f b p sponsored by: capital markets …...greater seattle industrial fundamentals as of q4 2016 –...

2/16/2017

1

SPONSORED BY:FEBRUARY BREAKFAST PROGRAM

CAPITAL MARKETS FORECAST 2017

Commercial Real EstateBanking

James Payne

Senior Vice President, Seattle Market Manager

2/16/2017

2

3U.S. BANK |

Agenda

1. Banking Industry Overall

2. Current Topics in CRE Banking

3. U.S. Bank Commercial Real Estate

4U.S. BANK |

Been a good last 7 months

• KBW Bank Index (BKX) – consists of 24 banking stocks and is widely served as the benchmark for the banking sector. • Up 52% since end of June 2016

Source: Bloomberg.com on 2/8/17

2/16/2017

3

5U.S. BANK |

More Good Times For Banking

• Strong Q4 Earnings

• Record Stock Prices

• Expect Rising Interest Rates

• Possible Banking Regulation (Dodd-Frank) Reform

“…Well positioned to grow and deliver to our shareholders in 2017”

“Outstanding performance in 2016 with record net income,

EPS, and Revenue…”

“Q4 Earnings were a strong end to another

record year…”

6U.S. BANK |

Hot Topic within CRE banking

• High Volatility Commercial Real Estate (HVCRE) – is your construction loan classified as HVCRE or Not?

Generally two primary items for consideration:

1) Minimum Cash Equity contributed by Borrower > 15% of “As - Completed” Appraised Value.

- Does not include appreciated land value

2) Borrower internally generated capital must stay within the Project/Borrower.

Item #2 is generally the grey area with little guidance from the regulators.When is the loan considered “permanent” ? When are Borrower Distributions allowed, if any ?

If HVCRE loan = costs for both the Bank and Borrower

2/16/2017

4

7U.S. BANK |

CRE Industry: Do we need to worry?

• Are we in the later stage of the current real estate cycle?

• Construction delays coupled with rising costs and labor shortage

• Multi-Family • Supply concerns• Most projects are luxury with a high-price point• Still have rent growth but it is slowing• Concessions starting

• Where is the retail market going? The “Haves” vs. The “Have-Not's”

• Will some of the concerning national trends show up here in Seattle?

8U.S. BANK |

U.S. Bank – Commercial Real Estate

• Approx. 400 CRE professionals in 29 CRE offices• 31% Multi-Family, 21% Office, 16% Lodging, 13% Retail, 5% Industrial, 14% Other• Areas of Focus: Lending, Capital Markets, Deposit & Treasury Management

2/16/2017

5

9U.S. BANK |


CRE Loan Growth CRE Deposit Growth

In Millions In Millions

$11,000

$12,000

$13,000

$14,000

$15,000

$16,000

$17,000

$18,000

$19,000

$20,000

$21,000

$22,000

$23,000

$24,000

$25,000

$26,000

$27,000

2012 2013 2014 2015 2016$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2012 2013 2014 2015 2016

10U.S. BANK |


Vive Apartments (Ballard)

929 Office Tower (Bellevue)

Lincoln Square Expansion (Bellevue)

Residence Inn (Downtown Seattle)

2/16/2017

6

CLARION PARTNERS

REAL ESTATE INVESTMENT MANAGEMENTWWW.CLARIONPARTNERS.COM

200 NEWPORT AVENUE: QUINCY, MASSACHUSETTS

OFFICE & INDUSTRIAL CAPITAL MARKETS

WWW.CLARIONPARTNERS.COM FOR USE WITH INSTITUTIONS ONLY. NOT FOR USE WITH THE INVESTING PUBLIC.

REAL ESTATE INVESTMEN T MANAG EMEN T

Dean Rostovsky, Director │ March 2017


2016 Themes – Office

– Continuation of yield starvation

– Lack of core fund/ODCE buyers for office

– Greater participation by other types of buyers

• Private

• Foreign

• REITs

– Pricing of high quality…strong!

12

2/16/2017

7


2017 Themes

– Rate rise…continuation?... impacts?

– Presumed extension of economic/real estate cycle

– Election (presumed) economic positives

• Tax policy, infrastructure spending, deregulation

– Election (presumed) negatives

• Trade and labor

– Real estate fundamentals strong

13


Los Angeles Office – Investment Sales

Colorado Center

The Bluffs at Playa Vista

233 Wilshire Blvd.

The Spruce Goose Hangar

1299 Ocean Ave.

14

2/16/2017

8


Seattle Office – Investment Sales

West 8th

Urban Union

Amazon Phase VII

Amazon Phase VIII

Hill 7

15


– Key drivers: e-commerce, consumer spending, international trade, improving home construction and sales

– A logistics chain overhaul in progress: urbanization and growing consumer desire for faster home delivery

– 2016 net absorption: new supply = 1.4 : 1

– Supply pipeline growing, new construction concentrated in top-performing markets

– Functional/locational obsolescence ! a significant driver for new development

Source: CBRE-EA, NCREIF, Clarion Partners Investment Research, Q4 2016 (rent data estimated as of Q3) Note: Past performance is not indicative of future performance. LTA = long-term average.

16

U.S. INDUSTRIAL FUNDAMENTALS

US: Strongest Industrial Recovery in History

2013 2014 2015 2016

Availability Rate (LTA=10.3%) 10.8% 9.8% 8.9% 8.2%

Absorption % of Stock 2.0% 1.9% 1.9% 1.9%

Supply % of Stock 0.6% 1.0% 1.2% 1.3%

Rent Growth 3.6% 4.8% 5.3% 6.6%

2/16/2017

9


Los Angeles County Industrial Fundamentals

As of Q4 2016

– 939 million sf

– 3.9 million sf absorption

– 1.1% vacant

– 4.7 million under construction

– Strong rent trend

17

The Brickyard

Source: CBRE Research


Greater Seattle Industrial Fundamentals

As of Q4 2016

– 267 million sf

– 4 million sf absorption

– 2.6% vacant

– 4.7 million under construction

– Strong rent trend

18

Kent Valley Industrial Portfolio

Source: Colliers

2/16/2017

10

SEATTLE INVESTMENT MARKET OFFICE & INDUSTRIAL

FEBRUARY 15, 2017

20

KEY INVESTMENT THEMES: SEATTLE INDUSTRIAL & OFFICE

OFFICE

• NEAR RECORD SALE VOLUMES

• STRONG FUNDAMENTALS

• CHANGE IN BUYER PROFILE

• DISPARITY IN CBD VS SUBURBAN

• STRANDED TRANSACTIONS

INDUSTRIAL

• RECORD SALE VOLUMES

• RECORD LOW VACANCY RATES

• DEMAND > SUPPLY

• INVESTORS STRETCHING TO SMALLER TRANSATIONS

2/16/2017

11

21

PUGET SOUND INDUSTRIAL RENT & VACANCY


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

$0.30

$0.35

$0.40

$0.45

$0.50

$0.55

$0.60

$0.65

2009 2010 2011 2012 2013 2014 2015 2016

Blended Rent, NNN (left axis)Vacancy (right axis)

22

PUGET SOUND INDUSTRIAL INVESTMENT VELOCITY

$1.7

$2.5

$2.3

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Tota

l Sale

Pri

ce in

Bill

ions

Source: Real Capital Analytics

2/16/2017

12

23

PUGET SOUND OFFICE RENT & VACANCY


0%

5%

10%

15%

20%

25%

$25.00

$27.00

$29.00

$31.00

$33.00

$35.00

$37.00

2009 2010 2011 2012 2013 2014 2015 2016

Class A Asking Rent, FS (left axis) Vacancy (right axis)

24

TRANSACTION VOLUME COMPARISONOFFICE PRODUCT

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

Billio

ns

2015 Sales Volume 2016 Sales Volume

Western U.S.2015: $47B2016: $48B

Western U.S.2015: $47B2016: $48B

2/16/2017

13

25

TRANSACTION VELOCITY COMPARISONOFFICE PRODUCT

0

50

100

150

200

250

300

350

400

450

Western U.S. Deal Count

2015 # of Sales 2016 # of Sales

Western U.S.19% DecreaseWestern U.S.19% Decrease

26

$1.5 $1.8

$2.9

$6.1

$0.5 $0.3

$1.2

$1.7

$4.5

$3.3

$1.9

$4.4 $4.7

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

$ Billions

Annual $ Volume

PUGET SOUND OFFICE SALES VOLUMEConsideration greater than $10 million

Source: 9pt, Dark Grey.

2/16/2017

14

27

INVESTMENT RETURNS – A TALE OF TWO PROFILESS

UB

UR

BA

NN

• ~ 7.0% Stabilized CAP Rates• Multi-tenant, shorter lease

terms• Price PSF < Replacement Cost• Limited Institutional/Foreign

Demand• Debt Financing comparable to

CBD

• Sub 5.0% Stabilized CAP Rates• Single-tenant, long term leases

28

2016 HANGOVER EFFECT – TOTAL CONSIDERATION & NUMBER OF DEALS103 TRANSACTIONS !!!! $11.05 BILLION

20

11

14

24

2

10

15

7

0

5

10

15

20

25

30

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

$4,000,000,000

LosAngeles

OrangeCounty

San Diego Bay Area Portland Seattle Phoenix Denver

Nu

mb

er

of D

ea

ls

Tota

l Co

nsi

de

ratio

n

Total Consideration # of Deals

2/16/2017

15

29

CAPITAL MARKETS OUTLOOKINSTITUTIONAL INVESTORS ARE INCREASING ALLOCATIONS

• INSTITUTIONAL INVESTORS REMAIN UNDERWEIGHT REAL ESTATE

"

"

FOREIGN INVESTOR RATIONALE FOR U.S. REAL ESTATE

• U.S. REMAINS THE MOST FAVORED DESTINATION FOR REAL ESTATE INVESTMENT

• FOREIGN INVESTORS CONTINUE TO FAVOR LARGE GATEWAY U.S. CITIES

8.9%

9.9%

10.3%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

2016 Actual 2016 Target 2017 Expected

2016 Actual % Invested vs. 2016 & 2017 Target Allocations (1)

100 bps

40 bps

140 bps

Percent of Acquisitions Made by Cross-Border Buyers (2)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

Fo

reig

n C

ap

ital P

erc

en

tag

e o

f To

tal

Tra

ns

ac

tio

n V

olu

me (

$M

)

Foreign Investment in U.S. CRE Percent of Total

Seattle-Bellevue-Everett

Multifamily Overview

2/16/2017

16

State of the Market

31

Source: ESRI Business Analytics, Dupre and Scott

Source: JLL Research, Dupre + Scott, CoStar PPR

5New jobs added per unit built

9,367Units delivered in 2016

9,298Units absorbed in 2016

49,600Jobs added in 2016

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

10,000

20,000

30,000

40,000

50,000

60,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Units Delivered Net Absorption Jobs Rent Growth Vacancy Rate

Multifamily market dynamics supply and demand Seattle-Bellevue-Everett Largest supply in history and vacancy remains low because of the equally high absorption and job growth

Units forecasted:under construction, planned or proposed

32

Source: Yardi Matrix, Dupre and Scott

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

2013

2014

2015

2016

Number of Units

Buyer profile

REIT Large Operator High Net Worth Government Advisor/Investment Manager/Fund

Historic tri-county sales volumeJLL Sales

$.0bn

$1.0bn

$2.0bn

$3.0bn

$4.0bn

$5.0bn

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sales Volume 100 units plus

King County Pierce County Snohomish County

RadiusSold February 2017

$141,000,000$500,000 / Unit

LIV Bel-RedSold September 2016

$172,000,000$381,375 / Unit

SorenSold August 2016

$45,553,000$410,387 / Unit

TivalliSold March 2016

$94,250,000$246,084 / Unit

2/16/2017

17

33Source: Dupre and Scott

Estimated Employees: 40,000 (30,000 in Seattle)Projection: 80,500 by 2022Location: South Lake Union- Will occupy 12M SF of office space by 2022

Estimated Employees: 800Projection: New building has room for growth to 1,390Location: Pioneer Square- Moved from long time HQ home in Federal Way

Estimated Employees: 3,500 Projection: 4,500 in 2019Location: Seattle (Interbay)- Moving Bellevue campus to Seattle, new location 12M SF total

Estimated Employees: 1,000 Projection: 5,500 by 2018Location: South Lake Union-- Dexter Station has room for 1,000 more employees - New lease at 1101 Westlake has room for 1,000 more - New lease at Arbor Blocks has room for 2,500 more

Estimated Employees: 1,900Projection: 6,358 by 2019Location: South Lake Union, Fremont and Kirkland- Approaching 1M SF in the region

Estimated Employees: 68,000Projection: 80,479 in 2028Location: University District- Master plan released with plans that anticipate up to 6M SF of space by 2028

Estimated Employees: 1,600Projection: 4,500 by 2020Location: Seattle (Interbay) and Bellevue- Looking to move HQ in Interbay to 500,000 SF from 320,000 SF

Jobs and companies in SeattleKey companies driving job growthLarger tech companies and other headquarters are hiring rapidly to fill their new and expanding office footprints

Living in San Francisco versus Seattle

34

Source: JLL Research

Seattle paychecks go furtherSeattle leads the country in highest paid VP of engineering and director of product in a tech company

Category Seattle San Francisco

Average Tech Engineer Salary $108,240 $110,554

State Income Tax $0 $10,282

Federal Income Tax $23,344 $23,992

1 BD High-rise Apartment per Year $33,600 $50,400

Disposable Income $51,296 $25,881

Tech firms from the San Francisco/Bay Area are seeking

more economical value on office space rents in Seattle

New to Seattle in 2016Pinterest, Airbnb, mixpanel,

Planet, Stripe

2016 4Q Office Vacancy Seattle-Bellevue 9.2%San Francisco 8.2%

Average Office Rent Seattle-Bellevue $34.90San Francisco $73.65

Office SF Under Construction Seattle-Bellevue 5.9MSan Francisco 5.8M

2/16/2017

18

Renting versus buyingAverage mortgage payment versus average rent throughout the Seattle metro area

Home ownership is more expensive than renting in major Seattle cities

Snohomish CountyAvg Rent: $1,297Avg Rent 2012+: $1,575Median Home Value: $477,413Mortgage: $2,522

South King CountyAvg Rent: $1,237Avg Rent 2012+: $1,642Median Home Value: $337,941Mortgage: $1,942

EastsideAvg Rent: $1,804Avg Rent 2012+: $1,966Median Home Value: $717,871Mortgage: $4,129

North SeattleAvg Rent: $1,521Avg Rent 2012+: $1,785Median Home Value: $568,675Mortgage: $3,288Seattle Core

Avg Rent: $1,945Avg Rent 2012+: $2,253Median Home Value: $627,881Mortgage: $3,622

Source: Mortgages calculated based on a 30-year loan, 3.85% interest rates, 1.25% property tax, 0.5% PMI

COPYRIGHT © JONES LANG LASALLE IP, INC. 2016

Thank you

David YoungMultifamily Managing [email protected]

Corey MarxMultifamilyManaging [email protected]

f b p sponsored by: capital markets …...greater seattle industrial fundamentals as of q4 2016 –...

Documents