Real Estate CyclesGlenn R. Mueller, Ph.D.

ProfessorUniversity of Denver

Franklin L. Burns School of Real Estate & Construction Management

&

Real Estate Investment StrategistDividend Capital Research

glenn.mueller@du.edu

Source: Bonds = SIFMA, January 2015; Equities = World Federation of Exchanges for Equities, January 2015; U.S. Real Estate = Moody’s Real CPPI, January 2015. Commercial real estate are subject to real estate risks associated with operating and leasing properties. Additional risks include changes in economic conditions, interest rates, property values, and supply and demand, as well as possible environmental liabilities, zoning issues and natural disasters.

U.S. Real Estate vs. Other Asset Classes

Why Real Estate Fits an Investment Portfolio = SIZE

Five Key Macro Economic Factors

Population Growth = 0.9% Annual

1 Source: U.S. Bureau of Economic Analysis, March 2015; Moody’s, 2015.2 Source: U.S. Bureau of Labor Statistics, March 2015; Moody’s, 2015.

Employment Growth2

GDP Growth1

Five Key Macro Economic Factors

1 Source: U.S. Bureau of Labor Statistics, March 2015; Moody’s, March 2015.

Inflation1

Interest Rates1

CO & Mountain Growth

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015YTD

Employment Growth 15Yr#/5Yr#

US 911K/683K CO 2,762/42,861 Alamosa 8/-47 Gunnison 15/41 Eagle 288/848 Pitkin 119/552 San Miguel 22/128

Source: BLS.gov

Real Estate Occupancy is Demand Driven by Employment Growth

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

6,500,000

7,000,000

7,500,000

8,000,000

8,500,000

9,000,000

Industrial Office Retail Employment

Economic Outlook

Real Estate — a Delayed Mirror of the Economy

Source: CoStar Portfolio Strategy, January 2015. Employment & Property Occupied Stock is the top 54 MSA’s covered by PPR

Market Cycle Analysis

Physical Cycle

Demand & Supply drive Occupancy Occupancy drives Rental Growth

Source: Mueller, Real Estate Finance 1995

Market Cycle Quadrants

Phase 1 - Recovery

Phase 2 - Expansion

Phase 4 - Recession

Demand/Supply Equilibrium Point

Long Term Occupancy Average

Occ

upan

cy

Time

Phase 3 - Hyper-supply

PhysicalMarket Cycle

Characteristics

NegativeRental

Growth

BelowInflation

RentalGrowth

Rents Rise Rapidly

Toward New Construction

Levels

High RentGrowth in

Tight Market

Demand/SupplyEquilibrium

Rent GrowthPositive But

Declining

-Below Inflation &Negative

RentGrowth

Cost Feasible New

Construction RentsLong Term Average Occupancy

Occ

upan

cy

Time

1467

8

1012

13

1

15

16

54

32

11

9

1

Phase 1 - Recovery

Phase 2 - Expansion

Phase 4 - Recession

Phase 3 – Hyper-supply

2

54

3

89

7

10

16

15

13

1

6

11

14

1

12

0.3%

2.7%

-3.0%

-1.5%

1.7%

4.0%

6.4%

11.0%

12.5%

10.5%

6.7%

-1.0%1.6%

3.3%

6.1%

10.0%

Historic National Office Rental Growth

30 Year Cycle - Periods 1968-1997

Long Term Average Occupancy

Occ

upan

cy

Time

Phase 1 - Recovery

Phase 2 - Expansion

Phase 4 - Recession

Phase 3 – Hyper-supply

2

54

3

89

7

10

16

15

13

1

6

11

14

1

12

-2.1%

Historic National Industrial Rental Growth %

0.4%

0.8%

2.8%

3.0%

4.6%

5.1%

8.3%

8.5%

6.8%

3.8%

-0.4%0.7%

4.8%

4.6%

5.9%

30 Year Cycle - Periods 1968-1997

Long Term Avg Occupancy

Occ

upan

cy

Time

Phase 1 - Recovery

Phase 2 - Expansion

Phase 4 - Recession

Phase 3 – Hyper-supply

National Property Type Cycle Locations

2nd Qtr 2015

LT Average Occupancy

Source: Mueller, 2015

Phase 2 — Expansion

Phase 1 — Recovery

Phase 3 — Hyper-supply

Phase 4 — Recession

11

1467

89

10 12

13

1165421

15

Health FacilityRetail — Factory Outlet

Office — Suburban

3

Retail — 1st Tier Regional Mall

Office – Downtown

Industrial —Warehouse Apartment

Industrial — R&D FlexRetail — Neighborhood/Community

Hotel — Full-ServiceHotel — Ltd. Service

Retail — Power Center

LT Average Occupancy

Source: Mueller, 2015

11

146

89

1012

115

1654321

Office Market Cycle Analysis2nd Quarter, 2015

AlbuquerqueChicagoEast BayLong IslandNorfolkN. New JerseyStamfordWash DCWilmington

713

CincinnatiClevelandHouston-1Los AngelesMilwaukeeOrange CountySan Antonio

Ft. LauderdaleHartfordKansas CityLas Vegas+1MemphisPhiladelphiaPhoenixRichmondSt. Louis+1NATION

Dallas FWNew YorkPittsburghPortlandRiverside

Atlanta+1ColumbusDenverJacksonville+1Miami+1MinneapolisOrlandoPalm Beach+1Sacramento+1 Seattle

BaltimoreBostonDetroit+1Indianapolis+1New OrleansOklahoma CitySan DiegoTampa+1

CharlotteRaleigh-Durham

AustinHonoluluNashville+1 Salt LakeSan Jose+1

San Francisco

CharlotteChicago+1ColumbusLas Vegas+1Nashville+1PittsburghPortlandSeattle

Source: Mueller, 2015

1467

8

10 12

13

115

1654321

LT Average Occupancy

Industrial Market Cycle Analysis

11

Stamford

BaltimoreHartfordLong IslandOklahoma CityPhiladelphiaPhoenix

Richmond

AtlantaCleveland+1DetroitFt. LauderdaleMilwaukee+1Orlando

NorfolkOrange County

BostonHouston

Kansas CityNew York+1

N. New Jersey+1Raleigh-Durham+1

San AntonioSt. LouisTampa+1NATION

East BayJacksonville+1

MemphisNew Orleans

SacramentoWash DC+1

Dallas FW-1DenverLos Angeles+1San Francisco

Austin+1Cincinnati Honolulu+1Indianapolis-1Miami+1Minneapolis+1Palm Beach+1RiversideSalt LakeSan DiegoSan Jose+1

9

2nd Quarter, 2015

Source: Mueller, 2015

11

1467

89

10 12

115

165421

LT Average Occupancy

Apartment Market Cycle Analysis

13

BaltimoreChicago

CincinnatiCleveland-1Columbus-1

Dallas FW-1East Bay

Ft. LauderdaleIndianapolis-1

JacksonvilleKansas City-1

HonoluluLas Vegas

Long IslandLos AngelesMemphis-1

Miami-1

3

AtlantaAustin-1

BostonCharlotte-1

Denver-1Hartford+1Houston-1

Detroit+2

Norfolk-2

Milwaukee-1Minneapolis-1New Orleans-1N. New JerseyOrange County-1OrlandoPhiladelphiaPhoenixPittsburgh-1Portland Riverside+1SacramentoSan Antonio San Francisco-1San Jose-1Seattle-1St. Louis-1NATION

2nd Quarter, 2015

Nashville-1StamfordTampa-1

New York-1Oklahoma CityPalm Beach-1Raleigh-Durham-1Richmond-1Salt Lake-1San Diego+1Wash DC-1

Source: Mueller, 2015

11

1467

89 12

13

115

1654321

Retail Market Cycle Analysis

10

LT Average Occupancy

Oklahoma CitySt. Louis

BaltimoreDenver+1HoustonLong IslandLos AngelesOrlando+1PortlandTampa

Cleveland+1Detroit+1

Jacksonville+1Kansas City+1

MemphisMilwaukee

NorfolkOrange County

PhiladelphiaRiverside

Hartford+1Indianapolis+1

New OrleansPalm Beach+1

NATION

Austin+1MiamiPittsburghSalt Lake San JoseWash DC

AtlantaCharlotteChicago

ColumbusLas Vegas

PhoenixSacramento

Stamford

BostonHonoluluNew YorkRaleigh-DurhamSan Francisco

Cincinnati+1Dallas FWFt. LauderdaleNashvilleN. New Jersey+2RichmondSan Antonio

East BayMinneapolis

San DiegoSeattle+1

2nd Quarter, 2015

CincinnatiNorfolk

Source: Mueller, 2015

1467

89 12

13

115

165

4321

1110

LT Average Occupancy

Hotel Market Cycle Analysis

ClevelandKansas City

Orange CountyPhoenix

RichmondSan Antonio

HartfordRiversideStamford

ColumbusSacramento

Dallas FWIndianapolisMemphisMilwaukeeOklahoma CityRaleigh-DurhamSalt Lake St. Louis

Baltimore

CharlotteDenver

East BayFt. LauderdaleLas Vegas+1Los AngelesMinneapolis

NashvilleOrlando

PhiladelphiaSan Diego

San JoseSeattleTampa

Wash DCNATION

AtlantaChicago

New OrleansN. New Jersey

AustinBostonHonoluluHoustonMiamiNew YorkPalm BeachPittsburgh+1PortlandSan Francisco

Long Island

2nd Quarter, 2015

DetroitJacksonville

1970s Cycle•Factors Driving The First Half Cycle (5 Year)

•Strong Demand from the 1960s that stopped

•Recession 1974

•Capital Flow - Mortgage REITs produced oversupply

•Factors Driving The Second Half Cycle (5 Year)

•Baby Boom Generation Goes to Work = Demand

•Capital Flow Shut Down = no supply = Lenders Recover

•Markets tighten and reach peak occupancy 1979 (5% vacancy)

1970s Office Demand & Supply

0%

2%

4%

6%

8%

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

Demand Supply

Source: FW Dodge, CB Commercial, BLS, Mueller

Oversupply Years Baby Boomers Go To Work

1980s Cycle•Factors Driving The First Half Cycle (5 Year)

•1979 Tight market pushed rents & prices up

•Inflation pushed prices higher

•1981 Tax Act attracted taxable investors

•Thrift Deregulation allowed capital to flow

•Factors Driving The Second Half Cycle (5 Year)

•1986 Tax Act slowed taxable investors - not tax free

•Poor stock market attracted Pension & Foreign capital

•Rising R.E. prices masked poor income returns

1980s Office Demand & Supply

0%

2%

4%

6%

8%

10%1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Demand Supply

Source: FW Dodge, CB Commercial, BLS, Mueller

Oversupply Years

1990s Cycle

•Factors Driving The First Half Cycle (5 Year)•Moderate / stable demand growth (1991 recession minor)

•Oversupply & Foreclosures shut down construction

•Excess space Absorbed – “Markets Recover”

•Factors Driving The Second Half Cycle (5 Year)•Moderate Demand growth Continued

•Oversupply Absorbed - Return Performance improved

•Construction “Constrained” caused rents & prices to rise

•More “Efficient Markets” matched supply to demand

1990s Office Demand & Supply

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Demand Supply

Source: FW Dodge, CB Commercial, BLS, Mueller

Oversupply Absorbed

Demand Supply

Matched

2000s CycleDemand

•“Globalization” - created more stable U.S. economy

•Job Growth out of “Technology Change”

•2.8 million population growth per year for 10 years

•Baby boomers entered “highest income earning” years

•second home market wave

•Echo boom children – college, first job, & renting

•Aging population – boomers START retiring in 2014

•Employment Growth drives commercial demand

Supply Constraint•Public Markets make R.E. Capital markets efficient

•Economically Driven capital - low spec construction

•500 + Research Watchdogs – Data Available

•Constrained Supply (economically driven capital)

•construction labor harder to find

•Steel & concrete costs increasing

•infrastructure problems constrain growth

•Feedback loop keeps demand & supply balanced

•Greater transparency

•Faster reaction to demand slowdown

2000s Cycle

Source: Costar Portfolio Strategy, January 2015

Stock Growth Recovering

Supply growth started increase in 2013 from a 42 year low

Office Demand & Supply

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%2

00

0

20

02

20

04

20

06

20

08

20

10

20

12

2000s US Office Demand & Supply

Supply Reacted to Demand Slow Down

Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2009.

National Property Type Cycle Forecast

2nd Qtr 2016ESTIMATE

LT Average Occupancy

Source: Mueller, 2015

Phase 2 — Expansion

Phase 1 — Recovery

Phase 3 — Hyper-supply

Phase 4 — Recession

11

146

78

910 12

13

1164321

155Office — DowntownRetail — Power Center

Health Facility

Office — Suburban

Retail — Factory Outlet

Hotel — Ltd. Service

Industrial — R&D FlexRetail — Neighborhood/Community

Apartment

Hotel — Full-ServiceRetail — 1st Tier Regional Malls+1

Industrial —Warehouse

86

87

88

89

90

91

92

93

-10%

-6%

-2%

2%

6%

10%

14%

18%

22%

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

RENT Growth % OFF OCC

Occupancy Cycle and Rent Growth

Source: Costar Portfolio Analytics, Mueller — March 2015.

Office

Forecast

AlbuquerqueCincinnatiEast Bay HartfordKansas CityLos AngelesNorfolkSt. Louis+1San Antonio

Source: Mueller, 2015

11

1467

89

10 12

13

115

164321

2nd Quarter, 2016 Estimates

LT Average Occupancy

Office Market Cycle FORECAST

Houston-1N. New JerseyStamford

ChicagoLong IslandMilwaukeeWash DC

AustinHonoluluNashvilleRaleigh-Durham+1San Francisco

BaltimoreBostonDenverLas VegasNew OrleansOklahoma City

5 Atlanta+1Dallas FW+2Jacksonville+1MiamiMinneapolisPalm Beach+1PittsburghSacramento+1San Jose+1

Salt Lake

ClevelandDetroit+1Ft. LauderdaleIndianapolisMemphisOrange CountyPhiladelphiaPhoenixRichmondSan DiegoSeattleTampaNATION

CharlotteColumbusNew YorkOrlandoPortlandRiverside

Aspen

Summit

Occupancy Cycle and Rent GrowthIndustrial

Source: Costar Portfolio Analytics, Mueller — March 2015.

Forecast

89

90

91

92

93

94

95

96

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

RENT Growth % IND OCC

Source: Mueller, 2015

11

14

89

10 12

13

115

16531

LT Average Occupancy

Industrial Market Cycle FORECAST

42

NorfolkOrange County

Stamford

Long IslandRichmond

BaltimoreNew Orleans

Oklahoma CityPhiladelphia

PhoenixSacramento

East BayHartford

Kansas CityMemphis

Wash DC+1

AtlantaBoston

Cleveland+1Detroit

JacksonvilleMilwaukee+2

Orlando

Ft. Lauderdale Houston

New York+2Raleigh-Durham

San AntonioSt. LouisTampa+1NATION

76

AustinCharlotte

Chicago+1Columbus

Las Vegas Nashville

N. New Jersey+1Pittsburgh

Seattle

DenverCincinnatiHonolulu+1Indianapolis Los AngelesMiami+1Minneapolis+2Palm BeachPortlandSalt LakeSan DiegoSan FranciscoSan Jose

Dallas FW-1Riverside

2nd Quarter, 2016 Estimates

Aspen

Summit

92.0

93.0

94.0

95.0

96.0

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

RENT Growth % APT OCC

Occupancy Cycle and Rent GrowthApartment

Source: Costar Portfolio Analytics, Mueller — March 2015.

Forecast

Source: Mueller, 2015

11

146

89

10 12

115

164321

LT Average Occupancy

Apartment Market Cycle FORECAST

5

7

Austin-1CharlotteDenver-1Houston-1NashvilleNorfolk-1Oklahoma CityRichmondTampa

AtlantaBoston

ClevelandDallas FW

Ft. LauderdaleKansas City

MiamiMinneapolis-1

Orange CountyPalm Beach-1

BaltimoreDetroit+2 East BayHonolulu

Las VegasRiverside

St. Louis-1

ChicagoCincinnati-1Columbus-1

HartfordIndianapolis-1

JacksonvilleLong IslandLos Angeles

MemphisMilwaukee-1

13

2nd Quarter, 2016 Estimates

PhoenixPittsburghRaleigh-Durham-1Salt LakeSan Antonio San JoseSeattle-1StamfordWash DC-1NATION

New OrleansNew York-1N. New Jersey-1Orlando-1PhiladelphiaPortland SacramentoSan DiegoSan Francisco-1

AspenSummit

Occupancy Cycle and Rent GrowthRetail

91.5

92.0

92.5

93.0

93.5

94.0

94.5

-8%

-6%

-4%

-2%

0%

2%

4%

6%

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

RENT Growth % RET OCC

Source: Costar Portfolio Analytics, Mueller — March 2015.

Forecast

Source: Mueller, 2015

11

147

910 12

13

115

164321

LT Average

Retail Market Cycle FORECAST

6Occupancy

NorfolkOklahoma CityRiversideSt. Louis

AtlantaCharlotteChicago CincinnatiColumbusJacksonville Kansas City+1PhoenixSacramentoSan AntonioStamford

Dallas FWFt. Lauderdale

Hartford+1Las Vegas+1

NashvilleN. New Jersey+2

Orange CountyNATION

Indianapolis+1New OrleansPalm Beach+1PortlandRichmondTampa

BaltimoreDenver+1

HoustonLong IslandLos Angeles

Orlando+1Seattle

Cleveland+1Detroit+1Memphis

MilwaukeePhiladelphia

5

8

East BayMinneapolisSan DiegoWash DC

AustinBostonHonoluluMiamiNew YorkPittsburgh+1Raleigh-DurhamSalt LakeSan FranciscoSan Jose

2nd Quarter, 2016 Estimates

Aspen

Summit

Hotel

Occupancy Cycle and Rent Growth

55%

57%

59%

61%

63%

65%

67%

69%

71%

-11%

-8%

-5%

-2%

1%

4%

7%

10%

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

RENT Growth % HOTEL OCC

Source: Costar Portfolio Analytics, Mueller — March 2015.

Forecast

Cincinnati LT Average Occupancy

Source: Mueller, 2015

11

1467

8 910 12

13

115

1654321

Hotel Market Cycle FORECAST

Richmond

ColumbusHartfordRiversideStamford

ClevelandKansas CityMemphisOklahoma CityOrange CountyRaleigh-DurhamSacramentoSan Antonio

Norfolk

BaltimorePhiladelphia

DetroitDallas FW

IndianapolisMilwaukee

OaklandPhoenix

Salt LakeSt. Louis

Jacksonville

MinneapolisNashvilleOrlandoPortlandSan DiegoSan FranciscoSan JoseSeattleTampaWash DC

AustinLong IslandPalm BeachPittsburgh

AtlantaLas VegasNew OrleansN. New Jersey+2NATION

BostonCharlotteChicagoDenver

East Bay Ft. Lauderdale

HonoluluHouston

Los AngelesMiami

2nd Quarter, 2016 Estimates

New York

AspenSummit

Financial Cycle

$Capital$ Flows affect Prices

Hyper Supply

LT Occupancy Avg.

Market Cycle Capital Flow ImpactCapital Flows to Existing Properties

Capital Flows to New Construction

Cost Feasible Rents Reached

10-Year Treasury Yield

Source: U.S. Treasury — Federal Reserve Bank of St. Louis, May 2015; Moody’s Forecast, 2015.

Average Total Return 1981-2013 = 8.7%

Average Total Return 1953-1973 = 1.9%

Average Total Return 1953-1981Peak = 3.9%

Average Yield = 6.02%Forecast

Bond Values DROP as Interest Rates Rise10 Year Treasury Yields 1953 - 2015e

US CAPITAL MARKET TRENDS

0

20

40

60

80

100

120

140

160

180

200

$0

$100

$200

$300

$400

$500

$600

$700

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

billions

Individual Por tfolio Entity CPPI*

-100%

0%

100%

200%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

YoY Change

Prices & VolumeLevelsFully Recovered

Source: Real Capital Analytics, March 2015

$(10,000,000.00)

$10,000,000.00

$30,000,000.00

$50,000,000.00

$70,000,000.00

$90,000,000.00

$110,000,000.00

$130,000,000.00

$150,000,000.00

1st Q

tr 0

83r

d Q

tr 0

81s

t Qtr

09

3rd

Qtr

09

1st Q

tr 1

03r

d Q

tr 1

01s

t Qtr

11

3rd

Qtr

11

1st Q

tr 1

23r

d Q

tr 1

21s

t Qtr

13

3rd

Qtr

13

1st Q

tr 1

43r

d Q

tr 1

41s

t Qtr

15

RMCB Western Slope

Mountain Markets

Gross Sales Volume

-

20

40

60

80

100

120

140

160

01Q1 02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1

Bill

ions

Individual Portfolio

Portfolio Buyers Dominate Trades

Source: Real Capital Analytics April 2013

0%

5%

10%

15%

20%

25%

30%

35%

1stQtr08

2ndQtr08

3rdQtr08

4thQtr08

1stQtr09

2ndQtr09

3rdQtr09

4thQtr09

1stQtr10

2ndQtr10

3rdQtr10

4thQtr10

1stQtr11

2ndQtr11

3rdQtr11

4thQtr11

1stQtr12

2ndQtr12

3rdQtr12

4thQtr12

1stQtr13

2ndQtr13

3rdQtr13

4thQtr13

1stQtr14

2ndQtr14

3rdQtr14

4thQtr14

1stQtr15

2ndQtr15

Rocky Mountain Commercial Sales as a % of Residential Sales

AlamosaEagle Garwood

Glenwood-Carbondale

San MiguelAlamosa

PRICE TRENDS BY PROPERTY TYPE

75

100

125

150

175

200

225

250

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Apartment

Industrial

Retail

CBD-Office

Sub-Office

Hotel

Source: Real Capital Analytics, Inc., May 2015.

MOST ACTIVE MARKETS OF 20142008 2009 2010 2011 2012 2013 2014 Market 2014 Sales Volume ($M) YOY Change

1 1 1 1 1 1 1 Manhattan 42,467,123,792$ 17%2 2 2 2 2 2 2 Los Angeles 25,682,322,089$ 4%3 3 3 3 3 3 3 Chicago 15,822,815,651$ 9%

24 14 9 8 5 12 4 San Francisco 15,343,566,857$ 116%4 6 5 4 6 4 5 Dallas 15,262,119,917$ 7%8 7 7 5 8 7 6 Boston 13,701,277,228$ 33%5 5 10 9 10 6 7 Atlanta 13,514,406,601$ 22%6 11 4 6 7 5 8 Houston 11,039,070,777$ -22%

10 15 20 17 13 11 9 NYC Boroughs 9,780,268,209$ 35%7 16 13 15 4 8 10 Seattle 8,654,241,666$ -6%

14 18 24 13 14 13 11 Denver 8,558,183,190$ 23%11 21 16 16 9 10 12 San Jose 8,366,140,591$ 12%12 12 14 14 11 14 13 Phoenix 7,749,416,371$ 17%15 8 8 12 15 17 14 DC 6,767,222,466$ 16%9 9 11 11 19 16 15 No NJ 6,671,192,079$ 12%

13 13 15 10 17 15 16 San Diego 6,606,351,574$ 10%18 4 12 22 16 22 17 Orange Co 6,252,581,865$ 39%22 32 22 26 18 18 18 Austin 6,140,367,050$ 16%21 22 21 19 23 23 19 East Bay 5,900,050,331$ 32%16 20 18 21 20 21 20 Miami 5,582,613,288$ 13%37 56 34 50 42 32 21 Hawaii 5,256,672,241$ 97%25 29 28 25 30 26 22 Philadelphia 5,254,127,534$ 45%20 10 6 7 12 9 23 DC VA burbs 5,170,254,565$ -40%17 19 17 20 22 19 24 Inland Empire 4,556,058,320$ -10%32 28 26 24 26 29 25 Tampa 4,464,451,976$ 42%28 53 42 28 24 28 26 Charlotte 4,382,873,454$ 29%27 25 25 30 29 20 27 Orlando 4,221,412,914$ -15%41 23 23 32 28 33 28 Broward 4,189,509,030$ 59%30 30 29 23 27 27 29 Minneapolis 4,100,633,698$ 20%26 31 32 31 31 34 30 Raleigh/Durham 3,963,493,112$ 54%23 27 31 33 33 30 31 Portland 3,731,238,550$ 28%45 52 40 34 32 31 32 Nashville 3,416,891,623$ 23%19 17 19 18 25 24 33 DC MD burbs 3,406,812,190$ -16%29 26 27 29 21 37 34 Baltimore 3,362,529,692$ 66%47 49 43 37 36 35 35 San Antonio 3,025,246,014$ 36%34 40 46 27 34 25 36 Las Vegas 2,810,898,232$ -24%42 33 30 38 44 44 37 Palm Beach 2,699,522,633$ 74%33 41 39 46 38 36 38 Detroit 2,557,867,204$ 22%46 55 49 52 46 41 39 Jacksonville 2,530,516,851$ 50%38 38 36 42 37 39 40 Central CA 2,375,082,579$ 28%

Rankings

$42,467$25,682

$15,823

$15,344

$15,262

$13,701

$13,514

$11,039

$9,780

$8,654

$8,558

$8,366

$7,749

$6,767

$6,671

$6,606

$6,253

$6,140

$5,900

$5,583

$5,257

$5,254

$5,170

$4,556

$4,464

$4,383

$4,221

$4,190

$4,101

$3,963

$3,731

$3,417

$3,407

$3,363

$3,025

$2,811

$2,700

$2,558

$2,531

$2,375

17%

4%

9%

116%

7%

33%

22%

-22%

35%

-6%

23%

12%

17%

16%

12%

10%

39%

16%

32%

13%

97%

45%

-40%

-10%42%

29%

-15%

59%

20%

54%

28%

23%

-16%

66%

36%

-24%

74%

22%

50%

28%

Property Price Cycle — RecoveringHistoric Cap Rates

Source: Real Estate Research Corporation — Chicago, February 2015.

Wide Yields Attracting Capital

Spread Between Cap Rates and 10-Year Treasury by Property Type

Source: Real Capital Analytics, 1Q 2015.

PLENTY OF CAPITAL FROM ALL SECTORS

Buyer Composition

User/Other Private Public Equity Fund Inst'l Cross-Border

http://www.rcanalytics.com

2014

Composition of Lenders 2014

http://www.rcanalytics.com

Debt Capital: Credit Conditions Improving

HEIGHTENED COMPETITION AMONG LENDERS

GROWING INFLUENCE OF CROSS-BORDER CAPITAL

Top Trade Route Flows Double From 2013 - 2014

2008 Physical and Financial Cycle2015 Physical Cycle Demand & Supply affect occupancies drives rental growth

Employment & Demand growth resumed 2Q 2010

Supply growth slowest in 43+ years (2013 bottom) supply increasing 2014&15

RE growth phase 2014-2016 (depending on market & property type)

2015 Financial Cycle Capital flows affect prices — stock market rebound 2013, volatile 2014 & 2015!

Real estate safest investment alternative 2000-2007, pushed prices up

Prices dropped 2008, 2009 = buying opportunities 2010 – 2014 now?

Debt financing harder 2013 - 15 - creating buying opportunity for Cash Buyers

Differentiate residential versus commercial real estate to your investors!

QUESTIONS?

Topics Covered

Economic Fundamentals5 key Macro Economic Drivers of Real Estate PerformanceEconomic Base Analysis

Real Estate Physical Cycle FundamentalsDemand for Real Estate Supply of Real EstateOccupancy CyclesRent Cycles

Real Estate Financial Cycle FundamentalsInterest RatesCapital FlowsReal Estate PricesCap Rates