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Capital Markets Update Rob Stiles EVP & Principal Head of Western Region Cushman & Wakefield Sonnenblick Goldma

Capital Markets Update Rob Stiles EVP & Principal Head of Western Region Cushman & Wakefield Sonnenblick Goldman. Property & Finance Update Capital Drought or Capital Bubble – Depends on Where You Stand?. Two Worlds Emerge Changing Equity Markets Transaction Activity – Where, Why and Who

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Capital Markets Update Rob Stiles EVP & Principal Head of Western Region Cushman & Wakefield Sonnenblick Goldma

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  1. Capital Markets Update Rob Stiles EVP & Principal Head of Western Region Cushman & Wakefield Sonnenblick Goldman
  2. Property & Finance Update Capital Drought or Capital Bubble – Depends on Where You Stand? Two Worlds Emerge Changing Equity Markets Transaction Activity – Where, Why and Who Changing Debt is Back – Really? The Crystal Ball
  3. Still Stuck in Two Very Different Worlds Enter REITVILLE (the have’s) People are Happy, Optimistic – Generally More Fun Better Asset Pricing Cheaper Equity Cheaper & Higher Leverage Debt Ability to Price on 3 – 4 Year Forward 7 – 10% returns on Cost Hard to Gain Access to This Neighborhood – its Gated Enter REALITYVILLE (the have not’s) People are Overly Focused on Reality Buyers Want Distress Lenders Want Coverage!? People Know How to Spell Recourse
  4. Changing Equity Markets Plenty of Capital – But Why the Increasing Appetite for Hotels? First of all - Limited Good Alternatives Outside Real Estate Within Real Estate – Only Hotel NOI Has Bottomed NOI Growth Expectations for Hotels Crush Everybody Else (Hope it Happens) Where is the Capital Formation - Public REITS, Private REITS, PE Funds, Domestic and International HNWs The Divergent Investor Psychology: Buy NOW (at almost any price) in Key Locations as We Have Bottomed Out! Buy Distress – Much more to Come to Market Over the Next 2 – 5 years! All about expectations…
  5. Hotel (31%, 23%) Confidence in Future FundamentalsChange in 2012 NOI Growth Expectations by Product Type Source: Green Street Advisors
  6. Domestic Sales Transaction Volume (Deals >$2.5mm)Change in Volume in 2010 Over 2009 (in $ Billions) Source: Real Capital Analytics
  7. Will Transaction Activity Continue to Accelerate? Voluntary Opportunistic Sellers Come Out of the Woods The Surge is Visible (Off a Terribly Low Base) Suddenly, underwater Owners Have Equity! (But they still can’t refinance their maturing debt) Surging Confidence Among Lenders Leads to Action Recovery Values move above Marked Loan Values Lenders are in a Better Position to Get Aggressive So, who are the Buyers?
  8. Hotel Acquisitions by Investor Type(Deals > $25 million) Based on dollar ($) volume Source: Real Capital Analytics, Cushman & Wakefield Sonnenblick Goldman
  9. Hotel Buyers by Investor Type (Deals >$25mm)(in $ Millions) Deals originated in United States Source: Real Capital Analytics, Cushman & Wakefield Sonnenblick Goldman
  10. 1 Investment Performance by Property Sector and Subsector (Percent change, except where noted. All data as of December 31, 2010) Total Return (%) Dividend Number Equity Market Implied Market 2 3 3,4 Property Sector/Subsector 2009 2010 of REITs Capitalization Capitalization 2010 Yield Industrial/Office 29.17 17.04 3.67 31 70,588,874 75,350,401 Retail 27.17 33.41 3.47 27 96,217,580 105,970,657 Residential 30.82 46.01 3.33 18 55,145,536 57,868,638 Diversified 17.02 23.75 3.79 11 28,651,915 30,690,261 Lodging/Resorts 67.19 42.77 1.41 11 23,341,026 23,732,791 Health Care 24.62 19.20 5.28 13 42,348,172 42,693,590 S&P 500 26.46 15.06 Dow Jones Industrials 18.82 11.02 ® Source: NAREIT . Notes: 1 Data derived from the constituents of the FTSE NAREIT Composite REIT Index. 2 Dividend yield quoted in percent. 3 Data presented in thousands of dollars. 4 Implied market capitalization represents the sum of common shares outstanding and operating partnership units, multiplied by share price. REIT Performance 2010 Hotel’s Continued to Outperform – Look at Expectations Forward!
  11. Debt is Back – In One of Two Worlds Anyway Lack of Debt or Lack of Cash Flow Data is Supportive Starting to Look Forward Again! Yield isSooo Compelling Relative to Options (3.75 – 4.25%/Year Fixed for Core Office) CMBS 2.0 or 1.2? $50 Billion in 2011 Credit markets continue to strengthen as lenders compete for origination assignments Debt yields have compressed Larger Loans Can Now Execute Expect Additional Spread Compression as Rates Rise - Competition General Debt Parameters
  12. The Crystal Ball As Best I Dare Short-Term - Debt Costs to Drop Further for Key Assets and Begin to Tighten on the Borders Capital – CMBS, Insurance Co’s, Healthier Banks Supportive Fundamentals Lack of Alternatives and NOI Growth Expectations Will Continue to Attract Equity Capital Through 2011 & 2012 (Major Risk is Failure to Deliver on Performance Dream) Medium-Term – Debt Costs to Stabilize as Rates Rise and Spreads Compress (Again, Major Risk is Failure to Deliver on Performance Dream) Higher Leverage Finance Will Emerge and Bring Private Equity Competition to REITs for a more Stabilized Trading Market To be Updated Next Week…
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