Overview of the us commercial real estate investment market january 20 2009
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Overview of the US Commercial Real Estate Investment Market January 20, 2009. Current economic environment…. Economy is contracting Employment has declined for 11 consecutive months Financial Markets have collapsed Recession with a capital “R” How’d we get here??? .

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Overview of the us commercial real estate investment market january 20 2009

Overview of the US Commercial Real Estate Investment Market January 20, 2009


Current economic environment
Current economic environment…

  • Economy is contracting

  • Employment has declined for 11 consecutive months

  • Financial Markets have collapsed

  • Recession with a capital “R”

  • How’d we get here???


Current account deficit has been growing…

Source: Bureau of Economic Analysis, Cushman & Wakefield


Federal fiscal deficit has been growing for decades…

U.S. Federal Fiscal Deficit

Source: Bureau of Economic Analysis, Cushman & Wakefield


Until recently stock market has been steadily rising…

Dow Jones Industrial Average

Source: Dow Jones, Cushman & Wakefield


Long-term interest rates have been falling…

Source: Moody‘s Economy.com, Cushman & Wakefield


Household savings has been declining
Household savings has been declining…

Source: Moody‘s Economy.com, Cushman & Wakefield


Household debt has been growing
Household debt has been growing…

Aggregate Household Debt

Billions of US Dollars

Source: Federal Reserve Board


What has fueled this

Fed Chairman Ben Bernanke: “A global savings glut.”

Mercantilist trade policies depress value of foreign currencies relative to the dollar

Encouraging U.S. consumerism

Discouraging U.S. savings

Depressing U.S. industrial production and exports

Result: Huge capital transfers from emerging to mature economies

Causing run-up in asset prices

What has fueled this?


What are the results

Massive capital transfers from emerging to mature economies

Easy debt, excessive leverage, lax discipline by lenders and investors (e.g., example of residual values)

Causing huge bubbles in asset prices, including residential and commercial real estate

Over-leveraged financial institutions catastrophically vulnerable to pricing corrections

WE ALL SAW THE BUBBLE, BUT IGNORED THE INEVITABLE IMPACT ON THE FINANCIAL SECTOR

What are the results?


Business is retrenching shedding jobs
Business is retrenching, shedding jobs…

Source: US Bureau of Labor Statistics


Retail sales are falling
Retail sales are falling…

Year-over-year change (3-month moving average)

Source: U.S. Census Bureau


The response massive monetary and fiscal stimulus
The response – massive monetary and fiscal stimulus…

Credit Crunch and RecessionPeriod: Aug-07 to ???

Cause: Residential Subprime Contagion

Recession

Period: Sep-01 - 02

Cause: Tech Bubble Bursts and Sept 11

Economic Slow Down

Period: Jul-95 to Mar-97

Cause: S&L Crisis

Credit Crunch

Period: Aug-98 to Jan-99

Cause: Asian Flu

Source: US Federal Reserve Board


U s gross domestic product 1980 2011
U.S. Gross Domestic Product: 1980 – 2011

Forecast

Source: Moody’s Economy.com, Bank of America, Cushman & Wakefield Capital Markets Group





Suburban vacancies increased from year ago
Suburban vacancies increased from year ago…

Q3-08 SUBURBAN VACANCY RATES Change from One Year Ago


Global investment volumes declined substantially…

Global Real Estate Investment

* Preliminary 2008 Volume

Source: Cushman & Wakefield, PropertyData, RCA


U s investment sales volumes returning to normal levels
U.S. investment sales volumes returning to normal levels?

* Preliminary 2008 Volume

Source: Real Capital Analytics, Cushman & Wakefield Capital Markets Group


The market has its challenges
The market has its challenges…

  • There is a crisis of confidence and a perception that markets haven’t “bottomed out” – stalling any material sales activity.

  • Absence of available debt is severely reducing the pool of capable buyers.

  • Properties with assumable financing, or with available seller financing, and reasonable remaining term (minimum three years) fare better .

  • Foreign investors, once looking at the U.S. as a safe haven for real estate capital, face similar if not more severe credit issues.


There are now more sellers than buyers able to close…

All Property Offerings & Closings*

US, Monthly

Credit Crunch

In 2008:

$250b offered

$138b closed

’07 ‘08

*Excludes Privatizations

Source: Real Capital Analytics, Inc.


Office properties have suffered the steepest decline
Office properties have suffered the steepest decline…

* Preliminary 2008 Volume

Source: Real Capital Analytics, Cushman & Wakefield Capital Markets Group


Property yields returning to historic norms
Property yields returning to historic norms…

*

*4th Quarter Office Derived Cap Rate forecasted using RCA data.

Source: NCREIF, Moody’s Economy.com, Real Capital Analytics, Cushman & Wakefield Capital Markets Group


Cmbs conduit financing is essentially gone
CMBS/conduit financing is essentially gone…

Source: Mortgage Bankers Association


Re pricing of capital risk translates to falling property values
Re-pricing of capital & risk translates to falling property values…

Opportunistic Capital

* Mezz rates include amortized up front points.

Source: Cushman & Wakefield Capital Markets Group


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