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Houston by the Numbers City of 2 million people City of 2 million people Metro area of almost 6 million people Metro area of almost 6 million people Area of almost 1,500 square miles Area of almost 1,500 square miles Remarkably diverse Remarkably diverse 90 different languages 90 different languages Lagging woefully in mass transit Lagging woefully in mass transit
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Challenges and Challenges and Strategies in Real Strategies in Real
Estate for 2010Estate for 2010Remarks by:Remarks by:
David M. MincbergDavid M. MincbergChairman and Chief Executive OfficerChairman and Chief Executive Officer
Flagship Properties CorporationFlagship Properties CorporationChairman, Houston Housing AuthorityChairman, Houston Housing Authority
Houston, TexasHouston, Texas
Real-WorldReal-WorldBackgroundBackgroundThe Real Estate World The Real Estate World Has ChangedHas Changed
Why and HowWhy and How
Houston by the NumbersHouston by the Numbers City of 2 million peopleCity of 2 million people Metro area of almost 6 million Metro area of almost 6 million
peoplepeople Area of almost 1,500 square milesArea of almost 1,500 square miles Remarkably diverseRemarkably diverse
90 different languages90 different languages Lagging woefully in mass transitLagging woefully in mass transit
Opportunity!Opportunity!Create a visionCreate a visionCraft a planCraft a planNot encumbered by pastNot encumbered by pastDesign for realityDesign for reality
Survey TimeSurvey TimeReal estate pricing/values?Real estate pricing/values? Inflation or Deflation?Inflation or Deflation?Déjà vu?Déjà vu?Analogies anyone?Analogies anyone?Bubbles up…bubbles downBubbles up…bubbles downHow long do bubbles last?How long do bubbles last?
Is it True?Is it True? Did real estate developers really Did real estate developers really
over-leverage?over-leverage?
What’s Really Out There?What’s Really Out There?
Or said differently…Or said differently…What’s lurking in the What’s lurking in the woods?woods?
Vacancy Levels Continuing Vacancy Levels Continuing to Rise Sharplyto Rise Sharply
9.5 86
13
7.55
19
1311
0
5
10
15
20
25
30
% Vacant
2000 2006 2010
Office Retail Multifamily
Monthly CMBS Monthly CMBS DelinquencyDelinquency
$7.0 $8.7$10.8$12.0$13.9
$17.2$18.8
$28.7$25.7
$28.2$31.7$32.6
$37.9
$0
$5
$10
$15
$20
$25
$30
$35
$40
Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09
$1.5 Trillion of Commercial $1.5 Trillion of Commercial Mortgages are Maturing Between Mortgages are Maturing Between
2009 and 20132009 and 2013
$26$55
$74 $89$44 $55
$99$136
$168
$188
$210
$236
$265
$0
$0
$0
$17
$20
$23
$26$25
$21
$26
$27
050
100150200250300350400
2009 2010 2011 2012 2013 2014 2015 2016
$ in
Billions
CMBS Banks Insurance Co.
One banker said to the One banker said to the other…other…
CRE Value TrendsCRE Value Trends Opportunistic funds are down 52% Opportunistic funds are down 52%
according to the NCREIF/Townsend according to the NCREIF/Townsend fund indices.fund indices.
Core funds are down 36.3% from Core funds are down 36.3% from their peak by the end of Q3 2009.their peak by the end of Q3 2009.
Commercial Real Estate Commercial Real Estate Value TrendsValue Trends
Blackstone marked down its real estate Blackstone marked down its real estate portfolio by 30% in Q4 2008 and another 19% portfolio by 30% in Q4 2008 and another 19% in Q1 2009.—in Q1 2009.—Wall Street Journal 05/07/2009Wall Street Journal 05/07/2009
Goldman Sachs’ biggest private real estate Goldman Sachs’ biggest private real estate equity fund, called Whitehall Street Global equity fund, called Whitehall Street Global Real Estate, L.P., invested $3.7B between Real Estate, L.P., invested $3.7B between May 2007 and August 2008 in a portfolio of May 2007 and August 2008 in a portfolio of casinos, hotels and office buildings. They casinos, hotels and office buildings. They have since written down those assets by have since written down those assets by $2.1B…--$2.1B…--Wall Street Journal 05/15/2009Wall Street Journal 05/15/2009
CRE Value TrendsCRE Value Trends MIT Transaction-Based Index shows MIT Transaction-Based Index shows
property values have fallen 39.2% from property values have fallen 39.2% from their peak by the end of June, 2009.their peak by the end of June, 2009.
Moody’s/REAL CPPI shows property Moody’s/REAL CPPI shows property values down 40.6% as of the end of values down 40.6% as of the end of August.August.
NACREIF Property Index indicates that it NACREIF Property Index indicates that it has recognized less than two-thirds of the has recognized less than two-thirds of the coming right-downs in property values.coming right-downs in property values.