2010 Real Estate Forecast - Capitalization Rate Trends

CB Richard Ellis | Page 1

2010 Real Estate Forecast - Capitalization Rate Trends

Michael J. Moynagh, MAI, Managing Director

CBRE Valuation and Advisory Services

CFA Society of Minnesota

American Society of Appraisers - Twin Cities Chapter

July 22, 2010


Outline

2010 Real Estate Forecast Minneapolis Office St. Paul Office Suburban Office Industrial Retail Land Hospitality National Capitalization Rate Trends

2010 ForecastMinneapolis / Office


Office / CBD Absorption HistoricalMinneapolis

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD(1,500,000)

(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

533,885

679,713

(1,168,342)

(51,774)

(719,415)

698,701

249,392

(33,701)

245,163

(218,001)

29,951


Office / CBD Vacancy by ClassMinneapolis

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%


Office / CBD Gross Rates HistoricalMinneapolis

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

2010 ForecastSt. Paul / Office


Office / CBD Absorption HistoricalSt. Paul

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD(500,000)

(400,000)

(300,000)

(200,000)

(100,000)

0

100,000

200,000

300,000

400,000

162,102

(463,441)

(124,426)

(449,165)

(101,859)

98,045

(109,308)

57,422

(100,602)

(37,344)

(4,467)


Office / CBD Vacancy by ClassSt. Paul

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%


Office / CBD Gross Rates HistoricalSt. Paul

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

2010 ForecastSuburban Office


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2,000,000

1,707,436

(364,197)

(516,864)

123,144

452,134

600,344 502,483 496,447

(342,658)

(656,156)

(49,064)

Office /Absorption HistoricalSuburban


Office / Vacancy by ClassSuburban

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.00%

5.00%

10.00%

15.00%

20.00%

25.00%


SuburbanOffice / Gross Rates Historical

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$5.00

$10.00

$15.00

$20.00

$25.00

$30.00


Bottom may have been reached in office market.

Look for modest gains in 2010 in vacancy and rates.

Construction activity will remain flat for some time.

Office Market Conclusion

2010 ForecastIndustrial


Industrial / Absorption Historical Twin Cities’ Metro Area

2002 2003 2004 2005 2006 2007 2008 2009 1Q 2010(3,000,000)

(2,000,000)

(1,000,000)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

747,391 1,399,716

2,385,448

7,350,507

2,260,930

717,982 511,003

(2,554,495)

(134,699)


Industrial / Direct Vacancy RateTwin Cities Metro Area

2002 2003 2004 2005 2006 2007 2008 2009 1Q 20105.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

6.4%

7.0% 7.0%

5.6%

5.7%

5.9%

5.9%

7.3%7.4%


Industrial / Net Warehouse Asking Rate

Twin Cities Metro Area

2002 2003 2004 2005 2006 2007 2008 2009 1Q 2010$3.90

$4.00

$4.10

$4.20

$4.30

$4.40

$4.50


Looks like industrial market may soon find its bottom.

Absorption still slightly negative and rates continue to fall (although at much slower a pace than seen in 2009).

Look for continued improvements in 2010 with absorption possibly turning positive by year end.

Construction activity remains negligible.

Market Changes Ahead

2009 ForecastRetail


Retail AbsorptionTwin Cities Metro Area

2004 2005 2006 2007 2008 2009 1Q 2010(500,000.00)

0.00

500,000.00

1,000,000.00

1,500,000.00

(108,000)

1,443,000 1,392,000

891,000

174,000

(461,000)

(35,000)


Retail Vacancy RatesTwin Cities Metro Area

2004 2005 2006 2007 2008 2009 1Q 20104.00%

5.00%

6.00%

7.00%

8.00%

9.00%


Hemorrhaging in retail market has stopped, but tenant activity remains sluggish.

Vacant big-box space remains (mostly) unfilled.

Retail market should begin to show positive growth in 2010. However, it will take some time to fill all of the vacant space on the market.

Retail Market Conclusion

2010 ForecastLand


Land Land prices have fallen

Several Major Residential Developers have walked away from transactions There is an over supply of finished lots

2009 ForecastHospitality


2002 2003 2004 2005 2006 2007 2008 2009 2010P-9

-7

-5

-3

-1

1

3

5

-1.2

0.3

3.62.9

1.90.5

-6

-2.4

2.5

Twin Cities - Occupancy Percent Change

Year End % Changes Source: STR Report-Twin Cities Market2009 Forecast % Change Source: CBRE/Torto Wheaton

Research


2002 2003 2004 2005 2006 2007 2008 2009 2010P-13.0-11.0

-9.0-7.0-5.0-3.0-1.01.03.05.07.0

-1.5

0.1

4.15.3

6.05.0

4.5

-10.5

-3.2

Twin Cities - ADR Percent Change Year End % Changes Source: STR Report-Twin Cities Market

2009 Forecast % Change Source: CBRE/Torto Wheaton Research


2002

2003

2004

2005

2006

2007

2008

2009

2010

P-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

-2.7

0.4

7.8 8.4 8.05.6

-1.9

-19.0

1.0

Twin Cities - RevPAR Percent Change Year End % Changes Source: STR Report-Twin Cities Market

2009 Forecast % Change Source: CBRE/Torto Wheaton Research


Twin Cities - Lodging Forecast

New supply (hotels u/c) diminishing. Questionable when/if planned supply will come to

fruition. Indicators appear to be signaling a turn around in the

hotel market. Expected continued improvements in 2010 and 2011.


Who’s Selling?

40% Life/Pension, increase from previous year 25% equity/opportunity funds, increase from

previous year 25% Individuals, same level as previous year Life/Pension selling Office REIT selling Multi-Housing Individuals selling Retail Life/Pension & Individuals selling Industrial


Who’s Bidding? All buyer types similar to last year Equity/Opportunity Funds buying Office Individuals buying Multi-Housing Individuals buying Retail Equity/Opportunity Funds buying Investment


Investment Properties • Institutional GroupCapital Markets

Financial Returns – Overall

Class A Q2 2009 Q1 2008 2008 2007

Avg. Sales Cap Rate 8.35% 6.50% 6.60% 6.05%Avg. Stabilized Cap Rate 9.36% 6.91% 6.87% 6.71%Avg. IRR (Cash) 10.25% 9.48% 9.25% 9.27%

Class B

Q2 2009 Q1 2008 2008 2007Avg. Sales Cap Rate 8.40% 6.65% 6.79% 6.87%Avg. Stabilized Cap Rate 8.57% 7.20% 7.31% 7.60%Avg. IRR (Cash) 11.92% 10.98% 10.82% 10.14%


Closing Timeline

Q2 2009 Q1 2008 2008 2007 2006Marketing Time 8.1 5.4 6.1 5.3 5.3

Best & Final Negotiations 10.9 5.3 5.5 4.6 5.2

Due Diligence & Closing 8.5 7.7 8.5 7.2 8.1

Total Weeks 27.5 18.3 20.1 17.1 18.6

Converted to Months 6.4 4.3 4.7 4.0 4.3


War StoriesLand Subdivisions-Out state MN52 subdivisions, small communities, no appraisals, loans based on napkin valuation by lender, 300 lot development in community of 250 people?Large Retail CenterSold for $100M in 06, will close next week at $35M with original developer buying, Anchor Co-tenancy, % Co-tenancy, Sales kick out clause (reduce rent or leave)


War Stories Suburban Office Bldg, sold in 2006 for $25M, now at $15M, 40% loss! Suburban new construction condos completed 18 months ago, not one condo sold! Twin Cities redevelopment hotel, projected $189 ADR and 70% occupancy, actual ADR of $120 and 50% occupancy! Suburban office complex with $18.5M mortgage from 2006 is currently at a value of $9-$10M! Borrower is attempting to rework loan! Good luck!


National Capitalization Rate Trends










Questions & Answers

?

Conclusion

Thank you for this opportunity to share our

information with you.

Michael J. Moynagh, MAIManaging Director

CB Richard Ellis81 South 9th Street, Suite 410

Minneapolis, MN [email protected] / www.cbre.com/mike.moynagh

Contact Information:

mailto:[email protected]

http://www.cbre.com/mike.moynagh

Date post:	25-Feb-2016
Category:	Documents
Upload:	eagan
View:	44 times
Download:	1 times

2010 Real Estate Forecast - Capitalization Rate Trends

Documents