EDR Insight Webinar: Quarterly ScoreKeeper Market Update for 2Q2015

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Transcript of EDR Insight Webinar: Quarterly ScoreKeeper Market Update for 2Q2015

  1. 1. 1 Dianne P. Crocker Principal Analyst, EDR Insight July 16, 2015 SCOREKEEPER Quarterly Market Update: 2Q2015 Smart Data. Smarter Workflow
  2. 2. 2 INTRO TO SCOREKEEPER? STATUS OF MARKET RECOVERY SCOREKEEPERS MID-YEAR BENCHMARKS TOP CHALLENGES NEAR-TERM FORECAST Q&A TODAYS THEMES
  3. 3. 3 SCOREKEEPER MODEL DEVELOPMENT
  4. 4. 4 WHAT IS SCOREKEEPER? AN EDR-DEVELOPED MODEL FOR TRACKING THE U.S. PHASE I ENVIRONMENTAL SITE ASSESSMENT MARKET DEVELOPED IN 2007 WIDELY RECOGNIZED AS THE INDUSTRYS BAROMETER OF GEOGRAPHIC DUE DILIGENCE ACTIVITY LAUNCHED ON E-COMMERCE SITE JULY 2015 FOR SUBS TO: State reports Regional reports
  5. 5. 5 WHY DID WE BUILD IT? EDR IS IN A UNIQUE POSITION TO TRACK THE PEAKS AND TROUGHS IN THE MARKET, EMERGING GEOGRAPHIC HOT SPOTS, BENCHMARKS FOR CLIENTS TO MEASURE THEIR OWN PERFORMANCE TO ANSWER YOUR QUESTIONS
  6. 6. 6 COMMON MARKET QUESTIONS:
  7. 7. 7 Input data, Assumptions, MSA Definitions, Market indicators ScoreKeeper Output CONNECTING THE DOTS: THE SCOREKEEPER MODEL
  8. 8. 8 PHASE I ESA BENCHMARKS FOR: U.S. Region State MSA County EDR 25 Index Company-level in:* U.S. Region State MSA County * Proprietary SCOREKEEPER OUTPUT Low granularity High granularity
  9. 9. 9 WHAT DOES SCOREKEEPER MEAN TO YOU? SCOREKEEPER OUTPUT GIVES YOU AN OUTSIDE, OBJECTIVE TOOL TO: 1. EVALUATE YOUR PERFORMANCE IN THE CONTEXT OF CYCLICAL DOWNTURNS OR RISING INDUSTRY TRENDS 2. BETTER FORECAST YOUR BUSINESS AS MARKET CONDITIONS CHANGE
  10. 10. 10 STATUS OF THE MARKET RECOVERY
  11. 11. 11 2Q BUILT STRENGTH IN KEY AREAS: PROPERTY INVESTMENT CONTINUES ITS SLOW CLIMB. HOUSING MARKETS RECOVERING NICELY. JOB GROWTH BACK TO PRIOR PEAK LEVELS. INTEREST RATES STILL EXTREMELY LOW. RECORD-HIGH NEW CONSTRUCTION/DEVELOPMENT. SECONDARY METROS RALLYING BACK. NEW PLAYERS (YOUR CLIENT BASE) ARE GETTING IN THE GAME. CONTINUED POSITIVE MOMENTUM
  12. 12. 12 SMALL CAP SALES: Up 30% in 1Q15 Up 14% for 1st 4 months LARGE CAP SALES: Up 45% in 1Q15 1st five months, up 32% U.S. leads global CRE investment in transaction volumes THE HIGHLIGHT OF THIS RECOVERY: PROPERTY TRANSACTIONS GROWTH
  13. 13. 13 MAJOR BUYING CLASSES Real estate investment trusts (REITs) Foreign investors Private equity funds Hedge funds Traditional developer/owner/operators DEAL MAKING: WHOS INVESTING? 2015 TOP BUYERS Salesforce.com LaSalle Hotel Properties Hilton Worldwide Facebook Avalon Bay Communities Chesapeake Lodging Trust Essex Property Trust
  14. 14. 14 MORE PROPERTY OWNERS LIQUIDATING ASSETS: Voracious appetite of investors Limited additional supply on the market Low interest rate environment ACTIVE SELLERS: Publicly-traded REITs and institutions Private equity funds Value-add investors RANGE FROM: Owners culling one or two properties from portfolios Larger mega-portfolio transactions Clarion Partners purchased $3B portfolio in 1Q Blackstone apartment portfolio for $1.7M NEW DEVELOPMENT: MOTIVATED SELLERS
  15. 15. 15 FINANCING MARKET IS RECOVERING FROM THE LENDING PULL- BACK, SHOWING ENTHUSIASM TO GROW PORTFOLIOS. INCREASINGLY COMPETITIVE. BANKS HAVE $ TO LEND, UNDERWRITING STILL VERY CAUTIOUS. DEBT FINANCING WELL POSITIONED TO TAKE ADVANTAGE OF FURTHER GROWTH IN 2015. REGIONAL/MID-SIZED BANKS ARE GAINING MARKET SHARE. LENDERS HUNGRY FOR CRE DEALS
  16. 16. 16 SIGNIFICANT EQUITY BUYING PROPERTY AND AN ACTIVE PURCHASING MARKET=ACTIVE LENDING MARKET." 6.5% ANNUAL GROWTH IN 2014 STILL 25% BELOW PEAK WIDE VARIABILITY IN GROWTH BY BANK SIZE PROPERTY LENDING: SLOW PACE OF GROWTH IN ORIGINATIONS Banks are finally playing offense again!
  17. 17. 17 TRADITIONAL LENDERS, COMMERCIAL BANKS LIFE INSURANCE COMPANIES CMBS (SECURITIZATION) CONDUITS PRIVATE EQUITY: Cerberus Blackstone Colony Capital REITS AND DEBT FUNDS GOVERNMENT SOURCES OF COMMERCIAL REAL ESTATE DEBT
  18. 18. 18 GROWING COMPETITION AMONG LENDERS
  19. 19. 19 CMBS 2.0 PRIMARY MARKET ACTIVITY 2012 $45.8 billion in Conduit, SASB, & Large Loans 57 deals $21.2 billion in Freddie Mac 17 deals 2013 $83.1 billion in Conduit, SASB, & Large Loans 102 deals $28.0 billion in Freddie Mac 19 deals 2014 $93.1 billion in Conduit, SASB, & Large Loans 120 deals $21.3 billion in Freddie Mac 17 deals 2015 - YTD $42.40 billion in Conduit, SASB, & Large Loans 55 Deals $11.14 billion in Freddie Mac 9 deals Source: Trepp, LLC
  20. 20. 20 LOAN MATURITIES CREATING REFI OPPS. LENDERS EXPECTED TO ABSORB DEMAND, VIEW AS OPPORTUNITY TO INCREASE VOLUMES. EXCESS CAPITAL LOOKING TO FINANCE SOLID REAL ESTATE. SURGE IN REFINANCING ACTIVITY FROM NOW THROUGH 2017. LENDING OPPORTUNITY: NEW ROUND OF REFIS
  21. 21. 21 SMALLER SECONDARY METROS WITH STRONG GROWTH PROFILES ARE SEEING INVESTOR INTEREST: Portland, Seattle, Denver, Austin, Nashville, Atlanta, Las Vegas, etc. COMMON DENOMINATORS: Strong job growth Growing technology sectors, healthcare and financial services industries WHERE WERE NOT SEEING THIS TREND: CMBS Foreign investors Still prefer top markets EXPANDING UNIVERSE OF METROS: SMALLER MARKETS HEATING UP
  22. 22. 22 CONSTRUCTION SPENDING UP 54% FROM 2008/9 BOTTOM (inflation-adjusted terms) APRIL: FASTEST MONTHLY PACE IN MORE THAN 6 YEARS POINTS TO MARKED INCREASE IN U.S. DEVELOPMENT IN 2015 2015: CONSTRUCTION PLAYS CATCH UP
  23. 23. 23 U.S. CHAIN RETAILERS HAVE UPPED THEIR STORE OPENING PLANS DUE TO STRONGER MARKET CONFIDENCE MERGER/ACQUISITION ACTIVITY AT ITS HIGHEST LEVEL IN 7 YEARS Appetite for deals among executives hitting high point Number of deals up 19% vs. mid-year 2014 STRENGTH IN OTHER SECTORS
  24. 24. 24 SCOREKEEPER BENCHMARKS: MIDYEAR STATS
  25. 25. 25 Region 1Q Growth YonY 2Q Growth YonY Northeast 2% 1% West 14% 11% MidAtlantic -4% 4% South 1% -5% Midwest 1% -2% California 6% 4% North Atlantic 8% 11% South Atlantic -1% 0% U.S. AVERAGE 4% 2% SCOREKEEPER: REGIONAL GROWTH 2015
  26. 26. 26 Region 1Q Growth YonY 2Q Growth YonY Northeast 2% 1% West 14% 11% MidAtlantic -4% 4% South 1% -5% Midwest 1% -2% California 6% 4% North Atlantic 8% 11% South Atlantic -1% 0% U.S. AVERAGE 4% 2% SCOREKEEPER: REGIONAL GROWTH 2015
  27. 27. 27 2Q2015 (YonY Growth) Top 10 State in 1Q? Oregon 32% 2nd Hawaii 24% DC 22% Nevada 19% 1st Utah 19% 5th Idaho 18% Maryland 16% Washington 13% 3rd New York 12% 9th New Jersey 12% 4th SCOREKEEPER: STATE HOT SPOTS, 2015
  28. 28. 28 SCOREKEEPER: GROUND-TRUTHING THE MIGRATION TO SECONDARY METROS Hard hit metros like Vegas, Miami, Detroit and Phoenix are the current comeback kids. Still way below previous peak levels, room to improve.
  29. 29. 29 SCOREKEEPER: STRONGEST METRO MARKETS, 2Q15 TOP 10 HIGH- GROWTH METROS, 2Q2015 TOP 10 IN 1Q2015? Portland, OR 23% 9th Las Vegas, NV 23% 1st Salt Lake City, UT 22% Baltimore, MD 22% Sacramento, CA 20% 7th San Antonio, TX 19% 3rd Long Island, NY 18% Philadelphia, PA 17% Raleigh, NC 15% 10th Northern NJ 14% The increase in capital will likely begin to move to more secondary markets in 2015. ~PricewaterhouseCoopers, Emerging Trends in CRE, 2015 As prime markets get more expensive, more capital will flow into secondary and tertiary markets. ~Deloitte Real Estate, 2015 Commercial Real Estate Outlook
  30. 30. 30 TOP CHALLENGES
  31. 31. 31 THE MARKET IN YOUR WORDS:
  32. 32. 32 NO PREDICTABILITY WE LAID OFF STAFF LAST YEAR, AND NOW HAVE MORE WORK THAN WE CAN HANDLE. CRAZY ROLLER COASTER. FAMINE TO FEAST IN A MATTER OF DAYS. GRATEFUL BUT HARD TO PLAN! "WE KNEW WE HAD TO HIRE WHEN WE HAD OUR BEST Q1 IN 15 YEARS."
  33. 33. 33 WE NEED IT FAST. NO FASTER! AGGRESSIVE MARKET. CLIENTS FAVOR SPEED AND QUALITY OVER COST. BIGGER, BADDER, FASTER LOANS! GOOD, FAST, CHEAP-- PICK ANY TWO. "DUE DILIGENCE TIMEFRAMES ARE AT THEIR ALL- TIME SHORTEST DURATION 2 WEEKS OR IT'S FREE!" NEED FOR SPEED
  34. 34. 34 MIXED BAG ON UNDERWRITING VALUATION PRESSURES IN COMMERCIAL REAL ESTATE ARE RISING AS COMMERCIAL PROPERTY PRICES CONTINUE TO INCREASE RAPIDLY, AND UNDERWRITING STANDARDS AT BANKS AND IN COMMERCIAL MORTGAGE-BACKED SECURITIES HAVE BEEN LOOSENING, FEDS SEMIANNUAL REPORT TO CONGRESS YESTERDAY THE RISK PENDULUM HAS OFFICIALLY SWUNG BACK TO WHERE IT WAS IN 2005FOR BUYERS AND BORROWERS, ITS BLOW AND GO. ITS 2007 ALL OVER AGAIN- CAUTION THROWN TO THE WIND AND WILD WEST ATTITUDES PREVAIL. I DONT THINK WERE BACK TO THE BAD OLD DAYS OF LAX RISK MANAGEMENT.
  35. 35. 35 UNDERWRITING STANDARDS ARE TIGHTER TODAY THAN THEY WERE IN 2007. LOAN-TO-VALUE RATIOS ON COMMERCIAL LOANS HOVERED CLOSE TO 70% IN THE RUN UP TO 2007. IN THE LAST TWO QUARTERS, CLOSER TO 65%. TIGHTER UNDERWRITING
  36. 36. 36 NEAR-TERM FORECAST
  37. 37. 37 CLASS B AND C PROPERTIES ARE BRINGING STRUCTURAL, ENVIRONMENTAL, SAFETY ISSUES TO THE FRONT. TIMELINES ARE COMPRESSED BUYERS AFLOAT IN CAPITAL TRY TO CLOSE DEALS. MILLENNIALS SETTING THE STAGE FOR AN URBAN POPULATION BOOM: Growth in urban areas began to outpace the suburbs in the U.S. for the first time in over 100 years. Firms and employers are following the feet of the flow of urbanites. More adaptive reuse of properties in urban locations results from this trend as developers take previously overlooked properties. WHATS DIFFERENT IN THIS RECOVERY?
  38. 38. 38 NEAR-TERM FORECAST DEVELOPING NEW TOOL: Based on historical analysis to identify which market indicators most closely align with Phase I ESA volume. No one true north for our industry. Opens avenue for forecast based on more than $-based transaction/lending predictions.
  39. 39. 39 US ARCHITECTURAL BILLINGS INDEX US PRIVATE COMMERCIAL BLDGS CONSTRUCTION US INDUSTRIAL PRODUCTION RETAIL SALES HOUSING STARTS MULTI-RETAIL BLDGS CONSTRUCTION EMPLOYMENT, ETC. QUANTITATIVE FORECAST FO