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Ernst & Young IREM/BOMA Real Estate Forecast Breakfast. Commercial Real Estate Conditions and Outlook 29 January 2009. Agenda. Historical trends and effect of contracting economy on different product types

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ernst young irem boma real estate forecast breakfast

Ernst & Young IREM/BOMA Real Estate Forecast Breakfast

Commercial Real Estate Conditions and Outlook

29 January 2009

agenda
Agenda
  • Historical trends and effect of contracting economy on different product types
  • 2008 transactions and status of commercial real estate since the collapse of the capital markets
  • 2009 outlook: capitalization and discount rates and real estate fundamentals
southern california hospitality trends revenue per available room revpar
Southern California Hospitality TrendsRevenue per Available Room (“RevPAR”)

Source: Smith Travel Research

2008 transactions leasing development and finance
2008 Transactions Leasing, Development and Finance

Source: Real Estate Southern California, September 2008

2008 transactions assets
2008 TransactionsAssets

Source: Real Capital Analytics

2008 transactions assets1
2008 TransactionsAssets

Source: Real Capital Analytics

2008 transactions assets2
2008 TransactionsAssets

Source: Real Capital Analytics

summary
Summary
  • Commercial real estate will re-price by at least 20% of their 2007 peak given lack of debt and changing loan terms to percentages equal to REIT drops in value
  • There is no urgency in the market, as investors are motivated by distressed situations and are waiting on the side lines for non-performing debt to trade; it may be better to be late than early
  • Property owners who are unable to roll over their debts and are forced to sell assets will further put downward pressure on real estate values
  • Required yields for CRE investment are rising with a much higher real estate risk premium
  • Banks will continue to take losses, sell loans to borrowers at discounts and create a new distressed debt market
  • Declining fundamentals (occupancy and rents) due to economic conditions.
  • Begin Again in 2010………………
slide20

Thank you.

Troy L. Jones

Ernst & Young LLPPrincipal, Transaction Real EstatePhone: + 1 213 977 3338

Email: troy.jones@ey.com