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2009 Commercial Real Estate Market Update

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Title: 2009 Commercial Real Estate Market Update


1
2009 Commercial Real Estate MarketUpdate
Forecast A Three Ring Circus?
  • April 16, 2009
  • Sherman R. Miller
  • Cushman Wakefield of Colorado, Inc.

2
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3
Agenda
  • How We Got Here
  • National Commercial Real Estate Market
  • Denver Metro Commercial Real Estate Market
  • Conclusions

4
How We Got Here
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6
How We Got Here
  • Greenspan Era Fed Kept Rates Too Low for Too
    Long
  • Easy Money
  • Spending Economy
  • 9/15 Lehman Collapses October Crash

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8
How We Got Here
  • Highly Questionable Mortgage Practices
  • Lending Stopped
  • Housing Bubble Burst
  • Sub Prime Debacle

9
Economic Overview
  • Stock Market
  • Job Losses
  • Unemployment
  • Retail Sales
  • Foreclosures
  • Construction Spending

10
Economic Overview
  • Stock Market
  • DJIA Down 53.8 in 17 months
  • Peaked 14,164 OCT07
  • Lowest 6,547 MAR09
  • Downturn has Turned 401ks into 201ks
  • Estimated 7.0 Trillion in Wealth Destroyed
  • Currently Up, But Can Rally Last?

Source Dow Jones Company, Cushman Wakefield
Research Services.
11
Economic Overview
  • Job Losses
  • 4.8 million losses in past 12 months (largest
    fall ever recorded).
  • 3.7 million in past 6 months.
  • Virtually Every Major Nonfarm Sector Affected

Source U.S. Bureau of Labor Statistics, Cushman
Wakefield Research Services.
12
Economic Overview
  • Unemployment
  • US unemployment rate of 8.8 at the close of
    1Q09.
  • 13,584,000 people out of work nationwide.
  • Colorado unemployment at 7.6
  • Over 205,840 local workers want jobs but cannot
    find them.
  • Both at highest levels since early 1980s.
  • Could reach double digits within a year.

Source U.S. Bureau of Labor Statistics, Cushman
Wakefield Research Services.
13
Economic Overview
  • Retail Sales
  • National retail expenditures up marginally
    between 2007 and 2008 (0.2).
  • Down sharply between 3Q08 and 4Q08 (off 7.9).
  • Metro Denver sales down 0.4 between 2007 and
    2008.
  • 4Q08 also down from 3Q08 (by 1.7).
  • Local sales declines tend to be sharper than US
    average in recessions.

Source U.S. Census Bureau, Colorado Dept. of
Revenue, Cushman Wakefield Research Services.
14
Economic Overview
  • Foreclosures
  • 1.7 foreclosure rate nationally in February
    2009.
  • 5.0 delinquency rate.
  • More than 8.3 million mortgages currently under
    water.
  • RealtyTrac estimates foreclose activity to be up
    30.0 from year-ago levels.

Source RealtyTrac, Mortgage Bankers
Association, Cushman Wakefield Research
Services.
15
Economic Overview
  • Construction Spending
  • 967.5 Billion in February 2009.
  • Private Residential - 275.1 Billion (down 29.8
    from year-ago levels).
  • Private Commercial - 390.7 Billion (down 0.2
    from year-ago levels).
  • Public - 301.7 Billion (up 3.4 from year-ago
    levels).
  • 91.4 spent through state and local governments

Source U.S. Census Bureau, Cushman Wakefield
Research Services.
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19
Troubled Asset Relief Program (TARP)
  • 700 billion
  • 250 billion to purchase bank equity shares
  • 40 billion to purchase preferred shares of AIG
  • 40 billion to purchase Citigroup and Bank of
    America stock
  • 12.5 billion in Citigroup and Bank of America
    loan guarantees
  • 25.0 billion in loans to automakers
  • 50.0 billion to fund rebuilding of municipal
    infrastructure

20
American Recovery and Reinvestment Act (ARRA)
  • 787 billion
  • 288 billion for tax relief
  • 144 billion for state and local govt fiscal
    relief
  • 111 billion for infrastructure and science
  • 81 billion for protecting the vulnerable
  • 59 billion for health care
  • 53 billion for education and training
  • 43 billion for energy
  • 8 billion for other purposes

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24
NationalCommercial Real EstateMarket
25
National Commercial Real Estate
Source PPR, Cushman Wakefield Research
Services.
26
National Commercial Real Estate
  • Office Construction
  • Major Markets

Source Cushman Wakefield Research Services.
27
National Commercial Real Estate Office Market
Cycles - CBD
Slow Growth
Accelerating
Washington DC
Bellevue
Philadelphia
Market Equilibrium
Denver
Houston
Phoenix
San Francisco
Portland
Recovering
Weakening
New York
Oakland
Los Angeles
Orlando
Miami
Dallas
Seattle
San Jose
Orange County
Minneapolis
Palm Beach
Tampa
Atlanta
28
National Commercial Real Estate Office Market
Cycles - Suburban
Slow Growth
Los Angeles
Accelerating
Northern NJ
Philadelphia
Suburban MD
Northern VA
Market Equilibrium
Houston
Portland
Boston
Denver
Bellevue
Recovering
Weakening
Atlanta
San Francisco
Seattle
Phoenix
Oakland
Central NJ
Chicago
Dallas
Miami
Minneapolis
29
National Commercial Real Estate Industrial Market
Cycles
Houston
Slow Growth
Accelerating
Philadelphia
Atlanta
Denver
Seattle
Dallas
Market Equilibrium
Bellevue
Portland
Los Angeles
Chicago
Oakland
Recovering
Weakening
Miami
Tampa
Orlando
Northern NJ
Central NJ
Phoenix
Inland Empire
Boston
I-81/I-78 PA Corridor
30
Metro DenverCommercial Real EstateMarket
31
Metro Denver Overview
Leading Industries ( of Total
Employment) Sector DEN US Construction 6.5 5
.2 Manufacturing 5.6 9.2 Transport/Util 4.1 3.
6 Wholesale Trade 5.3 4.3 Retail
Trade 10.0 11.1 Information 3.9 2.2 Financial
7.7 5.9 Business Svcs 16.6 12.6 Edu/Health
Svcs 11.4 14.6 Leisure/Hospitality 10.1 9.7 Go
vt 14.7 17.4
Profile Population 2.8 million Total
Employment 1.4 million Office Inventory 97.2
msf Industrial Inventory 196.0 msf Retail
Inventory 128.6 msf Apartment
Inventory 220,022 units Hospitals 53
facilities
32
Metro Denver Overview
Denver vs. U.S. Employment Year-Over-Year
Percentage Change (By Quarter - Through February
2009)
Change
Source U.S. Bureau of Labor Statistics, Cushman
Wakefield Research Services.
33
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34
Metro Denver Overview
  • Job Losses
  • 40,700 jobs lost in past 12 months through
    February 2009.
  • 61,600 positions eliminated in past 6 months.
  • Virtually Every Major Nonfarm Sector Affected

Source U.S. Bureau of Labor Statistics, Cushman
Wakefield Research Services.
35
Metro Denver Overview
Nonfarm Industry and Retail Sales Year-Over-Year
Percentage Change (12-Month Moving Average)
Change
Source U.S. Bureau of Labor Statistics, Cushman
Wakefield Research Services.
36
Metro Denver Overview
  • Construction Pipeline - 12.5 billion over next 5
    years

Source PPR, DRCOG, Cushman Wakefield Research
Services.
37
Denver Commercial Real Estate
  • Office Market
  • Supply Demand Trends

(Forecast)
Source Cushman Wakefield Research Services.
38
Denver Commercial Real Estate
Office Market Construction Vacancy
(Forecast)
Source PPR, Cushman Wakefield Research
Services.
39
Office DevelopmentsRecently Completed
1400 Wewatta 9/10 stories Office 300,000
RSF Condos 22 LEED Certified Completion Sept.
2008 GE Asset Mgmt./Opus Northwest
1755 Blake St.5 stories Office 93,000
RSF Retail 19,700 RSF LEED Silver Completion
Dec. 2008 First Century Development
1001 17th Street Renovation 21 stories Office
633,000 RSF Retail 22,000 RSF LEED Silver
EB Completion May 2008 Miller Global Properties
Slide 39
40
Office DevelopmentsUnder Construction
1515 Wynkoop 6 stories Office 270,000
RSF Retail 27,000 RSF LEED Silver Completion
Spring 2009 Hines
1900 16th St. at the Millennium Bridge 17
stories Office 380,000 RSF Retail 25,500
RSF LEED Gold Completion Sept 2009Trammell Crow
Company/ Kennedy Associates
1800 Larimer 22 stories 500,000 RSF LEED
Gold Complete 2010 (4th Quarter) Westfield
Development
Slide 40
41
Office DevelopmentsPlanned
1200 Lincoln8 stories 200,000 SF Start 2009
(2nd Quarter) Principal/ Trammell Crow Company
1900 16th Street Tower 2 260,000 SF Complete
2011 Trammell Crow Company Kennedy Associates
Union Station Multiple Projects Assume 250,000
SF 1st Phase Continuum/East West Partners
Slide 41
42
Office DevelopmentsPlanned
999 17th Street 350,000 RSF Shea Properties
Two Tabor17th Larimer St.43 stories 840,000
RSF LEED Gold Callahan Capital Partners/ Trammell
Crow Company
Wewatta Plaza 18th Wewatta Office 180,000
RSF Retail 15,000 RSF Resolute Investments, Inc.
Slide 42
43
Denver Commercial Real Estate
  • Industrial Market
  • Supply Demand Trends

(Forecast)
Source Cushman Wakefield Research Services.
44
Denver Commercial Real Estate
Industrial Market - Warehouse/Distribution Constru
ction Vacancy
(Forecast)
Source PPR, Cushman Wakefield Research
Services.
45
Denver Commercial Real Estate
  • Apartment Market
  • Supply Demand Trends

(Forecast)
Source PPR, Cushman Wakefield Research
Services.
46
Residential DevelopmentsRecently Completed
Highland Bridge Lofts16th Central4-story, 26
sale unitsCompletion 2008Urban Ventures, LLC.
1200 Elati Apartments 12th Elati 10-story, 63
rental units Workforce HousingCompletion
2008 Burgwyn Malik
One Lincoln Park 20th Lincoln 31-story, 184
sale units Completion 2008Osborn Development
Corp
Slide 46
47
Residential DevelopmentsRecently Completed
Fire Clay Lofts Phase IV 31st Blake4-story,
51 sale units (9 affordable) Completion
2008 Urban Ventures LLC
River Clay Clay River Drive6-story, 60 sale
units Completion 2008LEED Certified Zócalo
Development
Slide 47
48
Residential DevelopmentsUnder Construction
2101 Market 21st Market 8-story, 226 rental
units Completion Spring 2009 Alliance Residential
Co.
Spire 14th Champa 41-story, 503 sale
units Completion Dec 2009Nichols Partnership
Slide 48
49
Residential DevelopmentsUnder Construction
816 Acoma 8th Acoma 16-story, 224 rental
units Completion Spring 2009 Hanover Company
Alexan Park Avenue 19th Emerson3-story, 325
rental units Completion Fall 2009Trammell Crow
Residential
Slide 49
50
Residential Developments Planned
Alexan Prospect29th Inca5-story, 400 rental
unitsCompletion 2009Trammell Crow Residential
2020 Lawrence20th Lawrence9-story, 60 sale
unitsBegin 2009Zócalo Development
Welton Place Phase II 23rd Welton 7-story,
300 sale units Completion Phase One 2008 Century
Development
Slide 50
51
Denver Commercial Real Estate
  • Retail Market
  • Supply Demand Trends

(Forecast)
Source PPR, Cushman Wakefield Research
Services.
52
Retail Renovation
Denver Pavilions16th Glenarm24 Million
Renovation Begin Spring 2009Gart Properties ING
Writer Square16th Lawrence
53
Retail Renovation
Sheraton Denver16th Court 70 Million
RenovationChartres Lodging Colliers BK
Tabor Center16th LawrenceCallahan Capital
Partners CB Richard Ellis
54
Denver Commercial Real Estate
  • Hotel Market
  • Supply Demand Trends

(Forecast)
Source PPR, Cushman Wakefield Research
Services.
55
Hospitality Developments Recently Completed
Ritz Carlton 1881 Curtis St. 19-story, 202 rooms
23 residential units75 million Ritz Carlton
Hotel Company, L.L.C
Hilton Garden Inn 14th Welton St. 12-story, 225
rooms35 million Stonebridge Companies
Slide 55
56
Hospitality Developments Under Construction
Four Seasons Hotel Residences14th
Arapahoe45-story, 235 rooms 102 condos350
millionHotel Teatro Group LLC Completion 2010
Embassy Suites Hotel 14th Stout 20-story, 250
rooms WPM Construction Completion 2010
Slide 56
57
Hospitality Developments Planned
Museum Residences (Phase II)12th
Broadway17-story, 100 rooms Museum Residences
LLC
W Hotel ResidencesMarket St. 16th
St.12-story,180 rooms, 56 condosSage
Hospitality
Slide 57
58
Hospitality Developments Planned
Hotel Learning Center (Auraria Higher Education
Center)Auraria Campus24-story, 150-200
roomsCompletion Fall 2010Metro State Dept. of
Hospitality, Tourism and Events
Slide 58
59
Mixed-Use Recently Completed
SugarCube 1547 Blake St.38 rental units, 50,000
SF Office 8,000 SF RetailCompletion Summer
200840 million Urban Villages
1400 Wewatta Three 7-10 story buildings 24
residential units310,000 SF office50,000 SF
retail80 million Opus Northwest, LLC
Slide 59
60
Mixed-Use Planned
Beleza 1547 Blake St.66 luxury condos 130,000
SF Construction start late 2009 65 million River
North Properties LLC
Denargo Market 2 Blocks south of
Beleza 2,000-2,500 Units 130,000-200,000 SF
Retail 29 acres High-density Mixed Use River
North Properties LLC
Slide 60
61
Public ProjectsRecently Completed
Downtown Childrens Playground145 entities
involved Completed Summer 2007
Skyline Park Pavilion900,000 collaboration
City and County of Denver, BID, Gates
Foundation, Coors Foundation, individual donors
Museum of Contemporary Art15th Delgany 30,000
SF 12 million
62
Public ProjectsUnder Construction
Denver Justice Center 14th between Fox
Delaware New Courthouse - June 2010 5 Stories
Above Grade 35 Courtrooms 315,000 SF New
Detention Center - June 2010 5 Stories, w/ 1
below grade to Courts 1496 Beds 392,200 SF New
Post Office Building - July 2007 5 Stories,
245,000 SF 684 Parking Spaces, City Public
Ground Floor Post Office, Retail and enclosed
USPS Vehicles 305 Million Construction Cost
Slide 62
63
Public ProjectsFunding Approved
  • 12 Million to DIA for runway ramp repairs

64
Public ProjectsPlanned
Railyard Dogs ParkCity ownedAbout one Acre19th
St. and RR tracksRailyard Dogs
(non-profit)Completion 2009
Clyfford Still Museum12th Bannock30,000
SFPrivately Funded/ City County of
Denver Construction 2009-2011
Colorado History Museum12th Lincoln/Broadway 20
0,000 SF Construction 2009-2011 State of Colorado
18th St. Pedestrian BridgeCentral Platte Valley
(Connects Union Station with Riverfront Park
area along 18th)Riverfront Park Foundation,
East-West Partners
Slide 64
65
Public ProjectsPlanned
University of Colorado BusiNess School15th
Lawrence St.150,000 SF (includes garage
104,000 SF office)15 MillionCompletion 2010
Auraria Science Building197,000 SF new
construction/116,000 SF renovation121
MillionCompletion 2009-2010 State of CO, Auraria
Foundation Three Institutions
Colorado Center of Justice 14th and
Lincoln/Broadway 600,000 SF Construction
2012-2015 State of Colorado no rendering available
Slide 65
66
Public ProjectsRepair Projects Planned
  • Denver Federal Center - 70.1M
  • Chavez Federal Building - 22M
  • Denver Custom House Federal Building - 16.5M
  • Denver Byron Rogers Courthouse - 16.5M
  • Fort Collins Federal Building -566K
  • Boulder David Skaggs Research - 5M

67
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68
Conclusion
  • Baby Boomers Echo Boomers
  • Green Jobs
  • Denver The Place

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70
Thank You
  • Cushman Wakefield of Colorado, Inc.
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