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DATA MINING: IT AIN’T DIAMONDS

DATA MINING:

IT AIN’T DIAMONDS

2015 Property Tax Institute

“IF WE HAVE DATA, LETS LOOK AT DATA. IF ALL WE

HAVE IS OPINIONS, LET’S GO WITH MINE.”

~ JIM BARKSDALE,

FORMER NETSCAPE CEO

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NOTABLE  DATA  QUOTES:

DATA MINING: IT AIN’T DIAMONDS

“YOU CAN HAVE DATA WITHOUT

INFORMATION, BUT YOU CANNOT HAVE

INFORMATION WITHOUT DATA.”

~ DANIEL KEYS MORAN

“DATA REALLY POWERS EVERYTHING THAT WE

DO.”

~JEFF WEINER, LINKEDIN

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WHAT IS DATA MINING? 4

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• A  process   used   by  companies   to   turn   raw  data   into   useful   information.   –Investopedia

• Practice  of  automatically   searching   large  stores   of  data   to  discover   patterns   and  trends   that  go  beyond   simple   analysis.    -­‐Oracle

• Practice  of   searching   through   large  amounts   of  computerized   data   to   find  useful   patterns   or   trends.  –Merriam   Webster

IS DATA MINING USEFUL?

IBM WATSON

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• Uses  natural  language  processing:      Helps  understand  unstructured  data  which  makes  up  as  much  as  90%  of  the  world’s  current  data  (news  articles,  research  reports,  social  media  posts)

• Hypothesis  generation  and  evaluation:Applies  analytics  to  weight/evaluate  responses  based  on  evidence

• Evidence  based  learning:    Allows  Watson  to  get  smarter  with  each  iteration  and  interaction.    It  is  constantly  learning

PRISM (NSA)• Data  mining  program  operated  by  the  NSA  

since  2007  – publicly  acknowledged  by  Edward  Snowden  leak

• Monitors  private  phone,  email,  and  other  internet  communications    

• Gets  information  from  Apple,  Google,  Microsoft,  YouTube  – (Some  of  the  largest  databases  in  the  world)

• Google  has  stored  every  web  search  ever  done  on   its  servers  

Source:   IBM Sources :   Washington   Post,   USA  Today

GOOGLE’S DATA MINING 6

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Source:   Wall  Street   Journal

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DATA MININGAND MASS APPRAISAL

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WHAT IS MASS APPRAISAL?

IAAO DEFINITION:

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• Mass   appraisal   is   the   systematic  appraisal   of  groups   of  properties   as  of  a  given  date  using   standardized   procedures   and  statistical   testing.

• Mass   appraisal   requires   the  development   of  a  valuation   model   capable  of  replicating   the   forces  of   supply   and  demand   over  a   large  area.

• Mass   appraisal   utilizes   statistical   methods   to  gauge  accuracy  and  consistency   of  valuations.

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MASS APPRAISAL MODELS

CREATING

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APPLYING TESTING

• Classifying  appraisal  groups

• Collect  data

• Interpret  data

• Create  model

• Apply  model  to  appraisal  groups

• Make  adjustments  for  individual  characteristics

• Allow   for  changes  as  data  changes

• Primary  tool  is  a  ratio  study

• Median  level

• Average  Absolute  Deviation

• Coefficient  of  Dispersion

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PRIMARY SOURCES OF DATA 10

• Multiple  Listing  Service  –MLS• Settlement  statements

• Fee  appraisals• Cost  manuals• Market  publications

• CoStar• Loopnet• Income  statements  /  rent  rolls

• Settlement  statements• SEC  documents• Market  publications• Private  data  sources

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Residential Commercial

RESIDENTIAL DATA 11

• Multiple  Listing  Service -­‐ used  for  decades  and  is  the  most  reliable  data  source  for  homogeneous  residential  neighborhoods.    Has  limitations  in  high  end  residential  markets.

• Settlement  statements -­‐ invaluable  part  of  mass  appraisal  and  contain  several  valuable  pieces  of  information:  • Loan  amount,  Fee  appraisal,  Broker  commissions,  etc.

• Fee  appraisals -­‐ provide  an  opinion  of  value,  square  footage,  and  comparable  property  information.    • Comparable  property  information  is  key  to  increasing  your  data  intake.  

• Cost  manuals -­‐ help  with  unique  properties  without  adequate  sales  comps.

• Market  publications -­‐ real  estate  journals,  newspapers,  and  other  publically  available  information.

Residential = Comparable Sales = MLS

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COMMERCIAL DATA 12

• CoStar – Most  utilized  form  of  sales  data  collection.    Not  as  comprehensive  as  MLS,  and  some  data  is  incorrectly  reported.

• Loopnet – Provides  ample  asking  rents  and  “for  sale”  prices.    Confirmed  sales  information  varies  and  less  accurate  than  CoStar.

• Income  statements/Rent  rolls– Give  a  great  snapshot  of  a  property,  but  may  not  reflect  current  occupancy  or  rent  potential.• Great  for  model  building  if  accurate

• Settlement  statements –Same  as  residential  -­‐ invaluable  part  of  mass  appraisal  and  contain  several  valuable  pieces  of  information:  • Loan  amount,  Fee  appraisal,  Broker  commissions,  etc.

• SEC  Documents – Publicly  traded  companies  will  report  sales  prices  and  other  information  on  their  10-­‐K  and  10-­‐Q  documents• Great  for  investment  grade  properties

• Internet – Publicly  available  data  sources  that  should  be  utilized

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SEC DOCUMENTS 13

PURE MULTIFAMILY REIT

• These  sales   represent  Pure  Multifamily  REIT’s  2012  – 2014  property  acquisitions• Data  includes:  Property  name,  Number  of  units,  Going-­‐in  cap  rate,  Loan  to  

value,  Physical  and  Leased  occupancies  – You  can  also  calculate  property  NOI

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SEC DOCUMENTS CONT. 14

PURE MULTIFAMILY REIT – 2014 ACQUISITIONS

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• On June 27, 2014, Pure Multi ,through theUS REIT,acquired Walker Commons,a multi-­‐family apartment community, located in Houston, Texas, for a purchase price of$43,800,000,p lus standard closing costsand adjustments. The acquisition was financedwithproceedsfrom the May 2014Offering anda new five yearmortgage in the amountof $28,470,000.

• On August 28, 2014, Pure Mu lti, through the US REIT, acquired the Preserve, a multi-­‐family apartment community, located in Plano, Texas, for a purchase price of$41,000,000,p lus standard closing costs andadju stments. This acquisition was financedwithproceedsfrom the July 2014Offering anda newsevenyearmortgage in the amountof $24,600,000.

COMMERCIAL MARKET PUBLICATIONS

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• These  are  the  supplemental  data  providers  that  can  boost  your  mass  appraisal  product!

• Twitter,  Freddie  Mac, Fannie  Mae, Facebook,  YouTube,  Texas  A&M  Real  Estate  Center,  Industry  websites,  Company  websites,  BizNow,  Compstak,  Real  Massive,  etc.

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All  of  the  above  icons  are  hyperlinked  to  the  websites

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EX. OF SUPPLEMENTAL DATA 16

April  2014

Here   are   the  highlights:

• A  stand-­‐alone,  14,000-­‐square-­‐foot  building  dubbed  “The  Jewel  Box”  will  be  built  on  theCheesecake  Factory’s existing  parking   deck   facing  Westheimer.   The   space   will  house  luxury  retailers   who  want  visibility.   Noble  said   several   “new-­‐to-­‐market”  tenants  have  expressed   interest  in  the  plans,   but  would  not  elaborate  on  which  retailers  are   interested   or  how  much  rent  the  space  will  charge.

• Saks   Fifth  Avenue   will  move   into  a  renovated  198,000-­‐square-­‐foot  space  located  next  to  its  existing  space.   Saks   is   set  to  open  in  early   2016.    The  existing   Saks   building  will  be  renovated,   providing  110,000  square  feet  of  space  for  new  restaurants  and  retail.  Construction  will  begin  on  this  space  after  Saks   moves   into  its  new  building.  Saks   will  stay  open  during  the  renovation.    Saks   will   take   up  part  of Macy’s Inc.  (NYSE:   M),  which  will  consolidate  into  its  Galleria   store  facing  Hidalgo   Street. The  consolidation  will  affect  136  positions,  according  to  the Texas  Workforce  Commission.  However,  the  company  is  conf ident  that  most  of  those  employees  will  f ind  jobs  at  other  local  Macy's   stores.

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Sou rce:   Hou ston  Bu sin ess  P ress

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Financial  Data  at  the  time  of  Refinance:• New  loan  amount  of  $150,000,000• Interest  Rate  – 3.31%• Note  Date  – 2/24/2015

• Maturity  Date  – 3/1/2025• Interest-­‐Only  Period  – 120  months• Amortization  Type  – Interest  Only• Additional  Debt  Balance  –

• $734,000,000• $316,000,000

• LTV  with  all  debt  – 47.7%•10%  NOI  growth  from  ‘12-­‐’14

Implied  cap  rate  of  4.06%with  Underwritten  NOI  and  Appraised  Value

SUPPLEMENTAL DATA CONT.

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SUPPLEMENTAL DATA CONT. 18

Harwood  Center  In  Dallas,  TX

UBS  has  originated  a  $90  million   fixed-­‐rate  loan  on  a  Dallas  office  building.

The  724,000-­‐square-­‐foot  Harwood  Center  is  owned  by  Fortis  Property  of  Brooklyn.

The  36-­‐story  building,  at  1999  Bryan  Street  in  the  central  business  district,   is  84.8%  leased,  according  to  CoStar.  The  tenants  include  Omnicom  (339,000  sf  until  2019),  Jacobs  Engineering  (81,000  sf  until  2025)  and  the  U.S.  Department  of  Education’s  Office  for  Civil  Rights  (61,000  sf  until  April   2015).

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SUPPLEMENTAL DATA CONT. 19

• Fee  Appraisal  value  at  time  of  refinance  –• Harwood  Center  -­‐ $124,000,000    

• Appraisal  Date  – 6/2/2014• LTV  =  72.6%

•Most   recent  financials  at  time  of  refinance  –

• EGI  -­‐ $15,145,993• Operating  Expenses  -­‐ $6,731,687  

(44%  with  Taxes)

• NOI  -­‐ $8,414,306• Implied  Cap  Rate  – 6.78%  on  

appraised  value

HARWOOD CENTER

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20SUPPLEMENTAL DATA CONT.

College   Station,  Texas   — Columbus  Pacif ic  Properties  (CPP)  has  acquired  The  Cottages  of  College   Station,  a  1,354-­‐bed  cottage  community  that  was  developed  by  Capstone  Collegiate   Communities  and  opened  in  August  2013.  It  is  billed  as  the  largest   student  housing  community  in  the  College   Station  market.  CPP  says  the  Cottages  of  College   Station  is  the  company’s  f irst  recently  built  class   A  community  and  the  only  cottage   product  in  the  portfolio.  

Will   Baker,   senior  vice   president  and  managing  director,  partnered  with  Tim  Bradley  of  TSB   Capital  Advisors,  originated  and  structured  $66.4  million  as  a  10-­‐year  loan  with  two  years  of  interest  only  and  30-­‐year   amortization  for  Cottages  of  College  Station  in  College   Station,  Texas.   Cottages  of  College   Station  is  a   1,354-­‐bed  cottage/garden  style  community  consisting  of  192  one,  two  and  three-­‐story  apartment  buildings.

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Columbus  Pacific  Properties  Acquires  The  Cottages  of  College  Station

TWITTER + FREDDIE MAC 21

• Was  chartered  in  1970  by  Congress  to  stabilize   the  nation’s  residential  mortgage  markets

• Expand  opportunities   for  homeownership  and  affordable  rental  housing

• Participate  in  secondary  mortgage  market  by  purchasing  mortgage  loans  and  mortgage  related  securities

• Issue  guaranteed  mortgage-­‐related  securities  – CMBS,  CME

• http://freddiemac.mwnewsroom.com/News.aspx?categoryname=Mortgage%20Securities

WHAT IS FREDDIE MAC

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FREDDIE MAC – K-DEAL 22

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K-DEAL GUIDELINES 23

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K-DEAL GUIDELINES CONT. 24

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SECURITIZATION INFORMATION 25

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SECURITIZED DEAL STRUCTURE 26

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FREDDIE MAC SERVICERS 27

If  you  see   these   lender  names  – Their   loans   are  going   to  be  securitized   at  some  point…..

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28REMEMBER THIS TWEET?Columbus   Pacific  Properties   Acquires   The  

Cottages   of  College   StationCollege   Station,  Texas   — Columbus  Pacif ic  Properties  (CPP)  has  acquired  The  Cottages  of  College   Station,  a  1,354-­‐bed  cottage  community  that  was  developed  by  Capstone  Collegiate   Communities  and  opened  in  August  2013.  It  is  billed  as  the   largest   student  housing  community  in  the  College   Station  market.   CPP  says  the  Cottages  of  College   Station  is  the  company’s  f irst  recently   built  class  A   community  and  the  only  cottage  product  in  the  portfolio.  

Will   Baker,   senior  vice   president  and  managing   director,  partnered  with  Tim  Bradley   of  TSB  Capital   Advisors,  originated  and  structured  $66.4  million  as  a  10-­‐year  loan  with  two  years  of  interest  only  and  30-­‐year  amortization  for  Cottages  of  College  Station  in  College   Station,  Texas.  Cottages  of  College   Station  is  a   1,354-­‐bed  cottage/garden   style   community  consisting  of  192  one,  two  and  three-­‐story  apartment  buildings.

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STRUCTURED PASS THROUGH CERTIFICATES

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FREDDIE MAC (K-DEAL)COTTAGES OF COLLEGE STATION

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Property  Name Loan  Originator Address

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COTTAGES OF COLLEGE STATION

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Type  of  Housing        Occupancy                        Loan  Purpose

COTTAGES CONTINUED 32

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Appraisal  Date Appraisal  Amount Loan  to  Value

33COTTAGES CONTINUED

LTV  @  Maturity

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Underwritten  Proforma

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34COTTAGES CONTINUED

Most   Recent  Financials Second  Most   Recent   Financials

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COTTAGES CONTINUED 35

Monthly   Replacement   Reserve

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SUMMARY OF DATA

LOAN AMOUNT AND PURPOSE

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INTEREST RATE AND D.S.

AMORTIZED TERM AND ACTUAL TERM

Loan  Amount  -­‐ $66,460,000

Purpose  -­‐ Acquisition

APPRAISED VALUE AND L.T.V. FINANCIALS ESCROW AMOUNTS

Int.  Rate   –3.9699%

Debt  Service   – $319,978.11  (Monthly)

Amortized  term  -­‐ 30  years

Actual  Loan  Term   – 10  years

Appraised  Value   -­‐$  84,000,000

L.T.V.   –79.1%

U.W.   EGI   -­‐ $10,401,951

U.W.   Exps.  -­‐ $4,603,000

U.W.   NOI   -­‐ $5,798,951    

Tax   Escrow  -­‐ $383,236  Initial   plus  $63,873  

monthly

Reserves   -­‐ $16,925  (Monthly)

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$5,798,951  /  $84,000,000  =  6.9%  Cap  Rate

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FANNIE MAE 37

• Leading   source  of  residential  mortgage   credit  in  the  U.S.  secondary  mortgage   market

• Guarantee   and  purchase  loans  from  mortgage   lenders  

• Single   family   mortgaged   backed  securities

• Multifamily   mortgage   backed  securities

• http://fapt.efanniemae.com/MFSecuritiesLocator/jsp/general/welcome.jsp

WHAT IS FANNIE MAE

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THE MANSIONS AT LAKEWAY 38

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THE MANSIONS AT LAKEWAY 39

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THE MANSIONS AT LAKEWAY 40

Cap  rate  at  time  of  appraisal  -­‐ $3,626,769  /  $65,700,000  =  5.52%Estimated  purchase  price  of  $64,517,400

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FACEBOOK PAGES 41

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YOUTUBE 42

• Virtual  Tours  of  properties• For  sale  property  videos

• Real  estate  video  podcasts  and  updates

• Several  large  commercial  firms  have  YouTube  channels  you  can  subscribe  to

REAL ESTATE VIDEOS

• Realtor.com• CBRE• Jones  Lang  LaSalle

• Cushman  and  Wakefield• GlobeSt.com• Texas  A&M  R.E.  Center• Transwestern

• REIT.com

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REAL ESTATE CHANNELS

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TEXAS A&M REAL ESTATE CENTER43

• Sign  up  to   receive  RECON  updates  with   this   link:

http:/ / recenter.tamu.e du/rec on/rec onsubsc ribe.as p

• Information  updated  twice  weekly• Currently  has  around  40,000  

subscribers• Website  address:http:/ /www.recenter.tamu. edu/

RECON WEBSITE FEATURES INCLUDE:

• The  Blog

• News  Talk  Texas• Red  Zone  Podcast• Tierra  Grande  –magazine  link• Videos

• Market  Data  Sources• Presentations• Texas  Economy  Reports

• Data,  Data,  Data

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Source:  Texas  A&M  Real  Es tate  Center  Webs ite

GREAT DATA LINKS 44

• Berkadia   Commercial   Mortgage   -­‐ http:/ /www.berkadia.com/newsandresearch/default.aspx

• Arbor   Commercial   Mortgage   -­‐ http:/ /www.arbor.com/

• CBRE   Capital  Markets   (multi-­‐hous ing)   -­‐ http:/ /www.cbre.us/services/capitalmarkets/multihous ing/Pages/home.aspx

• Axiometrics   -­‐ http:/ /axiometrics .com/ index.html

• Gobest.com  -­‐ http:/ /www.globest.com/

• Cushman   and  Wakefield  -­‐ http:/ /www.cushmanwakefield.com/

• Intergra   Realty   Resources  -­‐ http:/ /www.irr.com/ Index.asp?x=010|010&~=

• HFF  L.P.   -­‐ http:/ /www.hfflp.com/Default.aspx

• Hillwood   Investment   Properties   -­‐ http:/ /www.hillwoodinvestmentproperties .com/

• Lis t  of  publicly  traded   REIT’s  in  U.S.  -­‐ http:/ /en.wikipedia.org/wiki/Lis t_of_public_REITs_in_the_United_States

• Lis t  of  Hotel   REIT’s    -­‐ http:/ /www.bloomberg.com/markets/companies/ reits -­‐hotels/

• Low-­‐income   Hous ing  Tax  Credit   Underwriting   Reports   -­‐ http:/ /www.tdhca.s tate.tx.us/ rea/reports -­‐all-­‐other.htm

• Real  Es tate  Investor   HQ  -­‐ http:/ /www.reihq.com/

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PRIVATE DATA SERVICE PROVIDER

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• Professional    data  service  provider• Data  for  the  following    property  types:

• Hotels• Office  Buildings• Multifamily• Retail

• Industrial• Proven  way  to  integrate  the  data  and  

present  it   to  property  owners  and  the  ARB

• More  affordable  than  CoStar

DATA CONSULTING FOR HIRE

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QUESTIONS46

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