Key Real Estate Trends Driving the Market ULI South Carolina Capital Markets Conference Wednesday, September 7, 2016 9:00 AM
BIOGRAPHY GADI KAUFMANN MANAGING DIRECTOR / CEO (310) 203-3033 gkaufmann@rclco.com Gadi Kaufmann is Managing Director and CEO of RCLCO (Robert Charles Lesser & Co.), a premier end-to-end solutions provider in EDUCATION the real estate sector around the world. The firm offers entity- and UCLA; BA, Economics portfolio-level strategy planning, economic and market analysis AFFILIATIONS advisory work, due diligence and underwriting services, workouts Urban Land Institute (ULI) and restructuring work, turnkey development management services, UCLA Ziman Center for Real Estate and transaction services. UCLA Luskin School of Public Affairs Pension Real Estate Gadi joined RCLCO in 1979. He specializes in economic consulting Association (PREA) for real estate projects and portfolios; in corporate strategy planning Young Presidents’ Organization (YPO) and management consulting at the enterprise level; in transactional and negotiation services; and in financing and capital formation strategy formulation and implementation. ULI South Carolina Capital Markets Conference | September 7, 2016
INTRODUCTION TO RCLCO • RCLCO’s mission is to add value to our clients by helping them make strategic, effective and enduring decisions about real estate . • RCLCO provides real estate economics , strategic planning , management consulting , and implementation services to real estate investors, developers, financial institutions, public agencies, and anchor institutions. • Headquartered in the Washington, D.C. area, with offices in California, Florida, and Texas. ULI South Carolina Capital Markets Conference | September 7, 2016
THE U.S. REAL ESTATE CYCLE: A SNAPSHOT ULI South Carolina Capital Markets Conference | September 7, 2016
THE CURRENT CYCLE IS QUITE LONG (86 MONTHS) • 50% likelihood of economic downturn in 2018 • Expect a relatively mild downturn, not concentrated in property market $18,000 Tight monetary and Chained 2009 $ (in Billions) fiscal policy to $13,500 control inflation and close budget deficits Bursting of the US housing bubble $9,000 $4,500 Bursting of the Bursting of the dot-com bubble energy bubble $0 Q1 1960 Q3 1961 Q1 1963 Q3 1964 Q1 1966 Q3 1967 Q1 1969 Q3 1970 Q1 1972 Q3 1973 Q1 1975 Q3 1976 Q1 1978 Q3 1979 Q1 1981 Q3 1982 Q1 1984 Q3 1985 Q1 1987 Q3 1988 Q1 1990 Q3 1991 Q1 1993 Q3 1994 Q1 1996 Q3 1997 Q1 1999 Q3 2000 Q1 2002 Q3 2003 Q1 2005 Q3 2006 Q1 2008 Q3 2009 Q1 2011 Q3 2012 Q1 2014 Q3 2015 Recession Real GDP Source: Federal Reserve Bank of St. Louis ULI South Carolina Capital Markets Conference | September 7, 2016
HOW WE THINK ABOUT CYCLES (6-24 MOS/STAGE) Stage 1 Stage 2 Early Downturn Full Downturn • Conserve capital • No starts • Line up capital for • Acquire assets opportunistic and land investments opportunistically Stage 3 Stage 4 Bottom Early Recovery • Value add • Acquire to yield Stage 5 Stage 6 • Selective starts • Value add and starts Early Stable Late Stable • Aggressive acq. • Source capital • Selective land & • Dispositions • Secure land • Increase leverage acquisitions Refinance • Source capital - Create war pipeline chest ULI South Carolina Capital Markets Conference | September 7, 2016
HOW WE THINK ABOUT REAL ESTATE • Where people live (all forms of housing, self storage, healthcare, hospitality) • Where people work (office, industrial) • Where people shop (all forms of retail, logistics) • Institutions (education, government) ULI South Carolina Capital Markets Conference | September 7, 2016
HOW WE THINK ABOUT INVESTING IN REAL ESTATE • Where people live, then where people shop, then where people work • High employment growth markets, STEM locations, protected sub-markets • Relationship to replacement cost Timing – economic and real estate market cycles, product cycles, demographics, and innovation • ULI South Carolina Capital Markets Conference | September 7, 2016
HOUSING MARKET FUNDAMENTALS ULI South Carolina Capital Markets Conference | September 7, 2016
HOW WE THINK ABOUT THE HOUSING BUSINESS • The paradigm is shifting - "housing company" model (vs. homebuilder, multifamily developer, land developer, etc.) • There may be too many players in the housing business • Customer knowledge and marketing are becoming the keys to success • The housing business is overly fragmented • The big will get bigger • Access to land drives strategy • Capital markets evolving • The opportunity set for pure-play land developers is shrinking • The large scale MPC model is rarely viable financially • The entry-level segment - myth or reality? • Watch for the disruptors ULI South Carolina Capital Markets Conference | September 7, 2016
POPULATION GROWTH SURGES IN SUNBELT 4.0% Naples Above the Line: Projected Growth to Raleigh 2015-2020 Population Growth(%) Outperform Historical Growth 3.1% Austin Orlando Atlanta Charlotte 2.3% Jacksonville Tampa Nashville Denver 1.4% Below the Line: Washington, Projected Growth to D.C. Underperform Historical San Jose Growth 0.5% 0.5% 1.4% 2.3% 3.1% 4.0% 1990-2015 Population Growth (%) ULI South Carolina Capital Markets Conference | September 7, 2016
EMPLOYMENT GROWTH FOLLOWS 4.0% Above the Line: Projected Growth to Charlotte Outperform Historical Orlando Growth 2015-2020 Job Growth(%) 3.1% Raleigh Atlanta Above the Line: San Jose Austin Projected Growth to Outperform Historical Growth Tampa Los Angeles 2.3% Nashville Washington DC Houston Dallas / Ft. Worth Below the Line: 1.4% Projected Growth to Below the Line: Underperform Historical Growth Projected Growth to Underperform Historical Growth 0.5% 0.5% 1.4% 2.3% 3.1% 4.0% 1990-2015 Job Growth (%) Source: Moody’s Analytics ULI South Carolina Capital Markets Conference | September 7, 2016
STEM EMPLOYMENT HOT SPOTS • Affordable Sunbelt, Midwest cities are benefitting from STEM employment growth, including Atlanta, Raleigh, and Charlotte Source: RCLCO; CapRidge ULI South Carolina Capital Markets Conference | September 7, 2016
HOUSEHOLDS RESUMED GROWTH • Household formation rates dropped during the Great Recession • Improved economic conditions contributed to boosting of household growth Projection 140,000 3.5% 125,000 110,000 2.6% 95,000 80,000 1.8% 65,000 50,000 0.9% 35,000 20,000 0.0% Number of Households (In Thousands) 3 Year Rolling Average % Growth Source: Moody’s Analytics ULI South Carolina Capital Markets Conference | September 7, 2016
NEW HOUSEHOLDS OUTPACE SINGLE-FAMILY STARTS • The 2016 pace of SF starts and household growth are well above 2015 levels • Expect continued growth as millennials and boomers impact the market • Multifamily rentals still in shortage in select markets and locations Single-Family Housing Starts and Household Growth 1,600,000 1,200,000 800,000 400,000 0 Single-Family Housing Starts Increase in Households Note: Single-Family Housing Starts include single-family detached and single-family attached (townhomes) Source: Moody’s Analytics; RCLCO ULI South Carolina Capital Markets Conference | September 7, 2016
MULTIFAMILY PERMITS EXCEED HISTORICAL PACE, WHILE SINGLE-FAMILY LAGS Outperforming Washington DC Tampa San Jose Raleigh Orlando Nashville Miami/ Ft. Lauderdale Los Angeles Jacksonville, FL Dallas / Ft. Worth Charlotte Austin Atlanta 0% 100% 200% 300% 400% 2015 SF Permits vs. Historical Average 2015 MF Permits vs. Historical Average Source: Moody’s Analytics ULI South Carolina Capital Markets Conference | September 7, 2016
RENT GROWTH CONTINUES DESPITE NEW SUPPLY • Absorption and occupancy will level out in the near-term as more millennials transition to for-sale housing in the face of a rising multifamily pipeline Projection 12% 8% 4% 0% -4% -8% Vacancy % Rent Growth % Source: Axiometrics ULI South Carolina Capital Markets Conference | September 7, 2016
DEMOGRAPHICS AND HOUSING : A SHIFTING LANDSCAPE ULI South Carolina Capital Markets Conference | September 7, 2016
MILLENNIALS & BOOMERS DRIVE HOUSING MARKET Millennials: 24% of population; 35% of home purchases, but characterized by the “Great Delay” - lower headship rates, delayed marriage, and delayed childbirth. Baby Boomers: 23% of population; responsible for 31% of home purchases. Aging but not retiring; characterized by the highest spending power. 5,000 Number of People (000s) BM TO UPDATE 3,750 Silent Millennials Baby GenX 2,500 Boomers Generation 35% of 25% of home sales 9% of home home sales 31% of home 1,250 sales sales 0 Age Source: U.S. Census Bureau ULI South Carolina Capital Markets Conference | September 7, 2016
Recommend
More recommend
