Spencer Levy - Capital Markets 2.0 - Did We Speak Too Soon?
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2. Topics
Just When You Thought It Was Safe to Get Back in the Water
It’s Not All Bad
Market Overall Stats
Prediction by Asset Type
Secular vs. Cyclical Change
Predictions
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3. Just When You Thought It Was Safe to Get Back in the Water
4. Just When You Thought It Was Safe to Get Back in the Water
CMBS hit another speed bump
US Debt was downgraded
Rioting in the streets of Europe
Greece is on the precipice of default
Unemployment above 9%
Weak GDP Growth
Maybe a double dip?
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5. Just When You Thought It Was Safe to Get Back in the Water
“Release the Kraken”
This is what the market
screams at the Fed to do
every time there is a
negative piece of economic
data
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7. It‟s Not All Bad
Khadafy is history
Banks and Corporations are far
better capitalized in 2011 than
in 2008
Interest Rates are at Historic
Lows
Price of oil/gas is down Half Full
substantially
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8. It‟s Not All Bad
Ashton Kutcher saved Two and
½ Men!!!
Half Full
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10. Market Overall Stats
2011 National Investment Sales Likely to Hit 2003-2004 Benchmarks
APARTMENT HOTEL INDUSTRIAL OFFICE RETAIL TOTAL %CHANGE
2003 $29.8 $14.3 $46.7 $28.1 $120.1 n/a
$47.7 $15.3 $15.6 $54.4 $38.0 $171.0 2011
Projected
2004 $51.2 $16.5 $21.7 $75.9 $50.1 $215.4 79.4%
Totals
2005 $90.7 $28.2 $39.7 $109.0 $51.7 $319.3 48.3%
2006 $91.1 $36.6 $44.8 $135.5 $51.3 $359.3 12.5%
2007 $96.2 $61.4 $51.9 $210.0 $64.5 $483.9 34.7%
2008 $38.9 $11.9 $23.4 $57.1 $20.7 $152.1 -68.6%
2009 $16.2 $3.3 $9.3 $17.7 $12.2 $58.7 -61.4%
2010 $33.6 $13.1 $18.0 $44.5 $19.8 $129.1 120.0%
1H 2011 $20.6 $8.4 $7.1 $25.0 $17.3 $78.4
YE 2011* $47.7 $15.3 $15.6 $54.4 $38.0 $171.0 32.5%
Source: Real Capital Analytics *Annualized Projections
CBRE Trailing 12 Months - # of Sales
5,000
Sale Voucher Count, Annualized
4,500
In July, trailing 12 month aggregate
4,000
was 4,772 sales, still off 2007 trailing
3,500 12-month peak of 8,000.
3,000
2,500
2,000
Jan-11
Jun-11
Dec-10
Feb-11
Aug-10
Sep-10
Jul-11
Oct-10
Apr-11
Nov-10
Mar-11
May-11
Source: CBRE Sale Voucher Data
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11. Debt & Equity Finance 1H 2011 1H 2010 % chg
Office $1.16B $0.58B 100%
Retail $0.55B $0.08B 588%
Industrial $0.72B $0.11B 554%
Multi-Housing $3.43B $1.70B 102%
Hotels $0.15B $0.07B 114%
Special Purpose $0.38B $0.06B 533%
US Loan Origination Volume $6.39B $2.60B 146%
Total Loan Activity Volume* $7.68B $4.77B 61%
* Overall volume includes Loan Sales of $1.29 billion in 1H 2011 and $2.17 billion in 1H 2010.
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12. Who‟s Buying and Who‟s Selling
U.S. Acquisitions and Dispositions by Capital Sector
Buyers Sellers
3% 7% 5% 3%
8% 14% 9% 11%
10% 18% 19%
Lender*
31% 12%
32% User/Other 7% 6%
30% 43%
45% Private
3%
50% 51% 35%
10% 8% 6% Non-Listed REIT 36% 38%
6% 18% Listed/REITs
26% 19% 22%
10% Equity Fund 16% 7%
6% 14% 9%
7% 12%
10% 14% Institutional 4% 10%
6% 14% 5% 10%
21% 16% 14%
14% 11% 12% Cross-Border 13% 16%
10% 12%
6% 6% 6% 7% 8% 4% 5% 7% 4% 4%
'07 '08 '09 '10 H1 '11 '07 '08 '09 '10 H1 '11
Source: Real Capital Analytics, August 2011
Analysis excludes the Blackstone/Centro portfolio that sold in June„11 for $9.2B.
*This group includes lenders that have taken ownership or control the disposition process.
Based on independent reports of properties and portfolios $2.5 million and greater. Data believed to be accurate but not guaranteed.
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13. Market Overall Stats
Quarterly Changes to U.S. Lender-Owned Property
Slowing Down or the Calm Before the Storm?
transfers dispositions net inflows REO balance
$10 $50
Billions
$5 $25
$0 $0
-$5 -$25
'08 '09 '10 '11
Source: Real Capital Analytics, August 2011, Chart depicts data through July 2011 and all property types, including developer sites
Based on independent reports of properties and portfolios $2.5 million and greater. Data believed to be accurate but not guaranteed.
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18. Secular vs. Cyclical Change (a/k/a This Time is Different)
Oil
Volatility
The Future of Banks
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19. Secular vs. Cyclical Change
Oil
Affects CRE directly
Retail: More gas money = less
spending money
Multifamily: Move closer to the
city to avoid long commutes
(more multis)
Industrial: A net winner? Higher
price of oil = less outsourcing =
more US based manufacturing?
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20. This Time is Different
Volatility
Relative Value of Real Estate is Attractive, But Volatile
IRR BPS Spread to
Moody’s BAA Corporate Bonds REIT Index Returns and Volatility
800
IRR Spread over Baa Corp Bond
2009 2010 YTD
700
Subsector Name Return Return Return Beta
600
500 Retail Index 27.17% 33.41% 12.64% 1.62
400 Multi-Housing Index 30.40% 47.04% 19.50% 1.31
300
200 Office Index 35.55% 18.41% 13.59% 1.52
100 Industrial Index 12.17% 18.89% 11.42% 2.12
0
Hotel Index 67.19% 42.77% -6.62% 2.21
2008.3
2006.3
2006.4
2007.1
2007.2
2007.3
2007.4
2008.1
2008.2
2008.4
2009.1
2009.2
2009.3
2009.4
2010.1
2010.2
2010.3
2010.4
2011.1
2011.2
Equity REITs Index 27.99% 27.96% 11.89% 1.46
Industrial Office Retail S&P 500 30.03% 19.76% 9.28% 1.00
Source: CBRE EA & CBRE Institutional Group
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21. Secular vs. Cyclical Change (a/k/a This Time is Different)
The Future of Banks
Because of alternative lenders (CMBS, Life
Insurance, GSEs), banks have disproportionately been
pushed into higher risk lending.
Taking equity risk for debt returns
FDIC Insurance is a competitive advantage, government
scrutiny, isn‟t.
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23. Predictions
Beware of Conventional Wisdom
What was the #1 Pop Song of the 1970‟s
Stairway to Heaven
Night Fever
Born to Run
You Light up My Life
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24. Predictions
No double-dip….but slow growth indefinitely
Nothing (fiscally) gets done until 2013
CRE remains an attractive investment and core yields
stay low and may get lower
10 year treasury goes over 3% by June 2012 as the Fed
gets really worried about Stagflation
And the winner of the 2012 Presidential election is…..
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