current trends in commercial real estate - is it …...current trends in commercial real estate - is...
Post on 12-Jun-2020
4 Views
Preview:
TRANSCRIPT
Current Trends in Commercial Real Estate - Is it Reaching a Peak?
1
Jeff Fisher, Ph.D. (OSU) President, Homer Hoyt Institute
Consultant, NCREIF Visiting Professor, Johns Hopkins Univ.
‹#›
Annualized Returns for past 10 years
Private Institutional Commercial Real Estate
Publicly Traded REITs Stocks
Leveraged Private Real Estate Outperformed REITs and Stocks
Returns from 1979 through 2015
3
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Real Estate Returns 4 quarter moving average
Tech Bust & 9-11
NCREIF Property Index (Unleveraged)
Strong Double Digit Returns the Past 5 years since Recovery
Recession
Great Recession
?
‹#›
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Real Estate Returns Columbus vs. Nation 4 quarter moving average
Nation Columbus
Columbus CBSA Followed National Trends
NPI Leveraged Property Analysis Leveraged and Unleveraged Annual Total Returns
5
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%19
844
1985
419
864
1987
419
884
1989
419
904
1991
419
924
1993
419
944
1995
419
964
1997
419
984
1999
420
004
2001
420
024
2003
420
044
2005
420
064
2007
420
084
2009
420
104
2011
420
124
2013
420
144
2015
4
Leveraged Unleveraged Implied Interest Rate
Leverage has been favorable due to low interest rates.
Loan-to-Value for Institutional Real Estate
6
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%19
834
1984
419
854
1986
419
874
1988
419
894
1990
419
914
1992
419
934
1994
419
954
1996
419
974
1998
419
994
2000
420
014
2002
420
034
2004
420
054
2006
420
074
2008
420
094
2010
420
114
2012
420
134
2014
420
154
LTV
Loan-to-Value (4QMA)
LTV relatively conservative for institutional investors
‹#›
Price Level
CRE Slightly above Long-term Trend Line and Pre-Recession Peak
Real Estate Fund Contributions and Distributions 4Q Rolling Total as of December 31, 2015
-$5.0
-$3.0
-$1.0
$1.0
$3.0
$5.0
$7.0
$9.0
$11.0
$13.0
$15.0
4Q 2
000
2Q 2
001
4Q 2
001
2Q 2
002
4Q 2
002
2Q 2
003
4Q 2
003
2Q 2
004
4Q 2
004
2Q 2
005
4Q 2
005
2Q 2
006
4Q 2
006
2Q 2
007
4Q 2
007
2Q 2
008
4Q 2
008
2Q 2
009
4Q 2
009
2Q 2
010
4Q 2
010
2Q 2
011
4Q 2
011
2Q 2
012
4Q 2
012
2Q 2
013
4Q 2
013
2Q 2
014
4Q 2
014
2Q 2
015
4Q 2
015
ODC
E N
et F
und
Flow
s ($B
il)
Contributions Distributions/Redemptions
8
Lots of capital
Q4’15 VOLUME HIT THE SAME RANGE AS 06’Q4 AND 07’Q1
US Quarterly Volume & Pricing
*Moody’s/RCA CPPI, national aggregate, December 2000 = 100
0
25
50
75
100
125
150
175
200
225
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Billio
nsIndividual Portfolio Entity CRE Prices*
BUT US DEAL VOLUME TAKING A SPRING BREAK
$0
$10
$20
$30
$40
$50
$60
$70
$80
'12 '13 '14 '15 '16
billions
Individual Portfolio Entity
RECORD CROSS-BORDER INFLOWS INTO US
US Direct Acquisitions by Foreign Buyers
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Canada Europe Middle EastAsia Australia Latin America
billions
2015 DEAL VOLUME (EXCLUDING DEVELOPMENT SITES) Market 2015 Sales Volume ($M) YOY Change
NYC Metro 80,044,632,743$ 38%London Metro 57,048,259,816$ 29%
LA Metro 36,339,822,609$ 26%Tokyo 32,816,064,247$ -20%
SF Metro 32,020,330,907$ 20%Paris 26,904,007,887$ 6%
DC Metro 22,414,661,294$ 55%Chicago 19,882,374,086$ 48%Dallas 17,389,340,121$ 32%Atlanta 15,627,363,537$ 27%Boston 15,575,697,241$ 20%
Shanghai 15,417,451,167$ 89%So Fla 14,247,585,997$ 33%Seattle 13,119,322,368$ 75%
Berlin-Brandenburg 12,394,817,287$ 43%Sydney 11,828,131,295$ -17%
Hong Kong 11,753,773,415$ -13%Phoenix 10,778,911,771$ 65%
Rhine-Ruhr 10,377,724,647$ 13%Houston 10,357,447,520$ 6%
Melbourne 9,991,364,611$ 2%Amsterdam/Randstad 9,309,099,496$ 49%
Denver 9,285,305,639$ 26%Frankfurt/Rhine-Main 9,156,980,868$ 9%
San Diego 8,264,584,392$ 49%Germany other 8,216,226,670$ -30%
Toronto 7,303,806,133$ 13%Austin 7,222,948,013$ 15%
Sweden other 6,968,369,643$ 3%Philly Metro 6,612,718,297$ 11%
$80,045$57,048
$36,340$32,816$32,020
$26,904$22,415
$19,882$17,389
$15,627$15,576$15,417$14,248$13,119$12,395$11,828$11,754$10,779$10,378$10,357$9,991$9,309$9,285$9,157$8,265$8,216$7,304$7,223$6,968$6,613
38%29%26%
-20%20%
6%55%48%
32%27%20%
89%33%
75%43%
-17%-13%
65%13%6%2%
49%26%
9%49%
-30%13%15%
3%11%
US has 7 of Top 10 Cities Worldwide for Deal Volume
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Canada Europe Middle EastAsia Australia Latin America
billions
Cross-Border Acquisitions of US Apartments
Foreign Buyers a Potential Structural Shift Lots of interest in apartments – perhaps late to the game.
Total NPI Returns by Property Type Annual Returns Over Last Five Years
14
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
4Q 2011 4Q 2012 4Q 2013 4Q 2014 4Q 2015
Apartment Hotel Industrial Office Retail
Apartments best returns coming out of recession
Industrial has taken the lead in returns.
NPI Annual Rental Income Growth by Property Type
15
7.0%
4.8%
5.7%
1.4%
3.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Apartment Hotel Industrial Office Retail
Period Ending Fourth Quarter 2015 Although apartments still experiencing strong rent growth. May have been already been anticipated in returns.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1Q 2
015
2Q 2
015
3Q 2
015
4Q 2
015
2015 Year-End Summary: Space Market Observations
16
Cash Flow Growth (4QMA) Rental Income Growth (4Q Rolling)
Quarterly Occupancy Rate NOI Growth (4Q Rolling)
90.0%
90.5%
91.0%
91.5%
92.0%
92.5%
93.0%
93.5%
1Q 2
015
2Q 2
015
3Q 2
015
4Q 2
015
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
1Q 2
015
2Q 2
015
3Q 2
015
4Q 2
015
3.0%
3.5%
4.0%
4.5%
5.0%
1Q 2
015
2Q 2
015
3Q 2
015
4Q 2
015
Fundamentals still good
NPI Rental Income Growth
17
-4%
-2%
0%
2%
4%
6%
8%
2001
Q2
2001
Q4
2002
Q2
2002
Q4
2003
Q2
2003
Q4
2004
Q2
2004
Q4
2005
Q2
2005
Q4
2006
Q2
2006
Q4
2007
Q2
2007
Q4
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011
Q2
2011
Q4
2012
Q2
2012
Q4
2013
Q2
2013
Q4
2014
Q2
2014
Q4
2015
Q2
2015
Q4
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-4%
-2%
0%
2%
4%
6%
8%
2001
Q2
2001
Q4
2002
Q2
2002
Q4
2003
Q2
2003
Q4
2004
Q2
2004
Q4
2005
Q2
2005
Q4
2006
Q2
2006
Q4
2007
Q2
2007
Q4
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011
Q2
2011
Q4
2012
Q2
2012
Q4
2013
Q2
2013
Q4
2014
Q2
2014
Q4
2015
Q2
2015
Q4
NPI
(rol
ling
4Q)
Rent
Gro
wth
(rol
ling
4Q)
Rent growth NPI
Rolling Four Quarters
Rental Income Growth vs NPI (Rolling Four Quarters)
Rent Growth Driving Returns
NPI Capitalization Rates: Long-Term Trend
Spread to 10-year U.S. Treasuries
18
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
1978
419
794
1980
419
814
1982
419
834
1984
419
854
1986
419
874
1988
419
894
1990
419
914
1992
419
934
1994
419
954
1996
419
974
1998
419
994
2000
420
014
2002
420
034
2004
420
054
2006
420
074
2008
420
094
2010
420
114
2012
420
134
2014
420
154
4QM
A Va
lue
Wei
ghte
d Ca
p Ra
te Cap Rate 20Y Avg
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
1978
419
794
1980
419
814
1982
419
834
1984
419
854
1986
419
874
1988
419
894
1990
419
914
1992
419
934
1994
419
954
1996
419
974
1998
419
994
2000
420
014
2002
420
034
2004
420
054
2006
420
074
2008
420
094
2010
420
114
2012
420
134
2014
420
154
Spread 20Y Avg
Implied Appraisal Cap Rates
Cap Rate Compression also Helping to Drive Returns
But high spread to Treasuries (over 200 bp)
Yet starting to see warnings in headlines
4/18
Apartment Markets Mixed in the April NMHC Quarterly Survey Construction financing less available
‹#›
Moody’s/RCA Commercial Property Price Indices
FIRST MONTHLY DECLINE IN PRICES IN 6 YEARS: FEB TOO
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan
Apr Ju
lO
ctJa
nA
pr Jul
Oct
Jan
Apr Ju
lO
ctJa
nA
pr Jul
Oct
Jan
Apr Ju
lO
ctJa
nA
pr Jul
Oct
Jan
'10 '11 '12 '13 '14 '15 '16
Mon
thly
Per
cent
age
Cha
nge
in P
rices
RCA tracks transactions over $2.5 million
‹#›
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
15-1 15-2 15-3 15-4 16-1
NCREIF Quarterly Returns
Returns have been dropping – but back to long term average
‹#›
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
15-1 15-2 15-3 15-4 16-1
Columbus CBSA Total Return (Unleveraged)
Approx. $750 billion
Columbus also down 1st quarter of 2016 although still quite strong for past four quarters.
‹#›
PREA CONSENSUS SURVEY
Institutional Investors and Plan Sponsors expect returns to continue to drop through 2019.
LOAN ORIGINATIONS IN ‘06 & ‘07 WHAT HAPPENS IN ’16 & ‘17?
Key Property Sectors, Office, Industrial, Retail, Apartment
0
50
100
150
200
250
300
350
400
450
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ B
illion
s
CMBS Non-CMBS
Refinancing the 2006 and 2007Originations
Outlook under Baseline Moody’s Forecast of RCA Market CPPI’s
HEADWIND: UPCOMING WAVE OF MATURITIES/OPPORTUNITIES
Due to tighter lending standards many loans will require more equity when refinanced.
28
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Apartment Hotel Industrial Office Retail
National Return by Property Type 2016-1
‹#›
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
15-1 15-2 15-3 15-4 16-1
Columbus vs. Nation Last 5 quarters
Columbus National
Top 10 Markets versus Other Markets
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%
San
Fran
cisc
o
Dalla
s
Rive
rsid
e
Los A
ngel
es
Bost
on NPI
Seat
tle
Chic
ago
New
Yor
k Ci
ty
Was
hing
ton
DC
Hous
ton
Top 10 Markets and NPI
Top 10 Markets MV ($Bil) New York City $ 51.80 Washington DC $ 40.10 Los Angeles $ 37.32 Chicago $ 29.89 San Francisco $ 23.77 Seattle $ 20.30 Houston $ 19.93 Dallas $ 18.21 Boston $ 16.26 Riverside $ 12.39
2.67%
3.69%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Top 10 Markets Other Markets
Total NPI Returns: Top 10 Markets by Market Value
30 Columbus here 4th qtr of 2015
Capital has been moving beyond the top 10 markets
“From Great to Good” • Despite edging lower over the past 5 quarters, total returns remain healthy
relative to long term averages.
• CRE remains a strong relative performer across asset classes, supporting capital
flows into the sector
• Low interest rates in US and globally keep cap rates at historic lows
• NOI growth has slowed but still above historic average
• Occupancy can’t get much higher – always “frictional vacancy”
• May be in the 9th inning but likely to go into some “extra innings.”
• Money still talks – but nervous about current price levels. 31
top related