Download - Which Way “Real Estate”? - Milken Institute...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,

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


Real Consumer Spending

United States

0601969186

6

5

4

3

2

1

0

-1



Consumer Confidence Index

Conference Board

20072006200520042003200220012000199919981997

160

140

120

100

80

60

40

Index 1985 = 100


Employment Growth

California vs. United States

20072006200520042003200220012000199919981997

4

3

2

1

0

-1

-2

-3


CaliforniaUnited States


Interest Rates Fed Funds Rate and 10-year Government Bond

20072006200520042003200220012000199919981997

8

6

4

2

0

Percent

Fed Funds Rate10-year Government Bond


Yield Curve

10-year Government Bond Minus Fed Funds Rate

20072006200520042003200220012000199919981997

4

3

2

1

0

-1

-2

Percent


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


Civilian Unemployment Rate

United States

05009590858075706560

11

10

9

8

7

6

5

4

3

Percent


Real Estate Investment Trusts Sector

Net Acquisition of Financial Assets

20062005200420032002200120001999199819971996

400

300

200

100

0

US$ Billions


Foreign Purchases of U.S. Securities

Net Foreign Purchases

20072006200520042003200220012000199919981997

200

150

100

50

0

US$ Billions


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


Core CPIAverage Hourly Earnings


Consumer Price Index

Food and Energy

0705030199979593918987

30

20

10

0

-10

-20

-30


FoodEnergy


Consumer Price Index

Housing CPI vs. Education CPI

20072006200520042003200220012000199919981997

180

160

140

120

100

80

Index 1997=100

Education CPIHousing CPI


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


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


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


Multi-Family Housing Starts United States, SAAR

20072006200520042003200220012000199919981997

500

450

400

350

300

250

200

Thousands


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


Existing Median Home Price Single Family Homes, United States


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.





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%






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%




Ranked by 1-Year Decline, 2005-2006


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%




Most Expensive Metros, Ranked by 2006 Price


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%



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


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

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