q2-2010 national economics and colorado retail trends
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Pinnacle Real Estate Advisors
Colorado Retail UpdateQ2 - 2010 National Economics and Colorado Trends
Presented by: Tom Ethington(303) 962-9538
August 2, 2010
National Trends
• Which cities are expected to have strong job growth?
• How is the Retail Repeat Sales Index trending?
• Statistics tell us NOW is the time to buy stabilized assets.
Colorado Trends
• With absorption positive again, how are lease rates trending?
• Which Denver sub-markets have below average vacancy?
• Are Colorado cap rates in line with national averages?
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2010 Mid Year National Economic Trends
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- National Economy: Where will Job Growth Occur (‘11 – ’14)?
Rising incomes and profitable businesses will drive spending. Retail occupancy and NOI should follow!
Energy and Technology driven economies
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- National Economy: A Move to Deleverage
When consumers feel confident about the future, they are willing to purchase on credit. Today’s uncertain times has the consumer saving more and buying less on credit. We are deleveraging.
However, if debt is forgiven by lenders, this could have a healthy outcome for consumer spending long term.
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- National Housing: New Starts
We remain at an all time low for new housing starts. Until the national home builders return, this will remain soft.New home sales drive many other retail economies - contractors, home furnishings, movers, etc.
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- National Leasing: Market to Market
Positive absorption has returned to much of the U.S. Despite Denver being demographically smaller than most of the markets listed, we are still toward the top of the absorption list.
Is South Florida making its come back?
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- National Leasing: Absorption by Market Size
This shows absorption as a function of inventory. Again, highlighting Denver’s strength compared to other markets.
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- National Leasing: Service Providers are Soaking Up Space
Who are tomorrow’s retail tenants? Landlords should be looking to service industries to fill vacant space.
Cellular stores (red arrows) could also be considered a service and are aggressively expanding.
Only new leases shown, not renewals
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- National Leasing: New Product
The 0.2% is made up mostly of strong credit big box tenants taking advantage of recession pricing.
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- National Leasing: Supply and Demand
Oversupply is leading to competition for tenants in Denver. This is one of the factors causing lease rate compression.
Barriers to entry keep supply down.
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- Capital Markets: CMBS Will Return
We have seen a 99% drop in CMBS lending. Expect CMBS to return to commercial real estate but not at past levels.
REITs and “opportunity equity” will control the market for the next couple of years.
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- National Sales Market: Sales Volume
This compares the first half of 2009 to the first half of 2010.
YoY demand is showing signs of improvement.
Florida’s towards the top of the list once again.
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- National Sales Market: Distressed Sales
1 and 5 retail properties traded today are considered distressed. Who is tomorrow’s seller?
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- National Sales Market: Cap Rate Deviation
Cap rate spreads are trending above the national average within one standard deviation. This would suggest NOW is a good time to buy stable assets.
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- National Sales Market: Retail Repeat Sales
From the base in 1998 to 2007 retail property values have increased 2.75x.
According to the Case Shiller index (housing) we saw a 2.3x from 2000 to 2007.
This graph is calculated by analyzing retail properties that have sold more than once.
2.75x
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- National Sales Market: Today’s Buyer
Who is buying in today’s market?
$260MM was the Galleria purchase in Houston.
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Mid Year 2010 Denver Retail Leasing Activity and Trends
Market Summary: Market absorption was positive for Q2, vacancy fell from 8.4% to 8.2% 10 new retail buildings were delivered in Q2 totaling 335,711 sqft Rental rates decreased 5.2% from the previous quarter: $15.86 to $15.03
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- Denver Leasing: Total Retail Market Statistics – Ending Q2 - 2010
Most of Denver’s retail markets continue to have slow growth and rental rate compression. However, some individual markets are starting to see below market vacancy, which should create new demand.
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The recession has created strong demand for local Outlet Centers, driving rental rates well above trending averages.
Specialty Centers are defined as combining Airport Retail, Outlet Centers and Theme/Festival Centers.
- Denver Leasing: Some Positive Rental Demand
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- Denver Leasing: Top Under Construction Properties
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- Denver Leasing: Top 20 Mid Year Lease Deals
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Q2 - 2010 Colorado Retail Investment Sales Activity and Trends
Data Set Parameters: Product: Retail Cap Rate Sales Location: Colorado Comps Analyzed: 213 Cap Rate Deals from 07.01.07 to
06.30.10; 500k to 10M
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- Colorado Sales: Transactions to Trailing Average - ($500k – 10M)
17.75 avg.17 17
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While total sale volume is down, transaction volume has returned to historic averages. Have we found our new base line?
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Pinnacle Real Estate Advisors - Colorado Sales: Q2 Cap Rate Sales - ($500k to 10M)
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Price / Actual BuyerAddress City Tenant (Building) Price Size SF Cap Sale Date Company___________________ _____________ ________________ _________ ______ ______ ______ ________ _________________________
1. 11236 S Pikes Peak Dr Parker Parker Hilltop TS $9,500,000 50,388 $188.54 8.51% 05/21/10 GDA Real Estate Services LLC2. 305-307 S Mill St Aspen 305 - 307 Mill St $5,100,000 5,253 $970.87 5.00% 04/30/10 M Development3. 12505 W 52nd Ave Arvada Office Depot $3,595,000 20,572 $174.75 9.16% 05/26/10 IMT Khougaz LP4. 4629 Centerplace Dr Greeley $2,675,000 9,292 $287.88 8.99% 05/10/10 Michael Rainsberger5. 1545 S Prairie Ave Pueblo $2,400,000 69,553 $34.51 9.91% 04/13/10 N/A6. 2020 Wadsworth Blvd Lakewood Woodridge Medical $2,185,000 35,985 $60.72 10.56% 04/13/10 Benjamin Armas7. 18680-18690 E Iliff Ave Aurora Shops at Iliff $2,080,000 8,419 $247.06 9.00% 04/23/10 Generation Properties Iliff LLC8. 6148 E County Line Rd Highlands Ranch $2,025,000 11,074 $182.86 9.24% 06/01/10 Chris J & Georgia J. Christopher9. 11147 S Pikes Peak Dr Parker Del Taco $1,930,000 2,166 $891.04 9.16% 06/11/10 ACF Property Management, Inc.10. 16495 E 40th Cir Aurora $1,900,000 8,160 $232.84 8.00% 06/03/10 N/A11. 1063-1131 Hwy 24 Woodland Park Woodland Park Plaza $1,825,000 23,872 $76.45 7.80% 04/22/10 Western Centers, Inc.12. 6342 E Evans Ave Denver $1,690,000 6,124 $275.96 7.76% 04/12/10 Justin & Kay Edwards13. 250 5th St SE Loveland $1,384,300 6,064 $228.28 8.33% 04/19/10 Twin Owls, LLLP14. 101 12th St Windsor Taco Bell $1,260,000 2,787 $452.10 9.52% 06/21/10 N/A15. 144 E 9TH St, 1/1st Floor Durango Retail Condo $950,000 3,425 $277.37 7.50% 04/30/10 Macho Family Trust16. 833 Santa Fe Dr Denver $750,000 6,250 $120.00 9.00% 06/02/10 John Fielder's Colorado17. 410-412 E Railroad Ave Fort Morgan Fort Morgan Shopping Center$578,100 33,140 $17.44 13.00% 04/02/10 FMSC LLC
- Source: Costar Comps
11 of the 17 investment transaction were traded with above average cap rates.
How are Colorado cap rates to the national averages?
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Pinnacle Real Estate Advisors - Colorado Sales: 17 Investment Sale Locations - ($500k to 10M)
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"After meeting Tom in person, I was extremely impressed with his professionalism and market knowledge and decided to list the property
[Macaroni Grill - Denver, CO] for sale with him.
The fact that I have decided to list other properties with Tom is a clear endorsement of how he operates his business and works with his clients, and I would not hesitate to recommend him to anyone looking to buy or
sell a commercial property.”
Kurt Steves, Vice President Cardinal Capital
- A Testimonial to Retail Investments
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Thanks for Reviewing the Q2 - ‘10 Retail Leasing & Investment Update
Questions about the information? In need of your current property’s value?
Looking for a different market segment?
Call Tom Ethington @ (303) 962-9538