Commercial Real Estate: Steady As It Goes? Presented By: Brian D. - - PowerPoint PPT Presentation

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Commercial Real Estate: Steady As It Goes? Presented By: Brian D. - - PowerPoint PPT Presentation

Feb 13, 2023 280 likes •594 views

Commercial Real Estate: Steady As It Goes? Presented By: Brian D. Bailey, CCIM Subject Matter Expert The views and opinions expressed are those of the presenter and are not necessarily those of the Federal Reserve Bank of Atlanta or the Board

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Presented By:

Commercial Real Estate: Steady As It Goes?

Brian D. Bailey, CCIM Subject Matter Expert

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The views and opinions expressed are those of the presenter and are not necessarily those of the Federal Reserve Bank of Atlanta or the Board of Governors of the Federal Reserve System.

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Source: Bureau of Economic Analysis, Federal Reserve Bank of Atlanta

Agenda

1. Economy 2. Commercial Real Estate Fundamentals 3. Commercial Real Estate Finance

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CONTRIBUTIONS TO REAL GDP GROWTH

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Source: BEA, Risk Analysis Unit/Federal Reserve Bank of Atlanta

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2 4 6 8 10 12 14 16 18 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 U3 U6

UNEMPLOYMENT RATES

Source: Bureau of Labor Statistics, STL FRB FRED

Unemployment Rate %

Current: As of 10/2016

Current: 9.7% Pre Crisis: 8.4% Current: 9.5% Pre Crisis: 8.4% Current: 4.9% Pre Crisis: 4.6%

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Source: Bureau of Labor Statistics (Household Survey)

JOB GROWTH

APRIL 2016

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Areas y prices

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Source: Bureau of Labor Statistics (Household Survey)

JOB GROWTH

JUNE 2016

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Source: Bureau of Labor Statistics (Household Survey)

JOB GROWTH

SEPTEMBER 2016

Areas that should thrive on low energy prices 36% of the counties experienced negative job growth over the prior 12 months

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SERIOUSLY DELINQUENT MORTGAGES

HOME MORTGAGES 90+ PAST DUE AS OF 3Q 2016

Source: McDash Analytics

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Source: McDash Analytics

SERIOUSLY DELINQUENT MORTGAGES

YEAR-OVER-YEAR CHANGE, HOME MORTGAGES 90+ PAST DUE

AS OF 3Q2016

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TOTAL AUTO LOAN DELINQUENCIES

AS OF 3Q2016 11

Source: FRBNY Consumer Credit Panel (2016Q3 data)

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Total Auto Loan Delinquencies

Change in the Last 12 Months

Source: FRBNY Consumer Credit Panel (2016Q3 data)

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TOTAL AUTO LOAN DELINQUENCIES

AS OF 3Q2016 13

  • Source: FRBNY Consumer Credit Panel (2016Q3 data)
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2016Q3 2010Q1

Total Auto Loan Delinquencies

Source: FRBNY Consumer Credit Panel

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37 45 39 24 105 58 12 92 120 73 90 20 40 60 80 100 120 140

Economic Expansions

Source: National Bureau of Economic Research, Risk Analysis Unit/Federal Reserve Bank of Atlanta

15 Average 60 months Average 93 months

The longer the cycle lasts, the more risk that generally enters the marketplace

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NATIONAL CRE VACANCY RATES

Source: AXIOMetrics, CBRE-EA, Risk Analysis Unit/Federal Reserve Bank of Atlanta

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MULTIFAMILY OCCUPANCY

12 MONTH CHANGE

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Source: AXIOMetrics, Risk Analysis Unit/Federal Reserve Bank of Atlanta

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MULTIFAMILY EFFECTIVE RENT GROWTH

12 MONTH CHANGE

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Source: AXIOMetrics, Risk Analysis Unit/Federal Reserve Bank of Atlanta

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NEW CONSTRUCTION AS A PERCENT OF STOCK

Source: AXIOMetrics; Risk Analysis Unit/FRB Atlanta

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Source: CBRE-EA/AXIOMetrics/FRB Atlanta Risk Analysis Unit.

Is CRE Overbuilding?

Variance from Long-Term Average % of Existing Inventory

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Why CRE?

Technology disruptors are impacting the industry

Source: Amazon, Google, Dailydigi.com, various

CRE is generally one of the last sectors to embrace technology. Office densification is having a slow but significant impact. Consumers buying habits continue to shifted by E-Commerce & Virtual Reality .

Current Future

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CRE National Lifecycle

Source: AXIOMetrics, CBRE-EA, REIS, Mueller, Risk Analysis Unit/Federal Reserve Bank of Atlanta

Number of Unit s

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Downturn Recovery Upturn Mature Downturn

Mult ifamily Office Warehouse Ret ail High Rent Growt h in Tight Market Rent s Rapidly Rise Toward New Const . Below Inflat ion Rent Growt h Long Term Average Occupancy New Const ruct ion Cost Feasible Negat ive Rent Growt h Market , product t ype, locat ion all impact performance. S pecific market s and product t ypes may be at different st ages

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Source: Real Capital Analytics/FRB Atlanta Risk Analysis Unit.

Foreign Investment in US CRE

Continent of Origin (Billions of US $)

Billions

Q3 Data as of 11/1/2016

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4Q Rolling Sum

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BANK S ENTIMENT

Percent of Respondents Tightening

  • In six of the last eight quarters, a net number of respondents reported tightening underwriting standards
  • n multifamily loans.
  • After a noteworthy slowdown in 2016Q1; Net Loan Demand appears to be improving in C&D and Nonfarm

NonRes

Source: Federal Reserve; Risk Analysis Unit/FRB Atlanta

Percent of Respondents Reporting Increased Demand for New Loans

Underwriting Net Loan Demand

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Source: Real Capital Analytics

COMMERCIAL REAL ESTATE LOANS

LENDING SOURCE MARKET SHARE

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Major Markets: Boston, Chicago, Los Angeles, New York City, San Francisco, Washington D.C.

Source: RCA Analytics, Risk Analysis Unit/Federal Reserve Bank of Atlanta

2000 = 100

MAJOR MARKET CRE PRICE INDICES

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375 312 210 251 152

  • 50

100 150 200 250 300 350 400 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Apartment Office Industrial Retail Suburban Office

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Non-Major Markets: All Markets Except the Majors (Boston, Chicago, Los Angeles, New York City, San Francisco, Washington D.C.)

Source: RCA Analytics, Risk Analysis Unit/Federal Reserve Bank of Atlanta

2000 = 100

NON-MAJOR MARKET CRE PRICE INDICES

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223 171 157 155 139

  • 50

100 150 200 250 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Apartment Office Industrial Retail Suburban Office

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Commercial Real Estate Prices

Price Growth Rates

Source: Real Capital Analytics/FRB Atlanta Risk Analysis Unit.

1 Year Price Growth is slowing in both Major and Non-Major Markets

*RCA indices based on Property Sales > $2.5mm Annual Price Growth % 28

2% 7% 10% 5%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% RCA Major Markets RCA Non-Majors Markets

1 Year 3 Year 5 Year LT Average

Major Markets: Bos, Chi, LA, NYC, SF, Wash DC

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Commercial Real Estate Prices

Major vs. Non-Major Markets (Cumulative)

Source: Real Capital Analytics/FRB Atlanta Risk Analysis Unit.

Major Non-Major

*on Property Sales > $2.5mm 29 8%

  • 3%

13% 0%

  • 3%

93% 95% 70% 59% 47% 72% 50% 23% 19%

  • 4%
  • 20%

0% 20% 40% 60% 80% 100% Apartment Office Industrial Retail Suburban Office

10% 4% 3% 3% 3% 94% 73% 51% 60% 51%

36% 5%

  • 1%
  • 10%
  • 13%
  • 20%

0% 20% 40% 60% 80% 100% Apartment Office Industrial Retail Suburban Office

1 Year 3 Year 5 Year From Pre-Downturn Peak

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SUMMARY

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  • Slowing for the Apartment Sector and sporadic Hotel markets
  • Declining vacancy combined with limited near-term new supply appears to

indicate continued robust rent growth on the horizon for the Office and Industrial Sectors.

  • The amounts of future new supply in some asset classes may be impacted by

the evolution of technology and the changing uses of CRE. Greater space efficiency may translate to less need for new supply in certain sectors.

  • As conditions improve, and in some cases deteriorate, more risk will

continue to enter the marketplace.

  • Future refinancing risk continues to grow as some property sectors

underperform and others experience outperforming dynamics.