2012 Investor Breakfast
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Transcript of 2012 Investor Breakfast
Our Professionals
Chris
Fraser, CCIM
Jeremy
Willits
Jon
Chalfie
Johnny
Bevon
Mike
Ferrer, CCIM
Todd
Garrett, CCIM
Gregg
Legerton
Bill
Goodwin
Our Staff
Taylor
Massey
Charlene
Aydelotte
Courtney
Ray
Robert Bach
Senior Vice President
Chief Economist
Grubb&Ellis
2012 Commercial RE Forecast Robert Bach
SVP, Chief Economist
8
-4%
-2%
0%
2%
4%
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F
'13-F
Historic
Wells Fargo
PNC
Goldman
Source: BEA, Goldman Sachs, PNC, Wells Fargo
Gross Domestic Product, Historic & Forecast Annualized Percent Change
9
-2%
0%
2%
4%
6%
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F
'13-F
Historic
Wells Fargo
PNC
Goldman
Consumer Price Index, Historic & Forecast Annual Percent Change
Source: BLS, Goldman Sachs, PNC, Wells Fargo
10
1%
2%
3%
4%
5%
2008 2009 2010 2011 2012
Historic
Wells Fargo
PNC
Goldman
10 Year Treasury Yield, Historic & Forecast End of Quarter
Source: Federal Reserve, Goldman Sachs, PNC, Wells Fargo
11
-6
-5
-4
-3
-2
-1
0
1
2
3
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F
'13-F
Mil
lio
ns
Historic
Wells Fargo
PNC
Grubb & Ellis
Source: BLS, PNC, Wells Fargo, Grubb & Ellis
Payroll Job Change Annual
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
U.S.
G'ville
Columbia
Charleston
Myrtle Bch
12 Source: BLS, Grubb & Ellis
Job Losses Since Recession Began 12/2007 U.S. vs. Selected South Carolina Metros
13 Source: Grubb & Ellis
Office Vacancy & Class A Rent* National Forecast
* Weighted average
asking rent $/SF/year
gross
% Vacant Rent*
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F
% Vacant 17.4% 17.7% 16.8% 14.6% 13.6% 13.0% 14.8% 17.4% 17.7% 17.3% 16.0%
$ Rent* 28.72 30.09 30.32 33.91 35.95 36.69 35.74 32.50 32.93 33.49 34.16
$20
$22
$24
$26
$28
$30
$32
$34
$36
$38
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
% Vacant
$ Rent*
14 14
30
35
40
45
50
55
60
65
'00 '02 '04 '06 '08 10
ISM Manufacturing Index Values > 50 = Expansion
90
95
100
105
110
115
'00 '02 '04 '06 '08 10
DOT Freight Index 2000 = 100
Source: ISM, DOT, Grubb & Ellis
Industrial Demand Drivers
15 Source: Grubb & Ellis
Industrial Vacancy & Warehouse Rent* National Forecast
* Weighted average
asking rent $/SF/year
NNN
% Vacant Rent*
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F
% Vacant 9.5% 9.8% 9.4% 8.1% 7.7% 7.7% 8.8% 10.7% 10.4% 9.7% 8.7%
$ Rent* 4.33 4.21 4.38 4.54 4.67 4.79 4.68 4.36 4.33 4.26 4.47
$4.00
$4.25
$4.50
$4.75
$5.00
5%
6%
7%
8%
9%
10%
11%
% Vacant
$ Rent*
16
-15%
-10%
-5%
0%
5%
10%
15%
'07 '08 '09 '10 '11
Monthly Retail Sales % Change Year Over Year, SA
Total Core
Source: Census, CoStar, Grubb & Ellis
Retail Demand Drivers
0%
2%
4%
6%
8%
10%
12%
14%
80 85 90 95 '00 '05 10
Personal Saving Rate SAAR
17 Source: Reis, Grubb & Ellis
Retail Vacancy & Rent* National Forecast
* Neighborhood &
community centers,
asking rent $/SF/year
NNN
% Vacant Rent*
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11-F '12-F
% Vacant 7.3% 7.2% 7.0% 6.8% 7.1% 7.5% 8.9% 10.6% 11.0% 11.1% 11.0%
$ Rent* 16.68 17.14 17.62 18.22 18.92 19.46 19.52 19.13 18.99 18.96 19.10
$15
$16
$17
$18
$19
$20
5%
6%
7%
8%
9%
10%
11%
12%
% Vacant
$ Rent*
60%
62%
64%
66%
68%
70%
'80 '90 '00 '10
Homeownership Rate By Quarter, Seasonally Adjusted
18 18
3.9
-3.5
4.7 4.3
-4
-2
0
2
4
6
1980s 1990s 2000s 2010s
20-34 Year-Old Cohort Change by Decade
Source: Census, Grubb & Ellis
Percent
Apartment Demand Drivers
Millions
19 Source: Reis, Grubb & Ellis
Apartment Vacancy & Rent* National Forecast
* Projects w/ at least
50 units, asking rent
% Vacant Rent*
'02 '03 '04 '05 '06 '07 '08 '09 '10-F '11-F '12-F
% Vacant 6.3% 6.9% 6.7% 5.7% 5.8% 5.7% 6.7% 8.0% 6.6% 5.3% 4.9%
$ Rent* 889.0 902.0 921.0 944.0 982.0 1,025 1,050 1,026 1,043 1,066 1,096
$800
$900
$1,000
$1,100
$1,200
4%
5%
6%
7%
8%
9%
% Vacant
$ Rent*
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
'00 '02 '04 '06 '08 '10
Moody's/REAL CPPI 2000-Q4 = 1.0
All 6-city Trophy Distress
104 127
232
312
363
514
146
55
126
200
250
$0
$100
$200
$300
$400
$500
$600
'02 '04 '06 '08 '10 '12-F
CRE Investment by Quarter +75% in 2011, + 25% in 2012
Investment Market Outlook
Source: Real Capital Analytics, Grubb & Ellis
Billions
Source: Real Capital Analytics, Grubb & Ellis
Average Cap Rates By Property Type
6.6%
6.3%
8.4%
7.6%
7.8%
6.4%
7.4%
7.8%
7.3% 7.5%
5%
6%
7%
8%
9%
Apartment Hotel Industrial Office Retail
2010
2011
-$15,000
-$10,000
-$5,000
$0
$5,000
$10,000
$15,000
$20,000
$25,000
2008 2009 2010 2011
Monthly Additions & Reductions to Distress
Additions Workouts
$0
$100
$200
$300
$400
2008 2009 2010 2011
Total Outstanding Distress
Troubled REO Restructured Resolved
Distressed Assets
Source: Real Capital Analytics, Grubb & Ellis
Billions Billions
0
100
200
300
400
500
0%
2%
4%
6%
8%
10%
'01 '03 '05 '07 '09 '11
Sp
read
(b
asis
po
ints
)
Cap
Rate
& 1
0-y
ea
r Y
ield
10-yr. Yield Cap Rate Spread
23 Source: Real Capital Analytics
Avg. Cap Rate vs. 10-year Treasury Yield Quarterly
2012 Commercial RE Forecast Robert Bach
SVP, Chief Economist
Mary Graham
Senior Vice President
Charleston Metro Chamber of Commerce
char l est on met r o chamber of commer ce
The Charleston Region: 2012 and Beyond
Grubb&Ellis|WRS
February 15, 2012
Top Three Globally
• Building wide-body
commercial aircraft
• R&D wind turbines
• Tourism Destination
Charleston Has Biggest Brain Gain in U.S.
2010 Best Performing Cities
Charleston ranked among nation’s top
20 “large cities”
Milken Institute
October 2010
Best Towns of 2011
Charleston ranked 5th
Outside Magazine
September 2011
Best Places for Business
& Careers
Charleston MSA ranked in
top 50
Forbes July 2011
Best Cities for Job Growth
Charleston region ranked 8th,
up 17 spots from last year.
New Geography May 2011
America's Favorite Cities
Charleston ranks #1
Travel + Leisure Magazine
November 2010
World's Best City
Charleston ranked #3 in
the world
CNNGo October 2011
#1 in North America
#3 in the world
Tourist Destination
Conde’ Nast Traveler
October 2011
Charleston’s Recognition & Rankings
Boeing’s 2nd 787
Dreamliner assembly line
• Est: 15,000 jobs (direct & indirect)
$5.9 billion statewide impact
Wind Turbine Drive Train Testing Facility
• $98 million DOE-backed facility – one of only
three and largest in the world
• Est: 20,000 jobs (direct & indirect) statewide
• Opportunity to attract global manufacturing &
R&D investments
Significant Developments
Southwest Airlines
• Began service March 13, 2011
Population Trends
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1950 1960 1970 1980 1990 2000 2010 2020 est.
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Labor Force
Employment
Employment Growth
2000 - 2011
5%
8%
3%
13%
4%
2%
4%
14%
12%
12%
3%
20%
Natural Resources, Mining, & Construction
Manufacturing
Wholesale Trade
Retail Trade
Transportation and Utilities
Information
Financial Activities
Professional and Business Services
Education and Health Services
Leisure and Hospitality
Other Services
Government
Employment By Sector
Target Industries
Startup
Retain/
Expand
Recruit
Aerospace Biomedical
Startup
Retain/
Expand
Recruit
Startup
Retain/
Expand
Recruit
Startup
Retain/
Expand
Recruit
Mid- to
Long-Term
Mid- to
Long-Term
Immediate Immediate
To Mid-Term
Advanced
Security & IT
Wind
Energy
Target Tactics
Boeing 787 Assembly Operation
– 5,900 employees
– $ 4.6 billion annual economic impact
– One of three places in world
– First delivery 2nd Qtr 2012
Aerospace
$44.8 billion economic impact
($7 billion in the Charleston region)
260,800 jobs
(50,000+ in the Charleston region)
Cargo Diversification Strategy
–1.4 million TEUs
–BMW – RO/RO
–Breakbulk Cargo
New $500 million terminal
The Port of Charleston
Draft 12.04 m (39.5’)
Draft 15.2 m (50’)
Current Locks
Vessel Max: 4,800 TEUs
New Locks
Vessel Max : 12,600 TEUs
33.5m
(110’)
12.8m (42’)
55m (180’)
18.3m (60’)
*Courtesy of Panama Canal Authority
Panama Canal Game Changer
MSC Northern Justice
8,440 TEU / 1090’ LOA Charleston Harbor / May 12, 2010
• 10 major medical centers
• 2,000 physicians
• Medical centers locally employ 20,000 +
• 26,000 total workers in healthcare services industry
• $243 million R&D at MUSC for fiscal year 2011, marking the 15th consecutive year of continuous growth
Medical Industry
• $4.7 billion annual economic impact
• 29,000 active, civilian and contract personnel
• Airlift, Sealift and Prepositioning
- One of top ranked military strategic ports
- One of 12 Joint Base initiatives
• SPAWAR Atlantic
- 2,600 employees
- 8,000 contract workers / 80+ defense contractors
- 6,000 visitors per year
Joint Base Charleston
Joint Base Charleston
• Navy Nuclear Training Command /
Training School
- 3,200 students per year
• Federal Law Enforcement Training Center
- Maritime Law Enforcement Training
- 12,500 annual graduates
• State Department
- 800 employees
- Global Financial Services, Passport Office
• Workforce Skills/Education
• Infrastructure
• International Business
Location
• Managing Growth
Key Challenges
char l est on met r o chamber of commer ce
Mary Graham, CCR, IOM, CCE
Sr. Vice President Business Advocacy
843.805.3043
Chris Fraser, CCIM
President
Grubb&Ellis|WRS
How are we doing?
Residential Inventory
Employment
Industrial Market
Industrial Vacancy
5%
10%
15%
20%
25%
30%
2008 2009 2010 2011
General Industrial R&D/Flex
WH/Dist Combined
Avg. Asking Rental Rates
$2
$4
$6
$8
$10
2008 2009 2010 2011
General Industrial R&D/Flex
WH/Dist Combined
DOD to Ask for Two New BRAC Rounds, Sources Say
January 25, 2012
The Pentagon is planning to request Congress authorize two new base closure rounds to help the department cut almost a half a trillion dollars in spending over the next decade, Air Force Times reported Wednesday. Officials would request one BRAC round in 2013 and the next in 2015, one source told the publication. The department’s intention to conduct one or more BRAC rounds is not unexpected given the current budget environment. Many officials already believed the 2005 round failed to eliminate all of the department’s excess capacity. Also, the spending cuts imposed on the military are expected to result in the elimination of tens of thousands of troops and cuts in aircraft orders, further reducing the need for military infrastructure.
Closures likely would disproportionately fall on Army and Air Force installations due to the specific cuts planned, the Times reported.
Panama Canal???
Norfolk Southern Intermodal Terminal at Charlotte Douglas Airport planned…volume up!
2006 – 58% of N&S freight moved from West Coast
2011 – 61% of N&S freight moved from East Coast
Four extra feet of depth is equal to 8600 extra tons of wheat!
Industrial Occupancy & TEU
Source – Integra Realty Resources
Charleston
Industrial 2012 Vacancy Forecast
5%
10%
15%
20%
25%
30%
2008 2009 2010 2011 2012-F
General Industrial R&D/Flex
WH/Dist Combined
Office Market
0%
5%
10%
15%
20%
25%
30%
2007 2008 2009 2010 2011
CBD Suburban Combined
Office Vacancy
$18
$20
$22
$24
$26
$28
2007 2008 2009 2010 2011
Class A Class B
Avg. Asking Rental Rates
22 Relevant Office Properties Changed Hands in 2011
3 (14% of total sales) Bank owned buildings
• average of $96/sf in partial shell condition
9 (41% of total sales) Bank owned condos
• average of $129/sf in completed condition
7 (32% of total sales) Market type buildings arms length transactions
• average of $182/sf
3 (14% of total sales) Market type condo transactions
• averaging $130/sf
Healthcare / Medical Sector
Institutional Movement
• Hospitals purchasing medical practices to control
referral sources & income stream
• Doctors selling for fixed income/security during uncertain
times especially regarding possible future cuts in reimbursements
Mt. Pleasant since 4/2010 • MUSC – Specialty Care 84,000 SF
Dr.’s will relocate in the 2nd and 3rd quarter of 2012
Vacancy will rise throughout Mt. Pleasant
• East Cooper Hospital
250,000 SF
130 Beds
• Roper Hospital
200,000 SF
85 Beds
Carnes Crossroads / Moncks Corner
Carnes Crossroads Plans
146,000 SF
50 Beds
Moncks Corner Plans
145,000 SF
50 Beds
* Appeals from both parties need to be worked out in the courts before final approval.
Biomedical Research
Horizon Project MUSC, SCRA and City of Charleston
Business Incubators Thrive!
•Over 61,000 SF
•Assisted over 100 Companies
•Notable
•PeopleMatter
•Avista Solutions
Charleston
Charleston
Office 2012 Vacancy Forecast
0%
5%
10%
15%
20%
25%
30%
2007 2008 2009 2010 2011 2012-F
CBD Suburban Combined
Retail Market
Retail Vacancy
4%
6%
8%
10%
2009 2010 2011
CBD Suburban Combined
Avg. Asking Rental Rates
$12
$14
$16
$18
2009 2010 2011
Value Based Trend
Charleston
Retail 2012 Vacancy Forecast
4%
6%
8%
10%
2009 2010 2011 2012-F
CBD Suburban Combined
Investment Market
What is the Outlook for 2012?
Thank you!