Jeff Glenn CB Richard Ellis Thursday March 19, 2009 2009 MARKET FORECAST: Capital Markets

Jeff GlennCB Richard EllisThursday March 19, 2009

2009 MARKET FORECAST: Capital Markets

CB Richard Ellis | Page 2

What’s going on…?

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Raleigh – Durham Historical Transaction Volume

Source: CB Richard Ellis

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Raleigh – Durham Product Allocation (Millions)

Source: CB Richard Ellis

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Raleigh – Durham 2008 Quarterly Sales (Millions)

Source: CB Richard Ellis

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Raleigh – Durham 2008 Top 10 Sales Transactions

Source: CB Richard Ellis

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Raleigh – Durham Apartment Transaction Volume

Source: CB Richard Ellis

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Raleigh – Durham Apartment Buyer Distribution (Millions)

Source: CB Richard Ellis

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Raleigh – Durham Office Transaction Volume

Source: CB Richard Ellis

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Raleigh – Durham Office Buyer Distribution

Source: CB Richard Ellis

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Raleigh – Durham Retail Transaction Volume

Source: CB Richard Ellis

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Raleigh – Durham Retail Buyer Distribution (Millions)

Source: CB Richard Ellis

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Raleigh – Durham Warehouse/Flex Transaction Volume

Source: CB Richard Ellis

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Raleigh – Durham Warehouse/Flex Buyer Distribution (Millions)

Source: CB Richard Ellis

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Raleigh – Durham Total Buyer Distribution

Source: CB Richard Ellis

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Raleigh – Durham Total Seller Distribution

Source: CB Richard Ellis

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While Underwriting Standards Relaxed…

Source: JP Morgan, ING 2Q 2008

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Allowing Subordination Levels to Fall

CMBS Deal Subordination Levels

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Spreads Widen to Historic Levels

Bps Spread over Swaps

0

200

400

600

800

1000

1200

1400

1600

1/2

1/16

1/30

2/13

2/27

3/12

3/26 4/

9

4/23 5/

7

5/21 6/

4

6/18 7/

2

7/16

7/30

8/13

8/27

9/10

9/24

10/8

10/2

2

11/5

11/1

9

AAA.4AAA Cash Spreads

Lenders are rational and have choices. So long as their choices (buying paper in the secondary market) are more attractive than origination, they will not originate.

Source: Markit, Morgan Stanley

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Spreads Widened…Why?

Source: Mortgage Bankers Association 2008

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Estimated Quarterly Mortgage Originations

Source: Mortgage Bankers Association

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Source: RealPoint 2008

Maturing CMBS Mortgages

$0

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

2008 2009 2010 2011 2012 2013 2014 2015$0

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

2008 2009 2010 2011 2012 2013 2014 2015

Healthcare Hotel Industrial Mixed (Other) Multifamily Office Retail

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$3.4 Trillion Debt Outstanding

Source: CBRE Torto Wheaton Research 2008

U.S.- How Much Are We Talking About?

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Rates Help Out!

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2009: What’s In & What’s Out

CHANGING MARKET DYNAMICSIN OUTOn-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 Amortization- Interest Only

Reserves Funded in Cash No Funded Escrow

450+/- Spreads 100+/- Spreads

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New Capital StackMarket Is De-Leveraging

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008Loan Breakout

Percen

tage L

TV

EquityPref. EquityMezzanineB-NoteA-Note

Equity, 2%Pref. Equity,

8%

Mezzanine, 10%

B-Note, 15%

A-Note, 65%

A-Note, 45%

B-Note, 15%

Mezzanine, 15%

Equity, 25%

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Why Are Values Going Down?

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With Buyers Re-Trenching

Source: CB Richard Ellis

Raleigh – Durham

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How High Will Cap Rates Go?

4

5

6

7

8

9

1019

86.1

1986

.419

87.3

1988

.219

89.1

1989

.419

90.3

1991

.219

92.1

1992

.419

93.3

1994

.219

95.1

1995

.419

96.3

1997

.219

98.1

1998

.419

99.3

2000

.220

01.1

2001

.420

02.3

2003

.220

04.1

2004

.420

05.3

2006

.220

07.1

2007

.420

08.3

2009

.220

10.1

2010

.420

11.3

2012

.220

13.1

2013

.420

14.3

Base Spiral

Appraisal Cap-Rate, %

Source: TWR Investment Outlook, Winter 2009

Forecast

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What To Do

Focus on Your Tenants Right-Size Expense Base Underwrite to Positive Leverage “Partner” with Your Lender Keep the Faith