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February 9, 2010

Real Estate Investment Society

2010 and Beyond – Navigating the New Economy

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The information contained herein, while not guaranteed by BB&T Capital Markets, has been obtained from sources which we believe to be reliable and

accurate. This material is not to be considered an offer or solicitation regarding the sale of any security.

Discussions of past performance do not imply a guarantee of future results.

BB&T Capital Markets is a division of Scott & Stringfellow, LLC, member NYSE/SIPC. Scott & Stringfellow, LLC, is a separate, non-bank subsidiary of

BB&T Corporation. Securities and insurance products or annuities sold, offered or recommended are not a deposit, not FDIC insured, not bank guaranteed, not

insured by any federal government agency and may lose value.

Disclaimers

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The Panic of 1907by Robert F. Bruner and Sean D. Carr

1. System Complexity – interconnectivity2. Buoyant Growth – insatiable demand for capital and

liquidity3. Inadequate Safety Buffers – capital and regulatory4. Adverse Leadership – conflicting goals5. Cognitive Bias – that can’t happen6. Real Economic Shock – asset devaluation7. Failure of Collective Action

“History may not repeat itself, but it rhymes.” -Mark Twain

What happened?

4Source: Bloomberg.

Asset Inflation Asset Deflation

Federal Funds Rate

Large Write Downs

Declining Growth

Higher Unemployment

Low Core Inflation

Strong Growth Low

Unemployment

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Jan. '03 Jul. '03 Jan. '04 Jul. '04 Jan. '05 Jul. '05 Jan. '06 Jul. '06 Jan. '07 Jul. '07 Jan. '08 Jul. '08 Jan. '09

2. Declining

Risk Premium

3. Reach for More

Yield

4. Greater

Risk Taking

5. Increase

d Leverage

1. Rising Asset Prices

5. Reduced Leverage

4. Flight to Safety

3. Need for

Liquidity

2. Increasin

g Risk Premium

1. Declining Asset Prices

What happened?

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• Chronic Budget Shortfalls– 46 of the last 50 years

• Freddie Mac / FNMA– Affordable Housing

• Regulators – SarbOx, SEC, FDIC

• Wall Street / Banks– Political Scapegoats– Rating Agencies

• Consumers – over-leveraged– Why not part of the discussion?

Who’s to blame?

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0%

20%

40%

60%

80%

100%

1918 1923 1928 1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008Household debt / GDP Non-corporate Net Private Debt to GDP

The Great Depression

Source: U.S. Census, U.S. Federal Reserve Flow of Funds. Please note non-corporate net private debt is used as a proxy for household debt (going back to 1918) as the Federal Reserve did not begin tracking U.S. household debt until 1950

?

U.S. Household Debt as a Percent of GDP

Who’s to blame?

7Source: Congressional Budget Office; U.S. Department of the Treasury. These figures represent federal debt that is subject to limitations only.

The 2009 Gross Federal Debt is $11.9 trillion, which represents a 29.9% increase since 2007

$40,000 per person - $5,000 increase this fiscal year

~85% of Total

~7.5% of TotalGross Federal Debt

Who’s to blame?

$5,696 $5,883$6,947

$8,115$9,145

$14,341$15,856

$17,456$19,097

$20,639

$11,876

$0

$5,000

$10,000

$15,000

$20,000

$25,000

1999 2001 2003 2005 2007 2009P 2011P 2013P 2015P 2017P 2019P

U.S.

Gro

ss F

edera

l Deb

t ($ b

illion

s)

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Government’s role?

1. Financial System “Bailout”: if we all agree financial system stability is the goal, did we market the solution effectively and did we take the correct steps?

• Bear Stearns / Washington Mutual / AIG / Lehman / Money Markets / Merrill Lynch / Fannie Mae and Freddie Mac / Wachovia

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Government’s role?

2. But did the government’s role in preserving the financial system give them the “opportunity” to take a larger role in the economy?

• Stimulus I and II

• Additional Regulation – FDIC Bankruptcy

• Chrysler, General Motors, GMAC

• Federal Reserve involvement in the debt markets

• Tax Policy – Job Creation

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What lies ahead – is September 2007 a policy initiative?

Are we bucking reality – has the world economy changed and our efforts to date are pretending

that change did not occur?

11Source: U.S. Department of Labor; Bureau of Labor Statistics

U.S. Unemployment Rate and Number of Workers Unemployed

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Une

mpl

oym

ent R

ate

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Num

ber Unem

ployed (millions)

Unemployment Rate Number Unemployed

The Bureau of Labor Statistics reported an unemployment rate of 10.2% for October 2009 – how did jobs get lost and the unemployment rate go down?

The total number of unemployed was approximately 15.7 million.

Over $20 million people received unemployment benefits in 2009.

What lies ahead – is September 2007 a policy initiative?

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01/ 2008 05/ 2008 10/ 2008 03/ 2009 08/ 2009 01/ 201040%40%

60%60%

80%80%

100%100%

120%120%

S&P 500 Russell 2000 NASDAQ DJIA

Source: FactSet, data as of 1/04/10

What lies ahead – is September 2007 a policy initiative?

Historical Index Performance

% Appreciation Since 1/ 2/ 2008Russell 2000 (15.1%)DJIA (18.9%)NASDAQ (11.5%)S&P 500 (21.7%)

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Housing PricesNew – down 17.2% from March 2007 peak

Existing – down 25.6% from July 2006 peak

Source: U.S. Census Bureau, National Association of Realtors

What lies ahead – is September 2007 a policy initiative?

Median Price of Single-family Home Sales

$150,000

$175,000

$200,000

$225,000

$250,000

$275,000

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Existing Homes New Homes

-20%

-10%

0%

10%

20%

30%

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

YOY

Cha

nge

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Home SalesNew – down 74.4% from July 2005 peak

Existing – down 10.0% from June 2005 peak

Source: U.S. Census Bureau, National Association of Realtors

What lies ahead – is September 2007 a policy initiative?

Home Sales

0.01.02.03.04.0

5.06.07.08.0

SAAR

(M)

Existing New

-75%

-50%

-25%

0%

25%

50%

75%

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

YOY

Cha

nge

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Ancillary musings

1. Can we pay our bills – municipal, state, federal? 2. Will any of our economy work in a deflationary

environment – who has the most to lose from deflation?

3. Have we put the fiscal stimulus in place to create

runaway inflation – who has the most to gain from inflation?

4. Have we saved the financial system or is there work to be done?

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5. Can the government function as a profit center, and if so how do they get out (and what about Freddie and Fannie)?

6. Can we long-term de-lever the economy, and do we want to de-lever the economy?

7. Can we structure and regulate the banking system in a manner which minimizes risk but maximizes growth and opportunity – or does it remain a whipping boy?

Ancillary musings

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Final thoughts

8. Course of Action• This has happened before, and it will happen

again - if the financial system is sound and the capitalist system is allowed to work we will recover.

• We have to avoid the inclination to over-regulate and to over-manage – very hard for the politicians.

• The folks who react rationally to the new circumstances are already the winners.

18Source: Bloomberg.

Asset Inflation Asset Deflation

1. Consumer Leverage / Government Leverage

2. Economic Growth – Tax Increases

3. Unemployment – Job Creation

4. Asset Bubble – all assets or just stocks and housing

Large Write Downs

Declining Growth

Higher Unemployment

Low Core Inflation

Strong Growth Low

Unemployment

2. Declining

Risk Premium

3. Reach for More

Yield

4. Greater

Risk Taking

5. Increase

d Leverage

1. Rising Asset Prices

5. Reduced Leverage

4. Flight to Safety

3. Need for

Liquidity

2. Increasin

g Risk Premium

1. Declining Asset Prices

Final Thoughts