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Webinar

What is Happening to Real Estate Values?

Mid-Year 2012 Market Update

July 26, 2012

Webinar - What is Happening to Real Estate Values? Mid-Year 2012 Market Update

Agenda

What is Happening to Real Estate Values

■ Introduction

■ Economic Factors influencing Real Estate Values

■ Real Estate Indices

■ Market Sector Overviews

■ Impact of Credit Markets/Debt on Real Estate Values

■ The Who, What and Where of Current Real Estate Investment Activity

■ Outlook - What to Expect in Second Half of 2012 and Beyond

■ Questions & Answers

2


Today’s Presenters

Marc Shapiro, MAI, MRICS, Managing Director

Mr. Shapiro has over 20 years of experience in all aspects of analysis and valuation

of commercial real estate. He specializes in the valuation of individual properties and

portfolios for financial reporting, lending, estate planning, gifting, partnership issues,

eminent domain, purchase price allocations, ad valorem taxation, litigation support,

public offerings, and portfolio analysis and in providing litigation support related to

valuation issues.

Joseph Suh, Director

Mr. Suh has over 18 years of experience in all aspects of analysis and valuation

for a broad spectrum of commercial property types. His specialties include valuation

and third party appraisal reviews of real estate portfolios for financial reporting, initial

public offerings, purchase price allocation and bankruptcy related issues.

3


Firm Introduction

■ FTI Consulting helps companies and their stakeholders protect and enhance

enterprise value in an increasingly complex legal, regulatory and economic

environment.

■ FTI Real Estate Solutions has a singular focus on the real estate industry and

the capital markets that serve it.

■ Our Strategy, Capital Markets and Implementation platform…..

■ Integrates financial, operating and tax solutions

■ Aligns real estate with business goals

■ Positions real estate to create competitive advantage and enterprise value

■ We represent leading public and private real estate entities including REITs, financial

institutions, investment banks, opportunity funds, insurance companies, hedge funds,

pension advisors and owners/developers.

4


Integrated solutions for companies and creditors with underlying value in real estate

Real Estate Solutions: Value Proposition

− 5 −

Vision - We see real estate as a strategic asset that

creates competitive advantage and maximizes

enterprise value.

Expertise - We leverage our deep history in real

estate investment and restructuring, operations,

valuation, tax, due diligence and underwriting to

create integrated financial, operating and tax

solutions.

Experience - We structure and restructure asset,

portfolio and operating company transactions and

business plans, plan for tax and private wealth

events, and source debt and equity financing.

Relationships - We have discreet access across

the capital markets and strong relationships with

strategic investors and operators.


Representative Clients & Assignments

− 6 −

INVESCO

http://images.google.com/imgres?imgurl=http://born-and-raised.com/images/logos_6_gale.jpg&imgrefurl=http://born-and-raised.com/logos.htm&usg=__Mfj9FAj0l7Hy44PGlZ3LG3mLBmg=&h=341&w=567&sz=28&hl=en&start=8&um=1&tbnid=IWMvpAuOWUFdCM:&tbnh=81&tbnw=134&prev=/images?q=Gale+International+Songdo+logo&um=1&hl=en&rlz=1T4GGIH_enUS248US282

http://www.ml.com/

http://images.google.com/imgres?imgurl=http://www.geekpedia.com/gallery/fullsize/Microsoft Wallpaper.png&imgrefurl=http://portokalada.com/web/tag_base_search.php?page=4&name_string=content_tag&keyword=greece news&usg=__p8nu3XHB3rtoxZzV8i89jS4BMEE=&h=600&w=800&sz=140&hl=en&start=9&tbnid=b_0NqZJ9EqvjgM:&tbnh=107&tbnw=143&prev=/images?q=microsoft&gbv=2&hl=en

http://images.google.com/imgres?imgurl=http://www.kipnesslaw.net/images/clients/ThorEquitiesLogo3.jpg&imgrefurl=http://www.kipnesslaw.net/clients.html&usg=__1wrpYtLr5KvyA9MVv21iMj07N1c=&h=150&w=150&sz=32&hl=en&start=5&um=1&tbnid=xw-0HPmtZBrvpM:&tbnh=96&tbnw=96&prev=/images?q=thor+equities+logo&um=1&hl=en&rlz=1T4GGIH_enUS248US282

http://images.google.com/imgres?imgurl=http://www.unions.org/home/logos/J.P._ Morgan_Chase_&_Co._logo.jpg&imgrefurl=http://www.unions.org/home/unioncompanies.php&usg=__WltW_c7iTMsWGbLkepcPyxglENg=&h=120&w=120&sz=14&hl=en&start=4&tbnid=WI01xW3S6AjpkM:&tbnh=88&tbnw=88&prev=/images?q=JP+Morgan+logo&gbv=2&hl=en

http://images.google.com/imgres?imgurl=http://www.jdrf.org/images/General_Images/Chapters_and_Affiliates/long_island_chapter/SLGreen_logo.jpg&imgrefurl=http://www.jdrf.org/index.cfm?page_id=101271&usg=__MfVqHQMPDv96NN48deuiLXrv-BM=&h=170&w=487&sz=13&hl=en&start=1&um=1&tbnid=NZvXmJJOvFPNHM:&tbnh=45&tbnw=129&prev=/images?q=SL+Green+logo&um=1&hl=en

http://images.google.com/imgres?imgurl=http://www.vno.com/graphics/V2/home/vno_home_logo2.gif&imgrefurl=http://www.vno.com/&usg=__uXC342vpvJJ5R_bKJ_Rg6ysip-4=&h=74&w=215&sz=2&hl=en&start=1&um=1&tbnid=yHcVs7v4V6IwnM:&tbnh=36&tbnw=106&prev=/images?q=Vornado+logo&um=1&hl=en&rlz=1T4GGIH_enUS248US282

http://images.google.com/url?q=http://www.naiopma.org/DV/Pages/images/Gavel/Beacon Capoital Jan 2008.GIF&usg=AFQjCNFRhvNUxIkZ2IfqxXqk5fGMh4mjhA

http://www.brickmanre.com/index.html

http://www.draadvisors.com/index.aspx

http://www.normandyrealty.com/NormandyCorporate/LinkClick.aspx?link=37&tabid=97

http://www.stonehengepartners.com/index.php

http://tishmanspeyer.com/index.aspx

http://www.tdbank.com/default.aspx

http://images.google.com/imgres?imgurl=http://www.jvsla.org/images/arden_realty_logo.gif&imgrefurl=http://www.jvsla.org/sevent_annual_event.html&usg=__o_AmhadhbWQJ7bRcVjmvjDzwY9Y=&h=325&w=200&sz=7&hl=en&start=1&um=1&tbnid=ZrqQTXpUev_3XM:&tbnh=118&tbnw=73&prev=/images?q=Arden+Realty&um=1&hl=en&rlz=1T4GGIH_enUS248US282

http://www.fairfield-residential.net/index.php


Market Survey

Below are several polling questions that will pop up on your screen momentarily. We would

appreciate your answering these at any point during the webinar. Once you have submitted

your responses, the polling question window will close to allow you a full-screen view of the

slides.

■ Which risk factor presents the greatest risk to future real estate values?

■ Which locations possess the greatest and least potential for value growth?

■ Which asset classes possess the greatest and least potential for value growth?

■ How long do you think it will be before we reach "normal" market activity?

■ Which will present the greatest issue for real estate market values during the time it takes

to achieve “normal” market activity?

■ What are your viewpoints regarding access to capital over the next 12 months?

We will get back to attendees of this webinar with the results of our survey. Thanks for

joining us today and for your participation in the survey.

7

Economic Factors Influencing

Real Estate Values



Economic Factors Influencing Real Estate Values

■ The economy grew at a 1.9% annualized pace during 1Q12.

■ Gains in GDP were driven by positive contributions from personal consumption, equipment and

residential investment, offsetting weakness in government spending.

GDP

Source: Bureau of Labor Statistics

Annualized GDP Growth Rate (1Q 2002- 1Q 2012)

9

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12



■ ISM manufacturing sector contracted for the first time since April 2009.

■ The Purchasing Manager’s Index fell 3.8 percentage points in June.

■ Economists see the pace of manufacturing activity under pressure for the remainder of 2012.

Institute for Supply Management Index

10

ISM PMI Index (July 2011 – June 2012)

49.0

50.0

51.0

52.0

53.0

54.0

55.0

Jul 11 Aug 11 Sept 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12



■ Job growth during 2Q12 was the weakest since 3Q10.

■ The unemployment rate remained at 8.2% in June, the 41st consecutive month above the 8.0%

threshold.

Labor Market Conditions – Unemployment Rate

U.S. Unemployment Rate


11

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12



Labor Market Conditions – Employment Recoveries


12

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

-30 -24 -18 -12 -6 Low Point 6 12 18 24 30 36 42 48 54 60

Perc

ent

of

Jo

bs L

ost fr

om

Pre

-Recessio

n P

eak

Months since Employment Low Point

Comparison of Employment Recoveries - Current vs. Prior Recessions

October 1948 to July 1950 August 1953 to June 1955 May 1957 to April 1959May 1960 to December 1961 August 1974 to February 1976 August 1981 to November 1983July 1990 to February 1993 March 2001 to February 2005 January 2008 to ???



■ Job gains were widespread among industries within the private sector, but the public sector

continued to shed positions.

Labor Market Conditions – Employment Growth

U.S. Non Farm Employment Growth (in thousands)


13

-800

-600

-400

-200

0

200

400

600

Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12

Tho

usand

s

21 consecutive months of positive job growth, but

a slowdown during 2Q12



■ Job gains in the office-using employment sector (professional & business services, financial activities

and information) have outpaced broader job gains since job growth turned positive.

Labor Market Conditions – Office-Using Employment Growth

U.S. Non Farm vs. Office-Using Employment Y-O-Y Growth


14

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%Ja

n-0

8

Ma

r-0

8

Ma

y-0

8

Ju

l-0

8

Se

p-0

8

No

v-0

8

Ja

n-0

9

Ma

r-0

9

Ma

y-0

9

Ju

l-0

9

Se

p-0

9

No

v-0

9

Ja

n-1

0

Ma

r-1

0

Ma

y-1

0

Ju

l-1

0

Se

p-1

0

No

v-1

0

Ja

n-1

1

Ma

r-1

1

Ma

y-1

1

Ju

l-1

1

Se

p-1

1

No

v-1

1

Ja

n-1

2

Ma

r-1

2

Ma

y-1

2

Total Non-Farm Employment Office-Using Employment



Unemployment Rates by State

Seasonally adjusted, May 2012

U.S. Rate = 8.2 percent

Source: Bureau of Labor Statistics, Local Area Unemployment Statistics

10% and over

8.0% to 9.9%

7.0% to 7.9%

6.0% to 6.9%

Less than 6.0%

15



■ Consumer confidence fell for the fourth consecutive month in June.

■ The June reading is 8.7 points lower than the January reading.

Consumer Confidence

Source: Bureau of Labor Statistics and the Conference Board

16

0.00

20.00

40.00

60.00

80.00

100.00

120.00

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

3Q02 2Q03 1Q04 4Q04 3Q05 2Q06 1Q07 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 2Q12

Co

nsu

me

r C

onfid

en

ce

Un

em

plo

ym

ent R

ate

Unemployment Consumer Confidence



AIA Architecture Billings Index (ABI)

17

■ The ABI declined significantly in May to 45.8.

■ Billings are mirroring the trend set in 2011, when a slowdown in spring activity occurred.



■ Household debt service ratio (DSR) has declined for 12 consecutive quarters.

■ The current DSR reading of 11.0 is approximately 15.0% lower than the moving average of 13.0

recorded from 2000 to 2011.

Income Levels: Debt Service Ratio

Source: The Federal Reserve

18

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12

DS

R

2000-2011 Average



■ Overall disposable personal income levels continue to rebound.

■ The personal savings rate declined to 3.7% during 1Q12 from 4.2% a quarter earlier and 5.0% a year

earlier, respectively, but has since increased to 3.9% as of May 2012.

Income Levels: Disposable Personal Income vs. Personal Savings Rate

Disposable Personal Income (Billions) vs. Personal Savings Rate

Source: Bureau of Economic Analysis

19

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

$10,600

$10,800

$11,000

$11,200

$11,400

$11,600

$11,800

$12,000

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12

Pers

on

al S

avin

gs R

ate

Dis

posable

Pers

onal In

com

e

Disposable Personal Income Personal Savings Rate



Retail – Historic Sales

20

Source: Department of Commerce

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$195

$205

$215

$225

$235

$245

$255

$265

$275

$285

$295

Auto

& G

as S

ale

s (

Bill

ions)

Reta

il S

ale

s (

Bill

ions)

Monthly Retail Sales

Retail Auto Gas



■ The average sale price of an existing home increased to $182,600 in May, a 7.9% increase from the

prior year. Year over year prices appreciated by the largest amount in the West and the smallest in

the Northeast.

State of the Housing Market – Existing Home Sale Prices

21

Median Existing Home Sale Prices

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

May 2

011

Jun 2

011

Jul 2

011

Aug

2011

Sep

2011

Oct 2011

No

v 2

011

Dec 2

011

Jan 2

012

Feb

2012

Mar

2012

Ap

r 2012

May 2

012

U.S. Northeast Midwest South West


■ Although the pace of existing home sales fell 1.5% in May to 4.55 million units, it is 9.6% above the

pace set a year earlier. The decrease was likely due to supply constraints, not softening demand.


Existing Home Sales Annualized-Months Supply

Source: National Association of Realtors

Existing Annualized Home Sales vs. Monthly Supply

22

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

3,700,000

3,800,000

3,900,000

4,000,000

4,100,000

4,200,000

4,300,000

4,400,000

4,500,000

4,600,000

4,700,000

May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12

Mo

nth

s S

up

ply

An

nualize

d H

ousin

g S

ale

s

Existing Annualized Home Sales Months Supply



NAHB/ Wells Fargo Housing Market Index

23

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

10

20

30

40

50

60

70

80

90

100

May-02 May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12

Housing Market Index

Single-Family Starts

NAHB/Wells Fargo Housing Market Index (HMI) and New Single-Family Starts

Source: NAHB/Wells Fargo Housing Market Index U.S. Census Bureau

Ho

usin

gM

ark

et

Ind

ex

New

Sin

gle

-Fam

ily S

tarts

(in th

ousands o

f units

)

■ In June, homebuilder confidence increased within the NAHB/Wells Fargo Market Index to its

highest point since May 2007 as more buyers seek to capitalize on low prices and interest rates.

Real Estate Indices



Real Estate Indices

FTSE NAREIT U.S. Real Estate Index

Source: NAREIT

25

Through the first six months of 2012, the FTSE NAREIT All Equity REIT Index returned 14.9%,

eclipsing the 8.3% gain during 2011, but still lagging the 28.0% annual gains recorded in both 2009

and 2010. The retail and industrial sectors have yielded the greatest returns so far in 2012.

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Industrial Of f ice Retail Apartments Lodging/Resorts

FTSE NAREIT All Equity REIT Peformance by Subsector

2010 2011 2Q12


Real Estate Indices

■ FTSE NAREIT Equity REITS have outpaced other leading stock indices since 2009.

■ Since 2009, FTSE NAREIT Equity REITS have returned 19.8%, the highest among the indices

analyzed, outpacing the DJIA (10.2%) , Russell 2000 (13.2%), S&P 500 (13.3%) by comfortable

margins. The NASDAQ returned 17.9% during this period.

Equity REIT Returns Outperforming Leading Indices

26

Index 2005 2006 2007 2008 2009 2010 2011 2Q12 2009-2Q12 avg

Equity REIT 12.2% 35.1% -15.7% -37.7% 28.0% 28.0% 8.3% 14.9% 19.8%

Russell 2000 4.6% 18.4% -1.6% -33.8% 27.2% 26.9% -4.2% 2.7% 13.2%

NASDAQ 1.4% 9.5% 9.8% -40.5% 43.9% 16.9% -1.8% 12.7% 17.9%

S&P 500 4.9% 15.8% 5.5% -37.0% 26.5% 15.1% 2.1% 9.5% 13.3%

DJIA -0.6% 16.3% 6.4% -33.8% 18.8% 11.0% 5.5% 5.4% 10.2%

Source: NAREIT


Real Estate Indices

■ U.S. REITS raised $33.2 billion during the first half of 2012, putting them in position to improve on

the record $51.3 billion raised last year.

Total Capital Raised by REITS

Source: NAREIT

27

Total Capital Raised by REITS (in billions)

$15

$20

$25

$30

$35

$40

$45

$50

$55

2004

2005

2006

2007

2008

2009

2010

2011

2Q

12


Real Estate Indices

■ NCREIF reported a ninth consecutive quarter of positive growth during 1Q12.

■ Prices have rebounded 21% since bottoming in 1Q10, but still remain 14% below their peak.

NCREIF: Total Returns by Property Type

28

* Annualized based on 1Q 2012 data

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2006 2007 2008 2009 2010 2011 2012*

Apartment Industrial Of f ice Retail Hotel


Real Estate Indices

■ Although returns are down from the prior few quarters, they still exceed the ten-year average of 2.0%

NCREIF: Total Returns by Region

29

* Annualized based on 1Q 2012 data

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2006 2007 2008 2009 2010 2011 2012*

South West Midwest East


Real Estate Indices

■ Overall NOI growth increased 4.6% in 1Q12, led by the 11.4% return within the apartment sector.

■ Since 1Q08, NOI growth within the apartment sector has outpaced all other sectors with an average

return of 5.7%, followed by office (1.3%) and retail (0.9%). Negative industrial NOI growth was

recorded.

NCREIF: NOI Growth by Property Type (rolling 4 Quarter)

30

Rolling Four-Quarter Total, excluding hotels

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1Q08 1Q09 1Q10 1Q11 1Q12

Apartment Industrial Of f ice Retail Avg NOI Growth


Real Estate Indices

■ All regions recorded positive NOI growth in 1Q12, led by an 8.0% gain in the Midwest.

NCREIF: NOI Growth by Region (rolling 4-Quarter)

31

Rolling Four-Quarter Total, excluding hotels

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1Q08 1Q09 1Q10 1Q11 1Q12

South West Midwest East


Real Estate Indices

Moody’s /Real Commercial Property Price Index (CPPI)

32

100

110

120

130

140

150

160

170

180

190

Ma

y 2

00

1

Se

p 2

00

1

Ja

n 2

00

2

Ma

y 2

00

2

Se

p 2

00

2

Ja

n 2

00

3

Ma

y 2

00

3

Se

p 2

00

3

Ja

n 2

00

4

Ma

y 2

00

4

Se

p 2

00

4

Ja

n 2

00

5

Ma

y 2

00

5

Se

p 2

00

5

Ja

n 2

00

6

Ma

y 2

00

6

Se

p 2

00

6

Ja

n 2

00

7

Ma

y 2

00

7

Se

p 2

00

7

Ja

n 2

00

8

Ma

y 2

00

8

Se

p 2

00

8

Ja

n 2

00

9

Ma

y 2

00

9

Se

p 2

00

9

Ja

n 2

01

0

Ma

y 2

01

0

Se

p 2

01

0

Ja

n 2

01

1

Ma

y 2

01

1

Se

p 2

01

1

Ja

n 2

01

2

Ma

y 2

01

2

Ind

ex,

De

c 2

00

0 =

10

0

Moodys/REAL Commercial Property Price Index (CPPI) National Index - All Properties


Real Estate Indices

Moody’s /Real Commercial Property Price Index (CPPI) continued

33

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Ma

y 2

00

7

Au

g 2

00

7

No

v 2

00

7

Fe

b 2

00

8

Ma

y 2

00

8

Au

g 2

00

8

No

v 2

00

8

Fe

b 2

00

9

Ma

y 2

00

9

Au

g 2

00

9

No

v 2

00

9

Fe

b 2

01

0

Ma

y 2

01

0

Au

g 2

01

0

No

v 2

01

0

Fe

b 2

01

1

Ma

y 2

01

1

Au

g 2

01

1

No

v 2

01

1

Fe

b 2

01

2

Ma

y 2

01

2

Moody's/REAL CPPI: Monthly Value Changes

National Market Sector Overviews




Historical Vacancy vs. Asking/Effective Rental Rates

Source: REIS

Office - Vacancy vs. Rental Rates

35

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

$18.00

$20.00

$22.00

$24.00

$26.00

$28.00

$30.00

2004 2005 2006 2007 2008 2009 2010 2011 2Q12

Asking Rent Ef fective Rent Overall Vacancy Rate



Source: CoStar

Office – Net Absorption

36

(1.5) (1.0) (0.5) 0.0 0.5 1.0 1.5 2.0 2.5 3.0

Northern New Jersey

Cleveland

Westchester/So Connecticut

Minneapolis

Long Island (New York)

Washington

Detroit

Philadelphia

San Francisco

Orange County (California)

Dallas/Ft Worth

Los Angeles

Chicago

Boston

New York City

Phoenix

Seattle/Puget Sound

Denver

Atlanta

Houston

Millions of Square Feet

YTD Net Absorption in Largest 20 Office Markets



Source: CoStar

Office – Vacancy

37

20.3%

18.7%

16.1%

16.1%

15.4%

14.5%

13.5%

13.4%

12.5%

12.5%

12.4%

12.3%

12.2%

11.3%

11.0%

10.8%

10.5%

9.1%

8.5%

7.1%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Phoenix

Detroit

Atlanta

Dallas/Ft Worth

Northern New Jersey

Chicago


Washington

Cleveland

Los Angeles


Denver

Houston

Philadelphia

San Francisco

Seattle/Puget Sound

Boston

Minneapolis


New York City

Vacancy Rate in 20 Largest Office Markets



Source: CoStar

Office – Flight to Quality

38

(23.1)

9.9

34.4

66.0 68.8 69.8

52.0

17.5 (2.7)

16.7 32.1

15.9

(29.9)

(1.5)

11.9

40.2

72.9 63.7

37.3

16.1

(24.1)

5.9

16.7

9.5

(100.0)

(50.0)

0.0

50.0

100.0

150.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD 2012

Net S

F A

bso

rbed

(M

illio

ns)

Historic Net Absorption - Class A vs. Class B Office Space

Class A Class B



Historical Vacancy vs. Asking Rental Rates

Source: REIS

Industrial - Vacancy vs. Rental Rates

39

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

$3.60

$3.80

$4.00

$4.20

$4.40

$4.60

$4.80

$5.00

$5.20

2004 2005 2006 2007 2008 2009 2010 2011 2Q12




Source: CoStar

Industrial – Net Absorption

40

-1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0


West Michigan

Minneapolis

Indianapolis

Cincinnati

Milwaukee

Boston

Charlotte


Los Angeles

Northern New Jersey

Cleveland

Inland Empire (California)

Detroit

Philadelphia

Atlanta

Seattle/Puget Sound

Houston

Dallas/Ft Worth

Chicago


YTD Net Absorption in Largest 20 Industrial Markets



Source: CoStar

Industrial – Vacancy

41

12.7%

12.3%

12.2%

10.9%

10.6%

9.5%

9.4%

9.3%

8.9%

8.5%

8.1%

7.5%

6.9%

6.8%

6.7%

6.3%

5.7%

5.7%

5.1%

5.1%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Charlotte

Atlanta

Detroit

Boston

Chicago

Dallas/Ft Worth

Cincinnati

Northern New Jersey

Philadelphia

Cleveland

West Michigan

Milwaukee

Indianapolis


Minneapolis

Seattle/Puget Sound



Houston

Los Angeles

Vacancy Rate in 20 Largest Industrial Markets



Source: REIS

Retail - Vacancy vs. Rental Rates


42

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

$15.00

$15.50

$16.00

$16.50

$17.00

$17.50

$18.00

$18.50

$19.00

$19.50

$20.00

2004 2005 2006 2007 2008 2009 2010 2011 2Q12




Retail – Absorption

43

Source: CoStar

-0.5 0.0 0.5 1.0 1.5 2.0 2.5

Los Angeles


Northern New Jersey


Orlando

Denver

Cleveland

Chicago

Minneapolis

Houston

Washington


Detroit

Atlanta

Tampa/St Petersburg

Philadelphia

Seattle/Puget Sound

Phoenix

Boston

Dallas/Ft Worth


YTD Net Absorption in Largest 20 Retail Markets



Retail – Vacancy

44

Source: CoStar

11.8%

10.2%

10.1%

8.8%

8.6%

8.4%

8.2%

7.3%

7.1%

6.8%

6.8%

6.5%

6.2%

6.0%

5.8%

5.3%

5.1%

4.8%

4.7%

4.4%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Phoenix

Detroit

Atlanta


Dallas/Ft Worth

Chicago

Cleveland

Orlando

Denver

Northern New Jersey

Tampa/St Petersburg

Houston

Philadelphia


Seattle/Puget Sound

Minneapolis

Los Angeles


Washington

Boston

Vacancy Rate in Largest 20 Retail Markets



National Multi Housing Council Index Trends

45

■ Apartments markets are tightening and sales volume is on the rise, but activity is off 2011 highs.

0

20

40

60

80

100

National Multi Housing Council Index Trends

Market Tightness Index Sales Volume Index

Baseline



Multi-Family - Vacancy vs. Rental Rates


Source: REIS

46

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

$800

$850

$900

$950

$1,000

$1,050

$1,100

2004 2005 2006 2007 2008 2009 2010 2011 2Q12

Asking Rent Effective Rent Overall Vacancy Rate



Multi-Family – Absorption vs. Completion

Source: REIS

47

-50

0

50

100

150

200

250

0

20

40

60

80

100

120

140

160

180

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Net

SF

Ab

so

rbed

(T

ho

usan

ds)

Un

its C

om

ple

ted

(T

ho

usan

ds)

Multi-Family - Units Completed vs. Net SF Absorbed

Units Completed Projected Units Complete Net Absorption



Multi-Family – Revenue vs. Rental Rates

Source: REIS

48

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Reven

ue p

er

Un

it

% c

han

ge i

n A

skin

g a

nd

Eff

ecti

ve R

en

ts

Multi-Family - Revenue per Unit vs. Changes in Asking and Effective Rents

Gross Revenue/Unit Gross Revenue/Unit Projected Asking Rent % Change Effective Rent % Change



49

Multi-Family - Owner vs. Renter Occupied Units

Source: U.S. Census Bureau

■ Despite accounting for roughly 2/3 of occupied housing units, the percent of owner-occupied

units continues to decline due to shifting demographics and an uncertain economy.

(750)

(550)

(350)

(150)

50

250

450

650

850

1050

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12

(tho

usand

s)

Owner Renter

Change in Owner vs. Renter Occupied Housing Units

Impact of Credit Markets/Debt on

Real Estate Values



Impact of Credit Markets/Debt on RE Values

State of CMBS Industry

Source: Morningstar

51

■ CMBS figures point to market volatility with delinquent balances and rates increasing as of the

latest data.

7.00%

7.20%

7.40%

7.60%

7.80%

8.00%

8.20%

8.40%

8.60%

8.80%

$56

$57

$58

$59

$60

$61

$62

$63

$64

May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12

($ B

illiio

ns)

CMBS Delinquency Balance vs. CMBS Delinquency Percentage

CMBS Delinquency Balance CMBS Delinquency %



■ CMBS issuances are projected to register $36.4 billion in 2012 according to the latest data.

CMBS Issuances

U.S. CMBS Issuances

Source: Commercial Mortgage Alert * Data annualized as of June 2012

52

$0

$40

$80

$120

$160

$200

$240

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

($ B

illio

ns)



■ 1Q12 commercial and multi-family mortgage loan originations were 36.0% higher than during the

same period last year, but 12.0% lower than in the previous quarter.

Commercial Lending

Commercial/Multifamily Mortgage Bankers Originations Index 2001 Quarterly Average = 100

53

$7.0

$8.0

$9.0

$10.0

$11.0

$12.0

$13.0

$14.0

$15.0

$16.0

$17.0

0

60

120

180

240

300

360

Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112

(millions)

MB

A O

rig

ina

tio

ns In

de

x

MBA Orginations Index Avg Loan Size



Commercial Lending by Property Type

Commercial/Multifamily Mortgage Bankers Originations Index

2001 Quarterly Average = 100

54

0

50

100

150

200

250

300

350

400


Multi-Family Office Retail Industrial Hotel

The Who, What and Where of Current

Real Estate Investment Activity



Current Real Estate Investment Activity

Dollar Volume by Property Type

Source: Real Capital Analytics

56

Investment Sale Activity

2012 Data annualized based on totals through May 2012

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Apartment Retail Of f ice Industrial Hotel

(mill

ions)

2010 Dollar Volume 2011 Dollar Volume 2012 Annualized Dollar Volume

■ Based on May 2012 data, investment sales are projected to register $193 billion in 2012, which is

down 12.0% from 2011 totals.

■ Although market activity registered the second highest total of 2012 in May, it was the first year-

over-year decline in sales activity since late 2009.



Historic Sales Activity

*Annualized totals based on data through May 2012 Source: Real Capital Analytics

57

$0

$100

$200

$300

$400

$500

$600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Bill

ions o

f D

olla

rs

Annual Sales Volume versus Average Sales Volume

Average

■ The 2012 pace of sales is off the 2011 pace, but on track to reach the 2001 to 2011 average.



■ 24-hour gateway cities located along global trade routes offering barriers to entry, excellent

transportation infrastructure and highly educated labor pool.

■ Manhattan, Los Angeles, Chicago, San Francisco, Dallas and Seattle rank as favorable markets for

commercial/multifamily investment.

■ Secondary cities and most tertiary markets are beginning to attract the attention of cautious investors

who are seeking opportunistic and value plays.

Favored U.S. Locations

58

Market Sales Volume

(billions)

Manhattan $9.72

Los Angeles $5.72

Chicago $4.99

San Francisco $4.13

Dallas $3.11

Seattle $2.96

Boston $2.89

Phoenix $2.73

Houston $2.71

Atlanta $2.50

Source: RCA: data through May 2012

Sales Volume: All property Types



Active Investor Profiles as per Real Capital Analytics

Summary of Transactions by Buyer

Source: Real Capital Analytics

59

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70


($ B

illio

ns)

Crossborder Inst'l/ Equity Fund Listed Funds/REITs Private User/other Unknown



■ The PwC Real Estate Barometer indicates that market fundamentals within the office, industrial and

retail sectors still remain challenged by steady economic growth.

■ Unlike the other primary sectors, the majority of multi-family assets are in recovery/expansion mode.

PwC 2Q12 Investor Highlights

60

21.40%

47.50%

31.10%

Expansion Recovery Recession

7.70%

28.60%

63.80%


9.60%

90.40%

Recovery Expansion

2012 Office 2012 Retail

2012 Industrial

12.30%

29.70%

58.00%


2012 Multi-Family



PwC Cap Rate Survey

61

5.50%

5.75%

6.00%

6.25%

6.50%

6.75%

7.00%

7.25%

7.50%

7.75%

8.00%

8.25%

8.50%

8.75%

9.00%

9.25%

9.50%

3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12

Flex/R&D Warehouse CBD-Office Suburban- Office

Apartment Strip Center Regional Mall Power Center

■ Cap rates (OAR’s) declined in 21 markets, increased in three and held steady in eight in 2Q12.

■ Since 2Q11, the simple OAR has declined 18 basis points to 7.22%.

Source: PwC 2Q 2012 Investor Survey



PwC Investment Rate Survey

Real Estate Investment Rates vs. Moody’s Corporate BAA Bond and 10-Year Treasury Yields

Source: PwC 2Q 2012 Investor Survey, St. Louis Federal Reserve

62

■ Overall cap rates, terminal cap rates and discount rates declined during 2Q12 after rising for the

first time in eight consecutive quarters across all property types.

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%

9.50%

10.00%

2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12

Overall Cap Rate Terminal Cap Rate Discount Rate Moody's Corporate BAA Yield 10-YR Treasury Yield



PwC Investment Rate Survey continued

Spreads: Real Estate Investment Rates vs. BAA Corporate Bond Yield


63

-200

-100

0

100

200

300

400

4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12

BP

S

Overall Cap Rate Terminal Cap Rate Discount Rate

■ Although recovery remains sluggish and imbalanced, the majority of surveyed PwC investors still

view commercial real estate as a favorably priced asset compared to other investment vehicles.



PwC Investment Rate Survey continued

Spreads: Real Estate Investment Rates vs. 10-Year Treasury Yield


64

200

250

300

350

400

450

500

550

600

650

700

2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12

BP

S

Overall Cap Rate Terminal Cap Rate Discount Rate

■ The upward trend in spreads since 1Q11 is being driven by the continued declines in Treasury

yields as the flight to quality and safety among investors is evident.

Outlook



Trends and Opportunities

Outlook

■ Little movement in cap rates expected in the short term for all property types due to economic

uncertainty both domestically and globally.

■ The multi-family sector continues as the best performing sector, while recovery in the

commercial sectors is slowed by sluggish job growth.

■ Although investors begin favoring secondary and tertiary markets for value-oriented deals, a

sizeable gap in the demand for trophy vs. lower-end assets still exists.

■ The number of distressed assets continue to decline, but these numbers are still weighing

down leading commercial real estate indices.

■ CMBS markets will be challenged in the near term due to market volatility and the European

debt crisis.

■ After raising a record amount of equity in 2011, will REITs ramp up acquisitions?

■ Government regulations/policies and politics contribute to the uncertainty and risk.

■ The latest reading from the ABI suggests another possible dip in commercial real estate

investment towards the end of this year and into 2013.

66


Outlook

Property Sector Positives Concerns

Office

Industrial

Retail

Multi-Family

Low Supply

CBD fundamentals

Primary Market Recovery

Job Growth

Suburban Fundamentals

Secondary/Tertiary Market Recovery

Low Supply

Leading U.S. Coastal Ports

Big Box Warehouse Demand

High Vacancy Rates Limit Pricing Power

Flex/R&D Space Demand

Recent Manufacturing Report

Low Supply allows for Absorption

Regional Mall Growth

Grocery Anchored Centers

Consumer Spending/Economy

Growing E-Commerce

Tenant Contractions/Store Closings

Steady Demand Drivers

Household Formation Starts Recovery

Historically Low Supply

Housing Affordability Continues to Grow

Rental Rate Pullback after Growth?

High Unemployment restricts Households

67


Property Market Fundamental Forecast

Outlook

68

OFFICE 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 2012 2013

Vacancy Rate 16.20% 16.20% 16.10% 16.00% 15.90% Office 16.2% 15.8%

Net Absorption ('000 sf) 4,794 7,989 6,125 10,086 12,008 Industrial 11.0% 10.7%

Completions ('000 sf) 5,650 2,775 6,575 9,550 8,760 Retail 11.2% 10.7%

Rent Growth 0.50% 0.50% 0.60% 0.60% 0.70% Multifamily 4.4% 4.3%

INDUSTRIAL 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 2013

Vacancy Rate 10.80% 10.80% 10.80% 10.70% 10.70% Office 2.0% 2.5%

Net Absorption ('000 sf) 11,036 10,153 11,853 18,715 16,843 Industrial 1.6% 2.4%

Completions ('000 sf) 9,846 2,981 8,125 19,574 18,375 Retail 0.8% 1.3%

Rent Growth 0.40% 0.70% 0.60% 0.60% 0.70% Multifamily 4.0% 4.1%

RETAIL 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 2013

Vacancy Rate 11.00% 10.80% 10.80% 10.70% 10.70% Office (sf) 24,676,000 48,030,000

Net Absorption ('000 sf) 2,162 1,921 4,594 6,125 5,469 Industrial (sf) 44,143,000 62,382,000

Completions ('000 sf) 876 2,130 5,260 4,411 2,150 Retail (sf) 8,005,000 21,875,000

Rent Growth 0.30% 0.20% 0.20% 0.40% 0.40% Multifamily (units) 215,871 230,266

MULTI-FAMILY 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 2013

Vacancy Rate 4.30% 4.20% 4.40% 4.30% 4.30% Office (sf) 16,217,000 30,959,000

Net Absorption (Units) 53,968 47,174 56,064 62,075 59,069 Industrial (sf) 28,707,000 56,793,000

Completions (Units) 2,125 1,104 2,746 5,246 2,845 Retail (sf) 6,021,000 16,963,000

Rent Growth 1.10% 1.20% 1.10% 1.10% 1.00% Multifamily (units) 82,492 156,643

Forecast

Forecast

Forecast

Forecast

Source: National Association of Realtors / REIS

Vacancy Rate Outlook

Rent Growth Outlook

Net Absorption Outlook

Completions Outlook


Economic Forecast

Outlook

69

Q3 Q4 Q1 Q2 Q3 Q4 2012 Avg 2013 Avg

Real GDP (a) 1.4% 1.8% 1.2% 1.7% 2.2% 2.3% 1.9% 1.6%

Personal Consumption (a) 1.6% 1.7% 1.4% 1.5% 1.8% 1.9% 1.9% 1.6%

Business Fixed Investment (a) 3.2% 3.7% 0.7% 4.4% 5.7% 5.7% 5.5% 3.4%

Residential Construction (a) 14.0% 16.0% 15.0% 17.0% 19.0% 20.0% 12.5% 16.1%

Retail Sales (b) 4.9% 3.7% 2.7% 3.3% 3.6% 3.8% 5.1% 3.4%

CPI 1.2% 1.2% 1.0% 1.4% 1.8% 2.0% 1.8% 1.6%

Real Disposable Income (a) 0.9% 1.1% -0.4% 1.4% 1.4% 1.5% 0.8% 0.9%

Nominal Personal Income (b) 2.9% 3.4% 2.3% 2.3% 2.3% 2.5% 3.1% 2.4%

Industrial Production (a) 2.4% 2.2% 0.5% 3.3% 4.0% 4.2% 4.1% 2.4%

Nonfarm Payroll Change (monthly, 1000's) 125.0 143.0 145.0 150.0 155.0 160.0 145.0 153.0

Unemployment Rate % 8.4% 8.3% 8.3% 8.2% 8.1% 8.0% 8.3% 8.2%

Housing Starts (millions of units) 0.76 0.75 0.77 0.83 0.88 0.90 0.74 0.85

(a) compound annual growth rate qtr-over-qtr; (b) yr-over-yr percentage change

Source: Wells Fargo Securities, LLC 2012 Economic Outlook published in June 2012

2012 2013


Outlook

70

Uncertainty/Cautious Optimism for the Second Half of 2012

■ Eurozone Crisis remains a major threat to the global economy

■ “Self Imposed Financial Cliff” – Domestic Fiscal Policy - The combination of tax hikes and

spending cuts set to take place at the start of 2013

■ Contraction of June ISM for the first time since 2009 confirms the slower pace of

manufacturing resulting from slowdowns in Europe and China

■ Early GDP estimates call for growth between 2.0% and 2.5% for second half of 2012

■ Although job creation is expected to accelerate from disappointing 2Q12 figures, the

unemployment rate is predicted to remain around current levels

■ Housing market will slowly continue to rebound as homebuilder activity rises, inventory

shrinks and existing home sales increase

■ Consumers are expected to remain cautious amidst economic and political uncertainty

■ Worldwide economic weakness and renewed Middle East tensions will likely balance out and

prevent large fluctuations in energy (gasoline prices)

Economy

Questions & Answers



Contact Information

Marc R. Shapiro, MAI, MRICS ▪ 973-287-5431

[email protected]

Joseph Suh ▪ 646-731-1557

[email protected]

www.fticonsulting.com/industries/realestate

www.fticonsulting.com

72


FTI Consulting, Inc.

About FTI Consulting, Inc.

www.fticonsulting.com

FTI Consulting, Inc. is a global business advisory firm dedicated

to helping organizations protect and enhance enterprise value in

an increasingly complex legal, regulatory and economic

environment. FTI Consulting professionals, who are located in all

major business centers throughout the world, work closely with

clients to anticipate, illuminate and overcome complex business

challenges in areas such as investigations, litigation, mergers

and acquisitions, regulatory issues, reputation management and

restructuring.

73

Thank You for Your Time

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