1. 2013: To The Cliff…and Beyond
ECONOMIC & COMMERCIAL REAL ESTATE TRENDS
GEORGE RATIU
Manager, Quantitative & Commercial Research
NATIONAL ASSOCIATION OF REALTORS®
2013 Economic Forecast
IREM Northern Ohio Chapter
Cleveland, OH
January 24, 2013

2. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
Where Are We Headed?
• Global Economies - Highlights
• U.S. & Ohio Economic Activity
• Global and U.S. CRE Trends
• U.S. Outlook
Source: The Economist: KAL’s cartoon
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3. Global Economic Activity
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4. U.S. Economy Maintains Momentum
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5. U.S. Economy Back to “Normal”
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6. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
The “New Normal”
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7. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
HOW ARE CONSUMERS?
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8. Consumer Spending – Cautious
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9. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
Household Wealth
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10. Earnings and Consumer Credit Reduced
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11. Consumer Credit – Education Debt Rising
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12. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
Housing Stabilizing
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13. Consumer Confidence Remains Low
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14. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
EMPLOYMENT
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15. Employment Gains at Moderate Pace
J.08-D.09: 8.7M
jobs cut
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16. Service Industries Gain in 2012
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17. Unemployment Continues as Concern
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18. Significant Issues Remain
12 M People Still Unemployed
Average Unemployment = 9.5 months
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19. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
HOW ARE BUSINESSES?
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20. Business Activity Trends Up
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21. International Trade Boosts Business
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22. Corporate Profits – Record High
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23. Equity Markets – Rising (but Volatile)
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24. Prices at Fed’s Inflationary Target
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25. Business Reined In Spending
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26. Commercial Construction Weakened
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27. Ohio Economy & Employment
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28. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
Ohio Economy Growing
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29. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
Ohio Employment Gap
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30. Ohio Employment – Selected Industries
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31. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
Ohio Employment – MSAs
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32. Cleveland Employment Gains
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33. Ohio Unemployment Declines
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34. COMMERCIAL REAL ESTATE
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35. Global Investments Moderate
Source: Real Capital Analytics
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36. China and U.S. Dominate Global Volume
Market
Volume ($Mil)
Avg. Cap Rate
NYC Metro
42,282
5.87%
London Metro
34,875
5.69%
LA Metro
25,650
6.25%
Tokyo
25,260
5.63%
Hong Kong
24,836
3.11%
SF Metro
21,241
5.81%
Shanghai
19,368
DC Metro
19,137
6.18%
Singapore
18,996
4.77%
Paris
16,718
6.35%
Beijing
13,429
Chicago
11,522
7.00%
Seattle
10,327
Chongqing
10,012
Chengdu
9,130
Houston
8,502
7.35%
Wuhan
8,472
Moscow
8,447
Shenyang
8,399
Dallas
8,095
Source: Real Capital Analytics, 01/09/2013
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37. U.S. Commercial Fundamentals
OFFICE
2012
2013
2014
Vacancy Rate
16.6%
15.9%
15.7%
Net Absorption ('000 sq. ft.)
21,732
49,011
53,235
Completions ('000 sq. ft.)
12,735
30,924
38,633
Rent Growth
2.0%
2.5%
2.8%
INDUSTRIAL
10.4%
9.7%
9.4%
93,410
89,569
91,328
25,522
56,188
76,022
1.7%
2.2%
2.6%
RETAIL
10.9%
10.7%
10.1%
9,065
19,767
28,119
4,344
15,969
23,422
0.8%
1.4%
MULTI-FAMILY
4.2%
4.0%
3.9%
Net Absorption (Units)
219,725
234,576
281,518
Completions (Units)
88,517
143,222
187,018
4.1%
4.6%
4.7%
Commercial Real Estate
Fundamentals continue stabilizing
Demand grows
Vacancy rates decline
Rent growth positive
Supply lags demand
Source: NAR / Reis, Inc.
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38. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
U.S. Commercial Sales
2012 Q1-Q3: $184 B
Source: Real Capital Analytics
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39. U.S. Prices Rise – Apartments Lead
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40. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
U.S. Cap Rates
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41. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
Top U.S. Markets & Buyers
Market
Volume ($M)
Cap Rate
NYC Metro
42,282
5.87%
LA Metro
25,650
6.25%
SF Metro
21,241
5.81%
DC Metro
19,137
6.18%
Chicago
11,522
7.00%
Seattle
10,327
5.69%
Houston
8,502
7.35%
Dallas
8,095
South Florida
7,990
6.86%
Boston
7,824
6.92%
Atlanta
6,994
7.17%
Phoenix
6,112
6.13%
Denver
5,554
6.62%
San Diego
4,574
6.35%
Austin
4,036
6.83%
Charlotte
2,948
6.93%
Philly Metro
2,867
6.21%
Baltimore
2,832
6.90%
Minneapolis
2,556
7.19%
Tampa
2,461
7.14%
Buyer
Volume ($M)
Properties
Equity Residential
16,237
156
AvalonBay Communities
15,558
154
Blackstone
11,799
1462
Lehman Brothers Holdings Inc
9,420
290
CPP Investment Board
7,957 74
NBIM
7,872
401
GIC (Govt of Singapore)
6,582 70
China Vanke
6,472 56
Poly Real Estate Group
5,055 27
Invesco RE
5,017 35
Simon Property Group
4,882 36
Starwood Capital Group
4,099
255
Greenland Group
3,438 41
China Investment Corp
3,331 46
AXA Group 17
TIAA-CREF
3,208
Qatar Investment Authority
3,123 9
MetLife
3,080 39
Global Logistics Properties
3,073 52
China Overseas L&I
3,068
Source: Real Capital Analytics
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42. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
U.S. Markets Outlook
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43. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
Cleveland Outlook
Source: Reis, Inc.
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44. Tale of Two U.S. CRE Markets
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45. REALTOR® Commercial Concerns
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46. CRE Financing – Broader Markets
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47. CRE Financing – REALTOR® Markets
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48. Qualified Commercial Real Estate Mortgage
Securitizers must hold 5% of CMBS issued unless the underlying mortgages meet stringent underwriting standards including:
65% loan-to-value
60% if cap rate < 10-year swap + 300bp
Debt service coverage ratio of 1.5x (stable history) to 1.7x or higher
Amortization period ≤ 20 years
10-year minimum loan term
80% of tenants must pay rent + taxes + insurance + maintenance
Borrower credit and income verification along with 2-year forecast
Collateral restriction limits subordinate financing
Securitizer must buy back bad loans in order to retain QCRE status
Few CRE loans qualify:
Just 0.4% of CMBS ever issued would qualify for first 3 stipulations
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49. Commercial Debt Maturities Peak
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50. NATIONAL ASSOCIATION OF REALTORS® RESEARCH DIVISION
U.S. Economic Outlook
Economy
Employment
Competitive Global Economic Position
Demographic Trends/Changes
Federal Reserve Actions
Consumers
Confidence
Personal Wealth
Changing Attitudes
Washington – Short Term Focus
Fiscal Policy vs. Government Debt
Taxation, Entitlements, Deductions
Annual Growth Rates (%) 
2011
2012
2013
2014
Real GDP
1.8
2.1
2.3
3.0
Nonfarm Payroll Employment
1.2
1.4
2.0
Consumer Prices
3.1
2.5
3.7
Consumer Confidence 58 69 78 90
Unemployment (%)
8.9
8.1
7.8
7.4
Interest Rates (%)
Fed Funds Rate
0.1
30-Year Fixed Rate - Mortgage
4.7
3.9
Source: National Association of REALTORS®
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51. GEORGE RATIU Manager, Quantitative & Commercial Research
ECONOMIC & COMMERCIAL
REAL ESTATE TRENDS
GEORGE RATIU Manager, Quantitative & Commercial Research
NATIONAL ASSOCIATION OF REALTORS®
RESEARCH RESOURCES:
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Blog: economistsoutlook.blogs.realtor.org
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