the nc-ccim 2015 charlotte commercial real estate market forecast charlotte multifamily outlook
TRANSCRIPT
The NC-CCIM 2015 CharlotteCommercial Real Estate Market Forecast
Charlotte Multifamily Outlook
Loans are subject to credit approval
Grandbridge Charlotte Multifamily Production 2014
» 24 Transactions
» $500 million Loan Volume
» 15 Lenders » Fannie Mae, Freddie Mac, FHA
» 8 Insurance Companies
» 2 Proprietary Lenders
» 1 Bank
» 1 CMBS
Loans are subject to credit approvalSource: MBA
Loans are subject to credit approvalSource: MBA
Loans are subject to credit approval
Source: GBRE Estimates
Loans are subject to credit approval
Source: GBRE Estimates
Household Type Distribution (Occupied)
Loans are subject to credit approval
Source: US Census Bureau, US BLS
Charlotte Region Growth Mecklenburg County Since 2008: Average growth of 24,000 people per annum
• +2.8%/annum NC: +1.13%/annum USA: +0.78%/annum
Charlotte MSA Population
• 2003: 1,841,489 2008: 2,151,756 2013: 2,335,358
• +1.65%/annum
Loans are subject to credit approval
Source: US Census Bureau, US BLS
Charlotte Region Growth Job Creation Since 2009: Average of 11,350 new jobs each year
• WITHOUT: Significant new job announcements by banks
• Each new job is associated with an increase in population of 2.11 people
• Compensation: Q1 2014 Average Annualized Wages: $71,000
– 2009 Q1 Average Annualized Wages: $55,000
– +29% Quality of jobs in Charlotte is improving
Loans are subject to credit approval
Source: Charlotte Chamber; GBRE Estimates
Loans are subject to credit approval
Source: GBRE Estimates
What Does the Expected Growth Mean for Multifamily Demand?
Average Mecklenburg County Household Size is 2.59
43.2% of Households are Renters
…
Loans are subject to credit approval
Sources: Carolinas Real Data; GBRE Projections
Loans are subject to credit approval
Sources: Carolinas Real Data; GBRE Projections
Loans are subject to credit approval
Charlotte Multifamily Housing Stock - Current
Source: Carolinas Real Data
Iredell County
111,981 units
6.7% Vacancy
Rents up 0.5% last 6 months
5,120 units absorbed last 12 months
Loans are subject to credit approval
Charlotte Multifamily Housing Stock – Pipeline – 2018
Source: Carolinas Real Data
Iredell County
132,788 units
(+18.6%)
Loans are subject to credit approval
Selected Submarkets Overview
Source: Carolinas Real Data
East-1:NoDa, Plaza Midwood8,414 units – 880 sf avg8.0% Vacant$825/month ($0.94/sf)1,292 U/C (+15.4%)1,736 Proposed (+20.6%)Newest units avg 1% larger than existing stock
Southeast-1:SouthPark, South End, Midtown11,061 units – 961 sf avg9.0% Vacant$1,244/month ($1.29/sf)3,327 U/C (+30%)2,356 Proposed (+21.3%)Newest units avg 14% smaller than existing stock
Uptown:2,532 units – 955 sf avg14.1% Vacant$1,649/month ($1.76/sf)1,060 U/C (+41.8%)1,945 Proposed (+76.8%)Newest units avg 13% smaller than existing stock
North:Northlake, Huntersville, Davidson6,921 units – 993 sf avg8.3% Vacant$987/month ($1.00/sf)1,387 U/C (+20%)1,111 Proposed (+16.1%)Newest units avg 5% larger than existing stock
Loans are subject to credit approval
Housing Costs 51.5% of US Renter Households Pay More than 30% of Income
in Rent
• $73,767 Average HH Income (2013)
• $52,250 Median HH Income (2013)
47.9% of Mecklenburg County Households Pay More than 30% of Income in Rent
• $80,917 Average HH Income (2013)
• $54,278 Median HH Income (2013)
Loans are subject to credit approval
Points to Consider Valuation – Cap Rates:
• A+ Mid- or High-Rise Product: Mid- to High 4% on Actual NOIs
– Lower for Pre-Stabilized
• A Product: 5.00% - 5.50%
• B Product: 5.50% - 7.00%
• Perceived Value-Add properties are being priced very aggressively, so C products are compressing B cap rates while the search for yield continues to push cap rates down across the board.
• Not much impetus for cap rates increasing– Spread to US Treasuries remains above historical norms
Loans are subject to credit approval
Points to Consider, continued Valuation – Income:
• If rents are compressed through overbuilding or slouching demand, valuations would reduce, but cap rates likely to remain stable.
Capital Sources - Equity is abundant
• Fund investors’ yield expectations are adjusting downward
• Foreign investors moving in to the Carolinas from Europe including Russia, and the Middle East as geopolitical and economic risks in home regions magnify
– Expected further Dollar strengthening
– “Parking” money in US assets
– CRE as an asset class gaining favor among all investor types
Loans are subject to credit approval
Who Doth Not Answer to the Rudder Shall Answer to the
Rock.
Loans are subject to credit approval
Conclusions “Launching” of adult children living with parents and subsequent household
formation will drive multifamily demand in next several years
Negative savings rate and limited real wage growth will require more Millennials & Gen X’ers to rent versus own, but will also be a headwind to long-term capital availability
Homeownership rate of 64% trending down towards 60% over next decade
No single, definable risk to the U.S. economy, commercial real estate, or capital availability
Permanent lenders are beginning to ignore Loan-to-Cost in multifamily
Required seasoning periods have shortened
Pricing more attractive/competitive
Charlotte’s multifamily boom has room to run