1. Tony Lenamon, MAI – National Multifamily Practice Leader
tony.lenamon@cbre.com
06-11-15 PRESENTATION
CONTI Investor Dinner
2. US Population Growth
Population, % 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
3. 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.
7. Population of Largest U.S. Metropolitan Regions
1990
1. New York 16.8 million
2. Los Angeles 11.3 million
3. Chicago 8.2 million
4. Philadelphia 5.4 million
5. Detroit 4.2 million
6. Boston 4.1 million
7. Washington D.C. 4.1 million
8. Miami 4.1 million
9. Dallas-Fort Worth 3.9 million
10. Houston 3.8 million
8. Population of Largest U.S. Metropolitan Regions
2014
1. New York 20.0 million
2. Los Angeles 13.2 million
3. Chicago 9.5 million
4. Dallas-Fort Worth 6.9 million
5. Houston 6.4 million
6. Philadelphia 6.0 million
7. Washington D.C. 6.0 million
8. Miami 5.6 million
9. Atlanta 5.6 million
10. Boston 4.7 million
10. Strength of DFW Economy
DFW
$440 billion
30% of Texas
Texas
$1.46 trillion
Gross Product in USD Top U.S. Metropolitan Areas
For Job Growth in 2014
1. DFW 136,900
2. New York 129,000
3. Houston 120,600
4. Los Angeles 104,100
5. Miami 72,800
• Spain
• Mexico
• Netherlands
• Saudi Arabia
• Argentina
• Poland
• Belgium
• Austria
• UAE
• South Africa
• Singapore
Dallas-Fort Worth
Is The Largest Region in Texas For
Manufacturing Jobs 29%
High Tech Jobs 32%
11. 11 CBRE | TEXAS CHARTBOOK
December 2014, seasonally adjusted
TEXAS 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 jobs
4.0% growth
20. 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
21. 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
CapitalizationRates
MarketValueandRescaledNOI
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
5Greenspan’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
22. 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
CapitalizationRate
MarketValueandRescaledNOI
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
10What 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
23. 8Asset 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.
24. 27 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
• 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 on
75% to 80% LTV
• Conduits are still offering slightly higher rates than Fannie/Freddie,
but are able to compete with other benefits – such as quicker
closings, more cash-out and more flexibility.
THE FUTURE OF CAPITAL MARKETS M N
26. 5 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
Rents Per Square Foot
RENTS
Source: MPF
$0.750
$0.800
$0.850
$0.900
$0.950
$1.000
$1.050
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
Note steady rent increases in face
of new construction
At low point: Rents down 10-15%
27. 15 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
Job Growth vs. Occupancy Rate
EMPLOYMENT 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
28. 6 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
Rents Per Square Foot Forecast through 2015
RENT FORECAST
Source: MPF
$0.750
$0.800
$0.850
$0.900
$0.950
$1.000
$1.050
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
Rent growth is
projected to
continue over the
next year, despite
new construction.
29. 4 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
Forecast Average Occupancy through 2015
OCCUPANCY FORECAST
87
88
89
90
91
92
93
94
95
96
Occupancy is
projected to dip
slightly as new
construction
continues.
31. For more information regarding this presentation please contact:
TONY LENAMON
National Multifamily Practice Leader
T +1 214 979 5680
Tony.lenamon@cbre.com
QUESTIONS?
32. 31 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
• 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
33. 20 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
Population Growth Forecast
POPULATION
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!
34. 29 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
• 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
35. 33 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
• 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
36. 34 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
• 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
37. 36 CBRE | VALUATION AND ADVISORY SERVICES
Aimee Morgan – Dallas Multi-housing Team Leader
Aimee.morgan@cbre.com
214.979.5687
HELPFUL/NOT HELPFUL
You 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