SVN Wilson Commercial 2019 Update Columbus CRE Trends Columbus - - PowerPoint PPT Presentation

SVN Wilson Commercial 2019 Update Columbus CRE Trends

Columbus Investor Forum

Market of Focus: Columbus, Ohio

Presented by:

Doug Wilson

SVN, Managing Director, Columbus

Kristen Wilson Asman

SVN, Senior Advisor

“Maximum Competition = Maximum Value”

MACRO: US GDP, Jobs & Money

2016 GDP Growth 1.5% - 2.0%; 2017 GDP Growth 2.5% - 2.9% 2018 GDP Growth 2.5% - 3.5% 2019 GDP Growth 2.5% - 2.75%

• Jobs @ 200K – 300k/month
• Political uncertainties = “The Trump Thesis”: Taxes, EPA, ACA, Dodd Frank, Trade

Laws

• Good Sources for “Good” Data: WSJ, Bloomberg, BBC America, i24, Newsy
• Long Economic Recovery, but still low aggregate real growth.
• Stock Market: No more safety net: i.e. quantitative easing, low interest rates
• Today: record corporate earnings, but equity valuation re-sets
• Expect little inflation + only modest interest rate change
• Interest rates: Little impact on cap rates due to rent growth (1.5% - 4.5%)
• New Construction lending is growing, but still constrained by Policy
• CONCLUSION: Economy strong on all fronts, especially Columbus!

• The Rare “Trifecta”:
• Low interest Rates, Low inflation, with

Growth.

• This can’t last much longer: Act Now!

CRE Columbus Opportunities

• Three Tiered Yield Outlook: Closing Cap Rate + Strong Rent Growth + Sale
• Industrial: New resurgence in construction, rents.
• Retail: Vibrant, but less stock goods, more lifestyle services, entertainment,

food.

• Office: Suburban finally stabilizing, low new construction, vacancy reduced
• Apartments: The New Culture of Renting vs Home Ownership
• Flex Properties: High cap rates
• Break Out Opportunities: Suburban Office (Co-Work);Self Storage; SFR/BFR

Portfolios; NNN; Small Markets (Secondary, Tertiary)

‘19 INTEREST RATE INCREASES WILL DO WHAT?

WILL THE EQUITY SPREAD NARROW?

Debt Spread: Difference Between 10yr UST and 7/10 Year Fixed Commercial Mortgage Rate Equity Spread: Difference Between Commercial Cap Rates and 7/10 Year Fixed Commercial Mortgage Rate

1 2 3 4 5 6 7 8 9 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 10yr UST Debt Spread Equity Spread

Commercial Cap Rates, % Equity Spread at 220 BPS versus 170 BPS over time

CAP RATES, NATIONALLY

5.0% 6.0% 7.0% 8.0% 9.0%

Off Ret Ind Apt Htl

‘13 ‘14 ‘15 ‘16 ‘17 ‘18 Year

Cap Rates, Columbus

Source: Real Capital Analytics

TRANSACTION VOLUME

30 60 90 120 150 20 40 60 80 100 120 140 160 180 200

$b Individual

Portfolio Entity US National All Types

Year-Over-Year Volume Change

‘13 ‘14 ‘15 ‘16 ‘17 ‘18

CONSTRUCTION STARTS

Why buy the dirt if you cannot get a loan?

Sources: Real Capital Analytics, Federal Reserve Bank Senior Loan Officer Survey

1 2 3 4 5 6 7 8 9

• 15
• 10
• 5

5 10 15 20 25 30 35 '14 '15 '16 '17 '18

Billions

Change in Lending Standards Development Site Sales

Net % of Respondents Reporting Tightening Standards Development Site Sales, $B

CROSS-BORDER ACQUISITIONS

BUT CROSS-BORDER FLOWS HIGH AND DIVERSE

$0 $20 $40 $60 $80 $100 $120 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Europe Canada Middle East & Africa Asia Australia Latin America billions

TRAILING 12 MONTH TOTAL

OPPORTUNITY ZONE:

• “1031” Transformative Community Investment
• Investment Basis Reset to Market after 10 Year Hold
• “Quirks”:

– Must Pay Capital Gain in 2026! – Gain can be discounted 15% of original basis – Need to present Investment Plan, reviewed every 6 months – Value of Investment must double in 30 months.

• Gain can come from non real estate assets
• OZ Re-investment can be used for businesses (like VC)
• State of Ohio does not conform with Federal OZ Law
• Disclaimer: This information is subject to change.

APARTMENT OVERVIEW:

• 142,000 Total Apartments in Columbus Market
• Growth of Households still outpacing new construction
• Fundamentals Still Strengthening:

– Cap Rates, 5% - 6%, A Class; 6.5% - 7.25%, B Class; 7.5% - 9.5% C Class – Vacancy 4%, Rent Growth 4.5% - 5% – Population Growth: 46,000/yr in the Columbus MSA – 5,000 – 6,000 Units Under Construction

• Changing Culture of Renting: “Renting is Cool”
• Large quantities of affordable capital driving investment market.

Columbus apartments are on the radar of National Investors

RETAIL OVERVIEW:

• Construction Levels Slowing
• Location Fundamentals More Important than Tenant Credentials
• Retail Cap Rates: A Class 6% - 6.5%; B Class 7% - 7.5%
• Big Boxes Weak, But Small Tenants Very Strong
• Big Box Conversion: Self Storage, Entertainment
• Occupancy High with destination, service and food tenants
• Little Expansion of Stocked Goods Retailers
• Cap Rates Falling: Dearth of New Construction combined with Job Growth
• Local Market is Very Strong Fundamentally.

OFFICE OVERVIEW:

• Fundamentals Improving, Both CBD and Suburban
• Vacancy Beginning to Wane, especially Suburban
• Mixed Use Transactions Increasing, Especially CBD
• Suburban Transactions Increase, very little construction
• Co-Working Spaces Serve As Profit Center.
• The “Era of Tenant Flexibility”….short term leases.
• Cap Rates: A Class 5.5% - 7%; B Class 7.5% - 8.5%; C Class 9.5%

INDUSTRIAL OVERVIEW:

• 2018,2019 shows strong sales of portfolios
• CAP Rate reflects compression pricing from low vacancy and

little speculative construction.

• Amazon Fulfillment centers spur growth in Industrial sector.
• No more Small Building Construction, Mostly Large Footprints
• Industrial Cap Rates: A Class 5.5% - 6.25%; B Class 6.75% -

7.25%

FLEX OVERVIEW:

• Flex Properties: Good Fit for Service, Tech companies,

Suburban Office Development

• Flex Cap Rates: A Class 8% - 8.5%; B Class 9% - 9.5%
• Flex is a sub set of EVERYTHING

– Destination Retail – Low cost/rent Office Space – Light Assembly Industrial – Technology Enterprises FLEX IS VERY APPROPRIATE FOR THE NATURE OF THE COLUMBUS ECONOMY!

So What?. . . The Near Future and you…

• Cap Rate Compression:

− Less with Multifamily, but more compression otherwise − But with high BPS spreads vs. T-Bills…

• Affordable capital still available…
• Record number of investors…
• Low capital gain rate unchanged for <$450k Income, 15%
• Vacancy % moving in right direction…
• Supply and demand always in play…
• Lack of alternative asset investments…

Real Estate National Outlook

• Real estate remain asset class of choice for at least next decade:

– .5%: Savings Accounts – 1.0 – 1.5%: CD’S – 3.5 – 4.0%: Corporate Bonds – 5%: Stock Market – 7% - 10%: Investment Real Estate (REAL ASSETS!).

The bottom line…

• Buy product you understand
• Buy in a market you understand
• Don’t buy and sell the same way
• Sell to outside “capital”
• Do not try to “finitely” time the market
• The new Risk Paradigm: Loss of Opportunity vs Loss of

Capital

Wilson Commercial Group

Doug Wilson, Managing Director Graydon Webb, Senior Advisor Kristen Asman, Senior Advisor David Coe, Advisor Seth Asman, Senior Advisor Steven Heiser, Senior Advisor Jack Turner, Senior Advisor Josh Greenberg, Advisor Nail Dawaher, Senior Advisor Beth Long, Advisor Rick Bergman, Advisor Mike Rogriguez, Advisor Toyia Devine, Advisor Nabeel Alsharaiha

240 Offices Nationally, 1500 Advisors “Local Listings with World Class Marketing” GROWING TO MEET THE NEEDS OF CLIENTS AND THE COMMUNITY

4200 Regent Drive, Suite 200, Columbus, Ohio, 43219, 614-206-3881

WWW.SVN.COM

What is SFRP?

SFRP = Single Family Residential Investment Portfolio Investment portfolios are typically 5-1,000 Homes

Rental Demographics Outlook

T

• day…
• 126.2 MM

households within the U.S.

• 45.7 million rental units
• 27.7 MM apartment units
• 15.9 MM (SF

, duplex,townhomes)

• 2.1 MM

mobile home units

• 800,000 new builds vs. household formation of

1,000,000 Over the next decade….

• 12.5 million net new households
• 58% projected to rent their

homes

WWW.SVN.COM Source: U.S. Census; Burns Real Estate Consulting

Renting vs. Owning in Ohio

WWW.SVN.COM Source: Columbus Business First

SFR Investment Growth

WWW.SVN.COM Source: U.S. Census; Burns Real Estate Consulting

• Since 2013, SFR Rental investment growth is 2X

Multifamily growth

• Despite growth, less than 1% of all SFR stock is
• wned by investors with greater than 1,000 houses

within the portfolio

• Early players Blackstone and Starwood

(82,000+)

• American Homes 4 Rent

(51,000+)

• Institutional market share around 250,000

homes

• 16 million homes within the SFR space

WWW.SVN.COM

BF R

What is BFR?

• Build For Rent
• Investors buying from

the source due to housing shortages

• Not a new

concept

• 1985 - 2009:
• Avg 30,000 units/year

WWW.SVN.COM Source: U.S. Census; Burns Real Estate Consulting

Build For Rent – BFR

WWW.SVN.COM

The Power of BFR – BUILDER

• Double or triple production
• pportunity (subject to submarket)
• Accelerated build-out and disposition
• Faster redeployment of capital to

the next opportunity

• Reduced interim financing cost
• Reduced land carry

cost

• Reduced interior finish levels /

cost

• Fewer exterior elevations

Build For Rent - BFR

WWW.SVN.COM

The Power of BFR – BUYER

• BFR is a top investment segment for private capital groups
• May gain higher returns in BFR when compared with other CRE

segments including multi-family homes

• Little or no capital expenditures for 7-10 years
• New build home appreciation may be substantially higher than older

existing assets

• T

enant lease rates are 7% to 10% higher than the existing asset class

• More flexible and accelerated dispositions upon yield optimization

SFRP & BFR Market Challenges

• Quality underwriting/analysis
• Clean data points
• Obtaining timely due diligence

documentation and information

• Agents that are

inexperienced, low-tech, minimal data

WWW.SVN.COM

Commercial Real Estate Approach

• Portfolio Packaging –

multiple owners

• Detailed Financial analysis &

underwriting

• Complete & Effective Offering

Memorandum

• Quality

, verified data

• Organized marketplace of buyers
• Partnerships to support buyer &

seller SVN Scrub Report

WWW.SVN.COM

SVN ACTIVITY

WWW.SVN.COM

PROPERTY HIGHLIGHTS

• Strong 21.77% Y

ear 1 IRR

• Qualified and Respected Regional

Developer/Builder

• Site is 1

mile from Amazon Distribution Center

• Columbus Region community

PROPERTY DET AILS Price SFR Units

• Est. Completion

Stabilized Cap $14,475,000 50

• DEC. 2019

5.51%

The Preserve at Royal Oaks – 50 Home BFR

WWW.SVN.COM

PROPERTY HIGHLIGHTS

• All 294 units located within a 10 mile

radius

• 95% Occupied and 35% below market

rents

• Management in place

PROPERTY DET AILS Price Cap Rate NOI Price/Unit $6,990,000 10% $700,000 $23,775

294 SFR Portfolio – Lima, Ohio

WWW.SVN.COM

PROPERTY HIGHLIGHTS

• Cleveland home values predicted to

increase another 7% in the next year

• 11 Units have been

renovated

• 34 Units are discounted $25/SF

compared to retail market comps PROPERTY DET AILS 11 SFR Units 34 SFR Units 11 Unit Cap 34 Unit Cap $1,700,000 $1,823,000 6.7% 12.7%

Two Cleveland SFR Portfolios

WWW.SVN.COM

PROPERTY HIGHLIGHTS

• Private cul-de-sac in Walnut Creek

Neighborhood

• 2 BR / 1.5 BA units with

basements

• T

enants pay all utilities

• Renters waiting list

PROPERTY DET AILS Price Cap Rate NOI Y ear Built $1,250,000 8.48% $106,000 1974

10 Duplexes – 20 units - Nutcreek Ct.

WWW.SVN.COM

2019 Business Trends

• Columbus, Ohio
• Real Estate Changes and Trends
• Automation, IoT and IoE

OPPORTUNITY ZONE:

“1031” Transformative Community Investment Investment Basis Reset to Market after 10 Year Hold “Quirks”:

Must Pay Capital Gain in 2026! Gain can be discounted 15% of original basis Need to present Investment Plan, reviewed every 6 months Value of Investment must double in 30 months.

Gain can come from non retail assets OZ Re-investment can be used for businesses (like VC)

THE COLUMBUS REGION

Leading the way

• No. 1 best city for college

grads (SmartAsset, June 2017)

• No. 1 best American city to work in

tech (SmartAsset, August 2017)

• No. 1 city for mid-career

professionals (Forbes, May 2016)

• No. 3 City for Fashion Design
• No. 3 city in the country for

women-owned businesses (WalletHub, February 2016)

• Top 10 city for young

professionals (Forbes, May, 2017)

• No. 4 city for happiest

workers (Kununu, February 2017)

• No. 3 best city for renters (Forbes,

May 2016)

• No. 3 best city for

millennials (TIME, September 2015)

• No. 3 Best Airport in North America
• No. 6 Best City of

Conferences (SmartAsset, 2016)

• No. 6 best city for starting your

career (Bankrate, June 2017)

• No. 3 city for Business Start

Ups (Inc, May 2017)

• Top 5 city for college grads to start

a career (USA Today, May 2017)

• No. 4 best midsize metro for job

seekers (American Institute for Economic Research, July 2016)

• No. 6 metro for economic growth

potential (Business Facilities, July 2017)

• Top 10 Metro for New and

Expanded Facilities consecutively for the last 6 years (Site Selection, 2018)

Designing for Future Legacy:

ü Re-Use ü Adaptive ü Deconstruction

Biometric Design Biophilic Design

Age of Assistance

Wilson Commercial Group

4200 Regent Drive, Suite 200, Columbus, Ohio, 43219, 614-206-3881

Doug Wilson, Managing Director Kristen Asman, Senior Advisor Steven Heiser, Senior Advisor Seth Asman, Advisor Jack Turner, Senior Advisor David Coe, Advisor Nail Dawaher, Senior Advisor Toyia Devine, Advisor Rick Bergman, Advisor Mike Rodruigez, Advisor Nabeel Alsharaiha, Advisor Beth Long, Advisor Graydon Webb, Advisor Bill Goshorn, Advisor

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