2013 marquette university real estate strategies conference...interim keyes dean in business...
TRANSCRIPT
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2013 Marquette University Real Estate Strategies Conference
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2013 Marquette University Real Estate Strategies Conference
Economic Forecast
Dr. Mark EppliInterim Keyes Dean in Business Administration and Bell Chair in Real Estate
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Equity Investment Strategies
Mark J. EppliInterim Keyes Dean and Bell Chair in Real Estate
Marquette University
September 12, 2013
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Is the Midwest a value proposition or structurally out of favor?
CoStar Commercial Repeat Sales Price Index, August 2013. 4
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Which property type provides the greatest opportunity?
CoStar Commercial Repeat Sales Price Index, August 2013. 5
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Or should one forgo the Midwest markets for the lower cap rate prime markets?
CoStar Commercial Repeat Sales Price Index, August 2013. 6
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The Fundamentals: Growth
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GDP Growth
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Economic growth in Wisconsin and Illinois has lagged that of the U.S.
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Wisconsin Illinois U.S.
GDP Growth for Wisconsin, Illinois, and the U.S., 1997‐2012
Source: Federal Reserve and Marquette University. 10
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Nationally, jobs are making a slow recovery
Source: WSJ, September 6, 2013. 11
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The U.S. has recovered about 2/3rds of the jobs lost in the recession
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While the unemployment rate has dropped to 7.3%, how do we account for labor force participation rates
Source: WSJ, September 6, 2013. 13
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What part of the drop labor force participation rates is retiring baby boomers?
Source: WSJ, September 6, 2013. 14
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The potential for increased hiring looks promising
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Wisconsin and Illinois employment growth has lagged that of the U.S.
0.9
0.92
0.94
0.96
0.98
1
1.02
1.04
1.06
1.08
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Illinois Wisconsin U.S.
Employment Growth in Illinois, Wisconsin, and the United States (July 2003‐July 2013)
Source: U.S. Department of Labor and Marquette University. 16
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Expected population growth for Wisconsin and Illinois is well below the 29% national average 2000‐2030
.New Mexico 280,662 15.4 26
.Missouri 834,962 14.9 27
.Wisconsin 787,089 14.7 28
.Oklahoma 462,597 13.4 29
.Kentucky 513,229 12.7 30
.Indiana 729,623 12.0 31
.Maine 136,174 10.7 32
.Massachusetts 662,912 10.4 33
.Rhode Island 104,622 10.0 34
.Alabama 427,143 9.6 35
.Kansas 251,666 9.4 36
.Mississippi 247,752 8.7 37
.Connecticut 283,065 8.3 38
.Illinois 1,013,599 8.2 39
.Michigan 755,728 7.6 40
.Louisiana 333,657 7.5 41
Change: 2000 to 2030 State
Change: 2000 to 2030 Number
Change: 2000 to 2030
Percent
Change: 2000 to
2030 Rank in percent change
Source: U.S. Census Bureau. 17
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Inflation
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Recently, inflation has been well‐behaved . . . .
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. . . . with ample labor, unit labor costs are also well‐behaved . . . .
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. . . . and commodity prices appear to be stable, which should keep inflation in check.
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Housing
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Existing home inventories are low and shrinking.
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Real house prices bottomed out in 2012
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Wisconsin homes sold and median prices up, but lagging national price statistics
Source: Milwaukee Journal Sentinel, August 13, 2013, page D1 25
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U.S. homeownership reverts to the historic mean.
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Real Median Household Income
Source: NYT, August 21, 2013. 27
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Freddie and Fannie continue to maintain tight underwriting standards for mortgage loans
Source: Federal Reserve Flow of Funds. 28
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Keeping first‐time homebuyers out of the market
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Commercial Real Estate
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It appears as if commercial real estate transaction volume is back, what do you see?
Mortgage Bankers Quarterly Databook. 31
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Net Change in Commercial Real Estate Debt Outstanding (in millions)
Mortgage Bankers Quarterly Databook.
The commercial real estate debt markets remain tepid for non‐multifamily product
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Banks are easing standards and commercial real estate loan demand is growing
Source: Federal Reserve Flow of Funds. 33
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Property Markets
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Retail
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Real retail sales fundamentals are solid but the consumer has headwinds with payroll and affordable healthcare taxes
with new limits on unemployment benefit
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Real average wage increases have fallen and most all wage growth is concentrated in upper income levels
Source: WSJ, August 26, 2013, page A1. 37
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Household debt service levels provide dry spending powder
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Spending has shifted to durable goods, which signals consumer confidence
Source: WSJ, August 16, 2013, page B1. 39
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Multi‐channel retailing the new normal (internet sales for Walmart $7.7B/$473B and for Best Buy $3.3B/$48B
Source: WSJ, August 28, 2013, page A1.. 40
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Apartments
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Multifamily starts averaged 360,000 since 1956,in July 2013 there were 290,000 starts
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Pent‐up household growth not yet tapped
Source: Joint Center for Housing Studies, State of the Nation’s Housing: 2013. 43
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Another look at pent up household demand
Source: Joint Center for Housing Studies, State of the Nation’s Housing: 2013. 44
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Lower real income growth generate greater renter demand
Source: Joint Center for Housing Studies, State of the Nation’s Housing: 2013. 45
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Minorities and seniors will drive most all household growth in the coming decade
Source: Joint Center for Housing Studies, State of the Nation’s Housing: 2013. 46
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Midwest has among the best multifamily occupancy rates
Source: State of the Nation’s Housing Market, 2013, Joint Center for Housing Studies of Harvard University.47
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Office and Industrial
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Industrial
Capacity utilization remains solid, which is comforting to industrial space owners
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Manufacturing hours worked a solid signal for industrial markets
Source: WSJ, April 19, 2013, page A14. 50
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The U.S. labor continues to be highly competitive
Source: Economist, May 4, 2013, page 89.. 51
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Boston Consulting Group projects that U.S. Manufacturing increase by $70‐115 billion
annually by the 2020
Source: WSJ, August 30, 2013, page B1. 52
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Oil boom shrinks trade deficit 22%
Source: WSJ, August 7, 2013, page A12. 53
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Corporate profits remain strong . . . .
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However, demand drivers remain weak
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Office fundamentals remain challenged
• During the second quarter of 2013 office occupancy increased by 7.2 million square feet (0.2%). . . . that was the biggest increase since the economy began slowing in 2007.
• Overall U.S. vacancy rate stayed flat at 17% in the second quarter of 2013, down from a post‐recession peak of 17.6% reached in mid‐2010.
Source: WSJ, July 8, 2013, page B3. 56
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What’s your strategy?
So what’s your strategy given:• Equity capital market preferences• Debt capital market preferences• Growth fundamentals• Demographic shifts• Property type fundamentals
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Equity Investment Strategies
Mark J. EppliInterim Keyes Dean and Bell Chair in Real Estate
Marquette University
September 12, 2013
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2013 Marquette University Real Estate Strategies Conference
Economic Forecast
Dr. Mark EppliInterim Keyes Dean in Business Administration and Bell Chair in Real Estate
59