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VCU Real Estate Trends Precarious Balance Presented by:
Ken Riggs President & CEO
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CRE Overview • Value and Price Assessment • CRE as an Investment • Outlook for 2015
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Investment Market Psychology
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It’s all about expectations!!!!
Returns Continue to be Strong
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Risk Free Rates by Country
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“The difficulty lies not so much in developing new ideas as in escaping from old ones.�
- John Maynard Keynes 8
CRE Increasingly Attractive
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Institutional Investor Survey
– “Commercial real estate benefits the most from today’s environment of relatively moderate growth, low interest rates, the search for yield, and uncertainty….”
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Gap Forming Between Buy and Sell
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Gap Forming Between Buy and Sell
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Value Ratings Still Above Average
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• Valuation challenges, issues, or concerns: – “...core markets have reached unattainable rent/price levels….” – “Too little product to invest in…driving pricing higher and returns lower with increased competition.” – “Continued pressure to increase prices. On-shoring of capital contributes to lower yield rates.” – “Interest rates and/or spreads declining.”
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Spread Over Treasurys Growing
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Rates Continue to Compress
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Institutional Investor Survey
• Equity capital underwriting standards: – “…investors are disciplined on assumptions, but not necessarily on price due to competition to get invested...”
• Investment to watch closely or avoid: – “Multifamily is a challenge, given the combination of current pricing and downward pressure on future rents due to increased supply.”
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Availability Outpacing Underwriting
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Availability Outpacing Underwriting
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Availability Outpacing Underwriting
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Originations
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Transaction Volume
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Office Volume/PPSF
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Industrial Volume/PPSF
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Retail Volume/PPSF
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Apartment Volume/PPU
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Prices Increasing
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NCREIF Price Index
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NCREIF Markets Comparison
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NCREIF Markets Comparison
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Top 7 Markets - NPI
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Top 7 Markets - NPI
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Unleveraged Capital Return Outlook
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• Valuation expectations for the next year: – “Nominal increases for core…value increases will be tied to increases in NOI.” – “Over 5% value increase with a 5% cash return.” – “…will increase as more buyers, especially foreign capital sources, chase a finite number of available properties.”
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VCU Real Estate Trends Precarious Balance
Thank You & Questions
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