the BRIEFING: February 2014

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Information about the BRIEFING: February 2014
Real Estate

Published on February 17, 2014




The Briefing is a monthly piece by Transwestern that discusses the national economy, capital markets and real estate outlook at a glance. It is an aggregation by Tom McNearney, Transwestern's chief investment officer, of other articles and reports.


THE ECONOMY The economy appears to be entering the New Year on a roll, but clouds are gathering over China and emerging markets. ƒƒ The Senate approved a spending bill exceeding $1 trillion ƒƒ 3Q GDP growth revised up to 4.1% ƒƒ December job growth a disappointing 74,000, following two months over 200,000 ƒƒ 2013 was the best car and truck sals year since 2007, with 15.6 million vehicles sold, a 7.6% increase over 2012 ƒƒ Projections of 20% decline in oil prices as lower global demand can’t keep pace with the U.S. shale oil boom Follow us | @Transwestern TECHNOLOGY ON THE MOVE 3.4M 1.3M $75K 1,000 Number of vehicles with Ford Sync Applink to be added to the existing 1 million Cost of standalone LIDAR laser technology Laser shots per second in new LIDAR self-driving senor technology Hours spent in a McLaren hightech simulator to develop the 12C sports car

GLOBAL OUTLOOK 2014 is expected to be better for the Euro Zone with Deutsche Bank projecting a 1.0% growth compared to a 0.4% contraction in 2013 ƒƒ European Central Bank rate cut in November should continue to provide stimulus ƒƒ Ireland graduated from its bailout of $93 billion from EU and IMG ƒƒ Europe’s recovery from the sovereign debt crisis led to a 57% rally in Greek bonds and a 12% surge in Ireland’s bonds ƒƒ China’s short-term liquidity squeeze eases as seven-day borrowing rate drops to 4.89% from 8.94% with central bank injection of $4.8 million ƒƒ China’s exports rose to just 4.3% compared to December 2012 while import growth was strong at 8.3% ƒƒ China’s Yuan has eclipsed the Euro and Yen as a trade currency, rising to 8.7% of trade financing agreements ƒƒ The dollar still accounts for 81% Follow us | @Transwestern

CAPITAL MARKETS Surprisingly little reaction to the Fed’s “taper-lite” announcement to cut monthly purchases from $85 billion to $75 billion in December. ƒƒ Projected growth and “taper-lite” program are likely to cause upward pressure on interest rates, creating a bumpy year for stocks and bonds ƒƒ Dow Industrials up 27% in 2013 ƒƒ Nasdaq composite up 38% ƒƒ S&P 500 reported 10 sectors up 32%, up 160% from March 2009 low ƒƒ 10-year Treasury rates up 129 bps ƒƒ Bonds fell globally 0.4% in 2013 ƒƒ Inflation has virtually disappeared at 1.2% ƒƒ At year-end, global capital markets had $85 trillion in debt and $62 trillion of equities ƒƒ Companies spent $500 billion buying back their own shares in 2013 Follow us | @Transwestern

COMMERCIAL REAL ESTATE Economic growth should enhance CRE fundamentals, improving cash flow and returns. Despite nearly 100 bps rise in 10-year Treasuries, CRE ended the year with increased volumes and flat or lower cap rates. ƒƒ Much of the recovery has bee based on cap rate compression, due to lower interest rates and better financing – now, improving property cash flows will be critical ƒƒ After a six year period of low interest rates, they are expected to rise modestly in 2014 and beyond ƒƒ More than $350 billion is scheduled to mature over the next three ears ƒƒ $125 million in CMBS loans expected in 2014 ƒƒ Core assets providing annualized returns in excess of 5.0% look very attractive against a Treasury of 2.6%, leading to queues at many established funds ƒƒ Many funds targeting 80%-plus in core assets with some freedom to do new construction or opportunistic on the remaining part of the allocation Follow us | @Transwestern

COMMERCIAL REAL ESTATE, cont. “ Since 2009, the biggest impediment o more sales of troubled assets has been the expected loss banks were taking on the disposal of assets. Today, pricing on performing, sub-performing and non-performing assets has improved dramatically, and the vast majority of banks have the capital and reserves to move assets. In some cases, banks are finding sales of undesired assets to be capital accretive. There have even been whispers from buyers that appraisals on ” assets are too low. Banks that dismissed loan sales two to three years ago should consider taking a second look. The Ban Report (1/9/14) Follow us | @Transwestern

DOWNLOAD THE FULL REPORT: the BRIEFING THE NATIONAL ECONOMY AT A GLANCE the BRIEFING is an aggregation by Tom McNearney, Transwestern chief investment officer, of other articles and reports. Tom leads Transwestern’s capital market efforts for development and investment nationwide. Tom also serves on the firm’s investment committee and board of directors, and he directs the execution and expansion of the firm’s principal investment activities across the country. DISCLAIMER Copyright © 2014 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

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