Eugene/Springfield MSA Market Overvie · using mix of private and public ... Hot Topic: Overall...

Eugene/Springfield MSA Market Overview

Presented to CCIM Oregon/SW Washington ChapterApril 5, 2016

by Leah C. Callahan, [email protected] | office: 541-687-1938

mailto:[email protected]?subject=CCIM April 2016 presentation

Eugene/Springfield MSA Market Overview

• Population trends: growth and demographics

• Economic conditions: business growth, unemployment, wage growth

• Trends: 2004-2008, 2009-2013, 2014-2016

• Single-family, multi-family, industrial, office, retail

• Looking forward: developments and trends on the radar screen

Population & Demographics

• Avg. annual growth rate: moderate relative to other areas, manageable

• Trends to watch: in-migration, ages and stages, competition and collaboration

• Lane Co. communities planning for continued growth

Economic Conditions

• Improving business outlook: translating into sustained job growth

• Economic base continues to diversify

• Local start-ups and established businesses offering new opportunities

Market Trends: Single-Family Residential

• Then: Land prices had trended as high as $350K/acre prior to 2009. Recession and credit freeze led to effectively zero sales for 3 years.

• Since 2014-15: demand has recovered and optimism has returned, lower-price lots have been absorbed, upper-price lots remain available but have higher development costs (risk).

Eugene: ~5,000 new units in 2000-15,60% Univ. of Oregon campus-oriented

Springfield: ~1,100 new units in 2000-15

Market Trends: Multi-Family Residential

• Strong demand for affordable housing throughout market area

• Rents for Springfield’s new units may surpass historic feasibility challenge

Market Trends: Industrial

• Then: industrial occupancy and prices had been strong pre-recession, vacancy trended to historic lows in 2006-07, swinging to 10% by end of 2009 and 13% by 2011.

• Since 2014-15: modest improvements but still down from pre-recession.

• Marijuana production: effects on demand, pricing for suitable properties

• Recession had significant impact on office occupancy and rents

• Absorption of existing supply throughout Eugene/Springfield from owner-users or investors partnering with incoming tenants, picking up pace since 2014

• Pressure on space rents expected to spur new development

• Major redevelopment and new construction during recession using mix of private and public financing

• Recent sales of downtown commercial properties: buyers/ investors perceive stability in long-term demand, rents, occupancy

Market Trends: Office

Downtown Eugene revitalizing Supply & Demand

Market Trends: Retail

Location, location, location

• Redevelopment of sites in prime locations is creating new supply to meet post-recession demand

• $43 million “de-malling” of The Shoppes at Gateway brought new retail brands to the area: largest power center between Portland and Sacramento, 94% leased

Supply & Demand

• Vacancy is improving as retail recovers

• Some spaces in non-prime areas have long-term vacancy due to various factors

• Long-term, population growth and demographics will create new demand

Hot Topic: Overall Capitalization Rates

• Eugene/Springfield rates track regional trends, but also type/property specific

• Market prices show overall rates are declining on the whole, but Eugene/ Springfield remains a secondary market area for many investors

• Forward-looking sentiment varies: pessimists point to possible bubble,optimists point to appetite for cash flow and return vs. perceived risk

Looking forward: 2H16 and beyond

• Community planning and growth: housing, transit,Glenwood, Springfield Main Street, TrackTown USA

• Government, emerging tech, and social impacts: sharing economy, cooperative living & business, cannabis legalization, wage & health care changes

• Local impacts of regional, national, and global activity: urbanization, climate change, resource scarcity

Thank you!

For further information: www.duncanbrown.com

Commercial and income property appraisalResidential property appraisal

Appraisal reviewsCondemnation consulting

Feasibility studiesLitigation/expert testimony

PRINCIPALS

Rick Duncan, MAI, SRA Corey Dingman, MAI Jasen Hansen, MAI

ASSOCIATES

Alan Clark Tom Morgan Leah Callahan, MAI

Clint Becraft, MAI Zoe York, MAI Anna-Lena Vikstrom

Tristan Cory

ASSISTANTS & STAFF

Barbara Shields, Appraiser Asst. Rob McLaughlin, Appraiser Asst.

Megan Beveridge Cathy Patton Nicole Autry

Blake Elliott

http://www.duncanbrown.com/

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CENTRAL OREGON

REAL ESTATE MARKET

PRESENTATION FOR

CCIM OREGON / SW WASHINGTON CHAPTER

APRIL 5, 2016

BY

GREGORY W. MOORE, MAIAPPRAISAL GROUP OF CENTRAL OREGON, LLC

[email protected]

541-480-6527

mailto:[email protected]

General Trends

Population • Tourism • Economic Recovery / Growth

Market Segment Analysis

Residential • Office/Retail/Industrial • Hospitality • Resorts • Apartments

Notable Projects / Events

OSU Cascades Campus •Significant Development/Events • Bend UGB Expansion

Looking into the Future

Agricultural Market

Gorge Area Information

Hood River • White Salmon / Bingen • The Dalles

Appraiser’s World.

OVERVIEW

CENTRAL OREGON TRENDS

Universal Statistical Line Chart for Bend / Central Oregon real

estate trends:

Deschutes County (Bend

MSA) Population passed the

170K mark in 2015, looking

toward 190K by 2020.

City of Bend Population

passed 80K mark in 2015,

again.

Redmond Nearing 30K.

Population and

demographics are making

Central Oregon more

acceptable to larger regional

national firms such as Trader

Joe’s, 5 Guys, Walgreen's (2

new stores in 2015), etc.

ROLLERCOASTING:

POPULATION

Rober ts F ie lds Stat is t ics up wel l over 50K passenger r ides per year, f rom 44,101 dur ing the h igh pr ior to the recession.

Overnight Lodging Taxes : 23% increase over past year, tw ice the state -wide increase.

Not just go l f , sk i ing & f ish ing anymore. Mt . b ik ing, rock c l imbing, Les Schwab Amphitheater music events , spor ts events… al l major cont r ibutors to economy. Improved “shoulder months” .

$10 Mi l l ion whi tewater park wi th ar t i f ic ia l wave at Old Mi l l D is tr ict , another draw to the reg ion.

Beer / D ist i l led sp i r i ts tours - 31 breweries / 3 d ist i l lers .

Limited mult i - family & af fordable housing chal lenging for ser v ice workers .

ROLLERCOASTING:

TOURISM

E c o n o m ic r ec ove r y c o m p lete , w i t h 5 . 1 % u n em p loy m ent .

Desc h u tes C o u n t y a d d ed 4 , 1 50 jo b s ( 5 . 9% in c r ea se )

d u r in g 2 015 , w / 7 3 0 in l e i su r e & h o sp i t a l i t y, 6 6 0 in

ed u c a t io n/ h ea l t h se r v i c es , a n d 3 9 0 in m a n u f a c t u r in g .

Old School:

Wood Products

Tourism

Bubble:

Mortgage Brokers

Builders

New School:

Brewing & Disti l l ing (31 breweries & 10 disti l lers… total of

more than 1,100 employees).

Advertising/Marketing (G5 Search Marketing, Navis, etc.) .

Telecommunications (Consumer Cellular, TRG Customer).

Software Design (Bend Studio / Sony Computer Entertainment).

Alternative Energy (PV Powered, Zamp Solar, BasX, etc.) .

Pharmaceutical (Bend Research, Agere, Medisiss, Dent

Instruments, PCC Schlosser).

Aviation (Epic Aircraft , Windward Performance, etc.) .

OSU Cascades Campus.

Data Centers (Facebook & Apple).

BEND RECOVERING WITH DIVERSITY

Bend’s median home pr ice leapt

29% f rom 2004 ($217,500, just

surpassing Por t land’s ) to over

$350,000 in September of 2006

(highest apprec iat ion of any c i ty in

the ent i re Uni ted States dur ing

2006) .

Values peaked at $373,925 in 3 rd

Qtr of 2006, then p lummeted 53%

to $177,558 in the 1 st Qtr of 2011

( inc luding the Uni ted States’ worst

dec l ine in home values dur ing

2009) .

Current median SFR = $334,595,

ref lect ing a recover y of 88% f rom

the low.

Current SFR act ive inventor y in

Bend = 432 houses , down f rom

1 ,669 in 2008.

ROLLERCOASTING:

RESIDENTIAL MARKET

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Bend's Improved Residential Sales TrendsMedian Home Sale Price by Annual Quarter

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Bend's Single-Family Residential Listing Inventory

Relat ively l i t t le market act iv i ty in past couple of years as weaker owners have a l ready lost thei r proper t ies , and st ronger owners have held on, wai t ing for va lues to recover.

Land is hard to come by:

Industrial - only 2 tracts of industrial land available ($10.50 & $34 / sq. ft .).

Office & Retail – Recent sale near OSU @ $28.11/SF; pending in Old Mill Area @ $44/SF.

Only 12 act ive l i s t ings of investment grade improved of f ice , reta i l o r industr ial proper ty in Bend (LoopNet) .

Lease Rates :

Office & Retail: Very wide range, $15-$30/SF.

Industrial: Typically over $0.60/SF for newer leases.

Vacancy ( so u r c e : C om p a s s C om m e r c ia l ) :

Office: 6.8%

Retail: 5.2%

Industrial: 5.9% (20%+ during recession)

OFFICE, INDUSTRIAL & RETAIL

81 % h o te l o c c u p a n c y r a te in B en d f ro m J u l y t h ro u g h Oc to b er

o f 2 015 .

To t a l o f m o r e t h a n 6 6 0 ro o m s in 8 h o te l s in t h e h a r d p la n n in g

s t a g e , u n d er c o n s t r u c t ion , o r c o m p leted s in c e 2 014:

114-room Hampton Inn & Suites , Old Mil l District, opened in 2014

64-Room My Place Hotel in the Old Mil l District (extended stay business)

– opened in 2015.

50-Room Tetherow Lodges – luxury rooms at Tetherow Resort – opened

2015.

105-room Marriott (Springhi l l Suites, four story bui lding) @ Crane Shed

Commons site in the Old Mil l District – Under Construction.

120-room Best Western Premier @ Century & Mt. Washington Drive, near

OSU – Cascades. – Pre-development.

100-120-room hotel by InnSite Hote l Management Group at NE Corner

Olney Avenue & NW Wall Street, on the north end of the CBD - approved

in 2015.

66-room luxury hotel , Huntington Lodge , at Pronghorn Resort – under

construction.

41-room addition to McMenamins Old St. Francis School (wi l l have total

of 65 rooms after addition) – Under Construction.

Riverhouse sold in 2015, new owners spending $10 Mil l ion in

renovations to the 220 rooms, possibly adding new rooms .

Over n ig h t l o d g in g l im i t s wer e en a c ted in 2 015 r es t r i c ted a ny

n ew ove r n ig h t r en t a l s w i t h in 2 5 0 ’ o f ex i s t in g r en t a l s ( i n c lu d e

va c a t io n r en t a l S F R s ) .

HOSPITALITY

T h ese r eso r t s m a ke u p m u c h o f t h e d eve lo p m en t o n g o in g in u n in c o rp o r ated Desc h u tes a n d C ro o k C o u n t ies , m ixed p r im a r y r es id en t s , 2 nd h o m es , a n d r en t a l p ro p er t ies .

Tetherow – making up much of new, high-value residential development in Bend, new hotel.

Pronghorn – houses going up again, new management has solid footing, new hotel going up.

Caldera Springs – seeking approval to add 395 more lots.

Remington Ranch sold to investors in 2015 for just $2,500,000). Entitled / fully vested (2000+ acres, 731 home sites, 27 holes of golf, 400 units of lodging), partial infrastructure, 9 holes cut. Buyers to sit on it. (same buyers acquired site that may be used for new data center in Prineville, and 6-Shooter Ranch in Crook County (35k+ acres - $22,250,000)).

Thornburgh Ranch – Going through courts to determine if project has been “initiated”, and therefore whether entitlements are still valid.

Crossing Trails – entitlements fully vested for 500 SFRs, of fered at $6,250,000.

DESTINATION RESORT MARKET

Va can cy r a tes h ave r em a in ed we l l b e low 2 % fo r

p a s t few yea r s . Ave r a g e r en t s a r e a ro u n d

$ 9 00 - $1 ,000 fo r 3 - b ed u n i t s , $ 8 00 -$850 fo r 2 -

b ed u n i t s . Un i t s ove r $ 2 , 000 to u g h to r en t .

A c t i ve f o r s a le : c u r r en t l y n o n e .

N ew P r o je c t s – m o r e t h a n 1 , 5 00 n ew u n i t s

p ro p o sed in 2 015. S o m e o f m o st n o t a b le

p ro jec t s in c lu d e :

228-unit Seasons at Farmington Reserve in

Southeast Bend. 6 buildings, $650-

$1,350/month. – Under Construction.

208-unit Linnea Apartments in Northeast Bend.

153-unit Bellevue Crossing in Northeast Bend.

144-unit complex in southeast Bend, made up of

15 separate buildings. – Under Construction.

104-unit apartment complex (Sage Springs ) of f

Boyd Acres Road in Northeast Bend. – Under

Construction.

132-unit NWX Apartments , a complex of six three-

story buildings, targeting upscale renters in

Northwest Crossing – construction starting in

June.

48-54-unit Pacif ic Crest Affordable Housing ,

Northwest Crossing – construction starting in

2016.

APARTMENTS – “NO VACANCY”

Capi ta l izat ion rates are ref lect ing a hot market w i th ant ic ipat ion of increas ing renta l rates and values.

Trends are somewhat d i f f icul t to quant i fy w i th st rong focus due to l imited number of sa les , w i th h igher -qual i ty / bet ter leasehold interest proper t ies less l ike ly to be made avai lable . Th is i s par t icular ly the case wi th reta i l and of f ice , where sales are par t icular ly th in .

Al l act ive l i s t ings of o f f ice/reta i l/ industr ia l in Loopnet show cap rates between 5% & 6%.

Most recent apar tment sa les ind icat ing cap rates of 4 .4% to 6 .6%, focusing under 6%.

CAP RATE TRENDS

Recent Capitalization Rate Comparable Sales

#Situs Date Acres Bldg Sq. Ft. Occupancy

Location Price Land-Bldg Age Cap Rate

1200 NE Greenwood Ave. –

Strip Retail11/30/15 0.32 5,546 100%

Central Bend $999,900 2.52 1972, renovated 6.3%

262915 NE 18th Street –

Multi-Tenant Flex Indust.9/15/15 1.43 17,831 100%

NE Bend Industrial $2,370,000 3.49 2004, 7 years 5.4%

31735 NE Highway 20 -

1-Tenant Wholesale6/29/15 1.52 18,080 100%

E Hwy 20 Bend $2,110,000 3.66 1995 7.5%

4698 NW York Dr.

1-tenant office5/8/15 0.54 7,283 Fee Simple

Northwest Crossing $1,600,000 3.23 2005, 5 yrs 7.1%

5231 SW Scalehouse Lp

Multi-tenant office7/13/15 0.76 11,134 100%

Old Mill District $1,825,000 2.97 1999, 10 years 5.0%

Firs t enro l lments in 2001 .

Business community, inc luding a s t rong input

f rom commercia l brokers , was a large par t of

the dr ive for the campus, and he lped ra ise $1

Mi l l ion in one month to he lp secure the new

campus.

Long process of s i te se lect ion, or ig inal ly to use

par t of large , c i ty -des igned mixed -use

deve lopment on nor theast s ide of town ( Juniper

Ridge) , but lack of ser v ices and des i rabi l i t y

resul ted in OSU renewing s i te search

throughout town, focus ing on central locat ions ,

with one botched ef for t to buy an ex is t ing

bus iness campus (Mi l l Po int ) .

Opening new campus in 2016 -17 school year at

on Southwest s ide of town, par t ia l ly us ing an

o ld pumice mine s i te w/ 44K sq. f t . academic

bui ld ing , d in ing and res idence hal ls to fo l low in

Winter 2017.

Current enro l lment at 1 ,157. Expand to 3 ,000

to 5 ,000 by 2025.

16 undergraduate majors , 4 graduate

programs.

OSU CASCADES

Bui ld ing permit act iv i t y is recover ing (19 -20 commercia l permits per year in 2014 -15, in Bend) , up f rom just 8 in 2011 , but s t i l l far of f the f igures of 2005 -2007 (80 -102 per year ) .

Crane Shed Commons (mult i -bui ld ing , 4 -s tor y mixed use , 105 hote l rooms, 50,000 sq. f t . C lass A of f ice ) at O ld Mi l l D is t r ic t . 1 st major profess ional of f ice pro ject in years . Of f ice rents expected at $2.25 -$2 .50/SF, NNN.

Market o f Cho ice grocer y s tore between Colorado & Ar izona Avenues , west of the Bend Parkway, 35,000 -sq . f t . market wi th associated st r ip reta i l . – Under Const ruct ion .

St . Char les Med ica l - $14 Mi l l ion medical campus on south end of town, near Wal -Mar t .

Base Camp townhomes (Pear l D is t r ic t s ty le 3 -s tor y townhouses with smal l ADU on 1 st f loor ) , near r iver & O ld Mi l l D is t r ic t – wil l test Bend market acceptance of concept .

Fred Meyer Anchored 51 -acre mixed -use pro ject on nor th end of town in “Golden Tr iangle” , a lso to inc lude a hote l , senior housing , reta i l , etc .

BasX (a l te rnat ive energy ) conver ted former Wal -Mar t in Redmond to indust r ia l manufactur ing (wind turb ines , etc . ) .

NOTABLE DEVELOPMENTS

FOCUS OF ACTIVITY

P r o c e s s f o r t h i s U G B e x p a n s i o n h a s b e e n o n - g o i n g

s i n c e 2 0 0 4 .

2 0 0 9 : 1 s t C i t y p r o p o s a l , i n v o l v i n g 8 , 4 6 4 a c r e s ,

w a s s u b m i t t e d & d e n i e d b y L C D C .

S t a t e f o r c i n g h a n d w i t h h i g h - d e n s i t y & i n - f i l l .

C u r r e n t t e n t a t i v e p l a n i n v o l v e s 2 , 1 5 0 a c r e s .

2 0 % o f c u r r e n t p r o p o s e d a c r e a g e f o r e x p a n d e d

U G B i s o n t h e W e s t S i d e , b u t d e e p p o c k e t

o w n e r s o n t h a t s i d e o f t o w n m a y a p p e a l t h e

p r o c e s s a s a r b i t r a r y , a n d f u r t h e r h o l d u p t h e

e x p a n s i o n i n t h e c o u r t s .

S t e e r i n g c o m m i t te e m e e t i n g A p r i l 2 1 s t f o r f i n a l

a p p r o v a l b e f o r e s e n d i n g b a c k t o D L C D . L u c k y t o

h a v e s t a t e a p p r o v a l b y 2 0 1 7 . S h o v e l r e a d y b y

2 0 2 0 ?

I s s u e i n s t r um e n t a l i n t h e t i g h t e n i n g o f t h e

m a r k e t a n d e s c a l a t i n g r e a l e s t a t e v a l u e s a n d

r e n t a l r a t e s , a l s o l i m i t i n g t h e p o t e n t i a l

e x p a n s i o n o f t h e e c o n o m y .

URBAN GROWTH BOUNDARY EXPANSION SAGA

S t i l l a s m a l l i s h e c o n o m y , h e a v i l y i n f l u e n c e d b y t o u r i s m , a n d s u b j e c t t o r e c e s s i o n s m o r e t h a n a v e r a g e .

H o w e v e r , w e c a n e x p e c t a l i t t l e l e s s r o l l e r c o a s t e r i n t h e f u t u r e , e v e n i f w e w o n ’ t h a v e a n e n d l e s s w a v e t o r i d e .

L a r g e r p o p u l a t i o n , m o r e e c o n o m i c d i v e r s i t y , n e w O S U c a m p u s , b e t t e r c o n n e c t i v i t y t o o u t s i d e m a r k e t s , a n d r e g i o n a l r e c o g n i t i o n .

S h o u l d g e t s o m e r e l i e f f r o m a U G B e x p a n s i o n , h o w e v e r , w e s h o u l d n o t e x p e c t t h e o v e r -b u i l d i n g c h a r a c t e r i s t i c o f t h e 2 0 0 0 s .

C e n t r a l O r e g o n s h o u l d b e b e t t e r s u i t e d t o w o r k t h r o u g h n e x t r e c e s s i o n , p o s s i b l y m o r e c o n s i s t e n t w i t h h o w H o o d R i v e r w o r k e d t h r o u g h t h e l a s t r e c e s s i o n .

S u r f B e n d ! ! !

LOOKING INTO THE CO’S FUTURE

Centra l Oregon

Market held up much better through recession than all

other market segments, particularly for farms geared

around production rather than residential / recreation.

Particularly strong demand for hay farms in Central

Oregon.

Recreation (fishing / hunting) ranch & high -value

residential estate markets slowest to recover, but we have

seen some very large sales over the past few years (such

as the 35K+ ac 6-Shooter Ranch @ $22,250,000 in 2014).

The Gorge

Few orchard sales, but major new development (cherries,

Honeycrisp apples, pears & blueberries) occurring in

Dallesport and Wamic despite challenging growing

conditions over past several years.

Challenging labor market and Federal regulations for

orchardists.

130-ac Celilo Vineyard sold to Columbia Valley (WA) winery

for $2,950,000 (roughly $30,000/ac vineyard), Pheasant

Valley sold, Hood Crest & Cathedral Ridge adding to their

winery operations.

AGRICULTURAL MARKET

Weathered recession extremely well by missing the development bubble during 2000s because of physical/legislative constraints on growth, plus the unusually diverse economy and surge in industry related to drones and recreation. Very low vacancy.

88-room Hampton Inn and 20,000-square-foot commercial building, Nichols Landing at the southern edge of the port area.

50-room DeeTour Hotel approved w/ music venue w/ 400+ parking at former mil l site in the mid -val ley.

120,000-sq. ft . manufacturing faci l i ty for drone maker, Insitsu , in Bingen, WA.

50k sq. ft . food processing faci l i ty under construction by Puff Factory in Odell – under construction.

Key Development acquired the 2.1 -acre Expo Center (building to be razed) in the Port area in March 2016 for $1.62 Mil l ion ( land @ $17.71/sq. ft .) to provide parking for two new 15,000-sq. ft . l ight industrial bui ldings.

Newer office & retai l rental rates @ $1.40 -$1.80 per sq. ft . , NNN, some higher for specialty space & high -exposure.

Newer industrial rental rates @ $0.75 -$1.10) per sq. ft . , NNN.

Limited Cap rate info available. (6.05% -7.36% in office sales ) .

HOOD RIVER

WHITE SALMON/BINGEN

Hospitality - New 80-room Fairfield Inn & Suites .

Mid-Columbia Medical Center (MCMC) - providing new

services at Water’s Edge complex in Lone Pine Village ,

and planning to anchor majority of space in total

renovation of Craig Office Supply Building .

Downtown Renovations : 17K sq. ft. Craig Office Supply

Building, 54K sq. ft. Commodore II Building .

Vacancy Rates - still high in the CBD, most 2nd floor space

vacant, w/ rental rates for office & retail below $1 NNN.

Lone Pine Village – mixed-use project with variety of

concerns, from pending ODOT round-about off-site costs

to archeological issues, to questionable demand.

Granada Theater Block – developer proposed a $25-

Million 117-room Hilton/hotel conference center, but their

request for the renewal agency to sell the property to

them for $1 was rejected. May still have legs.

THE DALLES

L e n d e r W o r k

Focused around refi & acquisit ions, with construction activity just starting to gain steam.

Sti l l very l i tt le activity (as in none) on development land in Central Oregon, from AGCO doing between 12 & 20 subdivision appraisals per year in the peak of the 2000s, to basical ly no RFPs for several years.

Bank officials report that lenders are most open to lending in hospital ity, apartments, owner -user projects, and high -credit tenant investment properties.

A p p r a i s a l T u r n T i m e s

Clients became used to short turn t imes for appraisals during the recession and recovery, and appraisers are getting push -back to get del ivery dates quoted out to healthy schedules, despite heavier work loads. Some appraisers sti l l quoting unrealist ic del ivery to get jobs, but there is a reason why some are busy, and why some not.

Tough to make money off of assistants in the current market, fewer are being taken on, leading to lower numbers of new appraisers coming into industry.

Clients should expect healthy delivery schedules for quality appraisers to be AT LEAST 3 -4 weeks in normal practice ( i .e. , not rush jobs), i f not up to 6 weeks or more for quality appraisers as market continues to strengthen.

APPRAISER’S WORLD

It has been a pleasure to provide some information regarding our local market conditions.

We can’t do our job without the incredible, professional help we get from the commercial broker community when verifying sales/leases, getting feedback on market trends, and analyzing the highest and best use for properties. We always look forward to returning the favor, any chance we get.

Please refer to our website for more information, or call / e -mail for any assistance:

Gregory W. Moore, MAI (541-480-6527)Commercial/Industrial • Development • Orchards/Vineyards • Farm/Ranch • Resort/Recreation

greg@agco-appraisal .com

Marlo T. Di l l , ARA (541-447-6641)Farm • Ranch • Timber

marlo@agco-appraisal .com

Appraisal Group of Central Oregon, LLCAppraisal / Consult ing / Review / Lit igation Support

www.agco-appraisal .com

THANK YOU



P r e s e n t e d b y :

K ather ine Powe l l B anz , MA I

2 9 2 5 R ive r R o a d S , S u i t e 2 7 0

S a l e m , O r e g o n 9 7 3 0 2

( 5 0 3 ) 3 7 1 - 2 4 0 3

k banz@ powe l lbanz .com

www.powe l lbanz .com

Willamette Valley Market Overview 2016

POWELL BANZ VALUATION, LLC © 2016

35

Population Trends

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

SALEM KEIZER ALBANY CORVALLIS

Annual % Change 2007-15

% Change 2014-15

Salem 0.72% 0.89%

Keizer 0.55% 0.00%

Albany 1.11% 0.78%

Corvallis 0.57% 1.51%

• Corvallis population growth

outperforming other communities

• Resulting in increased housing

needs which are not being met due

to restrictive planning &

development


36

Unemployment


37

Salem/Keizer Office Market

Analytics

Overall Vacancy

Absorption

Average Asking Rent

Months to Lease

Cap Rates

Notable New Projects

Analytics provided by CoStar

Analytic Statistics

Properties 971

Existing Inventory 8,968,156 SF

Overall Vacancy 6.6%

12 Month Absorption 225,151 SF

12 Month Leasing SF 372,802 SF

Average Gross Rent/SF $16.30/yr or $1.36/mth

Months to Lease 27 months (1st QTR 2016)

Average Cap Rate 7.3%

Under Construction 15,227 SF


38

Salem/Keizer Office Vacancy & Asking Rent

Office market languished following the recession.

Market recovery began in mid-2014; remains ongoing.

Current average vacancy of 6.6%

Current average annual asking rent of $16.30/SF or $1.36/SF/mth

Powell Banz Valuation, LLC © 2016

39

Salem/Keizer Office Absorption,

Deliveries & Vacancy

Positive absorption has resulted in continued decreases in vacancy due to lack of new product.

Months to lease remains between 15 & 27 months

Most new construction has been for medical related owner/user space.

2016 brings the first speculative professional office development to Salem’s CBD


40

Salem/Keizer Office Sale to Asking Price

Differential & Average Cap Rate

Sale negotiations continue to result in list to sale discounts of roughly 5 to 10%

Cap rates for professional office space have been elusive due to lack of investment driven purchases


41

Salem/Keizer Notable New Development

Former Boise Cascade :

South Block Apartments

A development agreement with the City of Salem provided $749,999 in tax increment funds from the Urban Renewal Agency to assist with extraordinary development costs relating to the North Block.

Park Front – 27,000 SF 4-story professional office; cost of $8.5 million. Asking lease rate of $1.80/SF NNN ($2.45/SF Gross)

Marquis Silver Gardens - 52-bed skilled nursing facility @ SW corner of Commercial & Front St

Park Front & Marquis have a combined estimated cost of $22 million and will bring 100 +/- jobs to Salem

Park Front 27,000 SF professional office

4-story1 floor remaining to lease

Asking rent $2.45/SF gross

South Block• Completed in 2015• Stabilized• 168 Apartment Units• $779 to $1,069• 15,000 SF Commercial • Ticor Title leased 9,945

SF for $2.44/SF gross

Marquis Silver Gardens52-bed skilled nursing facility


42

Salem/Keizer Notable New Transactions

After years of sitting mostly vacant, SAIFleased the former ERNST building off of Salem Parkway and Broadway for two years to house their entire staff while the existing complex in the CBD is being fully renovated at a cost of $110 million.

State of Oregon is now operating similar to the private sector, seeking large-scale market rate office projects. Best example is 2015 lease of the former Holiday Retirement building fronting McGilchrist Street SE. The Department of Justice leased 55,547 SF for $1.25/SF NNN on a 10-year term.


43

Salem/Keizer Medical Office

Outperformed most other submarkets

Retirement of well established doctors & dentists has resulted in the sale of many practices and real property

Most sales to owner/users

Cap rates for investment purchases between 6% and 7.25%

Salem Health continues expansion project

New medical construction abounds; however, increased construction costs are stretching the limits of leasing feasibility

Salem Health Rehabilitation Center – Building M on Salem Hospital Campus.• 755 Mission Street SE• Former Oregon School for the

Blind site.• $15 million cost• Opened February 2016

Salem Pain & Spine Specialists 1175 Ford Street SE

Owner/User5,763 SF

Oregon Smile Care Center Lot 1 Madrona Office ParkPartial owner/user5,898 SF


44

Salem/Keizer Retail Market

Analytics

Overall Vacancy

Absorption

Average Asking Rent

Months to Lease

Cap Rates



Analytic Statistics

Properties 1,469


Overall Vacancy 4.4%


12 Month Leasing SF 1,954,874 SF

Average NNN Rent/SF $13.55/yr or $1.13/mth


Average Cap Rate 6.1%

Under Construction 0 SF


45

Salem/Keizer Retail Vacancy & Asking Rent

Market recovery began in mid-2014; leveled off

Vacancy reflects continued downward trend



Large discrepancy between mature and new retail space ($12.00 vs $38.00/SF)


46

Salem/Keizer Retail Absorption,

Deliveries & Vacancy

Positive absorption has resulted in continued decreases in vacancy due to lack of new product.

Months to lease remains between 14 & 18 months

New construction has been well received, but generally limited to South/Southeast Salem


47

Salem/Keizer Retail Sale to Asking Price

Differential & Average Cap Rate

Sale negotiations continue to result in list to sale discounts in excess of 6% to 10%

Cap rates for retail properties have steadily declined due to increased occupancy at higher rents


48

Salem/Keizer Notable New

Retail Projects

South Salem reigns supreme in market recovery:

Firehouse Crossing: Completed in 2015, achieved highest rents seen in the marketplace, reaching $38/SF –primarily pre-leased

Wilco - Former Safeway fronting Commercial Street SE – Summer 2016 completion

7 new projects totaling 500,000 SF in feasibility/planning stages

Pre-leasing is paramount to project feasibility noting prolonged absorption for existing space

Other submarkets remain lackluster, with minimal demand

Goodwill Industries purchased the NWC of Wallace Road and Edgewater Street in West Salem. Several existing buildings were demolished to make way for a 23,000 SF +/- community and training facility, and will include an 11,000 SF retail area. Completion anticipated for September 2016

Wilco – Former Safeway3285 Commercial Street SE

• 34,000 SF

Goodwill Industries• 23,000 SF training center

with 11,000 SF retail area in two pad buildings

Former Barrick Funeral Home205 Church Street SE• Purchased for redevelopment • Rumors of National Credit

Tenant w/drive-thru


49

Salem/Keizer Multi-family

Market

Powell Banz Valuation is nearing completion of

our annual Salem/Keizer

Apartment Survey. The preliminary results are

presented here.

Vacancy below 3% in New and Mature

complexes!

Apartment Type Keizer Central Inner E Outer E Inner SE Outer SE South West Average

Studio - no amenities N/A N/A N/A N/A N/A N/A N/A N/A N/A

Studio - with amenities N/A N/A N/A $700 $725 $700 N/A N/A $708

1B - no amenities N/A N/A NA $654 N/A N/A N/A N/A $654

1B - with amenities $807 $1,252 $671 $775 $826 $850 $757 $919 $857

2B/1b - no amenities N/A N/A $713 $698 N/A N/A N/A N/A $705

2B/1b - with amenities $819 $825 $859 $777 $928 $925 $781 $801 $839

2B/2b - no amenities N/A N/A N/A $775 N/A N/A N/A N/A $775

2B/2b - with amenities $897 $1,633 $1,291 $933 $1,016 $921 $962 $1,033 $1,086

3B - no amenities N/A N/A N/A N/A N/A N/A N/A N/A N/A

3B - with amenities $1,105 $2,191 N/A $1,083 $1,124 $1,073 $1,198 $1,132 $1,272

Average Rent $907 $1,475 $883 $799 $924 $894 $925 $971

Vacancy Rate 1.89% 0.43% 2.42% 1.82% 1.69% 2.74% 1.56% 1.22%

Total Vacancy 1.62%

New Complexes (Constructed After 1990)

Apartment Type Keizer Central Inner E Outer E Inner SE Outer SE South West Average

Studio - no amenities N/A $606 $550 $495 $540 N/A $547 $525 $544

Studio - with amenities N/A N/A N/A N/A $575 N/A NA N/A $575

1B - no amenities $589 $649 $605 $584 $624 N/A $580 $652 $612

1B - with amenities $655 $732 $625 $637 $703 N/A $665 $732 $678

2B/1b - no amenities $730 $728 $710 $694 $698 N/A $746 $741 $721

2B/1b - with amenities $793 $821 $753 $714 $788 N/A $792 $782 $778

2B/2b - no amenities $875 $921 $850 $812 $790 N/A $775 N/A $837

2B/2b - with amenities $926 $844 $829 $837 $1,073 N/A $830 $810 $878

3B - no amenities $906 N/A $900 $793 N/A N/A $1,085 N/A $921

3B - with amenities $979 N/A $870 $917 $1,033 N/A $1,028 $1,100 $988

Average Rent $807 $757 $743 $720 $758 N/A $783 $763

Vacancy Rate 2.65% 1.66% 2.78% 1.68% 1.59% N/A 1.84% 2.05%

Total Vacancy 2.05%

Mature Complexes (Constructed Before 1990)


50

2016 Rents increased in all unit types

2015 2016 % Change

Studio $537 $609 13.48%

1BR $639 $700 9.59%

2BR/1BA $677 $761 12.41%

2BR/2BA $813 $894 10.00%

3BR $957 $1,060 10.80%

Salem/Keizer Multi-family Market

Studio 1BR 2BR 2BR/2BA 3BR

Vacancy 1.56% 1.78% 1.98% 1.72% 1.62%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Vacancy by Unit Type

$0

$200

$400

$600

$800

$1,000

$1,200

Studio 1BR 2BR/1BA 2BR/2BA 3BR

Rent Appreciation

2015 2016


51

Tenant-Paid Water/Sewer/Garbage

Water/Sewer/Garbage is slowly being passed to the tenant in third party billing or flat fees. This alleviates the owner from absorbing the entire utility cost.

Trending from 2015 to 2016 shows slow implementation in mature units; whereas, new projects are more bullish.


74.5% 24.6% 37.4% 59.9%

84.4% 15.6% 45.9% 54.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Mature-Included Mature-Not Included New-Included New-Not Included

2015 2016


52


Price per unit & Price per SF both decreased in mature units. Likely due to location and age of the complexes within the sample

No new complex sales within the first quarter of 2016; however, 2015 showed measurable improvement over 2014; reflecting the desirable property type

Overall, capitalization rates continue their downward trend.

Mature Complexes 2008 2009 2010 2011 2012 2013 2014 2015 2016

Avg. Units/ Transaction 47 47 18 35 57 21 73 29 34

Price/Unit $50,794 $47,841 $49,697 $37,815 $46,362 $50,630 $46,739 $64,557 $52,201

Price/SF $66 $65 $71 $56 $60 $75 $60 $82 $77

GPIM 8.23 8.95 8.07 6.19 6.71 7.35 6.77 8.45 7.5

Operating Expenses (% EGI) 43.51% 40.50% 37.94% 44.15% 43.77% 40.58% 47.33% 42.83% 49.29%

Operating Expenses (per Unit) $2,651 $2,233 $2,518 $2,793 $2,841 $2,653 $3,068 $2,963 $3,251

OAR 6.60% 6.17% 6.89% 8.23% 8.06% 7.79% 7.47% 6.51% 6.53%

Days On Market 79 129 243 161 165 172 145 93 260

New Complexes 2008 2009 2010 2011 2012 2013 2014 2015 2016

Avg. Units/ Transaction 81 17 NONE 44 23 60 43 66 NONE

Price/Unit $68,158 $65,158 N/A $72,020 $86,957 $73,454 $62,177 $82,057 N/A

Price/SF $74 $77 N/A $72 $111 $80 $70 $79 N/A

GPIM 8.88 8.77 N/A 8.15 9.63 8.28 7.97 8.42 N/A

Operating Expenses (% EGI) 38.22% 34.9% N/A 39.89% 33.50% 43.06% 45.73% 38.26% N/A

Operating Expenses (per Unit) $2,850 $2,571 N/A $3,514 $3,351 $3,480 $3,392 $3,557 N/A

OAR 6.49% 6.80% N/A 6.65% 6.56% 6.54% 6.49% 6.99% N/A

Days On Market 117 299 N/A 216 548 59 64 101 N/A

Typical Salem/Keizer Apartment Financial Indicators

RECESS I ON

6.00%

6.20%

6.40%

6.60%

6.80%

7.00%

7.20%

7.40%

7.60%

2008 2009 2010 2011 2012 2013 2014 2015 2016

Salem/Keizer Multi-family Cap Rates


53

New Salem/Keizer Inventory

Since 2014, new apartment inventory totals 1,248 units

Most new development is occurring within South/Southeast Salem

Demand remains high for additional inventory


Project # Units Location Status

Hawks Pointe III 69 Keizer Under Construction

Skyline 52 S Salem Under Construction

River Valley Terrace 60 West Salem Proposed

Davis Road 134 S Salem Stalled

Chemawa Station 180 Keizer Under Construction

Battlecreek 201 S Salem Proposed

Encore Apts 108 S Salem In rent up

South Block 115 Central Salem Stabilized

South Block - II 53 Central Salem Under Construction

50 Oaks 42 S Salem Proposed

Reserve @ Hawks Ridge 178 SE Salem Stabilized

Hyacinth Street Apts 56 NE Salem Proposed

TOTAL 1,248

SALEM APARTMENT INVENTORY - POST 2014


54

Salem/Keizer Industrial Market

Analytics

Overall Vacancy

Absorption

Average Asking Rent

Months to Lease

Cap Rates



Analytic Statistics

Properties 659


Overall Vacancy 1.9% *without owner occupied space, vacancy is closer to 3%


12 Month Leasing SF 558,657 SF

Average Rent/SF $5.41/yr or $0.45/mth


Average Cap Rate 10.8% (newer properties trading at cap rates of 7 to 8%)

Under Construction 0 SF


55

Salem/Keizer Industrial Vacancy

& Asking Rent


Non-owner/user space has higher vacancy of 3%


New space is leasing at roughly $6.50/SF or $0.54/SF/mth*

Continued rent growth anticipated as the market quietly accepts marijuana-related tenancy despite strict lending practices

*Courtesy of Sperry Van Ness


56

Salem/Keizer Industrial Absorption, Deliveries & Vacancy

Positive absorption has occurred since 2013.

Months to lease is roughly 9 months; however, SVN reports recent listings went under contract within 30 days

Lack of existing large-scale properties readily available for lease

Financing will play a big role in new marijuana-related development


57

Salem/Keizer Industrial Sale to

Asking Price Differential &

Average Cap Rate

Tight industrial market is eliminating list to sale discounts, as demand has outpaced available inventory


58

Salem/Keizer Notable Industrial Projects &

Transactions

Legalization of marijuana industry is helping to bolster the industrial sector.

Exact occupancy #s are unknown at this time; however, rents typically command a premium of up to twice market rent.

Some developers remain unwilling to accommodate this tenant profile; however, those that are amenable to providing space for this budding industry are reaping the rewards in the form of higher rents and occupancy

After years of vacancy, the former Seneca Cannery (410,000 SF) was fully leased to two tenants in 2015 – Diamond Foods leased 63%

NW Distribution & Storage leased the remainder

Significant TIs and retrofitting ($millions) were necessary to attract the tenants

488 AC Mill Creek Corporate Center will have competition with 190 AC industrial development parcel located adjacent to Winco Foods fronting Interstate 5 in Woodburn. Can accommodate up to 2 million SF.

Look toward 2017.*

Several older large-scale projects were purchased for renovation within the past year Former Sumco North Building purchased by Power Equipment Systems,

who completely renovated the property

Former Pepsi Distribution Center at 3011 Silverton Road NE sold to Ray’s Produce: $1,450,000 or $33.45/SF

New industrial projects south of Fairview Industrial Drive totaling 90,000 SF are in the planning stages –Pre-leasing is ongoing, with asking rents of $6.50/SF.*

*Courtesy of Sperry Van Ness


59

Salem Development Opportunities

Oregon State Hospital North Campus – North of Center Street NE; 47.37 AC

Former Toyota/Subaru Dealership - NEC Mission Street & 25th Street NE –Pending sale to single user

Former Delon Automotive Site – 3.49 AC of CB zoned land improved with 37,320 SF of buildings. Poised for redevelopment and one of four potential sites being entertained for a new Salem Police Headquarters

47.37 AC fronting Center Street NE - State

wiling to work with developers to facilitate a mixed-use development

plan that will be mutually beneficial - All but 2

buildings being razed, with the rest remediated.


60

Increased population and OSU enrollment have resulted in lack of available housing

Approximately 18,000 people commute into the city each day

Several sales of older single-family houses on infill lots have resulted in land prices in excess of $50/SF; purchased for redevelopment with small student housing projects

Development hurdles with City municipalities stall many larger-scale projects such as Timberhill (200+ AC)

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

OSU Enrollment vs. Apartment Vacancy

OSU Enrollment Vacancy

Corvallis Multi-family Market


61

• M a n y l e n d e r s c a n n o t l e n d o n t e n a n t s p a c e o c c u p i e d b y m a r i j u a n a - r e l a t e d b u s i n e s s e s . F r o m a v a l u a t i o n s t a n d p o i n t , t h e s p a c e m u s t b e t r e a t e d a s v a c a n t - a n d s o m e t i m e s p h y s i c a l l y v a c a t e d i n o r d e r t o s e c u r e a l o a n .

• M a n y l e n d e r s n o w r e q u i r e o w n e r o c c u p i e d s p a c e t o b e t r e a t e d a s v a c a n t , w i t h a b s o r p t i o n c o s t s d e d u c t e d f r o m t h e f i n a l v a l u e c o n c l u s i o n .

• This may result in a lower value than anticipated by brokers, buyers & sellers

• Deductions include re-tenanting expenses such as:• Lost rent during the projected absorption period

• Leasing commissions

• Tenant Improvement costs

Appraising for Mortgage Financing Marijuana Occupancy & Owner/User Space


62

Powell Banz Valuation, LLCwww.powellbanz.com

Powell Banz Valuation, LLC

Left to right…

Jonathan B. Banz, MAI

Katherine Powell Banz, MAI

C. Spencer Powell, MAI

Jasper (Great Dane)

Sarah Hays

Shirley Layne

Daniel Harms

John Gillem

Austin Wiesner

Kathleen Hendersen

London Fergus

Shelly Montagne

Kat Fitzsimmons

Vada Logan


63

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