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? 9 Commercial Cap Rates, % 8 7 Equity Spread at 220 BPS 6 versus 170 BPS over time 5 4 3 2 1 0 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 10yr UST Debt Spread Equity Spread 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

CAP RATES, NATIONALLY Off Ret Ind Apt Htl 9.0% 8.0% 7.0% 6.0% 5.0% ‘13 ‘16 ‘17 ‘18 ‘14 ‘15 Year

Cap Rates, Columbus Source: Real Capital Analytics

TRANSACTION VOLUME $b Individual Portfolio Entity US National All Types 200 150 180 160 120 140 120 90 100 80 60 60 40 30 20 0 0 ‘15 ‘17 ‘18 ‘13 ‘14 ‘16 Year-Over-Year Volume Change

CONSTRUCTION STARTS Why buy the dirt if you cannot get a loan? Net % of Respondents Reporting Tightening Standards Development Site Sales, $B 35 9 Billions 30 8 25 7 20 6 15 5 10 4 5 3 0 2 -5 1 -10 -15 0 '14 '15 '16 '17 '18 Change in Lending Standards Development Site Sales Sources: Real Capital Analytics, Federal Reserve Bank Senior Loan Officer Survey

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

GROWING TO MEET THE NEEDS OF CLIENTS AND THE COMMUNITY 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” 4200 Regent Drive, Suite 200, Columbus, Ohio, 43219, 614-206-3881

What is SFRP? SFRP = Single Family Residential Investment Portfolio Investment portfolios are typically 5-1,000 Homes WWW.SVN.COM

Rental Demographics Outlook T oday… • 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 • Since 2013, SFR Rental investment growth is 2X Multifamily growth • Despite growth, less than 1% of all SFR stock is owned 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 Source: U.S. Census; Burns Real Estate Consulting

BF R WWW.SVN.COM

What is BFR? • Build For Rent • Investors buying from the source due to housing shortages • Not a new concept 1985 - 2009: o Avg 30,000 units/year o WWW.SVN.COM Source: U.S. Census; Burns Real Estate Consulting

Build For Rent – BFR The Power of BFR – BUILDER • Double or triple production opportunity (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 WWW.SVN.COM