CAPITAL MARKETS OVERVIEW January 15, 2014
Capital Markets Overview
Ample liquidity for all asset classes. Real estate offers the best risk adjusted return profile of the top four major asset classes.
Capital will continue to re-allocate from financial assets to hard assets, with the CRE being the largest beneficiary.
“Flight Capital” from Foreign Investors to U.S. will continue and will likely eclipse previous records.
The above factors will result in plentiful capital for CRE in 2013/2014 across both the debt and equity markets. We are expecting allocations to increase approximately 20% over 2012 levels.
BIG THEMES FOR 2013/2014
2
Capital Markets Overview
There will be no scarcity of product coming to the market. We expect transactional volume to approximate the 2005 level of $350 Billion for 2013. While seemingly a stretch, our expectation is 2013/2014 will witness many more larger portfolio or merger transactions than did 2012. The one exception being core product in Gateway markets.
The domestic banks have worked through 90% of the “troubled assets” and therefore sales of loans/REO from these institutions will greatly diminish. However, sales of assets/loans from foreign banks will continue to increase. Unlike the domestic banks, expect the foreign banks to sell in portfolios versus a one-off strategy.
HFF continues to emphasize the risk of rising interest rates relative to a “hold/sell” strategy decision. We believe cap rates and interest rates are correlated, and our regression analysis concludes NOIs must increase 10-15% to offset a 100 basis point move in interest rate/cap rates.
BIG THEMES FOR 2013/2014
3
Capital Markets Overview
Once again, 2013/2014, like 2012, will be a nearly “perfect” capital markets environment given the abundance and low cost of available capital.
HFF Recommendation: Consume capital and integrate a smart Asset Liability Management (ALM) strategy.
BIG THEMES FOR 2013/2014
4
Capital Markets Overview CRE CAPITAL STACK – $4.69 TRILLION
2008 U.S. Institutional Commercial Real Estate Universe – $4.76 Trillion
5
Private Debt 35%
Public Debt 26%
Private Equity 26%
Public Equity 13%
Debt $3.14 67% Private $2.19 Public $0.95
Equity $1.55 33% Private $1.02 Public $0.53
$4.69 100%
Source: NAREIT, Federal Reserve, HFF Research, as of 3Q 2013
Capital Markets Overview
6
CRE Debt Outstanding $3.14 Trillion Total
Lender Composition
Source: Federal Reserve, HFF Research *includes groups such as real estate investment trusts. pension funds, non-financial corporate business, non-farm non-corporate businesses and finance companies.
49%
18%
12%
11%
6% 4%
Banks & Thrifts
CMBS, CDO & ABS
Agency/GSE Portfolios &MBSLife Insurance Companies
State, Local, Federal Gov't
Others*
Capital Markets Overview CRE Equity Outstanding ($B)
$1.55 Trillion Total Investor Composition
7
34%
34%
14%
11%
3% 3% 1%
REITs
Pension Funds
Wealth Managers
Life Insurance Cos
Foreign Investors
Private Financial Institutions (REO)
Endowments & Foundations
Source: HFF Research, NAREIT, Towers Watson
TRANSACTION VOLUME HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview
$-
$100
$200
$300
$400
$500
$600
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
Billi
ons
Office Industrial Retail Apartment Hotel Land
$89 $105 $130
$211
$360
$415
$570
$172
$66
$300 $305
$145
$231
9
U.S. Transaction Volume by Property Type Property Sales ($B)
Down 88% From Peak
2010 Up 120% vs.
2009
2012 Up 30% vs. 2011
YTD Nov 2013 > 2012
2011 Up 57% vs. 2010
Source: Real Capital Analytics *November 2013
Capital Markets Overview
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1
Transaction Volume
Billions M
ortg
age
Rate
Transaction Volume Commercial Mortgage Rate Multi-Housing Mortgage Rate
10
Rise In Mortgage Rates Not Impacting Volumes 3Q13 Volume Up 20% YoY, In Spite of 60-70 bps Increase In Mortgage Rates
Source: Real Capital Analytics
Capital Markets Overview
$65 $81 $102 $154 $271 $297 $293 $135 $55 $111 $171 $224 $134 $163 0%
1%
2%
3%
4%
5%
6%
$0
$100
$200
$300
$400
$500
$600
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 3Q12 YTD 3Q13
$Bill
ions
Individual Portfolio Entity 10yr UST Series5 Series6
U.S. Real Estate Investment Activity Property Sales ($B)
11
Down 88% From Peak
2010 Up 120% vs.
2009
2012 Up 30% vs. 2011
YTD 3Q13 up 29% vs. YTD 3Q12
10Y T by Decade Avg. Median
1961-1969 4.73% 4.28%1970-1979 7.50% 7.49%1980-1989 10.59% 10.86%1990-1999 6.67% 6.51%2000-2009 4.46% 4.45%2010-2013 ytd 2.59% 2.67%
2003 – 2007 10Y T averaged 4.40%
1998 – 2012 10Y T averaged 4.22%
2011 Up 57% vs. 2010
4.27% 4.29% 4.80% 4.63% Annual Average 10yr UST
2.78% 1.80% Source: Real Capital Analytics
Capital Markets Overview
12
Major & Non-Major Markets Now Converging YoY Change (%)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
National Major Markets Non-Major Markets
Source: Moody’s Analytics/Real Capital Analytics Major Markets include Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C. This index measures prices changes in US commercial real estate, based on the completed sales of the same commercial properties over time, known as the “repeat-sales methodology.”
Capital Markets Overview
13
Major Markets Have Nearly Recovered Peak Pricing Major Markets 1.7% Off Peak – Non-Major Markets 18.7% Off Peak – National 11.0% Off Peak
Source: Moody’s Analytics/Real Capital Analytics Major Markets include Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C. This index measures prices changes in US commercial real estate, based on the completed sales of the same commercial properties over time, known as the “repeat-sales methodology.”
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
2008 2009 2010 2011 2012 2013
National Major Markets Non-Major Markets
Capital Markets Overview
$0 $10 $20 $30 $40
Lehman Bros Holdings
Blackstone
HK Lands Dept
GE Capital
Cole RE Investments
Goldman Sachs
Morgan Stanley
Fortress
Deutsche Asset/Wealth Mgmt
Primaris REIT
Hines
Prologis
Equity Residential
Invesco RE
LaSalle
Caisse de Depot
URA
Inland Real Estate Group
Hutchison Whampoa
Prudential RE Investors
RBS Group
CBRE Global Investors
JP Morgan
UBS
Klepierre
$0 $5 $10 $15 $20
Blackstone
China Vanke
Greenland Group
Equity Residential
Poly Real Estate Group
Spirit Realty Capital
China Overseas L&I
Norges Bank Invt Mgmt
Patrizia Immobilien AG
GIC (Govt of Singapore)
Starwood Capital Group
AvalonBay Communities
Evergrande RE Group
Lone Star
Shimao Group
Caisse de Depot
China Resources
American Realty Capital
Hines
Sunac China
Sun Hung Kai
Abu Dhabi Invt Authority
Brookfield Asset Mgmt
Invesco RE
JP Morgan
Buye
rs
Selle
rs
14 Source: Real Capital Analytics
Top 25 Market Participants LTM Transaction Volume ($B)
EQUITY OVERVIEW HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview
16
Retail 29.5%
Apartments 13.9%
Health Care 12.6%
Office 11.3%
Diversified 9.9%
Lodging/Resorts 7.4%
Self Storage 6.6%
Industrial 5.1%
Flex 2.7%
Manufactured Homes 0.9%
Source: NAREIT *as of November 30, 2013
Listed REIT Market Capitalization By Property Type
Capital Markets Overview 2013 Listed REIT Capital Offerings Eclipse Previous Peak
Debt Issuance & Equity Offerings ($B)
17
$18.7 $19.7
$25.5
$38.4 $37.4
$49.0
$36.0
$17.9
$34.6
$47.4 $51.2
$73.3 $73.9
$0
$10
$20
$30
$40
$50
$60
$70
$80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
Common Unsecured IPO Preferred Secured
Source: NAREIT *as of November 30, 2013
Capital Markets Overview Top Managing Broker Dealers
Total Sales ($M) Up Significantly From 2012
18
2013 2012 Change Managing Broker Dealer YTD Sales Market Share YTD Sales Market Share Sales Market Share American Realty Capital $6,547.3 35.2% $2,195.7 21.1% 198.2% 14.1% Cole Real Estate Investments $2,462.8 13.2% $1,089.3 9.7% 126.1% 3.5% Franklin Square Capital Partners $2,234.9 12.0% $1,483.0 15.2% 50.7% -3.2% Griffin Capital Corporation $1,900.3 10.2% $431.0 5.2% 340.9% 5.0% CNL Financial Group $1,017.9 5.5% $579.7 6.2% 75.6% -0.7% Dividend Capital $765.3 4.1% $563.0 5.3% 35.9% -1.2% NorthStar Realty Finance Corp. $534.1 2.9% $288.5 3.2% 85.1% -0.3% Hines Interest Limited Partnership $487.0 2.6% $339.5 4.3% 43.4% -1.7% WP Carey Inc. $438.9 2.4% $600.1 7.8% -26.9% -5.4% Carter/Validus Advisors $333.9 1.8% $106.7 1.3% 212.9% 0.5%
Source: Robert A. Stanger & Co., Inc.
Capital Markets Overview
Source: IREI, Kingsley Associates Tax-Exempt Real Estate Investment 2013 19
35.0
%
27.7
%
18.1
%
9.7%
6.2%
5.5%
2.43
%
0.47
%
31.3
%
22.3
%
17.1
%
10.2
%
7.1%
7.4%
3.24
%
1.50
%
29.8
%
25.0
%
17.5
%
10.2
%
6.8%
6.1%
3.51
%
1.10
%
27.8
%
24.8
%
17.5
%
10.3
%
8.1%
7.0%
3.25
%
1.22
%
25.6
%
27.0
%
17.8
%
9.5%
7.7%
6.8%
4.2%
1.4%
26.7
%
26.6
%
19.3
%
8.7%
7.9%
4.5%
5.3%
1.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
U.S. Stocks Fixed Income Foreign Equities Real Estate VC / Private Equity Hedge Funds Other Cash
Perc
ent o
f Tot
al A
sset
s
2008 2009 2010 2011 2012 2013
Real Estate Allocations Giving Ground To Equities/Private Equity Historical Target Allocations
Capital Markets Overview
20 Source: Preqin
Total Dry Powder Re-Approaching $90 Billion Capital Available ($B) For Deployment
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2006 2007 2008 2009 2010 2011 2012 2013
Dry
Pow
der (
$B)
Opportunistic Value Added Debt Distressed Core/Core-Plus
Capital Markets Overview
$818
$170
$386
$627
$676
$173
$285
$327
$568
$575
0 100 200 300 400 500 600 700 800 900
Qatar Investment Authority
Temasek Holdings (Singapore)
Government of Singapore Investment Corporation
Hong Kong Monetary Authority Investment Portfolio
Kuwait Investment Authority
SAFE investment Company (China)
China Investment Corporation
Abu Dhabi Investment Authority
SAMA Foreign Holdings (Saudi Arabia)
Government Pension Fund - Global (Norway)
Asia/Pacific Middle East Europe
21 Source: SWF Institute, HFF Research
Sovereign Wealth Funds Assets Under Management ($B)
Capital Markets Overview
Australia 30%
Canada 16%
Other 12%
United Arab Emirates
11%
Israel 8%
United Kingdom 5%
Bahrain 5%
Germany 4%
Mexico 4%
Switzerland 3%
Ireland 3%
Canada 35%
Other 21%
Germany 9%
Switzerland 7%
Israel 6%
United Kingdom 6%
South Korea 4%
France 4%
Singapore 4% Japan
4%
Kuwait 3%
Canada 23%
Singapore 14%
Other 14%
South Korea 10%
Israel 6%
Switzerland 6%
Kuwait 3%
Norway 5%
United Arab Emirates
5%
Malaysia 3%
China 12%
22
2007 - $44.6 Billion 2012 - $25.3 Billion 1H 2013 - $12.95 Billion
Source: Real Capital Analytics
Composition of Foreign Investment Investment In US CRE by Country of Origin
Capital Markets Overview US Destinations for Foreign Investments
2013 Cross-Border Flows
HFF Office
23 Source: Real Capital Analytics
$10.1
$3.5
$3.1
$2.6
$2.5
$2.2
$2.1
$2.1
$1.4
$10.3
$3.3
$1.8
$1.5
$1.4
$1.3
$1.2
$1.1
$0.9
$0 $4 $8 $12
Canada
Singapore
China
Australia
Germany
Israel
Switzerland
Norway
South Korea
Manhattan
Los Angeles
Chicago
Houston
Boston
Dallas
Seattle
DC
Inland Empire
Origin of Capital ($B)
Top Market Destinations ($B)
DEBT OVERVIEW HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview Debt Originations Highly Correlated To Transaction Volumes
Quarterly Volumes ($B)
25
Source: Mortgage Bankers Association, Real Capital Analytics
Capital Markets Overview
$157
$219
$256
$351
$410
$510
$184
$83
$119
$186
$244
0%
1%
2%
3%
4%
5%
6%
$0
$100
$200
$300
$400
$500
$600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Billi
ons Debt Origination Volume 10-Yr Treasury
4.29% 4.80% 4.63% 4.27% 2.78% 1.80%
10Y T by Decade Avg. Median
1961-1969 4.73% 4.28%1970-1979 7.50% 7.49%1980-1989 10.59% 10.86%1990-1999 6.67% 6.51%2000-2009 4.46% 4.45%2010-2013 ytd 2.59% 2.67%
2003 – 2007 10Y T averaged 4.40%
26
Precedent Of Higher Volume In Higher Interest Rate Environment Total Debt Origination Volume ($B) vs. 10yr UST (%)
Source: Mortgage Bankers Association, Bloomberg
Capital Markets Overview Lender Composition
All Property Types
24%
23%
17%
17%
11%
7%
5%
5%
5%
3%
18%
26%
27%
30%
44%
12%
14%
20%
15%
10%
9%
6%
7%
7%
7%
16%
14%
12%
12%
12%
11%
11%
9%
11%
13%
3%
2%
1%
1%
1%
1H13
2012
2011
2010
2009
CMBS Financial Gov't Agency Insurance Int'l Bank Nat'l Bank Reg'l/Local Bank Pvt/Other
27 Source: Real Capital Analytics
2008
2007
BANKS HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview Pre-Tax Operating Income
In Spit of Growing Assets, ROAA Has Suffered On Increased Regulation Costs
29
Quarter Avg Earn Assets Pre-Tax NOI ROAA
2009 Q1 $11,658,137,874,500 ($1,047,356,000) -0.04
2009 Q2 $11,455,873,767,000 ($8,461,163,000) -0.3
2009 Q3 $11,387,789,634,000 $2,523,440,000 0.09
2009 Q4 $11,300,677,258,500 ($595,090,000) -0.02
2010 Q1 $11,401,142,637,500 $24,977,736,000 0.88
2010 Q2 $11,448,216,983,000 $31,324,369,000 1.09
2010 Q3 $13,284,448,949,500 $21,749,173,670 0.65
2010 Q4 $13,339,663,447,000 $19,610,071,370 0.59
2011 Q1 $13,360,136,796,500 $28,973,912,610 0.87
2011 Q2 $13,492,055,384,500 $28,421,143,690 0.84
2011 Q3 $13,671,233,299,000 $32,653,246,620 0.96
2011 Q4 $13,843,087,598,500 $24,075,807,640 0.7
2012 Q1 $13,881,929,804,000 $32,650,091,370 0.94
2012 Q2 $13,970,782,607,000 $32,908,839,500 0.94
2012 Q3 $14,118,613,264,500 $35,568,255,960 1.01
2012 Q4 $14,268,695,788,500 $33,631,025,920 0.94
2013 Q1 $14,430,592,698,500 $39,015,432,030 1.08
2013 Q2 $14,382,552,194,000 $37,568,030,600 1.04
2013 Q3 $14,489,789,711,000 $35,534,066,140 0.98
Source: BankRegData
Capital Markets Overview FDIC Balance Sheet ($T)
CRE Loan Balances Growing Once Again
3Q 2013 3Q 2012 YoY D YoY % Construction $206,145 $210,435 -$4,289 -2.04% Multi-Housing $252,342 $227,769 $24,573 10.79% Commercial $1,092,487 $1,058,001 $34,486 3.26% Total $1,550,975 $1,496,205 $54,770 3.66%
$-
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$2.0
13Q312Q311Q310Q309Q308Q307Q306Q305Q304Q303Q302Q301Q300Q399Q398Q397Q396Q395Q394Q393Q392Q391Q390Q389Q388Q387Q386Q385Q384Q3
Multi-Housing Commercial Total Total (+Construction)
30 Source: FDIC
INSURANCE COMPANIES HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview
$14.1
$6.3
$9.4 $10.7
$13.6
$21.4
$19.0
$20.7
$24.8 $22.3
$21.5
$26.9 $28.1
$32.7
$39.2
$43.2 $44.1
$42.7
$26.7
$16.4
$30.7
$45.5 $45.6
$23.3
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
Billi
ons
Life Co Commitments 10-Yr Treasury
2003 – 2007 10Y T averaged 4.40%
2.78% 1.80% Source: ACLI * YTD September 2013 32
10Y T by Decade Avg. Median
1961-1969 4.73% 4.28%1970-1979 7.50% 7.49%1980-1989 10.59% 10.86%1990-1999 6.67% 6.51%2000-2009 4.46% 4.45%2010-2013 ytd 2.59% 2.67%
4.29% 4.63% 4.27% 4.80%
Annual Averages
Life Insurers Are Lending More Than Ever Life Company Commitments ($B)
1998 – 2012 10Y T averaged 4.22%
Capital Markets Overview Life Insurers Focusing On Large Loans
ACLI New Commitments By Loan Size (%)
33
67.6%
0
10
20
30
40
50
60
70
80
90
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Less Than $2M $2-5M $5-15M $15-25M $25M and over
Source: ACLI * YTD September 2013
CMBS MARKET HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview Historical CMBS Issuance
Slow But Steady Recovery, Annual Volume ($B)
Source: Commercial Real Estate Direct, forecast based on commentary from various investment banks
$3.4 $7.6
$14.0 $17.2 $17.5 $15.8
$26.4
$36.8
$74.3
$56.6 $46.9
$67.2
$52.1
$77.9
$93.1
$169.2
$203.0
$230.2
$12.1 $2.7
$11.6
$32.7
$48.4
$28.0
$57.0
$0
$50
$100
$150
$200
$250
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 YTDSep12
YTDSep13
Long Term Credit Capital
9/11 and Corporate Credit
Squeeze
Mortgage Meltdown
S&L Collapse
2008 Capital Market Collapse
35
2009-2012 1500%
Increase
2013 Forecast $65 Billion
103% Increase
AGENCIES HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview Freddie/Fannie Origination Volume
Annual Origination Volume ($B)
37 Source: Fannie Mae, Freddie Mac * HFF Research estimates for YE2013 production volume
$7.9
$7.8
$15.
5
$12.
4
$13.
5 $22.
8
$22.
0 $36.
0
$21.
2
$25.
6 $34.
3
$60.
0
$35.
5
$19.
8
$16.
9
$24.
0 $33.
8
$29.
0
$2.3
$2.7
$6.6
$7.8
$7.1
$12.
3
$14.
3
$22.
6
$23.
8 $26.
2
$28.
8
$44.
7
$24.
3
$16.
6
$15.
0
$20.
3
$28.
8
$25.
8
$0
$20
$40
$60
$80
$100
$120
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13*
Fannie Mae Freddie Mac
SUPPLY OF TRANSACTIONS HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview CRE Maturities Due To Peak In 2013
CRE Debt Maturities By Lender Type ($B)
39
$0
$50
$100
$150
$200
$250
$300
$350
$400
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Billi
ons
CMBS Banks Life Cos Other
$377.4
CMBS Peak Maturities $137 Billion In 2017
Source: Trepp
Capital Markets Overview
40
Delinquency (%) By Loan Status
Delinquency (%) by Property Type
$53.6 $53.2 $53.4 $50.4 $50.9 $48.0 $47.1
$550.9 $557.9 $563.0 $566.0 $570.6 $572.5 $574.2
$-
$100
$200
$300
$400
$500
$600
$700
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
Delinquent Current
11.7% 11.6%
9.9% 8.7%
7.0%
Industrial Multi-Housing Office Lodging Retail0%
2%
4%
6%
8%
10%
12%
14%
0.3% 0.2%
1.9%
0.7%
1.9%
3.7%
30 Days 60 Days 90+ Days Non-PerfMaturity
Foreclosure REO0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Source: Trepp
CMBS Loan Performance Cover $116 Billion Maturing In 2014 & 2015
Capital Markets Overview
0%
10%
20%
30%
40%
50%
60%
$0
$10
$20
$30
$40
$50
$60
2010 2011 2012 2013
Billi
ons
Loan Balance Realized Losses Loss Severity
41
Liquidations: $56.4 Billion Losses: $24.3 Billion Loss Factor: 43.1%
Source: Trepp
Cumulative CMBS Liquidations & Losses Loss Factor Steady, But May Rise As Largest Loans Are Settled
DEBUNKING MYTHS HFF CAPITAL MARKETS OVERVIEW
Capital Markets Overview
43
Money Market Yields
2-Year US Treasuries
2-Year CDs
S&P 500 Index Dividend Yield
Savers Getting Squeezed As Yields Remain Suppressed Yields Available To Investors (& Retirees) In Short Duration Investments
Source: Bloomberg
0%
1%
2%
3%
4%
5%
6%
Jun-07 Sep-07 Dec-07Mar-08 Jun-08 Sep-08 Dec-08Mar-09 Jun-09 Sep-09 Dec-09Mar-10 Jun-10 Sep-10 Dec-10Mar-11 Jun-11 Sep-11 Dec-11Mar-12 Jun-12 Sep-12 Dec-12Mar-13 Jun-13 Sep-13 Dec-13
2 Yr Treasury Money Market S&P 500 Dividend Yield 2 Yr CD
Capital Markets Overview Completions Remain Relatively Low
Completions As % Of Existing Inventory Rebounding But Lower Than Historical Peaks
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Multi-Housing Office Industrial Retail
44 Source: REIS
Capital Markets Overview US Treasury Yields Remain Within Multi-Decade Downtrend
10yr UST Yield (%)
45
Capital Markets Overview US Treasury Yields Are Well Below the 50yr Average
In Spite Of Recent Gains, Yields Still Very Attractive
0%
2%
4%
6%
8%
10%
12%
14%
16%
62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
10yr UST 50yr Average
46
Long Term Credit
Capital
9/11 and Corporate
Credit Squeeze
S&L Collapse
Mortgage Meltdown
Tax Reform Act – Syndication Blow-up
Does Anyone Remember Prime at 21%?
50 Year Average = 6.55% (1961 – 2013 ytd)
2008 Capital Market Collapse
One Year Ago 12/31/2012 1.76%
$300B Treas. Buyback 3/18/09 2.51% (announced)
Current Rate 12/31/13 3.02%
Average 2013 2.34%
Source: United States Treasury
Capital Markets Overview Cap Rate Sensitivity Analysis NOI Growth vs. Cap Rate Movement
47
25.00%
20.00%
16.67%14.29%
12.50%11.11%
10.00% 9.09%8.33%
0%
4%
8%
12%
16%
20%
24%
28%
4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0%
NO
I G
row
th R
equi
red
Base Cap Rate
NOI Growth to Maintain Value(100 bps Movement in Cap)
Source: HFF