StoneBridge Real Estate Development & Investments O’Connor & Associates Industrial Forecast Event September 23, 2009
What’s going on? • New industrial development has stopped • Only build-to-suits are being built and those are rare • Second generation space is active due to cheaper rents • New building rents are too high for many tenants • Tenants are looking for deals • Tenant’s credit ratings are declining
What does this mean? • The development cycle is over • Lenders will continue to work with good customers to extend the terms of their loans • Banks want to make sure the mortgage is paid every month • Banks do not want to take back properties, what will they do with them?
What will happen? • Downward pressure on rental rates will continue • Loans are/will be underwater • Non-recourse borrowers will start to give properties back to lenders • Banks will foreclose on other borrowers
Market Opportunities • Lower rents, higher vacancies, lack of credit from lenders = Distressed Properties • Landlords will reduce ask prices to sell their properties, especially if there is a personal guarantee • Too many properties are over-leveraged, just ask the California buyer from a few years ago who was paying 6%-7% cap rates • Too much debt is coming due and bankers will not extend all of the loans. Especially, if the asset’s loan balance is underwater • Note sales and foreclosures are increasing
Cash is King • Real Estate Funds are springing up in anticipation of the Distressed Property Sales • The FDIC will need to establish another “RTC” to flush all of the problem real estate loans out of the system • Cash buyers will be able to seize the opportunities
What is StoneBridge to Do? • Acquisitions of distressed real estate • Purchase assets from $3.0-$10.0 million range of multi-tenant industrial, office and retail • Goal is to purchase $50.0 million per year • Buy in cash to reduce risk exposure • Buy in the greater Houston area