Real Estate Data:What Will the Future

Behold?

Mark R. Linne, MAI, SRA Jack Huntress Rene CircCEO/Chief Analytics Officer Managing Director-Residential Director of Research-IndustrialValueScape Analytics, Inc. Environmental Data Resources Property Portfolio Research

Some of Today’s Themes

The Appraiser of Tomorrow

• Jared Schlaes-1995• Two kinds of participants in the real estate analysis profession

• Collectors of Data• Analysts of Data

• Who prospers most?• Who is the professional and who is the para-professional?• What is the vision for the profession?

The Appraiser of Today

The Trends to Watch For

• Cloud Computing• Big Data• Mobile Technology• Social Networks• New Analytics• Augmented Reality

The Rise of Databases

• UAD• Fannie• Freddie• 100 Million Property DB in 10 years• Knowing more about the market than appraisers-what do you do?

Cloud Computing

• Seeing through the hype to discover the potential

• Its not just for storage• It’s all about analytics

• Leveraging the analytics in the cloud provides significant improvement in the field

• Analyze everything in real-time• Analytics that were never before possible at the device level

Big Data

• More data on virtually everything• How is the data analyzed?• What is the benefit?• Data availability will only accelerate• Where are the tools to analyze?• What you need to look for• What you need to do

Office Conventional Wisdom:

Lease Are Getting Smaller As a Result of Shrinking SF/Employee

TYPICAL LEASE SIZE FALLING 70 SQUARE FEET PER YEAR

Sources: CoStar Group, Inc.; PPR As of 13Q1

3,500

3,700

3,900

4,100

4,300

4,500

4,700

4,900

5,100

5,300

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

Average Lease Size (4-Qtr Moving Average)

Lease Size (SF)

OFFICE LEASE SIZE IN SF--ROLLING 4 QTR AVERAGE

SMALL TENANTS DISPROPTIONATELY DRIVING DEMAND

Sources: CoStar Group, Inc.; PPR As of 13Q2

0%

10%

20%

30%

40%

50%

60%

< 10K 10K to 49K 50K to 99K 100K to 199K 200K +

Recent Avg. Prev. Cycle Avg. ('00 -'07)

Share of Avg. Annual Volume

PPR54 OFFICE MARKET: NEW LEASING

Multi Family Conventional Wisdom:

The Market is Getting Overbuilt

Sources: CoStar Group Inc.; PPR; Esri As of 13Q1

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2010-15 Class A Supply Additions

Class A Units (000s)

CLASS A SUPPLY VS INCOME-QUALIFIED DEMAND (2010-2015)

DEVELOPERS ASSUMING HUGE POOLS OF LUXURY RENTERS

Office Conventional Wisdom:

Renewal Probability Is ~70%

IF YOU LAND AN ELEPHANT, IT STAYS

Sources: CoStar Group, Inc.; PPR

34%

36%

41%

52%

72%

76%

75%

0% 10% 20% 30% 40% 50% 60% 70% 80%

3-5K

5-10K

10-25K

25-50K

50-100K

100K-200K

>200K

PROBABILITY OF RENEWAL BY TENANT SIZE

Industrial Conventional Wisdom:

Warehouse Buildings are Commodities

MARKETS HAVE LIMITED IMPACT ON RE-LEASE POTENTIAL

Sources: CoStar Group, Inc.; PPR As of 2012

0%

20%

40%

60%

80%

100%

1 2 3 4 5 6 7 8 9 10

High-Bench-Strength Markets Low-Bench-Strength Markets

1990+ & 400K+ Vacancy

Quarters Following Vacancy Shock

BIG & NEW ASSETS IN DISTRIBUTION MARKETS

IT’S ALL ABOUT THE MARKET

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Sources: CoStar Group, Inc.; PPR As of 2012

0%

20%

40%

60%

80%

100%

1 2 3 4 5 6 7 8 9 10

High-Bench-Strength Markets Low-Bench-Strength-Markets

<1990 & 400K+ Vacancy

Quarters Following Vacancy Shock

BIG & OLD ASSETS IN DISTRIBUTION MARKETS

Retail Conventional Wisdom:

The Best Days for Retail Are Behind Us – Blame it on E-Commerce

Sources: PPR; U.S. Department of Commerce As of 13Q1

(10%)

0%

10%

20%

30%

40%

50%

300

400

500

600

700

800

900

1,000

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

E-Commerce Physical Retail Sales

E-Commerce Sales Growth Physical Retail Sales Growth

Quarterly Sales Volume ($B, SA, Index Year 2000) Y/Y Growth

ONLINE VS. IN-STORE SALES VOLUME AND GROWTH

NET GAINING GROUND…

… BUT SO IS PRODUCTIVITY …

Sources: CoStar Group, Inc.; PPR; U.S. Department of Commerce As of 13Q1

$200

$210

$220

$230

$240

$250

$260

$270

$280

00 01 02 03 04 05 06 07 08 09 10 11 12 13

Phys Sales/SF

Physical Salesper SF

PHYSICAL RETAIL SALES PER SF OF RETAIL SPACE

… THERE IS SIGNIFICANT NOI UPSIDE BREWING

Sources: CoStar Group, Inc.; PPR; U.S. Department of Commerce As of 13Q1

$14

$15

$16

$17

$18

$19

$20

$21

$200

$210

$220

$230

$240

$250

$260

$270

$280

00 01 02 03 04 05 06 07 08 09 10 11 12 13

Phys Sales/SF Rent

8-Quarter Lag

13-Quarter Lag

Physical Salesper SF

Average Rent per SF

PHYSICAL SALES PER SF AND RENT LEVEL

Industrial Conventional Wisdom:

Portfolio Premium Exists for Warehouse Assets

PORTFOLIOS ARE BIGGER THAN EVERWAREHOUSE INIDIVIDUAL ASSET VS. PORTFOLIO PRICING*

Updated By: Updated On:

Directions: To update, see Paul Weber. FYI, to update the date axis, use a date value code. So, in a blank cell, type the date you want, then SHIFT, CTRL, ~, and that 5 digit code should be your Maximum in the horizontal axis.

308803312274312274317443322942313961313961313961313961313961314511314575315385338974335964308362

Sources: CoStar Group, Inc.; PPR As of 13Q2*Shading = Distance from trailing 90-day mean. Size = Price.

2%

4%

6%

8%

10%

12%

14%

00 01 02 03 04 05 06 07 08 09 10 11 12 13

Individual Assets Portfolios

Cap Rate

IF YOU BUILD IT…WAREHOUSE INDIVIDUAL ASSET VS. PORTFOLIO PRICING

Sources: CoStar Group, Inc.; PPR As of 13Q2

(5%)

0%

5%

10%

15%

20%

25%

0%

2%

4%

6%

8%

10%

12%

00 01 02 03 04 05 06 07 08 09 10 11 12 13

Individual Assets Portfolios Spread

Cap Rate Portfolio Premium

Retail Conventional Wisdom:

Grocery Anchored Center Are a Safe Bet – Immune to E-Commerce

BIG BOX EATING GROCERS’ LUNCH

Sources: CoStar Group, Inc.; PPR; SEC Filings As of FY 2011

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15

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25

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Traditional Grocery Stores Wal-MartCostco TargetSam's Club Traditional Grocery SF Per CapitaTotal Grocery SF Per Capita

Inventory by Year Built (Millions of SF) Inventory Per Capita (SF)

GROCERY SPACE AND EQUIVALENT BY RETAILER

BUT SOME SAFETY CAN BE FOUND

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Sources: CoStar Group, Inc; PPR As of 12Q3

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Share of Centers by Cohort

SHARE OF GROCERY STORES IN GREAT AND TERRIBLE CENTERS

Data to Information

Mobile Technology

• Good-bye desktop, good-bye lap-top• Hello tablet and iPad• This changes everything• Three monitors is not the solutions• Going smaller and going mobile• Completing the appraisal in the field while you are at the house• The inspection corollary• Efficiency, efficiency, efficiency

Social Networks

• Appraisers don’t play well together• We don’t share well• We don’t take advantage of the opportunities that collaboration

allows• Sharing• Talking advantage of each person’s expertise and opinions and

experience• You cannot leverage data unless you share• Real time sharing in the field with your peers

New Analytics

• Regression Analysis• Geographically-Weighted Regression• Monte Carlo Analysis• Non-Linear Modeling• More Data-Better Models

“Bloomberg Terminal”

Augmented Reality

Not just what you an seeBut what you cannot seeLinked together based on geographyThink layers of a cakeThe Landscape of ValuationEVERYTHING about a property

demographicsEconomicsTrendsLegal Zoning

What Should You Do?

• Some of these technologies are here• Costar

• Some are being developed• Looking for industry adoption• Over the next 24 months the world changes• Be aware and be ready

There are 6500 FDIC Banks….thousands that do less than 500 residential mortgage originations a year.

Too Big to Fail…Too Small to Comply

Appraisers – THE eyes and ears of the lender

Data Now Readily Available

• The pendulum swings back• New rulings make using AMCs (potentially) a business risk• There are benefits to both sides

– Appraisers get paid more (potentially better service)– Better appraisers and appraisals

• But…Banks need good technology (processes) and audit capabilities to prove “arms length” and remain in compliance

AMCs to Self Management

What data and technology is going to be used?

Discussion and Q&A

Questions for Consideration

• With the consumer having access to more information than ever before, what effect do you think that will have on the appraisal process? (Zillow, transaction histories)

• Why should I care about the secondary market creating a data warehouse?

• What is the role of AVMs as we go forward?• I’m not an environmental expert (as an appraiser) I’ve never offered

that information and I don’t plan on it. Why would I?• How do I understand “big data” in the context of how it will affect my

job?