Presentation is loading. Please wait.

Presentation is loading. Please wait.

Debt Placement Note Sales Investment Sales Equity Placement and Joint Ventures Structured Finance Loan Servicing Capital Markets Presentation Real Estate.

Similar presentations


Presentation on theme: "Debt Placement Note Sales Investment Sales Equity Placement and Joint Ventures Structured Finance Loan Servicing Capital Markets Presentation Real Estate."— Presentation transcript:

1 Debt Placement Note Sales Investment Sales Equity Placement and Joint Ventures Structured Finance Loan Servicing Capital Markets Presentation Real Estate Capital Markets Outlook for 2005: Themes and Key Ideas

2 Dynamics - Flow Forces G-I-Normous capital flow into commercial real estate continues to propel pricing amidst scarcity of supply of investment- grade product. – Rate and Spread Compression – Unprecedented IRR Compression – Historic High $PSF – IO, Open Prepay, Pre-Sales at Stabilized Value: Get the Flow Out! REAL ESTATE CAPITAL MARKETS OUTLOOK

3 IRR Compression (Median Ten Year IRR) * Core All Cash IRR (3Q, 2005) now 6-7% * Core Levered IRR (3Q, 2005) now 8-10% REAL ESTATE CAPITAL MARKETS OUTLOOK

4 All Cash Yield Targets By Food Group Office Grocery/Discount Anchored Retail Multi-FamilyIndustrial

5 Cap Rate Spreads to U.S. Treasury (1) (10-year trend) Basis Points Source:NCREIF and Morgan Stanley. Notes:(1)10-year U.S. Treasury Bond rates based on quarterly average unless otherwise stated. REAL ESTATE CAPITAL MARKETS OUTLOOK

6 Sources: NCREIF; PPR Office Cap Rates

7 Food Group Ranking 1.Retail 2.Trophy Office 2.Industrial 2.Multifamily 5.Office 6.Hotel Food Group Ranking 1.Retail 2.Trophy Office 2.Industrial 2.Multifamily 5.Office 6.Hotel Trophy Market Ranking Washington, DC NYC Metro San Diego “Edge” L.A. Southern Florida Trophy Market Ranking Washington, DC NYC Metro San Diego “Edge” L.A. Southern Florida Food Groups Market Recovery Seattle Atlanta St. Louis Market Recovery Seattle Atlanta St. Louis REAL ESTATE CAPITAL MARKETS OUTLOOK

8 Dynamics - Flow Forces (Cont’d) Mainstream Money Management- No Longer Fringe Asset Class – Income-producing commercial real estate has become favored risk-adjusted, fixed-income investment alternative. – Lenders view real estate debt as attractive alternative to single-credit corporate paper. – With better Corporate Junk Bonds yielding 6.5%, how is RE overpriced at 7% REAL ESTATE CAPITAL MARKETS OUTLOOK

9 Dynamics - Flow Forces (Cont’d) Allocation Trends Align with Demographic Drivers – Retiree redemptions LOOM!! Most Important Factor in All Investing for next Decade! – Public and private joint venturing with tax- exempt institutions and foreign open-end funds to lever more purchasing power – Surging syndicated equity drives pricing on the margin - Private REITs (INLAND as icon) REAL ESTATE CAPITAL MARKETS OUTLOOK

10 Dynamics - Flow Forces (Cont’d) Allocation Trends Align with Demographic Drivers (Cont’d)  Surging syndicated equity drives pricing on the margin (Cont’d) – Broker-dealer distribution and fee frenzy – Hedge funds (Farollon – land spec in Mission Bay) – Individual and Retirement Planning – RE as Standard Diversification Product (TIAA model) REAL ESTATE CAPITAL MARKETS OUTLOOK

11 Dynamics - Flow Forces (Cont’d) Commingled institutional equity rather than separate account funding propels the tax-exempt fundraising. – More Co-Invest; More Discretion – Many pension funds have raised RE allocations significantly – Migration toward European model REAL ESTATE CAPITAL MARKETS OUTLOOK

12 Short-term capital (LIBOR-based) has been very stable. − Low volatility beta over last 4 years. − Sophisticated borrowers arbing LIBOR vs. Treasury, “Spread Investing”. − 50% of securitized debt is unhedged and floating according to HFF data. REAL ESTATE CAPITAL MARKETS OUTLOOK

13 Mezz, Mezz, Mezz!!! Structured finance, especially mezzanine debt and preferred equity, booming. New niches like larger loans, longer-term mezz and aggressive, clubbed A-B packages. “Loan to Own” raiders on the loose. – Who ISN’T Doing Mezz – Compressed yields REAL ESTATE CAPITAL MARKETS OUTLOOK

14 Foreign investment capital, with weakening dollar, expanding in 2005 – German funds under scrutiny for yield performance – Israeli and Middle East investors are very active and aggressive – Japanese capital returning REAL ESTATE CAPITAL MARKETS OUTLOOK

15 M&A driving REIT market which continues to “cartelize”. REITs outperform S&P and indexed funds (private REITs follow suit) – Average REIT dividend yield of 4.7% vs. S&P 500 of 1.7% – REITs up 70% since end of – Real estate mutual fund flow of $7.55 B in 2004 vs. $4.5 B in 2003 (75% increase). REAL ESTATE CAPITAL MARKETS OUTLOOK

16 Top Tenant-in-Common Sponsors in 2004 Properties purchased or under contract through Nov. 30 REAL ESTATE CAPITAL MARKETS OUTLOOK

17 TIC TAC DOUGH and Fund of Funds = New Drivers Improving Fundamentals Too REAL ESTATE CAPITAL MARKETS OUTLOOK

18 Pricing “ Stagress ” – Stagnant real job growth (part-time vs. core) yet real economic progress holds down rates. – Oil price increase lags months. REAL ESTATE CAPITAL MARKETS OUTLOOK

19 Property Type2Q041Q04Ytd1 Year3 Years Industrial Retail Office Apartments Hotels NPI Historical NCREIF Performance by Property Type Source: NCREIF

20 Heyday for “infill” and “edge city” locations. Fortress mall cap rates fall to lows near 5%. (back to mid 1980s) Power centers command premium (all cash IRR of , flat returns) for income stability and lease term. Food Groups REAL ESTATE CAPITAL MARKETS OUTLOOK

21 Retail Trends Major Retail Segments Cap Rate* Compression (Median Capitalization Rates)

22 Secondary office market sales activity bringing new liquidity to this large segment. Large industrial properties are oversubscribed and trade at trophy premium. Multifamily, despite economic vacancy, still command pricing power. Food Groups REAL ESTATE CAPITAL MARKETS OUTLOOK

23 Development sites with entitlements “red hot” as entrepreneurs often with institutional capital, seek higher returns. – Condo conversion mania Net lease purchasing at historic highs driven by RELPs, syndicated equity and 1031 exchange capital. Food Groups REAL ESTATE CAPITAL MARKETS OUTLOOK

24 Land Spec: Fast Growing and Institutionally Driven (JPMF in Inland Empire) Note Sales, “Loan To Own”, Partner Recaps: Any Opportunity, Stupid! Food Groups REAL ESTATE CAPITAL MARKETS OUTLOOK

25 Recognition of True Reproduction Costs and Valuation Global acquisitions/M&A – Mills/Scotland malls – GEPT Canada – Blackstone model/precedent – Galileo/New Plan – Simon/China JVs Next REAL ESTATE CAPITAL MARKETS OUTLOOK

26 Foreign capital surge (esp. Debt) New Megabank Equity – Direct /Co-Invest * Citicorp Fractionalization Mutual Fund R.E. (evolution from private syndicates; 401K) Next REAL ESTATE CAPITAL MARKETS OUTLOOK

27 Blowoffs: – Rates above 5.5% and LIBOR spike * Business Week Survey of Corporate/Wall Street Experts = 5.1% T-10 Consensus – Condo conversion, presales at Stabilized Value – Master leases Next REAL ESTATE CAPITAL MARKETS OUTLOOK


Download ppt "Debt Placement Note Sales Investment Sales Equity Placement and Joint Ventures Structured Finance Loan Servicing Capital Markets Presentation Real Estate."

Similar presentations


Ads by Google