December 21, 2010
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Transcript of December 21, 2010
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.