Institutional and Commercial Real Estate Market Update Forecast

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					    Institutional and Commercial Real Estate
       Market Update-Forecast 2011-2012
Prepared for

        16th Annual Fisher Center Real Estate Conference


Prepared by

Lawrence Souza, CCIM/CRE/RICS
- Johnson Souza Group, Inc.: Principal – Real Estate and Financial
  Economist, Broker and Advisor.
- Golden Gate University: Adjunct Professor – Real
  Estate/Finance/Economics; DBA Candidate: Bus Admin. (2011).


The Parc 55 Wyndham Hotel, 55 Cyril Magnin Street, San Francisco, CA 94102
12:45 - 2:00 pm. Tuesday May 24th, 2011
            Business-Market Cycle
• Economy      in   recovery/growth   phase:
  employment expansion (36-to-60 month capital
  market/global economic volatility).
• Business-commercial real estate cycle:
  investment supply shocks 2010 – 2013, slow
  growth; 2014 – 2015, rent/value spikes; and
  cycle peak 2016 – 2018.
• Commercial Markets 2010-2015:
   Target Urban-Infill/Supply-Constrained/Transit Oriented
     (TOD)/Diverse-Growth Economic Base Submarkets
   Downtown San Francisco/San Jose; I-680/880 Corridors-
     Walnut Creek/San Ramon (Pleasanton/Fremont); SF
    Peninsula-Redwood City/Palo Alto (Marin/Santa Cruz);
           Sacramento (Davis/CBD-State Capitol)
Geography
The Importance of IT Industries




                          Not Important


                          Average Importance


                           Highly Important


                Note: IT accounts for 10.5% of U.S. Employment
California Geography




http://mapofcaliforniausa.com/
Global Geography – Export Trade
               Import/Export
                                      6.3%
                Trade Flows 9.6%
        7.4%      10.5%
                              8.1%
   7.6% 8.9%      10.4%
                             9.5%
      10.3%
                     10.3%
Exposure to                                 9.0%
Fast Growing      9.9%
 Southeast                           9.3%
   Asian
 Economies                   8.9%
                              http://www.oecd.org
                Transportation Flows




     One of Most Extensive
     Networks of Highways
     and Arterial Streets in
           - /I 5 - 0/I 0)
     U.S. (I 5- 1/I 4 - 1
     Trucking carriers 64% of interregional freight tonnage, marine vessels
     21%, railroads 14%. Ranked second in total intercity freight tonnage
     and tied for first for greatest volume of intercity truck freight.
http://www.dot.gov/ http://www.fhwa.dot.gov/environment/freightaq/appendixc.htm
    Commercial Demand (Economic Base)
          -
Geographies     Submarkets by Industry Sector:

•       -             -
    High tech and Bio tech Manufacturing (SF/Oak)
•   Alternative and Clean Energy Technologies (SF/SJ)
•   Healthcare-Information Systems Services (SF/SJ/Sac)
•   Financial Services and Venture Capital (SF/SM)
•   Telecommunications/Networking (SJ)
•   Multimedia and Entertainment (SF/Marin)
•   Internet and Software Programming (SF/SJ/Oak)
•   International Trade and Tourism (SF/SJ/Sac)
•   Construction and Engineering Services (SF/SJ/Sac)
•   Education and Government Services (SF/SJ/Oak/Sac)
•   Defense (SJ/Sac)
Institutional Commercial Real
         Estate Analysis
Institutional Foundations for
Efficient Capital Markets

“Efficient real estate and securities capital
markets require strong public and private
sector      cooperation,    disclosure          of
government      and     corporate     financial
conditions, and institutional and individual
investor confidence in financial and political
institutions.”                    Lawrence Souza
                  Cross Sectional Approach
               Commercial Real Estate Investment
    V RE t     =          TH EO LO G Y          +   e^       Linquistics


    V RE p1    =         PH ILO SO PH Y         +   e^       Language


    V RE l     =             LA W               +   e^       Psychology


    V RE p2    =           PO LITIC S           +   e^   f   Sociology


    V RE tp3   =   PU BLIC AD M INISTR ATIO N   +   e^       Technology


    V RE te    =         ECO NO M IC S          +   e^        Telecom


    V RE tf    =           FINA NC E            +   e^       Cognition


    V RE ta    =         AC CO UN TIN G         +   e^         Logic



“The nature of commercial real estate investment is cross-sectional in
  nature, taking multiple disciplines and approaches to solving the
                         valuation equation.”
    Modern Real Estate Portfolio Theory
       - Benefits of Diversification -
       β
     σ/β
T
O
           NON-SYSTEMATIC RISK
T             DIVERSIFIABLE
A
L
R
I
S
              SYSTEMATIC RISK
K
             NON-DIVERSIFIABLE

                                   N#
Modern Real Estate Portfolio Theory
  - Limitations to Diversification -
      β
    σ/β   NON-SYSTEMATIC RISK
             DIVERSIFIABLE
T
O
T           SYSTEMATIC RISK
A          STRUCTURAL RISK
L
             POLITICAL RISK
R
I            ECONOMIC RISK
S             MARKET RISK
K
           NON-DIVERSIFIABLE

                                N#
VIX CBOE Mkt Volatility Index - From 2001 to 2010

  Post-Dot         Economic               Extreme Capital
  Com Bust      Recovery/Growth               Market
  9/11 Econ                                Shocks/Credit
                Stock/Real Estate
                                        Crisis/Recession/F
   Decline        Market Price          oreclosures/Curren
                  Appreciation               cy Crisis
               Falling/Low Volatiltiy


High Volatility                      High Volatility
      Highly Volatile Capital Market Environments
    Businesses-Consumers Hold Off on Investment-
                      Consumption
        Hold Large Precautionary Cash Balances
   Making Monetary Policy Ineffective (Liquidity Trap)

http://bigcharts.marketwatch.com
         Commercial Real Estate Valuation –
            Income Approach - CAPM

        CAPM = E (r) = ie = rf + β (rm – rf)

           VRE = NOI                   iRE = NOI
                  ie                          Vt
       PVRE =            NOI (1+g)n + NOI/(i-g)
                     Σ    (1+i)n       (1+i)n

i = Discount Rate = Risk Free Rate + Credit RP + Illiq RP + σ

Michael Giliberto, Real Estate in A Capital Markets Context.
                  Institutional Real Estate
                Capital Allocation Line (CAL)
                   Movements Along the Efficient Frontier

E (r)
                                                               Direct Real Estate
                                                                 Development        Capital Allocation
                                                        LEVERAGE                    Line (CAL)
                                            Market
                                            Basket                                100% High
E (r)*
                                                           Lower Risk/Return Real Risk/Return
                                                             Estate Investments    Portfolio
                 LENDING
                                          Higher Return/Risk
         Loan Origination
                                              Real Estate
                                             Investments



 Rf
                             100% Low
                            Return/Risk
                              Portfolio


                                                σ*                                    σ
Institutional Investor Update
     Commercial/Institutional Market Size
• Commercial $10.3 trillion - (30%) $33 trillion Total RE US Market.
• Institutional $3.2 trillion – (9.5%) $33.9 trillion Global RE Market.
• Compared to: Commercial Real Estate 19.3% Total Capital Market.
   • $16.4 trillion in Equities (31.3%).
   • $25.9 trillion in Debt (49.4%).
• Investment Grade Income Producing US Real Estate
   • Debt and Equity $5.8 trillion.
       • Total Debt $3.3 trillion (57%) – Priv $3.1 tril./Pub $245 bil.
       • Total Equity $2.5 trillion (43%)- Priv $2.2 tril./Pub. $275 bil.
• Majority owned by Defined Benefit Public Pension Fund Plans.

 Institutional Real Estate, Inc. (IREI), Visions, Insights & Perspectives
 (VIP), Real Estate 101, Feb 11, 2011.
        Summary - Fund Raising Activity
• New Commitments to Private Equity Sluggish, up from
  2010 Lows.
• Focus on U.S. (55.3%) and Asia (20.6%) - 1Q11 $8b.
• Largest Fund Closings 1Q11:
   –   Blackstone Group – Value Add (VA) – Debt - $2.7 bil.
   –   Shorenstein Properties – Core-Plus/VA/CBD/Dbt - $1.3 bil.
   –   Vornado Realty Trust – Value Add/Off/Ret/Distres - $800 mil.
   –   Landmark Partners – VA/Opportun/Funds/Part/REOC - $720 mil.
   –   AMB Capital Parts – Opportun/Industrial/China - $588 mil.
   –   Patria Investimentos – Opportun/Off/Ind/Brazil - $550 mil.
   –   Madison Inter.Rlty – Opportun/Office/Retail/US/Asia - $510 mil.
• US/Asian Investors could be ramping up investment;
  however, capital commitment overhang.
   – $86 bil. remain outstanding: 33% to-be-called, 33% extended.
   – 2011: $40-to-$58 bil. could be avail.
Institutional Real Estate, Inc. (IREI), Fund Tracker, First Quarter 2011.
       Summary - Fund Raising Activity
       Number of Funds and Fund Size




Institutional Real Estate, Inc. (IREI), Fund Tracker, First Quarter 2011.
   Summary - Fund Raising Activity
Geographic Focus and Investment Style




Institutional Real Estate, Inc. (IREI), Fund Tracker, First Quarter 2011.
  Summary – Capital Raise Activity
Geographic Focus and Investment Style




Institutional Real Estate, Inc. (IREI), Fund Tracker, First Quarter 2011.
Commercial Market Update
Commercial Real Estate Indices

      Moody’s REAL –
                       +93%
      Commercial
      Property Price
      Index (CPPI) -
      Repeat Sales Values Lowest in
                                       Seven Years    -42%
                                                     Apts -33%




http://web.mit.edu/cre/research/credl/rca.html
           2010 Acquisition Financing




                           28%
Real Capital Analytics (RCA), US Capital Trends, March 2011.
   Monthly Cumulative Distress Volume

             Since 2007, $122.3 bil. distressed        Restructured
                  worked out (40% total).              and Resolved
                                                   50% workouts
                                                   resolved




            08               09                   10                  11

Real Capital Analytics (RCA), US Capital Trends, March 2011.
                  2010 Top Lenders




Real Capital Analytics (RCA), US Capital Trends, March 2011.
      U.S. Property Sales (2005-2012)
                                       Annual Forecast
                               2011-2013: $190-to-$250 bil.
                               2012-2014: $300-to-$400 bil.
                                  Most Active
                                  Markets: New
                                  York, Wash DC,
                                  San Francisco;
                                  Hotels, Office,
                                  Apartments




                                                      11   12



Real Capital Analytics (RCA), US Capital Trends, March 2011.
Most Pressing Challenges to
Commercial Market




National Association of Realtors, Commercial Real Estate Quarterly
Market Survey, April 2011.
        2010 Top Metropolitan Markets


                                               $12b              200%
                                        $7b               150%
                                      $6b
                                    $5b




                                  $3b




Real Capital Analytics (RCA), US Capital Trends, March 2011.
                 Average Cap Rates
                                             -70-to-150 bsp




Real Capital Analytics (RCA), US Capital Trends, March 2011.
Sector Level – Total Returns




Investment Property Databank (IPD), US Quarterly: Fourth Quarter,
2011.
Institutional Sector – Total Returns




National Council of Real Estate Investment Fiduciaries (NCREIF),
Press Release, First Quarter 2011, April 25, 2011.
Regional – Total Returns




National Council of Real Estate Investment Fiduciaries (NCREIF),
Press Release, First Quarter 2011, April 25, 2011.
             Divergent Pricing Trends




Real Capital Analytics (RCA), US Capital Trends, March 2011.
National Commercial Real Estate
          Space Market
       Gross Domestic Product (GDP)
       GDP = consumption + gross investment + government spending + (exports − imports)

      4Q53/1Q58/2Q80/1Q82 = -6.2% / -10.4% / -7.9% /
      -6.4%, Worst in 28 yrs.

                                                                    4Q/09’ 1Q/11’
                                                                    +5.0% +1.8%

                                                                                2Q/10’
                                                                                +1.7%
                                          2011-2012f
                                         +2.0%-to-3.0%  4Q/08’
                             Avg. 36-to-48 month trough -6.8%

                                                             http://www.bea.gov/briefrm/gdp.htm
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Real GDP Output Gap (From 2000 to 2011)




Wells Fargo Securities, Economic Outlook, May 2, 2011.
Apartment Price, Vacancy,
Supply/Demand (2001 to 2011)




Wells Fargo Securities, Economic Outlook, May 2, 2011.
Office Price, Vacancy,
Supply/Demand (2001 to 2011)




Wells Fargo Securities, Economic Outlook, May 2, 2011.
Industrial Price, Vacancy,
Supply/Demand (2001 to 2011)




Wells Fargo Securities, Economic Outlook, May 2, 2011.
Retail Price, Vacancy,
Supply/Demand (2001 to 2011)




Wells Fargo Securities, Economic Outlook, May 2, 2011.
Local Commercial Real Estate
        Space Market
Top Markets Based on Total Return Forecast




ING/Clarion Partners Research & Investment Strategy, Feb 2011.
      Commercial Market Comparison
Office and Industrial Vacancy/Availability Rates

                                Office                 Industrial

   SF Bay Area                   15.7%                        10.7%
   Los Angeles                   18.0%                        7.5%

   Santa Clara                  18.4%                         8.7%
   Sacramento                   22.5%                         16.1%
   Riv.-San Co.                 23.5%                         15.1%
   Orange Co                    17.4%                          9.2%
   San Diego                    19.1%                         16.4%
   Chicago                      20.2%                          11.1%
   New York                     11.3%                         12.0%
Source: CB Richard Ellis, MarketView, Fourth Quarter, 2010.
Historical SF Office Vacancy & Asking Rent

Vacancy                    Vacancy            Class A Rent           Class B Rent                 Asking Rent

25%                                                                             Q1 2011                $90
                                                                                Vacancy: 16.5%
                                                                                Class A: $35.71        $80
                                                                                Class B: $28.72
20%                                                                                                    $70
                                                                                 0.174

                                                                                                       $60
15%
                                                                                                       $50

                                                                                  $34                  $40
10%
                                                                                                       $30
                                                                                  $28
 5%                                                                                                    $20

                                                                                                       $10

 0%                                                                                                    $0
          2000   2001   2002   2003   2004   2005   2006   2007   2008   2009    2010    2011F 2012F

Janine Watson, VP-Grubb & Ellis, CREW SF Market Update, April 2011.
Digital Natives: Major SF Tech Companies
         Zynga
         Zynga         Online Gaming
                       Online Gaming            650 Townsend
                                                650 Townsend

          Twitter
          Twitter      Social Media
                       Social Media             795 Folsom
                                                795 Folsom

          Salesforce
          Salesforce   Cloud Computing
                       Cloud Computing          1 Market/Mission Bay
                                                1 Market/Mission Bay

          Macys.com
          Macys.com    Clicks & Bricks Retail
                       Clicks & Bricks Retail   685 Market
                                                685 Market

          Dolby
          Dolby        Digital Media
                       Digital Media            100 Potrero
                                                100 Potrero

          Wikipedia
          Wikipedia    Online Communities
                       Online Communities       149 New Montgomery
                                                149 New Montgomery

          CurrentTV
          CurrentTV    Video Streaming
                       Video Streaming          118 King
                                                118 King

          StubHub
          StubHub      Online Ticket Sales
                       Online Ticket Sales      199 Fremont
                                                199 Fremont

          Slide
          Slide        Mobile App Developers
                       Mobile App Developers    301 Brannan
                                                301 Brannan

 Janine Watson, VP-Grubb & Ellis, CREW SF Market Update, April 2011.
San Francisco Rent Bifurcation: Class A




Janine Watson, VP-Grubb & Ellis, CREW SF Market Update, April 2011.
Global Commercial Real Estate
        Space Market
GDP barely rose Advanced economies over past 5 years due to credit crunch,
Emerging economies strong -- capital -- gains to continue (Source: IMF)
Annual % change, GDP
 10




 7.5
                   2011      2012



  5




 2.5




  0
       Euro area     Japan          UK   US   Brazil   Russia   India    China
                                                                        Source: IMF




Robert Peto, RICS Global President, Global Property Outlook, 2011.
The trend in Europe is improving in most countries

Net balance %
                                     Capital value expectations                                              Capital
100                                                                                                       Values are
                Russia                                                                                        rising
 80
                UK
 60             Emerging Europe
 40
                France
                Germany
 20

  0

 -20

 -40

 -60

 -80
                                                                                                             Capital
                                                                                                          Values are
-100
                                                                                                              falling
       2008                       2009                            2010
                                                                         Source: RICS Global Commercial Property Survey




                       Robert Peto, RICS Global President, Global
                       Property Outlook, 2011.
Core office markets are more expensive globally as yields tighten, but
there remain several attractive markets

Ranking of prominent global office markets


  Ranking         Market        Attractiveness   Ranking            Market   Attractiveness
      1      San Francisco          HOT            11                           WARM
                                                           Berlin
      2      Beijing                HOT            12                           WARM
                                                           Chicago
      3      Los Angeles            HOT            13                           WARM
                                                           Brussels
      4      Singapore              HOT            14      Frankfurt            WARM

      5      Shanghai               HOT            15      Munich               WARM

      6      New York              WARM            16      Madrid               WARM

      7      Tokyo                 WARM            17      Barcelona            COLD

      8      London WE             WARM            18      Paris CBD            COLD

      9      Sydney                WARM            19      Milan                COLD

     10      London City           WARM            20      Hong Kong            COLD


                                                                              Source: DTZ Research



                             Robert Peto, RICS Global President, Global
                             Property Outlook, 2011.
Conclusions
Economic/Employment Summary
        Strengths                        Risks
• Global Economy Growing,      • Inflation (Oil/Food Prices)
  focus on Asian Economies.      and Interest Rate Volatility.
• Rising Employment,           • Uncertainty Business and
  Consumer Confidence,           Consumer Confidence:
  Retail Sales, and                • Middle East Unrest
  Investment Levels.               • Government Shut Down
                                   • State Budget Cuts.
• Positive Job Growth.
                               • Rising Costs of Living:
• High and Rising                Food, Housing, Utilities,
  Import/Export Trade flows.     and Taxes.
                               • Industry Consolidation,
                                 Increased (M&A) Activity.
Commercial Real Estate Market Summary
          Strengths                          Risks

• Job Growth.                          • Job Losses Government
                                         Sector.
• Recovery and Growth in International
  Trade, Consumer Confidence and       • Rising Business Costs.
  Retail Sales.                        • Business Consolidation.
• Rising Occupancy Rates/Net Absorp. • Rising Traffic Congestion.
• Rental Rate Positioned to Rise.    • Rising Transportation
                                        Costs.
                                       • Labor Strikes/Trade
                                         Disputes.
Thank You
Questions/Answers
Appendix
Interest (Discount) Rates
Real Interest Rates (From 1981 to 2010)



                 Rn = Rr + e*     Rr = Rn – e*
                           + 3% 0
                 3% = X%-75%~85% = 3% - 3%
             4.5% = 2.5% - (-2) - 0.5% = 2.5% - 3%
                 Inflation Expectations
           U.S. Producer and Consumer Price Index (PPI/CPI)
                       Sept Year-Over-Year Change: 5.5% (1950), 0.0% (1960), 3.4%
                      (1970), 13.3% (1980), 5.9% (1990), 3.3% (2000), 8.9% (2008), -
                                        4.8% (2009), 4.0% (9/10)
                                                                                              9.7%

                                                                                               4.0%




                   Sept 10’ YOY%: Fin. Goods 4.0%, Intermed Gds 5.6%, Crude Gds 20.3%.
                                                                                              -6.6%
                       3.5% (1950), 1.4% (1960), 5.6% (1970), 12.8% (1980), 6.2%
                       (1990), 3.5% (2000), 5.0% (2008), -1.3% (2009), 1.1% (9/10)
                          Sept 10’ YOY%: Energy/Gas 5.8%, Fuel Oil 11.8%, Food 1.4%.
                                                                                       5.5%
                                                                                              1.1%

                  Since 1990, prices up 42% food, 87% healthcare, 88% housing, 70%
                  alcohol, 67% entertainment, 20% tobacco.
                                                                                              -1.5%
Source: Bureau of Labor Statistics.
http://www.bls.gov/home.htm http://www.federalreserve.gov/Releases/G17/Current/default.htm
                Inflation Expectations
         U.S. Consumer Price Index (CPI) - Monthly Volatility


                                   10 Years            10 Years



                                     Stable
               Jan YOY%: Gas 12% and Energy 5%.
                                      Price
                  Volatile           Period                 Volatile
                   Price                                     Price
                  Period                                    Period




http://www.bls.gov/home.htm   Source: Bureau of Labor Statistics.
                Inflation Expectations

                                                        $137.11 Jul 08’
            Oil Prices up from $9.48 in Dec 1998
                                                                   Up
             to $137.11 in Jul 2008, up 1,346%                    146%
              Extreme Volatility Past 6 years:                  $85.12
            speculator dominated market, hedge
               against devaluation of dollar

                                                          $34.57 Jan 09’
                                                          Down -76%
                                      $9.48 Dec 98’




Source: Energy Information Administration (http://www.eia.doe.gov/)
  10 Year Treasury Yields (From 2009 to 2011)
                                   3.9%             2011F 3.5%~3.75%
                        3.5%                                  +150 bsp

                      3.2%
                                       -150 bsp


                                                         2.4%

             2009                              2010           2011
                                      Mtg Int Rt = 3.5% + 1.5% = 5%


Sources: Yahoo Finance, Chicago Board Options Exchange, and Deutsche Bank.
    Yield Curve Theory and Analysis
Yield Curve Step – Shifted Downward late 2010: slowing
economic activity, falling consumer-producer price inflation-
expectations (Oil Prices); and rising recession expectations
(Credit), continued foreign central bank intervention (currency
devaluation).
                         Yield Curve Analysis (11/01/09-to-10/01/10):
                         1 mth T-bill        +9    bpts 0.05%-to-0.14%
Risk Free Rate =
   Real Rate +           3 mth T-bill        +7    bpts 0.07%-to-0.14%
    Inflation            6 mth T-bill        +1    bpts 0.16%-to-0.17%
  Expectations           2 yr    T-bond      -58    bpts 0.95%-to-0.37%
 (Upward/Steep
                         5 yr    T-bond     -120    bpts 2.36%-to-1.16%
  Sloping Yield
     Curve)              10 yr T-bond        -86    bpts 3.39%-to-2.53%
                         20 yr T-bond       - 71    bpts 4.23%-to-3.52%


Source: Federal Reserve Board of Governors. http://www.federalreserve.gov/
              Yield 10-Year Treasury
  10-Year Treasury Yield down from high of 15.8% in July 1981.
  Since 2006-2007, down from high of 5.2% to 2.1% Dec 2008. Up to
  4.0% in 09’, 2.4% in Oct 10’, to 3.5% in Mar 11’.

  • High inflation expectations (rising economic growth)
  • Geo-political default/oil risk (Greece, Spain, Portugal)
  • Quantitative Easing/Accommodative Monetary Policy
  • Flight to Safety (1,000 point drop in Dow Jones May 6th)


  10-Year Treasury Yields are the lowest since 1961 at 3.7%, and for
  the same time period are:

       •    -320 bsp 5.7% (2000)
       •    -620 bsp 8.7% (1990)
       •    -910 bsp 11.6% (1980)
       •    -480 bsp 7.3% (1970)
           - 582 bsp Avg.
Source: Federal Reserve Board of Governors. http://www.federalreserve.gov/
 CMBS Delinquency vs. Residential 1Q03 –to- 2Q10




                                                             Sub-Prime Residential 40%
                                                                 Alt-A Residential 35%




                                                                     Prime Residential 10%
                                                                              CMBS 8%




http://www.crefc.org/uploadedFiles/CMSA_Site_Home/Industry_Resources/Research/Industry_Statistics/CMSA_Compendium.pdf
    Commercial Mortgage Backed Securities (CMBS)
           - Spreads Over SWAP Rates -


          Significant Widening of Spreads (Credit/Liquidity Risk)
                                 Worthless
                                                    BBB/BBB- +10,000




                                                         AA/A     +4,000

                                                    Junior AAA +2,000
                                               Super Senior AAA +320




http://www.mbaa.org/files/Research/DataBooks/2Q10QuarterlyDataBook.pdf
 Commercial Mortgage Back Securities (CMBS) Issuance




                                                                -93%




http://www.mbaa.org/files/Research/DataBooks/2Q10QuarterlyDataBook.pdf
 Commercial Mortgage Flows



                                                             +$100 Bil.




                                     -$46 Bil. From -$60 Bil.
                                     Banks/CMBS




http://www.mbaa.org/files/Research/DataBooks/2Q10QuarterlyDataBook.pdf
Commercial Mortgage Loan Maturity




           Majority                  $1.4 tril. Com. RE
          Bank/Thrift                 Debt Due 5 yrs,
                                     53% underwater.
                                   Int Rt/Credit
                                   Spreads           Fixed
                                                     Rate
                                                    CMBS



 Sources: Foresight Analytics.

http://nreionline.com/news/cre_debt_threatens_economy_0212/
Default Rate Commercial Mortgages 1992 - 2012

               More than 180 federally
               insured national banks
               closed in last two years,
                           -75%~85%
               $30 billion of loans to sell.
             Continued Tight Credit
                  Conditions

               FDIC and Banks Looking to
              Unload Commercial Real Estate
             Notes, Loans and REO Properties
                        2011-2013
        CMBS Spreads vs. 10 Yr. Treasury Yields
      Imputed Discount Rate – Band of Investments

                     Compression in Spreads from Peak
                            Spreads Over 10 Year T-Bills (6/01/10)
                            AAA + 250 bps (2.5%), 1400 bsp peak
                             AA + 2,500 (25.0%), 4000 bsp peak
                              A + 3,250 (33.0%), 5000 bsp peak
                                 BAA2/BBB + 5,500 (55.0%)

                     IRR* = WACC* = 15% -to- 25%
                [25% -to- 35% Imputed Debt Cost of Capital] * 50% +
                [5% -to- 15% Imputed Equity Cost of Capital] * 50%




http://www.crefc.org/uploadedFiles/CMSA_Site_Home/Industry_Resources/Research/Industry_Statistics/CMSA_Compendium.pdf
Educational, Training, Certification
        and Networking
         Recommended Readings
• Randall Lane, The Zeros: My Misadventure in the Decade Wall
  Street Went Insane.
• David Brooks, Bobos in Paradise: The New Upper Class And How
  They Got There.
• Dambisa Moyo, How the West Was Lost: Fifty Years of Economic
  Folly, and the Stark Choices Ahead.
• Andrew Napolitano, A Nation of Sheep.
• Robert Reich, Aftershock: The Next Economy and America’s Future.
  Robert Scheer, The Great American Stickup: How Reagan
  Republicans and Clinton Democrats Enriched Wall Street and Mugged
  Main Street.
• Joseph E. Stiglitz, Freefall: America, Free Markets and the Sinking of
  the World Economy.
• Suzanne McGee, Chasing Goldman Sachs: How they Melted.
• Michael Lewis, The Big Short: Inside the Doomsday Machine.
• Simon Johnson, 13 Bankers: The Wall Street Takeover and Next
  Financial Meltdown.
• Andrew Ross Sorkin, Too Big To Fail.
• Frank Portnoy, FIASCO: Blood in the Water on Wall Street.
• Liaquat Ahamed, Lords of Finance.
• Steve Fraser, Wall Street: Americas Dream Palace.
            Recommended Readings
•   Mark Zandi, Financial Shock: A 360° Look at the Subpr ime Mortgage Implosion, and
    How to Avoid the Next Financial Crisis.
•   Robert Shiller, Animal Spirits: How Human Psychology Drives the Economy and Why It
    Matters for Global Capitalism; and The Subprime Solution: How Today's Global Financial
    Crisis Happened, and What to Do about It.
•   Roman Frydman, Beyond Mechanical Markets: Asset Price Swings, Risk and the Role
    of the State.
•   Eric Weiner, The Shadow Market: How Wealthy Nations/Investors Secretly Dominate the
    World.
•   Raghuram Rajan, Fault Lines.
•   Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future
    of the International Monetary System.
•   Clyde Prestowitz, The Betrayal of American Prosperity.
•   Pat Choate, Saving Capitalism: Keeping America Strong.
•   Judge Richard Posner, A Failure of Capitalism.
•   Kim Phillips-Fein, Invisible Hands.
•   Jerome Corsi, America for Sale.
•   Timothy Carney, Obamanomics.
•   Naomi Klein, The Shock Doctrine.
•   Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power.
•   Anthony Downs, Real Estate and the Financial Crisis.
    David Harvey, The New Imperialism; Paul Kennedy, Rise and Fall of the Great
    Powers; Noam Chomsky, Failed States, Necessary Illusions, and Manufacturing
    Consent; V.S. Soloviev, Politics, Law and Morality; Michel Foucault,
    Power/Knowledge. Susan Casey, The Devil’s Teeth: Great White Obsession/Survival.
    Stephen Breyer, Making Our Democracy Work.
      Recommended Readings
Books - www.amazon.com - www.irei.com

• Real Estate Finance & Investments 12th Ed,
    William B. Brueggeman, Jeffrey D. Fisher,
    2005.

• Commercial Real Estate Analysis and
    Investments (2nd Ed), David Geltner, Norman
    G. Miller, 2007.

• Income Property Valuation (2nd Ed), Jeffrey D.
     Fisher, Robert S. Martin, 2004.
              Online Data
- Argus Valuation (Investment/Development)
  Software
  www.argussoftware.com
- Loop Net http://www.loopnet.com/
- CoStar/Comps http://www.comps.com/comps.asp
- Real Capital Analytics (RCA) www.rcanalytics.com
- FW Dodge http://www.fwdodge.com/
- Marshall & Swift http://www.marshallswift.com/
- MP/F Research/Yield Star (Apartment Data)
  http://www.realpage.com/yieldstar/
- REIS Research, Inc. http://www.reisreports.com/
- CB Richard Ellis http://www.cbrichardellis.com/
- Marcus & Millichap http://www.mmreibc.com/
- SNL Financial http://www.snl.com
              Organizations
Certifications/Designations/Education
- Counselors of Real Estate (CRE)
   http://www.cre.org
- Royal Institute of Chartered Surveyors (RICS)
   http://www.rics.org
- Appraisal Institute (AI) – MAI
   http://www.appraisalinstitute.org
- Certified Commercial Investment Member (CCIM)
   http://www.ccim.com
- Institute of Real Estate Management (IREM) – CPM
   http://www.irem.org/
- Urban Land Institute (ULI) – Development
   http://www.uli.org/
               Organizations
Professional
- Building Owner Management Association (BOMA)
  http://www.boma.org
- Commercial Real Estate Women (CREW)
  http://www.crew.org/
- National Association of Industrial and Office
  Professionals (NAIOP)
  http://naiop.org/
- National Association of Realtors – Commercial
  Division http://www.realtor.org/commercial/
- Society of Industrial and Office Realtors
  http://www.sior.com/
                Organizations
Institutional
- National Association Real Estate Investment
  Management (NAREIM)
  http://www.nareim.org/
- National Council of Real Estate Investment
  Fiduciaries (NAREIF)
  http://www.ncreif.org/
- National Association of Real Estate Investment
  Trusts (NAREIT)
  http://www.nareit.com/
- Pension Real Estate Association (PREA)
  http://www.prea.org/

				
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