jll apartment outlook survey 2012
TRANSCRIPT
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Multifamily is, and will remain, the belle of the ball in thecommercial real estate sector in the year ahead, accordingto the respondents of our Apartments Outlook 2012 Survey.Completed by more than 150 private investors, real estatebrokers, developers, REIT and institutional investors at theRealShare APARTMENTS conference this fall, the surveytapped into practitioners beliefs on cap rates, competition andthe future health of the capital markets in this high-prole sector
of the market. Michael Berman, the CEO of CW Capital, saysthe strength of the market today is no mirageits based onsolid fundamentals.
I think its clear that with homeownership coming down, therental space is probably the single strongest asset class in theUnited States right now, said Berman. Were not seeing thehigh leverage we did in the past few years, so I think that willmoderate what might otherwise look like a bubble.
Hear more about Bermans thoughts here:www.youtube.com/watch?v=bgikHLW45o0
The survey asked respondents how much rental growth theywere projecting for their 2012 acquisition underwriting. A
majority of respondents (41 percent) said rents would rise by 13percent, while slightly less (37 percent) were more optimisticquoting rental growth of 35 percent. Just 12 percent ofrespondents predicted more than ve percent rental growth.
I think its going to be fairly quiet. Weve had some instability inthe market, but I think its going to change a little bit, then catchup maybe 35 percent over the next year and a half, said DianeMiramontes, Executive Vice President of Jones Lang LaSallesmultifamily Capital Markets business. Right now were dealinga lot with the shadow market and thats affecting what kind ofgrowth we can project because theres strong competition inthose markets.
More from Miramontes here:www.youtube.com/watch?v=idVpp0Squ5o
Steven Ludwig of Coastline Capital Partners added, We tendto use a straight-line rental growth, depending upon the marketwere intypically between 23 percent because we try to erron the conservative side so that we can, as a smart investor,
always underpromise and overdeliver. However, we are noticingon the management side in really well-located properties here inSouthern California rents are pushing anywhere between 310percent, which were really excited about.
Listen to Ludwigs additional thoughts here:www.youtube.com/watch?v=ylLMGjGlY4c
Top cities
In other survey news, respondents picked Los Angeles, SanFrancisco, Dallas, San Diego and Phoenix as the top ve cities
Apartments Outlook2012 Survey
December 2011
Apartments outlook 2012 survey: Multifamily makes senseRespondents predict continued interest and strong fundamentals in the year ahead
Right now were dealing a lot with the
shadow market and thats affecting what
kind of growth we can project becausetheres strong competition in those markets.
Diane Miramonte
Real value in a changing world
I think its clear that with homeownership
coming down, the rental space is probably
the single strongest asset class in the
United States right now. Michael Berman
http://www.youtube.com/watch?v=bgikHLW45o0http://www.youtube.com/watch?v=idVpp0Squ5ohttp://www.youtube.com/watch?v=ylLMGjGlY4chttp://www.youtube.com/watch?v=ylLMGjGlY4chttp://www.youtube.com/watch?v=idVpp0Squ5ohttp://www.youtube.com/watch?v=bgikHLW45o0 -
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Apartments outlook 2012 surveyPage 2
in which they were most likely to invest in the year ahead. Onthe sell side, respondents agged Las Vegas, Los Angeles,
Washington, D.C., Atlanta, Houston and Phoenix as primedisposition regions.
Multifamily investors: Local to global competition
As the most attractive investment sector, multifamily isgaining new competitive pressure. Respondents say theirmain competition is private investors (46 percent), followed by
institutional investors at just 23 percent. Coming in with barely ablip on the radar is competition from developers (4 percent) andforeign investors (3 percent). Still, those foreign investors aremaking their inuence felt. Investors from Asia lead the pack,
according to respondents. Nearly half (47 percent) say Asianinvestors make up the majority of interest in U.S. multifamily,while the Middle East (28 percent) and Canada (26 percent) arealso contenders. Another 28 percent also say theyre not seeingany foreign investment at this point.
Multifamily investment criteria
In terms of top-three investment criteria, more than two-thirds ofrespondents (67 percent) picked value-add properties as theirtop reason for choosing a certain property. That was followedup by more than half of respondents (52 percent) choosing atransit-oriented location and 45 percent choosing a suburban/garden-style location.1
Cap rates
With cap rates hovering around four percent in the mostcompetitive markets, many are wondering if the apartment
sector is in a bubbleand getting ready to burst. A majority ofsurvey respondents, 34 percent agreed, conceding the numbersare already over exuberant. Still, 22 percent say the markethasnt hit the bubble stage yet, while another 20 percent see thattime coming in 2012.
The survey also asked respondents where they anticipated
multifamily cap rates trending in 2012 for the most competitivemarkets. A majority of respondents (39 percent) said were in aholding pattern, with cap rates staying stable, while another 21percent say theyll decrease less than 50 basis points. Another15 percent felt cap rates will decrease more than 50 basispoints, while the same amount (15 percent) say cap rates willrise by less than 50 basis points.
What is changing is investors appetite for yield. With interestrates hovering around 4 percentrespondents were asked topeg the breaking point for them to leave the market as cap ratesfall. Half of all respondents (50 percent) said that number fallsbetween 5 and 6 percent, while another 26 percent say if caprates fall to between four and ve, theyre out. Just 14 percent
say cap rates below 4 percent is the only way theyll leave themarket.
Construction
55 percent of the survey respondents overwhelmingly say theconstruction pipeline has opened once again due to an increasein net operating incomes, while an equally impressive 49 percentsay its due to the availability of nancing. However, 42 percent
of respondents say the increase in development is directly dueto developers lowering their return thresholds.2
With increased development, developers are expectingincreased costs, at least when it comes to both mid-level andhigh-rise multifamily properties. Nearly two-thirds of surveyrespondents (63 percent) say the cost of construction formid-rise properties rose by 5 percent this year over last, whileanother 29 percent say that number fell by ve percent, and
an equal number (25 percent) say the cost dropped by more
1 Numbers equal more than 100 percent due to respondents ability to check multiple answers2 Numbers equal more than 100 percent due to respondents ability to check multiple answers
3 Numbers equal more than 100 percent due to respondents ability to check multiple an
50%
26%
14%10%
0%
10%
20%
30%
40%
50%
60%
Cap rates between 5% to6%
Cap rates between 4% to5%
Cap rates under 4% Ill buy any multifamilyproduct I can get my
hands on
Los Angeles, 15%
San Francisco,9%
Dallas, 8%
San Diego, 8%
Phoenix, 7%
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than ve percent. For high rises, the numbers are even more
substantial. Nearly 70 percent of respondents say the cost of high-rise construction today versus a year ago has now risen by morethan ve percent, while 38 percent say that number fell by ve
percent and another 29 percent say that number fell by more thanve percent. Garden-style development is the exception, however,
with 61 percent of respondents saying the cost of construction
today remains at, while 46 percent say the cost has fallen bymore than ve percent, and another 33 percent say that number
has fallen by just ve percent.3
Rent versus own
Our survey asked respondents when the propensity of rentingversus owning would likely shift back to home ownership. Amajority of respondents (44 percent) say that wont happen untilat least 2015 or later, while another 32 percent say the market willreach a balance in 2013with a shift toward buying in 2013. Just15 percent say that market balance comes next year, with a shift
to buy in 2013.
We expect apartment investment to maintain very high activityin 2012, continuing the strong levels weve experienced in 2011,concludes Jubeen Vaghe, Managing Director and leader of
Jones Lang LaSalles Multifamily Investment Sales team. Theavailability of debt capital will remain plentiful, with continuedinterest from the government agencies, as well as life companies.This survey proves that the year ahead will bring a great dealof competitive moves in the sector as those with the greatestappetite take the highest risk.
Jones Lang LaSalles multifamily team has closed $2.7 billion intransactions so far in 2011, and has nearly $2 billion of proper tiescurrently on the market for its client base.
About Jones Lang LaSalle
Jones Lang LaSalle Capital Markets is a full-service globalprovider of capital solutions for real estate investors andoccupiers. The rms in-depth local market and global
investor knowledge delivers the best-in-class solutions forclientswhether a sale, nancing, repositioning, advisory or
recapitalization execution. In 2010 alone, Jones Lang LaSalleCapital Markets completed $43 billion in investment sale and debtand equity transactions globally. The rms dealmakers completed
$33 billion in global investment sales and buy-side transactions,equating to nearly $140 million of investment trades completedevery working day around the globe. In the United States, Jones
Lang LaSalle grew its ofce broker volumes by 257 percent in
2010 and is quickly gaining market share across all propertytypes. The rms Capital Markets team comprises approximately
800 specialists, operating in 185 major markets worldwide.
Jones Lang LaSalle (NYSE:JLL) is a nancial and professional
services rm specializing in real estate. The rm offers integrated
services delivered by expert teams worldwide to clients seekingincreased value by owning, occupying or investing in real estate.With 2010 global revenue of more than $2.9 billion, Jones LangLaSalle serves clients in 60 countries from more than 1,000locations worldwide, including 185 corporate ofces. The rm is
an industry leader in property and corporate facility managementservices, with a portfolio of approximately 1.8 billion square feetworldwide. LaSalle Investment Management, the companysinvestment management business, is one of the worlds largestand most diverse in real estate with more than $47.9 billion ofassets under management. For further information, please visitour website, www.joneslanglasalle.com.
We expect apartment investment to maintainvery high activity in 2012, continuing the
strong levels weve experienced in 2011.
Jubeen Vaghef