MODULE 0

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MODULE 0
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Real Estate Markets The Economy

• An Empirical View

3
Real Estate Markets The Economy

• A Conceptual View

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Digital Economy Paradigm

• Information Flows _at_ All Levels
• Integration Globalization of Markets
• Securitization of Debt Equity
• Speed of Adjustment Volatility

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Three Evaluation Elements

• Efficiency
• Effectiveness
• Equity

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The Three Stages of IT Economic Development

• Development of Technology
• Gestation for Aggregation, Access, Integration,
  Implementation, Adoption and Branding
• Maturation- Reintegration of Cyberspace with
  Bricks and Mortar

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Real Estate Investment Analysis IS Risk
Management
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Risk Management

• Identify Risks
• Risk Modification Strategies
• Alter Risk
• Evaluate Risk Removal Strategies

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Yes, Virginia, there are three things that matter
in Real Estate Investment Decision Making

• LOCATION, LOCATION, LOCATION

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LOCATION LOCATION LOCATION
Macro-Environment
Sub-Region, City Level, Neighborhood
Property Specific
11
GDP Growth

Source Dept. of Commerce
12
Consumer Confidence Index
Source Conference Board
13
Personal Consumption Growth Rate

Source BEA, DOC
14
Real Retail Sales GrowthLess Autos

Source US Census
15
Growth in Consumer Credit

Source Federal Reserve
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Unemployment Rates US California

Source BLS
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Employment Growth Rate by Sector December 1997
to December 1998

Source BLS
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Annual Employment Change, California and US,
1973-Q2 1999
Source FCREUE from BLS data.
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Capacity Utilization in Manufacturing

Source Federal Reserve
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Growth Rate of Real NonResidential Fixed
Investment

Source Bureau of Economic Analysis
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Fixed Business Investment AsProportion of GDP
(Including Structures Equipment)
Source BEA
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Residential Fixed Investment AsProportion of GDP
Source BEA
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Interest Rates 6 month vs. 30 year

Source Federal Reserve
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Spread Between MBS and 10 yr. Treasuries

Source FNMA, Federal Reserve
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Change In Consumer Price Index Producer Price
Index

Source Bureau of Labor Statistics
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Change in Labor Productivity in Manufacturing

Source BLS
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Change in Unit Labor Costs Nonfarm Business
Sector

Source BLS
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US Exports Imports as Percentage of GDP

Source Dept. of Commerce
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US Trade Balance in Goods Services
, Bill.
Source US Census Bureau
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US Export Performance1998
Change
Source US Census Bureau
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US Import Performance1998
Change
Source US Census Bureau
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Growth Rate for Prices of Asian Imports

Source DOC
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Growth Rate of Export and Import Price Indices
(EPI IPI)

Source DOC
Note EPI is ex-agricultural goods IPI is ex-oil
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Asian Exchange Rates 19891
Source Asian WSJ
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Asian Exposure US vs. California
Percent of trade with Asia in total foreign trade
?
Source FCREUE calculations from US Dept. of
Commerce Census Bureau data
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(No Transcript)
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California's Computer Industry Asia
, Bill.
Source FCREUE from MISER
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Countervailing Drivers For US Economy

• Consumer is Happy (For the Moment)
• Employment Growth is Uneven
• Fixed Business Investment Remains Strong
• Housing Sector is Relatively Robust

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Countervailing Drivers For US Economy

• Stable Energy Prices
• World-wide Generated Price Inertia
• High Real Interest Rates
• Low Nominal Interest Rates

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Countervailing Drivers For US Economy

• Monetary Fiscal Policy Prerogatives
• Export-Import Imbalance

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Debt Owed By Non-Financial Sectors As of 4th
Quarter 1998
Source Federal Reserve Flow of Funds
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Commercial Mortgages Assets Held by Sector
, Bill.
Source FRB
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Net Commercial Mortgage Flows
, Bill.
Source Federal Reserve Annualized quarterly data
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CMBS Issuance
, Billions
Source Commercial Mortgage Alert, Lehman Brothers
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Equity Capital Raised By REITS
, Millions
Source NAREIT, Lehman Brothers
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Source FHLMC
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Median Sales Price of Existing Homes US
California
, Thousands
Source NAR, CAR
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Existing Single Family Home Sales
Millions
Source NAR
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US Housing Starts Single Family Multi-Family
In Thousands.
Source US Bureau of the Census
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Home Price IndexNorthern and Southern California
Price Index, April 1990100
Source Real Estate Research Councils of
Northern/Southern CA
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United StatesOffice Vacancy Rates

Source CB Commercial
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US Residential Vacancy Rates

Source CB Commercial
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Californias Fastest Growing Large SectorsAnnual
Percent Change, Midyear 1998-1999
Source FCREUE from California EDD data.
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Californias Fastest Growing Metropolitan
AreasAnnual Percent Change, Midyear 1998-1999
Source FCREUE from California EDD data.
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California Metropolitan Areas with Largest Annual
Employment IncreasesMidyear 1998-1999
Source FCREUE from California EDD data.
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California Population and Household GrowthAnnual
Percent Change, 1981-1998
1990
1998
Source FCREUE from California Dept. of Finance
data.
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Percent Change in Median Home PriceMajor
California Metropolitan Areas
Includes Santa Clara.
Source California Association of Realtors.
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Housing Affordability Index US Vs. Selected
California Areas, 1989, 1991, 1993 and 1999
Source California Association of Realtors.
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California Residential Building PermitsTotal
Number of Units, 1967-1999E
Source FCREUE from Construction Industry
Research Board data.
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US Apartment Rents per Sq.Ft.1985-1998
/Sq.Ft
Source NREI
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US Apartment Price per Sq.Ft.1985-1998
/Sq.Ft
Source NREI
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US Office Price per Sq.Ft.1985-1998
/Sq.Ft
Source NREI
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US Office Rent per Sq.Ft.1985-1998
/Sq.Ft
Source NREI
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US Warehouse Rent per Sq.Ft.1985-1998
/Sq.Ft
Source NREI
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US Warehouse Price per Sq.Ft.1985-1998
/Sq.Ft
Source NREI
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US Retail Price per Sq.Ft.1985-1998
/Sq.Ft
Source NREI
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US Retail Cap Rates.1985-1998
Source NREI
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US Warehouse Cap Rates.1985-1998
Source NREI
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US Office Cap Rates.1985-1998
Source NREI
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US Apartment Cap Rates.1985-1998
Source NREI