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A Global View of Real Estate Space and Capital Markets

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A Global View of Real Estate Space and Capital Markets. Forums on Issues ... Global real estate investment banking CS First Boston, Merrill Lynch, Goldman ... – PowerPoint PPT presentation

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Title: A Global View of Real Estate Space and Capital Markets


1
A Global View of Real Estate Space and Capital
Markets
  • Forums on Issues and Innovations in Real Estate
    (FIRE)
  • Allgemeine HypothekenBank Rheinboden (AHBR)
  • January 31, 2005Dr. Tony CiochettiMIT Center
    for Real Estate

2
MIT Center for Real Estate (CRE)
  • Established 1984
  • Mission Transform the quality of the built
    environment and the real estate industry by
    providing a forum for education, research, and
    the exchange of ideas among the thought leaders
    of the global real estate community
  • Products
  • Masters of Science in Real Estate Development
    (MSRED) program
  • Interdisciplinary Research Platform
  • Outreach Structure

3
CRE MSRED Program
  • Core Courses
  • Real Estate Economics
  • The Products of Real Estate Development
  • Real Estate Finance Investment
  • Legal Issues in the Development Process
  • Real Estate Development
  • Real Estate Capital Markets

4
MSRED Program
  • Electives (CRE, DUSP, Architecture, CEM,
    Engineering, Sloan, Harvard)
  • Strategic Management in the Design Construction
    Value Chain
  • Urban Design Development
  • Housing and Community Development
  • Community Growth and Land Use Planning
  • Financing Economic Development
  • Real Estate Finance Development Fundamentals
  • Urban Politics and Land Use Policy
  • Economic Analysis for Business Decisions
  • Finance Theory I
  • Finance Theory II
  • Investments
  • Advanced Corporate Finance
  • Options Futures Markets
  • Advanced Topics in Real Estate Finance

5
MSRED Program
  • Electives
  • Leadership in Real Estate
  • Housing Markets
  • Housing Finance
  • The Impact of Globalization on the Built
    Environment
  • E-Commerce and the Internet in Real Estate
    Construction
  • International Construction Finance
  • Entrepreneurship in Construction and Real Estate
    Development
  • Innovative Project Delivery in the Public
    Private Sectors
  • Quantitative Reasoning Statistical Methods for
    Planning I
  • Site Urban Systems Planning
  • Planning for Sustainable Development.
  • The Law and Politics of Land Use
  • Housing Human Resources
  • Revitalizating Urban Main Streets
  • Management Policy in the Intl Economy
  • Designing Leading the Entrepreneurial
    Organization

6
Recent Employers
  • Global real estate investment banking CS First
    Boston, Merrill Lynch, Goldman Sachs, Lehman
    Brothers, Blackstone, Morgan Stanley, JP Morgan,
    Deutsche Bank
  • Real estate investment management AEW, GE
    Capital, RREEF, TA Associates, Lonestar, Colony
    Capital, Invesco, Fidelity, ING Clarion
  • Real estate finance John Hancock, Sun Life,
    World Bank, Freddie Mac, Moodys, KeyBank, Carr
    Capital, Prudential, , HUD, Credit Suisse,
    Nomura, Bank of America
  • Real estate development Hines, Kravco, Leggatt
    McCall, Trammell Crow, Related Companies,
    Tishman, Bovis-Lend Lease, Petrini, Taurus,
    Spaulding and Slye, HRO, Forest City Commercial

7
Recent Employers
  • Publicly traded companies Boston Properties,
    Catellus, Pro Logis, AMB, Federated, Cousins,
    AvalonBay
  • Commercial brokerage CB Richard Ellis, Cushman
    and Wakefield, Meredith and Grew, Marcus and
    Millichap corporate real estate includes
    Fidelity, Met Life, Boeing, Burger King, Dell,
    Staples
  • Non-profit sector City of Portland, Maine,
    Oakland California Community Housing, Enterprise
    Foundation, City of Toronto, Urban Redevelopment
    Authority (Singapore), Office of Management and
    Budget (NYC)

8
CRE Research Initiatives
  • Innovative, interdisciplinary, industry relevant
  • Commercial Real Estate Data Laboratory (CREDL)
  • New Century Cities Initiative
  • Housing Affordability Initiative

9
CRE Outreach
  • Professional Development Courses (PDCs)
  • Fundamentals of Real Estate Finance
  • Introduction to Commercial Real Estate
    Development
  • Legal Issues in the Development Process
  • Real Estate Markets Location, Product, Timing
  • Current Topics in Real Estate Finance and
    Investment
  • Introduction to Portfolio and Asset Management
  • Topics in Real Estate Development
  • Affordable Housing Vs Housing Affordability
  • Executive/Custom Education

10
CRE Membership
  • Two-tier Membership
  • Basic Member (10K)
  • Supporting/Sustaining Member (20K)

11
CRE Membership
  • Benefits for all Members
  • Research
  • Students (Thesis and Placement)
  • PDCs
  • Executive/Custom Education
  • FIRE
  • MITREX
  • Annual Conference
  • International Connetions

12
CRE Membership
  • Additional Benefits for Supporting/Sustaining
    Members
  • Advisory Board
  • Private Dinner with an MIT Luminary
  • MSRED Guest Lecturer
  • Additional Participation in all events
  • www.mit.edu/cre

13
  • A Global View of Real Estate Space and Capital
    Markets U.S. Perspective

14
2004 A Good Year
Source TWR Investment
15
Prices per SF Trending UpYear Over Year
Source Real Capital Analytics
16
Its All Relative (to Replacement Cost)
Source RCA, PPR, RS Means
17
TWR Market Portfolio 3yr Total Return(Office,
Industrial, Multi-Housing, Retail NCREIF
Weighted)
18
Falling Cap Rates?
Source Real Capital Analytics
19
Historical View
Sub 8
Apts. at 6
Source NCREIF
20
A Growing Disparity in Pricing
Apartment Cap Rates
Source Real Capital Analytics
21
Space Markets Office
  • Measured Recovery

Vacancy Rate,
Absorption and Construction, sqft x 1,000,000
140
20
100
18
60
16
20
14
-20
12
-60
10
Includes non-market
trends from 9/11
-100
8
-140
6
1988
1991
1994
1997
2000
2003
2006
2009
Construction
Absorption
Vacancy
Source Torto Wheaton Research
22
Space Markets Office
  • Problem R.I.P. vs. Market

TW Rent Index ( per square foot)
TW NOI Index ( per square foot)
Rent
NOI
Source Torto Wheaton Research
23
Office Market Portfolio Total Return
(unleveraged)
24
Space Markets Industrial
  • Lackluster Growth

Availability Rate,
Absorption and Construction, sqft x 1,000,000
340
12
300
260
11
220
180
10
140
100
9
60
20
8
-20
-60
7
-100
-140
6
1989
1992
1995
1998
2001
2004
2007
Construction
Absorption
Availability
Source Torto Wheaton Research
25
Space Markets Industrial
  • Rent Recovery, but NOI drop

Source Torto Wheaton Research
26
Industrial Market Portfolio Total Return
(unleveraged)
27
Space Markets Retail
  • Retail Sales

28
Space Markets Retail
  • Why?

29
Space Markets Retail
  • Until Supply Kicks In

Absorption and Construction, sqft x 1,000,000
Availability rate,
40
9.6
38
9.4
36
9.2
34
9.0
32
30
8.8
28
8.6
26
8.4
24
8.2
22
20
8.0
2004
2005
2006
2007
2008
2009
Construction
Absorption
Availability
30
Retail Market Portfolio Total Return
(unleveraged)
31
Too Much Capital Means Continued Supply
Multi-housing
Source TWR Investment
32
Multi-Housing Market Portfolio Total Return
(unleveraged)
33
Real Estate Capital Markets Equity
  • Where will the capital come from?
  • Private REITs (8 to 10 billion)
  • 1031 Exchange Buyers (2 to 3 billion)
  • US Pension Funds (12 to 15 billion)
  • Public REITs (8 to 10 billion)
  • Endowments and Foundations (2 to 3 billion)
  • Source LaSalle Investment Management

34
TWR Market Portfolio Total Return(Office,
Industrial, Multi-Housing, Retail NCREIF
Weighted)
35
Real Estate Capital Markets Equity
  • Real Estate Return Performance

Source NCREIF, LaSalle Investment Management
Research
36
Real Estate Capital Markets Equity
  • Georgescu-Roegen, 1958
  • Many idle controversies involving the nature of
    expectation could be avoided by recognizing at
    the outset that mans conscious actions are the
    reflection of his beliefs and of nothing else.

Source Torto Wheaton Research
37
Real Estate Capital Markets Equity
  • Forrest Gump, 1994
  • Stupid is as stupid does.

Source Torto Wheaton Research
38
Real Estate Capital Markets Debt
  • Commercial Banks

39
Real Estate Capital Markets Debt

Source Federal Reserve
40
US CMBS Issuance
1985 2004P
Bn
85
87
89
91
93
95
97
99
01
86
88
90
92
94
96
98
00
02
03
04P1
Actual
Projected
177.3 billion priced as of November 12,
2004 Does not include Agency CMBS or
resecuritizations. Source Morgan Stanley
Estimates, Commercial Mortgage Alert
41
CMBS Delinquencies1 by Property Type

1.73
1.56
1.13
0.95
0.80
130/60/90/Foreclosure/REO
Source Morgan Stanley, Intex
42
. . . Subordination Levels are Plummeting . . .
43
Tangent Alert!
44
Economic Wildcards
  • Trade Balance

45
Economic Wildcards
  • Exchange Rate

46
Economic Wildcards
  • Personal Saving Rate

47
Economic Wildcards
  • Federal Debt Held by Foreigners

48
Implications for Commercial Real Estate
  • Plenty of debt/equity capital
  • Debt rates up slightly
  • Cap rates flat to down slightly
  • Space markets
  • Office
  • Warehouse
  • Retail
  • Multi-family
  • Where does this leave us?

49
Summary
  • Forrest Gump, 1994
  • Life is like a box of chocolates, you never know
    what youre
  • going to get.
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