociate Publisher & Editorial Director

Moderator Presenters

Sam Chandan, PhD, FRICS Global Chief Economist & Executive Vice President

All Property Types: Offered vs Closed

Office: Offered vs Closed

Year-End Projections

• $90.7 billion of significant commercial property sales closed year-to-date through November.

• Almost $9.0 billion already closed in December. December is projected to be the most active month in over 3 years.

• 2010 transaction volume will easily surpass the $100.0 billion milestone.

2010 Trends Prompt Three Questions for New Year

1. Will Rising Interest Rates = Higher Cap Rates?

Mortgage Spreads Are Wide

Cap Rates vs 10-Year Treasury

Will Rising Interest Rates = Higher Cap Rates?

Even if interest rates rise, the correlation to cap rates will be low. Given the extent of capital flows to the sector, cap rates may continue to trend down even as rates trend higher.

2010 Trends Prompt Three Questions for New Year

1. Will rising interest rates = higher cap rates?

2. Have investors missed the boat on distress?

All Property Types: Distress & Workout Activity

Office: Distress & Workout Activity

Apartment: Distress & Workout Activity

Retail: Distress & Workout Activity

Industrial: Distress & Workout Activity

Hotel: Distress & Workout Activity

Full Recoveries on the Rise

CMBS Reemerges

CMBS Reemerges

Have Investors Missed the Boat on Distress?

Inflows to distress have fallen over the course of 2010. In Q4, resolutions of distress should outpace inflows for the first time this cycle. But do not expect that new distress will disappear altogether.

2010 Trends Prompt Three Questions for New Year

1. Will rising interest rates = higher cap rates?

2. Have investors missed the boat on distress?

3. Will markets re-unite?

Investors Seek Trophy Properties in Major Markets

Core vs Value-Add

CMBS Reemerges

Buyer Activity Changing

Will Markets Re-Unite?

In 2010, investors focused their activities in a handful of major markets, including Boston, New York City, Washington, DC, Chicago, San Francisco, and Los Angeles.

As cap rates have narrowed in these markets, investors will begin to seek out opportunities to acquire performing assets in secondary and tertiary markets.

Answers to Three Questions That Will Shape Commercial Real Estate in 2011

1. A moderate rise in interest rates will have little effect on cap rates and pricing.

2. Distress has peaked, with outflows outpacing new additions to distress.

3. Concentration of sales activity in core properties in major markets will spillover into performing assets in secondary and tertiary markets.

Projections for 2011

1. Transaction activity will continue to rise, supported by improving conditions in credit markets.

2. Real challenges ahead, but the baseline expectation for the New Year is positive.

Hotel

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All of us at RCA wish you a happy holiday season.