2005 Year in Review Economic Background Economic Background - - PDF document

SLIDE 1

1

Multifamily Review Multifamily Review – – Aubrey Layne Aubrey Layne

Old Dominion University Old Dominion University Hampton Roads Real Estate Hampton Roads Real Estate Market Review and Forecast Market Review and Forecast 2006 2006

Presented by: E.V. Williams Center for Real Estate and Economic Development

Multifamily Market Review Multifamily Market Review

Aubrey Lane Aubrey Lane President & Principal Broker President & Principal Broker Great Atlantic Properties Great Atlantic Properties Responsible for the operations and Responsible for the operations and administration of Great Atlantic administration of Great Atlantic’ ’s s Property management functions, Property management functions, new business acquisition, capital new business acquisition, capital improvement, banking and investor improvement, banking and investor relations. relations. MBA MBA – – Old Dominion University Old Dominion University

2006 2006 Multifamily Market: Multifamily Market: Review and Assessment Review and Assessment

Aubrey L. Layne, Jr. Aubrey L. Layne, Jr. President President Great Atlantic Management Great Atlantic Management

GREAT ATLANTIC

2006 2006 Multifamily Market: Multifamily Market: Review and Assessment Review and Assessment

• 2005 Year in Review

2005 Year in Review

– –Economic Background Economic Background – –Fundamentals Fundamentals

• Operational Trends

Operational Trends

• Multifamily Transactions

Multifamily Transactions

• Opportunities / Cautions

Opportunities / Cautions

• Conclusion

Conclusion

2005 Year in Review 2005 Year in Review

• Economic Background

Economic Background

– – HR (Hampton Roads) favorable unemployment HR (Hampton Roads) favorable unemployment rate of 3.6% (vs. 4.7% for US) rate of 3.6% (vs. 4.7% for US) – – Demand exceeds supply Demand exceeds supply

2,595 units under construction and 1,764 proposed 2,595 units under construction and 1,764 proposed

– – Long term interest rates historically low and Long term interest rates historically low and steady steady – – Home prices have increased significantly Home prices have increased significantly

• Fundamentals

Fundamentals

– – Vacancy 3.8% Vacancy 3.8% – – Average rent $785 Average rent $785

• Rent growth in excess of inflation

Rent growth in excess of inflation

– – Strong fundamentals compared to Strong fundamentals compared to nearby regions nearby regions

Source: Real Data

2005 Year in Review (Continued)

SLIDE 2

2

• Avg. Rents by City - 2005

500 550 600 650 700 750 800 850 900 950 N N P

• r

t s m

• u

t h N

• r

f

• l

k H a m p t

• n

W i l l i a m s b u r g H R a v g . C h e s / S u f f

• l

k Y

• r

k V a B e a c h $ per month

$785 $881 $700

Net Monthly Cost of Owning vs. Renting

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2000 2001 2002 2003 2004 2005 0% 10% 20% 30% 40% 50% 60% 70% 80% avg rent home P&I

• wner %

premium 73% $1,341 $785 Sources: ODU Economic Forecasting Project and Real Data

Hampton Roads Avg. Rent and Median P&I for a Newly Purchased Home

Comparison to Nearby Regions Comparison to Nearby Regions

• 7.8%

7.8% 6.5% 6.5% 13.8% 13.8%

2 yr. % 2 yr. % Change Change rent rent

$700 $700 $726 $726 $785 $785

Avg. Avg. Rent Rent

9.8% 9.8% 6.3% 6.3% 3.8% 3.8%

Vacancy Vacancy Raleigh Raleigh-

• Durham

Durham Richmond Richmond HR HR

Source: Real Data

Operational Trends Operational Trends

• Condo conversions

Condo conversions

• “

“Renters by choice Renters by choice” ”

• Urbanism

Urbanism

• Life style amenities

Life style amenities

– – Concierge Service Concierge Service – – Automated rent payments and web based Automated rent payments and web based maintenance requests maintenance requests – – Business center Business center – – Cyber Cyber-

• caf

café é – – Hot tubs / tanning booths Hot tubs / tanning booths

Multifamily Transactions Multifamily Transactions

• Per unit prices for multifamily properties have increased

Per unit prices for multifamily properties have increased significantly since 2001 significantly since 2001

• 2001, $36,700

2001, $36,700

• 2004, $72,700

2004, $72,700

• 2005, $68,600

2005, $68,600

• Number of units traded increased

Number of units traded increased

• 2001, 2,200 units

2001, 2,200 units

• 2004, 4,000 units

2004, 4,000 units

• 2005, 2,700 units

2005, 2,700 units

U n i t s S

• l

d

Hampton Roads Apartment Units Sold and Average Price per Unit

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 1999 2000 2001 2002 2003 2004 2005

• apt. units sold

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000

• avg. price per unit

# of units sold

• Avg. price per unit

$62,400 $36,700

Data: CBRE, reported broker transactions

$59,600 $72,700 $68,600

SLIDE 3

3

Multifamily Transactions Multifamily Transactions (Continued) (Continued)

• Tenants in common (TIC)

Tenants in common (TIC)

• Cap Rate Compression

Cap Rate Compression

– – Interest rates are low Interest rates are low – – Limited financial return alternatives for investments Limited financial return alternatives for investments

• Financial returns significantly based

Financial returns significantly based

• n property appreciation
• n property appreciation

HR Multifamily Cap Rates*

3 4 5 6 7 8 9 10 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 percent cap rates and Interest Rates (10 years) interest rates * CBRE, broker supplied data 6.9% 4.2%

HR Multifamily Cap Rates*

3 4 5 6 7 8 9 10 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 percent cap rates and international cap rates** * CBRE, broker supplied data NY, 6.9% London, 6.8% Paris, 6.0% Tokyo, 5.4% ** GE Commercial Finance

6.9%

Opportunities / Cautions Opportunities / Cautions

• National perspective

National perspective

• BRAC

BRAC

• Interest rates

Interest rates

• Vacancy

Vacancy

Conclusion Conclusion

• Multifamily economics remain strong

Multifamily economics remain strong

• Valuations questionable

Valuations questionable

• Watch fundamentals

Watch fundamentals

GREAT ATLANTIC