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2010 Real Estate Forecast - Capitalization Rate Trends

2010 Real Estate Forecast - Capitalization Rate Trends. Michael J. Moynagh, MAI, Managing Director CBRE Valuation and Advisory Services CFA Society of Minnesota American Society of Appraisers - Twin Cities Chapter July 22, 2010. Outline. 2010 Real Estate Forecast Minneapolis Office

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2010 Real Estate Forecast - Capitalization Rate Trends

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  1. 2010 Real Estate Forecast - Capitalization Rate Trends Michael J. Moynagh, MAI, Managing Director CBRE Valuation and Advisory Services CFA Society of Minnesota American Society of Appraisers - Twin Cities Chapter July 22, 2010

  2. Outline • 2010 Real Estate Forecast • Minneapolis Office • St. Paul Office • Suburban Office • Industrial • Retail • Land • Hospitality • National Capitalization Rate Trends

  3. 2010 Forecast Minneapolis / Office

  4. Office / CBD Absorption Historical Minneapolis

  5. Office / CBD Vacancy by Class Minneapolis

  6. Office / CBD Gross Rates Historical Minneapolis

  7. 2010 Forecast St. Paul / Office

  8. Office / CBD Absorption Historical St. Paul

  9. Office / CBD Vacancy by Class St. Paul

  10. Office / CBD Gross Rates Historical St. Paul

  11. 2010 Forecast Suburban Office

  12. Office /Absorption Historical Suburban

  13. Office / Vacancy by Class Suburban

  14. Office / Gross Rates Historical Suburban

  15. Bottom may have been reached in office market. Look for modest gains in 2010 in vacancy and rates. Construction activity will remain flat for some time. Office Market Conclusion

  16. 2010 Forecast Industrial

  17. Industrial / Absorption Historical Twin Cities’ Metro Area

  18. Industrial / Direct Vacancy Rate Twin Cities Metro Area

  19. Industrial / Net Warehouse Asking Rate Twin Cities Metro Area

  20. Looks like industrial market may soon find its bottom. Absorption still slightly negative and rates continue to fall (although at much slower a pace than seen in 2009). Look for continued improvements in 2010 with absorption possibly turning positive by year end. Construction activity remains negligible. Market Changes Ahead

  21. 2009 Forecast Retail

  22. Retail Absorption Twin Cities Metro Area

  23. Retail Vacancy Rates Twin Cities Metro Area

  24. Hemorrhaging in retail market has stopped, but tenant activity remains sluggish. Vacant big-box space remains (mostly) unfilled. Retail market should begin to show positive growth in 2010. However, it will take some time to fill all of the vacant space on the market. Retail Market Conclusion

  25. 2010 Forecast Land

  26. Land prices have fallen Several Major Residential Developers have walked away from transactions There is an over supply of finished lots Land

  27. 2009 Forecast Hospitality

  28. Twin Cities - Occupancy Percent Change Year End % Changes Source: STR Report-Twin Cities Market2009 Forecast % Change Source: CBRE/Torto Wheaton Research

  29. Twin Cities - ADR Percent Change Year End % Changes Source: STR Report-Twin Cities Market2009 Forecast % Change Source: CBRE/Torto Wheaton Research

  30. Twin Cities - RevPAR Percent Change Year End % Changes Source: STR Report-Twin Cities Market2009 Forecast % Change Source: CBRE/Torto Wheaton Research

  31. Twin Cities - Lodging Forecast • New supply (hotels u/c) diminishing. • Questionable when/if planned supply will come to fruition. • Indicators appear to be signaling a turn around in the hotel market. • Expected continued improvements in 2010 and 2011.

  32. 40% Life/Pension, increase from previous year 25% equity/opportunity funds, increase from previous year 25% Individuals, same level as previous year Life/Pension selling Office REIT selling Multi-Housing Individuals selling Retail Life/Pension & Individuals selling Industrial Who’s Selling?

  33. All buyer types similar to last year Equity/Opportunity Funds buying Office Individuals buying Multi-Housing Individuals buying Retail Equity/Opportunity Funds buying Investment Who’s Bidding?

  34. Financial Returns – Overall Investment Properties • Institutional Group Capital Markets

  35. Closing Timeline

  36. Land Subdivisions-Out state MN 52 subdivisions, small communities, no appraisals, loans based on napkin valuation by lender, 300 lot development in community of 250 people? Large Retail Center Sold for $100M in 06, will close next week at $35M with original developer buying, Anchor Co-tenancy, % Co-tenancy, Sales kick out clause (reduce rent or leave) War Stories

  37. Suburban Office Bldg, sold in 2006 for $25M, now at $15M, 40% loss! Suburban new construction condos completed 18 months ago, not one condo sold! Twin Cities redevelopment hotel, projected $189 ADR and 70% occupancy, actual ADR of $120 and 50% occupancy! Suburban office complex with $18.5M mortgage from 2006 is currently at a value of $9-$10M! Borrower is attempting to rework loan! Good luck! War Stories

  38. National Capitalization Rate Trends

  39. National Capitalization Rate Trends

  40. National Capitalization Rate Trends

  41. National Capitalization Rate Trends

  42. National Capitalization Rate Trends

  43. Questions & Answers ? Conclusion

  44. Thank you for this opportunity to share our information with you. Contact Information: Michael J. Moynagh, MAI Managing Director CB Richard Ellis 81 South 9th Street, Suite 410 Minneapolis, MN 55402 mike.moynagh@cbre.com / www.cbre.com/mike.moynagh

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