2005 Year in Review Economic Background Economic Background - PDF document

Old Dominion University Old Dominion University Hampton Roads Real Estate Hampton Roads Real Estate Multifamily Market Review Multifamily Market Review Market Review and Forecast Market Review and Forecast 2006 2006 Aubrey Lane Aubrey Lane President & Principal Broker President & Principal Broker Great Atlantic Properties Great Atlantic Properties Multifamily Review – Multifamily Review – Aubrey Layne Aubrey Layne Responsible for the operations and Responsible for the operations and administration of Great Atlantic’ ’s s administration of Great Atlantic Property management functions, Property management functions, new business acquisition, capital new business acquisition, capital improvement, banking and investor improvement, banking and investor relations. relations. Presented by: MBA – MBA – Old Dominion University Old Dominion University E.V. Williams Center for Real Estate and Economic Development 2006 2006 2006 2006 Multifamily Market: Multifamily Market: Multifamily Market: Multifamily Market: Review and Assessment Review and Assessment Review and Assessment Review and Assessment • 2005 Year in Review • 2005 Year in Review –Economic Background Economic Background – –Fundamentals Fundamentals – Aubrey L. Layne, Jr. Aubrey L. Layne, Jr. • Operational Trends • Operational Trends • Multifamily Transactions • President President Multifamily Transactions • Opportunities / Cautions • Opportunities / Cautions Great Atlantic Management Great Atlantic Management • Conclusion • Conclusion GREAT ATLANTIC 2005 Year in Review 2005 Year in Review 2005 Year in Review • • Economic Background Economic Background (Continued) – HR (Hampton Roads) favorable unemployment HR (Hampton Roads) favorable unemployment – • Fundamentals • Fundamentals rate of 3.6% (vs. 4.7% for US) rate of 3.6% (vs. 4.7% for US) – Demand exceeds supply – Demand exceeds supply – Vacancy 3.8% – Vacancy 3.8% – Average rent $785 – Average rent $785 2,595 units under construction and 1,764 proposed 2,595 units under construction and 1,764 proposed • • Rent growth in excess of inflation Rent growth in excess of inflation – Long term interest rates historically low and Long term interest rates historically low and – – Strong fundamentals compared to Strong fundamentals compared to – steady steady nearby regions nearby regions – Home prices have increased significantly – Home prices have increased significantly Source: Real Data 1

Net Monthly Cost of Owning vs. Renting Avg. Rents by City - 2005 Hampton Roads Avg. Rent and Median P&I for a Newly Purchased Home $1,400 80% $1,341 950 73% $881 70% $1,200 900 850 60% $785 $1,000 $ per month 800 avg rent 50% 750 $700 $785 $800 700 home P&I 40% 650 $600 600 30% owner % premium 550 $400 20% 500 N h k n g . k k h g t l l r N o o r v o c Sources: ODU u u o $200 f t f a o r p a Y b f e 10% o m u m s R B Economic N S m s a H / t H s a Forecasting r a e V o i l P l h i Project and Real W C $0 0% Data 2000 2001 2002 2003 2004 2005 Operational Trends Operational Trends Comparison to Nearby Regions Comparison to Nearby Regions • Condo conversions • Condo conversions • “ • “Renters by choice Renters by choice” ” • Urbanism • Urbanism HR HR Richmond Richmond Raleigh Raleigh- - • Life style amenities Durham • Durham Life style amenities Vacancy Vacancy 3.8% 3.8% 6.3% 6.3% 9.8% 9.8% – Concierge Service – Concierge Service Avg. – Automated rent payments and web based – Automated rent payments and web based Avg. $785 $726 $700 $785 $726 $700 maintenance requests Rent Rent maintenance requests 2 yr. % 2 yr. % 13.8% 13.8% 6.5% 6.5% -7.8% - 7.8% – Business center Business center – Change Change – Cyber Cyber- -caf café é – rent rent – Hot tubs / tanning booths Hot tubs / tanning booths – Source: Real Data Hampton Roads Apartment Units Sold and Average Price per Unit Multifamily Transactions Multifamily Transactions 4,500 $80,000 • • $72,700 Per unit prices for multifamily properties have increased Per unit prices for multifamily properties have increased $68,600 4,000 $70,000 significantly since 2001 significantly since 2001 $62,400 3,500 $59,600 $60,000 - 2001, $36,700 - 2001, $36,700 3,000 avg. price per unit $50,000 apt. units sold - 2004, $72,700 - 2004, $72,700 2,500 $36,700 U $40,000 - 2005, $68,600 - 2005, $68,600 n 2,000 i $30,000 t 1,500 • Number of units traded increased • s Number of units traded increased $20,000 1,000 - - 2001, 2,200 units 2001, 2,200 units S o $10,000 500 - - 2004, 4,000 units 2004, 4,000 units l d - 2005, 2,700 units - 0 $0 2005, 2,700 units 1999 2000 2001 2002 2003 2004 2005 Data: CBRE, reported # of units sold Avg. price per unit broker transactions 2

HR Multifamily Cap Rates* Multifamily Transactions Multifamily Transactions and Interest Rates (10 years) 10 (Continued) (Continued) cap rates 9 8 • Tenants in common (TIC) • Tenants in common (TIC) 6.9% percent • Cap Rate Compression 7 • Cap Rate Compression – Interest rates are low – Interest rates are low 6 – Limited financial return alternatives for investments – Limited financial return alternatives for investments • Financial returns significantly based 5 • Financial returns significantly based interest rates 4.2% on property appreciation on property appreciation 4 * CBRE, broker supplied data 3 8 9 0 1 2 3 4 5 9 9 0 0 0 0 0 0 9 9 0 0 0 0 0 0 1 1 2 2 2 2 2 2 HR Multifamily Cap Rates* and international cap rates** Opportunities / Cautions Opportunities / Cautions 10 cap rates 9 8 • National perspective • National perspective 6.9% percent 7 • BRAC • BRAC NY, 6.9% 6 London, 6.8% • Interest rates • Interest rates Paris, 6.0% 5 Tokyo, 5.4% • Vacancy • Vacancy * CBRE, broker supplied data 4 ** GE Commercial Finance 3 8 9 0 1 2 3 4 5 9 9 0 0 0 0 0 0 9 9 0 0 0 0 0 0 1 1 2 2 2 2 2 2 Conclusion Conclusion • Multifamily economics remain strong • Multifamily economics remain strong • Valuations questionable • Valuations questionable • Watch fundamentals • Watch fundamentals GREAT ATLANTIC 3