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IRR-Viewpoint 3Q - 2011 Update Integra Realty Resources De México

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IRR-Viewpoint 3Q - 2011 Update Integra Realty Resources De México Powered By Docstoc
					IRR‐Viewpoint 3Q ‐ 2011 Update
Integra Realty Resources De México
Economic & Commercial Real Estate Outlook




           Download Viewpoint 2011 at:
           http://www.irr.com/Publication/Publication.asp?Id=11
                       Office Locations & Services




                      • IRR de México,
                        México City



Valuation & Counseling                   Specialty Property Expertise
Due Diligence                            Portfolio Valuation
Transactional & Litigation Support       Development Incentives
                                 Introduction

   As real estate markets in the United States began to stabilize and rebound 
   in certain markets and sectors in 2011.  Big news for 2011 includes:
     the deleveraging of the market (except for multifamily)
     the bifurcation of real estate markets
Positive Economic News
     Stabilization in the Multifamily sector
     Low interest rates
     Unemployment rate decreased to 9.1% but trend sustainability has yet to be 
       proven.
Negative Economic News in 2011
     The deteriorating Political atmosphere in Washington, characterized by an 
       inefficiency to deal with the debt‐ceiling, budget and fiscal issues provoked the 
       downgrade of USA’s Credit Rating and the melt‐down of the world markets.
     Europe’s economic crisis (led by Italy and Spain now) exacerbating even more 
       the already USA troubled economy. The Euro in intensive care
     State and local government debt & budget crises.
     Looming commercial real estate debt maturities.
     Hang Seng (China’s Index) awakens 08/09/11 with a ‐6% loss. What is to come?
                 Outline



                   U.S.A.
• Economic Conditions & Capital Markets
• Commercial Real Estate Market Conditions
• Expectations for 2011 and Beyond
                  México
• Economic Conditions 
• Commercial Real Estate Market Conditions
• Expectations for 2011 
                   Office Cap Rates Decrease Slightly in 2010


                           Cap Rate Trends - CBD and Suburban Office

             12
             10
Percentage




             8
             6
             4
             2
             0
               91

               92

               93

               94

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                                                         Year

              CBD Office   Suburban Office   10-Year Treasury (Annual Avg)   10-Year Treasury (Sept. Avg)
Retail Properties
Retail Market Cycle
                      Retail Cap Rates Decrease Slightly in 2010


                                                Cap Rate Trends - Retail

              12

              10
Percentage




                8

                6

                4

                2

                0
                 91
                 92
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             Regional Mall   Community Mall   Neighborhood Strip   10-Year Treasury (September Avg.)   10-Year Treasury
                                                                                                       (Annual Avg.)
Apartment Properties
                    Multi‐family Cap Rates Decrease in 2010

                                        CAP Rate Trends - Multi-Family

             10
              9
              8
              7
Percentage




              6
              5
              4
              3
              2
              1
              0
                92
                93
                94
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                97
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                99
                00
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               -9
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             90




                  Urban Multi-Family   Suburban Multi-Family   10 Year Treasury (September Avg.)   10-Year Treasury
                                                                                                   (Annual Avg.)
Industrial Properties
Industrial Market Cycle
                    Industrial Cap Rates Decrease Slightly in 2010


                                                            Cap Rate Trends - Industrial

             12
             11
             10
              9
Percentage




              8
              7
              6
              5
              4
              3
              2
              1
              0
                     1
                          92

                                93

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                  -9
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             90




                                    Manufacturing                      Bulk                                  Office/Warehouse

                                    R&D                                10 Year Treasury (September Avg.)     10-Year Treasury
                                                                                                             (Annual Avg.)
            US Secondary Property Types

Medical Office
   – Continues to be one of the strongest in the office sector
   – Aging baby boomers anticipated to have a positive impact on the medical 
     office industry
Senior Housing
   – It appears occupancy rates have bottomed out in 2010 for assisted living 
     and skilled nursing facilities.
   – Independent living, which is less need‐based, is still searching for a floor.
   – The low level of construction is anticipated to result in increasing 
     occupancy levels and rents as the economy recovers.
   – New capital is likely to flow into the sector as REITs, institutional investors 
     and opportunity funds have raised funds that they are seeking to invest in 
     the sector.
                 Secondary Property Types

Lodging
   – Revenue Per Available Room (RevPAR) rebounded 4% after being down 
     16.7% in 2009, and it is expected to rise another 5.3% in 2011
   – Scarce construction financing and sparse development pipeline suggest 
     that the favored brands and locations will regain footing quickly.  
   – Secondary and tertiary properties are likely to remain distressed.
   – Integra Realty Resources Commercial Property Index for Lodging

                 Commercial Property Index (Q3-2010) - Lodging Properties
  Value Change    Nationwide       East          Central         South      West
   Past 12 Mo.       -8%            -2%           -8%             -7%       -14%
   Past 3 Mo.        -1%             1%           -1%             -1%        -3%
   Next 6 Mo.         0%             2%            0%              0%        -2%
                  Secondary Property Types (cont’d.)

Gaming
    –   The pain continues for the U.S. Gaming Sector.
    –   The recession, high unemployment, low consumer confidence and expansion of gaming facilities across 
        the U.S. have all hurt Las Vegas and Atlantic City.
    –   The huge international gaming expansion in Asia is further hurting U.S. gaming as Asian high‐rollers 
        no‐longer have to travel 10,000 miles to the U.S. casinos.
    –   The development pipeline is at a stand‐still.
    –   Expect a shake‐out of the second‐tier and highly‐leveraged operators.
    –   High‐quality operators are getting down to the business of providing quality amenities, competitive 
        pricing and good old fashioned customer service.

Self‐Storage
    –   Self‐storage has proven to be more resilient than most other property types.
    –   While occupancy is down only 1.2%,  the income side has been slower to recover as demonstrated by 
        income being down 5.9%.
    –   The industry’s low default rate and scarcity of quality facilities available for purchase has led investors 
        to become more aggressive in pricing.  Thus, the investment market is recovering more rapidly than the 
        operating performance.

Green Building
    –   Market demand, current construction projects and societal trends in green building are profoundly 
        affecting current purchase and leasing transactions.
    –   Green buildings have yet to produce increased rental rates; however, they have benefitted from better 
        tenant retention, lower vacancy rates and faster space absorption.
         A Look Into 2011 and Beyond (USA)


CMBS Expected to Grow Closer to Equilibrium in 2011, but like 
  other projections, is now on hold.

• Low Interest Rates are Key for Sustained Recovery.
• Strong leadership and clear economic and fiscal policies are 
  fundamental to avoid a second dip recession.
• High unemployment rate is one major hurdles to be resolved. 
  Will Washington and business leaders be able to work together?  
Integra Realty Resources De México
3Q ‐ 2011 ‐ México Update
México´s Economic & Market 2011 Outlook 
                                            Highlights
• Economic recovery continues stronger than predicted but will slow 
  down as the US economy decelerates. 
   GDP (Mexico´s PIB): + 5.5% (SHCP*) in 2010, after a decline of ‐ 6.6% in 2009. GDP growth forecast for 
    2011 set at 4.5% by the IMF (August‐2011). Banxico lowered the outlook to 3.8‐4.8% in August 10, 2011.
   Inflation (Avg.): 3.49  as of Aug. 15, 2011; Unemployment: 5.27% (Aug., 2011). 
   A relatively small Public Deficit: less than 2%.
   The Mexican Peso weakened during 3Q. The currency exchange during August, 2011 has been 
    fluctuating around $12.30 x 1 USD. 
   México´s International Reserves set an all‐time high (Aug. 28, 2011) reaching $136.824 BUSD. 
   México´s Debt to GDP (42.7%) is one of the lowest among emerging economies.
   The Country Risk Factor was 140 bp in August 7, 2011 (J.P. Morgan) but climbed to 177 by Aug. 28th.
   The World´s Bank and the IFC rated México as the Nº 1 economy of Latin America where it is easiest to 
    conduct business.
   México’s auto production set a new record, manufacturing 2.26 million units in 2010; exporting 1.86 
    million. México exported more cars to the USA than Japan, Korea, Germany and the UK during 2010. 
    Auto production Jan to June 2011 reached 1,228 million (+13.9%).
   México’s Aerospace industry has been growing at a remarkable 37% (avg.) rate since 2007.  Direct 
    foreign investments in this sector during 2010 were estimated at $1.2 billion. Eurocopter announced  last 
    March that will invest $550.00 MDD in a new facility in Querétaro. 
     *Mexico’s Treasury Department
México Hard at Work

No Siesta for México
México´s 2010 GDP Growth and Projections compared to other 
countries, using data (GDP @ constant prices) from the IMF




       IMF projections (June 17, 2011) for Mexico’s GDP growth in 2011: 4.7%
        Compared to Brazil’s 4.1%, USA:2.5%, Canada:2.9% and China: 9.6%
México Key Economic Indicators 2008‐2011
(Up to September 1, 2011 and Beyond)
Mexico’s Unemployment Rate is among the Lowest of all 
Countries of the American Continent.
•   According to the International Organization of Employment (OIT), Mexico’s
    Unemployment rate at the closing of 2010 was 5.4% and 5.27% on July, 2011, compared to
    Brazil’s 6.4%

      AMERICAS & EUROZONE UNEMPLOYMENT RATE @ Closing of 2010
Debt to GDP Ratio USA




      Billion USD
Debt to GDP Ratio Comparison (citi Trading Economics) 




   Mexico´s GDP rates 16th among all countries in the world. It´s Debt to GDP ratio (42.7%)
   is one of the lowest among the world´s emerging economies.
   US Federal debt end FY 2011: $15.476 Trillion. Federal Debt as % of GDP: 93.2%
México´s Auto Industry is at the heart of its export 
economy. 
            Mexico´s Auto Industry Performance
            2009 ‐ 2011




                                  By: Oscar J. Franck Terrazas, FRICS
                                                      IRR De México
México´s Auto Industry is at the heart of its export economy. 
During 2010, México exported more cars to USA than Japan
Light Vehicle Units
Exported to USA
                                                                         Country of Origin




  Mexico’s 2010 numbers are final as per AMIA. All other countries are October figures + Nov. & Dec.
  Estimates. Mexico’s Total Vehicle Production in 2010 was 2.26 million (Exported 1.86 million = 82.3%)
  Mexico´s Vehicle production January-June 2011: 1.228 million, up 13.9% YTD.
  Mexico´s Vehicle exports January-June 2011: 1.016 million, up 12.8% YTD.
México vs. UK Auto Industry Performance Comparison

 Number of Units       During 2010 México produced 78% more cars and exported 
 Manufactured          93.45% more cars than the UK did.




             Sources: Asociación Mexicana de la Industria Automotriz (AMIA),  Automotive News 
             Europe, BBC News and European Motor News. 
México´s Country Risk Factor (EMBI+) ‐J. P. Morgan‐ and
International Reserves 2008‐2011



                                                        136.824 Billion USD**
  700    Historical Highest
                                                        $
  600        624                           $
                                                                    Setting New Maximums
                              $                      $129.203
                                        $112.996
  500                    $90.931
             $                                                               Risk Factor bp
  400   $85.274                                                              Series 4
  300
                                                                             Series 5
  200                             166          142            177**
                                                                         $
  100                                                       135 *             International 
                                                                              Reserves (Billion
   0                                                                          USD)
                                                                              * July 1, 2011
         2008                 2009         2010        2011*                  ** August 28, 2011
Mexico´s Real Estate Highlights 2010‐2011


 •   Declined rents started a slow stabilizing process during 2010 and improved in 2011.
 •   Second Homes in coastal areas, typically sold to foreigners, experienced a price decline 
     up to 35%. The market appears to be recovering but security remains as the factor 
     slowing down market gains.
 •   Industrial rents declined 10% to 15% during 1Q‐3Q 2010 but started to rebound in 2011.  
     The national average rent for class “A”  space has exceeded $4.50/SF/Year during 2Q‐
     2011.
 •   Driven by the manufacturing sector, demand for industrial space and rent rates have 
     increased during the 1‐3 Quarters of 2011. However, a slowdown may occur.
 •   The Office Market panorama is quite optimistic. More than 2 million square feet of office 
     space expected to be added to the 52 million inventory. The Reforma‐Polanco corridor 
     remain the most exclusive with rents from $2.78 to $3.25/SF/Month. Mexico City is 
     experiencing a construction boom of high rise, trophy‐buildings. Most of them will have 
     LEED certification.
 •   The Retail Market is experiencing a boom of newly developed upscale shopping centers, 
     expecting retail sales to grow from $182B USD in 2010 to more than $250B USD in 2014.
México Cap Rates Trends (Industrial) 2008‐2011
Industrial Capitalization Rate Trends USA‐México

                                         INDUSTRIAL CAPITALIZATION RATE TRENDS

                         10.20

                          9.80

                          9.40

                          9.00
                  Rate




                          8.60

                          8.20

                          7.80

                          7.40

                          7.00
                                 2Q-09      3Q-09       4Q-09       1Q-10       2Q-10       3Q-10       4Q-10        1Q-11
                         ACLI     8.40       8.50        8.60        8.60        9.00        8.80        7.90
                         WHSE     7.93       8.46        8.80        8.73        8.60        8.38        7.98        7.76
                         FLEX     8.36       8.77        9.14        9.36        9.38        9.15        9.15        8.90


                                                                     Quarte r/Ye ar
             ACLI - American Council of Life Insurers Investment Bulletin - Capitalization Rates - Industrial Properties
             WHSE - PwC- National Warehouse Mark et
             FLEX - PwC - National Flex/R&D Mark et



   To select a Capitalization Rate for Mexico, the following methods are used:
   • Capitalization Rate Comparables
   • Investors Survey (including Mexico’s Country Risk Factor (bb), and
   • Band of Investment
   Reconciling the results of the 3 methods, and considering other factors (quality of properties
   and tenant base, vacancy rates, etc., a Capitalization Rate can be reached.
Industrial Discount Rates Trends USA‐México

        
                                              INDUSTRIAL DISCOUNT RATE TRENDS
                            10.6
                            10.2                              10.27                               10.23       10.15
                                                                          10.14       10.05
                             9.8                   9.84                                                                  9.94
           Discount Rate




                             9.4       9.41
                              9
                             8.6
                             8.2
                             7.8
                             7.4
                                   2Q-09       3Q-09      4Q-09       1Q-10       2Q-10       3Q-10       4Q-10       1Q-11
                           WHSE     9.02        9.35       9.74        9.64        9.35        9.28        9.05        8.76
                           FLEX     9.41        9.84      10.27       10.14       10.05       10.23       10.15        9.94


                                                                      Quarter/Year
        WHSE - PwC- National Warehouse Market
        FLEX - PwC - National Flex/R&D Market


    Using the industrial-warehouse rate of 8.76% / 1Q-2011 Discount Rate Trend as shown in the
    table above, and taking in consideration Mexico’s Country Risk Factor (EMBI+) of 177 bb as per
    J.P. Morgan of Aug. 28, 2011, a discount rate of 10.53% can be considered as a base, before
    taking into account other factors, such as: the age of the buildings, quality of tenants, leasing
    terms, market and economic trends factors in order to arrive to the selected discount rate.
A Look Into 2011 and Beyond (México)

   México is positioned to enter into an era of great growth, but still is 
      heavily dependent of the performance of the US economy. The 
      appreciation of the Chinese Yuan, Mexico´s financial stability and 
      its strategic geographical location are key elements to attract 
      investment and become a major global production center.
   If México gets control of the security factor and improves its 
      international image, it is likely to become a favorite investment 
      place for the huge foreign capitals that are parked in the sidelines.
   Providing that USA’s unemployment improves sustainably and 
      consumer confidence returns, Mexico’s economy might grow 5% 
      or better in 2011. As long as the USA can avoid a 2nd‐dip 
      recession, Mexico’s potential industrial output is the logical 
      answer to satisfy competitively the demand for manufactured 
      products.
                  Integra Realty Resources

 USA’s Largest Valuation and Counseling Firm
             61 Offices; 60 in the States and 1 in México
                  Over 850 Consultants & Advisors
             160+ MAIs and 40+ FRICS Company‐Wide
     2009 Market Intelligence Ranking selected Integra Realty Resources 
                as the No 1  Valuation Firm in the USA

                           Contact Information:
Integra Realty Resources – De México   Integra Realty Resources, Inc.
International Office                   Corporate Headquarters
3723 Birch St., Suite 7                1133 Avenue of the Americas, 27th Floor
Newport Beach, CA 92660                New York, NY 10036
T: 949.336.6688                        T: 212.255.7858
F: 949.336.6689                        Email: info@irr.com
Email: ofranck@irr.com                 Web: www.irr.com
IRR: No 1 Ranked
    CPN-NIELSEN’s MARKET INTELLIGENCE 2009 placed Integra Realty Resources as the #1
                              Appraisal firm in the USA.
Recent Authored Articles

             Mexico in Time of Crisis
             Article by: Oscar J. Franck Terrazas
             Published in: Property World Magazine
             Available at: http://www.ricsamericas.org/property-world-fall-2009
             And select “Mexico in Time of Crisis”

             Viewpoint 2011 – Mexico Market Update
             Article by: Oscar J. Franck Terrazas
             Published in: Viewpoint 2011
             Available at: http://www.irr.com/Publication/Publication.asp?Id=11



              No Siesta for Mexico
              Article by: Oscar J. Franck Terrazas
              Published in: INMOBILIARE Magazine
              Available at: http://issuu.com/inmobiliare/docs/inmo63
              And go to page 50 in the Magazine



               Un Futuro Prometedor
               Article by: Oscar J. Franck Terrazas
               Published in: BUILDING & CONSTRUCTION Magazine/Spring 2011
               Available at: http://buildingandconstruction-mexico.com/
               Select “Mexico:, select ARTICULOS and then select “Un Futuro Prometedor”

				
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