Investment Opportunities in
Back to the Future
September 16, 2008
CB Richard Ellis | Page 2
U.S. Apartment Market and Capital Market
What’s Hot / What’s Not
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Credit Crunch has not yet affected Multi Housing
Starts and completions. However, development is
expected to drop significantly in 2009 and 2010.
Completion of Multi Housing Units has remained
steady at 300,000 units per year, of which 120,000 are
market rate apartments.
Supply / demand is generally in balance with the
exception of Miami. However, cities to watch for
potential imbalance are:
CB Richard Ellis | Page 4
Condo converters and highly leveraged private buyers
were the rabbits in the apartment real estate race.
67% of total returns on Apartments over the last 5
years has come from cap rate compression.
Fundamentals in most markets remain sound
although rental rate increases on average are
expected to grow from 0-3%.
Rent growth is slowing and vacancies modestly rising
due to the weakening economy.
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Breakeven CMBS spreads are estimated to be 500 bps over
Treasuries (8.70% rate). CMBS is unlikely to return in 2009.
Life Insurance Co.’s have a limited appetite for loan production
due to allocation limitations, denominator affect, balance sheet
management and more attractive alternative investments.
Fannie Mae and Freddie Mac have been placed in
conservatorship by the Treasury to support market liquidity and
stability. Result has been more or less business as usual with
rates declining (6.20% for 10 year fixed). They provide 80% of
permanent financing for apartments in the U.S.
Banks have pulled back from real estate lending due to balance
CB Richard Ellis | Page 6
Capital Markets Feeds Sales Volume Growth