Cbre Group Inc · NYSE:CBRE
Cbre — CB Richard Ellis Group — Investor Day (May 2006)
21 slides from Cbre's investor day presentation, May 17, 2006
Slide 1: Economic Trends in Commercial Real Estate
Business Review Day Economic Trends in Commercial Real Estate May 17, 2006 Raymond G. Torto, Ph.D., CRE Exhibit 99.2
Slide 2: OQ se CBRE 2006 CB RICHARD ELLIS
OQ se CBRE 6 2006 CB RICHARD ELLIS
Slide 3: Last Year About 20% Returns for All Types
Office (20.23) Apartment (20.97) Industrial (20.9) Retail (18.76) One Year Total Return, % Historical Holding Period (Years) NCREIF Holding Period Returns 2006.1 Source: NCREIF and TWR Last Year About 20% Returns for All Types
Slide 4: The Cash Yield Advantage of Recent Years Has Been Competed Away
CF return 10 yr The Cash Yield Advantage of Recent Years Has Been Competed Away Source: NCREIF, TWR 1Q, 06, all types Cash Yield Advantage %
Slide 5: Components of Return (2002.4-2005.4)
Doing It With Smoke & Cap Rates 15.0 5.3 9.6 -0.4 -2 Total Return Yield NOI Growth Cap Rate Contribution 3-Year Average, % Source: TWR Investment Database, Spring 2006 Components of Return (2002.4-2005.4) NCREIF-weighted returns for Office, Industrial, Multi-Housing, and Retail. Yield Appreciation C
Slide 6: Cap Rates Are Unlikely to Go Lower
2000 2001 2002 2003 2004 2005 Today Basis-point spread 10yr. Treasury yield, % Office cap rate, % Basis points % Cap Rates Are Unlikely to Go Lower Source: NCREIF, Federal Reserve
Slide 7: TWR's View: Property Markets
TWR’s View: Property Markets
Slide 8: Nothing Happens In a Vacuum. The Economy Is Moving Forward
Nothing Happens In a Vacuum. The Economy Is Moving Forward Industrial capacity utilization at 81.2% Manufacturing capacity utilization at 80.4% Business sales rising by 8.5% year over year Inventories-to-sales ratio extremely low at 1.24 Corporate profits are rising at 21.3% year over year Commercia
Slide 9: Second Year of Expanding Jobs
Second Year of Expanding Jobs 1999 2000 2001 2002 2003 2004 2005 2006 U.S. Total Employment, Mil. Source: BLS data as of March 2006.
Slide 10: Wide Job Growth Variance!
-15 -10 -5 Percent Above or Below Pre-Recession Peaks U.S. Top 3: Nevada +18.5% Arizona +10.9% Florida +9.4% Michigan -6.8% Mass -5.0% Mississippi -4.4% Ohio -3.7% Illinois -3.1% Wide Job Growth Variance! Source: BLS. Data ending December 2005 Today’s Jobs Relative to Pre-Recession Peak (2001)
Slide 11: Rates Rise and Here's a Troubling Trend!
Rates Rise and Here’s a Troubling Trend! 5.5 6.0 6.5 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 3.5 4.5 5.5 6.5 30-Year Mortgage ( L ) New homes Existing single-family Existing condominiums Months of supply on the market 30-Year Mortgage Rate, % Sources: BOC, FRB, NAR.
Slide 12: And, This is Going to Hurt, as Well!
And, This is Going to Hurt, as Well! -4 -2 2000 2001 2002 2003 2004 2005 Disposable personal income Retail sales % change year ago
Slide 13: However…Fundamentals Are Improving for All Types
However…Fundamentals Are Improving for All Types Percentage Increase in Rents by Property Type Rents are a good performance measure because they reflect the balance between supply and demand. Source: TWR Outlook XL, Spring 06 11.0% 6.5% 8.0% Hotel 5.0% 4.0% 2.8% Retail 4.8% 3.6% 2.9% Industrial 13.5
Slide 14: TWR's View: The Capital Markets
TWR’s View: The Capital Markets
Slide 15: Why Real Estate? Why Now?
Why Real Estate? Why Now? There Are Still Opportunities in Real Estate for: • Cash Flow • Appreciation • Diversification • Alpha • Gamma Past Results Are Not Indicative of Future Performance!
Slide 16: Efficient Frontiers with and without Real Estate
Efficient Frontiers with and without Real Estate Selected Asset Classes for the Twentyeight-Year Period 1978–2005 2.40% Free Lunch Prior to the last three years the “free lunch” was 1.74% An Ilustration of “Free Lunch”
Slide 17: Cap Rate Composition
Cap Rate Composition Cap rate is composed of: • + Risk free rate • + Risk premium • + Cap X • - Expected appreciation
Slide 18: Rule of Thumb
Rule of Thumb Appreciation = • % chg income - % chg in cap rate • Bottom line: fundamentals matter!
Slide 19: OQ se CBRE 2006 CB RICHARD ELLIS
OQ se CBRE 6 2006 CB RICHARD ELLIS
Slide 20: A Pricing/Fundamentals Disconnect: An Example for the Office Sector
2005 Transaction-Based Cap Rate, % A Pricing/Fundamentals Disconnect: An Example for the Office Sector Sources: RCA, TWR Investment Database BUY SELL
Slide 21: Fooled by Randomness
“Fooled by Randomness: the Hidden Role of Chance in Life and in the Markets” by Nassim N. Taleb Book’s Thesis: – It’s plain dumb luck, or randomness, not skills, hard work, etc, etc, Book’s Implication: – Forecast don’t work: Big events not known » e.g., 9/11. Long Term Capital, 1987 market crash »