Old Dominion University Old Dominion University Director s Message - PDF document

Old Dominion University Old Dominion University Director’ ’s Message s Message Director Hampton Roads Real Estate Hampton Roads Real Estate Market Review and Forecast Market Review and Forecast John R. Lombard, PhD 2008 2008 Associate Professor, Department of Urban Studies and Public Administration, College of Business and Public Administration Director, E. V. Williams Center for Presented by: Presented by: Real Estate and Economic E.V. Williams E.V. Williams Development Center for Real Estate Center for Real Estate and Economic Development and Economic Development A Message from the Dean A Message from the Dean Nancy Bagranoff, DBA Dean, College of Business & Public Administration, Old Dominion University T ED C ONSTANT E NGINEERING & C OMPUTATIONAL C ONVOCATION C ENTER S CIENCES B UILDING 1

U NIVERSITY V ILLAGE H EALTH S CIENCES B UILDING B ARON & E LLIN I NNOVATION R ESEARCH P ARK G ORDON A RT G ALLERIES U NIVERSITY Q UADS F OLKES -S TEVENS S TUDENT H OUSING I NDOOR T ENNIS C ENTER 2

Executive Committee Executive Committee Chair: Tom Dillon Executive Director: John Lombard Vice Chair: Brad Sanford Program Chair: Stephanie Sanker Research Chair: Brian Dundon Membership Chair: Craig Cope Curriculum Co-Chairs: John Crunkleton, Brad Sanford Sponsorship Chair: Fred Facka By-Laws Chair: Andrew Keeney Past Chair: Joyce Hartman At Large: Jonathan Guion Billy King Aubrey Layne Sponsorship Committee Sponsorship Committee Program Committee Program Committee Stephanie Sanker, GVA Advantis Fred Facka (Chair), Smith Barney - Citigroup Tom Dillon, Resource Bank Stephanie Sanker, GVA Advantis David Chapman, Old Dominion University Tom Dillon, Resource Bank Erica Ferron, Old Dominion University Research Committee Research Committee Our Proud Sponsors Our Proud Sponsors Brian Dundon, Brian J. Dundon & Assoc. Ashley Capital, LLC Atlantic Mortgage & Investment Company John Lombard, PhD, ODU Axial Advisory Group, LLC Bank of America Real Estate Banking Beth Hancock, City of Chesapeake BB&T Cavalier Land, Inc. Joy Learn, Resource Bank CB Richard Ellis Cherry, Bekaert, & Holland, L.L.P. Sandi Prestridge, City of Norfolk City of Chesapeake – Economic Development City of Hampton – Economic Development City of Norfolk – Department of Development Maureen Rooks, Thalhimer City of Portsmouth – Dept. of Economic Development City of Suffolk – Dept. of Economic Development Bradley Sanford, Dominion Realty Advisors City of Virginia Beach – Dept. of Economic Development Clark Nexsen Lane Shea, Harbor Group CREED Continental Realty Services, Inc. Kristi Sutphin, City of Portsmouth Creative Office Environments, LLC 3

Our Proud Sponsors Our Proud Sponsors Our Proud Sponsors Our Proud Sponsors Davenport Group & Lefcoe Development Co ODU Real Estate Foundation Dominion Realty Advisors Resource Bank/Fulton Bank Drucker & Falk, LLC S.L. Nusbaum Realty Co. ECS Mid-Atlantic, LLC Sam Segar & Associates, Inc. First Potomac Realty Trust Sperry Van Ness - Virginia Beach Grandbridge Real Estate Capital SunTrust Real Estate Finance Great Atlantic Management Co. Thalhimer/Cushman & Wakefield GVA Advantis The Cost Segregation Group Hampton Roads Security Corporation The Runnymede Corporation Harbor Group Management Tri City Developers, LLC Harvey Lindsey Commercial Real Estate Virginia Housing Development Authority Innovative Research Park - ODU W.M. Jordan Company Kaufman & Canoles Wachovia Bank LandMark Design Group, Inc. Wall, Einhorn & Chernitzer, P.C. Liberty Property Trust Wells Fargo Real Estate Group McDonald Development Company Wexford Science & Technology, LLC McPhillips Roberts & Deans Wheeler Interests Mid Eastern Builders, Inc. Williams Mullen Commercial Real Estate Investment Market Update Special thank you to Presented To: Inside Business for their sponsorship over the past six Presented By: J. Scott Adams, CCIM Mid-South Regional President years. March 12, 2008 OVERVIEW HOUSING VS COMMERCIAL REAL ESTATE 3 Key Reasons this is a Housing Recession and � Housing versus Commercial Real Estate not a Commercial Real Estate Recession � Changes in the Capital Markets 1.Residential construction doubled over 5 � Commercial Real Estate as an Investment Class year period from 2001 to 2006 � Trends by Property Type 2.Over-reliance of residential boom on • Office speculative investors • Industrial 3.Residential lending practices allowed “no • Multi-Family money down” • Retail 4

BOOM IN SUPPLY OF NEW HOUSING CAPITAL MARKET CHANGES Commercial Real Estate Variables Definitions � Loan to value ratio � Value for loan basis � Debt service coverage � Net Operating Income � Interest only periods � Occupancy � Reserves � Capital for loan proceeds Source: Real Capital Analytics LAX UNDERWRITING & AGGRESSIVE LENDING US COMMERCIAL PROPERTY SALES Commercial Real Estate is now a “Major Food Group” � Alternative investment opportunities not rock solid either � Underlying fundamentals remain healthy � Commercial real estate with predictable and transparent contractual cash flows � Key perspective is returns on a “risk adjusted basis” Source: Real Capital Analytics US COMMERCIAL PROPERTY SALES ANALYSIS OF INVESTMENT RETURNS Office, Industrial, Multifamily & Retail Properties How Investment Returns have been so Great � Moderate growth in net operating income • Growth in rents • Rising occupancy � Sharp decline in capitalization rates Source: Real Capital Analytics; minimum value of $5 million 5

EVOLUTION OF INVESTMENT RETURNS NATIONAL OFFICE SALES � The Good News: Economic expansion has been Last 5 Years vs. Next 5 Years increasingly driven by office-occupying industries � The Bad News: Softening economy will lead to Big Difference! slower growth in rents and less space absorption Higher volume and lower cap rates $250 10.0% 9.0% $200 8.0% Total Price (in billion) 7.0% Average Cap Rate $150 6.0% 5.0% $100 4.0% 3.0% $50 2.0% 1.0% Office, Industrial, Retail, Multi-Housing: NCREIF Weighted $0 0.0% Source: TWR Investment Database 2003 2004 2005 2006 2007 Source: Real Capital Analytics 2007 HAMPTON ROADS OFFICE SALES NATIONAL INDUSTRIAL SALES � The Good News: Export business and business to LANDMARK TRANSACTIONS business services are expected to continue to grow Gee’s Group Portfolio 150 W. Main � The Bad News: Impacted by the slowing economy Twin Oaks I & II especially with goods related to housing and retailers Lynnhaven Corporate Center I $40 Higher volume and lower cap rates 10.0% 9.0% $35 8.0% $30 Total Price (in billion) 7.0% Average Cap Rate $25 6.0% Silver Oak $20 5.0% 4.0% $15 3.0% $10 2.0% $5 1.0% $0 0.0% Southport Centre 2003 2004 2005 2006 2007 150 W. Main Source: Real Capital Analytics 2007 HAMPTON ROADS INDUSTRIAL SALES NATIONAL MULTI-FAMILY SALES � The Good News: More people will decide to rent LANDMARK TRANSACTIONS rather than pursue home ownership Commonwealth Storage � The Bad News: Shadow competition of rental supply created by unsold homes and condos listed for rent Slow down in volume growth and cap rate decline $120 8.0% 7.0% $100 6.0% Total Price (in billion) $80 Average Cap Rate 5.0% $60 4.0% 3.0% $40 2.0% $20 1.0% $0 0.0% 2003 2004 2005 2006 2007 Source: Real Capital Analytics 6

NATIONAL RETAIL SALES HAMPTON ROADS MULTI-FAMILY TRANSACTIONS � The Good News: Continued growth in lifestyle & LANDMARK TRANSACTIONS town centers; new concepts continue to emerge The Heights and The Myrtles at Olde Towne Portfolio � The Bad News: Future performance impacted by slowdown in employment & consumer demand Higher volume and lower cap rates $80 9.0% 8.0% $70 7.0% $60 Total Price (in billion) 6.0% Average Cap Rate $50 5.0% $40 4.0% $30 3.0% $20 The Myrtles The Heights 2.0% $10 1.0% $0 0.0% 2003 2004 2005 2006 2007 Source: Real Capital Analytics HAMPTON ROADS RETAIL TRANSACTIONS FINAL THOUGHTS LANDMARK TRANSACTIONS Denbigh Village “The retailers that have the right merchandise at Denbigh Village Lynnhaven North the right price are still doing significant business. There are winners and losers in market share, and consumers are voting every day with their purchases.” - Daniel Hurwitz, President & CEO of Developers Diversified Realty Corp. Lynnhaven North This concept applies to all of us in the commercial real estate profession and not just for retailer sales. INDUSTRIAL MARKET REVIEW INDUSTRIAL MARKET REVIEW Industrial Reporters Ron Biesecker & Christine Kaempfe – Greenbrier INDUSTRIAL MARKET REVIEW Chip Worley – Bainbridge Patrick Mumey, SIOR – Cavalier Worth Remick – Norfolk Commerce Park/Central Norfolk Charles Dickinson – Norfolk Industrial Park Billy King, SIOR – West Side/Midtown Norfolk and Isle of Wight Brian Baker – Lynnhaven Bobby Beasley – Greenwich/Cleveland and Airport Industrial Park Abe Ellis, SIOR – Portsmouth Bill Throne, CCIM – Suffolk Robert L. “Bobby” Phillips, Jr. Clay Culbreth, CCIM, SIOR & Stephanie Sanker, CCIM – First Vice President Copeland/Lower Peninsula Industrial Brokerage Bobby Phillips – Oyster Point/ Middle Peninsula & Williamsburg Extended Global Supply Chain Solutions Trip Ferguson – Oakland/Upper Peninsula March 12, 2008 7