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Delivering Alternative Investments to the Broker-Dealer Community
CPA Continuing Education Series Copyright © 1031 Exchange Provider
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Why Consider a Real Estate Investment in the Current
Market Qtr 3 - 2009
Presented by:
Richard Zimmerman, Founder1031 Exchange Provider
CPA Continuing Education SeriesCPA Continuing Education Series
Delivering Alternative Investments to the Broker-Dealer Community
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Focus on the Opportunity
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Why You Should Consider Real Estate Now
“Buy land. They aren’t making any more of it.”-Will Rogers
“Buy when people want to sell. Sell when people want to buy.”
-Warren Buffett
“Buy when there’s blood in the streets.”-Baron Rothschild
“At our price. On our terms. It’s our time.”-Savvy Real Estate Investors
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The Forces Creating a Buyer’s Market
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Key Themes as of Q1 2009CRE Fundamentals dramatically weaker across most major property segments and markets
Price declines of 35%-45% (or more) expected, exceeding those of early 1990sRent declines and vacancy rates may approach those of the early 1990sCurrent downturn is recessionary demand induced versus over-supply induced downturn of early 1990
Conduit collateral performance deteriorating at historically fast paceTotal delinquency rate close to 2003 peak, and likely to exceed 3.5% by year-endMay reach 6% by 2010 (peak delinquency rates in early 1990s were 6%-7%)
However, by far the greatest risk facing CMBS is maturity default/extension risk, not term default risk
Large percentage of CMBS loans made in 2005-2008 will not qualify for refinancing without substantial equity injections due to:
Much tighter underwriting standardsMassive price declinesDeclining cash flow
Source: Deutsche Bank
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Key Themes (cont)Government programs needed to avoid hundreds of billions of dollars of distressed CRE hitting the market and perpetuating a downward spiral on CRE Prices
Damage to bank portfoliosDamage to insurance company portfoliosOther financial institutions
TALF and PPIPLegacy AAA CMBS bonds to be added to TALF (financial details sketchy)Expect AAA spreads to tighten and cash synthetic basis to compress
How bad it gets in CRE depends on how bad the economy gets
Source: Deutsche Bank
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How Did We Get Here? – Shadow Banking System Failure
7
Depositors
Commercial Banks,Saving
Institutions,Credit Unions
Residential Mortgages
Consumer Credit
Commercial Mortgages
C&I Loans
Asset-Backed
Conduits
Finance Companies
RMBS
ABS
CMBS
CLO
CDOs:High-Grade,Mezzanine,
Synthetic
Money Market
Repo Market
SIVs
Broker-Dealers
Hedge Funds
Pension Funds,
Insurance Cos
The Traditional Banking SystemLoans are largely funded by deposits
The Shadow Banking SystemOriginated loans are pooled and their cash flows and risks are traced and distributed to
a wide range of investors, many of whom use short –term funding to invest in them
• Securitization did not spread risk and the sub-prime housing debacle became a catalyst for the financial crisis as liquidity fled the market driving down asset values
Sources: Zandi, Financial Shock 2008
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How the Shadow Banking System Failure Lead to the Beginning of a Downturn in Commercial Real
EstateCMBS market froze as investors hurt by sub-prime exposure fled to the sidelines
Banks hit hard by asset write-downs shut down conduit lending operations
As financing became increasingly difficult for Commercial Real Estate owners, the volume of acquisitions came to an almost virtual halt
When broader credit froze, and the economy declined, negotiating power shifted from the landlords to the tenants, and sellers to buyers
Previously loose underwriting standards got a sober awakening as rental growth needed to support amortizing loan payments (often after interest only periods) never materialized, causing loan delinquencies, reduced returns and weakened balance sheets
8
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Commercial Real Estate: It’s the RTC Days But Worse
Value declines most likely will exceed those of the early 1990’s Analysts are currently predicting 35%-55% price/value declines Substantial decreases in rents and occupancies projected as commercial real
estate catches up to the rest of the economic downturn Low demand with excess supply is likely to continue well into 2010 and possibly
2011
9
Source: Deutsche Bank Commercial Real Estate Outlook March 2009
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Commercial Real Estate: It’s the RTC Days But Worse
Value declines most likely will exceed those of the early 1990’s Analysts are currently predicting 35%-55% price/value declines Substantial decreases in rents and occupancies projected as commercial real
estate catches up to the rest of the economic downturn Low demand with excess supply is likely to continue well into 2010 and possibly
2011
Delinquency rates on commercial real estate debt is rising rapidly Total delinquency rate likely to be 3.5% by the end of 2009 and possibly 6% by
2010
10
Source: Deutsche Bank Commercial Real Estate Outlook March 2009
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Commercial Real Estate: It’s the RTC Days But Worse
Value declines most likely will exceed those of the early 1990’s Analysts are currently predicting 35%-55% price/value declines Substantial decreases in rents and occupancies projected as commercial real estate
catches up to the rest of the economic downturn Low demand with excess supply is likely to continue well into 2010 and possibly 2011
Delinquency rates on commercial real estate debt is rising rapidly Total delinquency rate likely to be 3.5% by the end of 2009 and possibly 6% by 2010
Greatest risk facing Borrowers is inability to satisfy loans at maturity Large % of loans made in 2005/2008 will not qualify for refinancing without substantial
equity injections due to: Much tighter underwriting standards Massive price declines Declining cash flows/debt service coverage ratios
11
Source: Deutsche Bank Commercial Real Estate Outlook March 2009
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Why it is Just Starting to Get Bad, and Going to Get Worse
The lag from unemploymentOn a year over year basis, U.S. non-farm payrolls have fallen over 2%Many expect continued retraction in US Economy until middle to late 2009Labor Market, which lags behind the broader economy, is expected to contract until late 2010The correlation of payroll growth to absorption in commercial real estate indicates that commercial real estate will continue to see a decline well into 2010, and possibly early 2011
12
Year-over-Year % Change in Non-Farm Payrolls (NFP) Vs. % Net Absorption
Source: Barclays Capital Dec. 08
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Occupancy & Rental Rates are on a Sharp Decline
13
Vacancy Rate by Property Segment (%)
Source: Property & Portfolio Research; BIG
Year over Year Rental Growth by Property Segment (%)
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Estimated Commercial Real Estate Debt Maturities ($ Bln)
14
Source: Barclays Capital
• As of Feb 2009 approximately 2.11% of commercial loans were delinquent, and data points to escalating delinquencies
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CMBS Delinquency Rates Rising Sharply
30-day and 60-day delinquency rates up 300% to 400% in 6 monthsExpected aggregate delinquency rate will be in excess of 3.5% by end of 2009 and 5-6% by late 2010
15
Monthly delinquencies are at a historic highTotal dollar amount of delinquent loans has grown by an average of 22% per month since October 2008
Sources: Deutsche Bank March 2009; Intex; Trepp
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Past Underwriting Present UnderwritingGoing In Cap Rate 5% to 6.5% 8% to 10% (or more)
Loan to ValueMore Debt- Higher LTV ratios (75% to 85%) More Equity- Lower LTV ratios 50% to 60%
Amortization5 yrs Interest Only then 30 yr Amortization 30 yr Amortization
Term 5 to 10 years 10 years
Interest Rate 95 points over 10 year UST (5.65%) 525 points over the 10 year UST (8.10%)
Occupancy Levels 95%+ Average Occupancy Levels 80%+ Average Occupancy Levels
Rental Growth Assumptions 3% to 6% Annual Rental Growth-5% 0% Annual Rental Growth for 3 years then 3%
Operating Expense Assumptions 2.5% Annual Expense Growth 3% Annual Expense Growth
NOI Growth Average 8% Annual NOI Growth-5% to 0% NOI Growth for 3 years then 3% NOI Growth
Tenant Retention Ratios 90% Retention of Tenants 60% Retention of Tenants
Lease Downtime from Rollovers 4 to 6 months
6 to 12 months for first 3 years, 6 months thereafter
Average Lease Term 5 years 2 to 3 years
Refinancing Assumptions Refinancing under original loan terms Refinancing under new terms
Exit Cap Rate 5% to 6.5% 8% to 10% (or more)
Past vs. Present: Diverging Perspectives
16
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013REFINANCEANYONE?
REFINANCEANYONE?
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Required ROE for levered CRE investors suggests price declines of 45% or more
2007 Underwriting New UnderwritingNew Underwriting15% NOI Decline
Cap Rate (going in) 4.8% 7.4% 8.6%
Purchase Price ($MM) 105 68 58
Loan to Value (LTV) 85% 66% 60%
Equity ($MM) 16 23 23
Loan Amount ($MM) 89 45 35
Amortization IO 30yr 30yr
10-year UST 4.69% 2.86% 2.86%
Swap Spread 50 25 25
Credit Spread 45 500 500
All-in Rate 5.64% 8.11% 8.11%
Yr 1 Interest Cost ($MM) 5.05 3.61 2.82
Yr 1 DSCR 1.00X 1.25X 1.36X
Yr 10 NOI ($MM) 6.5 6.5 5.5
Cap Rate (exit) 4.28% 7.4% 8.6%
Yr 10 value 137 89 64
ROE 13.8% 12.8% 13.0%
Implied Price Decline 35% 45%
Source: Deutsche Bank
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As property prices continue to decline, more vintages will face refinancing
issues
Price declines that have already taken place may pose significant problems for 2006 and 2007 loans that mature during the 2011-2012 periodFurther price declines would likely create significant problems for earlier vintages
Price Decline from October 2007 Peak
12%24%37%41%
Takes Prices Back To:
Early 2006Early 2005Early 2004Early 2003
Source: Deutsche Bank
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Estimating the number of loans that will qualify for refinancing
1. Project individual property cash flows using Portfolio and Property Research (PPR) rent growth and vacancy assumptions.
2. Specify average cap rates at each future date for each property type
3. Use the above to deduce LTV and DSCR at maturity for each loan under this scenario
4. Specify assumptions about maximum LTV and minimum DSCR for refinancing
5. Calculate aggregate value of loans that do not qualify for refinancing.
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Scenario assumptionsPPR Recession Scenario – Aggregate 5-yr NOI growth by property type
Assumed current and future cap rates
Property Segment % NOI Change
Industrial -8.5
Multifamily -4.4
Office -13.1
Retail -16.1
Hotel -20.0
PPR Aggregate Current-to-Trough NOI Decline
Property Segment Current
2yrs Fwd
5yrs Fwd
10yrs Fwd
18yrs Fwd
Multifamily 9.5 9.5 9.0 8.0 8.0
Non-Multifamily 8.5 8.5 8.0 8.0 8.0
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Loans maturing 2009-2012: Lenient Underwriting
For loans maturing through 2012, even lenient underwriting requirements imply the majority (56.8%) of loans will not qualifyOut of $154.5 billion of maturing loans, $87.7 billion do no qualifyOffice and multifamily are most severely impacted segments
Source: Intex, Trepp
Property Type # Loans
Balance($BB)
# Defaulted
Loans
Defaulted Balance ($BB)
% Not Qualifying
(Count)
% Not Qualifying (Balance)
Hotel 475 7.4 183 3.9 38.5 52.8
Industrial 1,189 5.8 356 2.1 29.9 36.4
Multifamily 3,793 24.4 1,959 16.5 51.6 67.5
Office 2,629 40.9 1,196 27.1 45.5 66.3
Retail 4,156 44.6 1,612 22.7 38.8 50.8
Multi Propetry 672 22.0 249 10.4 37.1 47.2
Other 1,545 9.4 513 5.1 33.2 54.0
Aggregate 14,459 154.5 6,068 87.7 42.0 56.8
Loans Maturing 2009 – 2012
Refinancing Requirement: LTV < 80%
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Loans maturing 2009-2012: Conservative Underwriting
For loans maturing through 2012, conservative refinancing assumptions imply approximately two-thirds of maturing loans will not qualify for refinancingFewer than 25% of multifamily loans and 25% of office loans qualify under this scenario
Source: Intex, Trepp
Property Type # Loans
Balance($BB)
# Defaulted
Loans
Defaulted Balance ($BB)
% Not Qualifying
(Count)
% Not Qualifying (Balance)
Hotel 475 7.4 200 4.2 42.1 57.3
Industrial 1,189 5.8 438 2.7 36.8 45.8
Multifamily 3,793 24.4 2,170 18.4 57.2 75.2
Office 2,629 40.9 1,459 31.0 55.5 75.7
Retail 4,156 44.6 2,181 28.5 52.5 64.0
Multi Propetry 672 22.0 300 11.9 44.6 54.1
Other 1,545 9.4 667 5.9 43.2 62.5
Aggregate 14,459 154.5 7,415 87.7 51.3 66.4
Loans Maturing 2009 – 2012
Refinancing Requirement: LTV < 70%
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These estimates are regarded as lower bounds because of the following factors
PPR NOI projections are optimistic The minimum LTV is more likely to be in the 60%-65% range, NOT 70%These estimates are imposing only value (LTV) constraints, not cash flow coverage constraints (DSCR)
In imposing DSCR constraints, need to take account of much higher financing costs relative to financing costs of existing loansDSCR constraints would likely result in vastly more loans failing to qualify for refinancing.
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Why Invest in Real Estate Now
This recession has created tremendous opportunities to invest in real estate.
No competitive real estate marketInability to refinance many propertiesQuality off-market, distressed-owner propertiesReal Estate has consistently been a top performer
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FACTS! Most TICs, Funds and Non-
traded REITs have performed well relative to other investments.
This recession is generating favorable acquisition opportunities.
Yields on acquisitions have improved.
Real estate is non-correlated to stocks and bonds.
More wealth has been created from real estate investments than any other asset.
Real estate is a tangible asset whose values tend to outpace inflation.
Emotional investing is bad investing.
Early cycle investors often reap the benefits of including under-valued investments in their portfolio.
The level of wealth creation and transfer of wealth from the current crisis is no doubt a once in a century opportunity.
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Who will benefit from the redistribution of wealth and
foreclosures?
Those who are prepared.Those who have available cash or credit.Those who are open to a next generation of real estate opportunities.
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So, Why Invest Now?
Reason OneDiversification Reduces Risk and Potentially Increases Total Return
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• Commercial property prices are now 26.9% lower than one year ago and 33.9% below the level seen two years ago, as measured by the CPPI.
• Values on commercial property prices are now 35.5% below the peak seen in October 2007.
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CMBS Delinquency Rates Rising Sharply
30-day and 60-day delinquency rates up 300% to 400% in 6 months
Expected aggregate delinquency rate will be in excess of 3.5% by end of 2009 and 5-6% by late 2010
Sources: Deutsche Bank March 2009; Intex; Trepp
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CMBS Delinquency Rates Rising Sharply
30-day and 60-day delinquency rates up 300% to 400% in 6 months
Expected aggregate delinquency rate will be in excess of 3.5% by end of 2009 and 5-6% by late 2010
• Monthly delinquencies are at a historic high
• Total dollar amount of delinquent loans has grown by an average of 22% per month since October 2008
Sources: Deutsche Bank March 2009; Intex; Trepp
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Real Estate Overview
Is the glass half full or half empty?
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Private Real Estate Has PerformedPrivate Real Estate Has PerformedPrivate Real Estate - compared to Public Real Estate, Stocks and Bonds – has provided the highest average returns over the past 3, 5 and 10 year periods.
Source: National Council of Real Estate Investment Fiduciaries. The chart above shows the average returns of different investments. Each of the respective investments possess different features, including investors’ expectations, investment objectives, risks, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal, returns (if any), and tax features, which must be considered when evaluating the performance of such investments. The index returns are shown for illustrative purposes only, you cannot invest in directly in an index. Past performance is no guarantee of future results.
37
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Lower Risk Levels for Privately Held Real Estate
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Direct RealEstate
Large CapStocks(S&P
500)
PubliclyTradedREITS
Small CAPStocks
(Russell2000)
Int'l Stocks(MSCI)
Standard Deviation 1985-2008*
Source: Morningstar, Inc.
* Chart Benchmarks: Direct real estate is represented by the Transactions-Based Index of Institutional Commercial Property Investment Performance (TBI) from the MIT Center for Real Estate. REITs are represented by the FTSE NAREIT Equity REIT Index, large cap stocks are represented by the S&P 500, small cap stocks are represented by the performance of the Dimensional fund Advisors, Inc. (DFA) United States Micro Cap Portfolio, and international stocks are represented by the Morgan Stanley Capital International Europe, Australasia, and Far East.(EAFE) index. The data assumes reinvestment of all income and does not account for taxes or transaction costs.
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Non-Correlation to Other Asset Classes
Real Estate Vs. Equities 1985-2008
DirectReal
Estate
Publicly Traded REITS
Large CAP Stocks
(S&P 500)
Small CAP Stocks(Russell 2000)
Int’lStocks(MSCI)
DirectReal Estate 1.00
PubliclyTraded REITS 0.33 1.00
Large CAP Stocks(S&P 500) 0.29 0.53 1.00
Small CAP Stocks(Russell 2000) 0.26 0.64 0.80 1.00
Int’L Stocks(MSCI) 0.21 0.44 0.74 0.59 1.00
* Chart Benchmarks: Direct real estate is represented by the Transactions-Based Index of Institutional Commercial Property Investment Performance (TBI) from the MIT Center for Real Estate. REITs are represented by the FTSE NAREIT Equity REIT Index, large cap stocks are represented by the S&P 500, small cap stocks are represented by the performance of the Dimensional fund Advisors, Inc. (DFA) United States Micro Cap Portfolio, and international stocks are represented by the Morgan Stanley Capital International Europe, Australasia, and Far East.(EAFE) index. The data assumes reinvestment of all income and does not account for taxes or transaction costs.
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Real Estate may be able to Lower Risk and Increase Returns
Hypothetical Portfolio Allocation 1989-2008
0
50%40%
10%
45%
10%10%
35%
40%
10%
20%
30%
WITH NO REAL ESTATE HOLDINGS
WITH 10% REAL ESTATE HOLDINGS
WITH 20% REAL ESTATE HOLDINGS
Return 8.3%Risk 8.2%
Return 8.4%Risk 7.6%
Return 8.5%Risk 7.1%
Source: Morningstar (Data as of 12/31/08 – This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. Stocks are represented by the S&P 500, which is an unmanaged group of securities and considered to be representative of the stock market in general. Bonds are represented by the 5-yr US Govt. Bond, Treasury bills by the 30-day US Treasury bill, and direct real estate by the Transactions-Based Index of Institutional Commercial Property Investment Performance (TBI) from the MIT Center for Real Estate. The average return and risk are represented by the arithmetic average return and standard deviation respectively. Standard deviation measures the fluctuation of returns around the arithmetic average return of the investment. The higher the standard deviation, the greater the variability and thus risk of the investment returns.
Stocks
Bonds
T-Bills
Real Estate
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Why Invest Now
Reason TwoRecovery is Poised to
Create Greater Demand
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Space Demand Will Outpace Supply
42
Source: Property & Portfolio Research
Apartment Forecast
Office Forecast
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Space Demand Will Outpace Supply
43
Source: Property & Portfolio Research
Retail Forecast
Industrial/Warehouse Forecast
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Why Invest Now
Reason ThreeThere is Blood in the Streets
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Investors Cycle of Market Emotions
Optimistic
“Tim
e to b
uy”
GreatestPotential
Risk
GreatestPotential
Opportunity“Time to sell”
“Time to
eva
luate
”Excited
Elated
Concerned
Nervous
Frightened
Relieved
Optimistic
“This is only
temporary”
We Are We Are HereHere
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Source: Real Capital Analytics
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Savvy Investors Cycle of Market Timing
Optimistic
“Tim
e to
eval
uate
”
GreatestPotential
Risk
GreatestPotential
Opportunity
“Time to Buy”“Tim
e to Buy”
Concerned
Nervous
Relieved
Optimistic
Excited
Elated
Optimistic
“Time to Sell”
We Are We Are HereHere
“This is only Temporary”
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Real Estate’s Future
We do not know what the future holds. We learn from the past and apply key learning to future investing. Real estate is predicated on population growth and demographic trendsEach sector benefits variously to:
overall population growthemployment growthdemographic changes infrastructure developments.
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Consider, that current valuations may not provide for an accurate reflection of overall asset values and where we are in the cycle.
This is similar to the cycle during the 1990's, when there were huge price drops at the bottom of the market, but on very low volume. At the very “bottom” of the market, transactional velocity was at a standstill and it was nearly impossible to find “market bottom” assets to buy.
It was also the same in the stock market in March 2009, when the Dow hit of low of 6,443. At that moment, everyone had lost a ton of money on paper, but it quickly rebounded, as buyers re-entered the market. Just three weeks later the market was at 7,924 (up 23% from its low) and by June it was above 9,000 (up 40%).
In both cases, those investors who waited for the “bottom” of the market may have missed it. And, since market data often has a significant lag, investors not only missed the bottom, but much of the trough of the cycle.
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Prices are down, but they aren't inherently what they appear and the perception of opportunity may be skewed.
When are we in the "bottom" of the market? Who is to say that we aren't in it now?
Some data suggests increased volume and a slowing of price declines.
With huge money on the sidelines starting to come into the market, massive funds and REITs having to invest, TARP and other government assistance, a recovering economy, potential inflation, supply constraints, etc, combined with banks who are doing everything not to take assets back, it is possible that the meltdown in commercial real estate make not be as pronounced as the media suggests, and that the very low prices will be short lived and on small volume.
What will hundreds of billions of dollars slated for "opportunistic" investment do to prices, when there is a relatively limited supply?
Negative factors include lack of accessible credit, delinquencies and defaults, the disconnect between buyers and sellers, economic pressures, and investor sentiment.
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Many indicators suggest that we are near the “bottom” of the cycle and that prices will stabilize and slightly rebound in early 2010.
Prices may stay down for a while, but as credit loosen up, the economy improves, and the large cache of funds is released on the market, values will rise. This will be positively impacted by inflation and the lack of new supply on the horizon.
Those who wait for news that he market has bottomed will have missed much of the opportunity.
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Build a base using bottom up analysis•Property Segment•Property Segment Submarket•Rent Roll/Tenant Base
•Economy- Local/National•Property Segment Market•Property Segment Micro-Market
Perform rigorous due diligence and underwriting•Property Condition/Environmental•Stress Test Scenarios/Assumptions•Tenant, Capital Costs & Liquidity
•Site Visits/Local Presence•Property Segment Submarket•Leverage & Financing
Implement portfolio constraints to maximize cash flow•Allocate by property types and asset classes (Loans & Property)
•Allocation of Equity•Investment Timeline & Holding Period
Hold to Stabilize & Reposition/Exploit Market Conditions •Sell into up cycles•Repositioning / Renovations•Bail out Distressed Owners/Lenders•Supply “gap” equity to venture partners
•Hold through down cycles•Strong Asset Management•Aggressive Management
How To Take Aim to Maximize Returns
Assess Unique Market Characteristics• Transitional Markets• Utilize Market Presence/Network
•Transitional Property Segments•Transitional Sub Markets•Catalyst Events
Delivering Alternative Investments to the Broker-Dealer Community
CPA Continuing Education Series Copyright © 1031 Exchange Provider
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Holding Power & Cash Flow
We take a 360 degree view of real estate, and then narrow in on two of our primary targets, preservation of investor capital and cash flow. Our tools are due diligence, risk management and portfolio allocation. Important to this investment approach are:
1. Property Segment Analysis
2. Rent Roll/Tenant AnalysisRollover timeline and tenant baseTenant interviews and market presence are key to assessing income stability
3. Economic, Market and Submarket AnalysisBroader economy sings the chorus while local economy sings the lead Focus on data; bottom up, quantitative approach
4. Rigorous Due Diligence and UnderwritingSite visits, tenant interviews, local market presence, experienced due diligence teamProperty condition, environmental, and energy efficiencyStress testing multiple scenariosLeverage, financing terms, capital costs, tenanting costs
Delivering Alternative Investments to the Broker-Dealer Community
CPA Continuing Education Series Copyright © 1031 Exchange Provider
1031 Exchange Provider1031 Exchange Provider
Exploit Changing Market Conditions & Achieve Capital Gains
Without straying from our focus on capital preservation and cash flow, we are well aware that some of the most intriguing returns in real estate are provided by focusing on capital gains through value appreciation. To take advantage of this opportunity we overlay additional investment approaches:
1. Assessment of unique market characteristicsNeighborhoods in transitionCatalyst events that trigger an upside situation in a submarket or micro-marketMarket presence, expertise and experienced partners are key to finding opportunities
Delivering Alternative Investments to the Broker-Dealer Community
CPA Continuing Education Series Copyright © 1031 Exchange Provider
1031 Exchange Provider1031 Exchange Provider
Exploit Changing Market Conditions & Achieve Capital Gains
Without straying from our focus on capital preservation and cash flow, we are well aware that some of the most intriguing returns in real estate are provided by focusing on capital gains through value appreciation. To take advantage of this opportunity we overlay additional investment approaches:
1. Assessment of unique market characteristicsNeighborhoods in transitionCatalyst events that trigger an upside situation in a submarket or micro-marketMarket presence, expertise and experienced partners are key to finding opportunities
2. Implementation of portfolio constraints aimed at maintaining portfolio cash flow
Allocation of Equity (analyzing investment dollars and aggregation of cash flows)Investment timeline and holding period
Delivering Alternative Investments to the Broker-Dealer Community
CPA Continuing Education Series Copyright © 1031 Exchange Provider
1031 Exchange Provider1031 Exchange Provider
Exploit Changing Market Conditions & Achieve Capital Gains
Without straying from our focus on capital preservation and cash flow, we are well aware that some of the most intriguing returns in real estate are provided by focusing on capital gains through value appreciation. To take advantage of this opportunity we overlay additional investment approaches:
1. Assessment of unique market characteristicsNeighborhoods in transitionCatalyst events that trigger an upside situation in a submarket or micro-marketMarket presence, expertise and experienced partners are key to finding opportunities
2. Implementation of portfolio constraints aimed at maintaining portfolio cash flow
Allocation of Equity (analyzing investment dollars and aggregation of cash flows)Investment timeline and holding period
3. Strategies aimed at adapting to various market conditions that drive opportunities
Renovations, repositioning, aggressive management and other value added strategiesGreening retrofits and renovations aimed at reducing exposure to rising energy costs and retaining tenants who want, or are required to be in, green buildingsBailing out distressed owners/managers/lendersProviding gap (later stage) equity to venture partners to enable completion of acquisitions and projects
Delivering Alternative Investments to the Broker-Dealer Community
CPA Continuing Education Series Copyright © 1031 Exchange Provider
1031 Exchange Provider1031 Exchange Provider
1. Preserve, protect and return investor capital
2. Maximize cash flow3. Capture potential capital gains over
time
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Investment Objectives
RISK
RETURN
3.) Capital Gains
2.) Maximize Cash Flow
1.) Capital Preservation