Market Analysis. Presented by: Chris Macke, Senior Strategist, Americas Research

Transcription

1 Market Analysis Presented by: Chris Macke, Senior Strategist, Americas Research November 27, 2012

2 Agenda I. Why Do Market Analysis II. Key Market Analysis Assumptions/Questions III. Applications Example Market Supply/Demand for Inland Empire Industrial Acquisition IV. Market Analysis Drives The Property Pro Forma Example 2008 Office Offering Memorandum CBRE Page 2

3 I. Why Do Market Analysis? Owner/Investor reason #1 NOI s (Fundamentals) Value Cap Rates (Capital Markets) CBRE Page 3

4 I. Why Do Market Analysis? Owner/Investor reason #2 NOI s (Fundamentals) Yield Value/ Purchase Price CBRE Page 4

5 II. Key Market Analysis Assumptions/Questions Timeframe Geography Variables How determine? Source: University of Chicago, Booth School of Business and Dr. Glenn Mueller CBRE Page 5

6 II. Key Market Analysis Assumptions/Questions What question are you trying to answer? Should I give the prospect 3 months free rent requesting? Should I open a store in this submarket or that submarket? How many units should I build this year? When will I need to widen that ride? What price should I pay for that building? Source: University of Chicago, Booth School of Business and Dr. Glenn Mueller CBRE Page 6

7 III. Application Where and what do I invest in? I m starting to hear multifamily is overheating Nobody gets fired for buying multifamily Is it safe to buy in Southern California? Tech and energy markets are the only places to be Blackstone is buying Midwest office, Gateway markets are overpriced, Texas is the place to be Only buy in gateway markets Don t buy retail whatever you do! CBRE Page 7

8 III. Application Should I buy this building? At what price? What if my biggest tenant doesn t renew? Can our leasing team really get it to 90%? Where will cap rates be in 5 years? It s got some vacancy Is that an opportunity or risk? The price is back to 2007 levels. Am I overpaying? How long will it take to lease up the vacant space? What is the historical market and property availability? Will rents really grow that much? CBRE Page 8

9 Example Market Supply/Demand Leases Signed: Bldg A Bldg B % 25% 2008 Current 25% 75% Both assets listed at same cap rate Should they be? Either Asset A is overpriced or Asset B is underpriced How much? Peak-to-Current % Decline Submarket A -7% Submarket B -17% Submarket C -27% CBRE Page 9

10 Example Market Supply/Demand Inland Empire Industrial CBRE Page 10

11 Example Market Supply/Demand Anything noteworthy? Market Fundamentals data as of Q Year Stock (SF x 1000) Completions (SF x 1000) Availability Rate (%) Net Absorption (SF x 1000) Gross Asking Rent ($/SF) Net Asking Rent ($/SF) , , , , , , , , , , , , , ,261 1, , , CBRE Page 11

12 Example Market Supply/Demand Anything else? Market Fundamentals data as of Q Year Stock (SF x 1000) Completions (SF x 1000) Availability Rate (%) Net Absorption (SF x 1000) Gross Asking Rent ($/SF) Net Asking Rent ($/SF) , , , , , , , , , , , , , ,261 1, , , CBRE Page 12

13 Example Market Supply/Demand What are the implications? Market Fundamentals data as of Q Year Stock (SF x 1000) Completions (SF x 1000) Availability Rate (%) Net Absorption (SF x 1000) Gross Asking Rent ($/SF) Net Asking Rent ($/SF) , , , , , , , , , , , , , ,261 1, , , CBRE Page 13

14 Example Market Supply/Demand Future value? NOI s (Fundamentals) Value Cap Rates (Capital Markets) CBRE Page 14

15 Example Market Supply/Demand Future yields? NOI s (Fundamentals) Yield Value/ Purchase Price CBRE Page 15

16 Example Market Supply/Demand Leases Signed: Bldg A Bldg B % 25% 2008 Current 25% 75% Both assets listed at same cap rate Should they be? Either Asset A is overpriced or Asset B is underpriced How much? Peak-to-Current $ Decline % Decline Inland Empire $ % San Bernardino $ % Chino $ % CBRE Page 16

17 IV. Market Analysis Drives The Property Pro Forma Is this a good deal? SUMMARY: Year Sq. Ft. 100,000 Price $12,857,143 Debt $9,000,000 Equity $3,857, INCOME: 2. DEBT: 3. PRICE: Rent/SF $10LTV 70%Index 3.30% Cap Rate: Rent G: Rate 2%Term 10 Spread (bps) 3.50% 7.0% Vacancy Rate 10%Amortization 25Rate 6.80% Residual Cap Rate 0.01 Mortgage 8.33% Spread (Bps) Constant Year Gross Rent $1,000,000 $1,020,000 $1,040,400$1,061,208 $1,082,432 Less: Vac: -$100,000 -$102,000 -$104,040 -$106,121 -$108,243 Net Rent $900,000 $918,000 $936,360 $955,087 $974,189 Less: DS -$749,598 -$749,598 -$749,598 -$749,598 -$749,598 Operating Income ($3,857,143) $150,402 $168,402 $186,762 $205,489 $224, Returns Cash on Cash 4% 4% 5% 5% 6% IRR 11% CBRE Page 17

18 IV. Market Analysis Drives The Property Pro Forma It depends 1 st.on the OM s assumptions SUMMARY: Year Sq. Ft. 100,000 Price $12,857,143 Debt $9,000,000 Equity $3,857, INCOME: 2. DEBT: 3. PRICE: Rent/SF $10LTV 70%Index 3.30% Cap Rate: Rent G: Rate 2%Term 10 Spread (bps) 3.50% 7.0% Vacancy Rate 10%Amortization 25Rate 6.80% Residual Cap Rate 0.01 Mortgage 8.33% Spread (Bps) Constant Year Gross Rent $1,000,000 $1,020,000 $1,040,400 $1,061,208 $1,082,432 Less: Vac: -$100,000 -$102,000 -$104,040 -$106,121 -$108,243 Net Rent $900,000 $918,000 $936,360 $955,087 $974,189 Less: DS -$749,598 -$749,598 -$749,598 -$749,598 -$749,598 Operating Income ($3,857,143) $150,402 $168,402 $186,762 $205,489 $224, Returns CBRE Page 18 Cash on Cash 4% 4% 5% 5% 6% IRR 11%

19 IV. Market Analysis Drives The Property Pro Forma Adjust the OM s assumptions Variable OM Assumptions Mkt. History Mkt. Forecast Adjustment to OM Assumptions Rent G: Vacancy Absorption Probability to Renew????????? CBRE Page 19

20 IV. Market Analysis Drives The Property Pro Forma SUMMARY: Year Sq. Ft. 100,000 Price $12,857,143 Debt $9,000,000 Equity $3,857, INCOME: 2. DEBT: 3. PRICE: Rent/SF $10LTV 70%Index 3.30% Cap Rate: Rent G: Rate 2%Term 10 Spread (bps) 3.50% 7.0% Vacancy Rate 10%Amortization 25Rate 6.80% Residual Cap Rate 0.01 Mortgage 8.33% Spread (Bps) Constant Year Gross Rent $1,000,000 $1,020,000 $1,040,400 $1,061,208 $1,082,432 Less: Vac: -$100,000 -$102,000 -$104,040 -$106,121 -$108,243 Net Rent $900,000 $918,000 $936,360 $955,087 $974,189 Less: DS -$749,598 -$749,598 -$749,598 -$749,598 -$749,598 Operating Income ($3,857,143) $150,402 $168,402 $186,762 $205,489 $224, Returns CBRE Page 20 Cash on Cash 4% 4% 5% 5% 6% IRR 11%

21 IV. Market Analysis Drives The Property Pro Forma Adjust the OM s assumptions Variable OM Assumptions Adjusted Assumptions Delta Why Adjusted/ Not Adjusted? Rent G: Vacancy Absorption Probability to Renew Value CBRE Page 21

22 CBRE Page 22 Example Office OM

23 Example Office OM Leases What percentage of income expires in next seven years? What will vacancy rates being doing over next five years? Where are my in place lease rates vs market rates? The Argus run shows 3% rent growth for next ten years, is that realistic in this market? The Argus runs show building occupancy reaching 95%, what is historical market occupancy? The OM says no new buildings under construction, is that correct? CBRE Page 23

24 Leases Example Office OM What percentage of income expires in next seven years? 6.5% What will vacancy rates being doing over next five years? -680Bps Where are my in place lease rates vs market rates? The Argus run shows 3% rent growth for next ten years, is that realistic in this market? The Argus runs show building occupancy reaching 95%, what is historical market occupancy? The OM says no new buildings under construction, is that correct? CBRE Page 24

25 Leases What percentage of income expires in next seven years? 6.5% What will availability rates being doing over next five years?? -680Bps Where are my in place lease rates vs market rates? The Argus run shows 3% rent growth for next ten years, is that realistic in this market? The Argus runs show building occupancy reaching 95%, what is historical market occupancy? The OM says no new buildings under construction, is that correct? Acquisition & Exit Example Office OM What is the market cap rate? What is cap rate trend since the market bottom? Where is pricing today compared to peak of the market cap rates and prices PSF? CBRE Page 25

26 Example Office OM In-Place Rents Are 7.1% higher than market rents CBRE Page 26

27 Leases Example Office OM What percentage of income expires in next seven years? 6.5% What will availability rates being doing over next five years? Where are my in place lease rates vs market rates? 7.1% higher The Argus run shows 3% rent growth for next ten years, is that realistic in this market? The Argus runs show building occupancy reaching 95%, what is historical market occupancy? The OM says no new buildings under construction, is that correct? CBRE Page 27

28 Example Office OM What is greatest amount that rents have ever gone up from peak-totrough in this submarket? How much are they projecting rents to go up from the tech wreck trough? CBRE Page 28

29 Example Office OM In-Place Rents Are 2.2% higher than competitive set rents CBRE Page 29

30 CBRE Page 30 Example Office OM

31 CBRE Page 31 Example Office OM

32 Example Office OM Subject Property CBRE Page 32

33 CBRE Page Office OM

34 CBRE Page Office OM

35 2008 Office OM A B C D All the same building All the same building CBRE Page 35

36 CBRE Page Office OM

37 2008 Office OM Building took everyone from CBRE Page 37

38 2008 Office OM Building took everyone from CBRE Page 38

39 CBRE Page 39 Example Office OM

40 Christopher Macke Chris comes to CBRE with more than 20 years of real estate experience. His experience includes real estate development, financing, acquisitions and advising various regulatory agencies. He is a Senior Real Estate Strategist for the Investment Consulting group within the America s Research team. Chris delivers investment opinions and insights to institutional investors with the aim of helping them develop a house view. Chris holds a B.A. in Political Science from the University of Southern California, where he specialized in political campaign strategy and finance. He earned a Masters of Business Administration from Indiana University s Kelley School of Business specializing in Finance. chris.macke@cbre.com CBRE Page 40

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