Real Estate Cycles Are Real & Predictable Years Of Possibilities

Transcription

1 Real Estate Cycles Are Real & Predictable Years Of Possibilities Spring Real Estate Conference Portland State University Center for Real Estate Portland, Oregon May 17, 2011 Presented By: Christopher Lee, President & Chief Executive Officer CEL & ASSOCIATES, INC. (310)

2 PLEASE NOTE The proprietary slides included in this PDF are for viewing and discussion purposes only and may not be used in whole or in part in the following without expressed prior written consent from Presentations/slide shows. Articles/newsletters. Offering memorandums/investment prospectuses. Websites. Other written and/or electronic communications. Christopher Lee President & Chief Executive Officer Wilshire Blvd., Suite 204 Los Angeles, CA Telephone:

3 Do not be surprised If you see these FUTURE HEADLINES 3

4 Tuesday, July 10, 2015 Today's Highlights Daily $1.75 Starbucks Announces 5-Star Concierge Services To Office Tenants NYC Multifamily 4

5 Tuesday, July 10, 2015 Daily $1.75 Today's Highlights ebay Becomes The #1 Source For Selling Commercial Real Estate NYC Multifamily 5

6 Today's Highlights Monday, February 18, 2015 Daily $1.50 Congress Passes National Building Codes Standards Making It Unlawful To Sell A Building That Is Not Energy-Compliant! NYC Multifamily 6

7 Today's Highlights Monday, February 18, 2012 Daily $1.50 Facebook Creates First Virtual Office Y Generation Declares Office Space Obsolete. NYC Multifamily 7

8 Today's Highlights Monday, February 18, 2015 Daily $1.50 Apple Unveils iprop Property Managers can communicate, , purchase, monitor building maintenance, etc. via this handheld device. NYC Multifamily 8

9 Monday, February 18, 2015 Daily 1.25 Today's Highlights First High Rise Farm Announced 12 Stories Equal To 600 Acres NYC Office 9

10 REAL ESTATE CYCLES ARE REAL Over the past 50 years there has not been a time you could not make money in real estate. 10

11 FUNDAMENTAL DRIVERS OF REAL ESTATE CYCLES Primary Drivers Federal Policy & Priorities Access To/Cost Of Capital Job Growth (Quantity & Type) Commodity Prices Demographic Shifts Consumer Confidence/Spending Labor Force Productivity Supply/Demand Ratios Infrastructure Investments Economic Growth Secondary Drivers International Trade State/Local Regulations Population Migration Small Business Performance Consumer Credit/Savings Business Start-Ups Advancements In Technology Competitor/Industry Factors Household Formation/Characteristics Household Income/Net Worth Source: 11

12 REAL ESTATE CYCLE PHASES Transition Growth Plateau Crisis Transition 10 Years 12.5 Years 12

13 THE GROWTH PHASE Transition Growth Plateau Crisis Transition Period Of Opportunity Rising Occupancy Levels Rising Rents Growing NOIs Increasing Asset Values Accelerated Development Activity Readily Available Capital 10 Years 12.5 Years New Competitors/Firms Emerge 13

14 THE PLATEAU PHASE Transition Growth Plateau Crisis Transition Period Of Decisions Supply/Demand Imbalance Optimistic Underwriting Generous TIs/Rent Concessions Unrealistic Asset Values Protracted Negotiations Blind Entrepreneurism 10 Years 12.5 Years High Investment Sales Activity 14

15 THE CRISIS PHASE Transition Growth Plateau Crisis Transition Period Of Change Declining Rents/Occupancies Declining Asset Values Little/No Development Activity Workouts/Restructuring Limited Access To Credit Entity Downsizing 10 Years 12.5 Years De-Leveraging 15

16 THE TRANSITION PHASE Transition Growth Plateau Crisis Transition Period Of Reinvention New Business Models Emerge Recapitalization Diversification Of Risk Focus On Fundamentals Next Generation Leaders Emerge Renewed Customer Focus 10 Years 12.5 Years Consolidation Accelerates 16

17 IN EACH TRANSITION PHASE Cash is king. Opportunities are created by competitor troubles. Talent and entities are under-valued. Value is created by dramatic market shifts. New business models emerge. New industry/market leaders emerge. Future opportunities, market share and relationships are created/established. Companies reposition for the growth phase. Trending data tells the story. 17

18 Cycle Growth Period Primary Drivers Of The Real Estate Cycle Growth from an abundance of capital, financial engineering and tax incentives Growth from industry consolidation, securitization, and the digital economy Growth from an abundance of inexpensive debt, unprecedented consumer spending and a bull stock market Growth from recapitalization, generational shifts, global restructuring, green technologies, education, public infrastructure, knowledge-centered industries, energy, data storage and healthcare Growth from life sciences, bio-technology, Gen Y shifts, artificial intelligence, alternative energy, robotics, research, micro-farming and water reclamation. Source: REAL ESTATE CYCLES PAST, PRESENT & FUTURE 18

19 SO WHERE ARE THE SIGNS That We Are About To Start A New Real Estate Cycle? 19

20 TRANSFORMATIONAL EVENTS Driving The Next Real Estate Cycles Aging Boomers (healthcare, retirement, lifestyle). Coming-of-age Y Generation. Generational transfer. Shift back to urban markets. Beginning of an innovation-based economy. Focus on renewable energy. Shift to renter-based society. Proximity, Access, Availability & Value will be the consumer mantra. 20

21 REAL ESTATE CYCLES PROOF POINTS Asset additions to the distressed category declined in 1Q11 the lowest level since 3Q08. Sales of significant real estate properties in 1Q11: Office building sales Industrial building sales Retail building sales up 127% from a year ago up 11% from a year ago up 53% from a year ago Apartment building sales up 47% from a year ago Delinquency rates for all asset categories were either flat or down in 1Q11 over 4Q10. CoStar acquired LoopNet for $860 million. Household net worth climbed $2.1 trillion in 4Q10. The debt markets are improving. CMBS issuance could be up 200% in Banks are returning to the lending market. The charge off for bad real estate loans peaked in Household formations have increased dramatically. 21

22 COMMERCIAL/MULTIFAMILY LOAN ORIGINATIONS INDEX Source: Mortgage Bankers Association thru 1Q

23 U.S. POPULATION GROWTH CONTINUES Millions Million New Residents Source: U.S. Census Bureau. 23

24 NUMERICAL CHANGE IN POPULATION By Region Of The U.S. Millions new jobs are created for every 100 additional residents. Bureau Of Labor Statistics Northeast Midwest South West Source: U.S. Census Bureau, Population Division, Interim State Population Projections, Regional population change from 2000 to

25 GROWTH IN HISPANIC POPULATION Millions Source: Pew Research Center,

26 POPULATION 65 YEARS AND OLDER IS GROWING Millions M Seniors Added Source: U.S. Census Bureau. 26

27 MULTIFAMILY CONSTRUCTION U.S Billions $35 $30 $25 $20 $15 $10 $5 $ Source: Reed Construction. 27

28 REAL ESTATE STOCKS STILL OUTPERFORM THE BROADER MARKET NAREIT Equity REIT Index Of Total Returns Stocks All Year Office Industrial Retail Apt. Equity REITs S&P 500 Russell 2000 NASDAQ % 37.2% 34.6% 28.9% 35.3% 22.7% 16.5% 23.0% % 19.0% 17.0% 16.0% 20.3% 33.1% 22.4% 22.1% % -11.7% -4.9% -8.8% -17.5% 28.6% -2.5% 39.6% % 3.9% -11.8% 10.7% -4.6% 21.0% 21.3% 85.6% % 28.6% 18.0% 35.5% 26.4% -9.0% -3.0% -39.3% % 7.4% 30.4% 8.7% 13.9% -11.8% 2.5% -21.1% % 17.3% 21.1% -6.2% 3.8% -22.0% -20.4% -31.2% % 33.1% 46.8% 25.5% 37.1% 28.7% 47.3% 50.0% % 34.1% 40.2% 34.7% 31.6% 10.8% 18.3% 8.6% % 15.4% 11.8% -14.7% 12.2% 4.9% 4.5% 1.4% % 28.9% 29.0% 40.0% 35.1% 15.8% 18.4% 9.5% % 0.4% -15.8% -25.4% -15.7% 5.5% -1.6% 9.8% % -67.5% -48.4% -25.1% -37.7% -37.0% -33.8% -40.5% % 12.2% 27.2% 30.1% 28.0% 26.5% 27.2% 43.9% % 18.9% 33.4% 47.0% 28.0% 15.1% 26.9% 16.9% % 10.8% 9.7% 11.7% 10.4% 7.2% 6.7% 6.6% Avg. Annual Return 16.2% 11.8% 14.9% 13.0% 12.9% 8.8% 9.4% 11.6% Total Return: A stock's dividend income plus capital appreciation, before taxes and commissions. 5/6/11. Source: NAREIT and 28

29 GROWING INDUSTRY SECTORS Industries Serving Seniors Advanced Manufacturing Software Development Waste Management Healthcare Emerging Technologies Life Sciences/Biotech Colleges/Universities Technology Legal/Accounting Government/Government Related Science Defense/Security Nonprofits Communications Pharmaceutical Trade/Logistics F.I.R.E. Data Centers Entertainment Research & Development Energy & Alternative Energy Full Service Grocery Internet-Based Entities Personnel Management Financial Management Consulting Computer Programming Electronic Media Green Industries/Clean Tech 29

30 MEMBERSHIP USGBC 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Source: USGBC. 30

31 EMERGING OPPORTUNITIES LOCATED AROUND / IN Colleges & Universities Hospitals & Medical Centers Major Research Centers Capital Cities Transit Centers Major Ports & Distribution Centers 24/7 Knowledge Cities Pro-Business States / Cities Creative Class Cities Financial Centers Lifestyle Cities 31

32 TOTAL U.S. CONSTRUCTION ACTIVITY IS EXPECTED TO GROW Billions $120 $110 $100 $90 $109b 57% decline $80 $70 $60 $80b $79b $50 $46b $40 $30 $20 $10 $ Multifamily Industrial Retail Office Numbers have been rounded. Source: Reed Construction Data. 32

33 OREGON OFFICE CONSTRUCTION OUTLOOK Millions $300 $275 $250 $225 $200 $175 $150 $125 $100 $75 $50 $25 $ Source: Reed Construction Data. 33

34 OREGON INDUSTRIAL CONSTRUCTION OUTLOOK Millions $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $ Source: Reed Construction Data. 34

35 OREGON RETAIL CONSTRUCTION OUTLOOK Millions $600 $500 $400 $300 $200 $100 $ Source: Reed Construction Data. 35

36 OREGON APARTMENTS CONSTRUCTION OUTLOOK Millions $700 $600 $500 $400 $300 $200 $100 $ Source: Reed Construction Data. 36

37 OREGON HEALTHCARE CONSTRUCTION OUTLOOK Millions $900 $800 $700 $600 $500 $400 $300 $200 $100 $ Source: Reed Construction Data. 37

38 WHAT S THE JOB OUTLOOK FOR REAL ESTATE GRADUATES & PROFESSIONALS? 38

39 2011 OUTLOOK FOR TALENT Hiring up 3% 6%. Greater use of Temporary Employees, Independent Consultants and Try-Before-You-Buy Employees. Upgrade/replacement hiring up 7% 9%. Return of 401(k) contributions. Salary/wage increases will be up around 3.0% (91% of real estate firms are expecting to award base salary increases in 2011). Reinstatement of annual bonuses (likely 75% 80% of potential being budgeted). The next 36 months will be an Employee s market for exceptional talent as companies retool for future growth. 39

40 Real Estate Cycles Are Real & Predictable Years Of Possibilities Spring Real Estate Conference Portland State University Center for Real Estate Portland, Oregon May 17, 2011 Presented By: Christopher Lee, President & Chief Executive Officer CEL & ASSOCIATES, INC. (310)