cbre presentation june 2015

Tony Lenamon, MAI – National Multifamily Practice Leader

[email protected]

06-11-15 PRESENTATION

CONTI Investor Dinner

US Population GrowthPopulation, % change, mid-year 2014

Sources: Census Bureau, Moody’s Analytics

0.9% or greater

0.4% to 0.9%

0.4% or less

U.S. = 0.73%

1960 179,972,000

2014 319,906,652

NATIONAL MAP OF EFFECTIVE RENT GROWTH. THE STRONGEST METROS AND SUBMARKETS ARE IN GA, FL, TX, AND WEST

Annual Effective Rent Growth by Submarket - 1Q15

Source: Axiometrics Inc.

Population of Largest U.S. Metropolitan Regions1990

1. New York 16.8 million2. Los Angeles 11.3 million3. Chicago 8.2 million4. Philadelphia 5.4 million5. Detroit 4.2 million6. Boston 4.1 million7. Washington D.C. 4.1 million8. Miami 4.1 million9. Dallas-Fort Worth 3.9 million

10. Houston 3.8 million

Population of Largest U.S. Metropolitan Regions2014

1. New York 20.0 million2. Los Angeles 13.2 million3. Chicago 9.5 million4. Dallas-Fort Worth 6.9 million5. Houston 6.4 million6. Philadelphia 6.0 million7. Washington D.C. 6.0 million8. Miami 5.6 million9. Atlanta 5.6 million

10. Boston 4.7 million

Strength of DFW Economy

DFW

$440 billion30% of Texas

Texas

$1.46 trillion

Gross Product in USD Top U.S. Metropolitan AreasFor Job Growth in 2014

1. DFW 136,9002. New York 129,0003. Houston 120,6004. Los Angeles 104,1005. Miami 72,800

• Spain

• Mexico

• Netherlands• Saudi Arabia

• Argentina• Poland• Belgium

• Austria• UAE• South Africa• Singapore

Dallas-Fort WorthIs The Largest Region in Texas For

Manufacturing Jobs 29%High Tech Jobs 32%

11 CBRE | TEXAS CHARTBOOK

December 2014, seasonally adjustedTEXAS EMPLOYMENT TRENDS BY MARKET

2.4%

3.1%

2.8%

3.1%

4.3%

4.4% growth

0 20 40 60 80 100 120 140 160

El Paso

McAllen

Austin

San Antonio

Houston

Dallas/Ft. Worth

Year-over-Year Employment Change (000s)

Source: U.S. Bureau of Labor Statistics, CBRE Research, March 2015.

Texas:457,900 jobs4.0% growth

500,000

1,500,000

2,500,000

3,500,000

4,500,000

5,500,000

6,500,000

7,500,00019

6019

6119

6219

6319

6419

6519

6619

6719

6819

6919

7019

7119

7219

7319

7419

7519

7619

7719

7819

7919

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14

Dallas MD Ft Worth MD

DFW MSA Population 1960 through 2015

1960 1,425,775

2014 7,097,813 or 26% of the State

Copyright 2015. Insight Research Corporation, P.O. Box 61, Allen, TX 75013 972-238-8838.

Headquarters Move to DFW

15 CBRE | TEXAS CHARTBOOK

Seasonally adjusted, ranked by Q4 2014

ANNUAL MEDIAN HOUSEHOLD INCOME TRENDS: MAJOR TEXAS METROS

20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000

McAllen

El Paso

San Antonio

Houston

Dallas/Ft. Worth

Austin

Q4 2014 Q4 2012 Q4 2010

($)

Source: Moody’s Analytics, CBRE Research, March 2015.

DFW MSAOFFICE CONSTRUCTION

Source: CBRE Inc.

(5)

0

5

10

15

20

2519

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14

Millions

ABSORBED DELIVERIES

DFW MSARETAIL CONSTRUCTION

Source: CBRE Inc.

(3.0)

0.0

3.0

6.0

9.0

12.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Millions of Square Feet

ABSORPTION DELIVERIES

DFW MSAINDUSTRIAL CONSTRUCTION

Source: CBRE Inc.

(5)

0

5

10

15

20

25

30

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Millions


DFW MSASINGLE FAMILY PERMITS

Source: Texas A&M RE Center

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Annual Number of Permits

DFW MSAMULTI-FAMILY CONSTRUCTION

Source: CBRE Inc.

(5,000)

5,000

15,000

25,000

35,000

45,000

55,000

65,00019

8019

8119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14


Units

WHERE IS MULTI-FAMILY TODAY?

� Continued Strong Performance Metrics

� Buyer Demand is Strong – Lots of Equity

� More Debt Options are Available

� Cap Rates Have Compressed

� New Construction is Significant

� Value-Add Opportunities are Plenty

2%

3%

4%

5%

6%

7%

8%

9%

$0

$50

$100

$150

$200

$250

$300

$350

$400

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Cap

italiz

atio

n R

ates

Mar

ket V

alue

and

Res

cale

d N

OI

NCREIF Index: Market Values, Rescaled NOI and Capitalization Rates Based on a $100 Investment for the Period 1978 through 2014

Rescaled NOI

Market Values

Cap Rates

Average Capitalization Rate

5 Greenspan’s Definition of a Bubble

“…I define a bubble as protracted period of falling risk aversion that translates into falling capitalization rates that decline measurably below their long term trendless averages. Falling capitalization rates propel one or more asset prices to unsustainable levels. All bubbles burst when risk aversion reaches its irreducible minimum, i.e., credit spreads approaching zero, though analysts’ ability to time the onset of deflation has proved illusive.” {emphasis added}

Alan Greenspan, “The Crisis,” Brooking Institute working paper, April 15, 2010.

Presently, a difference of ~ 200 bps

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

9.5%

$0

$50

$100

$150

$200

$250

$300

$350

$400

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Cap

italiz

atio

n R

ate

Mar

ket V

alue

and

Res

cale

d N

OI

Apartment - Market Values, Rescaled NOI and Capitalization Rates Based on a $100 Investment for the Period 1980 through 2014

Average Capitalization Rate

Capitalization Rates

Rescaled NOI

Market Values

10 What About Multifamily Prices?

Property values fall by ~ 15% over 3 years

Will property values fall

precipitously again?

Property values fall by ~ 30% over 2 years

Presently, a difference of ~ 210 bps

8 Asset Bubbles ← Who Cares?

• If you are a long-term, low-levered CRE investor, these deviations matter little.

• So, these asset bubbles matter more to:

� Long-term, high-levered investors (particularly those with short-term debt maturities (e.g., Macklowe & EOP) and/or poorly laddered maturities (e.g ., pre-crash GGP v. SPG)).

� Short-term investors (e.g., value-add & opp funds, developers, etc.).

� High-leverage, high-yield lenders (particularly those with levered balance sheets (e.g ., Blackstone mortgage REIT, Colony Capital debt funds, etc.)).

� Government agencies (e.g., Fannie, Freddie, HUD, Fed, etc.): o with exposure to high-leverage borrower, and o who become the “lenders of last resort” in a downturn.

27 CBRE | VALUATION AND ADVISORY SERVICES

Aimee Morgan – Dallas Multi-housing Team [email protected]

• Eventual shift away from Agency (Fannie/Freddie) to:Banks, Conduit/CMBS, Life Companies

• Current 10 year rates range from around 4.0% to 4.50% based on75% to 80% LTV

• Conduits are still offering slightly higher rates than Fannie/Freddie,but are able to compete with other benefits – such as quickerclosings, more cash-out and more flexibility.

THE FUTURE OF CAPITAL MARKETS M N



Average Occupancy RatesOCCUPANCY

Source: MPF

86.0%

87.0%

88.0%

89.0%

90.0%

91.0%

92.0%

93.0%

94.0%

95.0%

96.0%

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

2013

Q4

2014

Q1

2014

Q2

Falls faster

Improves slower



Rents Per Square FootRENTS

Source: MPF

$0.750

$0.800

$0.850

$0.900

$0.950

$1.000

$1.050

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

2013

Q4

2014

Q1

2014

Q2

Note steady rent increases in face of new construction

At low point: Rents down 10-15%



Job Growth vs. Occupancy RateEMPLOYMENT M N N M N

Source: Texas Workforce Commission, CBRE EA/MPF

Note the lag, but still a powerful correlation

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

87.0%

88.0%

89.0%

90.0%

91.0%

92.0%

93.0%

94.0%

95.0%

96.0%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Occupancy YoY Job Growth



Rents Per Square Foot Forecast through 2015RENT FORECAST

Source: MPF

$0.750

$0.800

$0.850

$0.900

$0.950

$1.000

$1.050

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

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

Rent growth is projected to continue over the next year, despite new construction.



Forecast Average Occupancy through 2015OCCUPANCY FORECAST

87

88

89

90

91

92

93

94

95

96

Occupancy is projected to dip slightly as new construction continues.

For more information regarding this presentation please contact:TONY LENAMONNational Multifamily Practice LeaderT +1 214 979 [email protected]

QUESTIONS?



• Penthouse level fitness centers. • Concierge services. • Dog wash stations. • Private resident bars/coffee lounges. • Rooftop terraces. • Laundry pass-throughs. • Variation of quartz and granite countertops.

THE LATEST AND GREATEST CLASS A AMENITIES



Population Growth ForecastPOPULATION

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2015 2020 2025 2030 2035 2040

Millions

Population Forecast

May it be so!



• Hard flooring throughout the unit (ceramic or faux-wood vinyl). • Upgraded cabinetry and countertops. • Upgraded or new appliances. • Re-tiling showers/tubs. • Upgrading retaining walls from wood ties to stone/brick. • Adding or upgrading amenities – dog parks, clubrooms with wifi and

coffee bars, fitness centers, etc. • Adding washer/dryer connections• Adding enclosed yards • Start charging for everything!

• Water, sewer, trash, electric (if not individually metered), pest control, parking spots

VALUE-ADD TRENDS YOUR APPRAISER IS NOTICING



• Oklahoma City – excellent demographics and job growth coupled with low new construction is driving demand. Keep an eye on this market as the energy sector fluctuates, but overall it has good fundamentals and potential for growth.

• Lubbock/Amarillo – solid slow-growth markets. Since inventory here is older and new construction is slower, tenants respond very well to renovations and upgrades.

SOME OTHER MARKETS TO THINK ABOUT



• Part art, part science.• Three approaches to value: Cost, Sales Comparison and Income

Capitalization. If developed properly all three should result in the same conclusion.

• Governed by very specific USPAP, FIRREA and generally accepted appraiser methodology. When developed correctly, should always result in an accurate estimate of the defined value (usually as is market value).

• Should simply hold up a mirror to the current market and reflect it in the report (should not look back, should look forward).

What is an appraisal?

HOW TO GET ALONG WITH YOUR FRIENDLY APPRAISER



HELPFUL/NOT HELPFULYou can get a good result if:•Work with an appraisal specialist•Provide all the data requested•Provide data not requested but helpful•Stay factual and market-based•Give insights on a project you’ve probably been working on for months-years and the appraiser has not•Share your thoughts on value and why, if allowed by the circumstances and client

You may have a bad result if:•Lost Reality (not market-based), e.g. cite only the outliers•“Can’t we just say”•Don’t give the data but still want the appraisal•The bull rush -

cbre presentation june 2015

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