roger staiger, frics georgetown university 14 july 2015 rstaiger@stagecapitalllc.com prepared:...

Roger Staiger, FRICSGeorgetown University

14 July 2015rstaiger@stagecapitalllc.com

Prepared: Michael Cardman, EIT

NVBIA Real EstateOutlook Conference

Capital MarketsReal Estate

Disclaimer

All slides in this presentation are the intellectual property of Stage Capital, LLC and Roger Staiger, FRICS. Use of these slides is only permitted when presented by Roger Staiger, FRICS or a designee of Stage Capital, LLC. Further distribution is strictly prohibited.

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Shameless Self Promotion Literally wrote the

book on Financial Modelling

Available now on Amazon.com ($171.00)

Publisher: Routledge

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2015: The Road Ahead!

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U.S. Budget(Receipt v Outlay)

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Table 1.1—Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789–2019 | Federal Budget | Jan 2015 | www.whitehouse.gov

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2014: $650.0bn Deficit2018: $415.0bn Deficit

U.S Gross Federal Debt

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6.4%/yr increase

Table 7.1—FEDERAL DEBT AT THE END OF YEAR: 1940–2019 | Federal Budget | Jan 2015 | www.whitehouse.gov

2014: $17,892,637,000,000= ±57k/American (315,000,000 Americans)= ±110K/Taxpayer (165,000,000 taxpayers)c

U.S. GDP v % Deficit

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Risk-Return Spectrum

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-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

5% 10% 15% 20% 25% 30% 35%

Ret

urn

s (A

rith

met

ic A

vera

ge

)

Risk (Standard Deviation)

Risk-Return Spectrum (Nov 02' - Nov12')

Commodities All Commercial

Commodities

S&P 500

Office

All Commercial

Retail

Industrial

Residential REITs

Commodities

S&P 500

Office

Multifamily

Retail

Industrial

Residential

REITs

REITs S&P 500 Office

Multifamily

All Commercial

Residential

Industrial Retail

Multifamily

10-year

7-year

5-year

Source: Matthew Do, JHU Practicum

Unemployment vs Labour Rate

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Source : 5

Where were we? (2006)

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US Asset Values – 2006 2006 Asset Class Valuation ($B)

22,600

6,000

18,100

27,400

0 5,000 10,000 15,000 20,000 25,000 30,000

Residential Real Estate

Commercial Real Estate

US Equities

US Fixed Income

$74,100B Total Market

$28,600B

Real Estate

- CME Group

4% 28,600

63% 29,434

(12%)

19,837

$84,500B Total Market

$26,475B

July 2015

July 2015

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11%6,638$

$$$$$

$17,892,637,000,000(What happened to it?)

315,000,000 Americans165,000,000 Tax-paying Americans

$110,000/Tax-paying American

Main Street vs. Wall StreetPolarity of Wealth

Shrinking Middle ClassWill your children be better off than you?

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Inflation

Can it save US?

Help me ‘inflation’, you’re my only hope!

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Inflation(Why today is different)

US Treasuries owned abroadInflation will cause shorter duration investment,

i.e. increase borrowing costs for US45% of trading debt owned abroad

Federal Reserve Inflation TargetAt or near 2.00% (1.7% last year)

Japan’s Lost Decade!U.S. GDP composition

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Real Estate

The Good News (sort of!)

Federal Reserve Yield Curve

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30-year Average CPM Interest Rates

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Source : 6

Lifetime Cost of bps

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Base +1 bp Delta +10 bp Delta +100 bp DeltaAverage 2014 Rate 4.17% 4.18% 4.27% 5.17%

Loan 500,000 500,000 500,000 500,000 Term (Year) 30 30 30 30

Payment (Mo) 2,437$ 2,440$ 3$ 2,466$ 29$ 2,737$ 300$ Payment (Annual) 29,245$ 29,280$ 35$ 29,595$ 351$ 32,845$ 3,600$

Payment (life) 877,344$ 878,393$ 1,049$ 887,864$ 10,520$ 985,344$ 108,000$ note: one (1) bp = one one-hundredth percent (0.01%)

CPM BP Example

U.S. Home Ownership %

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Source : 1

U.S. New Housing Units by Year

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What is being built? Sustainable?

Source : 2

“U.S. Construction Spending Hits New Postrecession High”

–WSJ 1 July 2015

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Median U.S. Home Price over time

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Source : 3

U.S. Residential Data (Comp-20)

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Source : 7

Residential Year-over-Year(October 13’ – October 14’)

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Average: 5.0%

Source : 7

Residential Month-over-Month(September 14’ – October 14’)

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Source : 7

Comp-10/DC-MSA Yr-over-Yr(Jan00’ – Oct14’)

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Source : 7

The Next Crisis!

Education???

Student Loans$1,000bn industry Virtually no underwritingInability to discharge debts in bankruptcyLargest higher education provider in U.S.

University of PhoenixOwned by Apollo Hedge Fund

Tuition increases exceed 2X inflationKaplan, American Military University???!!!

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$1,000,000,000,000.00

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Google Images

Total student loan balances by age group

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Taken directly from New York Fed | Household Debt and Credit: Student Debt | February 28, 2013

Non-mortgage balances

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Taken directly from New York Fed | Household Debt and Credit: Student Debt | February 28, 2013

Non-student debt declined for all borrowers age 25-30

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Taken directly from New York Fed | Household Debt and Credit: Student Debt | February 28, 2013

Tuition increase…

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Source : 10 *2014 est

Wealth Management(ers)Certified Financial Planner (CFP)

“…a bachelor’s degree (or higher), or its equivalent, in any discipline…”“The bachelor’s degree requirement for CFP

certification became effective March 1, 2007”http://www.cfp.net/become/degree.asp

Surgeon = MD; Dentist = DDS; Accountant = 150 Hours of accounting; …Finance – ‘in any discipline…’!!!

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Prediction(s)

The Road Ahead

PredictionsDelayed interest rate increaseAnemic growthGlobal continued slowdownGas under $1.75/gallon (Still predicting)Tuition increaseShort-term continued build cycle

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