Florida REALTORS ® Commercial Real Estate Lending Study

Florida REALTORS®

Commercial Real Estate Lending Study

Market Enhancement Group, Inc.June 2013

2

Survey Objectives• To assess the commercial real estate lending market in Florida with a special

emphasis on:

• The impact of credit availability and lending standards.

• The ability to and barriers to refinancing.

• The role of international commercial real estate clients.

• Trends in net operating income for commercial real estate professionals.

• The effect of commercial real estate appraisals.

• The current and potential impact of regulatory changes.

• Identify differences between commercial real estate professionals who are REALTORS® and those who are not REALTORS®.

Market Enhancement Group, Inc.MEG-Research.com 800.549.9327

3

Methodology• Telephone interview methodology.

• The interviewing achieved a completion rate of 77% of all commercial real estate professionals who were contacted.

• Respondents were not limited to those who belong to the Florida REALTORS®.

• 400 surveys completed in June 2013.

• Results are statistically projectable at two standard deviations (a 95% confidence level). Overall data is subject to a maximum sampling error of +/- 5.0%.

• Survey respondents were selected on a random probability basis from a list provided by the Florida REALTORS®.


4

Methodology• An important consideration is that we are measuring perceptions.

• Perceptions are never wrong; they can, however, be factually incorrect.

• When respondents make decisions, perceptions are more important than the facts.

• Most interviews were done on cellular telephones. The cellular telephone is the commercial real estate professional’s main telephone.


5

Definitions• The survey breaks some questions down by “generations.”

• The generations are defined as follows:

• Gen Y: born 1980 to 1999 (age 33 and younger)

• Gen X: born 1965 to 1979 (age 34 to 48)

• Boomers: born 1946 to 1964 (age 49 to 67)

• Seniors: born pre-1946 (age >67)

• Newer commercial real estate professionals are defined as: 3 years or less in commercial real estate experience.

• Seasoned commercial real estate professionals are defined as: >3 years in commercial real estate experience.


6

Call Statistics


Sample universe 2,837

No answer 20

Respondent not available, could not reach, answering machine/voice mail 20

Not qualified 2

Wrong number 3

Could not identify a telephone number or no telephone installed 14

Language barrier 0

Refused to participate 42

Terminates, partially completed interview (does not count in completed column) 17

Total contacted or attempted to contact, but did not complete the total interview 118

Completed surveys 400

Total number of contacts 518

Number of calls to reach completed interviews (multiple calls to get all completes) 3760

Average number of calls and callbacks to get a completed interview 9.4

Completion percentage based on all attempted 77%

Percentage of sample universe contacted, attempted to contact, or interviewed 14%

7

Survey Respondents


50%50%Commercial real estate brokerCommercial real estate non-broker

8

Survey Respondents: Area of Specialty


59%27%

14%

SalesLeasingManagement

9

Macro Conclusions


10

Macro Conclusions• 70% of all survey respondents were REALTORS®.

• 75% of commercial real estate professionals completed at least one sales transaction within the past one year.

• 95% of REALTORS® completed at least one commercial real estate transaction in the past one year. Whereas only 27% of non-REALTORS® completed at least one commercial real estate transaction in the past one year.


11

Macro Conclusions• REALTORS® were also more likely than non-REALTORS® to have registered

increases in net operating income from the fourth quarter of 2007 to the fourth quarter of 2012 than non-REALTORS®.

• Experience counts: 74% of seasoned commercial real estate professionals closed at least one commercial real estate transaction in the past one year, as opposed to 68% for newer commercial real estate professionals.

• Reasons for failing to complete a transaction within the past 12 months:

• Lack of financing 59%

• Low appraisal 41%


12

Macro Conclusions• 45% of survey respondents have had a client fail to complete a refinancing; however,

that figure is higher for REALTORS® than for non-REALTORS®

• REALTORS® 50%

• Non-REALTORS® 31%

• 27% of survey respondents had a sale to international clients and investors. However, international sales are highly concentrated on a geographical basis:

• Miami-Dade, Broward, or Palm Beach County 50%

• Orange County41%

• Hillsborough or Pinellas County 38%

• All others13%

• 81% of all survey respondents believed that the new and proposed U.S. legislative and regulatory initiatives (e.g. Dodd-Frank, lease accounting, Basel III, etc.) will decrease the flow of capital into U.S. real estate.Market Enhancement Group, Inc.

MEG-Research.com 800.549.9327

13

Detailed Findings


14

Membership in Florida REALTORS®


70%

30%

YesNo

15

Completed a Sales Transaction during the Past 12 Months


All Respondents

Q: Have you completed a commercial real estate sales transaction during the past 12 months?

75%

25%

Yes No

16




REALTOR® Non-REALTOR®

95%

27%

17




Broker Non-broker

72%78%

18




Sales Leasing Management

76%

79%

66%

19



All Respondents

Newer = 3 yrs. or less in commercial real estate.Seasoned = > 3 yrs. of experience in commercial real estate.

Newer

Seasoned

68%

74%

20



All Respondents: By Generation

Gen Y Gen X Boomer Senior

78%

66%

80%

73%

21

Average Loan-To-Value (Financing, LTV) Ratios for Commercial Transactions over The Past Year


All Cash

90%

85%

80%

75%

70%

65%

60%

55%

50%

20%

5%

8%

8%

20%

18%

8%

7%

3%

2%

22

Value of Your Most Recent Sales Transaction


Under $250K

$250K to <$499K

$500K to <$999K

$1M to $1.9M

$2M to $4.9M

$5M-$10M

>$10M

13%

11%

26%

10%

18%

19%

3%

23

Property Type for Your Most Recent Sales Transaction


Multi-familyIndustrial: Warehouse

Industrial: FlexRetail: Strip center

LandOffice: Suburban

Office: CBDFreestanding retail

RestaurantRetail: MallMixed use

Vehicle dealershipConvenience store

Car washHotel

Hospitality

22%13%

11%11%

7%7%

6%6%

4%4%

3%3%

2%2%

1%1%

Percentages will not total

to 100% due to rounding.

24

How Did the Net Operating Income ($/SF) of Properties You Sold or Leased Change from the 4th Quarter of 2007 to the 4th Quarter Of 2012


Percentages will not total

to 100% due to rounding.

Increased 10% - 15%

Increased 5% - 9%

Increased 1% - 4%

No Change

Decreased 10% - 19%

Decreased 20% - 24%

Decreased 25% - 29%

Decreased 30% - 34%

Decreased 35% - 39%

Decreased 40% - 49%

5%

11%

26%

28%

19%

7%

4%

0%

0%

1%

11%

1%

4%

25%

9%

25%

7%

10%

5%

3%

Non-REALTOR®REALTOR®

25

Have you failed to complete a transaction during the past12 months due to lack of financing?


59%

41%YesNo

26

Have your clients failed to complete a refinancing transaction during the past 12 months?


45%

46%

10%

YesNoN/A

27

With properties where refinancing was an issue, if the owners provided an existing or new property lease with net operating income (NOI) at levels similar to the pre-2006 period, did the property still fail to secure refinancing?


N=178

50%50%YesNo

28

If yes, why did the property still fail to secure refinancing?


63%

37%Internal underwriting requirements of lenderAppraisal/Valuation

N=89

29

Have Failed to Complete a Transaction in the Past 12 Months owing to Appraisals


41%

59%

YesNo

30

During the past 12 months, did you have sales to international clients/investors?


27%

73%

YesNo

31

Had Sales in the Past 12 Months toInternational Clients/Investors (% per area)


Miami-Dade, Broward, or Palm Beach County

Orange County

Hillsborough or Pinellas County

All others

50%

41%

38%

13%

32

Country Source of International Sales


Brazil

Mexico

Canada

Germany

Saudi Arabia

China

Columbia

Honduras

Guatemala

Taiwan

Argentina

France

Hong Kong

United Kingdom

23%

17%

12%

11%

7%

6%

6%

5%

4%

4%

1%

1%

1%

1%

N=82. Percentages will not total 100% due to rounding.

33

The Most Relevant Cause for the Lack of Sufficient Bank Capital Available for Commercial Lending


Reduced net operating income, property values, and equity

New and proposed U.S. legislative and regulatory initiatives

Regulatory uncertainty for financial institutions

A slow-down in the pooling and packaging of CMBS by financial institutions

Inability of banks to dispose of distressed assets

27%

23%

17%

17%

17%

Aided response categories. Percentages will not total to 100% due to rounding.

34

How Lending Conditions Changed Over This Year


Tightened Significantly

Tightened Somewhat

Not Changed

Eased Somewhat

12%

20%

53%

15% Zero response categories are not displayed

35

Which Groups Currently Provide Financing for Commercial Deals


Community/Local Banks

Regional Banks

National Banks ("Big four")

Private Investors

Mortgage Brokers/Cos.

Owner Financing

REITs

Life Insurance Cos.

SBA

Credit Unions

Public Companies

48%

44%

30%

28%

24%

20%

15%

15%

11%

10%

6%There are multiple responses. Percentages will not total 100%.

The average respondent gave 2.51 different responses.

36

Do you believe new and proposed U.S. legislative and regulatory initiatives (e.g. Dodd-Frank, lease accounting, Basel III, etc. will):


Decrease the flow of capital into U.S. real estate

Have no effect on the flow of capital into U.S. real estate

Have no effect on the flow of capital into U.S. real estate, but change the way in which transactions or loans are

structured

Increase the flow of capital into U.S. real estate

81%

12%

5%

3% Aided response categories. Percentages do not total to 100% due to rounding.

37

Select the Most Important Proposed Policy Priority Needed to Improve Commercial Lending Conditions


Aided response categories

Credit union lending (Legislation introduced to raise the member business lending cap from 12.25% to 27.5% of total assets for well-capitalized credit unions)

Reauthorize the SBA's new commercial refinance program (Program provides SBA loan for up to 40% of appraised property value with no less than 10% of remaining amount to be contributed by the borrower)

Covered bonds (Legislation introduced to create a U.S. covered bond market)

No policy action (Allow full private market correction)

37%

25%

23%

15%

38

Demographics and Experience


39

Demographics and Experience• The typical commercial real estate professional has a decade of experience

in the business. Only 28% have three or fewer years of experience.

• Most commercial real estate professionals are male (62%).

• The average commercial real estate professional is 45 years of age .

• 60% have a BS/BA degree or higher.

• Over half (56%) are Caucasian. A quarter (25%) are Hispanic.


40

County Office is Located In


All others Miami-Dade, Broward, or Palm

Beach County

Hillsborough or Pinellas County

Orange County

53%

30%

11%

6%

There are 66 counties in Florida. There are respondents in 56 counties. In the 10 counties where there are no survey

respondents, they all have a population of under 17K based on the 2010 U.S. Census.

41

Respondent Age


Mean Median

44.8944

42

Respondent Age


Under 25 years

25 to 34 years

35 to 44 years

45 to 54 years

55 to 64

65 or older

2%

27%

22%

23%

16%

11%

Percentages do not toal to 100% due to rounding.

43

Respondent Age


Gen Y Gen X Boomer Senior

28% 29%

36%

8%


44

Education


Some high school (no diploma)

High school diploma

Some college (no degree)

AA degree (2 years)

BA/BS degree

Master's degree

Some graduate school (no degree)

JD/LLM/PhD

0%

0%

15%

26%

50%

8%

1%

1%


45

Commercial Real Estate Experience


Mean Median

10.4810

46



28%

72%

Newer (3 yrs or less experience) Seasoned (>3 yrs experience)

47



REALTOR® Non-REALTOR®

10.73

9.84

48



Broker Non-broker

10.06 10.21

49

Survey Respondents: Gender


62%

38%

MaleFemale

50

Survey Respondents: Ethnic Background


White/Non-Hispanic

Hispanic, Latin American

African American, Black

Other Asian

Chinese

56%

25%

9%

6%

5%


Florida REALTORS ® Commercial Real Estate Lending Study

Documents

survey objectivesto

year completion rate

lending standards

sales transaction

maximum sampling error

cellular telephones

impact of credit availability

younger gen x