CRE Markets 2 Mortgage Bankers Association 1 11/9/2017 Mortgage - - PDF document

Mortgage Bankers Association 1

Mortgage Bankers Association

11/9/2017

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Commercial Real Estate Outlook

November 2017

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CRE Markets

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Snapshot of Today’s Market

Sources: Census, REIS, Real Capital Analytics, ACLI, MBA, JPMorgan, Moody’s FDIC, MBA

Indicator Level Trend Apartment Vacancy Rate 9.0% Up from recent levels that were lowest since 1984 Office Vacancy Rate 16.0% Trending (slightly) down, still above pre-recession levels Office Property Cap Rate 6.6% Near all-time lows Multifamily Property Cap Rate 5.6% At all-time lows Multifamily Units Under Construction 600,000 Recent levels are highest since 1974 Life Company Mortgage Rate 3.9% Up slightly but still near all-time lows Mortgage Bankers Originations $491 billion Down from 2015, but 3rd highest in history Total Multifamily Mortgage Originations ~$260 billion At all-time high UW CMBS LTV 60% Second lowest (to 2010) Moody's Stressed CMBS LTV 113% Second highest (to 2016) Bank 90+ Day Mortgage Delinquency Rate 0.54% Multifamily non-current rate is lowest on record (to 1993) Mortgage Debt Outstanding $3.1 trillion Record high 4

Different Property Types, Different Drivers

APARTMENTS: Supply vs. Demand OFFICE: Employment Growth & The Efficiency Trend RETAIL: E-commerce, Haves and Have Nots, Fewer Haves INDUSTRIAL: E-commerce, Economy, Last Mile

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Commercial/Multifamily Property Fundamentals

2 4 6 8 10 12 14 16 18 20 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 Office Retail Apartment Source: REIS, NCREIF, Moody’s/Real Capital Analytics

Vacancy Rates (Percent)

• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 Office Retail Apartment

Year-over-year Asking Rent Growth Year-over-year NOI Growth Among NCREIF Properties Property Prices (Index: 2007Q3 = 100)

• 15%
• 10%
• 5%

0% 5% 10% 15% 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 Apartment Retail Office Industrial 20 40 60 80 100 120 140 160 180 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Apartment Office - CBD Retail Industrial Office - Suburban

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Contributions to Commercial Property Price Changes

Source: NCREIF

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Commercial/Multifamily Capitalization Rates

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 01Q1 01Q4 02Q3 03Q2 04Q1 04Q4 05Q3 06Q2 07Q1 07Q4 08Q3 09Q2 10Q1 10Q4 11Q3 12Q2 13Q1 13Q4 14Q3 15Q2 16Q1 16Q4 10-year Treasury Apartment Office - CBD Retail Industrial

Source: Real Capital Analytics and Federal Reserve Board Apartment spread 1.3% 3.3% 4.6%

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Capitalization Rates in Selected Markets, H2 2017 Class A CBD Office (blue) and Class A Multifamily Infill (red)

Source: CBRE

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Value of Construction Put in Place SAAR, $millions

Source: Census Bureau

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CRE Finance

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Commercial/Multifamily Property Sales, Mortgage Bankers Originations and Non-bank Maturities ($millions)

$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 H1 2017 Trend Non-bank Mortgage Maturities Property Sales Mortgage Bankers Originations

Source: MBA CREF Database and Real Capital Analytics NOTE: Maturities not available prior to 2009

n.a. n.a. n.a. n.a.

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Commercial/Multifamily Mortgage Bankers Originations

$0 $100 $200 $300 $400 $500 $600 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Commercial/Multifamily Multifamily

Source: MBA CREF Database $billions

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Mortgage Bankers Originations, by Property Type ($billions)

$- $50 $100 $150 $200 $250 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Multifamily Office Retail Other Hotel Industrial Health

Source: MBA

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Mortgage Bankers Originations, by Capital Source ($billions)

$- $50 $100 $150 $200 $250 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Banks GSEs Life Cos CMBS FHA Other

Source: MBA

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Different Capital Sources, Different Drivers

Banks – CRE Fundamentals, Regulatory Guidance, HVCRE Life Companies – Alternative Investment Options GSEs – Lending Caps, Housing Goals, Duty to Serve CMBS – Bond Markets, Risk Retention, Fundamental Review of the Trading Book FHA – Rates, Construction, MAP Guide, MIP for Affordable

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Commercial and Multifamily Mortgage Bankers Originations, by Quarter ($billions)

$0 $100 $200 $300 $400 $500 $600 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 Q2 Q3 Q4

Source: MBA