CBRE Overview of the Local Investment Market 9.25.08
CBRE Overview of the Local Investment Market 9.25.08
Overview of the
Capital Markets Local Investment Market
Whitney E. Peyton, CCIM
Senior Managing Director, CB Richard Ellis
2008: What’s In & What’s Out Things Could Be Worse…
The Great Depression
In Out
60-65% Leverage 90-95% Leverage
Balance Sheets CDO’s
Balance Sheet Loans Conduit Loans
Skin in the Game “Option Equity”
Trailing – 12 Cash Flow Pro Forma Cash Flow
Rising Cap Rates Cap Rate Compression
Good Loan = Paid Back Loan Good Loan = Sold Loan
Credit Analysis Deal Flow
Credit Guy Golf & Cigar Guy
Equity in the Deal Cash Out Financing
Sponsor Equity Syndicated Equity
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Less Credit Available For Borrowers Outline
July – 08
Jul-08
Capital Markets
Office
Industrial
Retail
Multi-Housing
The Future
4,820,000 9,500,000 $4,680,000
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Office Investment
New Market Listings
CBRE Overview of the Local Investment Market 9.25.08
• Marquette Plaza
• Southdale Office Centre
• France Place
Still Shopping
• 225 South Sixth Office
Off Market
• Dain Rauscher Plaza
• 510 Marquette Building
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Recent Office Sales Office
Fundamentals remain relatively flat
Property Seller Price $/SF
Vacancy rates up slightly overall
Rand Tower Hempel Properties $10.2M $52
Asking rents up
Absorption and construction both down
Renaissance Square RPD Catalyst $9.875M $58.80 Absorption:
• YTD – 145,637 SF
• 2007 – 368,560 SF
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Office Leasing
8400 Normandale Tower
• More than 2/3 of the 280,000 SF Res Cap sublease
CBRE Overview of the Local Investment Market 9.25.08
space is gone
• Prime Therapeutics, an Eagan based medical firm,
absorbed 150,000 SF
Minneapolis CBD / Fair Isaac Corp.
Industrial • Subleasing 30th & 31st floors of AT&T Tower
• With direct leasing of 29th floor, this is largest
sublease of contiguous high-rise space
New Sublease
• Res Cap will put 100,000 SF at Meridian Crossing
on market
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Retail Leasing Industrial Leasing
Vacancy rates down slightly overall
Vacancies up Asking rents are static
More concessions available to tenants
Limited retailer activity
Few speculative developments are currently under
construction
Absorption down Minimal construction
• 1701 West 94th, Bloomington – 65,000 SF spec
• Rogers Industrial Park, Cobalt – 57,000 SF spec
Rental rates slightly down • First Park Lakeville Distribution Ctr., Uponor – 285,000 SF
build-to-suit
Construction costs up Absorption
• YTD – 681,876 SF
• 2007 – 273,256 SF
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Retail Leasing Recent Industrial Sales
Developers are postponing projects and/or will only
start with most of space pre-leased Property Buyer Price $/SF
Minimum amount of new development on the horizon Principal Portfolio Dougherty Commercial
Properties, LLC & $88
Eden Prairie & $39.5M
Birchmont Capital 450,000 SF
Retailers have felt significant impact of economic Bloomington Advisors
slowdown in 2008
Minneapolis 12 Building $66.23
CORE Realty Holdings $35.8M
• Several store closures, both locally & nationwide Industrial Portfolio 540,190 SF
• “A” space end caps are over subscribed
City West & Tech Park
Arthur Goldner & $85.22
Portfolio $31.8M
Associates 373,148 SF
Eden Prairie
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Recent Retail Sales
CBRE Overview of the Local Investment Market 9.25.08
Property / Date Buyer Price $/SF
Victor Marketplace
$170
Hugo St. Croix Real Estate, Inc. $11.8M
69,433 SF
January, 2008
Savage Town Center
Wanguard Advisors $14M
$161 Retail
May, 2008 87,181 SF
1500 4th St. & 310-316 15th
Ave. SE Arthur Goldner & $85.22
$31.8M
Dinky Town Associates 373,148 SF
September, 2008
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Recent Multi-Housing Sales
CBRE Overview of the Local Investment Market 9.25.08
Property / Date Buyer Price $/Units
Cosmopolitan Apartments $92,371
Olympic Investors $24M
January, 2008 255 Units
International Village Intercontinental RE Corp.
$30.1M
$85,269 Multi-Housing
August, 2008 – Boston 353 Units
Uptown City Apartments $184,570
INVESCO Real Estate $30.1M
August, 2008 163 Units
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Multi-Housing Investment
Overall, the multi-housing market is out-performing
CBRE Overview of the Local Investment Market 9.25.08
other investment sectors due to:
• Availability of debt from Fannie Mae and Freddie Mac
• Lack of new construction
• Continued rent growth
The Future
• Shift from home ownership to rental percentage
¾ 2008 – 73%
¾ 2003 – 78%
?
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Capital Multi-Housing Investment
Some loans available (60-65% of value) New construction slated to be delivered throughout 2009
• Focused primarily in urban locations
• Emphasis on Uptown and City Lakes area
Debt funds fill new Mezzanine space (65 – Vacancy has fallen market-wide
75% of value) • 2008 – under 4%
• 11-12% • 2007 – 5%
Average rents
Loan quotes with rate blank • Up over past year by 3.5% ($876 - $908)
• Compared to national average of 2.3%
• Majority of submarkets had increase in average rent
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Seller Expectations Cap Rates
Longer sale process Cap rates will increase on all but the best
More process to close Spread between seller & buyer expectations
will be sloppy for a while
Fewer buyers in a wider range of value
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2008: Fundamentals Still Look Steady The Bid/Ask Spread
130
Property Type Vacancy Rates
120
110
100
90
80
2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1
Transaction Based Index Bid Ask
The bid has steadily declined from quarter to quarter,
while the sellers’ prices (“ask”) have held steady.
Source: CBRE/Torto Wheaton Research Source: CBRE Torto Wheaton Research 2008
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Delinquency Rates Buyer Expectations
Cash will be King PAY LESS
PAY LESS
More equity required
Greater lender holdbacks
Source: MBA 2008
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Cap Rate Outlook
NCREIF Cap Rate: Office, Industrial, Retail, Multifamily
Sum of Markets (Weighted by Stock)
11
10
9
C a p R a te %
8
7
6
5
4
3
1999
1999
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
Office Historical Cap Rate Office Cap Forecast Industrial Historical Cap Rate
Industrial Cap Forecast Retail Historical Cap Rate Retail Cap Forecast
Multifamily Historical Cap Rate Multifamily Cap Forecast
Source: TWR Investment Database, Winter 2008
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Thank you for your time &
attention today.
Whitney Peyton contact info:
whitney.peyton@cbre.com
CB Richard Ellis
4400 West 78th St., Suite 200
Minneapolis, MN 55435
(952) 924-4633 (Direct)
(952) 831-8023 (Fax)
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