Which Way “Real Estate”? - Milken Institute...1 Sarasota-Bradenton-Venice, FL $376 $308 -18.1% 2...
Transcript of Which Way “Real Estate”? - Milken Institute...1 Sarasota-Bradenton-Venice, FL $376 $308 -18.1% 2...
Which Way “Real Estate”?
0% 5% 10% 15%
NAREIT (Public Real Estate)
NCREIF (Private Real Estate)
Russell 2000
S&P 500
NASDAQ
U.S. Govt. Bonds
Sources: NAREIT; NCREIF; Russell 2000; Standard & Poor’s; NASDAQ; Merrill Lynch
U.S. Real Estate ReturnsHave Been Stellar For a Decade…
Average Annual Return,
1997 through 2006
5%
6%
7%
8%
9%
10%
11%
Industrial
Suburban Office
Retail
CBD Office
Apartment
Source: Real Capital Analytics
Ov
era
ll C
ap
ita
liza
tio
n R
ate
2001 2002 2003 2004 2005 2006
Driven By Lower Cap Rates...
-150
0
150
300
2001 2002 2003 2004 2005 2006
Ab
so
rpti
on
SF
(m
illio
ns)
9%
10%
11%
12%
Availab
ilit
y R
ate
Absorption Availability Rate
Industrial Demand Has Been Solid…
Sources: CBRE Torto Wheaton Research; CBRE Investors
The Office Market HasSteadily Recovered…
Sources: CBRE Torto Wheaton Research; CBRE Investors
-100
-50
0
50
100
2001 2002 2003 2004 2005 2006
Ab
so
rpti
on
SF
(m
illio
ns)
10%
12%
14%
16%
18%
Va
ca
nc
y R
ate
Absorption Vacancy Rate
Sales Growth Has MaintainedModerate Retail Availabilities…
0
2
4
6
8
2001 2002 2003 2004 2005 2006
Reta
il S
ale
s
An
nu
al
Pe
rce
nt
Ch
an
ge
0
3
6
9
12
Sh
op
pin
g C
en
ter
Availab
ilit
y R
ate
Retail Sales Growth Shopping Center Availability Rate
Sources: Moody’s Economy.com; CBRE Torto Wheaton Research
Apartment Rents Have IncreasedWhile Condo Prices Have Cooled...
-5%
0%
5%
10%
15%
20%
1999 2000 2001 2002 2003 2004 2005 2006
An
nu
al
Ch
an
ge
Apartment Rent
Condo Prices
Sources: REIS, Inc.; National Association of Realtors
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Existing Homes
New Homes
2001 2002 2003 2004 2005 2006
Residential Sales Are Dropping…
Sources: National Association of Realtors; U.S. Census Bureau; CBRE Investors
Ye
ar-
Ov
er-
Ye
ar
Sa
les
Ch
an
ge
Six
Mo
nth
Mo
vin
g A
ve
rag
e
2007
Real GDP Growth
United States, 2000 Prices
20062005200420032002200120001999199819971996
5
4
3
2
1
0
Percent Change, Year Ago
Source: Global Insight
20072006200520042003200220012000199919981997
6.5
6.0
5.5
5.0
4.5
4.0
3.5
4
3
2
1
0
-1
-2
Percent Percent Change, Year Ago
Unemployment Rate - LCivilian Employment - R
U.S. Employment Picture
Unemployment Rate & Employment Growth
Source: Global Insight
Real Consumer Spending
United States
0601969186
6
5
4
3
2
1
0
-1
Percent Change, Year Ago
Source: Global Insight
Consumer Confidence Index
Conference Board
20072006200520042003200220012000199919981997
160
140
120
100
80
60
40
Index 1985 = 100
Source: Global Insight
Employment Growth
California vs. United States
20072006200520042003200220012000199919981997
4
3
2
1
0
-1
-2
-3
Percent Change, Year Ago
CaliforniaUnited States
Source: Global Insight
Interest Rates Fed Funds Rate and 10-year Government Bond
20072006200520042003200220012000199919981997
8
6
4
2
0
Percent
Fed Funds Rate10-year Government Bond
Source: Global Insight
Yield Curve
10-year Government Bond Minus Fed Funds Rate
20072006200520042003200220012000199919981997
4
3
2
1
0
-1
-2
Percent
Source: Global Insight
Wages and Unemployment
Average Hourly Earnings and Unemployment
200720062005200420032002200120001999199819971996
6.5
6.0
5.5
5.0
4.5
4.0
3.5
4
3
2
1
0
-1
-2
-3
Percent Percent Change, Year Ago
Unemployment Rate - LAverage Hourly Earnings - R
Source: Global Insight
Civilian Unemployment Rate
United States
05009590858075706560
11
10
9
8
7
6
5
4
3
Percent
Source: Global Insight
Real Estate Investment Trusts Sector
Net Acquisition of Financial Assets
20062005200420032002200120001999199819971996
400
300
200
100
0
US$ Billions
Source: Global Insight
Foreign Purchases of U.S. Securities
Net Foreign Purchases
20072006200520042003200220012000199919981997
200
150
100
50
0
US$ Billions
Source: Global Insight
Housing Affordability Index
Seasonally Adjusted
05009590858075
160
140
120
100
80
60
40
Base = 100
Source: National Assoc. of Realtors
Consumer Inflation Rate
Consumer Prices and Wages
20072006200520042003200220012000199919981997
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
Percent Change, Year Ago
Core CPIAverage Hourly Earnings
Source: Global Insight
Consumer Price Index
Food and Energy
0705030199979593918987
30
20
10
0
-10
-20
-30
Percent Change, Year Ago
FoodEnergy
Source: Global Insight
Consumer Price Index
Housing CPI vs. Education CPI
20072006200520042003200220012000199919981997
180
160
140
120
100
80
Index 1997=100
Education CPIHousing CPI
Source: Global Insight
S&P 500 Yield
Dividend / Price Ratio
0601969186
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Ratio
Source: Global Insight
Mortgage Rates
United States
20072006200520042003200220012000199919981997
9
8
7
6
5
4
3
Rate
30-Year Fixed
15-Year Fixed
1-Year ARM
Sources: Freddie Mac, Economy.com
1-Month LIBOR
London Interbank Offered Rate
20072006200520042003200220012000199919981997
7
6
5
4
3
2
1
0
Rate
Sources: Freddie Mac, Economy.com
Construction Put in Place
Private Residential vs. Private Nonresidential
20072006200520042003200220012000199919981997
30
20
10
0
-10
-20
-30
Percent Change, Year Ago
Residential ConstructionNonresidential Construction
Sources: U.S. Census, Economy.com
Single-Family Housing Starts United States, SAAR
20072006200520042003200220012000199919981997
2.0
1.8
1.6
1.4
1.2
1.0
Millions
Sources: U.S. Census, Economy.com
Multi-Family Housing Starts United States, SAAR
20072006200520042003200220012000199919981997
500
450
400
350
300
250
200
Thousands
Sources: U.S. Census, Economy.com
Existing Single-Family Home Sales United States, SAAR
2006200520042003200220012000199919981997
6.5
6.0
5.5
5.0
4.5
4.0
3.5
Millions
Sources: NAR, Economy.com
Existing Condo & Co-op Sales United States, SAAR
070605040302010099
1000
900
800
700
600
500
400
Thousands
Sources: NAR, Economy.com
Existing Median Home Price Single Family Homes, United States
Sources: NAR, Economy.com
2006200520042003200220012000199919981997
240
220
200
180
160
140
120
100
14
12
10
8
6
4
2
0
US$ Thousands Percent Change, Year Ago
Home Price (L)% Change, Year Ago (R)
Existing Median Home Price
Ranked by 10-Year Growth, 1996-2006
Rank Metro Area 1996q4 2006q4 10-Yr Growth
1 Vallejo-Fairfield, CA $147 $540 268%
2 Riverside-San Bernardino-Ontario, CA $113 $410 265%
3 Los Angeles-Long Beach-Glendale, CA $155 $540 249%
4 Merced, CA $101 $342 239%
5 Cape Coral-Fort Myers, FL $78 $259 232%
6 San Diego-Carlsbad-San Marcos, CA $177 $589 232%
7 Fresno, CA $106 $349 231%
8 Miami-Miami Beach-Kendall, FL $114 $374 227%
9 Santa Ana-Anaheim-Irvine, CA $216 $707 227%
10 Santa Rosa-Petaluma, CA $209 $681 226%
Home Price, US$ Thous.
Sources: NAR, Economy.com
Existing Median Home Price
Ranked by 5-Year Growth, 2001-2006
Rank Metro Area 2001q4 2006q4 5-Yr Growth
1 Riverside-San Bernardino-Ontario, CA $164 $410 151%
2 Atlantic City, NJ $132 $329 149%
3 Los Angeles-Long Beach-Glendale, CA $220 $540 146%
4 Bakersfie ld, CA $133 $311 133%
5 Fresno, CA $154 $349 127%
6 Deltona-Daytona Beach-Ormond Beach, FL $89 $200 125%
7 Miami-Miami Beach-Kendall, FL $167 $374 123%
8 Madera, CA $124 $274 121%
9 West Palm Beach-Boca Raton-Boynton Beach, FL $168 $366 118%
10 Orlando-Kissimmee, FL $126 $274 117%
Home Price, US$ Thous.
Sources: NAR, Economy.com
Existing Median Home Price
Ranked by 1-Year Growth, 2005-2006
Rank Metro Area 2005q4 2006q4 1-Yr Growth
1 Atlantic City, NJ $262 $329 25.3%
2 Boise City-Nampa, ID $169 $209 23.6%
3 Salt Lake City, UT $183 $224 22.6%
4 Trenton-Ewing, NJ $259 $308 19.0%
5 Midland, TX $104 $119 15.2%
6 Beaumont-Port Arthur, TX $108 $125 15.0%
7 Salem, OR $195 $224 14.9%
8 Cumberland, MD-WV $89 $102 14.8%
9 Raleigh-Cary, NC $199 $228 14.6%
10 Farmington, NM $164 $187 14.0%
Home Price, US$ Thous.
Sources: NAR, Economy.com
Existing Median Home Price
Ranked by 1-Year Decline, 2005-2006
Rank Metro Area 2005q4 2006q4 1-Yr Growth
1 Sarasota-Bradenton-Venice, FL $376 $308 -18.1%
2 Palm Bay-Melbourne-Titusville , FL $214 $177 -17.2%
3 Santa Barbara-Santa Maria-Goleta, CA $642 $566 -11.9%
4 Waco, TX $93 $82 -11.9%
5 Cape Coral-Fort Myers, FL $293 $259 -11.7%
6 West Palm Beach-Boca Raton-Boynton Beach, FL $414 $366 -11.5%
7 Chico, CA $446 $396 -11.3%
8 Springfield, IL $106 $95 -10.5%
9 San Luis Obispo-Paso Robles, CA $454 $407 -10.4%
10 Yuba City, CA $247 $222 -10.0%
Home Price, US$ Thous.
Sources: NAR, Economy.com
Existing Median Home Price
Most Expensive Metros, Ranked by 2006 Price
Rank Metro Area 1996q4 2006q4 10-Yr Growth
1 San Francisco-San Mateo-Redwood City, CA $320 $800 150%
2 San Jose-Sunnyvale-Santa Clara, CA $285 $781 174%
3 Santa Cruz-Watsonville , CA $275 $755 175%
4 Santa Ana-Anaheim-Irvine, CA $216 $707 227%
5 Oakland-Fremont-Hayward, CA $233 $697 199%
6 Salinas, CA $214 $690 223%
7 Santa Rosa-Petaluma, CA $209 $681 226%
8 Honolulu, HI $333 $625 88%
9 San Diego-Carlsbad-San Marcos, CA $177 $589 232%
10 Santa Barbara-Santa Maria-Goleta, CA $224 $566 152%
Home Price, US$ Thous.
Sources: NAR, Economy.com
U.S. Vacancy Rates Industrial vs. Office Space
2006200520042003200220012000199919981997
18
16
14
12
10
8
6
Percent Vacant
Industrial
Office
Sources: CB Commercial, Economy.com
U.S. Vacancy Rates
Office Space Markets
2006200520042003200220012000199919981997
20
18
16
14
12
10
8
6
4
Percent Vacant
DowntownMetropolitanSuburban
Sources: CB Commercial, Economy.com
Travel Expenditures
Resident and International Travel for United States
0504030201009998979695949392
20
15
10
5
0
-5
-10
-15
Percent Change, Year Ago
U.S. Resident TravelInternational Travel
Sources: TIA, Economy.com
Hotel Occupancy Rate
Las Vegas
2006200520042003200220012000199919981997
92
90
88
86
84
82
80
78
76
Percent
Sources: Las Vegas Convention & Visitors Authority, Economy.com
Unsold Inventory Index
California
20072006200520042003200220012000199919981997
12
10
8
6
4
2
0
Months Supply
Sources: CAR, Economy.com
Sources: Wall Street Journal
Sources: Wall Street Journal
Highest Share of Subprime Loans Subprimes as a Percentage of All Loans
Metro Percent
McAllen, TX 26.8
Memphis, TN 24.0
Sharon, PA 23.1
Miami, FL 23.0
Richmond, VA 22.3
Brownsville, TX 21.6
Merced, CA 21.6
Sumter, SC 20.7
Bakersfield, CA 20.2
Jackson, TN 20.2
Sources: CNN Money, First American Loan Performance
Highest Share of Subprime Loans atLeast 60 Days Late Percentage of Delinquent Subprime Loans
Sources: CNN Money, First American Loan Performance
Metro Percent
Cleveland, OH 24.9
Detroit, MI 24.6
Jackson, MS 22.7
Jackson, MI 22.0
Youngstown, OH 21.8
Flint, MI 20.7
South Bend, IN 20.3
New Orleans, LA 20.1
Kankakee, IL 20.1
Akron, OK 19.7
Statement of Forward-looking Information
Certain information included herein and in other Company reports, SEC filings, verbal or written
statements and presentations is forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995, including, but not limited to, information related to anticipated
operating results, financial resources, changes in revenues, changes in profitability, changes in
margins, changes in accounting treatment, interest expense, land-related write-downs, effects of home
buyer cancellations, growth and expansion, anticipated income to be realized from our investments in
unconsolidated entities, the ability to acquire land, the ability to gain approvals and to open new
communities, the ability to sell homes and properties, the ability to deliver homes from backlog, the
ability to secure materials and subcontractors, the ability to produce the liquidity and capital
necessary to expand and take advantage of opportunities in the future, industry trends, and stock
market valuations. Such forward-looking information involves important risks and uncertainties that
could significantly affect actual results and cause them to differ materially from expectations
expressed herein and in other Company reports, SEC filings, statements and presentations. These
risks and uncertainties include local, regional and national economic conditions, the demand for
homes, domestic and international political events, uncertainties created by terrorist attacks, the
effects of governmental regulation, the competitive environment in which the Company operates,
fluctuations in interest rates, changes in home prices, the availability and cost of land for future
growth, the availability of capital, uncertainties and fluctuations in capital and securities markets,
changes in tax laws and their interpretation, legal proceedings, the availability of adequate insurance
at reasonable cost, the ability of customers to finance the purchase of homes, the availability and cost
of labor and materials, and weather conditions.
Current Market
• Typically healthy market from1993-2003
• 2004 and 2005 sawunsustainable rise in demandand home prices fueled byinvestors/speculators
• Post-Katrina current market –oversupply from:
Investors and speculators –former buyers who are nowsellers
Many builders who built toomany specs
Buyer cancellations addmore supply
• Buyers are now hesitant-waitingon the sidelines for greaterincentives and further pricereductions
Long Term FundamentalsStill Intact
• Population Growth/Positive
Demographic Trends
• Low Unemployment/Healthy GDP
Growth
• Mortgage Rates Still Below Historical
Averages
• Entitlement Process Still Challenging in
Primary Markets
• U.S.-Based Producers not Subject to
Foreign Competitors
• Larger, Well-Capitalized Builders
Continue to be Positioned to Grow
Market Share
Record Housing DemandProjected for Next Ten Years
“ Household growth is expected to
accelerate from about 12.6 million
over the past ten years to 14.6 million
over the next ten. When combined
with projected income gains and a
rising tide of wealth, strengthening
demand should lift housing
production and investment to new
highs.” Harvard University – Joint Center for Housing Studies:
“State of the Nation’s Housing – 2006”
1995-2005 2005-2015
“Over the longer term, the outlook for
housing markets is favorable. With
household growth accelerating and second
home demand climbing… housing
production should average more than two
million units annually over the next ten
years.”Harvard University – Joint Center for Housing Studies: “State of
the Nation’s Housing – 2006”
New Households
12.6 Million
14.6 Million *
Source: Harvard University *Projected
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 01 02 03 04 05 06
Total Single and
Mul ti -Fam i ly
Housing Starts
0
800
1,600
2,400
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1970-1979
Average Annual
Housing Starts
1.77
(mil)
- -
1980-1989
Average Annual
Housing Starts
1.49
(mil)
- -
1990-1999
Average Annual
Housing Starts
1.37
(mil)
- -
2000-2006
Average Annual
Housing Starts
1.79
(mil)
- -
Housing Starts vs. Household Growth
Total
HouseholdsYEARS
Source: U.S. Census Bureau
Number of Households Has Grown 75% Since 1970
HO
US
EH
OL
DS
(00
0)
HO
US
ING
ST
AR
TS
(00
0)
What Will the IndustryLook Like?
• More corporate/big builder
dominance of market
• More difficult approvals/land
scarcity
• European housing model
– Smaller houses
– Higher % of income
– Higher density living
• Big Builders in suburban and
major cities