Featured Market News

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1 7 th April th April 2014 Duke Real Estate Club Newsletter Content Club News 2 3 U.S Markets 4 Durham Markets 5 Global Markets 6 As the beginning of our first semester as an organization draws to a close, everyone on the Exec Board would like to thank President James Seago for his tireless work. As a second semester senior with a job secured at Northwood Investors, James put countless hours into building the Duke Real Estate Club from the ground up. Without his leadership and initiative, resources like this Newsletter would never have come together. We wish James luck in all of his future endeavors and look towards next semester with excitement and optimism about the direction of the club. - The Executive Board of the Duke Real Estate Club Club News Guest Lectures featuring: Mr. Bryan Kane - Vice President with the Acquisitions team of Federal Capital Partners Mr. Jim Anthony - CEO of the Triangle office of Colliers International Featured Market News US West Coast Condo Values Continue to Rise New York REIT Starts Fast Real-Estate Crowdfunding Finds its Footing Durham Durham's 650-unit Creekside at Bethpage Development to Launch this Summer Triangle Home Sales up 3 Percent in First Quarter Page 1 World The Crack in Canada s Armor European Real Estate Lending Explodes in 2014 How a Chinese Company Built 10 Homes in 24 Hours

2 In Durham Mr. Bryan Kane s Guest Lecture Club News Mr. Bryan Kane works as the Vice President of the Acquisitions team at Federal Capital Partners (FCP). FCP manages $769 million of capital and is currently investing FCP Realty Fund II, L.P., a $529 million commingled, discretionary fund closed in Fund investments primarily target multifamily, office, retail, industrial, manufactured housing and self-storage assets. FCP invested/financed $3.5 billion in assets since its founding. FCP is focused primarily in the Mid - Atlantic in order to make use of its extensive local knowledge and relationships. This strategy allows FCP to mitigate risks and garner experience developing, operating and managing assets. FCP deploys capital in residential and commercial product sectors through JV equity, mezzanine debt, preferred equity and bridge financing. FCP has had 5 major investments in the Raleigh-Durham area: Erwin Square Plaza They purchased the 238,792 square foot class A office building from a failed TIC owner and renovated the building with a $4.5 million base. The All-in basis was approximately 20% below replacement cost and the building has selectively repositioned ground floor retail offerings. Midtown Green FCP purchased the 214-unit apartment community with a $5MM mezzanine development loan. FCP s mezzanine basis is 83% LTC; 82% UW LTV ($150,000/unit). Midtown Green is located at North Hills, where the average household income is $102,000 within a 1 mile radius, and it is currently under pre-sale contract for $43.9MM, excluding retail. West Village Mixed-use project consisting of 453 existing apartment units and 140,000 square feet of office space. The investment strategy is to convert mezzanine loan to equity position in Phase II and to lease-up remaining vacant commercial space. Stanhope Commons An 822 bed 5-story student housing development with 28,000 square feet of retail space located adjacent to North Carolina State University. FCP s mezzanine basis is 82.5% LTC; 70% UW LTV. The goal is to have the highest quality with the best location. Allister North Hills 434-unit apartment development with a $14MM JV equity investment. The investment strategy is to have a low cost provider in a central Raleigh submarket and shovel ready project early in the cycle with a proven sponsor at an unrivaled location. Page 2

3 Mr. Jim Anthony s Guest Lecture Jim Anthony took the time to give a fascinating account of his experiences in nearly every facet of the real estate industry. Currently the CEO of Colliers International Raleigh, Mr. Anthony discussed investments he has made in industrial warehouses, apartment complexes, retail outlets, and hotels. In a wide-ranging discussion of his own career and advice for club members on how to get a foot in the industry door, he recounted valuable anecdotes and made broader assertions. The following list includes just a handful of Mr. Anthony s talking points: He believes that the United States is on the verge of a major manufacturing boom due in large part to low energy costs His diverse portfolio of investments in multiple sectors has driven his success He regrets not placing a stronger hedge on his retail outlets investment, which essentially went bust He is very bullish on the Durham market He emphasized just how taxing and competitive his job can inherently be. Forces entirely outside of his control could immediately turn his deals sour overnight Utilizing resources like the Urban Land Institute (ULI), Certified Commercial Investment Member (CCIM), the Society of Industrial and Office Realtors Page 3

4 In Durham U.S. Real Estate Market News The booming tech industry along with rising interest from foreign buyers has caused condominium prices in downtown West Coast cities to skyrocket. This trend is especially evident in downtown San Francisco, where new condominiums are now approximately $1,030 per square foot. According to The Mark Co. s estimates on 1,000 square foot 10th floor condominiums, this marks a 13% year over year (YOY) increase. In the same area, penthouses have been quoted at around $1,768 per square foot, which is almost a 13% YOY increase. Furthermore, the supply of condos in downtown San Francisco is dwindling as inventory has decreased by about 33%. This trend of skyrocketing prices has continued all throughout the West Coast; new condominiums in Seattle are fetching around $727 per square foot, (an 18% YOY), while condos in downtown Los Angeles are up about 8% YOY to $656 per square foot. Page 4 Shares of real-estate investment trusts are performing well to start the year. Newly listed American Realty Capital New York REIT closed its first day of trading at an encouraging $10.75 per share. The firm is valued at $12.47 but REITs often trade below their net asset values. Mr. Nicholas Schorsch, one of the country s most active real estate investors and the man behind American Realty Capital s enlisting, was optimistic that the closing price of $10.75 exceeded the opening price of $ Mr. Schorsch has been developing nontraded REITs, which are public companies whose shares aren t listed on stock exchanges. Instead, they are sold directly to retail investors through a network of broker-dealers with the promise of high dividends. The industry has seen steady growth with 100 nontraded REITs raising over $100 billion since the popularization of the industry in the early 1990s. Nontraded REITs have received increased fundraising in the past few years because they give investors an opportunity for yields in a low-interest-rate environment. After fundraising, nontraded REITs must liquidate by selling their properties, merging with another company, going public or changing their nonlisted shares to listed shares. Original investors make good returns on nontraded REITs for as long as companies value the shares upon undergoing the liquidity options at a sufficiently high price. Crowdfunding in real estate is the sale of shares in a venture to hundreds or even thousands of individual investors. It allows investors to minimize risk by allowing them to invest relatively small amounts of money into many different real estate ventures. There has been a huge increase in websites that allow investors t o engage in crowdfunding by buying stakes in properties as smal l as self-storage facilities and as large as luxury hotels. Crowdfunding has given investors access to more deals and has increased the direct connection they can make with developers. Presently, crowdfunding deals are limited by the SEC to accredited investors (those with an annual income greater than $200,000 or a net worth above $1 million excluding primary residence). However, websites such as Fundrise LLC accept investments as low as $100 for private real estate. Fundrise has an average investment of $10,000 while bigger deal companies such as Realty Mogul have an average investment of about $60,000. That being said, Crowdfunding is a high-risk asset class and most managers recommend only investing a small portion of your overall portfolio in it. KEYWORDS=real+estate&mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle% 2FSB html%3FKEYWORDS%3Dreal%2Bestate

5 Durham Real Estate AV Homes Inc, who is based in Scottsdale, Arizona, has emerged as a new player in the Triangle market with their new plans for an active adult homebuilding community. AV Homes paid $5.1 million for the 325 acres of land back in February of this year. This is their first project in the area, but they recently started two other traditional projects in North Carolina within the last few months. These homes will be targeted at adults who are older than 55. This is unsurprising because Durham is widely regarded as a very attractive place for people who are looking to retire. The community will have a 15,000 sq ftt clubhouse along with a swimming pool, tennis courts, and more. The homes will range from 1,200 to 2,400 sq ft and will all be one floor. durhams-650-unit-creekside-at-bethpage-development.html? iana=ind_rre The number of homes sold in the Triangle area is up by 3% in the first quarter compared to last year s first quarter. Additionally, the average number of days that homes remained unsold on the market in the first quarter dropped drastically from 112 days to just 85. Interest rates have stayed reasonably constant at around 4.5%, allowing the market to continue to grow even with increasing prices. The average price of homes sold in the first quarter was $248,643 which is up 8 percent from last year. Additionally, inventory of existing homes for sale is declining as demand is steadily beginning to exceed supply in the Triangle area. triangle-home-sales-up-3-percent.html Page 5

6 Global Real Estate Canada accounts for a massive one-fifth of all global cross-border investment, but is not seeing global investors returning the favor. Canada has very high rates of return, but investors are still avoiding it, even for similar markets like Australia. A major barrier is domestic institutional investment firms tightly holding urban properties which is unlikely to change in the near term. finance/the-crack-in-canadas-armor html As liquidations from bank holdings continue in Europe, commercial real estate loan volumes are soaring. Demand is high as institutional investors seek to rebuild their European portfolios. Megadeals above $1 billion are receiving particular attention and premiums as investors are said to have around 100 to 125 billion euros to spend, causing larger stakes to build rapidly. Despite the fact that 3-D printers have almost exclusively been used to make small-scale objects, a construction -materials firm called Winsun New Materials based in Suzhou, China has finished building ten 200-square-meter homes using a gigantic 3-D printer. The ink the printer uses is a mix of cement and glass fibers. Moreover, Winsun plans to use scrap material left over from construction and mining sites to construct 3-D buildings in the future, making the construction process more economical and energy efficient. If massive 3-D printers ever become somewhat affordable in the future, this process has significant advantages over traditional construction methods. After a one-time capital investment in this technology, developers could half construction costs and greatly shorten project durations. Page 6