Transcript Slide 1

Catching Up
Glen Esnard
President, Capital Markets
Robert Bach
SVP, Chief Economist
1
Gross Domestic Product, Historic & Forecast
Annualized Percent Change
6%
4%
Historic
Wachovia
PNC
Goldman Sachs
Moody's
2%
0%
-2%
-4%
-6%
-8%
2007
2008
2009
Source: BEA, Goldman Sachs, PNC, Wachovia, Grubb & Ellis
2
Length of Recessions & Jobless Recoveries
50
30
Jobless
Recovery
Recession
20
10
0
Au
g
M -29
ay
Fe -37
b
No -45
vJu 48
Au l-53
gAp 5 7
r
De -60
c
No -69
v
Ja -73
nJu 80
lJu 81
l
M -90
ar
De -01
c07
Months
40
Month Recession Began
Source: NBER, Bureau of Labor Statistics, Grubb & Ellis
3
Job Losses Related to Post-War Recessions
0%
2008-09
2001-03
-1%
-2%
1981-82
-3%
-3.7%
-4%
1940s & 50s
-5%
-6%
0
3
6
9
12
15
18
21
24
27
30
Months After Start of Downturn
Source: BLS, Grubb & Ellis
4
Job Change by Sector*
Mar. 08 – Mar. 09
Thousands
-1500
Mining
Const.
Manuf.
Wholesale
Retail
Transp./Util.
Information
Financial
Prof./Bus.
Educ. Svs.
Health Care
Leisure/Hosp.
Other Svcs.
Govt.
-1000
-500
0
500
-2
-928
-1,333
-265
-613
-250
-116
-337
Industrial
Retail
Office
-1,060
Med. Off.
-328
-112
74
377
Hotels
97
* Seasonally Adjusted
Source: BLS, Grubb & Ellis
5
How do we get out of this?
• Low interest rates/monetary stimulus
– $700 bn TARP + $1,000 bn TALF + PPIP
• Fiscal stimulus
– $787 billion ARRA + ???
• Consumer spending
– Low energy prices
– Tax cuts & refunds
– Extended jobless benefits
– Mortgage refinancing
– $400 bn boost to household cash flow
6
Impact of ARRA Stimulus Plan
GDP
Payroll Jobs
Percentage Points
Millions
4.0
4.0
3.5
3.0
3.5
3.0
2.5
2.0
2.5
1.5
1.0
1.5
2.0
0.5
0.0
1.0
-0.5
0.0
0.5
'09
'11
'13
Low
'15
'17
'19
'09
High
'11
'13
Low
'15
'17
'19
High
Source: CBO, Grubb & Ellis
7
Vacancy Rates
20%
15.6%
15%
9.5%
10%
9.5%
7.2%
5%
Off
Ind
Ret*
MF
0%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
* Neighborhood and community centers
Source: Reis, Grubb & Ellis
8
Where Are Property Leasing Markets?
Expansion
Equilibrium
Time
Apartments
Office
Industrial
Retail
Contraction
9
Office
Million SF
Office SF Absorbed & Completed
40
30
20
10
0
-10
-20
-30
-40
Absorbed
Completed
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Source: Grubb & Ellis
11
Office SF Under Construction
140
Million Sq. Ft.
120
100
80
BTS
Spec
60
40
20
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Source: Grubb & Ellis
12
Office Asking Rent*
$40
$35
CBD
Suburban
Combined
$30
$25
$20
$15
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
* Weighted average $/SF/year full service gross
Source: Grubb & Ellis
13
Office Sublease Available
Million SF
160
120
80
40
0
'00
'01
'02
'03
'04
'05
Source: Grubb & Ellis
'06
'07
'08
14
Office Vacancy Rates by Market
2009-Q1
Lowest
0%
New York City
Long Island
NYC Outer Boroughs
Lincoln
Washington, DC
Baltimore
Portland
Boston
Miami
Seattle
Indianapolis
Los Angeles
San Francisco
Broward Co.
Albuquerque
Philadelphia
St. Louis
Houston
Columbus
NJ - Southern
Greenville
South Bend
Richmond
Pittsburgh
Omaha
Oakland
Highest
5% 10% 15% 20% 25%
0%
5%
10% 15% 20% 25%
Columbia
Minneapolis-SP
San Jose
San Mateo
Denver
Kansas City
Wichita
Orange Co.
Chicago
Grand Rapids
Oklahoma City
Fairfield Co.
Sacramento
Westchester Co.
Des Moines
San Antonio
Las Vegas
Atlanta
Cleveland
Wilmington
Austin
Charleston
Cincinnati
NJ - No. & Central
Dallas-FW
Palm Beach
Inland Empire
Detroit
Phoenix
Source: Grubb & Ellis
15
Industrial
Industrial SF Absorbed & Completed
60
Million SF
40
20
Absorbed
Completed
0
-20
-40
-60
'01 '02 '03 '04 '05 '06 '07 '08 '09
Source: Grubb & Ellis
17
Industrial SF Under Construction
160
Million Sq. Ft.
140
120
100
BTS
Spec
80
60
40
20
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Source: Grubb & Ellis
18
Industrial Asking Rent*
All Product Types
$6.75
$6.50
$6.25
$6.00
$5.75
$5.50
$5.25
$5.00
'01
'02
'03
'04
'05
'06
'07
'08
'09
* Weighted average $/SF/year triple net
Source: Grubb & Ellis
19
Industrial Vacancy Rates by Market
2009-Q1
Lowest
0%
Los Angeles
Oakland
Long Island
Wichita
South Bend
Orange Co.
Minneapolis-SP
Kansas City
Des Moines
Houston
Omaha
Fresno
Cincinnati
Seattle
Indianapolis
Portland
Grand Rapids
Pittsburgh
St. Louis
Miami
Tampa
Lincoln
NJ - Southern
San Diego
Richmond
Jacksonville
Delaware
5%
Highest
10%
15%
0%
5%
10%
15%
Oklahoma City
Broward Co.
Denver
Albuquerque
Nashville
Palm Beach
San Antonio
Cleveland
Greenville
Philadelphia
Orlando
Washington, DC
Sacramento
Dallas-FW
Las Vegas
Chicago
Inland Empire
NJ - No. & Central
San Jose
Atlanta
Austin
Columbus
Boston
Columbia
Charleston
Phoenix
Detroit
Source: Grubb & Ellis
20
Investment
Commercial Real Estate Investment
Billions
Four Core Property Types, Deals > $5M
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
Q4
Q3
Q2
Q1
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Real Capital Analytics, Grubb & Ellis
22
Capitalization Rates
11%
10%
9%
Apt
Ind
Off
Ret
8%
7%
6%
5%
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Real Capital Analytics, Grubb & Ellis
23
Maturing Loans by Year
$600
Forecast
$500
Other
CMBS
Life Insurer
Bank Const.
Bank Perm.
Billions
$400
$300
$200
$100
$0
'93 '95 '97 '99 '01 '03 '05 '07 '09 '11
Source: Property & Portfolio Research, Grubb & Ellis
24
Distressed Debt Growth
Billions
$60
$50
$40
Month
Aggregate
$30
$20
$10
$0
Dec.
Jan.
Feb.
Mar.
Apr.
Total Identified in 2008: $37,351 billion
Total Identified Jan-April, 2009: $42,118 billion
Source: Real Capital Analytics, Grubb & Ellis
25
Billions
Distressed Debt Growth by Product
$20
$18
$16
Industrial
Other
Hotel
Office
Apartment
Development
Retail
$14
$12
$10
$8
$6
$4
$2
$0
Dec.
Jan.
Feb.
Mar.
Apr.
Source: Real Capital Analytics, Grubb & Ellis
26
Deep Pricing Declines for Levered Investors
Not-So-Hypothetical Market
2007
Underwriting
Purchase Price
2008
Underwriting
New Underwriting
(20% NOI Decline)
$90,900,000
$66,700,000
$50,000,000
5.50%
7.50%
8.00%
$5,000,000
$5,000,000
$4,000,000
85%
66%
60%
Equity
$13,600,000
$22,700,000
$20,000,000
Loan Amount
$77,300,000
$44,000,000
$30,000,000
27%
45%
Cap Rate (going-in)
NOI
Loan to Value
Implied Cumulative
Price Change
27
Debt Recovery After 45% Value Decline
Original Loan To Value
85%
70%
Cap Rate Drop to Recover Debt
-35%
-21%
NOI Growth to Recover Debt
54%
27%
28
Catching Up
Glen Esnard
President, Capital Markets
Robert Bach
SVP, Chief Economist
29