RECOVERING FROM THE RECOVERY: The New State of Commercial Real Estate Lending

• Moderator: Dianne Crocker EDR Insight

• Panelists: – Ken McCarthy, Cushman & Wakefield

– Thomas Fink, Trepp

– Bob White, Real Capital Analytics

– Ryan Severino, REIS

THE BIG PICTURE

Kenneth McCarthy Chief Economist Senior Managing Director Cushman & Wakefield

THE MILLENNIAL WAVE U.S. Population by Age

Millennials: 90.8 Million

Boomers: 79.1 Million

Source: U.S. Census Bureau

MILLENIALS ARE NOW THE LARGEST COMPONENT OF THE LABOR FORCE

0

10

20

30

40

50

60

70

Mill

ion

s o

f W

ork

ers

Millennials: 53.1 m workers

Boomers: 49.3 m workers

Generation X: 49.5 m workers

648.8

85

NYC HAS BEEN THE FOCAL POINT OF JOB GROWTH IN THE METRO AREA

OVER THE PAST DECADE

OF 733,800 JOBS ADDED IN METRO AREA, 648,800 ARE IN THE CITY;

ONLY 85,000 IN THE SUBURBS

0

100

200

300

400

500

600

700

2004-2015

THO

USA

ND

S O

F P

ERSO

NS

TOTAL JOB GROWTH | JAN 2004 – APR 2005 NYC vs. Suburbs

NYC MONTHLY EMPLOYMENT

+463,500

12.5 years

+489,500

8.75 years

+502,900 5.3

years and

counting…

3,100

3,300

3,500

3,700

3,900

4,100

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Source: U.S. Bureau of Labor Statistics

CBD VACANCY vs. % UNDER CONSTRUCTION 3.8

%

7.0

%

7.5

%

9.4

%

9.5

%

9.7

%

10.4

%

10.5

%

11.5

%

11

.5%

11.7

%

11.9

%

11.9

%

12.6

%

12.7

%

13.1

%

15

.3%

15.4

%

15.5

%

17.4

%

18.1

%

18.1

%

18

.2%

20.8

%

[VA

LU

E]

0%

5%

10%

15%

20%

25%

Vacancy % of Inventory Under Construction

Source: Cushman & Wakefield Research

24

.0%

U.S. CONSTRUCTION COMPLETIONS AS A % OF TOTAL INVENTORY

1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1.0 %

Source: Cushman & Wakefield Research

1986 1990 1994 1998 2002 2006 2010 2014 2015

MANHATTAN OFFICE USING EMPLOYMENT VS. VACANCY

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1Q90 2Q91 3Q92 4Q93 1Q95 2Q96 3Q97 4Q98 1Q00 2Q01 3Q02 4Q03 1Q05 2Q06 3Q07 4Q08 1Q10 2Q11 3Q12 4Q13 1Q15

Tho

usa

nd

s o

f P

erso

ns

Office Using Employment Vacancy Rate

The World of CMBS

Thomas Fink, CRE

Senior Vice President

& Managing Director

TREPP

Sources of Commercial Real Estate Debt

• CMBS (Securitization)

• Life Insurance Companies

• Commercial Banks

• Government

• Private Equity

• REITs and Debt Funds

─ Active

─ Active

─ Active

─ Active

─ Active

─ Active

CMBS 2.0 Primary Market Activity

2012

• $45.8 billion in Conduit, SASB, & Large Loans

• 57 deals

• $21.2 billion in Freddie Mac

• 17 deals

2013

• $83.1 billion in Conduit, SASB, & Large Loans

• 102 deals

• $28.0 billion in Freddie Mac

• 19 deals

2014

• $93.1 billion in Conduit, SASB, & Large Loans

• 120 deals

• $21.3 billion in Freddie Mac

• 17 deals

2015 - YTD

• $42.40 billion in Conduit, SASB, & Large Loans

• 55 Deals

• $11.14 billion in Freddie Mac

• 9 deals

National CMBS Activity

NYC MSA CMBS Activity

Additional Opportunities

in Maturing CMBS Loans

U.S. CMBS Delinquency Rates:

Significance of Regional Variation

3.51%

Pacific

8.15%

Mountain

2.96%

Southwest

Central

6.64%

Northeast

Central

5.77%

Northwest

Central

8.52%

Southeast

Central

7.35% South

Atlantic

6.15% Middle

Atlantic

4.34%

Middle Atlantic States:

CMBS Delinquency Breakdown

5.71%

8.07% 6.81%

NY

PA

NJ

NYC MSA CMBS in Special Servicing

Commercial Real Estate Debt Maturities

Annual Maturities by Lender Type

The Latest on Lending and

the NYC Market

Robert M. White, Jr.,

CRE, FRICS

Founder & President

Real Capital Analytics

Competition Among Lenders Growing

Source: Real Capital Analytics

Competition Among Lenders Growing

Source: Real Capital Analytics

Are Manhattan Prices Already Bubbly?

US (Moody’s/RCA CPPI)

Manhattan

NYC Boroughs

NYC Suburbs

-

50

100

150

200

250

300

350

400

450

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Fundamentals Justify Prices

100

200

300

400

500

600

700

800

900

1,000

1,100

75

125

175

225

275

325

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

NC

RE

IF N

OI

/ R

CA

CA

PS

Pri

ce I

nd

ex

NYC Property Prices NOI vs Cap

Employment Growth Justifies Prices

8,000

8,200

8,400

8,600

8,800

9,000

75

125

175

225

275

325

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Em

plo

ym

en

t (m

illi

on

s)

Pri

ce I

nd

ex

NYC Property Prices NYC Employment

NYC Prices Compare Well Globally

$610

$716

$750

$788

$1,070

$1,402

$1,773

Beijing

Manhattan

Tokyo

Paris

Singapore

Central London

Hong Kong

2014 Office Avg $/sf

NYC Yields Compare Well…

Q&A

• Moderator: Dianne Crocker EDR Insight

• Panelists: – Ken McCarthy, Cushman & Wakefield

– Thomas Fink, Trepp

– Bob White, Real Capital Analytics

– Ryan Severino, REIS