Commercial Real Estate and Economic Outlook

Commercial Real Estate and Economic Outlook

REALTORS® Midyear MeetingsMarriott Wardman Park

Washington, DCMay 17, 2012

LAWRENCE YUN

Economy out of Recession and GrowingGDP growth for 11 straight quarters

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

-10

-8

-6

-4

-2

0

2

4

6

8

10

Consumer Spending is RisingSupported by Jobs and Income

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

-6

-4

-2

0

2

4

6

8

Total U.S. Payroll Jobs Increasing

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr124000

126000

128000

130000

132000

134000

136000

138000

140000

8 million job losses

4 millionjob gains

In thousandsIn thousands

Aggregate Personal Income Rising

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul8000

9000

10000

11000

12000

13000

14000 $ billion; not adjusted for inflation

Savings Rate Rebounded


1

2

3

4

5

6

7 % of disposable personal income; 12-month average

Consumer Confidence … Subpar


20

40

60

80

100

120

140

160

100 needed to assure incumbent President victory

North Dakota … Jobs Everywhere


320

340

360

380

400

420In thousands

Michigan … Beginning to Smile


3700

3900

4100

4300

4500

4700

4900In thousands

In thousands

U.S. Car and Truck Production

2000 - Jan 2001 - Dec 2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul400000

500000

600000

700000

800000

900000

1000000

1100000

120000012-month average

Nevada … Lagging for Now after the Big Housing Crash


1050

1100

1150

1200

1250

1300

1350In thousands

In thousands

Business Spending … Grew, but now Pausing

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

-40

-30

-20

-10

0

10

20

30Non-residential fixed investment growth rate

Corporate Profits … Sky High

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

-500

0

500

1000

1500

2000

2500$ billion

Strong Stock Market RecoveryS&P 500 (Almost 100% from low point)

NASDAQ (More than 100% increase from low point)

2005 - Jan

2005 - May

2005 - Sep

2006 - Jan

2006 - May

2006 - Sep

2007 - Jan

2007 - May

2007 - Sep

2008 - Jan

2008 - May

2008 - Sep

2009 - Jan

2009 - May

2009 - Sep

2010 - Jan

2010 - May

2010 - Sep

2011 - Jan

2011 - May

2011 - Sep

2012 - Jan

1000

1500

2000

2500

3000

3500

NASDAQ

Tepid Commercial Construction


250000

300000

350000

400000

450000$ million; value of construction put in place

Government Spending/Investment

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

-4

-2

0

2

4

6

8

104-quarter moving average

Federal

State & Local

Federal Government Employees(excluding Census workers)


2650

2700

2750

2800

2850

2900

State & Local Government Employees

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr16500

17000

17500

18000

18500

19000

19500

20000

U.S. Federal Budget Deficit(Standard & Poor’s Downgrade)

2000 - Jan 2001 - Dec 2003 - Nov 2005 - Oct 2007 - Sep 2009 - Aug 2011 - Jul

-1600000

-1400000

-1200000

-1000000

-800000

-600000

-400000

-200000

0

200000

400000

$ million; 12-month Total

World Report CardCountry 10-Year Borrowing Rate

Germany 1.5%

Singapore 1.5%

United States 1.8%

United Kingdom 2.0%

Canada 2.0%

France 2.8%

Brazil 3.4%

Italy 5.5%

Spain 6.0%

Greece 24.0%

Source: Bloomberg

State Report CardState 10-year Borrowing Rate above

Benchmark (% points)

Average Benchmark Around 3.5%

Rhode Island Benchmark + 0.5%

Michigan Benchmark + 0.7%

Nevada Benchmark + 0.7%

California Benchmark + 0.9%

Illinois Benchmark + 1.6%

Source: WSJ

Imports and Exports … Expanding Briskly(International Trade always falls during recessions)

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

800

1300

1800

2300

2800

3300 $ billion

Consumer Price Inflation(Above Fed’s preferred 2% core inflation rate)

2005 2006 2007 2008 2009 2010 2011 2012 forecast

2013 forecast

-1

0

1

2

3

4

5

Rent All Items Core%

Producer Price Inflationary Pressure … Diminishing

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr

-20

-15

-10

-5

0

5

10

15

20

Finished Intermediate%

Fed Policy and Interest Rates

20052006

20072008

20092010

2011

2012 foreca

st

2013 foreca

st

2014 foreca

st0

1

2

3

4

5

6

Fed Funds 10-year Treasury%

Residential Investment Spending Growth

2000 - Q1

2000 - Q4

2001 - Q3

2002 - Q2

2003 - Q1

2003 - Q4

2004 - Q3

2005 - Q2

2006 - Q1

2006 - Q4

2007 - Q3

2008 - Q2

2009 - Q1

2009 - Q4

2010 - Q3

2011 - Q2

2012 - Q1

-40

-30

-20

-10

0

10

20

30Home Buyer Tax Credit

Economic Forecast(GDP = C + I + G + ∆NX)

2011History

2012Forecast

2013Forecast

GDP Growth +1.8% +2.4% +3.1%

Payroll Job Gains

+1.7 million +2.2 million +2.5 million

Fed Funds Rate 0.1% 0.1% 0.1%

10-yr Treasury 2.8% 2.1% 2.5%

Risks to Economic Forecast

Fiscal Cliff on January 1, 2013 … if no new compromised budget then …

• Automatic deep cuts to military and domestic spending• Automatic higher taxes• 3% shaved off GDP growth, which is currently growing

at 2%

Commercial Real Estate

Source: Real Capital Analytics, 4Q 2011.

Big Transactions Coming Back$2.5 million property and above

REALTOR® Business Deals(Majority are less than $1 million)

Method of Finance

Underwriting Standards?

Financial Industry Profits(excluding Federal Reserve)

2001 - Q1

2001 - Q4

2002 - Q3

2003 - Q2

2004 - Q1

2004 - Q4

2005 - Q3

2006 - Q2

2007 - Q1

2007 - Q4

2008 - Q3

2009 - Q2

2010 - Q1

2010 - Q4

2011 - Q3

-200

-100

0

100

200

300

400

500$ billion

Rental Occupied Housing Units

1980 - Q1 1984 - Q2 1988 - Q3 1992 - Q4 1997 - Q1 2001 - Q2 2005 - Q3 2009 - Q425000

27000

29000

31000

33000

35000

37000

39000

41000

Rental Households

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0.01.02.03.04.05.06.07.08.09.0

Multifamily Vacancy Rate

Source: REIS, Inc.

Rent Growth (Component from Consumer Price Index)

2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul

-1

0

1

2

3

4

5

% change from one year ago

Multifamily Fundamentals

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-50,000

0

50,000

100,000

150,000

200,000

250,000

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0Completions Net Absorption Vacancy

Source: NAR/REIS

Apartment Deals and Pricing

Source: RCA, 4Q 2011.

Multifamily Vacancy Rates

New York

San Diego

San Fr

ancis

co

Boston

Los A

ngeles

Miam

i

Distric

t of C

olumbia

Chicago

Denver

Detroit

Indianap

olis

Las V

egas

Orlando

Atlanta

Houston

Jackso

nville

0

1

2

3

4

5

6

7

8

9

Source: NAR/REIS

Office Fundamentals

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-150,000,000

-100,000,000

-50,000,000

0

50,000,000

100,000,000

150,000,000

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Completions Net Absorption Vacancy

Source: NAR/REIS

Office Deals and Pricing

• Source: RCA, 4Q 2011.


Office Vacancy Rates

Distric

t of C

olumbia

New York

Boston

San Fr

ancis

co

Los A

ngeles

Philadelphia

Seatt

leM

iami

Orlando

St. Lo

uis

Chicago

Oklahoma C

ity

Cincinnati

Indianap

olis

Atlanta

Dallas

Phoenix

Detroit

0

5

10

15

20

25

30

Source: NAR/REIS

Industrial Fundamentals

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-100,000,000

-50,000,000

0

50,000,000

100,000,000

150,000,000

0.0

2.0

4.0

6.0

8.0

10.0

12.0


Source: NAR/REIS

Industrial Deals and Pricing


Industrial Vacancy Rates

Los A

ngeles

Miam

i

St. Lo

uis

Denver

Cincinnati

Indianap

olis

Clevelan

d

Kansas

City

Chicago

Orlando

Detroit

Dallas

Baltimore

Memphis

San Jo

se

Boston

0

5

10

15

20

25

Source: NAR/REIS

Retail Fundamentals

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-30,000,000

-20,000,000

-10,000,000

0

10,000,000

20,000,000

30,000,000

40,000,000

0.0

2.0

4.0

6.0

8.0

10.0

12.0


Source: NAR/REIS

Retail Deals and Pricing


Retail Vacancy Rates

San Fr

ancis

co

Los A

ngeles

Boston

Miam

i

Philadelphia

New Orle

ans

Fort

Lauderd

ale

Chicago

Detroit

Phoenix

Las V

egas

Orlando

Atlanta

Dallas

Indianap

olis

Clevelan

d0

2

4

6

8

10

12

14

16

Source: NAR/REIS

Commercial Market ForecastOFFICE 2011 2012 2013

Vacancy Rate 16.6% 16.3% 15.9%Net Absorption ('000 sq. ft.) 20,178 31,700 53,000

Completions ('000 sq. ft.) 11,659 25,474 37,847Rent Growth 1.4% 1.7% 2.4%

INDUSTRIAL 2011 2012 2013


Completions ('000 sq. ft.) 20,462 26,947 54,881Rent Growth -0.5% 1.8% 2.3%

RETAIL 2011 2012 2013


Completions ('000 sq. ft.) 4,207 12,677 19,878Rent Growth -0.2% 0.7% 1.4%

MULTI-FAMILY 2011 2012 2013

Vacancy Rate 5.4% 4.6% 4.5%Net Absorption (Units) 238,398 126,621 102,687

Completions (Units) 38,014 88,839 93,706Rent Growth 2.5% 3.5% 3.8%

Commercial Real Estate and Economic Outlook

REALTORS® Midyear MeetingsMarriott Wardman Park

Washington, DCMay 17, 2012

LAWRENCE YUN