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Successful Investment in Office and Industrial Properties: Risks and Benefits
- 1. Moderator: Coni Rathbone Zupancic Rathbone Law Group Panelists: Paul Getty First Guardian Group Scott McKibben Brennan Investment Group
- 2. Paul Getty
- 3. CRE Investment Prospects in 2012
- 4. US Industrial Property Total Returns
- 5. Office Investment Trends in 2012
- 6. How Do You Make Money? New Investments REITs/ETFs • Diversified, US, Major Cities, Core • Green is getting better Long term credit tenants with bumps • Sale lease-back • Green is getting better New development in select markets Existing Investments (TICs, 1031) Help Clients Find Outstanding Management • Loan restructuring • Creative lease up • Sale/short sale options
- 8. U.S. Industrial Market 2011 1. Improved Fundamentals: • 110 Million Absorption Nationwide in 2011 • Vacancy Rate Compressed from 10.4% to 9.5% • Market Rates in Class A Product in Major Metro Areas Increased Slightly • Market Rates in Class B/C product Remained Flat • Concessions Such as Tenant Improvements and Free Rent Being Reduced • US PMI Manufacturing Index 54.1 Jan 12 – 31 Months of Growth, 50+ Indicates Expansion 2. Debt Markets Continued Their Comeback: • Life Companies • CMBS • Banks 3. A Tale of Two Different Cap Rate Stories: • Class A, Core, 1st Tier Markets, Big Box, Newer Distribution – Down To ‘05-’07 Levels, Replacement Cost+ • Class B/C and A in Smaller Markets – Little Movement in Cap Rates, Low Velocity • Flight to Quality • Large Cap Rate Discrepancy Widened
- 9. U.S. Industrial Market 2012 Projections 1. Limited Rent Growth: • Core Class A 1st Tier Markets–Moderate Growth Due to Shrinking Supply, Flight to Quality • Non-Core Class B/C and Secondary Market Class A – Little or No Growth. 2. Vacancy Rates/Absorption: • 2010 – 10.4%, 2011 – 9.5% • 2012 – 9.0% to 9.2% - Still Well Below All Time Lows of 7% 3. Speculative Development: • Larger Core Markets Will See Spec Development – e.g. Inland Empire 4.3M SF 4th Q11 • Virtually No Development Since 2008, Demand Coming for New Space in Growing Areas • C Buildings Will Be Taken Out of the Stock and New A to Replace Them 4. Cap Rate Story: • Core, Class A, First Tier – Will Remain Flat but Already at Near Record Low Rates • Secondary Market A, Class B/C Stabilized – Cap Rates Will Decrease as Equity Will Have to Settle for Secondary Markets or B Product • Low Interest Rates Will Allow High Yields for All Industrial Asset Classes
- 10. Where Long Term Growth Will Happen 1. E-Commerce – Larger Build to Suits 2. Panama Canal Widening in 2014 • Winners – Miami, Charleston, Savannah, NY/NJ, Houston • Slight Loser – Inland Empire 3. First Tier Markets with Good Transportation Linkages • Spec Development of Large Bulk Distribution • Intermodal Yards & Truck Terminals – More Direct Shipment to Point of Sales Locations and Less Warehousing 4. Manufacturing? • Mixed Opinions on Whether This Sector Will Come Back • Any Growth Will Be Moderate • Phasing Out of Functionally Obsolete Buildings
- 11. Why Buy Industrial? 1. Favorable Supply/Demand Fundamentals 2. High Current Yield Compared to Other Real Estate Sectors 3. High Historical Total Returns Compared to Other Real Estate Sectors • 15 Year Total Returns of 9.2% per Annum Highest Among Property Types 4. Yield Driven More From Cash Flows and Less From Asset Appreciation 5. Lower Operational Risk than Other Real Estate Sectors 6. Less Capital Intensive than Other Real Estate Sectors 7. Large Investment Universe • 13.86 Billion Square Feet