Frederick Ross Real Estate Market Overview Presented by: Kevin Thomas Senior Vice President Frederick Ross Company January 2003
Business Consumers
Source: BEA, Ross Research
Housing...Bust or Rust?
2001 2002E 1987 1988 1988 1989 1990 1991 1991 1992 1993 1994 1994 1995 1996 1997 1997 1998 1999 2000 2000 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% House Price Index: YOY Quarterly Home Appreciation Denver US 1985 1985 1986 Source: OFHEO
18.0% 15.0% 12.0% 9.0% 6.0% 3.0% 0.0% -3.0% 30 Year Mortgage Rates and Denver Job Growth 35000 30000 25000 20000 15000 10000 5000 0 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Employment Growth 30 YR Conventional Single-Family Permits Source: Federal Reserve,BLS, Ross Research 1978 1977 1975 1976 1974 1973 1972
Relative Business Cost by State Source: Economy.com, Ross Research
1991 1991 1992 1992 1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% Denver versus U.S. Employment Growth Year-Over-Year Percentage Growth by Quarter Projection Denver Total US Source: BLS, Ross Research
Percent Change in Employment - Denver MSA November 02 over November 01 Special Trade Contractors Business S vcs. Communications Durable Goods Retail Trade Wholesale Trade Transportation by Air Legal Services Educational Services Federal Government Eating & Drinking Places Nondepository Institutions Local Education Health S vcs. Local Government -8% -6% -4% -2% 0% 2% 4% 6% Source: BLS, Ross Research
Comparative Investment Performance Various Asset Classes 50% 40% 30% 20% 10% 0% -10% 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002-20% -30% Lehman Gov't/Corp Bond Index S&P 500 Index NCREIF Property Index NAREIT Price Index Source: NCREIF; JP Morgan; Lehman; Chase Securities
Investment Sale Volumes Dollar Volume by Various Product Classes 900 800 700 600 500 400 300 200 100 0 2000 2001 2002 Office Industrial Retail Source: CoStar Group, Ross Research
10 Year Treasury Yields Average 1980-2002 16% 14% 12% 10% Historic Office Cap Rates 8% 6% 4% 2% 0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Source: NCREIF,Federal Reserve, Ross Research
National Office Market Balance 150 20% 100 17% 18% 16% Square Feet 50 0-50 1991 1992 19931994 1995 19961997 1998 19992000 2001 2002 14% 12% 10% 8% 6% Vacancy -100 4% 2% -150 0% New Construction Absorption Vacancy Source: Oncor, Ross Research
30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% North American Office Market 1999 to 2001 - Change in Vacancy Rates Manhattan Washington, D.C. Los Angeles Chicago Houston Dallas/Ft. Worth Boston Atlanta N. New Jersey Denver 1999 2000 2001 2002 Source: Oncor, Ross Research
Tenant Hangover Job Creation (demand) Vs. New Office Construction (supply) 5000 180 4000 Landlord s Overbuild Tenant s Over-lease 160 140 3000 120 2000 100 1000 80 0 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 60 40-1000 20-2000 0 Source: Ross Research Services Copyright 2002, Frederick Ross Company Job Growth New Office Buildings Source: BLS,Oncor, Ross Research
Historical Sublease - Addition to Denver Metro Market NEW SUBLEASE SPACE (12 mo avg is 259,754 RSF) (6 mo avg is 144,092 RSF) 700,000 600,000 500,000 400,000 692,031 333,701 386,196 363,104 319,675 433,097 300,000 200,000 100,000 157,786 133,745 82,380 137,528 62,585 15,217 0 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Source: Ross Research
Central Business District Vacancy Rate SF Vacant Absorption 5 YR Avg. Absorption New Construction U/C Class A Rates Sublease YE01 11.80% 2.7 Million (1,300,000) 534,000 285,000 $26-$30 1,200,000 YE02 16.70% 3.87 Million (1,100,000) 285,000 $22-$30 1,000,000 Source: CoStar, Ross Research
Northwest/Boulder Corridor Vacancy Rate SF Vacant Absorption 5 YR Avg. Absorption New Construction U/C Class A Rates Sublease YE01 35.2% 3.2 Million 60,000 400,000 330,000 $20-$24 1,000,000 YE02 34.7% 3.5 Million 85,000 70,000 $18-$24 600,000 Source: CoStar, Ross Research
Southeast Suburban Vacancy Rate SF Vacant Absorption 5 YR Avg. Absorption New Construction U/C Class A Rates Sublease YE01 23.4% 6.3 Million (2,100,000) 900,000 220,000 $23-$28 1,200,000 YE02 27.6% 7.7 Million (500,000) 116,000 $20-$26 1,500,000 Source: CoStar, Ross Research
Total Office Market Vacancy Rate SF Vacant Sublease New Construction U/C Absorption 8.4 million sf YE01 19.29% 15.8 Million 4 Million 1.6 Million (4.1 Million) YE02 22.80% 19.2 Million 3.7 Million 720,0000 (1.9 Million) Years to 10% 2000 (Boom) Absorption 3.5 Million 5 YR Median Absorption 2.4 Million 3.0 Yrs 4.5 Yrs Source: CoStar, Ross Research
Denver Area Apartment Trends 8,000 7,76 1 7,949 10.0% 6,000 5,669 6,445 6,355 6,604 5,8 18 5,591 5,626 5,432 8.7% 9.3% 9.0% 8.0% 4,000 2,000 0 253 3,463 5.4% 2,794 2,970 2,033 1, 72 8 1, 72 9 4.3% 4.4% 445 3.8% 2,752 5.0% 4,058 3,526 4.9% 4.6% 4.4% 5.2% 4.7% 4,384 2,392 7.0% 6.0% 5.0% 4.0% 3.0% -2,000-4,000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002-2,904 2.0% 1.0% 0.0% Units Added Units Absorbed Vacancy Rate Source: The Genesis Group,ARA, Ross Research
Denver Market Balance: Retail 6,000,000 30.00% 5,000,000 New Construction Absorption Vacancy 8.8% 25.00% 4,000,000 Projection 20.00% 3,000,000 2,000,000 1,000,000 0 1989 Source: Ross Research. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 15.00% 10.00% 5.00% 0.00%
Denver Market Balance: Industrial 6,000,000 30.00% 5,000,000 4,000,000 New Construction Absorption Vacancy 9.2% Projection 25.00% 20.00% 3,000,000 2,000,000 1,000,000 0 1989 Source: Ross Research. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 15.00% 10.00% 5.00% 0.00%
Denver Market Balance: Office 6,000,000 5,000,000 4,000,000 New Construction Absorption Vacancy 22.8% 30.00% 25.00% 3,000,000 2,000,000 Projection 20.00% 1,000,000 0-1,000,000-2,000,000-3,000,000-4,000,000-5,000,000 1989 1990 Source: Ross Research. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 15.00% 10.00% 5.00% 0.00%
Economic Clock Fed Raises Interest Rates to Cool Economy and Curb Inflation Strong Earnings High Production High Consumption High Job Growth High Wages Real Estate Expands (Development) 14 12 10 8 6 4 2 0 j f m a m j j a s o n d Profits Earnings Decline Investment Stalls Layoffs Emerge Consumption Declines Real Estate Contracts (Sublet) Profitability Emerges Confidence Returns Investment Returns Consumption Grows Real Estate Emerges (Absorption and Investment) Source: Ross Research. P&L s Stabilize Capacity and Demand Balance Real Estate = Efficiency (Densification/Class Moves) Earnings Negative Job Losses Peak Cost Cutting is King Real Estate is Cut (Disposition)
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