Bay Area Real Estate Outlook Oakland, CA

Transcription

1 Bay Area Real Estate Outlook 2014 Oakland, CA September 12, 2013

2 Capital Markets Overview Dennis Williams Managing Director NorthMarq Capital September 2013

3 Key Themes of 2013 CMBS Delinquency has leveled off. Originations have picked up pace significantly and the market appears more stable. This sector remains highly hl vulnerable to market shocks. Total delinquency rate remains at around 9%. Defaults likely to increase when aggressive originations from mature. New underwriting standards and projected loan volumes still not sufficient to rollover debt maturities (but getting closer) has seen heightened activity from life insurance cos., commercial banks and value add lenders. Expect more of the same in Underwriting more aggressive and strike zone continues to widen.

4 Banks Hold a Majority of CRE Loans Commercial Outstanding ($ Billion) Fed, State & Local Gov't $81.5 4% CMBS/ABS $ % Other $30.7 1% Finance Cos/REITS $84.8 4% Life Cos/Pensions $ % Banks/S&Ls $1,253.4 Source: Federal Reserve Flow of Funds Report %

5 CMBS Fixed Rate Maturities Fixed-Rate Conduit/Fusion Maturity Schedule (Excludes Defeased Loans) 10, Lo oan Count 7,500 5,000 2,500 Outstanding Bl Balance ($B) Loan Count Loa an Curr. Ba al. ($B) - 0 Source: Jefferies & Co. Excluding Defeased Loans. *as of 11/12

6 Commercial Mortgage Underwriting 2007 to Present 2007 Underwriting 2009 Underwriting 2013 Underwriting With 5% NOI Decline NOI $5,000,000 $5,000,000 $4,750,000 Purchase Price $83,300,000 $62,500,000 $79,200,000 Lender Cap Rate 600% 6.00% 800% 8.00% 600% 6.00% Loan to Value 80% 55% 65% Loan Amount $66,670,000 $34,400,000 $51,500,000 Equity $16,630,000 $28,100,000 $27,700,000 Interest Rate 5.50% 7.00% 4.00% Amortization I/O Debt Yield 7.5% 14.5% 9.2%

7 Looking Ahead: 1. Agencies a Bit Less Reliable: Terms remain attractive, but higher h pricing i and lending more conservatively. 2. Rebirth of Life Companies and Banks: In 2013 most life companies in the market originating at or above 2007 levels. Most large banks remain active, while regional banks starting to lend again. 3. CMBS Increasingly Active: Rates have dropped from the high h 5 s to high h 4 s, up to 75% LTV, all property types. 4. Underwriting: riting Special attention to rollover. Single tenant problematic. LTV: 50-70% on real cap rate DSC: 1.30x 1.50x. Debt Yield of 9% on Comm. and 7-8% on Multi-Family.

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9 Analysis. Answers An Economic Outlook: What s Next for the Real Estate Market Jordan G. Levine Economist & Director of Economic Research Beacon Economics Beacon Economics, LLC

10 Analysis. Answers An Economic Outlook: What s Next for the Real Estate Market Jordan G. Levine Economist & Director of Economic Research Beacon Economics Beacon Economics, LLC Analysis. Answers. Bay Area Real Estate Outlook 2014 pg

11 Things are getting better. The US economy is finishing its fourth year of expansion Average growth 2.2% 2% Unemployment has fall by 1.5% in the last two years Per capital real GDP is #1 among the largest 30 nations California has led the nation, and Bay Area Drives CA Employment is growing across the Bay Area East Bay projected to pick up steam Strategic Location Business Investment holding steady, corporate profits solid Generates demand for new commercial construction permits up Apartment market is hot, but future depends on home ownership Potential Risks Rising Interest rates, implications for affordability Psychology and the Federal Reserve s move to unwind monetary policy Analysis. Answers. Bay Area Real Estate Outlook 2014 pg 11

12 Employment Growing, Adds Demand for Commercial East Bay San Francisco San Jose YoY Change YoY Change YoY Change Industry Jul-13 (%, SA) Jul-13 (%, SA) Jul-13 (%, SA) Farm Total Nonfarm , Construction NR/Mining Manufacturing Wholesale Trade Retail Trade Logistics Information Financial Activities Prof Sci and Tech Management Admin Support Education/Health Leisure/Hospitality Other Services Government Unemployment Rate Analysis. Answers. Bay Area Real Estate Outlook 2014 pg 12

13 Corporate Income & Local Investment Corporate Profits as % National Income Venture Capital Investment by Region ($ Millions) Difference 16.0% County (YoY, %) 15.0% Sonoma Alameda % San Francisco % Contra Costa % Santa Clara % San Mateo % 9.0% 8.0% 7.0% 6.0% 982I II III IV 991I II III IV 000I II III IV 009I II Los Angeles Orange San Diego Santa Cruz Marin Santa Barbara Other California 3, , Analysis. Answers. Bay Area Real Estate Outlook 2014 pg 13

14 Commercial Starting to Turn the Corner Metro Apartments (Q2-13) Apartment Change (YoY, %) Offices (Q2-13) Office Change (YoY, %) Retail (Q2-13) Retail Change (YoY, %) Cost of Rent Oakland (MD) 1, San Francisco (MD) 2, San Jose 1, Los Angeles (MD) 1, Vacancy Rate Oakland (MD) San Francisco (MD) San Jose Los Angeles (MD) Analysis. Answers. Bay Area Real Estate Outlook 2014 pg 14

15 Economy Driving New Commercial Construction California New Nonresidential Building Permits by Type ($ Millions) Permit Type YTD 2013 YTD Change (%) New Commercial 3,213 1,839 2, Office 1, Retail , Hotel Industrial 1, Other Nonres. 1, , Nonres. Alts./Adds. 7,799 4,667 5, Total Nonres. 13,878 8,027 11, Analysis. Answers. Bay Area Real Estate Outlook 2014 pg 15

16 Home Ownership & Implications for Rentals Potential Risks? Home Ownership Rate Renter Households 46,000 44,000 42,000 of Households Number of Households s (000s) ,000 38,000 36,000 34,000 32,000 30,000 Percent Q1-85 Q2-87 Q3-89 Q4-91 Q1-94 Q2-96 Q3-98 Q4-00 Q1-03 Q2-05 Q3-07 Q4-09 Q1-12 Q2-14 Q3-16 Q4-18 Q1-85 Q3-87 Q1-90 Q3-92 Q1-95 Q3-97 Q1-00 Q3-02 Q1-05 Q3-07 Q1-10 Q3-12 Q1-15 Q3-17 Q1-20 Returns to "Normal" Stays As-Is Middle Scenario Housing Bubble Returns to "Normal" Stays As-Is Middle Scenario Housing Bubble Analysis. Answers. Bay Area Real Estate Outlook 2014 pg

17 Analysis. Answers. Bay Area Real Estate Outlook 2014 pg 17

18 Bay Area Real Estate Outlook Oakland Marriott Oakland, CA September 12, 2013 Bay Area Real Estate Outlook 2014 September 12, 2013 Market knowledge. Insight on trends. Expert forecasts.

19 Investor Appetite. National Demand Rankings 1. Multifamily (ALL) 2. Office (CBD) 3. Shopping Centers (Trophy) 4. Retail (CBD or Net Leased) 5. R&D/Flex (Tech Occupancy) 6. Industrial (Distribution Centers) Source: Cassidy Turley Research, Costar Group, Real Capital Analytics

20 San Francisco Office Market Vacancy & Average Asking Rate (FSG) Trend 25% 20% 15% 10% 5% 0% Avg Asking Rent of $47.69 PSF is up 51% from Recession Low in 2009 $80.00 $70.00 $60.00 $ $40.00 $30.00 $20.00 $10.00 $0.00 Vacancy Avg. Asking (FSG) Source: Cassidy Turley Research

21 San Francisco Office Investment Average Price Per Square Foot (PPSF) & Cap Rate Trend %A 4.8% Average Cap Rate Rt $344 Average PPSF 10% 9% 8% 7% 6% 5% 4% 3% 2% Average PPSF Average Cap Rate Source: Cassidy Turley Research

22 2014 San Francisco Office Outlook

23 Bay Area (Five County) Multifamily Market Vacancy & Average Asking Rent Trend 5% 4% 3% 2% 1% $2,022 31% 3.1% $2,100 $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 0% Q Q Q Q Q Q Q Q Q Q Q $1,300 Vacancy Avg. Asking Rent Source: Cassidy Turley Research RealFacts

24 Multifamily Development on Fire! Units Delivered 2012 Units Delivered Thru July 2013 Units Under Construction Units in Proposal Stage

25 2014 Multifamily Outlook