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VCU Real Estate Trends Precarious Balance Presented by:

Ken Riggs President & CEO

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CRE Overview • Value and Price Assessment • CRE as an Investment • Outlook for 2015

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Investment Market Psychology

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It’s all about expectations!!!!


Returns Continue to be Strong

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Risk Free Rates by Country

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“The difficulty lies not so much in developing new ideas as in escaping from old ones.�

- John Maynard Keynes 8


CRE Increasingly Attractive

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Institutional Investor Survey

– “Commercial real estate benefits the most from today’s environment of relatively moderate growth, low interest rates, the search for yield, and uncertainty….”

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Gap Forming Between Buy and Sell

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Gap Forming Between Buy and Sell

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Value Ratings Still Above Average

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• Valuation challenges, issues, or concerns: – “...core markets have reached unattainable rent/price levels….” – “Too little product to invest in…driving pricing higher and returns lower with increased competition.” – “Continued pressure to increase prices. On-shoring of capital contributes to lower yield rates.” – “Interest rates and/or spreads declining.”

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Spread Over Treasurys Growing

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Rates Continue to Compress

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Institutional Investor Survey

• Equity capital underwriting standards: – “…investors are disciplined on assumptions, but not necessarily on price due to competition to get invested...”

• Investment to watch closely or avoid: – “Multifamily is a challenge, given the combination of current pricing and downward pressure on future rents due to increased supply.”

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Availability Outpacing Underwriting

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Availability Outpacing Underwriting

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Availability Outpacing Underwriting

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Originations

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Transaction Volume

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Office Volume/PPSF

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Industrial Volume/PPSF

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Retail Volume/PPSF

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Apartment Volume/PPU

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Prices Increasing

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NCREIF Price Index

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NCREIF Markets Comparison

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NCREIF Markets Comparison

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Top 7 Markets - NPI

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Top 7 Markets - NPI

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Unleveraged Capital Return Outlook

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• Valuation expectations for the next year: – “Nominal increases for core…value increases will be tied to increases in NOI.” – “Over 5% value increase with a 5% cash return.” – “…will increase as more buyers, especially foreign capital sources, chase a finite number of available properties.”

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VCU Real Estate Trends Precarious Balance

Thank You & Questions

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Ken Riggs - 2014 VCU Real Estate Trends Conference Presentation  
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