Changed Circumstances for Real Estate Demand

www.otteau.com 800.458.7161

Changed Circumstances for

Real Estate Demand

2014 NJ Planning Conference January 23, 2014

Bringing Clarity to Real Estate

As President of Otteau Valuation Group Mr. Otteau manages facets of the firm's business including serving as General Manager of www.otteau.com which is an information provider on real estate trends. He has been actively engaged in real estate consultation and valuation since 1974 and holds the State Certified General Real Estate Appraiser certification, the highest level offered. His practice is concentrated in providing project feasibility, marketing analysis, redevelopment guidance and valuation analysis to developers, financial institutions, Governmental entities and investors. Frequently quoted in the New York Times and Wall Street Journal, and having made television appearances on CNBC, Bloomberg and NBC, Mr. Otteau is widely respected for his knowledge and insight into real estate trends. His attention to detail and comprehensive fact finding has made him the go-to person for industry professionals seeking to enhance their competitive position in the marketplace. Jeffrey has provided testimony as an expert witness at the municipal, county and state levels, authored several texts on property Valuation techniques and has lectured throughout the United States and in Canada. He served on the Appraisal Standards Advisory Council, which consulted with the Appraisal Foundation in Washington, D.C. on its agenda of projects and major technical issues. Mr. Otteau served as a past Chairman of the Employee Relocation Council's Appraisal Standards Council and was inducted into their distinguished Hall of Leaders in 1995.

© Copyright 2013 Otteau Valuation Group, Inc.

http://www.otteau.com/

MarketTRAC by OTTEAU.com Stay Informed Throughout the Year on the Latest Trends


• MarketNEWS from OTTEAU.com – Provides timely commentary & analysis of emerging economic and real estate trends including home sales, multi-family apartments, retail, office, and warehousing sectors.

• The OTTEAU Report Quarterly – This is the real estate industry’s report card on housing trends that real estate professionals have relied upon for the past 30 years. Published 4 times a year, these reports provide detailed analysis for key housing markets throughout New Jersey, New York’s Hudson Valley, Eastern Pennsylvania and Northern Delaware.

• MarketTRAC Monthly by OTTEAU.com – The ultimate tool for staying informed on emerging housing trends. Published 12 times a year, these monthly updates will keep you informed on the latest hyper-local market trends.

• Real Estate Price Index – A retrospective price index that measures real estate price changes by property type (e.g. housing, retail, warehousing, etc.) and geographic regoin (northern, central & southern New Jersey). This index provides guidance for evaluating existing loan portfolios, first-glance refinancing viability and risk assessment.

Details @ Otteau.com/MarketTrac.aspx


• Changed Circumstances

• Real Estate Demand Trends

• Where Do We Go From Here ?

Real Estate Demand Forecast Agenda of Topics

A Quick Look Back…


US Economic Growth


-14.0

-9.0

-4.0

1.0

6.0

11.0

16.0

1930

1932

1934

1936

1938

1940

1942

1944

1946

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

GDP Change from 1930-2012

US Economic Growth


-14.0

-9.0

-4.0

1.0

6.0

11.0

16.0

1930

1932

1934

1936

1938

1940

1942

1944

1946

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

GDP Change from 1930-2012

US Economic Growth


-3.5

-1.5

0.5

2.5

4.5

6.5

198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012

GDP Change: 1980-2012

Changed Circumstances Geo-Politics & Technology Deliver a One-Two Punch


Soviet Collapse a Trigger Point Thatcher: “Proves no alternative” (to capitalism) Greenspan: “Seminal Economic Moment of our Time” BRIC nations: Adopt capitalism Added a Billion Low Wage Workers into the System

Capitalism Loves a ‘Cheap Date’ High Wages & Benefit Costs Fueled Job Flight Economic growth shifted to emerging markets Slower US Job Creation & Wage Growth High Tax Rates Keep Profits Offshore

Changed Circumstances Capitalism’s Triumph Launched Global Competition


http://www.google.com/url?sa=i&rct=j&q=ronald+reagan+berlin+wall&source=images&cd=&cad=rja&docid=s-Gxf_l2VEmuoM&tbnid=Gax8MEOVW7d8vM:&ved=0CAUQjRw&url=http://www.history.com/photos/ronald-reagan/photo9&ei=nZ12UerNCY-14APljIHgBQ&bvm=bv.45512109,d.dmg&psig=AFQjCNEuot4vC3ACobRqb5eP_QJSfacgRQ&ust=1366814479384884

Changed Circumstances Capitalism’s Triumph Launched Global Competition


11000

12000

13000

14000

15000

16000

17000

18000

19000

20000

1000

's of

Per

sons

US Manufacturing Employment

US Manufacturing Jobs Average $51,000 Annually

http://www.google.com/url?sa=i&rct=j&q=ronald+reagan+berlin+wall&source=images&cd=&cad=rja&docid=s-Gxf_l2VEmuoM&tbnid=Gax8MEOVW7d8vM:&ved=0CAUQjRw&url=http://www.history.com/photos/ronald-reagan/photo9&ei=nZ12UerNCY-14APljIHgBQ&bvm=bv.45512109,d.dmg&psig=AFQjCNEuot4vC3ACobRqb5eP_QJSfacgRQ&ust=1366814479384884

Changed Circumstances Technology Delivers a One-Two Punch – Eliminating Millions More Jobs


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=z3o74ki2_d9A8M&tbnid=JR2IHqbV1d7fCM:&ved=0CAUQjRw&url=http://en.wikipedia.org/wiki/E-ZPass&ei=boFpUoHoG42qkQfYwYGYAQ&bvm=bv.55123115,d.eW0&psig=AFQjCNGTY57mX7JFKLJrso2CyPFbUDFR0A&ust=1382732509357403

US Economy Requires Fewer Workers GDP up 5.6%, Employment down by 1.6-MM Jobs


73 Months & Counting

$15.0

$15.8

138.0

136.4

127,000

129,000

131,000

133,000

135,000

137,000

139,000

141,000

143,000

$13,500

$14,000

$14,500

$15,000

$15,500

$16,000

Tota

l Non

-Farm

Jobs

in M

illion

s

GDP i

n Billi

ons

US GDP vs. US Total Non-Farm Jobs

GDP Non-Farm Jobs

Technological Efficiency Constrains Income


-0.2%

3.5%

5.5% 5.8%

6.2%

6.9%

-0.8%

0.7%

1.3%

0.1%

2.7%

1.1%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2008q4 2009q4 2010q4 2011q4 2012q4 2013q3

Productivity vs. Income Gains

Worker Productivity Personal Income

Job Recovery Pace from Past Economic Recessions


Profits Up, Personal Income Down

Implications for Real Estate Demand


Changed Circumstances

Changed Circumstances


US Economy Still Strong….but Far Less Benevolent Personal Income Remains Constrained In-Sourcing a Positive Trend, but Returns Fewer Jobs

Households & Employers Adapt & Seek Efficiencies Changing Dynamics for Where People Live & Work Real Estate Demand No Longer a Field-of-Dreams Financial Viability No Longer a Certainty – present & future Municipal Tax Base Less Certain


Changed Circumstances Households Adjust to the New Realities

-90,000

-80,000

-70,000

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

-23,759

-33,225

-45,045

-56,989

-72,547 -69,160

-56,208

-31,690

-66,603

-76,175

-88,979

NJ Net Domestic Migration

New Jersey Holds #1 Ranking 64% of NJ HH Goods Shipments are Outbound

Changed Circumstances New Jersey Homeownership from 71% to 65%


71.3

69

.1 69

.9

70.1

68

.5

70.4

69

.4

67.9

68

.8

68.9

67

.6 68.0

67

.8 68.2

66

.7

66.6

66

.6

66.2

65

.2 65.6

67

.3

68.5

64

.0

66.2

67

.6

66.1

65

.5 66

.3

64.4

66

.2

67.7

67

.9

65.6

64

.1

65.2

62.0

63.0

64.0

65.0

66.0

67.0

68.0

69.0

70.0

71.0

72.0

Q1

2005

Q2

2005

Q3

2005

Q4

2005

Q1

2006

Q2

2006

Q3

2006

Q4

2006

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

NJ Homeownership Rate

NJ Homeownership Rate 4 per. Mov. Avg. (NJ Homeownership Rate)

Source: Otteau Valuation Group, Census.gov

Changed Circumstances Households Adjust to the New Realities


24.7%

8.0%

2.3% 0.2%

0.1% 2.3% 4.9% 13.6%

17.1%

26.8%

65% Childless Married-Couple Family, withchildren Other Family, FemaleHouseholder, with children Other Family, Male Householder,with children Nonfamily, Male Householder,with children Nonfamily, Female Householder,with children

60% of Households = 1 or 2 Persons

127 118

70 63

0

20

40

60

80

100

120

140

1909 1960 2007 2012

US Birth Rates per 1,000 Women

Source: Pew Research Center

Changed Circumstances The Rise of the Cities!


$$ - Walkability Creates Value - $$

Changed Circumstances Transit Oriented Demand Growing

© Copyright 2013 Otteau Valuation Group, Inc

Population Growth & Job Creation More Urban-Centric

24%

32%

52%

-5%

5%

15%

25%

35%

45%

55%

1990-1999 2000-2009 2008-2012

NJ Rail Towns Share of BP's

Changed Circumstances Technology Jobs Shifting to Urban Places


Population Growth & Job Creation More Urban-Centric

MetroTotal

InvestmentUrban

Investment Urban ShareSuburban Investment Suburban Share

San Francisco Bay Area $13,597 $11,649 85.70% $1,948 14.40%San Francisco $8,449 $6,935 81.60% $1,564 18.40%San Jose (Silicon Valley) $5,014 $4,668 93.10% $345 6.90%

Boston $3,275 $2,391 73.00% $884 27.00%New York $3,147 $2,447 77.70% $701 22.30%Los Angeles $2,461 $1,941 78.90% $520 21.10%Washington/Baltimore $1,127 $772 68.50% $354 31.50%San Diego $942 $865 91.80% $78 8.20%Chicago $668 $360 54.00% $307 46.00%Austin $630 $555 88.00% $75 12.00%Seattle $591 $495 83.70% $97 16.30%Philadelphia $341 $53 15.60% $288 84.40%Dallas $251 $157 62.70% $93 37.30%

Venture Capital in Urban vs. Suburban Zip Codes - 2011Ranked by Investment (dollars in millions)

Economy – 4 ½ Years After


-2.7

2.0

-2.0

-8.3

-5.4

-0.4

1.3

3.9

1.6

3.9

2.8 2.8

-1.3

3.2

1.4

4.9

3.7

1.2

2.8

0.1

1.1

2.5

4.1

2008

q1

2008

q2

2008

q3

2008

q4

2009

q1

2009

q2

2009

q3

2009

q4

2010

q1

2010

q2

2010

q3

2010

q4

2011

q1

2011

q2

2011

q3

2011

q4

2012

q1

2012

q2

2012

q3

2012

q4

2013

q1

2013

q2

2013

q3

Perc

ent C

hang

e

Source: U.S. Dept. of Commerce, Bureau of Economic Analysis

US Economy Quarterly GDP Change

Economic Momentum Building


-2.7

2.0

-2.0

-8.3

-5.4

-0.4

1.3

3.9

1.6

3.9

2.8 2.8

-1.3

3.2

1.4

4.9

3.7

1.2

2.8

0.1

1.1

2.5

4.1

2008

q1

2008

q2

2008

q3

2008

q4

2009

q1

2009

q2

2009

q3

2009

q4

2010

q1

2010

q2

2010

q3

2010

q4

2011

q1

2011

q2

2011

q3

2011

q4

2012

q1

2012

q2

2012

q3

2012

q4

2013

q1

2013

q2

2013

q3

Perc

ent C

hang

e

Source: U.S. Dept. of Commerce, Bureau of Economic Analysis

US Economy Quarterly GDP Change

Economic Momentum Building



All 50 State Economies Growing


All 50 State Economies Growing

NJ Reported Loss of 36,300 Jobs in December


Purchase Contracts

Rising


86,310

80,417

64,103 67,736

61,807 57,190

69,494

81,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2006 2007 2008 2009 2010 2011 2012 2013

YTD Home Purchase Contracts January-November

NJ


40000

45000

50000

55000

60000

65000

70000

75000

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

MarketTRAC Monthly by Otteau.com NEW JERSEY INVENTORY OF UNSOLD HOMES

2009 2010 2011 2012 2013

Recovery Concentrations Recovery Zone Expanding


2011

2013

Less Than 8 Mos. Between 8-12 Mos.

Greater Than 12 Mos.

2012

Recovery Concentrations 2013


Less Than 8 Mos. Between 8-12 Mos.

Greater Than 12 Mos.


Unemployment by County

1 Hunterdon North 4.6 12 Union North 6.82 Morris North 5.0 13 Gloucester South 6.93 Somerset North 5.1 14 Ocean North 7.24 Mercer North 5.3 15 Camden South 7.45 Bergen North 5.6 16 Hudson North 7.66 Middlesex North 6.0 - 7.87 Monmouth North 6.1 17 Essex North 7.98 Warren North 6.1 18 Passaic North 8.09 Sussex North 6.2 19 Atlantic South 10.2

10 Burlington South 6.6 20 Cumberland South 10.311 Salem South 6.8 21 Cape May South 12.3

Statewide

Unemployment by CountyRank County Region

UE Rate Rank County Region

UE Rate

-3.5%

-1.9%

-4.1%

2.9%

2.1%

4.1%

6.4%

-6.5%

-4.5%

-2.5%

-0.5%

1.5%

3.5%

5.5%

7.5%

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

New Jersey Median Home Prices 4-Quarter Change

New Jersey Home Prices Rising


-2.8%

1.6%

3.6%

2.7%

4.7%

6.4%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Median Home Prices 4-Quarter Change

NJ-South NJ-North

Home Prices on the Move



11.6% 10.6%

7.9%

6.0% 5.6% 5.5% 5.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Fl NJ NY DE PA Phila Metro US

Mortgage Delinquency 90+ Days DQ%

Mortgage Delinquency by State 90+ Days DQ%


20.8%

18.4%

10.5%

6.7%

4.2% 2.5%

1.0%

6.0%

11.0%

16.0%

21.0%

Urban "Sandy" Towns New Jersey Gold Coast Suburban-South Suburban-North

% o

f Mor

tgag

ed H

omes

Foreclosure Inventory by Market Segment

Foreclosure Inventory by Market


New Jersey Sector Trends


Apartments 96,700 AptsAll-Age Homes 88,364 Homes55+ Homes 562 HomesWarehouse 1.7 Million Ft2

Office 2.5 Million Ft2

Retail 2.4 Million Ft2

2013 Real Estate Absorption



29.4

16.8

11.0

0.5

0.2

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Office

Retail

55+ Homes

All-Age Homes

Apartments

Years of Supply

Supply Availability by Sector New Jersey



7.5%

8.8%

10.2%

14.0% 14.4%

16.1%

21.7% 22.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Urban Essex Hudson Waterfront Shorthills/Millburn Princeton New Jersey Meadowlands Parsippany Route 287

Office Vacancy by Submarket


Planning for Tomorrow

© Copyright

2010

Otteau Val

ti


New Jersey Land Use Controls Among Most Restrictive in Nation

Recognize Today’s Changed Circumstances Real Estate Demand No Longer a Field-of-Dreams What We Don’t Need is ‘MORE OF THE SAME’ Do a Better Job Informing the Public Too Many Local Decisions Based on Past Circumstances Linkage between Housing and School Enrollment has Changed Need More Small Lot Residential Zoning

Recognize Transportation Infrastructure a Core Asset Creating Density Along Transportation Corridors Direct Linkage to Job Retention & Growth Office Demand Shifting to Transportation Hubs

Planning is ‘The Pathway’ to Future Prosperity Sometimes, it’s about saying YES Places that Adapt Will Prosper………..Those that Don’t Will be Left Behind Failure to Adapt Threatens Non-Residential Tax Base

© Copyright

2010

Otteau Val

ti



About OTTEAU Valuation Group Bringing Clarity to Real Estate

About Us: The lightning strike speed of today's information flow has accelerated The pace of change for real estate markets. As a result, trends that previously took Years to develop can now unfold in a few short months. Our mission is to assist our clients In keeping pace with that change by providing insightful analysis and cutting edge pricing skills. To accomplish this we have assembled a team of skilled professionals specializing in the complex field of real estate market analysis. With broad based experience in real estate valuation and consultation, our firm engages

in a diversified practice encompassing all property types. Appraisal Services are provided to financial & lending institutions, developers & builders, attorneys, investors, relocation management service companies, governmental agencies, corporations and the public. Our Consulting Group provides a wide array of services with respect to market analysis, project feasibility, demographic trends, project valuation and municipal entitlement proceedings. Litigation support is provided for matters requiring the valuation and corresponding expert testimony for eminent domain proceedings, contractual disputes, bankruptcy, tax appeals, equitable distribution, estate valuation and stigma related issues. OTTEAU.com offers a wide range of informational content and analysis of real estate trends including published and live session formats. MarketTRAC is an online market data service available for subscription on www.otteau.com.

Copyright Restrictions All information is Copyright protected Content may not be reproduced, or disseminated without express prior

written consent Content is licensed for individual use and may not be replayed or replicated for

group presentation Managers may not reproduce, disseminate or present content to sales

associates. Sessions may not be recorded in audio or video

Education

Changed Circumstances for Real Estate Demand