FEDERAL RESERVE BANK OF ATLANTA REAL ESTATE CONFERENCE DECEMBER 2015 - - PowerPoint PPT Presentation

CRE DEBT MARKETS RESEARCH/DATA/TRENDS/RISK ANALYTICS

FEDERAL RESERVE BANK OF ATLANTA REAL ESTATE CONFERENCE DECEMBER 2015 • NEW ORLEANS SAM CHANDAN PhD Chandan Economics & The Wharton School of the University of Pennsylvania

www.chandan.com www.samchandan.com chandanomics samchandan 7 World Trade Center 46th Floor 250 Greenwich Street New York NY 10007

CHANDANECONOMICS

CHANDANECONOMICS

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q1–Q3

Mortgage-Financed Apartment & Commercial Property Sales In Billions P2

$93B

Q1–Q3 Multifamily Volume

Source: Chandan Economics; Model Based on Mortgage-Backed Sale Transactions and Refinancing Activity Commercial Multifamily

APARTMENT & COMMERCIAL INVESTMENT

Model Projected Volume for 2015 $421 $508

CHANDANECONOMICS

APARTMENT CAPITAL MARKETS

P3

$0 $200 $400 $600 $800 $1,000 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Multifamily Mortgages Outstanding by Lender Group Excludes Construction Loans; In Billions

Other Agency CMBS Life Companies Banks 0% 20% 40% 60% 80% 100% 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

+4.5%

Change in Multifamily Debt Outstanding

Source: Chandan Economics; Federal Reserve, FDIC; 2015 Through Q2; Measure are total debt outstanding

Since EOY 2014

+$45.5B +9.8%

YOY Since Q2 2014

+$92.7B $1.04T

YOY Change in GSE Debt

+11.4% 41.9%

Q2 2015 GSE Market Share

CHANDANECONOMICS

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 4 Q 2 3 2007 2008 2009 2010 2011 2012 2013 2014 2015

Default Rate for Bank Commercial and Multifamily Mortgages

Commercial Multifamily

APARTMENT CAPITAL MARKETS

P4

0.33% Source: Chandan Economics; Federal Reserve, FDIC; 2015 Through Q3

CHANDANECONOMICS

P5 Cap Rate Debt Yield Implied Leverage3

Debt-Income Ratio Balance

Q1 2015 & Q2 2015 Q3 2015 & Q4 2015 Q1 2014 & Q2 2015 Q3 2015 & Q4 2015 Q3 2014 & Q4 2015 Q3 2014 & Q4 2015

$1 – $5 6.2% 6.0% 9.1% 9.0% 67% $11.10 $5 – $10 6.0% 6.0% 8.7% 8.7% 69% $11.49 $10 – $25 5.7% 5.6% 8.0% 8.0% 70% $12.50 $25 – $50 5.3% 5.3% 7.4% 7.4% 72% $13.51 $50 + 4.7% 4.6% 7.1% 7.0% 66% $14.29

Source: Chandan Economics; Based on Mortgage-Backed Sales and Refinancing; Q4 2015 is Partial

APARTMENT INVESTMENT

CHANDANECONOMICS

APARTMENT INVESTMENT

P6

New York 4.5% San Francisco 4.8% San Jose ▼ 4.9% San Diego ▼ 5.1% Boston 5.1% Inland Empire 5.2% Seattle 5.3% Austin ▼ 5.5% Los Angeles 5.6% Washington DC ▼ 5.7% Denver 5.7% Miami ▼ 5.7% Houston 6.1% Philadelphia ▼ 6.2% Chicago ▼ 6.2% Atlanta ▼ 6.2% Dallas 6.3%

2015 YTD Market Average Cap Rates For Selected Markets

Source: Chandan Economics; Based on Mortgage-Backed Sale Transactions and Refinancing Activity

CHANDANECONOMICS

REAL ESTATE CYCLE

P7 2015 2016 2017 2018+

When Will Loan Production Reach its Cyclical Peak?

Partial IO 34% IO 7% Amortizing 59% Partial IO 39% IO 29% Amortizing 32%

Shares of Sampled Mortgage Pool Q4 2013 Q4 2014 Source: Chandan Economics, Real Estate Lenders Association; Through Summer 2015

CHANDANECONOMICS

APARTMENT FINANCING TRENDS

P8

Source: Chandan Economics 0% 5% 10% 15% 20% 25% 30% 35% < 70% 75% - 79% 80% - 84% 85% - 89% 90% - 94% 95% - 99% 100% - 104% 105% - 109% 110% +

Credit Migration Flags and Value Pressures in Underwriting Apartment Income Underwriting Ratio Underwritten NOI as a Share of Most Recently Reported NOI 2013 2014 8% 2%