did you believe us in 2011 & 2012 ? what we think for 2013

Did You Believe Us in 2011 & 2012 ? What we think for 2013

January 29, 2013

Dennis P. YeskeyManaging Partner/[email protected]

“Keeping Clients & Investors Ahead of the Market”

Y

Peter CullineyResearch/Data [email protected]

mailto:[email protected]

http://nycrew.org/

The Compromise….

www.yeskeyrealestate.com2

Introduction

Outline

• Summary 2013

• Predictions - 2011, 2012, 2013

• Top Ten Issues – 2012, 2013

• Some Interesting Misc. Exhibits

www.yeskeyrealestate.com

Summary - Top Ten Issues 2013

1. Economy & Residential: “Back at No. 1”

----------------------–Now is the time for REAL economic

growth.

2. Business Investment: “Geared toward domestic employment growth”

3. Tax Reform: “Shifting out of neutral”

4. Capital Markets & Alternatives: “CRE outpaces alternatives”

5. Government Intervention: “Regulatory momentum but no spike”4www.yeskeyrealestate.com

Top Ten Issues


5www.yeskeyrealestate.com

Top Ten Issues

20131.Economy2.Business

Investment & Exports

3.Tax Reform

20121.Government

Intervention2.Rules &

Regulations3.Economy


6. Global: “We are not globalizing, we are already global.”

7. Banks & Regulatory: “Keep it in Drive; no time for coasting”

8. Traditional CRE Fundamentals: “This is a healthy recovery for CRE.”

-----------------------------------A slow steady climb

9. CRE Debt including CMBS: “Activity picking up but not booming.”

10.CRE Equity including REITs: “CRE remains among the best”

-----------------------------------Global REITs


Top Ten Issues

Predictions

• Economy

• Capital Markets

• Alternatives

• Commercial Real Estate


Predictions – Economy

8

Predictions

Source: Yeskey Real Estate

Topic Early 2011 What People Were Saying

GDP 3% to 4% Growth, or Double-Dip Recession

Top Issue Jobs

Unemployment Expected to Remain Above 9%

Housing Turning the Corner

Our Prediction, Early 2011

1% to 2% Growth

Jobs

Stays High, But Dips Below 9%

Continued Decline

Actual 2011

1.7% Growth

European Debt

Yr End 8.9%

Declined

Predictions – Economy

9

Predictions


Topic Our Early 2012 Prediction

GDP 2%+ Growth

Top Issue Government Intervention

Unemployment Heading down, toward 8%

Housing Flat, But Bottoming

Actual

2.0, 1.3, 3.1

Govt. Intervention

7.8%

Bottomed

2013 Prediction

2.3 – 2.5%

Economy & Business

Investment

7.5%

Continued Slow Up

Predictions – Commercial Real Estate

10

Predictions


Topic Early 2012 Prediction

CRE Up Modestly

CRE Fundamentals Up More, Including NYC

Equity Greater Availability for Money and Deals

REITs Up Year – Will Top Stock Market Again

Debt Continuing to Open Up

CMBS Troubles Continue, But Inevitable

Actual

Up Significantly

Up

Greater Availability for Money and Deals

Topped Stock Market Again (14-20%)

It has

Did until 4th Q 2012

2013 Prediction

Continues Up

Continues Up

Greater Availability for Money and Deals

Top of Market, beating gets tough

Slight improvement in non-core markets

Significant up year

Top Ten Issues


Top Ten CRE Issues 2012

1. Govt. Intervention2. Rules & Regulations3. Economy/Residential4. Capital Markets 5. Alternative Investments6. Fundamentals7. Equity8. REITs9. Debt Markets10.CMBS Debt


Top Ten Issues

Winner!

Top Ten CRE Issues 2013

1. Economy & Residential2. Business Investment & Exports3. Tax Reform4. Capital Markets & Alternative Investments5. Government Intervention6. Global7. Banks & Regulatory8. Traditional CRE Fundamentals9. CRE Debt Including CMBS10.CRE Equity including REITs


New & Improved

Top Ten Issues

Some Interesting Misc. Exhibits


Fall 2012 Surprises…. Executive Summary


No Surprise1. The Economy – Performing as predicted (mature 1-2%) within a global slow down.

Update October 15 - • A growing trend -- Unhealthy and unsustainable consumer spending above 70% of GDP.• Most importantly, business Investment is just too low particularly to encourage domestic employment and exporting. • Historically, Government spending appears to be on track considering the last 40 years. • A new grand strategy is needed to drive future growth.

Table Source: BEA, Dow Jones, ^Price Only Returns

1970s 1980s 1990s 2000s

Avg. Annual GDP 3.3% 3.1% 3.2% 1.7%

Personal Spending 62% 64% 67% 70%

Business Spending 17% 17% 15% 16%

Govt. Spending 21% 21% 19% 19%

Net Exports 0% -2% -1% -5%

DJI Decade Return^ 4.8% 228.3% 317.6% -9.3%

2010-2012

2.1%*

71%

12%

20%

-3.5%

25.66%** / 33.12%***

*end of 2011/**end of 2012 / *** till 1/28/13

Issue 1 - Economy

M1 M4 M7M10 M13 M16 M19 M22 M25 M28 M31 M34 M37 M40 M43 M46 M49 M52 M55 M58 M61 M64 M67 M70 M73 M76 M79 M82 M85 M88 M91 M94

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

Carter Reagan GHW Bush Clinton GW Bush Obama

Source: BLS

www.yeskeyrealestate.com 16

Unemployment Trend By Presidential Administration - From Month of Inauguration Forward

%

“It’s The Economy”

History suggests that incumbents who presided over rising unemployment at the end of their first terms (Carter, GHW Bush) were not re-elected, while those presiding

over lowering unemployment rates (Reagan, Clinton, GW Bush, Obama) won re-election.

Issue 1 – Economy

Long-term budget picture remains troubling

17

Source: Deloitte via CBO, The Long-Term Budget Outlook, Extended Alternative Fiscal Scenario (June 2012); Tax Policy Center, Federal Revenues and Outlays under Various Scenarios, 2012-2022 www.yeskeyrealestate.com

Dividends Drive Success in 2012


Sources: Yahoo finance, gold.com – Price Only Returns

Issue 4 – Capital Markets and Alternatives

Comparative Returns for 2012

12/31/12

Price Only

With Dividend

NASDAQ Composite 15.91% -Russell 2000 14.63% 16.35%

NAREIT All Equity REITs 14.90% 18.72% S&P 500 13.41% 16.00%

NAREIT All REITs 14.49% 19.33% DJIA 7.26% 10.24%

Barclays Aggregate Bond 2.70% 3.56%

Transactions by Property Type – Including Hotels


Source: Real Capital Analytics

Issue 8 – Traditional CRE

Data till end of 2012; as of 1/22/13; additional data will be aggregated in end of year reporting.

$-

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

$140,000,000,000

$160,000,000,000

Office Industrial Retail Apartment Hotel Dev Site

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

-60

-40

-20

0

20

40

60

80

Office Industrial Retail Residential Diversified Lodging/Resorts Health Care

Self Storage Mortgage

Real Estate Investment Trusts – The Long Run


Issue 10 – REITs

Source: NAREIT

%

01Q1

01Q3

02Q1

02Q3

03Q1

03Q3

04Q1

04Q3

05Q1

05Q3

06Q1

06Q3

07Q1

07Q3

08Q1

08Q3

09Q1

09Q3

10Q1

10Q3

11Q1

11Q3

12Q1

12Q3

50

150

250

350

450

550

650

750

Office Industrial Retail Apartment Hotel

Red Zone … Green Zone…1.2.3.


Red Zone:

Avg. Cap Rate Spreads To 10-Year Treasury Yield

Green Zone:

Chart Source: RCA

Issue 10 – Equity


Y Yeskey Real Estate Consulting and Investmentswww.YeskeyRealEstate.com

Dennis YeskeyManaging Partner, [email protected]

Dennis most recently served as National Director of the Real Estate Capital Markets practice for Deloitte & Touche. He also built the New York-based Real Estate Services practice from the bottom up and was the Group Managing Partner for Investment Services, which included real estate, investment companies, PEI firms, hedge funds and insurance companies. While under his leadership, these practices achieved an annual growth of more than 25% with a staff of more than 1000 professionals. Prior to Deloitte, from the mid-1980s to the mid-1990s, Dennis developed and led a successful real estate practice as a partner at Kenneth Leventhal & Company, the premier real estate restructuring firm in the United States at the time. He began his career at A.T. Kearney and PricewaterhouseCoopers, along with working at two engineering firms which specialized in solving difficult design and construction issues.

His financial advisory clients include Apollo, The Blackstone Group, Goldman Sachs, O’Connor Capital Partners, GE Capital, Starwood Capital, TIAA-CREF, New York Life, Turner Construction, and the New York Common Fund as well as investors such as JMB, VMS, Bank of Tokyo, Brookfield, Confederation Life, Deutsche Bank, ING, KKR, Lazard Freres, Lehman Brothers, Lend Lease, Morgan Stanley, The Paramount Group, Sentinel, and Malkin Properties.

Over the course of his distinguished 40-year career, Dennis has been involved in dozens of high-profile workouts, restructurings, and reorganizations, including Travelers Life Insurance Company, Rockefeller Center, Mutual Benefit, Prudential Financial, DeBartolo, Bally’s, The Trump Organization, Olympia & York (O&Y), Wheeling Pittsburgh Steel Corporation, E-II Holdings, and Mellon Bank. He has also worked with several government agencies in dealing with troubled assets, such as the US Resolution Trust Corporation, the FDIC, and the US Post Office, as well as with Japanese and UK government entities as well.

Dennis holds an MBA in finance from Columbia University. He also holds both bachelor’s and master’s degrees in civil engineering from the University of Pittsburgh’s Swanson School of Engineering. He is an active member of The Real Estate Roundtable, the Pension Real Estate Association, the Urban Land Institute, for which he became ULI Foundation Governor in 2008, along with the Lincoln Center Real Estate Council. He is a sought-out speaker for industry events and is frequently quoted as an authority in the general business and real estate media. Supporting this role, he continues to perform leading edge research in the capital markets arena.



Peter CullineyResearch/Data [email protected]

Peter Culliney

About Check :

Research

Check : Research & Analysis is a custom research shop dedicated to bringing thoughtful analysis of marketplace trends to clients across a wide scope of industries. From answering quick questions for executives looking for just the right bit of information to full blown analytical reports and custom studies. To find out more, visit www.checkresearch.info

Pete Culliney has over 20 years experience making better information easier to use for colleagues and clients by developing new products while enhancing and expanding services that help smooth the transition from data to knowledge. Prior to his work with Yeskey Real Estate, Pete was with Real Capital Analytics, where he led the research teams that expanded that firms research scope from covering the US to covering the world and from tracking just buy/sell transactions to tracking troubled assets as well as laying the groundwork for covering CRE debt markets. In addition to his work in real estate and capital markets, early in his career Pete worked extensively in the insurance, technology and communications fields.

A librarian by training, Pete knows the primary goal is to try to understand as fully as possible what the client wishes to learn from the project, what new knowledge is sought and how clients hope to use this knowledge. We then seek out the data and information needed to achieve those aims, organize it and consolidate it in ways that best meet the needs and aims of individual clients.

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