NGKF US Capital Markets Report 4Q-2016

CAPITAL MARKETS REPORT For the Intelligent Investor

4Q16 UNITED STATES

2

4Q16 CAPITAL MARKETS REPORT

4Q16 UNITED STATES CAPITAL MARKETS REPORT

3 Market Summary

4 Executive Overview

5 Yield Spread

6 Global Capital

7 Sales Volume – Primary Markets

8 Sales Volume – Secondary Markets

9 Buyer Distribution

10 Net Spending

11 Top Regional Buyers

12 International Capital Market Share

13 International Capital Distribution

14 International Capital Investment

15 Debt Market Update

16 Analysis by Asset Type

17 Most Active Buyers by Asset Type

18 International Capital by Property Type

19 Office Pricing Heat Map

20 Office Trends - Average Cap Rates

21 Multihousing Trends - Primary vs. Secondary Markets

22 Multihousing Trends - Pricing Matrix

23 Retail Trends - Primary vs. Secondary Markets

24 Retail Volume by Type

25 Industrial Trends

26 Hospitality Trends

27 Development Site Trends

MARKET SUMMARY

4


EXECUTIVE OVERVIEW

Sales

Volume

Cap

Rates

Rent

Growth

Supply and

Demand

International

Capital

Debt

Markets

Capital is predominantly focused on primary markets; however, yield-driven,

opportunistic investors continue to bid on well-positioned, stabilized assets in

secondary markets.

2016 sales volume was 15% below 2015 levels, but was the third highest yearly total of

the past decade and nearly matched 2014’s activity.

Cap rates are no longer compressing, but maintain a healthy premium to treasury

yields.

Although rental growth has moderated throughout commercial real estate across

various property types, multihousing and industrial rents continue to accelerate.

International investors purchased more than twice as much United States real estate

as REITS in 2016, accounting for 16% of total sales.

Commercial and multihousing mortgages are expected to rise in 2017 to $515 billion,

while debt outstanding is anticipated to grow to $3 trillion.

5


Source: Newmark Grubb Knight Frank Research, Real Capital Analytics, Federal Reserve Bank of St. Louis

Despite a sharp rise in interest rates following

the November election, commercial real estate

yields remain at a premium to treasury rates.

0

100

200

300

400

500

0%

2%

4%

6%

8%

10%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

SP

RE

AD

(B

PS

)

CA

P R

AT

E /

IN

TE

RE

ST

RA

TE

Yield Spread Cap Rates - All Property Types 10-Year Treasury Rate

YIELD SPREAD

6


6

CANADA

$42.3B

LOS

ANGELES

$5.7B

U.S.

$57.9B

NYC

$24.5B

UNITED

KINGDOM

$20.8B

LONDON

$26.0B

BERLIN

$5.6B

GERMANY

$16.8B

MADRID

$5.6B

PARIS

$7.1B

QATAR

$9.4B

CHINA

$28.4B

HONG

KONG

$36.6B

SHANGHAI

$6.7B

SOUTH

KOREA

$9.1B

SINGAPORE

$19.6B

SINGAPORE

$4.7B

SYDNEY

$7.5B

TOP CAPITAL

SOURCES

TOP CAPITAL

DESTINATIONS

UNITED STATES $57.9B

CANADA $42.3B

HONG KONG $36.6B

CHINA $28.4B

UNITED KINGDOM $20.8B

SINGAPORE $19.6B

GERMANY $16.8B

QATAR $9.4B

SOUTH KOREA $9.1B

LONDON $26.0B

NEW YORK CITY $24.5B

SYDNEY $7.5B

PARIS $7.1B

SHANGHAI $6.7B

LOS ANGELES $5.7B

MADRID $5.6B

BERLIN $5.6B

SINGAPORE $4.7B

GLOBAL CAPITAL 2016 Totals; All Property Types

Source: Newmark Grubb Knight Frank Research,

Real Capital Analytics

7


$45.2

$27.1

$17.1

$15.8

$16.1

$14.2

$9.4

$14.7

$14.7

$12.2

$9.0

$8.9

$6.9

$7.5

$54.6

$26.1

$22.3

$17.3

$21.6

$15.9

$14.8

$16.1

$14.4

$12.8

$10.0

$11.8

$8.2

$5

.8

$43.1

$27.9

$20.8

$19.9

$19.1

$16.4

$15.8

$15.5

$15.2

$12.1

$11.4

$9.1

$8.9

$7.7

Ma

nh

att

an

Los A

nge

les

DC

Metr

o

Da

llas

Chic

ago

Atlan

ta

Se

att

le

Bo

sto

n

Sa

n F

ran

cis

co

*NY

C B

oro

ugh

s

Den

ve

r

Sa

n J

ose

Mia

mi

Ea

st

Ba

y

$0

$10

$20

$30

$40

$50

$60

Bil

lio

ns

2014 2015 2016

* Includes Brooklyn, Queens, Bronx and Staten Island

SALES VOLUME Primary Markets; 2016 Totals; All Property Types

Source: Newmark Grubb Knight Frank Research, Real Capital Analytics

Bay Area = $32 Billion

New York City = $55 Billion

Total sales volume in the United States is 15%

lower than one year ago with Manhattan activity

down 21%.

8


$8.3

$7.1

$6.5

$12.5

$6.5

$3.8

$5.3

$4.4

$4.5

$3.7

$3.2

$11.8

$9.6

$7.2

$11.5

$9.8

$5.7

$7.7

$6.6

$4.1

$4.3

$3.4

$11.8

$8.9

$8.5

$8.4

$8.0

$5.9

$5.9

$5.3

$5.1

$4.0

$3.8

Ph

oe

nix

Sa

n D

ieg

o

Au

stin

Hou

sto

n

Ora

nge

Co

unty

Po

rtla

nd

Inla

nd E

mpir

e

Orl

and

o

Cha

rlo

tte

Rale

igh

Nash

vill

e

$0

$5

$10

$15

Bil

lio

ns

2014 2015 2016

SALES VOLUME Secondary Markets; 2016 Totals; All Property Types


While secondary markets initially attracted investors seeking

higher yields, some cities have been able to sustain demand as

populations continue to grow and attract expanding corporations.

9


BUYER DISTRIBUTION United States; by Year and Market Tier


14.3% 18.4% 15.7%

11.1% 7.0%

39.5% 39.3% 43.1%

40.4% 45.7%

29.4% 24.8% 25.0%

25.9% 27.7%

6.7% 6.1% 5.7%

4.8% 3.6%

10.1% 11.4% 10.5% 17.8% 16.0%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 2016

Public/REITs Private Institutional User/Other International

5.6% 7.0% 10.6%

39.5%

49.9%

54.2%

29.3%

29.6% 16.5% 4.2%

5.5% 9.2%

21.4%

8.0% 9.5%

0%

20%

40%

60%

80%

100%

Primary Secondary Tertiary

Public/REITs Private Institutional User/Other International

With a focus on primary markets, international

capital investment into the United States has

increased 24% on average over the past five years.

10


International investors are buying nearly

twice as much they are selling, conversely

REITs continue to be net sellers.


($100)

($50)

$0

$50

$100

Bil

lio

ns

International Capital

Acquisitions Dispositions Net Acquisition

($200)

($150)

($100)

($50)

$0

$50

$100

Bil

lio

ns

REITs

Acquisitions Dispositions Net Acquisition

NET SPENDING

11


TOP REGIONAL BUYERS All Property Types; 2016 Totals


West

Company Volume

Blackstone $7.9B

Anbang

Insurance $2.4B

Invesco $2.3B

Qatar Investment

Authority $2.1B

TIAA $2.1B

Southwest

Midwest

Southeast

Mid-Atlantic

Northeast

Company Volume

Starwood Capital

Group $2.5B

Blackstone $2.1B

MAA REIT $1.4B

Cousins

Properties $1.3B

Transwestern $838M

Company Volume

DRA Advisors $2.0B

PGIM Real Estate $1.9B

Anbang

Insurance $952M

Macerich $660M

Taubman $660M

Company Volume

Starwood Capital

Group $3.8B

MAA REIT $1.9B

Cousins

Properties $1.4B

Blackstone $857M

Preferred Apt

Communities $844M

Company Volume

Blackstone $1.9B

MGM Resorts $900M

MAA REIT $805M

Unizo $789M

Starwood Capital

Group $639M

Company Volume

Blackstone $3.9B

RXR Realty $2.8B

CalPERS $2.2B

Commonwealth

Partners $1.9B

Citigroup $1.8B

Large-scale multihousing transactions

placed Blackstone, Starwood Capital and

MAA among the top buyers of 2016.

12


13.3%

17.8%

16.0%

0.0%

5.0%

10.0%

15.0%

20.0%

$0

$15,000

$30,000

$45,000

$60,000

$75,000

$90,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

FO

RE

IGN

CA

PIT

AL

AS

% O

F T

OT

AL

SA

LE

S V

OL

UM

E

FO

RE

IGN

CA

PIT

AL

IN

VE

ST

ME

NT

($

MIL

LIO

NS

)

International Capital International Capital as % of Total Sales Volume

INTERNATIONAL CAPITAL MARKET SHARE United States; All Property Types

Accounting for 16% of total sales in 2016,

international investors poured $62 billion into

United States real estate.

RANK 2016 VOLUME (B)

1 China $18.5

2 Canada $11.4

3 Germany $6.17

4 Singapore $4.70

5 South Korea $3.83

Global Total $62.0 B


13


INTERNATIONAL CAPITAL DISTRIBUTION United States; 2016; All Property Types

China unseated Canada as the top foreign investor

in 2016, as seven different Chinese firms

purchased $500M+ in United States trophy assets.

$1.0B+

INVESTED CAPITAL | $500+ MILLION

UNITED KINGDOM

Chelsfield

Brookfield

Ivanhoe Cambridge

Anbang Insurance Group

China Investment Corp

China Life Insurance

HKMA

Mirae Asset

SOUTH KOREA

Qatar Investment Authority

QATAR

Olyan Group

SAUDI ARABIA

Norges Bank

NORWAY

Global Holdings

ISRAEL

Fimalac

FRANCE

CPP Investment Board

CANADA

Investcorp

BAHRAIN

China Oceanwide Holdings

HNA Group

Cindat Capital Management

CHINA

Jamestown

Deutsche Bank

GERMANY

Unizo

Mori Trust

JAPAN

GIC (Government of

Singapore)

SINGAPORE

Union Investment

Allianz

GERMANY

CHINA

CANADA

$500M – $999M

China 29.8%

Canada 18.3%

Germany 10.0%

Singapore 7.6%

South Korea 6.2%

Japan 4.8%

Switzerland 3.0%

Qatar 2.8%

UK 2.8%%

Israel 2.2%

Other 12.6%


Ponte Gadea

Spain

Mapletree Investments

SINGAPORE

14


INTERNATIONAL CAPITAL INVESTMENT United States; 2016; All Property Types


4.6%

BOS

24.8%

NYC

5.8%

D.C.

2.1%

ATL

4.9%

CHI

2.9%

MIA

3.4%

DAL

1.5%

AUS

2.4%

SD

1.9%

PHX

6.7%

LA/OC

9.1%

SF/SJ

2.8%

SEA

25.2%

Other

International Domestic

WASHINGTON, DC 46.0% | 54.0%

NEW YORK CITY 35.0% | 65.0%

SAN FRANCISCO 30.0% | 70.0%

BOSTON 18.0% | 82.0%

CHICAGO 16.0% | 84.0%

SEATTLE 10.0% | 90.0%

LOS ANGELES 9.0% | 91.0%

ORIGIN OF CAPITAL

Gateway cities captured 56% of all international

capital inflows in 2016, while properties in expanding

secondary markets accounted for an additional 19%.

1.9%

NSH

15


Source: Newmark Grubb Knight Frank Research, Mortgage Bankers Association, Real Capital Analytics

DEBT MARKET UPDATE CMBS Issuance; Mortgage Debt Outstanding; Lender Composition

CMBS issuance declined 24.8% year-over-

year and government agencies became the

top lender over the past 12 months.

Lender Composition

21.4%

20.6%

19.9%

11.9%

10.1%

7.4%

6.6%

2.1%

0% 10% 20% 30%

Government Agency

National Bank

Regional/Local Bank

Life Insurance

CMBS

Financial

International Bank

Private/Other

Mortgage Debt Outstanding

$198

$229

$12

$3 $12

$33

$48

$86 $94

$101

$76

$0

$50

$100

$150

$200

$250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Billi

on

s

CMBS Issuance Banks 39.3%

CMBS 16.7%

Life Insurance

14.0%

Others 13.2%

Agency & GSE 16.8%

ANALYSIS BY ASSET TYPE

17


1

$.83 B

$.90 B

$1.12 B

$2.0 B

$5.50 B

HO

SP

ITA

LIT

Y


China Life Insurance

Marriott

MGM Resorts International

Carey Watermark

$1

$.71 B

$.82 B

$1.02 B

$1.26 B

$4.75 B

IND

US

TR

IAL

Blackstone

Gramercy Property Trust

Industrial Property Trust

Ventas

GLP

$3.06 B

$2.95 B

$2.54 B

$2.31 B

$1.66 B

RE

TA

IL

Blackstone

Brookfield AM

DRA Advisors

PGIM Real Estate

Invesco RE

$1

$2.13 B

$2.22 B

$2.45 B

$2.82 B

$6.44 B

OF

FIC

E

Blackstone

Cousins Properties

RXR Realty

Allianz

Qatar Investment Authority

1

$1.82 B

$1.87 B

$2.33 B

$4.08 B

$7.19 B

MU

LT

IHO

US

ING

Starwood Capital Group

MAA REIT

Blackstone

Harrison Street RE Capital

Greystar RE Partners


MOST ACTIVE BUYERS BY ASSET TYPE 2016 Totals

18


INTERNATIONAL CAPITAL INVESTMENT United States; 2016; All Property Types

Office

Hospitality

Multihousing

Retail

Industrial

$32B INVESTED

50% ALL INVESTMENTS

$13B INVESTED

20% ALL INVESTMENTS

$9B INVESTED

14% ALL INVESTMENTS

$4B INVESTED

6% ALL INVESTMENTS

$6B INVESTED

10% ALL INVESTMENTS

Address:

Buyer:

Country:

Price:

% Ownership Interest:

1095 Sixth Ave (New York)

HKMA

China

$1.15 Billion

49%

200 S Biscayne Blvd (Miami)

Ponte Gadea

Spain

$517 Million

100%

Address:

Buyer:

Country:

Price:


335 Powell St (San Francisco)


China

$1.02 Billion

100%

2424 Kalakaua Ave (Honolulu)

Mirae Asset

Japan

$780 Million

100%

Address:

Buyer:

Country:

Price:


88 Leonard St (New York)

Jamestown

Germany

$241 Million

100%

135 W Morehead St (Charlotte)

Wafra

Kuwait

$79 Million

100%

Address:

Buyer:

Country:

Price:


2525 El Camino Real (Carlsbad)

Brookfield

Canada

$204 Million

100%

420 N Rodeo Dr (Beverly Hills)

LVMH

France

$122 Million

100%

Address:

Buyer:

Country:

Price:


10 Herrmann Pl (Yonkers, NY)

Ping An Insurance

China

$165 Million

100%

450 Lillard Dr (Sparks, NV)

Dalfen America

Canada

$55 Million

100%

NOTABLE DEALS

19


19

PRICING HEAT MAP – OFFICE Price Per Square Foot

There are currently 33 markets averaging

more than $200 per square foot for

institutional quality office buildings.


Greater than $400

Manhattan

San Francisco

Boston

Los Angeles

San Jose

Washington, DC

Seattle

Miami

$301-$400

Austin

East Bay

Orange County

Denver

San Diego

Portland

Raleigh/Durham

$201-$300

Northern NJ

Philadelphia

Chicago

Charlotte

Nashville

NYC Boroughs

Baltimore

Inland Empire

Houston

Orlando

Dallas

Phoenix

Atlanta

Las Vegas

Salt Lake City

Westchester/Fairfield

San Antonio

Tampa

20


OFFICE TRENDS Average Cap Rate; Institutional Quality


5.0%

7.6%

5.8%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

4%

5%

6%

7%

8%

United States 10-Year Average

[10-Year Average = 5.8%]

Office cap rate compression during the

current cycle has likely ended, jumping 40

basis points in the past four quarters.

4.3

%

4.5

%

4.6

%

4.9

%

5.0

%

5.2

%

5.2

%

5.3

%

5.3

%

5.6

%

5.8

%

5.8

%

5.9

%

6.0

%

6.0

%

6.0

%

Ma

nh

att

an

Sa

n F

ran

cis

co

Bo

sto

n

Wa

sh

ing

ton

, D

C

Los A

nge

les

Se

att

le

Sa

n J

ose

Ora

nge

Co

unty

Mia

mi

Sa

n D

ieg

o

Unite

d S

tate

s

Chic

ago

Cha

rlo

tte

Den

ve

r

Atlan

ta

Au

stin

0%

2%

4%

6%

21


MULTIHOUSING TRENDS United States: Primary Markets vs. Secondary Markets


Year-over-year pricing in primary markets

declined 2.6%, while secondary markets have

experienced an increase of 11.1%.

4.5%

5.1%

3%

4%

5%

6%

7%

2006 2008 2010 2012 2014 2016

Primary Markets Secondary Markets

Cap Rates

$294K

$150K

$0

$75,000

$150,000

$225,000

$300,000

$375,000

2006 2008 2010 2012 2014 2016


Price Per Unit

22


MULTIHOUSING TRENDS Select Market Pricing Matrix


Significant demand in top tier secondary markets

such as Austin, Dallas and Atlanta has contributed

to yield contraction towards primary market levels.

Manhattan

Boston

Washington, DC

Chicago

San Francisco

Los Angeles

Atlanta

Austin

Charlotte Dallas

Denver

Houston

Miami

$0

$150,000

$300,000

$450,000

$600,000

3.5% 4.0% 4.5% 5.0% 5.5% 6.0%

Pri

ce P

er

Un

it

Cap Rate

23


RETAIL TRENDS United States: Primary Markets vs. Secondary Markets


5.4%

6.2%

4%

5%

6%

7%

8%

9%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


Cap Rates

$455

$212

$0

$100

$200

$300

$400

$500

$600

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


Price Per Square Foot

Overall retail real estate conditions have softened,

but demand still exists for well located assets that

are anchored by national and regional tenants.

24


RETAIL TRENDS Volume by Type


$34.3

$38.4

$13.8

$0

$10

$20

$30

$40

$50

$60

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Billio

ns

Strip Mall Single Tenant

Retailer sustainability remains a concern, as bankruptcies

and store closings have pushed vacancy rates higher,

contributing to a surplus inventory of available product.

25


$213

$112

$0

$50

$100

$150

$200

$250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


Price Per Square Foot


INDUSTRIAL TRENDS United States

The decline in volume represented a decline in available product for

sale, not a drop in demand. The further maturation of e-commerce

supports continued growth of U.S. industrial real estate.

$56.0

$15.3

$70.3

$55.3

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$0

$10

$20

$30

$40

$50

$60

$70

$80

Bil

lio

ns

United States 10-Year Average

Sales Volume

[10-Year Average = $42.9 B]

E-Commerce expansion pushed vacancy rates to cycle lows and pricing to historical highs, particularly in gateway markets.

26


Source: Newmark Grubb Knight Frank Research, Smith Travel Research

3.3%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-20%

-15%

-10%

-5%

0%

5%

10%

RevPAR Percentage Change

$123.20

65.5%

50%

55%

60%

65%

70%

$70

$80

$90

$100

$110

$120

$130

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

ADR Occupancy

HOSPITALITY TRENDS United States

*Data is annualized, 2016 is trailing 12 months as of November.

RevPAR growth continues to decelerate, but

remained positive for 2016 through November,

at 3.3%.

27


DEVELOPMENT SITE TRENDS Sales Volume: Primary Markets vs. Secondary Markets


$1.6

$1.8

$0

$2

$4

$6

$8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Bil

lio

ns


With construction activity at peak levels in this

cycle, demand for more development appears to

be limited in many primary and secondary markets.

www.ngkf.com

New York City

HEADQUARTERS

125 Park Avenue

New York, NY 10017

212.372.2000

Jonathan Mazur

Managing Director, Research

212.372.2154

[email protected]

Michael Wolfson

Research Analyst - Multihousing

Joshua Manning

Research Analyst - Office & Industrial

Jessica Greene

Research Analyst - Retail

All information contained in this publication is derived from sources that are deemed to be reliable. However, Newmark Grubb Knight Frank (NGKF) has not verified any such information, and

the same constitutes the statements and representations only of the source thereof, and not of NGKF. Any recipient of this publication should independently verify such information and all other

information that may be material to any decision that recipient may make in response to this publication, and should consult with professionals of the recipient’s choice with regard to all aspects

of that decision, including its legal, financial, and tax aspects and implications.

Any recipient of this publication may not, without the prior written approval of NGKF, distribute, disseminate, publish, transmit, copy, broadcast, upload, download, or in any other way reproduce

this publication or any of the information it contains.

Newmark Grubb Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there

may be adjustments in historical statistics including availability, asking rents, absorption and effective rents.

Newmark Grubb Knight Frank Research Reports are also available at www.ngkf.com/research

Africa

Botswana

Kenya

Malawi

Nigeria

South Africa

Tanzania

Uganda

Zambia

Zimbabwe

Middle East

Saudi Arabia

United Arab Emirates

Latin America

Argentina

Brazil

Chile

Colombia

Costa Rica

Dominican Republic

Mexico

Peru

Puerto Rico

Asia-Pacific

Australia

Cambodia

China

Hong Kong

India

Indonesia

Japan

Malaysia

New Zealand

Singapore

South Korea

Taiwan

Thailand

North America

Canada

United States

Europe

Austria

Belgium

Czech Republic

France

Germany

Ireland

Italy

Netherlands

Poland

Portugal

Romania

Russia

Spain

Switzerland

United Kingdom

RESEARCH

NGKF US Capital Markets Report 4Q-2016

Real Estate

Transcript of NGKF US Capital Markets Report 4Q-2016