2016 UNC Real Estate Conference Notes – April 7, 2016

 

Keynote Speaker: Ron Terwilliger, Chairman of Terwilliger Pappas – Perspectives on Multifamily Real Estate Cycles and the Current Environment

• Worked with Sea Pines Co.—Palmas Del Mar, Amelia Island, 1974 prime was 12.5%
• Worked with Mr. Trammel Crow directly for 7-8 yrs.
• TCR-Atlanta—no big salaries, wealth accumulated through interest in properties they developed.
• Advice—operate your business as if there will be a recession and you will not see it coming.
• Bob Faith-Greystar—diversifying revenue sources, fees will dry up after a while.
• Changes—new competitors—Childress Klein, East-West Partners
• Millennials focused on urban and walkable, building codes-more restrictive, add to the cost, different product – lots of growth in single family rentals, construction costs escalating between ½% to 1% per month. 900 sf unit with surface parking—build for $160,000.
• Budgets for lease up at 20/month—more rigorous underwriting and more engagement by investors.
• Crabtree in Raleigh recently—built for $140k, sold for $200k, cost today would be $180k.
• Apartments will lease in the downturn, Ron is pushing for 5 yr. loans-getting 42 months. Prefers a longer construction loan time frame.

Conference Speaker: Richard Barkham, Chief Economist Global, CBRE

• U.S. unemployment gives a good, clear cyclical indication. We have been in this cycle for 6-1/2 years—in the mature phase-could go 9 yrs.
• Unemployment rate moving down, cap rates also moving down.
• Unemployment rate going up, vacancy rates (office, industrial) also goes up.
• Unemployment rate comes down, rental growth is accelerating.
• Unemployment comes down, retail value grows. Had charts for each of these sectors.
• What could bring this to an end?
• Normally it is wage pressures.
• Leads to an uptick in inflation.
• Interest rate rises – none of these are occurring.
• So-geopolitical events – ISIS, terrorist, –he thinks they have no impact, no relationship with the unemployment rate in the US.
• China could derail the global economy—there is a slowdown in the Chinese economy, their currency is a concern. Yuan is overvalued—gives power to consumers, a way to stimulate their economy. If they drop their currency, the world markets would plummet—doesn’t think this will happen.
• A serious slowdown in US manufacturing. As $ goes up, it hits exports earnings, rise of $ will hurt emerging markets. Fed will hold rates lower, longer. Consumers are in robust, good health. Confidence is at a 9 yr. high. Retail sales volumes are growing strongly. Cycle comes to an end when?—Projecting unemployment suggests late 2018.
• When recession hits, cap rates will spike, not drift down. Real estate cycle mirrors the economic cycle.

 

Market Sector Panel:

Retail – Bob McClain, Crow Holdings

Opportunities in retail are with small centers-4 to 8 tenants, dominated by food and service-Zoe’s, Chipotle, Dominos, Verizon, ATT, mattress firms, bank branches. Near hospitals, colleges, corporate office headquarters, and white collar affluent neighborhoods. Can keep them full and raise rates, this is safe space. Major concern with the 50 large malls in the country and how to stay relevant to today’s on line shoppers. Big box retailers have a difficult time retrofitting today.

Multifamily Sector – Charles Brindell Jr., Mill Creek Residential

• Affordability is not an issue today, but it will be. Saturation point—2020
• Has 22,000 units—average age in his communities is 33.
• Tenants who move out to buy a home is typically 15%, his is 10%–just see folks staying longer in apartments. New dynamic of lock and leave adults selling big house, have a second home, don’t want yard maintenance and taxes, renting larger apartments for longer time frames.