2014 REAL ESTATE ECONOMIC FORECAST January 30, 2014 Steve LaMotte Jr., Senior Vice President Dave Lockard, Senior Vice President Dane Wilson, Senior Associate
2 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP AGENDA 1. Louisville Fundamentals 2. Transactions 3. New Supply 4. Capital Markets Overview 5. Strategies & Opportunities for 2014
CAPITAL MARKETS OVERVIEW
4 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP HOLD-SELL DILEMMAS DOMINATE SELLER THINKING
5 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP RISK PREMIUMS Louisville MSA Cap Rates to 10-Year UST at Time of Sale
6 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Tracking $7 Billion / 135 Multi-Housing deals 88 Class A 20 out of 135 Requested Price Adjustment 9 out of 20: Price Adjustment Requested, Seller Declined; Still Transacted 8 out of 20: < 2% Price Adjustment 2 out of 20: 2% - 4% Price Adjustment 1 out of 20: > 4% Price Adjustment Class A MARKET RESPONSE TO RISE IN INTEREST RATES
7 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Move Down the Yield Curve 10 Year Rate: 5.33% 7 Year Rate: 4.78% 5 Year Rate: 4.21% Floating Rate (Capped ARM): 3.52% 7 Year Float to Fixed: 4.20% DEBT STRATEGIES IN A RISING INTEREST MARKET
LOUISVILLE FUNDAMENTALS
9 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP EMPLOYMENT Source: Bureau of Labor Statistics Total Number of JobsCurrent Unemployment Rate Kentucky 8.2% U.S. 6.7% Louisville 7.3% *November 2013(P) National & State Unemployment as of Dec Local Unemployment as of Nov. 2013
10 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Louisville MSA POPULATION GROWTH Source: CBRE 10.5% 1.9% 2.9%
11 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Louisville MSA HOUSEHOLD GROWTH Source: CBRE 11.2% 2.1% 3.2%
12 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Louisville MSA OWNER-OCCUPIED HOUSING TRENDS Source: CBRE
13 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Louisville MSA MARKET-WIDE RENTS & OCCUPANCY
14 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Louisville MSA TOP-20 PROPERTIES RENTS & OCCUPANCY
TRANSACTIONS
16 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP “A” GRADE YIELD EXPECTATIONS Rubric: Stabilized Cap Rate: 5.75% %5.75%-6.25% Stabilized Cash-on- Cash Return: 6.00% % 10-Year IRR:12.00% % Investor Preferences: Core, Core+, Value-Add Investor Tolerances: Buyers absorbed bps increase in cost of debt without adverse impact on pricing. Will they do it again??? Buyers and sellers are watching growing supply levels, interest rates and in general are watching the clock should be an active year on all fronts.
17 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP “A” GRADE TRANSACTIONS, 2013 Orchard Hills 373 Units Seller: Icon Properties Buyer: Bluestone Southgate 256 Units Seller: Inland Group Buyer: Paladin Realty Partners
18 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP “B” GRADE TRANSACTIONS, 2013 Park Place 324 Units Seller: Jefferson Development Group Buyer: Pride Rock Capital Partners Shelby Crossing 90 Units Seller: Underhill Associates Buyer: Geffen Enterprises Heritage Hill 163 Units Seller: Underhill Associates Buyer: 37 th Parallel Properties Fountain Square 320 Units Seller: Martin L. Adams & Sons Buyer: Elmington Capital Group
19 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP LOUISVILLE SALES VOLUME * * 2010 includes the partial interest sale of The Province
20 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP “A” & “B” CAP RATES * No “A” grade sales in 2008 *
NEW SUPPLY
22 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY
23 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Louisville MSA NEW SUPPLY
24 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Louisville MSA BUILDING PERMITS
25 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY Idlewild -600 English Station Way -360 Units -Developer: Lifestyle Communities Management
26 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY Watermark on Hurstbourne Watermark Place -270 Units -Developer: Watermark Residential
27 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY Claiborne Crossing Pulpit Drive -242 Units -Developer: TDK Construction
28 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY Applegate Farms Fernfield Drive -192 Units -Developer: Buisson Investment Corporation
29 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY Overbrook Fairground Road -152 Units -Developer: AG Steier
30 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY Academy Park -718 Academy Drive -154 Units -Brown Capital LTD
31 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY Ellingsworth Lane Resort Apartments /11950 Ellingsworth Lane -398 Units -Faulkner/Hollenbach-Oakely Westport Road Apartments Old Westport Road -224 Units -Faulkner/Hollenbach-Oakely
32 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP NEW SUPPLY Dundee Place Dundee Road -20 Units -REI/Poe Preston Gardens Mud Lane -96 Units -REI/Poe Woods at Lexington Road Lexington Road -72 Units -REI/Poe
STRATEGIES & OPPORTUNITIES FOR 2014
34 INDIANAPOLIS-CINCINNATI MULTI-HOUSING GROUP Loan assumptions en vogue High demand for well-located value-add and best-of-class Secondary/tertiary markets looking more attractive Emergence of the pre-sale Highly amenitized, high rent supply continues We’ve hit maximum sustainable occupancies The window is open but… STRATEGIES & OPPORTUNITIES
For more information regarding this presentation please contact: CBRE Indianapolis-Cincinnati Multi-Housing Group