Graaskamp on the Road Jeffrey N. Weber Senior Managing Director - - PowerPoint PPT Presentation

▶
graaskamp on the road
SMART_READER_LITE
LIVE PREVIEW

Graaskamp on the Road Jeffrey N. Weber Senior Managing Director - - PowerPoint PPT Presentation

Jun 15, 2023 287 likes •494 views

Presentation to: Graaskamp on the Road Jeffrey N. Weber Senior Managing Director June 24, 2016 1 Resiliency Reasons for Optimism Relative US economic performance 2 -2.5%, GDP growth, 200-250k per month job growth (except last month)

slide-1
SLIDE 1

1

Presentation to:

Graaskamp on the Road

Jeffrey N. Weber

Senior Managing Director

June 24, 2016

slide-2
SLIDE 2

2

Resiliency – Reasons for Optimism

  • Relative US economic performance 2 -2.5%, GDP

growth, 200-250k per month job growth (except last month)

  • Very few markets with supply issues
  • Balance sheet strength among borrowers and tech

companies

  • Low oil prices are normally a good thing
  • Strong demographics driven by millennials and Gen

Z behind them

slide-3
SLIDE 3

3

Risk – Reasons for Concern

  • Cycle Risk – Length of current expansion vs. most

recent cycles

  • Capital Market Volatility: China, CMBS, Oil
  • Transaction velocity/valuations
  • Geopolitical: Isis, Currency Rate Wars
  • Governmental – Gridlock, Regulatory, Entitlements
slide-4
SLIDE 4

4

Global Bond Rates

Japan Germany U.S. 1 Month

  • 0.40%
  • 0.60%

0.20% 5 Years

  • 0.25%
  • 0.45%

1.15% 7 Years

  • 0.25%
  • 0.30%

1.45% 10 Years

  • 0.15%

0.05% 1.65%

Source: Bloomberg, rounded to the nearest 5 bps

slide-5
SLIDE 5

5

Source: Bloomberg

The Bond Markets Predict Low Rates for Some Time

slide-6
SLIDE 6

6

Yield Environment has Pushed Values for all Asset Classes – Just Less For CRE

Index

  • Feb. 2007*

June 2016* % Change in Value S&P 500 (Price Only) 1,445 2,069 +43% 10-Yr. Treasury 4.70% 1.80% +62% Green Street CPPI 100 124 +24%

*30 day average

slide-7
SLIDE 7

7

CIO Conundrum Today Annual Returns on $100 MM Invested

Annual Return (%) Annual Return ($) 5 Year Treasury 1.15% $1.15 MM 10 Year Treasury 1.65% $1.65 MM AAA 10 year CMBS 2.75% $2.75 MM 1.7x T’s Class A Core Real Estate (Unlevered) 6.00%* $6.00 MM 3.6x T’s Class A Core Real Estate (Levered) 8.00%* $8.00 MM 4.8x T’s

*IRR

slide-8
SLIDE 8

8

$158 $216 $245 $340 $116 $35 $93 $163 $245 $245 $284

$148

$106 $367 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD May‐16 Billions 2015 Largest Ever; Excluding EOP $407 EOP

US Sales & JV’s Volume Transactions >$25 Million

Source: Real Capital Analytics

slide-9
SLIDE 9

9

$3 $7 $4 $14 $12 $19 $20 $37 $90 $28 $39 $43

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2005 2006 2007 2013 2014 2015 Billions Foreign Domestic

$23 $44 $94 $42 $51

2005 – 2007 9% Foreign By Vol.

Offshore Investment Accelerating… In Particular on Larger Deals

2013 ‐ 2015 29% Foreign By Vol.

$62

U.S. Office Sales & JV’s Volume by Buyer Type, Transactions >$200 Million

Source: Real Capital Analytics

slide-10
SLIDE 10

10

New Supply is Generally Below Long-Term Averages

All sectors (multifamily being one exception) are 30%+ below their long-term avg. supply levels

Source: REIS

US Supply Fundamentals Remain Healthy

slide-11
SLIDE 11

11

2.5 2.6 2.7 2.8 2.9 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4.0 4.1 4.2 4.3 4.4 4.5 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 AVERAGE POPULATION TURNING 18 AVERAGE 1965 - 2015(P) Excl. 1990-1999 AVERAGE 1990-1999 Source: U.S. Census

Population turning 18 from 1965 to 2015(P)

slide-12
SLIDE 12

12

Why Today’s Pricing Doesn’t Feel Like 2006

Capital Stack (2006) Capital Stack (2015)

2006 Capital Stack - 80% LTV 2015 Capital Stack - 50% LTV

LTV Cap Rate Debt Cost DSC Lev. COC LTV Cap Rate Debt Cost DSC Lev. COC 80.00% 5.00% 6.00% 1.04x 1.00% 50.00% 4.50% 3.85% 2.40x 5.25%

slide-13
SLIDE 13

13

$65,544 $69,545 $83,032 $84,773 $93,321 $116,009 $151,822 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000

2015 GDP PER CAPITA

$225 $296 $348 $417 $554 $589 $814 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900

OFFICE CRE VALUE 2015 ($PSF)

Current Commercial Real Estate pricing PSF relative to per capita GDP in the Bay Area is approximately 36% lower than other major US markets.

Current Gross Income Levels vs CRE Pricing

slide-14
SLIDE 14

14

45% 46% 51% 56% 58% 61% 75% 25% 35% 45% 55% 65% 75% 85%

GDP PER CAPITA GROWTH SINCE 2001

57% 74% 118% 136% 149% 153% 237% 0% 50% 100% 150% 200% 250%

CRE VALUE GROWTH (CPPI) SINCE 2001

Income Growth vs CRE Value Growth

Average Commercial Real Estate value growth relative to GDP per capita income appreciation in the Bay Area is approximately 26% lower than other major gateway metro

slide-15
SLIDE 15

15

RSF TTM REV. YE 2017 PROJ. CASH ADJ. EBITDA Net Debt to ADJ. EBITDA 2.3M $7,073

(35% YoY Growth)

$9,839

(39% Proj. Growth) $2,031

$1,162 0.0x 768K $2,377

(15% YoY Growth)

$3,298

(28% Proj. Growth) $3,576

$583 (3.4x) 727K $77,988

(25% YoY Growth)

$100,025

(39% Proj. Growth) $73,450

$31,062 (2.1x) 450K $3,214

(50% YoY Growth)

$4,456

(39% Proj. Growth) $3,160

$819 (2.5x)

(1) LTM Revenues are as of March 31, 2016 for LinkedIn, Alphabet and Twitter. LTM Revenues are as of April 30, 2016 for Salesforce. (2) YE Revenues are as of December 31 for LinkedIn, Alphabet and Twitter. YE Revenues are as of January 31 for Salesforce. (3) Adjusted EBITDA excludes stock based compensation and includes equity income from affiliates.

Profiling San Francisco’s Largest Tech Users

slide-16
SLIDE 16

16

San Francisco Office Rents Relative to Replacement Cost Rents

$0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00

  • Avg. Rent

Replacement Cost Rents

  • Avg. San Francisco Office Rent

As Compared to Replacement Cost Rrnt

66% Premium 41% Discount 31% Discount

19-year Average Discount to Replacement Cost Rents is 30%

slide-17
SLIDE 17

17

National Class A & Trophy Pricing

  • 50-100 BPS

mark to market premium for San Francisco trophy assets

  • 150+ BPS

premium for San Francisco class A assets

slide-18
SLIDE 18

18

  • 25.0%
  • 15.0%
  • 5.0%

5.0% 15.0% 25.0% $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 Investment Sales Volume (mm) NCREIF Total Return

80% of sales vol. for the past two recoveries occurred in the 2nd half of the recovery

And in a 0% cash return environment, not necessarily profitable.

[1] 2006-2014 NCREIF returns reflect actual returns. [2] Cash returns held at 0% to reflect current rate environment. [3] Sources: NCREIF and Real Capital Analytics

2006 – 2014 Investment Returns 2006 – 2014 Investment Returns Cash Investment Real Estate Investment IRR Cash Investment Real Estate Investment IRR

  • 2006 - 2014

7.6%

  • 2007 - 2014

5.9% 2006 - 2010 2011 - 2014 4.7% 2007 - 2010 2011 - 2014 5.4%

It’s Extremely Hard to Time the Market…

slide-19
SLIDE 19

19

  • Large persistent public market discounts to NAV were a pretty good leading indicator

for 2001 and 2008 downturns… however, recent data is not as conclusive.

  • Not all economic downturns create significant discounted buying opportunities.

20 40 60 80 100 120

  • 35.0%
  • 30.0%
  • 25.0%
  • 20.0%
  • 15.0%
  • 10.0%
  • 5.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% Green Street Office CPPI NCREIF Office Return Office REIT Premium to NAV Cumulative National CPI Inflation

  • 17.9%

2.9%

Source: Green Street Advisors & NCREIF ; *Not adjusted for inflation; *bmv = NCREIF Quarterly Beginning Market Value; Green Street CPPI is indexed to 100 in August '07

Private vs. Public Market Office CRE Valuation

slide-20
SLIDE 20

20

Source: Eastdil Secured

CMBS Capital Stack – 2006 vs. 2016 Producing Better Spreads for Less Risk