© 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
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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
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Importance to Sustainable Recovery
Other factors
Strongly Disagree
Strongly Agree
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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
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Stock Market Bull Run: Investors on Defensive?
Dismal.com; WSJ.online
2008 2014
INSIGHTS ON REAL ESTATE AND CAPITAL MARKETS
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Private and Public Returns: NCREIF/NAREIT NFI-ODCE Preliminary Snapshot Report
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National Price Indices, Players and Transactions
RCA: Aug 2013
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National Cap Rates by Property Type & Quality
Source: RCAnalytics
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Commercial Mortgages
KANSAS CITY SCORECARD: ISSUES AND OPPORTUNITIES
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Unemployment Rates: KC Metro vs. US
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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
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Kansas City: NCREIF Investments
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2014 Emerging Trends: Market Prospects
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Real Estate Transactions: KC vs. Midwest
Investors Pour (poor?) more $’s into Kansas City
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Kansas City Transactions by Property Type
Office
Industrial
Retail
Apartment
Total
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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
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