Transcript Cornerstone Real Estate Advisers

Cornerstone Research
Nashville Apartment
Market Analysis
Dags Chen
Cornerstone Real Estate
Advisers LLC
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Cornerstone Research
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Research drives Cornerstone
investment process

Strategy

Tactics
Public (REIT) and private real estate
research integrated
Cornerstone “scrubs” industry data to
remove errors and refine accuracy
Top Down
Research Insight
Data
Models
Forecasts
Value
Cornerstone’s granular analysis is
more localized than typical
Live access to data and forecasts
throughout Cornerstone via the
Research Analyst platform
Regional Teams
Local Data
Market Presence
Bottom Up
1
Cornerstone Research
Economy.com’s
NAICs Employment
Forecast
Dun & Bradstreet
Establishment Data
by NAICs
Demand, Supply, and Local
Coefficient Inputs are
property-type specific
Demographic
Forecasts
Cornerstone’s Demand Model:
Employment Growth by Zip Code,
County, and MSA, Benchmarked to U.S.
Market Occupancy &
Rate/Rent Trends
Construction Activity,
History and Forecast
Regional Office,
REIT Team and
Hotel Team input
Demand/Supply Forecast
w/ Local Coefficients
Scrubbed supply
data from F.W.
Dodge Pipeline
Occupancy Forecast, Rent Growth, Market
Weighting, Investment Recommendation
2
Forecast US GDP Growth
6
Annualiz ed Growth Rate %
4
1/12/08
Forecast
2
0
-2
Weakness is pervasive and accelerating. Forecast for
negative GDP through 2009, recovery hopes in 2010,
employment recovery lags.
-4
6 quarters of negative
growth would be the
longest contraction
since the Depression
-6
2004
2005
2006
2007
2008
2009
2010
Source: Consensus Forecasts, Cornerstone Research 2-6-2009
3
Steep Jobs Decline and Slow Recovery
Job losses likely to surpass early 1970s, 1980s
101%
Months to recover peak employment
Percent of Peak Em ploym ent
100%
19
28
32
48
50+ months?
99%
1972-1976
1980-1983
98%
1989-1993
2000-2005
Total Job Losses
97%
2007- ?
1972-76: -2.1mm
Forecast
1980-83: -2.8mm
96%
Current: -3.5mm through January,
(another 2mm to go?)
95%
-12
0
12
24
36
48
Months
Source: Bureau of Labor Research, Cornerstone Research
12-8-2008, 1-14-2009
Source: Cornerstone
Research
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Commercial Real Estate Transaction Activity
Monthly Sales Volume
75
Apartments
Industrial
Office
Retail
Hotel
Blackstone
purchase of EOP
Blackstone
purchase of
Hilton
Billions of US$
50
25
0
2001
2002
2003
2004
2005
2006
2007
2008
Source: Real Capital Analytics
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NCREIF Property Index Comparison
Nu m ber of Q u art ers Fol l owi n g NCRE IF Capi t al In dex P eak Val u e
1
2
3
4 5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Cu m u l at i ve % D ec l i n e Si n c e P eak
0%
-5%
1990s Downturn
Current Downturn
-10%
-15%
-20%
-25%
-30%
-35%
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The Grove at Cumberland Bluffs
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Economy.com Precis Report
8
Nashville Apartment Submarkets
9
Belle Meade / West End
10
Downtown
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Rent Comps
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Locations of Major Employers
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Franklin/Williamson County
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Rent Comps
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Shadow Supply
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Submarket and Market Rent and Occupancy
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Rent Comps
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Proforma Cash Flow
INCOME
Income Growth Assumption:
Gain(Loss) to Lease Assumption:
Vacancy/Loss/Model Assumption:
Concessions Assumption:
Total Economic Vacancy
Year 1
0.0%
0.0%
-6.0%
0.0%
-6.0%
4,409,700
0
4,409,700
-264,582
0
4,145,118
160,792
4,305,910
Market Rents
Gain (Loss) to Lease
Gross Potential
Vacancy/Loss/Model
Concessions
Rental Income
Other Income
Total Income
EXPENSES
Other Income and Expense Growth Assumption:
Utilities
-59,553
Variable
-516,785
Taxes
-563,246
Insurance
-57,400
Management Fee
-107,648
Replacement Res.
-43,050
Total Operating Expenses
-1,347,682
Net Operating Income
2,958,228
Year 2
2.0%
0.0%
-5.0%
0.0%
-5.0%
4,497,894
0
4,497,894
-224,895
0
4,272,999
164,008
4,437,007
Year 3
3.0%
0.0%
-5.0%
0.0%
-5.0%
4,632,831
0
4,632,831
-231,642
0
4,401,189
167,288
4,568,477
Year 4
3.0%
0.0%
-5.0%
0.0%
-5.0%
4,771,816
0
4,771,816
-238,591
0
4,533,225
170,634
4,703,859
Year 5
3.0%
0.0%
-5.0%
0.0%
-5.0%
4,914,970
0
4,914,970
-245,749
0
4,669,222
174,047
4,843,268
2.00%
-60,744
-527,121
-574,511
-58,548
-109,801
-43,911
-1,374,635
3,062,372
2.00%
-61,958
-537,663
-586,002
-59,719
-111,997
-44,789
-1,402,128
3,166,349
2.00%
-63,198
-548,416
-597,722
-60,913
-114,237
-45,685
-1,430,171
3,273,688
2.00%
-64,462
-559,385
-609,676
-62,132
-116,521
-46,599
-1,458,774
3,384,494
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Proforma Cash Flow
Debt Service
Year 1
Year 2
Year 3
Year 4
Year 5
2,958,228
3,062,372
3,166,349
3,273,688
3,384,494
($1,971,427)
($1,971,427)
($1,971,427)
($2,366,761)
($2,366,761)
$986,802
$1,090,945
$1,194,923
$906,927
$1,017,733
1.5
1.55
1.61
1.38
1.43
All Cash Yield
6.73%
6.97%
7.20%
7.45%
7.70%
Cash On Cash Leveraged Yield
8.98%
9.93%
10.87%
8.25%
9.26%
Net Operating Income
Debt Service
Cash Flow
Debt Service Coverage Ratio
Price
LTV %
Loan Amount
Interest Rate*:
$43,956,000
75%
$32,967,000
5.98%
Amortization: 3 0
30
Term: 1 0
10
First 36 Months (Interest Only)
$164,286
Months 37 - 120:
$197,230
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Commercial Mortgage Spreads (as of 2/11/2009)
Source: DTZ Rockwood Financial
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Historical Rent Growth
Effective Rent Growth US, Nashville
12%
Downtown
8%
West End
4%
Nashville
U.S.
0%
-4%
-8%
-12%
1996.2
1997.2
1998.2
1999.2
2000.2
2001.2
2002.2
2003.2
2004.2
2005.2
2006.2
2007.2
2008.2
Source: Axiometrics
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Rent Growth Linked to Job Growth
Nashville Rent and Employment Growth (4Q trailing)
6%
4%
2%
Nashville Employment Growth
0%
1996.2
1997.2
1998.2
1999.2
2000.2
2001.2
2002.2
2003.2
2004.2
2005.2
2006.2
2007.2
2008.2
-2%
-4%
-6%
Source: Axiometrics, BLS
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Axiometrics Vacancy History
Vacancy, US, Nashville
100%
Downtown
98%
West End
96%
94%
Nashville
92%
U.S.
90%
1996.2 1997.2 1998.2 1999.2 2000.2 2001.2 2002.2 2003.2 2004.2 2005.2 2006.2 2007.2 2008.2
Source: Axiometrics
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