Risk Management Association\'s CRE Panel
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Transcript of Risk Management Association\'s CRE Panel
Risk Management AssociationApril 29, 2010
Los Angeles Athletic Club
By:Ted Simpson, MCRExecutive Director
Cushman & Wakefield of California, Inc.
State Of The CRE MarketsState Of The CRE MarketsLos Angeles County Los Angeles County
TODAY’S AGENDA
I. Community Bank CRE vs. Institutional CRE
II. Industrial
III. Retail
IV. Office
V. Forecast
Last Three Years
2007 – Forecasting end of party
2008 – Forecasting how ugly
2009 – “We’ve seen this movie before”
2010 – Recovery is the next story
INDUSTRY: A big bounce
Source: Beacon Economics
PROFITS
Source: Beacon Economics
JOBS, JOBS, JOBS
Source: Beacon Economics
STIMULUS LEFT IN THE SYSTEM
Spent $210 billionIn process $151 billionLeft to spend $219 billionTax cuts issued $119 billionTax cuts remaining $93 billion
Stimulus Package to April
Income Avg. tax savings
Drop in tax bite
Under $19K $476 -95.0%$19K-$38K $652 -22.0%$38K-$66K $781 -9.0%$66K-$112K $1,301 -7.5%$112K-$161K $2,549 -8.3%$161K-$227K $3,883 -8.3%$227K-$603K $5,133 -5.7%$2.8M plus $39,350 -1.4%
Tax Breaks by Income
Source: Beacon Economics
CALIFORNIA: A widespread hit
Jan-10
Bakersfield 224,800 -5.5%
Salinas 121,300 -5.7%
San Diego 1,212,700 -7.3%
Santa Barbara 161,200 -7.4%
San Francisco 922,200 -7.7%
Stockton 191,500 -8.0%
Los Angeles 3,761,900 -8.2%
Ventura 270,100 -8.3%
San Jose 841,700 -8.5%
Modesto 143,900 -9.6%
Oakland 945,700 -9.6%
Santa Ana 1,351,500 -10.6%
Santa Rosa 168,000 -11.7%
Riverside 1,102,400 -12.2%
Source: Beacon Economics
Greater Los Angeles Industrial MarketOverall Rental Rate vs. Vacancy Rate
$0.49$0.52 $0.50 $0.49 $0.49 $0.50
$0.54
$0.60
$0.66$0.63
$0.53 $0.51
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q101%
2%
3%
4%
5%
6%
7%
Average Asking NNN Rate Vacancy
$65.
66
$66.
65
$84.
37
$91.
04
$110
.42
$137
.56
$130
.57
$89.
18
$65.
21
$0
$20
$40
$60
$80
$100
$120
$140
$160
2002 2003 2004 2005 2006 2007 2008 2009 1Q10
Los Angeles County Industrial SalesAverage Price per Square Foot
Source: Real Estate Capital Analytics, Inc. Based on transactions over $5 million
INDUSTRIAL CASE STUDY
■ 27 Offers
■ A lot of money chasing very few industrial deals
■ CAP rates have compressed about 100 basis points in the past 6 months
$75/SFPRICE PER SF:
$21MPRICE:
281,548 / 11 acresSQ. FT.:
4633 La Palma AveADDRESS:
$1.31 $1.36$1.47
$1.71 $1.78 $1.86$2.04
$2.19
$2.53 $2.43 $2.33 $2.33
$0.00$0.20$0.40$0.60$0.80$1.00$1.20$1.40$1.60$1.80$2.00$2.20$2.40$2.60$2.80$3.00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q101%
2%
3%
4%
5%
6%
7%
Average Asking NNN Rate Vacancy
Greater Los Angeles Retail MarketOverall Rental Rate vs. Vacancy Rate
$179
.00 $219
.00
$221
.00
$245
.00 $286
.00
$385
.00
$355
.00
$295
.00
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2002 2003 2004 2005 2006 2007 2008 2009
Los Angeles County Retail SalesAverage Price per Square Foot
Source: Real Estate Capital Analytics, Inc. Based on transactions over $5 million
U.S. UNEMPLOYMENT RATES
U.S. Unemployment RatesMarch 2010
(U.S. Rate = 9.7%)
Source: U.S. Bureau of Labor Statistics, Cushman & Wakefield Research Services.
0.0% to 5.0%
5.1% to 7.3%
7.4% to 9.0%
9.1% to 10.7%
10.7% to 14.1%
7.3%
5.0%
7.9%
4.0%
4.8%
6.8%
7.2%
7.0%
8.8%6.6%
6.9%
6.5%
7.1%
9.5%
6.9%8.2%
7.8%
7.4%
7.7%
9.4%
6.5%
9.6%
9.2%
9.2%
9.0%
8.8% 9.3%8.6%
8.6%
8.2%
7.4%
9.8%
9.5%
11.0%
9.5%
11.5%
11.5%
10.6%
10.7%
10.6%
12.3%
9.9%11.0%13.4%
12.6%
11.1%
12.6%
10.6%
12.2%
14.1%
U.S. Unemployment RatesMarch 2010
(U.S. Rate = 9.7%)
Source: U.S. Bureau of Labor Statistics, Cushman & Wakefield Research Services.
0.0% to 5.0%
5.1% to 7.3%
7.4% to 9.0%
9.1% to 10.7%
10.7% to 14.1%
7.3%
5.0%
7.9%
4.0%
4.8%
6.8%
7.2%
7.0%
8.8%6.6%
6.9%
6.5%
7.1%
9.5%
6.9%8.2%
7.8%
7.4%
7.7%
9.4%
6.5%
9.6%
9.2%
9.2%
9.0%
8.8% 9.3%8.6%
8.6%
8.2%
7.4%
9.8%
9.5%
11.0%
9.5%
11.5%
11.5%
10.6%
10.7%
10.6%
12.3%
9.9%11.0%13.4%
12.6%
11.1%
12.6%
10.6%
12.2%
14.1%
SOUTHERN CALIFORNIA OVERALL VACANCY ANALYSIS
14.8%
16.6%
12.1%
16.1%17.6%
19.2%
17.2%
19.4%
12.7%
19.5%
16.7%
20.6%
16.9%16.6%
26.0% 25.6%
17.8% 17.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
LA CBD LA West LA North LA SouthBay
Tri Cities OrangeCounty
San GabrielValley
InlandEmpire
San Diego
1st Quarter 2009 1st Quarter 2010
LOS ANGELES OFFICE HISTORICAL
Source: C&W Research Services
Year Total Inventory DirectVacancies
DirectVacancy %
OverallVacancies
Overall Vacancy %
Direct Average Rental Rate $
YTD Direct Absorption
YTD ConstructionCompletions
1991 163,417,235 31,405,413 19.2% 37,216,760 22.8% $1.67 4,997,8891992 166,562,180 32,495,516 19.5% 38,391,913 23.0% $1.63 1,729,084 388,9761993 165,849,906 31,241,165 18.8% 37,394,411 22.5% $1.43 (581,657) 01994 166,055,491 31,350,874 18.9% 37,679,239 22.7% $1.40 321,611 48,0001995 167,427,474 30,023,036 17.9% 35,693,395 21.3% $1.64 (50,285) 169,7001996 168,348,948 29,624,594 17.6% 33,833,734 20.1% $1.58 1,895,447 83,0001997 169,800,024 28,095,810 16.5% 31,745,963 18.7% $1.61 1,039,910 125,6321998 169,447,067 26,037,156 15.4% 29,479,838 17.4% $1.78 2,618,922 790,4601999 171,847,191 21,996,440 12.8% 24,917,843 14.5% $1.86 6,859,583 2,431,3152000 174,335,088 19,699,865 11.3% 22,140,556 12.7% $1.95 4,245,140 2,674,7942001 175,468,677 23,337,334 13.3% 29,478,738 16.8% $2.15 (2,289,216) 3,403,7932002 182,166,240 27,926,391 15.3% 34,292,187 18.8% $2.16 (453,037) 2,238,6762003 183,446,813 27,780,860 15.1% 31,919,745 17.4% $2.12 453,775 1,114,3362004 183,863,378 24,086,103 13.1% 27,211,780 14.8% $2.10 2,496,952 332,9972005 184,607,106 20,675,996 11.2% 22,706,674 12.3% $2.14 3,517,407 791,3572006 185,404,908 18,169,681 9.8% 19,467,515 10.5% $2.30 2,533,648 653,5312007 186,621,198 15,912,812 8.5% 17,661,568 9.5% $2.81 3,336,945 838,0002008 190,099,755 20,631,316 10.9% 23,747,598 12.5% $2.86 (4,499,437) 1,040,8922009 193,096,545 28,732,185 14.9% 33,026,180 17.1% $2.65 (5,111,556) 2,249,0451Q10 193,043,845 29,936,779 15.5% 33,896,692 17.6% $2.64 (1,174,494) 0
■ Though overall vacancy is nowhere near the highs of the last recession, occupancy loss is the highest in history with nine consecutive quarters of negative absorption.
■ Construction completions ground to a halt for the first time since 1993.
LOS ANGELES COUNTY METRO SUPPLY & DEMAND
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
msf
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Overall Abs. Cnst. Overall Vac
Source: C&W Research Services
■ Negative direct absorption continued to accelerate, finishing first quarter 2010 with negative 1.1 msf of absorption.
■ New construction is nonexistent and will help cap rising vacancies until sustained job growth returns.