1 Old Dominion University Old Dominion University Hampton Roads Real Estate Hampton Roads Real Estate Market Review and Forecast Market Review and Forecast 2008 2008 Presented by: Presented by: E.V. Williams E.V. Williams Center for Real Estate Center for Real Estate and Economic Development and Economic Development Director Director’ s Message s Message John R. Lombard, PhD Associate Professor, Department of Urban Studies and Public Administration, College of Business and Public Administration Director, E. V. Williams Center for Real Estate and Economic Development A Message from the Dean A Message from the Dean Nancy Bagranoff, DBA Dean, College of Business & Public Administration, Old Dominion University TED CONSTANT CONVOCATION CENTER ENGINEERING & COMPUTATIONAL SCIENCES BUILDING
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Old Dominion University Old Dominion University Hampton Roads Real Estate Hampton Roads Real Estate Market Review and ForecastMarket Review and Forecast
20082008
Presented by: Presented by: E.V. Williams E.V. Williams
Center for Real Estate Center for Real Estate and Economic Developmentand Economic Development
DirectorDirector’’s Messages Message
John R. Lombard, PhDAssociate Professor, Department of
Urban Studies and Public Administration, College of Business and Public Administration
Director, E. V. Williams Center for Real Estate and Economic Development
A Message from the DeanA Message from the Dean
Nancy Bagranoff, DBADean, College of Business
& Public Administration, Old Dominion University
TED CONSTANTCONVOCATION CENTER
ENGINEERING & COMPUTATIONALSCIENCES BUILDING
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UNIVERSITY VILLAGE HEALTH SCIENCES BUILDING
INNOVATION RESEARCH PARK BARON & ELLINGORDON ART GALLERIES
UNIVERSITY QUADSSTUDENT HOUSING
FOLKES-STEVENSINDOOR TENNIS CENTER
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Executive CommitteeExecutive Committee
Chair: Tom DillonExecutive Director: John LombardVice Chair: Brad SanfordProgram Chair: Stephanie SankerResearch Chair: Brian DundonMembership Chair: Craig CopeCurriculum Co-Chairs: John Crunkleton, Brad SanfordSponsorship Chair: Fred FackaBy-Laws Chair: Andrew KeeneyPast Chair: Joyce HartmanAt Large: Jonathan Guion
Billy KingAubrey Layne
Sponsorship CommitteeSponsorship Committee
Fred Facka (Chair), Smith Barney - CitigroupStephanie Sanker, GVA AdvantisTom Dillon, Resource BankErica Ferron, Old Dominion University
Program CommitteeProgram Committee
Stephanie Sanker, GVA AdvantisTom Dillon, Resource Bank
David Chapman, Old Dominion University
Research CommitteeResearch Committee
Brian Dundon, Brian J. Dundon & Assoc. John Lombard, PhD, ODU
Beth Hancock, City of ChesapeakeJoy Learn, Resource Bank
Sandi Prestridge, City of NorfolkMaureen Rooks, Thalhimer
Bradley Sanford, Dominion Realty AdvisorsLane Shea, Harbor Group
Kristi Sutphin, City of Portsmouth
Ashley Capital, LLCAtlantic Mortgage & Investment Company
Axial Advisory Group, LLCBank of America Real Estate Banking
BB&TCavalier Land, Inc.CB Richard Ellis
Cherry, Bekaert, & Holland, L.L.P.City of Chesapeake – Economic Development
City of Hampton – Economic DevelopmentCity of Norfolk – Department of Development
City of Portsmouth – Dept. of Economic DevelopmentCity of Suffolk – Dept. of Economic Development
City of Virginia Beach – Dept. of Economic DevelopmentClark Nexsen
CREEDContinental Realty Services, Inc.
Creative Office Environments, LLC
Our Proud SponsorsOur Proud Sponsors
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Davenport Group & Lefcoe Development CoDominion Realty Advisors
Drucker & Falk, LLCECS Mid-Atlantic, LLC
First Potomac Realty Trust Grandbridge Real Estate CapitalGreat Atlantic Management Co.
GVA AdvantisHampton Roads Security Corporation
Harbor Group ManagementHarvey Lindsey Commercial Real Estate
Innovative Research Park - ODU Kaufman & Canoles
LandMark Design Group, Inc.Liberty Property Trust
McDonald Development CompanyMcPhillips Roberts & DeansMid Eastern Builders, Inc.
Our Proud SponsorsOur Proud Sponsors
ODU Real Estate FoundationResource Bank/Fulton Bank
S.L. Nusbaum Realty Co.Sam Segar & Associates, Inc.
Sperry Van Ness - Virginia BeachSunTrust Real Estate Finance
Housing versus Commercial Real EstateChanges in the Capital MarketsCommercial Real Estate as an Investment ClassTrends by Property Type• Office• Industrial• Multi-Family• Retail
HOUSING VS COMMERCIAL REAL ESTATE
3 Key Reasons this is a Housing Recession and not a Commercial Real Estate Recession
1.Residential construction doubled over 5 year period from 2001 to 2006
2.Over-reliance of residential boom on speculative investors
VariablesLoan to value ratioDebt service coverageInterest only periodsReserves
DefinitionsValue for loan basisNet Operating IncomeOccupancyCapital for loan proceeds
LAX UNDERWRITING & AGGRESSIVE LENDING
Source: Real Capital Analytics
US COMMERCIAL PROPERTY SALES
Commercial Real Estate is now a “Major Food Group”
Alternative investment opportunities not rock solid eitherUnderlying fundamentals remain healthyCommercial real estate with predictable and transparent contractual cash flowsKey perspective is returns on a “risk adjusted basis”
US COMMERCIAL PROPERTY SALES
Source: Real Capital Analytics; minimum value of $5 million
The Good News: Economic expansion has been increasingly driven by office-occupying industriesThe Bad News: Softening economy will lead to slower growth in rents and less space absorption
2007 HAMPTON ROADS OFFICE SALES
LANDMARK TRANSACTIONSGee’s Group Portfolio
150 W. Main
150 W. Main
Lynnhaven Corporate Center I
Silver Oak
Southport Centre
Twin Oaks I & II
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
$0
$5
$10
$15
$20
$25
$30
$35
$40
2003 2004 2005 2006 2007
Aver
age C
ap R
ate
Tota
l Pric
e (in
billi
on)
NATIONAL INDUSTRIAL SALES
Higher volume and lower cap rates
Source: Real Capital Analytics
The Good News: Export business and business to business services are expected to continue to growThe Bad News: Impacted by the slowing economy especially with goods related to housing and retailers
2007 HAMPTON ROADS INDUSTRIAL SALES
LANDMARK TRANSACTIONSCommonwealth Storage
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
$0
$20
$40
$60
$80
$100
$120
2003 2004 2005 2006 2007
Aver
age C
ap R
ate
Tota
l Pric
e (in
billi
on)
NATIONAL MULTI-FAMILY SALES
Slow down in volume growth and cap rate decline
Source: Real Capital Analytics
The Good News: More people will decide to rent rather than pursue home ownershipThe Bad News: Shadow competition of rental supply created by unsold homes and condos listed for rent
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HAMPTON ROADS MULTI-FAMILY TRANSACTIONS
LANDMARK TRANSACTIONSThe Heights and The Myrtles
at Olde Towne Portfolio
The Myrtles The Heights
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
$0
$10
$20
$30
$40
$50
$60
$70
$80
2003 2004 2005 2006 2007
Aver
age C
ap R
ate
Tota
l Pric
e (in
billi
on)
NATIONAL RETAIL SALES
Higher volume and lower cap rates
Source: Real Capital Analytics
The Good News: Continued growth in lifestyle & town centers; new concepts continue to emergeThe Bad News: Future performance impacted by slowdown in employment & consumer demand
HAMPTON ROADS RETAIL TRANSACTIONS
LANDMARK TRANSACTIONSDenbigh Village
Lynnhaven NorthDenbigh Village
Lynnhaven North
FINAL THOUGHTS
“The retailers that have the right merchandise at the right price are still doing significant business. There are winners and losers in market share, and consumers are voting every day with their purchases.”- Daniel Hurwitz, President & CEO of Developers Diversified Realty Corp.
This concept applies to all of us in the commercial real estate profession and not just for retailer sales.
INDUSTRIAL MARKET REVIEW
INDUSTRIAL MARKET REVIEW
Robert L. “Bobby” Phillips, Jr.First Vice PresidentIndustrial Brokerage
Slight Uptick In Vacancy RatesSlight Uptick In Vacancy Rates
New Ceiling On Class A RatesNew Ceiling On Class A Rates
Steady Slow Increase In Overall RatesSteady Slow Increase In Overall Rates
Landlord Incentives On the RiseLandlord Incentives On the Rise
Market Market InfluencesInfluences
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Thank YouThank You 2008 RETAIL MARKET REVIEW2008 RETAIL MARKET REVIEW
Presented By:
Bill Overman
Hampton Roads RetailHampton Roads Retail
Per Person AveragePer Person AverageHampton Roads 29.5 SFHampton Roads 29.5 SF
National 18.2 SFNational 18.2 SF
396 Properties Totaling396 Properties Totaling50,219,239 SF50,219,239 SF
Hampton Roads RetailHampton Roads Retail
PeninsulaPeninsula133 Properties133 Properties
Totaling 17,133,079 SFTotaling 17,133,079 SF
SouthsideSouthside263 Properties263 Properties
Totaling 33,086,160 SFTotaling 33,086,160 SF
New Construction New Construction Since 2003Since 2003
749,458 SF456,610 SF
1,211,699 SF
2,594,843 SF
2,047,291 SF
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2003 2004 2005 2006 2007
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New ConstructionNew Construction
PeninsulaPeninsula1,009,000 SF1,009,000 SF
(5.9% of Total SF)(5.9% of Total SF)
SouthsideSouthside1,038,291 SF1,038,291 SF
(3.1% of Total SF)(3.1% of Total SF)
A Few Projects A Few Projects Delivered in 2007Delivered in 2007
•• LandstownLandstown CommonsCommons
•• The MarquisThe Marquis
•• Towne Place in GreenbrierTowne Place in Greenbrier
LandstownLandstown Commons Commons The MarquisThe Marquis
Towne Place in Towne Place in GreenbrierGreenbrier
Mixed UseMixed Use
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Virginia Beach Town CenterVirginia Beach Town Center City Center at Oyster PointCity Center at Oyster Point
New TownNew Town SettlerSettler’’s Markets Market
Peninsula Town CenterPeninsula Town Center
New New Construction Construction
in Motionin Motion
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Little Creek & TidewaterLittle Creek & Tidewater Marketplace at Marketplace at HarbourHarbour ViewView
HarbourHarbour View EastView East BennettBennett’’s Creek Crossings Creek Crossing
Edinburgh & Edinburgh & CahoonCahoon CommonsCommons Grocers in the NewsGrocers in the News
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Big BoxBig Box
Target atRed Mill Walk
Lowe’s buysGiant Square
Vacancy Rates Since 2003Vacancy Rates Since 2003
11.19%
9.41%
7.55%6.81%
7.63%
5.00%
7.00%
9.00%
11.00%
13.00%
2003 2004 2005 2006 2007
Vacancy RateVacancy Rate
Southside 6.7%Southside 6.7%
Peninsula 9.4%Peninsula 9.4%
2007 Rental Rates2007 Rental Rates
Overall AverageOverall Average $16.05 NNN$16.05 NNN
Southside:Southside: $16.68 NNN$16.68 NNN
Peninsula:Peninsula: $15.41 NNN$15.41 NNN
Emerging MarketsEmerging Markets
Isle of WightIsle of Wight
Northern SuffolkNorthern Suffolk
WilliamsburgWilliamsburg
Eastern North CarolinaEastern North Carolina
FORECASTFORECAST
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Market CycleMarket Cycle
Worth QuotingWorth Quoting““The party is over. With the exception of The party is over. With the exception of
quality product, markets with barriers to quality product, markets with barriers to entry, and those with a durable rent roll, entry, and those with a durable rent roll, commercial real estate will decrease 10 commercial real estate will decrease 10
percent to 12 percent in 2008. percent to 12 percent in 2008. What weWhat we’’re re experiencing now is not a market crash, experiencing now is not a market crash,
but merely a return to normalcy.but merely a return to normalcy.””
Jerry Anderson, CCIM PresidentJerry Anderson, CCIM PresidentSperry Van NessSperry Van Ness
2008 Multi2008 Multi--Family Family Market ReviewMarket Review
F. Andrew Heatwole
Senior Vice President
Ripley Heatwole Company, Inc.
• Historic & Current Multi-Family Development
• Economic & Operating Environment
• Outlook
Topics
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Historic & Current Multi-Family Development
Hampton Roads Communities Under Construction/Proposed
1,112 units under construction
3,287 units proposed
691 units started after June 1, 2007
Source: Real Data
MidTown @ CityView, Virginia Beach 196 units
Oxford New Town, Williamsburg Final 69 units
Source: Real Data
Economic & Operating Environment
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Top 3 Sales
Bristol @ Ghent, Norfolk$48,300,000268 units$180,244 per unit
Myrtles @ Olde Town, Portsmouth
$36,000,000
246 units
$146,341 per unit
Mayflower, Virginia Beach
$33,000,000
265 units
$124,528 per unit
2007 Sales Statistics
Total Deals: 14
Total Units: 2,760
Avg. Units/Deal: 197
Total Deal Volume: $277,676,159
Avg. Price/Deal: $19,834,000
Avg. Price/Unit: $100,607
Source: Cushman & Wakefield
Debt & Equity Markets• Yesterday the Fed launched a new financial tool
called the “Term Securities Lending Facility” (TSLF). The Fed will lend up to 200 billion dollars in Treasury Securities. The collateral for the treasuries may be mortgage securities sold by Freddie and Fannie and private mortgage backed securities. The TSLF is designed to restore liquidity to the real estate debt and equity markets.
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Economic Overview
Source: Real Data
Outlook
Outlook
Source: Real Data
• Employment growth projections appear to be good for 2008 & 2009. Hampton Roads compares favorably to Charlotte and the Raleigh-Durham area regarding employment.
• Vacancy, while at an overall 10 year high of 5.1%, is still relatively low and should remain at this level.
• Vacancy for properties which are 6 to 15 years old is only 2.6%
• Effective Rent Growth overall should be in the 4% to 5% range.
Outlook• Little impact has been felt from “Shadow Shock” on
occupancy levels. “Shadow Shock” is generally defined as “unanticipated” supply from condo reversions and the “shadow” supply of vacant for rentinvestor owned condo units.
• Properties in lease up lowered rents .1% between May ‘07 and November ‘07, after having raised rents 2.4% in the preceding 6 months
• B & C rated properties may well be the Rent Growth Stars of 2008
Outlook
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• Rent vs. Buy ratio favors increased rental demand. Homeownership rates from 2005 – 2007 declined in the age groups of <35 years old, 35 – 44 years old, 45 –54 years old, and >65 years old.
• Sales volume and cap rates should remain relatively stable. Red Capital Research continues to recommend Hampton Roads as an area where investors should “accumulate assets.” Cushman & Wakefield also confirms continuing investor interest in Hampton Roads.
Outlook• Hampton Roads is a High Barrier of Entry Market.
There are geographic and environmental constraints regarding available land, and political constraints regarding use.
• There have been relatively few units built during the past 20 years. During the period from 1970 – 1989, there were 54,801 units built. From 1990 – 2009 (’08-’09 estimate) approximately 17,257 units will be built. Cumulatively this is 37,544 fewer units or 1,877 fewer units per year on an annualized basis.
Outlook
Most Important Market Factor
• 70 million “Echo Boomers” will go through college in the next 10 years and enter the marketplace.
RESIDENTIALRESIDENTIALMARKET UPDATEMARKET UPDATE
Van Rose, MIRMVan Rose, MIRMPresident, Rose and President, Rose and WombleWomble New HomesNew Homes
March 12, 2008March 12, 2008
15 Year Closing15 Year ClosingNew Construction & Resale HistoryNew Construction & Resale History