Post on 12-Sep-2021
Commercial Real Estate
Market Trends
Commercial Real Estate
August 3, 2007
2
Goals of Presentation
• Wall Street Real Estate Trends
– CMBS
– CDO
– REIT
• Macro Trends
• Investor (Cap Rate) Trends
• Real Estate Market (Rents, Prices) Trends
3
Who is the “Real” Father of Anna’s Child?
4
CMBS Outstandings in U.S.
Source: Federal Reserve – Flow of Funds - Z1-L.126, Bank of America – Real Estate Research
Note: Amount represents total of Multi-Family and Commercial Mortgages
409.
82 521.
71 618.
97
661.
44
0
200
400
600
80019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Q1
$ B
illio
ns
409.
82 521.
71 618.
97
661.
44
0
200
400
600
80019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Q1
$ B
illio
ns
5
REIT Market Capitalization
379.
86438.
07
343.
90422.
41
0
200
400
60019
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
07.Q
120
07.Q
220
07.0
7
$ B
illio
ns
379.
86438.
07
343.
90422.
41
0
200
400
60019
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
07.Q
120
07.Q
220
07.0
7
$ B
illio
ns
Source: NAREIT, Bank of America – Real Estate Research
Note: Includes Equity, Debt and Hybrid REITS
6
National Trend - Vacancy
Source: REIS, Inc, Torto-Wheaton Research, Bank of America – Real Estate Research
0.002.004.006.008.00
10.0012.0014.0016.0018.00
2003
.1
2004
.1
2005
.1
2006
.1
2007
.1
AptOffRetInd
0.002.004.006.008.00
10.0012.0014.0016.0018.00
2003
.1
2004
.1
2005
.1
2006
.1
2007
.1
AptOffRetInd
7
National Trend – Effective Rents
Source: REIS, Inc, Torto-Wheaton Research, Bank of America – Real Estate Research
780
800
820
840
860
880
900
920
940
96020
03.1
2004
.1
2005
.1
2006
.1
2007
.1
0.00
5.00
10.00
15.00
20.00
25.00
AptOffRetInd
8
National Trend - Realized Rents*
Source: REIS, Inc, Torto-Wheaton Research, Bank of America – Real Estate Research
* Realized Rent is area occupancy times area rent
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%20
03.1
2004
.1
2005
.1
2006
.1
2007
.1
AptOffRetInd
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%20
03.1
2004
.1
2005
.1
2006
.1
2007
.1
AptOffRetInd
9
What is a CMBS?
• Commercial Mortgage Backed Security
• Type of Pass-through Security
• Commercial Mortgages are securitized into an investment pool. Rights to the revenue from the mortgages are divided into many smaller pieces (aka traunches, strips, slices), each with differing priorities. Proceeds are distributed to investors based on the priority of their traunche.
10
What is a CDO?
• Collateralized Debt Obligation
• Type of Pass-through Security
• CDO’s are securitized debt pools, similar to CMBS, but debts can be CMBS/CDO paper, car/boat/plane loans, credit cards, or virtually any type of debt obligation. Rights to the revenue from the obligations are divided into many smaller pieces (aka traunches, strips, slices), each with differing priorities. Proceeds are distributed to investors based on the priority of their traunche.
11
What is a REIT?
• Real Estate Investment Trust – 3 types– 1) Equity 2) Debt 3) Hybrid
• Pass-through Investment, effectively a corporation. 95% of income passed through to shareholders. No “corporate” tax. All earnings single-taxed at shareholder level.
• Typical Covenants: – Max Total Debt/ Total Assets: 60%
– Max Secured Debt / Total Asset: 40%
– Minimum Service Charge Coverage: 1.5x
– Min. Unencumbered Assets / Unsecured Debt: 150%
12
Example of CMBS/CDO Subordination
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UnratedBBBBBBAAAAAAAAA S30AAA S60
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UnratedBBBBBBAAAAAAAAA S30AAA S60
First Loss / High Risk
Source: Bank of America – Real Estate Research
Last Loss / Low Risk
13
Example of a CMBS/CDO StructureNo. Loans 250Avg. Loan Size $10,000,000Total Loan Amt. $2,500,000,000
Index Name 10-Year TreasuryIndex Rate 5.000%Avg. Margin 1.750%Avg Yield 6.750%
CurrentSpread
TrauncheRating (10Y)
Approximate Subordination
ImpliedYield
Yieldx Weight%
0.22% AAA S60 60.0% 5.22% 2.088%0.25% AAA S30 30.0% 5.25% 1.575%0.30% AAA 12.5% 5.30% 0.928%0.40% AA 9.0% 5.40% 0.189%1.00% A 8.0% 6.00% 0.060%1.75% BBB 5.0% 6.75% 0.202%2.50% BB 4.0% 7.50% 0.075%4.00% B 2.5% 9.00% 0.135%5.00% Unrated 0 to <2.5% 10.00% 0.250%
Weighted Average Yield 5.502%
* Implied Annual Excess Return** Rd to .001 1.000%$25,000,000
* note: swap, agency, trust, servicer and other fees estimated at 25 bps
14
Source:CMAlert 7/6/07,
Bank of America –Real Estate Research
http://www.sec.gov/
Archives/edgar/data/
1404501/00009501360
7005085/0000950136-
07-005085-index.htm
15
CMBS Spreads are Widening - Pricing Trends
Source: CMAlert 8/10/07, CMAlert-Morgan Stanley 8/8/07, Bank of America – Real Estate Research
Note: All Spreads are quoted as “Spreads over Swap Rates”
0
50
100
150
200
250
300
350
400
450
AugJulJunMayAprMarFeb
BBB-BBBAAAA-10Y
0
50
100
150
200
250
300
350
400
450
AugJulJunMayAprMarFeb
BBB-BBBAAAA-10Y
16
Interest Rate Trends – 10 Yr Treasury
Source: Federal Reserve (H15), Bank of America – Real Estate Research
2
4
6
8
10
12
14
16
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2
4
6
8
10
12
14
16
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
17
REIT Returns by Property Type - Old v New
Source: NAREIT, Bank of America – Real Estate Research
Note: “Price Only” Returns, buy at beginning of period, sell at end of period. Left = 1 year; Right = 6 months
YTD yield thru 6/30/07
Self Stg
Hlth Cr
Ind/Off
Divers
Ret
Resid
Ldg
Spclty
-25 0 25 50
YTD yield thru 6/30/07
Self Stg
Hlth Cr
Ind/Off
Divers
Ret
Resid
Ldg
Spclty
-25 0 25 50
YTD yield thru 12/31/06
Self Stg
Hlth Cr
Ind/Off
Divers
Ret
Resid
Ldg
Spclty
-25 0 25 50
YTD yield thru 12/31/06
Self Stg
Hlth Cr
Ind/Off
Divers
Ret
Resid
Ldg
Spclty
-25 0 25 50
18
Benchmark Returns – Changes so Fast!
Source: NAREIT, Bank of America – Real Estate Research
Note: Price only Returns
6 mo's Ended6/30/2007
DJI
A
S&P
500
NA
SDA
Q C
omp.
RE
ITs
-10
-5
0
5
10
15
20
25
30
35
40
6 mo's Ended6/30/2007
DJI
A
S&P
500
NA
SDA
Q C
omp.
RE
ITs
-10
-5
0
5
10
15
20
25
30
35
40
12 mo's Ended12/31/2006
RE
ITs
S&P5
00 NA
SDA
Q C
omp.
DJI
A
-10
-5
0
5
10
15
20
25
30
35
40
12 mo's Ended12/31/2006
RE
ITs
S&P5
00 NA
SDA
Q C
omp.
DJI
A
-10
-5
0
5
10
15
20
25
30
35
40
19
Industrial Performance - National Averages
$30
$35
$40
$45
$50
$55
$60
$65
1985
1987
1989
1991
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Pric
e $/
SF ■
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
Rent
$/S
F/Yr
♦
Industrial Performance - National Averages
$30
$35
$40
$45
$50
$55
$60
$65
1985
1987
1989
1991
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Pric
e $/
SF ■
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
Rent
$/S
F/Yr
♦
Value versus Rent Trends
Source: National Real Estate Index, Bank of America – Real Estate Research
20
6
6.5
7
7.5
8
8.5
9
9.5
1019
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Cap
Rate
s (%
)
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
10 Y
r Tre
as. (
%)
6
6.5
7
7.5
8
8.5
9
9.5
1019
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Cap
Rate
s (%
)
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
10 Y
r Tre
as. (
%)
Interest Rate versus Cap Rate
9+ Qtr Gap
150
to 2
00 B
Ps
Source: National Real Estate Index, Bank of America – Real Estate Research
21
55.5
66.5
77.5
88.5
99.510
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Cap
Rate
s (%
)
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
10 Y
r Tre
as. (
%)
offcapindcapretcapaptcap10_Yr
55.5
66.5
77.5
88.5
99.510
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Cap
Rate
s (%
)
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
10 Y
r Tre
as. (
%)
offcapindcapretcapaptcap10_Yr
Interest Rate versus Cap Rate
Source: National Real Estate Index, Bank of America – Real Estate Research
Note: 10 Yr is 3-month average. Curve represents “best fit” 10-Yr Treasury
22
Macro - Rents by Property Type
Source: National Real Estate Index, Bank of America – Real Estate Research
National Averages
8
13
18
23
28
33
3819
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Rent
$/S
F(O
ff, A
pt, R
et)
2
3
4
5
6
7
8
9
10
Rent
$/S
FIn
d
RetAptOffInd
National Averages
8
13
18
23
28
33
3819
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Rent
$/S
F(O
ff, A
pt, R
et)
2
3
4
5
6
7
8
9
10
Rent
$/S
FIn
d
RetAptOffInd
23
Macro - Value by Property Type
Source: National Real Estate Index, Bank of America – Real Estate Research
National Averages
50
100
150
200
250
300
35019
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Valu
e $/
SF
(Off,
Apt
, Ret
)
25
45
65
85
105
125
145
165
Val
ue $
/SF
Ind
RetAptOffInd
National Averages
50
100
150
200
250
300
35019
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Valu
e $/
SF
(Off,
Apt
, Ret
)
25
45
65
85
105
125
145
165
Val
ue $
/SF
Ind
RetAptOffInd
24
CMBS – Actual Losses by Property Type
Source: Intex, Bank of America Securities, Bank of America – Real Estate Research
2000 2001 2002 2003 2004 2005 20062007 YTD
Hotel 0.73% 1.84% 6.37% 3.10% 1.29% 1.49% 0.46% 0.61%Industrial 0.19% 0.26% 0.84% 1.18% 1.26% 0.86% 0.55% 0.18%Multifamily 0.34% 0.29% 0.75% 1.02% 1.37% 1.62% 0.79% 0.67%Manfd Hsg 0.26% -0.09% 0.28% 0.74% 0.13% 0.31% 0.12% 0.06%Office 0.05% 0.15% 0.43% 1.02% 0.98% 0.64% 0.24% 0.22%Retail 0.29% 0.68% 0.97% 0.77% 0.40% 0.27% 0.22% 0.15%Sr Housing 6.03% 6.72% -1.39% 4.07% 0.55% 3.17% 6.58% 5.86%Self Stg 0.00% 0.28% 0.07% 0.06% 0.08% 0.15% 0.14% 0.06%Total 0.44% 0.65% 1.16% 1.09% 0.87% 0.78% 0.41% 0.33%
2000 2001 2002 2003 2004 2005 20062007 YTD
Hotel 0.73% 1.84% 6.37% 3.10% 1.29% 1.49% 0.46% 0.61%Industrial 0.19% 0.26% 0.84% 1.18% 1.26% 0.86% 0.55% 0.18%Multifamily 0.34% 0.29% 0.75% 1.02% 1.37% 1.62% 0.79% 0.67%Manfd Hsg 0.26% -0.09% 0.28% 0.74% 0.13% 0.31% 0.12% 0.06%Office 0.05% 0.15% 0.43% 1.02% 0.98% 0.64% 0.24% 0.22%Retail 0.29% 0.68% 0.97% 0.77% 0.40% 0.27% 0.22% 0.15%Sr Housing 6.03% 6.72% -1.39% 4.07% 0.55% 3.17% 6.58% 5.86%Self Stg 0.00% 0.28% 0.07% 0.06% 0.08% 0.15% 0.14% 0.06%Total 0.44% 0.65% 1.16% 1.09% 0.87% 0.78% 0.41% 0.33%
25
Macro - Recent News in Homebuilding
•D.R. Horton takes $852MM hit
•Pulte took $749MM write down
•Standard Pacific took $165MM
•Sub-prime is “old” news– Source: Builder Online – July 31, 2007
http://www.builderonline.com/industry-news-channel.asp?channelID=55
26
SFR Trends – Inventory and Supply
Source: National Association of Realtors, Banc of America Securities Estimates
27
Single Family Trends – BAS Index
BTI = Buyer Traffic Index
HPI = Home Price Index
IL = Incentive Index
HLI = Home Listing Index
TTS = Time to Sell Index
0
10
20
30
40
50
60
Yea
r.Mo
2006
.01
2006
.02
2006
.03
2006
.04
2006
.05
2006
.06
2006
.07
2006
.08
2006
.09
2006
.10
2006
.11
2006
.12
2007
.01
2007
.02
2007
.03
2007
.04
2007
.05
2007
.06
BTIHPIIIHLITTS
0
10
20
30
40
50
60
Yea
r.Mo
2006
.01
2006
.02
2006
.03
2006
.04
2006
.05
2006
.06
2006
.07
2006
.08
2006
.09
2006
.10
2006
.11
2006
.12
2007
.01
2007
.02
2007
.03
2007
.04
2007
.05
2007
.06
BTIHPIIIHLITTS
Source: Banc of America Securities, July SFR Survey
Note: 50=Neutral, Sub 50 represent poor conditions
28
Real Estate Investment Trust (REIT)- Price Index Performance Analysis, July 2007
Source: Bank of America Securities, LLC, FactSet, SNL Financial, Reuters
29