Capital MarketsUpdate

Brian StoffersPresidentCBRE Capital Markets

March 30, 2009

CB Richard Ellis | Page 2

This No Longer Looks Like 1990s

-600

-500

-400

-300

-200

-100

0

100

200

300

400-3

6

-32

-28

-24

-20

-16

-12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56

1990s Today

Net # of Jobs Created per Month

# of Months out from Start of Job Losses

Month when negative job growth began…for 2008 this was January.

1990s

2008/09

January 2008

July 1990

Source: CBRE Econometric Advisors (formerly TWR)

CB Richard Ellis | Page 3

Historical Peak Through Recessionary Employment

Recession Period# of Months

in Recession

% Change Peak to Trough

Absolute Change Peak to Trough (Millions)

1920 Q1-1921 Q3 18 -10.5 -2.9

1929 Q3-1933 Q1 43 -24.6 -7.7

1973 Q4-1975 Q1 16 -2.8 -2.2

1980 Q1-1980 Q3 6 -1.3 -1.2

1981 Q3-1982 Q4 16 -3.1 -2.8

1990 Q3-1991 Q1 8 -1.5 -1.6

2001 Q1-2001 Q4 8 -2 -2.7

2007 Q4-? 12… -1.9 to date -2.6 to date

Source: BLS 2009

CB Richard Ellis | Page 4

This Recession is Deeper Already Except for One

-3.5

-3

-2.5

-2

-1.5

-1

-0.5

0

6 12 18 24 30 36 42 48

Months

% C

ha

ng

e in

Em

plo

ym

en

t

1981 Recession 1991 Recession 2001 Recession Current Recession

Source: Bureau of Labor Statistics, Feb 2009

2001 Recession

1981 Recession

1991 Recession

Today

CB Richard Ellis | Page 5

But It Is Not the Depression!

-25

-20

-15

-10

-5

0

10 20 30 40 50 60 70 80 90 100 110 120 130

Months

% C

ha

ng

e in

Em

plo

ym

en

t

Great Depression 1981 Recession 1991 Recession 2001 Recession Current Recession

Source: Bureau of Labor Statistics, Feb 2009

CB Richard Ellis | Page 6

Business-Driven Economy: Succumbs

-5

-4

-3

-2

-1

0

1

2

3

4

5

2005 2006 2007 2008q1 2008q2 2008q3 2008q4

Consumer Driven GDP Business Driven GDP Government Driven GDP

Source: BEA and CBRE Econometric Advisors (formerly TWR)

Contribution to Headline GDP Growth (%)

CB Richard Ellis | Page 7

Layoffs and Dwindling Confidence...

-15

-10

-5

0

5

10

15

202

00

5 M

on

th1

20

05

Mo

nth

3

20

05

Mo

nth

5

20

05

Mo

nth

7

20

05

Mo

nth

9

20

05

Mo

nth

11

20

06

Mo

nth

1

20

06

Mo

nth

3

20

06

Mo

nth

5

20

06

Mo

nth

7

20

06

Mo

nth

9

20

06

Mo

nth

11

20

07

Mo

nth

1

20

07

Mo

nth

3

20

07

Mo

nth

5

20

07

Mo

nth

7

20

07

Mo

nth

9

20

07

Mo

nth

11

20

08

Mo

nth

1

20

08

Mo

nth

3

20

08

Mo

nth

5

20

08

Mo

nth

7

20

08

Mo

nth

9

20

08

Mo

nth

11

Personal Consumption Expenditure, annualized %

Source: CBRE/Econometric Advisors, BEA

...Have Led to Sharply Lower Consumer Spending

CB Richard Ellis | Page 8

…And Higher Personal Savings Rates

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.52

00

5 M

on

th1

20

05

Mo

nth

3

20

05

Mo

nth

5

20

05

Mo

nth

7

20

05

Mo

nth

9

20

05

Mo

nth

11

20

06

Mo

nth

1

20

06

Mo

nth

3

20

06

Mo

nth

5

20

06

Mo

nth

7

20

06

Mo

nth

9

20

06

Mo

nth

11

20

07

Mo

nth

1

20

07

Mo

nth

3

20

07

Mo

nth

5

20

07

Mo

nth

7

20

07

Mo

nth

9

20

07

Mo

nth

11

20

08

Mo

nth

1

20

08

Mo

nth

3

20

08

Mo

nth

5

20

08

Mo

nth

7

20

08

Mo

nth

9

20

08

Mo

nth

11

Personal Savings Rate, 3-month moving average

Source: CBRE Econometric Advisors, BEA

CB Richard Ellis | Page 9

CMBS Spreads…CMBS Spreads

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

Dec

-06

Jan

-07

Feb

-07

Ma

r-07

Ap

r-07

Ma

y-07

Jun

-07

Jul-

07

Au

g-0

7

Sep

-07

Oct

-07

No

v-0

7

Dec

-07

Jan

-08

Feb

-08

Ma

r-08

Ap

r-08

Ma

y-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-0

8

Dec

-08

Jan

-09

Feb

-09

Ma

r-09

AAA (10-Yr.) AA A BBB 10-Year Swap Spread

Source: Citi

CB Richard Ellis | Page 10

U.S. Commercial & Multifamily Outstanding

Source: Mortgage Bankers Association March 2009

BY CAPITAL SOURCETotal $3.5 Trillion

44.3%

21.3%

9.0%

7.8%

5.5%

5.4%4.3%

Commercial Banks CMBS, CDO and other ABS issues

Life Insurance Companies Others

Savings Institutions Government-sponsored enterprises

Agency- and GSE-backed mortgage pools

CB Richard Ellis | Page 11

Source: JP Morgan, Bloomberg Mar. 25, 2009.

Bank Market Cap

CB Richard Ellis | Page 12

Annual Historical Sales by Property Type

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2001 2002 2003 2004 2005 2006 2007 2008

Billions

Multi-Housing Industrial Office Retail

Source: Real Capital Analytics

CB Richard Ellis | Page 13

Quarterly Historical Sales by Property Type

$0

$20

$40

$60

$80

$100

$120

$140

07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4

Billions

Multi-Housing Industrial Office Retail

Source: Real Capital Analytics

CB Richard Ellis | Page 14

Annual Sales Volumes All Core

$99

$149

$213$235 $227

$102

$23

$43

$59$59

$116

$28

$13

$9

$35

$95

$1

$0

$100

$200

$300

$400

$500

2003 2004 2005 2006 2007 2008

annual volume in billions

entity

portfolio

individual

Source: Real Capital Analytics

CB Richard Ellis | Page 15

Potential for Refinance Risk Begins in Earnest in 2010

Source: J.P. Morgan, Trepp.

Market looking out to 2012 refinancing capabilities; significant five-year full-term 10 exposure

10 Year Loans

0

20

40

60

80

100

120

140

2009 2010 2011 2012 2013 2014 2015 2016 2017

Am

ou

nt

to r

efin

ance

($b

n)

Amortizing Partial 10 Full-Term 10

All Loans

0

20

40

60

80

100

120

140

2009 2010 2011 2012 2013 2014 2015 2016 2017

Am

ou

nt

to r

efin

ance

($b

n)

Amortizing Partial I0 Full-Term I0

5 Year Loans

0

5

10

15

20

25

30

2009 2010 2011 2012 2013 2014 2015 2016 2017

Am

ou

nt

to r

efin

ance

($b

n)

Amortizing Partial 10 Full-Term 10

7 Year Loans

0

3

6

9

12

15

2009 2010 2011 2012 2013 2014 2015 2016 2017

Am

ou

nt

to r

efin

ance

($b

n)

Amortizing Partial 10 Full-Term 10

CB Richard Ellis | Page 16

Estimated Quarterly Mortgage Originations

Source: Mortgage Bankers Association

CB Richard Ellis | Page 17

What’s in & What’s Out

IN OUT

On-Book Lending CMBS

Conservative Leverage High Octane Capital Stack

Equity In-Deal Cash Out Financing

Risk Based Pricing Inefficient Pricing of Capital

Correspondent & Relationship Lending Loan Brokerage

High Touch Loan Servicer Securitized/Impersonal Servicer

Amortization- 30 Year Schedule Interest Only

Reserves Funded in Cash No Funded Escrow

450+/- Spreads 100+/- Spreads

Floor Rates Unlimited Float

DCR’s In-Place Proforma DCR’s

Recourse Non-recourse

CB Richard Ellis | Page 18

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46

Months

All

UK

Pro

per

ty,

Mo

nth

ly C

apit

al V

alu

e In

dex

(C

um

ula

tive

%

chan

ge)

From Oct 1989 From June 2007

U.K. Property: Capital Decline is Faster This Time

-35.5%

-27%

-16.0%

Source: IPD Monthly Index (December 2008)

CB Richard Ellis | Page 19

But Not Here!

-11.5%

-32.3%

Source: NCREIF

Cumulative Change in NCREIF NPI Appreciation

-35

-30

-25

-20

-15

-10

-5

0

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Quarters

Cu

mu

lati

ve P

erce

nta

ge

Ch

ang

e

From 1990 Q1 From 2007 Q4

CB Richard Ellis | Page 20

How High Will Institutional Cap-Rates Go?

4

5

6

7

8

9

101

98

4.4

19

86

.2

19

87

.4

19

89

.2

19

90

.4

19

92

.2

19

93

.4

19

95

.2

19

96

.4

19

98

.2

19

99

.4

20

01

.2

20

02

.4

20

04

.2

20

05

.4

20

07

.2

20

08

.4

20

10

.2

20

11

.4

20

13

.2

20

14

.4

Spiral Base

Appraisal based Office Cap-Rate, %

Forecast

In the Financial Spiral scenario, an ineffective government response will spur further pullbacks in debt availability and push cap-rates back to levels seen in 2003 wiping out the decade’s gains for many pension funds.

Source: CBRE Econometric Advisors Investment Outlook Winter 2009, NCREIF

CB Richard Ellis | Page 21

Fundamentals Moving into the Danger Zone

*Except Multifamily and Hotels, which are preliminary

Source: CBRE Econometric Advisors Outlook XL

Vacancy and Availability Rates

2008Q4*Previous

Peak“Natural

Rate”

Office 13.9 17.0 13 to 15

Industrial 11.3 11.8 9 to 10

Retail 10.4 9.7 9 to 10

Multifamily 6.9 6.7 5 to 6

Full Service Hotels 40.1 44.2 34 to 38

CB Richard Ellis | Page 22

Where Are We?

“Too late to sell, too early to buy” …– Sellers have regret but under insufficient pressure to sell at the

moment.– Buyers in no rush

Forced sellers will come from– Balloon refinancing risk – Covenant violation that are enforced

Buyers identifying value– “Wave”, not “Wall” of equity, but only at the right price– Prices on core need to adjust to offer long term value

Return of debt market– When it happens, it won’t look like it did in 2006/7!– Most likely—insurance model

Fundamentals will perform poorly in 09/10.