Florida REALTORS Commercial Real Estate Lending Study June 2013
Survey Objectives To assess the commercial real estate lending market in Florida with a special emphasis on: The impact of credit availability and lending standards. The ability to and barriers to refinancing. The role of international commercial real estate clients. Trends in net operating income for commercial real estate professionals. The effect of commercial real estate appraisals. The current and potential impact of regulatory changes. Identify differences between commercial real estate professionals who are REALTORS and those who are not REALTORS. 2
Methodology Telephone interview methodology. The interviewing achieved a completion rate of 77% of all commercial real estate professionals who were contacted. Respondents were not limited to those who belong to the Florida REALTORS. 400 surveys completed in June 2013. Results are statistically projectable at two standard deviations (a 95% confidence level). Overall data is subject to a maximum sampling error of +/- 5.0%. Survey respondents were selected on a random probability basis from a list provided by the Florida REALTORS. 3
Methodology An important consideration is that we are measuring perceptions. Perceptions are never wrong; they can, however, be factually incorrect. When respondents make decisions, perceptions are more important than the facts. Most interviews were done on cellular telephones. The cellular telephone is the commercial real estate professional s main telephone. 4
Definitions The survey breaks some questions down by generations. The generations are defined as follows: Gen Y: born 1980 to 1999 (age 33 and younger) Gen X: born 1965 to 1979 (age 34 to 48) Boomers: born 1946 to 1964 (age 49 to 67) Seniors: born pre-1946 (age >67) Newer commercial real estate professionals are defined as: 3 years or less in commercial real estate experience. Seasoned commercial real estate professionals are defined as: >3 years in commercial real estate experience. 5
Call Statistics Sample universe 2,837 No answer 20 Respondent not available, could not reach, answering machine/voice mail 20 Not qualified 2 Wrong number 3 Could not identify a telephone number or no telephone installed 14 Language barrier 0 Refused to participate 42 Terminates, partially completed interview (does not count in completed column) 17 Total contacted or attempted to contact, but did not complete the total interview 118 Completed surveys 400 Total number of contacts 518 Number of calls to reach completed interviews (multiple calls to get all completes) 3760 Average number of calls and callbacks to get a completed interview 9.4 Completion percentage based on all attempted 77% Percentage of sample universe contacted, attempted to contact, or interviewed 14% 6
Survey Respondents 50% 50% Commercial real estate broker Commercial real estate non-broker 7
Survey Respondents: Area of Specialty 14% 27% 59% Sales Leasing Management 8
Macro Conclusions 9
Macro Conclusions 70% of all survey respondents were REALTORS. 75% of commercial real estate professionals completed at least one sales transaction within the past one year. 95% of REALTORS completed at least one commercial real estate transaction in the past one year. Whereas only 27% of non-realtors completed at least one commercial real estate transaction in the past one year. 10
Macro Conclusions REALTORS were also more likely than non-realtors to have registered increases in net operating income from the fourth quarter of 2007 to the fourth quarter of 2012 than non-realtors. Experience counts: 74% of seasoned commercial real estate professionals closed at least one commercial real estate transaction in the past one year, as opposed to 68% for newer commercial real estate professionals. Reasons for failing to complete a transaction within the past 12 months: Lack of financing 59% Low appraisal 41% 11
Macro Conclusions 45% of survey respondents have had a client fail to complete a refinancing; however, that figure is higher for REALTORS than for non-realtors REALTORS 50% Non-REALTORS 31% 27% of survey respondents had a sale to international clients and investors. However, international sales are highly concentrated on a geographical basis: Miami-Dade, Broward, or Palm Beach County 50% Orange County 41% Hillsborough or Pinellas County 38% All others 13% 81% of all survey respondents believed that the new and proposed U.S. legislative and regulatory initiatives (e.g. Dodd-Frank, lease accounting, Basel III, etc.) will decrease the flow of capital into U.S. real estate. 12
Detailed Findings 13
Membership in Florida REALTORS 30% 70% Yes No 14
Completed a Sales Transaction during the Past 12 Months All Respondents 25% 75% Yes No Q: Have you completed a commercial real estate sales transaction during the past 12 months? 15
Completed a Sales Transaction during the Past 12 Months 95% 27% REALTOR Non-REALTOR Q: Have you completed a commercial real estate sales transaction during the past 12 months? 16
Completed a Sales Transaction during the Past 12 Months 72% 78% Broker Non-broker Q: Have you completed a commercial real estate sales transaction during the past 12 months? 17
Completed a Sales Transaction during the Past 12 Months 76% 79% 66% Sales Leasing Management Q: Have you completed a commercial real estate sales transaction during the past 12 months? 18
Completed a Sales Transaction during the Past 12 Months All Respondents Newer 68% Seasoned 74% Newer = 3 yrs. or less in commercial real estate. Seasoned = > 3 yrs. of experience in commercial real estate. 19
Completed a Sales Transaction during the Past 12 Months All Respondents: By Generation 78% 80% 73% 66% Gen Y Gen X Boomer Senior 20
Average Loan-To-Value (Financing, LTV) Ratios for Commercial Transactions over The Past Year All Cash 20% 90% 5% 85% 80% 8% 8% 75% 20% 70% 18% 65% 8% 60% 7% 55% 50% 2% 3% 21
Value of Your Most Recent Sales Transaction Under $250K 13% $250K to <$499K 11% $500K to <$999K 26% $1M to $1.9M 10% $2M to $4.9M 18% $5M-$10M 19% >$10M 3% 22
Property Type for Your Most Recent Sales Transaction Multi-family Industrial: Warehouse Industrial: Flex Retail: Strip center Land Office: Suburban Office: CBD Freestanding retail Restaurant Retail: Mall Mixed use Vehicle dealership Convenience store Car wash Hotel Hospitality 4% 4% 3% 3% 2% 2% 1% 1% 7% 7% 6% 6% 11% 11% 13% 22% Percentages will not total to 100% due to rounding. 23
How Did the Net Operating Income ($/SF) of Properties You Sold or Leased Change from the 4 th Quarter of 2007 to the 4th Quarter Of 2012 Increased 10% - 15% 5% 11% Increased 5% - 9% 1% 11% Increased 1% - 4% No Change 4% 26% 28% 25% Decreased 10% - 19% 9% 19% REALTOR Decreased 20% - 24% 7% 25% Non-REALTOR Decreased 25% - 29% 4% 7% Decreased 30% - 34% 0% 10% Decreased 35% - 39% 0% 5% Percentages will not total to 100% due to rounding. Decreased 40% - 49% 1% 3% 24
Have you failed to complete a transaction during the past 12 months due to lack of financing? 41% 59% Yes No 25
Have your clients failed to complete a refinancing transaction during the past 12 months? 10% 46% 45% Yes No N/A 26
With properties where refinancing was an issue, if the owners provided an existing or new property lease with net operating income (NOI) at levels similar to the pre-2006 period, did the property still fail to secure refinancing? 50% 50% Yes No N=178 27
If yes, why did the property still fail to secure refinancing? 37% 63% Internal underwriting requirements of lender Appraisal/Valuation N=89 28
Have Failed to Complete a Transaction in the Past 12 Months owing to Appraisals 59% 41% Yes No 29
During the past 12 months, did you have sales to international clients/investors? 27% Yes No 73% 30
Had Sales in the Past 12 Months to International Clients/Investors (% per area) Miami-Dade, Broward, or Palm Beach County 50% Orange County 41% Hillsborough or Pinellas County 38% All others 13% 31
Country Source of International Sales Brazil 23% Mexico 17% Canada Germany 11% 12% Saudi Arabia China Columbia Honduras Guatemala Taiwan 7% 6% 6% 5% 4% 4% Argentina France Hong Kong United Kingdom 1% 1% 1% 1% N=82. Percentages will not total 100% due to rounding. 32
The Most Relevant Cause for the Lack of Sufficient Bank Capital Available for Commercial Lending Reduced net operating income, property values, and equity 27% New and proposed U.S. legislative and regulatory initiatives 23% Regulatory uncertainty for financial institutions A slow-down in the pooling and packaging of CMBS by financial institutions 17% 17% Aided response categories. Percentages will not total to 100% due to rounding. Inability of banks to dispose of distressed assets 17% 33
How Lending Conditions Changed Over This Year Tightened Significantly 12% Tightened Somewhat 20% Not Changed 53% Eased Somewhat 15% Zero response categories are not displayed 34
Which Groups Currently Provide Financing for Commercial Deals Community/Local Banks 48% Regional Banks 44% National Banks ("Big four") Private Investors 28% 30% Mortgage Brokers/Cos. 24% Owner Financing 20% REITs Life Insurance Cos. 15% 15% SBA Credit Unions Public Companies 6% 11% 10% There are multiple responses. Percentages will not total 100%. The average respondent gave 2.51 different responses. 35
Do you believe new and proposed U.S. legislative and regulatory initiatives (e.g. Dodd-Frank, lease accounting, Basel III, etc. will): Decrease the flow of capital into U.S. real estate 81% Have no effect on the flow of capital into U.S. real estate 12% Have no effect on the flow of capital into U.S. real estate, but change the way in which transactions or loans are structured 5% Increase the flow of capital into U.S. real estate 3% Aided response categories. Percentages do not total to 100% due to rounding. 36
Select the Most Important Proposed Policy Priority Needed to Improve Commercial Lending Conditions Credit union lending (Legislation introduced to raise the member business lending cap from 12.25% to 27.5% of total assets for well- 37% Reauthorize the SBA's new commercial refinance program (Program provides SBA loan for up to 40% of appraised property value with 25% Covered bonds (Legislation introduced to create a U.S. covered bond market) 23% No policy action (Allow full private market correction) 15% Aided response categories 37
Demographics and Experience 38
Demographics and Experience The typical commercial real estate professional has a decade of experience in the business. Only 28% have three or fewer years of experience. Most commercial real estate professionals are male (62%). The average commercial real estate professional is 45 years of age. 60% have a BS/BA degree or higher. Over half (56%) are Caucasian. A quarter (25%) are Hispanic. 39
County Office is Located In 53% There are 66 counties in Florida. There are respondents in 56 counties. In the 10 counties where there are no survey respondents, they all have a population of under 17K based on the 2010 U.S. Census. 30% 11% 6% All others Miami-Dade, Broward, or Palm Beach County Hillsborough or Pinellas County Orange County 40
Respondent Age 44.89 44 Mean Median 41
Respondent Age Under 25 years 2% 25 to 34 years 27% 35 to 44 years 22% 45 to 54 years 23% 55 to 64 16% 65 or older 11% Percentages do not toal to 100% due to rounding. 42
Respondent Age 36% 28% 29% 8% Gen Y Gen X Boomer Senior Percentages do not toal to 100% due to rounding. 43
Education Some high school (no diploma) High school diploma 0% 0% Some college (no degree) 15% AA degree (2 years) 26% BA/BS degree 50% Master's degree 8% Some graduate school (no degree) JD/LLM/PhD 1% 1% Percentages do not toal to 100% due to rounding. 44
Commercial Real Estate Experience 10.48 10 Mean Median 45
Commercial Real Estate Experience 28% 72% Newer (3 yrs or less experience) Seasoned (>3 yrs experience) 46
Commercial Real Estate Experience 10.73 9.84 REALTOR Non-REALTOR 47
Commercial Real Estate Experience 10.06 10.21 Broker Non-broker 48
Survey Respondents: Gender 38% 62% Male Female 49
Survey Respondents: Ethnic Background White/Non-Hispanic 56% Hispanic, Latin American 25% African American, Black 9% Other Asian 6% Chinese 5% Percentages do not toal to 100% due to rounding. 50