© JR DeLisle, Ph.D.

Interactive Insights 2014: The Economy and Kansas City

ULI Kansas City District Council: Breakfast with Leaders

James R. DeLisle, Ph.D.

February 20, 2014

© JR DeLisle, Ph.D.

Presentation Overview

• Respondent Profile • Insights on Entrepreneurship

Real Estate Entrepreneurship

• Economic Drivers • Capital Markets • Real Estate Markets

Macroeconomic Outlook

• Market Snapshot • Scorecard • Issues and Opportunities

Kansas City Insights

RESPONDENT PROFILES AND ENTREPRENEURIAL INSIGHTS

© JR DeLisle, Ph.D.

Who are we? Career plans

How long in real estate? How many more years in real estate?

© JR DeLisle, Ph.D.

What is a Real Estate Entrepreneur?

Strongly Disagree

Strongly Agree

© JR DeLisle, Ph.D.

Other Definitions of Entrepreneurial Activity

• Creating Value – Creating opportunities in new markets – Initiative to create/find opportunities – Creative use of talents

• Fundamentals

– Understanding fundamentals – Identifying gaps and fill them

• Critical Thinking

– Outside the box opportunities – Out of box thinking

• Risk Assumption and Management

– Assuming certain financial risks – Creating Value via certain risks

© JR DeLisle, Ph.D.

Importance of Key Traits/Attributes

Other Attributes/Traits

Technical expertiesKnowledge, instinctsRisk takersAble to deal with complexityPersistence; overcome "no's"Trustworthy

Strongly Disagree

Strongly Agree

© JR DeLisle, Ph.D.

Real Estate Entrepreneurship: The 3Cs

•Site Assemblage •Asset Assemblage •Entitlement •Land Development •Development •Leasing/Stabilization •Renovation/Rehab

Creating

•Operations Management •Rent Roll Management •AssetProperty Management •Defensive Capital

Controlling

•Finance •Recapitalize •Transfer Interests •Disposition

Capturing

A Life Cycle Perspective

© JR DeLisle, Ph.D.

Future Visioning: A Behavioral Approach

Based in part on: http://www.wfs.org/forecasts25/

Scan Media

•Ongoing, systematic surveys •Spot trends & breakthroughs

Analyze & Extrapolate Trends

• Plot and extend • Explore causes &

impacts

Ask Experts

• Delphi polls • Expert panels

Scenarios & Simulations

• Behavioral

analysis • Observe reactions • Analogies

T I N R There Is No Reality

© JR DeLisle, Ph.D.

Real Estate Cycles: A Behavioral Approach

Normal

Confident

Pessimistic

Optimistic

Shock

Intervention

© JR DeLisle, Ph.D.

Interactive Insights: A Matter of Perspective

30% over 20-30 Years

20% over 10-20 Years

25% 0 - 10 Years

27% under 10 Years 20% 10 - 20

Years

1973 1983 1993 2003 2013 2023 2033

53% over 20

Years

25% over 30 Years

Prior Years of Experience Planned Future

ECONOMIC TRENDS AND INTERACTIVE INSIGHTS

© JR DeLisle, Ph.D.

Statements on the National Economy: Other Risks

Other risks….

Strongly Disagree

Strongly Agree

© JR DeLisle, Ph.D.

Importance to Sustainable Recovery

Other factors

Strongly Disagree

Strongly Agree

© JR DeLisle, Ph.D.

Employment: Changing the Debate

Source: The Conference Board

© JR DeLisle, Ph.D.

Housing Trends: Reflecting…. Housing Permits…. 2008-2013

© JR DeLisle, Ph.D.

Inflation & Interest Rates

© JR DeLisle, Ph.D.

Business Investment Outlook

Dismal.com

Manufacturers Alliance/MAPI Survey

4Q11 - 4Q13

NFIB Small Business Survey

Jan 13 - Dec 13

© JR DeLisle, Ph.D.

Consumer Confidence & Consumption

Michigan: Sentiment

Conference Board

© JR DeLisle, Ph.D.

Stock Market Bull Run: Investors on Defensive?

Dismal.com; WSJ.online

2008 2014

INSIGHTS ON REAL ESTATE AND CAPITAL MARKETS

© JR DeLisle, Ph.D.

Private and Public Returns: NCREIF/NAREIT NFI-ODCE Preliminary Snapshot Report

© JR DeLisle, Ph.D.

National Price Indices, Players and Transactions

RCA: Aug 2013

© JR DeLisle, Ph.D.

National Cap Rates by Property Type & Quality

Source: RCAnalytics

© JR DeLisle, Ph.D.

Commercial Mortgages

KANSAS CITY SCORECARD: ISSUES AND OPPORTUNITIES

© JR DeLisle, Ph.D.

Unemployment Rates: KC Metro vs. US

© JR DeLisle, Ph.D.

Kansas City Outlook: Agree/Disagree (Agree to Disagree?)

Strongly Disagree

Strongly Agree

© JR DeLisle, Ph.D.

Kansas City Scorecard: Setup Performance Very Strong Very Weak

Impo

rtan

ce

Very

Low

Ve

ry H

igh

Who Cares? Overachiever

On the Money Red Zone

© JR DeLisle, Ph.D.

Kansas City Scorecard Performance Very Strong Very Weak

Impo

rtan

ce

Very

Low

Ve

ry H

igh

Who Cares? Overachiever

On the Money Red Zone

© JR DeLisle, Ph.D.

KC Issues: Importance/Performance Gap

What are the KEY issues? What answers?

Very Low

Very High

© JR DeLisle, Ph.D.

Kansas City Cap Rates

National Averages

© JR DeLisle, Ph.D.

Kansas City: NCREIF Investments

© JR DeLisle, Ph.D.

2014 Emerging Trends: Market Prospects

© JR DeLisle, Ph.D.

Real Estate Transactions: KC vs. Midwest

Investors Pour (poor?) more $’s into Kansas City

© JR DeLisle, Ph.D.

Kansas City Transactions by Property Type

Office

Industrial

Retail

Apartment

Total

© JR DeLisle, Ph.D.

Best Opportunities in Kansas City

• Property Type – Industrial development; rail play – High cube industrial near intermodal – Multifamily in well-located areas – Multifamily downtown

• Location

– Downtown and near mass transit – Midtown; first-tier suburbs – Infill, close-in JoCo – TOD

© JR DeLisle, Ph.D.

Biggest Risks to Kansas City

• Macroeconomic Forces – Health of worldwide economy – Lack of job growth – Job creation – Interest Rate Risks – Gasoline prices

• Real Estate Risks – Class A Offices downtown – Cap Rate decompression; rising rates – Overbuilt single-family – Overbuilt retail

• Cannibalization: Border wars – Continuing incentives to corporations that jump the state line w/o net new

jobs – Rising tax burden; increased sales tax assessments

© JR DeLisle, Ph.D.

How Will Industry Change Over 3-5 Years?

• Transformation of housing to higher density from single family • Homebuilders realizing plight of overbuilding • Redevelopment/revitalization of undesirable areas • Further consolidation; larger developers with access to capital • Decline/lack of foreign investment • Fewer jobs…

© JR DeLisle, Ph.D.

What Advice to Young Professionals?

• Do you homework; do your homework and don't expect things to be handed to you - you've got to earn it

• Prepare for a 15-20 year cycle. • Begin career in another city with more entry level opportunities. • Learn to read market fundamentals better rather than chasing

short-term yields • Network, put in the hours, plan and SAVE! • Get a diverse educational background. • Find your niche • Find a great mentor that may not pay the highest but will stand

by you to let you learn and grow in the business

© JR DeLisle, Ph.D.

What Key Issues to Address: Today, Tomorrow…?

• Addressed – Compare KC to other metros/US Cities on performance, market, growth,

demographics, and trends... are we behind the curve, ahead of the curve, or ???

– "Get real" with Kansas City and how we work as a unique cityscape. Don't focus on national trends unless you have real data to back up how/why these benefit Kansas City.

• Ongoing – Reading market fundamentals so that we do not replicated the prices

bubbles and the over-building of the recent past – Trends – Answer the question as how the RE program at UMKC will try to address

the needs of the industry.

© JR DeLisle, Ph.D.

Presentation Review

• Respondent Profile • Insights on Entrepreneurship

Real Estate Entrepreneurship

• Economic Drivers • Capital Markets • Real Estate Markets

Macroeconomic Outlook

• Market Snapshot • Scorecard • Issues and Opportunities

Kansas City Insights