recovering from the recovery: the new state of commercial real estate lending
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RECOVERING FROM THE RECOVERY: The New State of Commercial Real Estate Lending
• Moderator: Dianne Crocker EDR Insight
• Panelists: – Ken McCarthy, Cushman & Wakefield
– Thomas Fink, Trepp
– Bob White, Real Capital Analytics
– Ryan Severino, REIS
THE BIG PICTURE
Kenneth McCarthy Chief Economist Senior Managing Director Cushman & Wakefield
THE MILLENNIAL WAVE U.S. Population by Age
Millennials: 90.8 Million
Boomers: 79.1 Million
Source: U.S. Census Bureau
MILLENIALS ARE NOW THE LARGEST COMPONENT OF THE LABOR FORCE
0
10
20
30
40
50
60
70
Mill
ion
s o
f W
ork
ers
Millennials: 53.1 m workers
Boomers: 49.3 m workers
Generation X: 49.5 m workers
648.8
85
NYC HAS BEEN THE FOCAL POINT OF JOB GROWTH IN THE METRO AREA
OVER THE PAST DECADE
OF 733,800 JOBS ADDED IN METRO AREA, 648,800 ARE IN THE CITY;
ONLY 85,000 IN THE SUBURBS
0
100
200
300
400
500
600
700
2004-2015
THO
USA
ND
S O
F P
ERSO
NS
TOTAL JOB GROWTH | JAN 2004 – APR 2005 NYC vs. Suburbs
NYC MONTHLY EMPLOYMENT
+463,500
12.5 years
+489,500
8.75 years
+502,900 5.3
years and
counting…
3,100
3,300
3,500
3,700
3,900
4,100
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: U.S. Bureau of Labor Statistics
CBD VACANCY vs. % UNDER CONSTRUCTION 3.8
%
7.0
%
7.5
%
9.4
%
9.5
%
9.7
%
10.4
%
10.5
%
11.5
%
11
.5%
11.7
%
11.9
%
11.9
%
12.6
%
12.7
%
13.1
%
15
.3%
15.4
%
15.5
%
17.4
%
18.1
%
18.1
%
18
.2%
20.8
%
[VA
LU
E]
0%
5%
10%
15%
20%
25%
Vacancy % of Inventory Under Construction
Source: Cushman & Wakefield Research
24
.0%
U.S. CONSTRUCTION COMPLETIONS AS A % OF TOTAL INVENTORY
1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1.0 %
Source: Cushman & Wakefield Research
1986 1990 1994 1998 2002 2006 2010 2014 2015
MANHATTAN OFFICE USING EMPLOYMENT VS. VACANCY
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1Q90 2Q91 3Q92 4Q93 1Q95 2Q96 3Q97 4Q98 1Q00 2Q01 3Q02 4Q03 1Q05 2Q06 3Q07 4Q08 1Q10 2Q11 3Q12 4Q13 1Q15
Tho
usa
nd
s o
f P
erso
ns
Office Using Employment Vacancy Rate
The World of CMBS
Thomas Fink, CRE
Senior Vice President
& Managing Director
TREPP
Sources of Commercial Real Estate Debt
• CMBS (Securitization)
• Life Insurance Companies
• Commercial Banks
• Government
• Private Equity
• REITs and Debt Funds
─ Active
─ Active
─ Active
─ Active
─ Active
─ Active
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
National CMBS Activity
NYC MSA CMBS Activity
Additional Opportunities
in Maturing CMBS Loans
U.S. CMBS Delinquency Rates:
Significance of Regional Variation
3.51%
Pacific
8.15%
Mountain
2.96%
Southwest
Central
6.64%
Northeast
Central
5.77%
Northwest
Central
8.52%
Southeast
Central
7.35% South
Atlantic
6.15% Middle
Atlantic
4.34%
Middle Atlantic States:
CMBS Delinquency Breakdown
5.71%
8.07% 6.81%
NY
PA
NJ
NYC MSA CMBS in Special Servicing
Commercial Real Estate Debt Maturities
Annual Maturities by Lender Type
The Latest on Lending and
the NYC Market
Robert M. White, Jr.,
CRE, FRICS
Founder & President
Real Capital Analytics
Competition Among Lenders Growing
Source: Real Capital Analytics
Competition Among Lenders Growing
Source: Real Capital Analytics
Are Manhattan Prices Already Bubbly?
US (Moody’s/RCA CPPI)
Manhattan
NYC Boroughs
NYC Suburbs
-
50
100
150
200
250
300
350
400
450
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Fundamentals Justify Prices
100
200
300
400
500
600
700
800
900
1,000
1,100
75
125
175
225
275
325
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
NC
RE
IF N
OI
/ R
CA
CA
PS
Pri
ce I
nd
ex
NYC Property Prices NOI vs Cap
Employment Growth Justifies Prices
8,000
8,200
8,400
8,600
8,800
9,000
75
125
175
225
275
325
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Em
plo
ym
en
t (m
illi
on
s)
Pri
ce I
nd
ex
NYC Property Prices NYC Employment
NYC Prices Compare Well Globally
$610
$716
$750
$788
$1,070
$1,402
$1,773
Beijing
Manhattan
Tokyo
Paris
Singapore
Central London
Hong Kong
2014 Office Avg $/sf
NYC Yields Compare Well…
Q&A
• Moderator: Dianne Crocker EDR Insight
• Panelists: – Ken McCarthy, Cushman & Wakefield
– Thomas Fink, Trepp
– Bob White, Real Capital Analytics
– Ryan Severino, REIS
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