CBRE Presentation June 2015
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Transcript of CBRE Presentation June 2015
Tony Lenamon, MAI – National Multifamily Practice Leader
06-11-15 PRESENTATION
CONTI Investor Dinner
US Population GrowthPopulation, % change, mid-year 2014
Sources: Census Bureau, Moody’s Analytics
0.9% or greater
0.4% to 0.9%
0.4% or less
U.S. = 0.73%
1960 179,972,000
2014 319,906,652
NATIONAL MAP OF EFFECTIVE RENT GROWTH. THE STRONGEST METROS AND SUBMARKETS ARE IN GA, FL, TX, AND WEST
Annual Effective Rent Growth by Submarket - 1Q15
Source: Axiometrics Inc.
Texas
Population of Largest U.S. Metropolitan Regions1990
1. New York 16.8 million2. Los Angeles 11.3 million3. Chicago 8.2 million4. Philadelphia 5.4 million5. Detroit 4.2 million6. Boston 4.1 million7. Washington D.C. 4.1 million8. Miami 4.1 million9. Dallas-Fort Worth 3.9 million
10. Houston 3.8 million
Population of Largest U.S. Metropolitan Regions2014
1. New York 20.0 million2. Los Angeles 13.2 million3. Chicago 9.5 million4. Dallas-Fort Worth 6.9 million5. Houston 6.4 million6. Philadelphia 6.0 million7. Washington D.C. 6.0 million8. Miami 5.6 million9. Atlanta 5.6 million
10. Boston 4.7 million
Strength of DFW Economy
DFW
$440 billion30% of Texas
Texas
$1.46 trillion
Gross Product in USD Top U.S. Metropolitan AreasFor Job Growth in 2014
1. DFW 136,9002. New York 129,0003. Houston 120,6004. Los Angeles 104,1005. Miami 72,800
• Spain
• Mexico
• Netherlands• Saudi Arabia
• Argentina• Poland• Belgium
• Austria• UAE• South Africa• Singapore
Dallas-Fort WorthIs The Largest Region in Texas For
Manufacturing Jobs 29%High Tech Jobs 32%
11 CBRE | TEXAS CHARTBOOK
December 2014, seasonally adjustedTEXAS EMPLOYMENT TRENDS BY MARKET
2.4%
3.1%
2.8%
3.1%
4.3%
4.4% growth
0 20 40 60 80 100 120 140 160
El Paso
McAllen
Austin
San Antonio
Houston
Dallas/Ft. Worth
Year-over-Year Employment Change (000s)
Source: U.S. Bureau of Labor Statistics, CBRE Research, March 2015.
Texas:457,900 jobs4.0% growth
500,000
1,500,000
2,500,000
3,500,000
4,500,000
5,500,000
6,500,000
7,500,00019
6019
6119
6219
6319
6419
6519
6619
6719
6819
6919
7019
7119
7219
7319
7419
7519
7619
7719
7819
7919
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
14
Dallas MD Ft Worth MD
DFW MSA Population 1960 through 2015
1960 1,425,775
2014 7,097,813 or 26% of the State
Copyright 2015. Insight Research Corporation, P.O. Box 61, Allen, TX 75013 972-238-8838.
Headquarters Move to DFW
15 CBRE | TEXAS CHARTBOOK
Seasonally adjusted, ranked by Q4 2014
ANNUAL MEDIAN HOUSEHOLD INCOME TRENDS: MAJOR TEXAS METROS
20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000
McAllen
El Paso
San Antonio
Houston
Dallas/Ft. Worth
Austin
Q4 2014 Q4 2012 Q4 2010
($)
Source: Moody’s Analytics, CBRE Research, March 2015.
DFW MSAOFFICE CONSTRUCTION
Source: CBRE Inc.
(5)
0
5
10
15
20
2519
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
14
Millions
ABSORBED DELIVERIES
DFW MSARETAIL CONSTRUCTION
Source: CBRE Inc.
(3.0)
0.0
3.0
6.0
9.0
12.0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Millions of Square Feet
ABSORPTION DELIVERIES
DFW MSAINDUSTRIAL CONSTRUCTION
Source: CBRE Inc.
(5)
0
5
10
15
20
25
30
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Millions
ABSORPTION DELIVERIES
DFW MSASINGLE FAMILY PERMITS
Source: Texas A&M RE Center
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Annual Number of Permits
DFW MSAMULTI-FAMILY CONSTRUCTION
Source: CBRE Inc.
(5,000)
5,000
15,000
25,000
35,000
45,000
55,000
65,00019
8019
8119
8219
8319
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
14
ABSORPTION DELIVERIES
Units
WHERE IS MULTI-FAMILY TODAY?
� Continued Strong Performance Metrics
� Buyer Demand is Strong – Lots of Equity
� More Debt Options are Available
� Cap Rates Have Compressed
� New Construction is Significant
� Value-Add Opportunities are Plenty
2%
3%
4%
5%
6%
7%
8%
9%
$0
$50
$100
$150
$200
$250
$300
$350
$400
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Cap
italiz
atio
n R
ates
Mar
ket V
alue
and
Res
cale
d N
OI
NCREIF Index: Market Values, Rescaled NOI and Capitalization Rates Based on a $100 Investment for the Period 1978 through 2014
Rescaled NOI
Market Values
Cap Rates
Average Capitalization Rate
5 Greenspan’s Definition of a Bubble
“…I define a bubble as protracted period of falling risk aversion that translates into falling capitalization rates that decline measurably below their long term trendless averages. Falling capitalization rates propel one or more asset prices to unsustainable levels. All bubbles burst when risk aversion reaches its irreducible minimum, i.e., credit spreads approaching zero, though analysts’ ability to time the onset of deflation has proved illusive.” {emphasis added}
Alan Greenspan, “The Crisis,” Brooking Institute working paper, April 15, 2010.
Presently, a difference of ~ 200 bps
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
8.5%
9.5%
$0
$50
$100
$150
$200
$250
$300
$350
$400
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Cap
italiz
atio
n R
ate
Mar
ket V
alue
and
Res
cale
d N
OI
Apartment - Market Values, Rescaled NOI and Capitalization Rates Based on a $100 Investment for the Period 1980 through 2014
Average Capitalization Rate
Capitalization Rates
Rescaled NOI
Market Values
10 What About Multifamily Prices?
Property values fall by ~ 15% over 3 years
Will property values fall
precipitously again?
Property values fall by ~ 30% over 2 years
Presently, a difference of ~ 210 bps
8 Asset Bubbles ← Who Cares?
• If you are a long-term, low-levered CRE investor, these deviations matter little.
• So, these asset bubbles matter more to:
� Long-term, high-levered investors (particularly those with short-term debt maturities (e.g., Macklowe & EOP) and/or poorly laddered maturities (e.g ., pre-crash GGP v. SPG)).
� Short-term investors (e.g., value-add & opp funds, developers, etc.).
� High-leverage, high-yield lenders (particularly those with levered balance sheets (e.g ., Blackstone mortgage REIT, Colony Capital debt funds, etc.)).
� Government agencies (e.g., Fannie, Freddie, HUD, Fed, etc.): o with exposure to high-leverage borrower, and o who become the “lenders of last resort” in a downturn.
27 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
• Eventual shift away from Agency (Fannie/Freddie) to:Banks, Conduit/CMBS, Life Companies
• Current 10 year rates range from around 4.0% to 4.50% based on75% to 80% LTV
• Conduits are still offering slightly higher rates than Fannie/Freddie,but are able to compete with other benefits – such as quickerclosings, more cash-out and more flexibility.
THE FUTURE OF CAPITAL MARKETS M N
3 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
Average Occupancy RatesOCCUPANCY
Source: MPF
86.0%
87.0%
88.0%
89.0%
90.0%
91.0%
92.0%
93.0%
94.0%
95.0%
96.0%
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
Falls faster
Improves slower
5 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
Rents Per Square FootRENTS
Source: MPF
$0.750
$0.800
$0.850
$0.900
$0.950
$1.000
$1.050
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
Note steady rent increases in face of new construction
At low point: Rents down 10-15%
15 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
Job Growth vs. Occupancy RateEMPLOYMENT M N N M N
Source: Texas Workforce Commission, CBRE EA/MPF
Note the lag, but still a powerful correlation
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
87.0%
88.0%
89.0%
90.0%
91.0%
92.0%
93.0%
94.0%
95.0%
96.0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Occupancy YoY Job Growth
6 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
Rents Per Square Foot Forecast through 2015RENT FORECAST
Source: MPF
$0.750
$0.800
$0.850
$0.900
$0.950
$1.000
$1.050
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
Rent growth is projected to continue over the next year, despite new construction.
4 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
Forecast Average Occupancy through 2015OCCUPANCY FORECAST
87
88
89
90
91
92
93
94
95
96
Occupancy is projected to dip slightly as new construction continues.
For more information regarding this presentation please contact:TONY LENAMONNational Multifamily Practice LeaderT +1 214 979 [email protected]
QUESTIONS?
31 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
• Penthouse level fitness centers. • Concierge services. • Dog wash stations. • Private resident bars/coffee lounges. • Rooftop terraces. • Laundry pass-throughs. • Variation of quartz and granite countertops.
THE LATEST AND GREATEST CLASS A AMENITIES
20 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
Population Growth ForecastPOPULATION
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2015 2020 2025 2030 2035 2040
Millions
Population Forecast
May it be so!
29 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
• Hard flooring throughout the unit (ceramic or faux-wood vinyl). • Upgraded cabinetry and countertops. • Upgraded or new appliances. • Re-tiling showers/tubs. • Upgrading retaining walls from wood ties to stone/brick. • Adding or upgrading amenities – dog parks, clubrooms with wifi and
coffee bars, fitness centers, etc. • Adding washer/dryer connections• Adding enclosed yards • Start charging for everything!
• Water, sewer, trash, electric (if not individually metered), pest control, parking spots
VALUE-ADD TRENDS YOUR APPRAISER IS NOTICING
33 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
• Oklahoma City – excellent demographics and job growth coupled with low new construction is driving demand. Keep an eye on this market as the energy sector fluctuates, but overall it has good fundamentals and potential for growth.
• Lubbock/Amarillo – solid slow-growth markets. Since inventory here is older and new construction is slower, tenants respond very well to renovations and upgrades.
SOME OTHER MARKETS TO THINK ABOUT
34 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
• Part art, part science.• Three approaches to value: Cost, Sales Comparison and Income
Capitalization. If developed properly all three should result in the same conclusion.
• Governed by very specific USPAP, FIRREA and generally accepted appraiser methodology. When developed correctly, should always result in an accurate estimate of the defined value (usually as is market value).
• Should simply hold up a mirror to the current market and reflect it in the report (should not look back, should look forward).
What is an appraisal?
HOW TO GET ALONG WITH YOUR FRIENDLY APPRAISER
36 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team [email protected]
HELPFUL/NOT HELPFULYou can get a good result if:•Work with an appraisal specialist•Provide all the data requested•Provide data not requested but helpful•Stay factual and market-based•Give insights on a project you’ve probably been working on for months-years and the appraiser has not•Share your thoughts on value and why, if allowed by the circumstances and client
You may have a bad result if:•Lost Reality (not market-based), e.g. cite only the outliers•“Can’t we just say”•Don’t give the data but still want the appraisal•The bull rush -