Houston, TX – May 14-15, 2015
Shared by ULI Charlotte Members

This year’s Spring Meeting featured world-class speakers and facilitated, town hall–style discussions between ULI’s most engaged and distinguished members. There was plentiful networking opportunities, from casual chats in the hallway to formal receptions to unite participants by their interests or career stage.

Rex Noble, Lillibridge Healthcare Services, Inc., Charlotte, NC

From our Health care and Life Sciences keynote speaker during our council meeting we heard from a hospital CEO

• Health care reform continues to shape how health systems operate and shape their health care delivery model. This includes how they manage, own and operate their real estate.
• Health care is a fragmented industry with different objectives for Hospitals, Physicians and Payers (Insurance companies).
• ACA as an insurance bill does not address the core issue, cost of services.
• The current structure has created a shift from volume based to outcome based.
• Shift is to consumer oriented service delivery sites (Primary Care, Emergency Departments, Urgent Care, Retail (Walgreens, Walmart and others), virtual visits).
• Many systems are moving toward a fixed payment model. You pay this and in exchange get this health care service.

Also heard from the Life Science folks:

• Many in the industry are going through a current restructuring and rightsizing.
• Europe is now tied with US for patent treaty applications.
• Asia and Ireland are on the rise as destinations for life science companies.
• Ireland on the rise due to low corporate income taxes.
• Rankings by metro area for Life science companies: 1-Boston; 2-San Francisco; 3-San Diego; 4-Raleigh/Durham; 5-New Jersey/New York City, 6-Los Angeles; 7-Philadelphia, 8-Maryland/ D.C.; 9-Minneapolis/ St. Paul, 10-Seattle

Chad Martin, Element-360, Asheville, NC

“Master planning for residential involves much more than just planning for a heavily amenitized community.”

Dave Chandler, Faison, Charlotte, NC

• Small Scale Development Council heard a good presentation on medical office…that large hospitals are selling off older/more inefficient buildings that don’t make sense.  So perhaps some opportunity there.  Medical is also going in older retail properties that have good parking and convenience to their patient base.
• A retail group was doing new market tax credit projects in areas devoid of food/grocery stores.
• Another group converted a derelict/older golf course in Florida to an industrial development.

Jim Houser, Compass Rose Associates, Inc., Charlotte, NC

Small Scale Development (Silver Flight) – Heard a presentation involving four urban shopping centers in New Orleans.  The message was “rents did not justify construction without subsidy of New Market (and other types of) tax credits.”

Jeff Cernuto, Princeton Communities LLC, Mooresville, NC

Notes from the Residential and Neighborhood Development Council – Gold Flight Meeting

1. Housing hasn’t met forecast from 2006-2014 except in 2012.
2. Bottom of recession nationwide was June 2009 and 6 years later still recovering.
3. Total market value of all National Builders is 55 billion compared to Facebooks value of 755 billion.
4. Housing has not contributed to GDP growth but will eventually.
5. Houston’s job growth in 2014 was 150,000 and in 2015 maybe 10,000.
6. Millennials feel average interest rate is 5% for 30 year loans.
7. Biggest obstacle to buy for millennials (58%) is down payment.
8. 62% of current renters can’t save for down payment.

Overall there was optimism for better things to come in the next couple of years. Any downturn (historically every 7 years) will be buffered by the huge millennial demographic aging out of apartments and transitioning into for sale units.

Charles Teal, Saussy Burbank, Charlotte, NC

PowerPoint from the Community Development Council (Gold Flight) Product Council from Three Hughes Landing.

Ambrose Dittloff, Carocon Corporation, Charlotte, NC

A big turnout at the Multi-Family Product Council due to the strength of our market.  Here are some highlight notes about what our industry leaders and peers are saying:

Market Drivers

• Equity (funds for investment in MF projects)
  • Continuous flow of money from various sources: private, institutional and foreign
  • Longer loan terms being offered with moderate interest rates
• Interest Rates
  • Consensus is that interest rates will not appreciably move until first quarter next year
• Lending (Banks/Government Sponsored Entities – aka GSE)
  • GSE’s have substantial capital to deploy since private lending has come back strong
  • Banks are being more aggressive in lending due to low interest rates
  • Placement of money is moving strongly into secondary markets (Charlotte for example) and non-core assets (garden apartments for example)
• Duration of current cycle
  • Consensus from Developers, Equity and Debt providers is that this current cycle has at least 3 to 5 years remaining due to the following factors

Economy in General

• Steady employment trends continue – 11.7M new jobs created since recession versus 8M jobs lost
• Core retail sales continue a positive trend – more people spending more money on goods
• Core inflation rate is being restrained – no appreciable increase in cost of goods/services
• Risks? No domestic risks to economy on the horizon, however, geopolitical (i.e., Russia) and dollar to other currency risks may be a factor

• Single Family – i.e. displacement of renter to being homeowners
  • Housing market pricing is accelerating meaning that home prices are increasing
  • Restraints on the single family recovery include credit risks of potential buyers, low inventory of homes for sale and home ownership costs remain higher than rental rates
• Rental Drivers
  • 66M “millennials” rent 68% of the time.  This is the single most changed factor driving apartment demand
  • Family formation continues to be delayed.  When Millennials do form families they tend to move to suburban location but continue to rent
  • Suburban apartments are experiencing greater demand, which is driving construction of new units
• New Construction
  • Vacancy remains well below historical averages – 4.5% vs 5.5%
  • Absorption of new units remains strong
  • Demand is outpacing supply
  • 50% of new units were built in just 10 major cities, the remaining 50% of units went to the rest of the US – this translates to continued undersupply of units for most of the country
  • Renter income growth in real dollars (not percentage) remains higher than rental cost growth, so rent increases will continue resulting in the MF market remaining attractive to investors, meaning more building.
• Transactions – the selling and buying of existing MF deals
  • Capitalization rates continue to support high valuations of completed deals – this means that recently completed deals (such as Park/Kingston and Charter’s projects) are being bought at higher prices
  • Percentage of transactions are shifting to non-primary markets (such as Charlotte/ Charleston).  In fact, 50% of transaction volume is now going to non-core markets.

Summary

• Robust Economy
• Millennial preference for renting
• Investor outlook is strong
• Assets continue to be highly valued
• Demand continues to outpace supply

John Porter, Charter Properties, Charlotte, NC

Preparing for any downturn by taking a defensive stance with respect to equity and debt; structuring longer term  (5-7 year) debt, only doing deals with long term equity players who have demonstrated a track record of not selling when things get tight; rejecting bank syndications wherever possible – only do business with who you know; all about control.

There are less contractors doing dense products and they are taking less risk; the dumb tax has been paid and prices are moving up; invest more money in pre-con and increase your contingency for these deals.

Surprising – the number of older applicants coming through the door; beginning to build more, larger units to accommodate the older couple demographic (suburban).

Dick Dickson, Benchmark Advisors, Waynesville, NC

At the Recreation Development Council / Gold Flight we heard from Chris Fair with “Resonance” a firm that does consumer research, visioning, strategic planning, development strategy, and brand strategy to help realize the full potential of developments, destinations and communities.

Some interesting points from his presentation:

Consumer Research – what consumers want most: (Top Three)

1. Smart Phone
2. Work from Home
3. Vacation Home at the Mountain or Beach

Other Points:

• Hybrid Car dropped to number 10 from number 5
• 54% of those who intend to buy a vacation home would drive 400 miles or more.

Also:

There is an initiative within ULI to encourage landowners with large landholdings (as yet undefined but generally agreed to be more than 10,000 acres) to come together at ULI meetings to discuss issues of general interest. To date there have been three meetings of a “Large Landowner Forum”. Among the topics discussed in Houston were the following:

• Endangered Species Act
• Wetland Definitions ie: Waters of the US
• National Environmental Protection Act
• Dealing with Surplus Properties
• Public/Private Partnerships

Also:

High-End recreational real estate is doing well. Yellowstone Club in Big Sky, Montana reports $1 billion in sales over the past 18 months.

Kiawah Island Real Estate closed $48.8 million in sales in April, making it the company’s best month in eight years.