jeff glenn cb richard ellis thursday march 19, 2009 2009 market forecast: capital markets
DESCRIPTION
CB Richard Ellis | Page 3 Raleigh – Durham Historical Transaction Volume Source: CB Richard EllisTRANSCRIPT
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Jeff GlennCB Richard EllisThursday March 19, 2009
2009 MARKET FORECAST: Capital Markets
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CB Richard Ellis | Page 2
What’s going on…?
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CB Richard Ellis | Page 3
Raleigh – Durham Historical Transaction Volume
Source: CB Richard Ellis
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CB Richard Ellis | Page 4
Raleigh – Durham Product Allocation (Millions)
Source: CB Richard Ellis
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CB Richard Ellis | Page 5
Raleigh – Durham 2008 Quarterly Sales (Millions)
Source: CB Richard Ellis
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CB Richard Ellis | Page 6
Raleigh – Durham 2008 Top 10 Sales Transactions
Source: CB Richard Ellis
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CB Richard Ellis | Page 7
Raleigh – Durham Apartment Transaction Volume
Source: CB Richard Ellis
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CB Richard Ellis | Page 8
Raleigh – Durham Apartment Buyer Distribution (Millions)
Source: CB Richard Ellis
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CB Richard Ellis | Page 9
Raleigh – Durham Office Transaction Volume
Source: CB Richard Ellis
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CB Richard Ellis | Page 10
Raleigh – Durham Office Buyer Distribution
Source: CB Richard Ellis
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CB Richard Ellis | Page 11
Raleigh – Durham Retail Transaction Volume
Source: CB Richard Ellis
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CB Richard Ellis | Page 12
Raleigh – Durham Retail Buyer Distribution (Millions)
Source: CB Richard Ellis
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CB Richard Ellis | Page 13
Raleigh – Durham Warehouse/Flex Transaction Volume
Source: CB Richard Ellis
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CB Richard Ellis | Page 14
Raleigh – Durham Warehouse/Flex Buyer Distribution (Millions)
Source: CB Richard Ellis
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CB Richard Ellis | Page 15
Raleigh – Durham Total Buyer Distribution
Source: CB Richard Ellis
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CB Richard Ellis | Page 16
Raleigh – Durham Total Seller Distribution
Source: CB Richard Ellis
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CB Richard Ellis | Page 17
While Underwriting Standards Relaxed…
Source: JP Morgan, ING 2Q 2008
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CB Richard Ellis | Page 18
Allowing Subordination Levels to Fall
CMBS Deal Subordination Levels
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CB Richard Ellis | Page 19
Spreads Widen to Historic Levels
Bps Spread over Swaps
0
200
400
600
800
1000
1200
1400
1600
1/2
1/16
1/30
2/13
2/27
3/12
3/26 4/
9
4/23 5/
7
5/21 6/
4
6/18 7/
2
7/16
7/30
8/13
8/27
9/10
9/24
10/8
10/2
2
11/5
11/1
9
AAA.4AAA Cash Spreads
Lenders are rational and have choices. So long as their choices (buying paper in the secondary market) are more attractive than origination, they will not originate.
Source: Markit, Morgan Stanley
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CB Richard Ellis | Page 20
Spreads Widened…Why?
Source: Mortgage Bankers Association 2008
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CB Richard Ellis | Page 21
Estimated Quarterly Mortgage Originations
Source: Mortgage Bankers Association
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CB Richard Ellis | Page 22
Source: RealPoint 2008
Maturing CMBS Mortgages
$0
$20,000,000,000
$40,000,000,000
$60,000,000,000
$80,000,000,000
$100,000,000,000
$120,000,000,000
2008 2009 2010 2011 2012 2013 2014 2015$0
$20,000,000,000
$40,000,000,000
$60,000,000,000
$80,000,000,000
$100,000,000,000
$120,000,000,000
2008 2009 2010 2011 2012 2013 2014 2015
Healthcare Hotel Industrial Mixed (Other) Multifamily Office Retail
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CB Richard Ellis | Page 23
$3.4 Trillion Debt Outstanding
Source: CBRE Torto Wheaton Research 2008
U.S.- How Much Are We Talking About?
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CB Richard Ellis | Page 24
Rates Help Out!
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CB Richard Ellis | Page 25
2009: What’s In & What’s Out
CHANGING MARKET DYNAMICSIN OUTOn-Book Lending CMBS
Conservative Leverage High Octane Capital Stack
Equity In-Deal Cash Out Financing
Risk Based Pricing Inefficient Pricing of Capital
Correspondent & Relationship Lending Loan Brokerage
High Touch Loan Servicer Securitized/Impersonal Servicer
Amortization- 30 Year Schedule Amortization- Interest Only
Reserves Funded in Cash No Funded Escrow
450+/- Spreads 100+/- Spreads
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CB Richard Ellis | Page 26
New Capital StackMarket Is De-Leveraging
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008Loan Breakout
Percen
tage L
TV
EquityPref. EquityMezzanineB-NoteA-Note
Equity, 2%Pref. Equity,
8%
Mezzanine, 10%
B-Note, 15%
A-Note, 65%
A-Note, 45%
B-Note, 15%
Mezzanine, 15%
Equity, 25%
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CB Richard Ellis | Page 27
Why Are Values Going Down?
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CB Richard Ellis | Page 28
With Buyers Re-Trenching
Source: CB Richard Ellis
Raleigh – Durham
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CB Richard Ellis | Page 29
How High Will Cap Rates Go?
4
5
6
7
8
9
1019
86.1
1986
.419
87.3
1988
.219
89.1
1989
.419
90.3
1991
.219
92.1
1992
.419
93.3
1994
.219
95.1
1995
.419
96.3
1997
.219
98.1
1998
.419
99.3
2000
.220
01.1
2001
.420
02.3
2003
.220
04.1
2004
.420
05.3
2006
.220
07.1
2007
.420
08.3
2009
.220
10.1
2010
.420
11.3
2012
.220
13.1
2013
.420
14.3
Base Spiral
Appraisal Cap-Rate, %
Source: TWR Investment Outlook, Winter 2009
Forecast
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CB Richard Ellis | Page 30
What To Do
Focus on Your Tenants Right-Size Expense Base Underwrite to Positive Leverage “Partner” with Your Lender Keep the Faith