real estate values: have we hit bottom yet?...real estate values: have we hit bottom yet? john g....
TRANSCRIPT
Real Estate Values:Real Estate Values:Have We Hit Bottom Yet?Have We Hit Bottom Yet?
John G. Ellis, MAI, CRE, FRICS
IRWA Chapter 12009 Annual Fall Seminar
October 20, 2009
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1. What is the current state of the market?
2. How did we get to where we are now?
3. What are the trends looking forward?
4. Have we hit bottom yet?
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Current State of the MarketCurrent State of the Market
• Actually multiple submarkets– Geography– Property type
• But in most submarkets– Sales volumes are down– Rents are lower– Cap rates are higher– Sale prices are lower
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Is This Because ofIs This Because of……
1. Real estate fundamentals?
2. Changes in the capital markets?
3. Overall economic recession?
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Commercial Mortgages OutstandingCommercial Mortgages Outstanding($Millions)(Excluding HUD/Gov’t) at 3/31/09, Total $3.0 Trillion
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Toxic Overhang?Toxic Overhang?Loans in Special Servicing as % of CMBS Outstanding
Source: Realpoint
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Toxic Overhang?Toxic Overhang?
Loans in Special Servicing by Property Type
Source: Realpoint
(Total $47.9 Billion)
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Deleveraging Will ForceDeleveraging Will ForceSales and RecapitalizationsSales and Recapitalizations
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10 Universal City Plaza10 Universal City Plaza
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Los Angeles Office Cap RatesLos Angeles Office Cap Rates
Source: Real Capital Analytics
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Los Angeles Office Price PSFLos Angeles Office Price PSF
Source: Real Capital Analytics
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Absorption, Delivery, VacancyAbsorption, Delivery, VacancyLos Angeles County Los Angeles County –– OfficeOffice
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Los Angeles Retail Cap RatesLos Angeles Retail Cap Rates
Source: Real Capital Analytics
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Los Angeles Industrial Cap RatesLos Angeles Industrial Cap Rates
Source: Real Capital Analytics
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Los Angeles Industrial Price PSFLos Angeles Industrial Price PSF
Source: Real Capital Analytics
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Absorption, Delivery, VacancyAbsorption, Delivery, VacancyLos Angeles County Los Angeles County –– IndustrialIndustrial
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Los Angeles Apartment Cap RatesLos Angeles Apartment Cap Rates
Source: Real Capital Analytics
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Los Angeles Apartment Unit PricesLos Angeles Apartment Unit Prices
Source: Real Capital Analytics
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Investment RecommendationsInvestment Recommendations
Source: Urban Land Institute, 2009
Los Angeles County Buy/Hold/Sell Recommendations
30.8%
31.9%
46.3%
51.6%
51.6%
57.1%
52.2%
46.3%
38.7%
37.9%
12.1%
15.9%
7.4%
9.7%
10.5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Retail
Hotel
Office
Industrial
Apartment
Prop
erty
Typ
e
Percentage
BuyHoldSell
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Land Value: Residual ExampleLand Value: Residual Example
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Loan Maturities Will Pose a Challenge!Loan Maturities Will Pose a Challenge!
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Aggressive UnderwritingAggressive UnderwritingWill Compound the ChallengeWill Compound the Challenge
CMBS Maturities by Loan Vintage
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Potential Government Assistance: TALFPotential Government Assistance: TALF
• Provides reasonable cost senior debt to our market
• Restarts CMBS market• Facilitates fixed income capital back to
our market• Initially most helpful to low leverage
borrowers with unencumbered assets• Facilitates liquidity, but does not solve
over leverage issues• Expires 6/30/2010
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PublicPublic--Private Investment Program: Private Investment Program: Legacy Loan ProgramLegacy Loan Program
• FDIC to facilitate financing through a debt guarantee of up to 6:1 leverage.
• PPIP’s purchase price based upon the highest bid for the 50% equity contribution by the private investor
• Similar to RTC N-Series Structure
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Other Government StimuliOther Government Stimuli
• Federal infrastructure spending
• Small Business Administration
When will we see recovery in the commercial real estate markets?
Have we hit bottom yet?