Introduction to Real Estate Real Estate Finance, Spring, 2018

Overview The real estate Careers in real estate Hotel Industrial/Warehouse Office Retail Multi-family Careers in real estate Acquisitions / Investment Development Financing Leasing Asset / Property Management Other: architecture, design, engineering, environmental, law, planning

IRR coverage, Northern New Jersey IRR Northern NJ Counties: (2012 population) Bergen 919K Essex 787 Hudson 653 Hunterdon 126 Middlesex 823 Mercer 369 Morris 498 Passaic 504 Somerset 328 Sussex 147 Union 544 Warren 108 Total 5,806 NJ Total 7,949 (73%)

Marcus & Millichap coverage, Northern New Jersey M&M Northern NJ Counties: (2012 population) Bergen 919K Essex 787 Hudson 653 Morris 498 Passaic 504 Union 544 Total 3,905 IRR Total 5,806 (67%) NJ Total 7,949 (49%)

Hotels: Limited vs Full Service Limited Service: no dedicated, revenue-producing food and beverage component Low operating costs: no catering services or multiple restaurants. Room rates are typically low: demand is from price-sensitive travelers. Majority target $75 per night or less; higher quality can command a premium. Some extended stay w/ kitchenette etc. Chart and notes from ushotelappraisals.com

47,000 rooms in Northern NJ. Only 430 rooms under construction. Hotels Typical Math: RevPar = Avg Daily Room Rate * Occ Rate = $155 * 0.74 = $114.70 Price/Rm = 365 * RevPar / Cap Rate = 365 * $114.70 / 0.075 = $558,207 47,000 rooms in Northern NJ. Only 430 rooms under construction. Data and charts from Integra Realty Resources Northern New Jersey 2017 mid-year viewpoint (July, 2017)

Industrial, Office, Retail Asking rents are annual per square foot Some simple math* to determine price / ft2 = ( asking rent / ft2 ) * (1.0 – vac rate) / cap rate = ($8.8 / ft2) * (1.0 – 0.097) / 0.065 = $122 / ft2 * To be valid at the building level, this assumes building vacancy rate is the same as the market vacancy rate all tenants are paying current asking rents

Industrial “Pricing levels have exceed $200 / ft2 for well leased, modern facilities” … location matters for rent Data and charts from Integra Realty Resources Northern New Jersey 2017 mid-year viewpoint (July, 2017)

Example Industrial Facility (from Jeff Milanaik)

Notes on Industrial Locations (from Jeff Milanaik)

Industrial Detail Data and charts from Marcus & Millichap Northern NJ Industrial Research Report, 2nd Half 2017

Office Charts from Integra Realty Resources Northern New Jersey 2017 mid-year viewpoint (July, 2017)

Waterfront Corporate Center Class B vs Class A 121 Chanlon Ave 121 Chanlon Ave New Providence: 85% leased, cap rate 8%, $131 psf Waterfront Corporate Center (I think this deal is for this building) 3 Waterfront Plaza, Hoboken: fully leased, cap rate 5.75%, $433 psf Data from Integra Realty Resources Northern New Jersey 2017 mid-year viewpoint (July, 2017)

Office Detail Class A/B/C: $165 / $131 / $123 psf Class A vac rate: 23.4%. Class B,C vac rate: 12.6% Data and charts from Marcus & Millichap Multifamily Office Research Report, 2nd Quarter 2017

Retail Charts from Integra Realty Resources Northern New Jersey 2017 mid-year viewpoint (July, 2017)

Shoppes at North Brunswick Sale price $225 psf Shoppes at Union Hill Sale price $688 psf Shoppes at North Brunswick Sale price $225 psf Data from Integra Realty Resources Northern New Jersey 2017 mid-year viewpoint (July, 2017)

Retail Notes Class A vs. B Top 3 malls (sales psf) Class B sales are struggling / declining Class A malls seen as performing relatively well Top 3 malls (sales psf) Mall at Short Hills: $1,200 psf Garden State Plaza: $775 psf Willowbrook Mall: $740 psf US Shopping Center Classifications and Characteristics: https://www.icsc.org/uploads/research/general/US_CENTER_CLASSIFICATION.pdf On the relationship of Sales and Rents sf (from our own Ray Cirz): https://www.cre.org/wp-content/uploads/2017/04/Retail_Sales_Set_Rent_Levels.pdf Data from Integra Realty Resources Northern New Jersey 2017 mid-year viewpoint (July, 2017)

Retail Detail Data and charts from Marcus & Millichap Multifamily Research Market Report, 3rd Quarter 2017

Multifamily Avg. eff. rent: $1,815 Jersey City: Class C: $2,333 Class A: $3,061 Current cap rates Bergen, Hudson, Union: 5-6 percent Essex, Morris, Passaic: 7-8 percent Avg. price: $155,700 per unit Bergen & Hudson: $209,000 per unit Data and charts from Marcus & Millichap Multifamily Research Market Report, 4th Quarter 2017

Multifamily Unlike office and retail, rents are monthly and are per apartment Effective rent = contract rent less free rent and any other cash allowances Data and charts from Marcus & Millichap Multifamily Research Market Report, 4th Quarter 2017

Careers in Real Estate Real Estate: Land and structures that potentially produce income What makes RE different from finance is focus on location Careers in real estate Development – build or rebuild Leasing – find tenants, affect the income on the property Sales / Acquisitions – new owners that more highly value the cash flows Asset Mgmt / Investment – use cash flows of asset for some purpose Financing – slice up the capital stack to debt/equity Property Management – required operations, if done well boost incomes Other: architecture, design, engineering, environmental, law, planning