VK Shutters Client Presentation (1!31!12) _final

8/12/2019 VK Shutters Client Presentation (1!31!12) _final

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CAPITAL MARKETS PRESENTATION

JANUARY 31, 2012


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CAPITAL MARKETS UPDATE


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Continued Themes & Concerns

Stability of the European Banks & Sovereigns

How much are low rates the result of low growthprospects/global risk concern or the result ofaggressive Fed policy? Should we be concernedwith 10-Year rates at 2%?

Where will the mountains of cash & liquidity go in a0-2% rate environment with limited opportunities foryield?

How does a global investment system built on 7-8%annual returns adapt to the reality of earning nadain low risk assets while fearing inflation?


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Complacency is gone; Volatility is back; but theworld is much calmer today than Q4.

The VIX index spiked 146% as of August 8th;but now back below pre-July 15 levels.

The Fed has made it clear that rates will be low

for an extended period of time.

What Has Happened in the Overall Capital MarketsSince July 15


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What Has Happened in the Overall Capital MarketsSince July 15

5 year Treasuries have dropped 67 bps & 10year Treasuries have dropped 98 bps.

CMBS spreads widened 90-100 bps, but AAA

spreads have come back in significantly. Markets are settling into a new paradigm; slow

to moderate growth but extremely low fixed

income returns.


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1000

1050

1100

1150

1200

1250

1300

1350

1400

7/15

7/25 8/

28/

108/

188/26 9/

29/

129/20

9/28

10/6

10/1

4

10/2

411/1

11/9

11/17

11/25

12/5

12/13

12/2

1

12/29

1/6

1/16

1/24

S

&P500

10

15

20

25

30

35

40

45

50

VIX

S&P 500 VIX Index

Source: Bloomberg

S&P 500 vs. VIXJuly 15, 2011 - Present

S&P up 0.6%

VIX down 4.9%

+146%+133%


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0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

7/15

7/28

8/10

8/23 9/5 9/

1810/1

10/14

10/27 11

/911/22 12

/512/18

12/31 1/

131/26

5-Year 10-Year

Source: Bloomberg

U.S. Treasuries

July 15, 2011 to Present

0.77%

1.93%

10 Yr. Treas. -98 bps

5 Yr. Treas. -67 bps


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CMBS 2.0/3.0 Yield Curve

106

143

188235

650

375

225

475400

525

690

110

0

100

200

300

400

500

600

700

800

AAA AA A BBB

BasisPointsoverSwaps

March 2011 August 2011 January 2012

Source: Wells Fargo Securities


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45

50

55

60

65

70

75

7/15

7/28

8/10

8/23 9/

59/18

10/1

10/14

10/27

11/9

11/22

12/5

12/18

12/31

1/13

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Price

Source: Trepp

2007 CMBXJuly 15, 2011 to Present

Investors have pulled away from risk; but now confidence has returned

AJ: 55-60% 2007 LTV down 21 pts.at low, but now down just 2 pts.

Down 21 pts.


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0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-1

4

Sep-14

Nov-14

Jan-15

1Mo. LIBOR 5-Year 10-Year Source: Chatham Financial

Meanwhile, The Bond Markets PredictLow Rates for a Long Time

10 Yr. Treas. less than2.70% for 3 years


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Conundrum Faced By CIOs TodayAnnual Returns on $100 mm Invested

Return(%)

Return($)

1 Month Treasury 0.00% $0

5 Year Treasury 0.75% $0.75 mm

10 Year Treasury 1.95% $1.95 mm

AAA 10 year CMBS 3.25% $3.25 mm 1.67x

Treasuries

Class A Core Real Estate 7.00% $7.00 mm 3.59xTreasuries


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-10%

-5%

0%

5%

10%15%

20%

25%

30%

35%

40%

45%

50%

Jan-10

Apr

-10

Jul-1

0

Oct

-10

Jan-11

Apr

-11

Jul-1

1

Oct

-11

Jan-12

S&P NASDAQ MS REIT (Total Return Index)

Source: Bloomberg

U.S. REITs Have Outperformed Other MarketsJanuary 2010 - Present

S&P: +18.2%

NASDAQ: +23.6%

MS REIT: +48.8%


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-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

7/15

7/28

8/10

8/23 9/

59/

1810/1

10/1

4

10/27

11/9

11/22

12/5

12/18

12/3

11/13

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Industrial Retail Apartment Hotel Office

Source: Bloomberg (Bloomberg REIT Indexes)

REIT Performance by SectorJuly 15, 2011 - Present

Industrial: +9.2%

Retail: +4.6%

Apt: -1.0%

Hotel: -2.9%Office: -8.7%

Oct. 3rd HotelsDown 37.0%


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DEBT CAPITAL MARKETS UPDATE


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Current Themes in the Debt Markets Huge amounts of liquidity are in the system due

to

a) low of corporate, consumer, and MBSissuance, and

b) aggressive Fed policy

Strong Life Co, Bank, & CMBS demand fordecent product.

Widening spreads for assets < 60% leased or

low in place cash flow

Overall spreads for stabilized assets still haveroom to tighten


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Retail$4.0B21%

Multifamily$0.6B

3%

Industrial$0.8B

4%

Hotel$3.8B21%

Office$9.4B50%

CMBS$3.9B

21%

Life Cos

$6.1B

33%

Foreign Banks$2.3B

12%

Finance Co's/Funds

$1.1B6%

US Banks

$5.2B

28%

Eastdil Secured Debt Placements Closed & Under ContractJanuary 2011 Today: $18.5 Billion

Source: Eastdil Secured, as of January 26th, 2012

Lender Type

Product Type


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CMBS 3.0 In 2011, total issuance was $35 billion, 15 deals were done

above $1 billion; 2 deals above $2 billion.

After a volatile Q3-Q4 in 2011 that created material losses,CMBS shops are back in business and actively pursuingdeals. Estimated 2012 volume is $50 bill ion.

More competitive on intermediate size deals ($50-$100mm); deals at 50% or less leverage; and deals at65%-75% leverage.

Less Competitive on a) low debt yield deals, b) deals

between 55%-65% leverage.

Primary Concerns a) limited ability to effectively hedgeloans, b) sufficient transaction volume to build pools timely.


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Source: Commercial Mortgage Alert

U.S. CMBS Issuance2002 2011

$78

$93

$229

$198

$167

$35

$12

$52

0

50

100

150

200

250

2002 2003 2004 2005 2006 2007 2010 2011 2012

Estimate

billions

$50


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Source: Morgan Stanley & Wells Fargo Securities

Historical AAA CMBS Spreads to Swaps

4738

3127 25

100

200

110

0

20

40

60

80100

120

140

160

180

200

220

2002 2003 2004 2005 2006 May-11 Aug-11 Jan-12

BPSo

ver

Swaps


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Life Companies

Most aggressive lenders for moderate leverage,quality deals with good sponsorship.

Significant amount of capital available for 5, 7 to10 year, fixed rate deals, but growing interest in 5year debt.

Targeting $50 bill ion in originations in 2012.

Least impacted by market turmoil.

Some groups starting to get full on certain largeCBDs.


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Bank Lending

Growing number of bank balance sheet lenders inthe market, but material concerns about European

Banks. Banks have significant liquidity with limited

corporate and consumer demands.

Initially increased their exposure to real estate viaREITs; now expanding exposure to project basedloans.

Growing interest from Asian banks; slow demandfrom European banks


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FIXED RATE COUPONS LIFE CO. CMBS

LTV: 50.0% 60.0% 65.0% 70.0%

5 Year Fixed 3.75% 4.00% 5.25% 5.40%

10 Year Fixed 4.25% 4.50% 4.90% 5.10%

FLOATING RATE SPREADS AND COUPONS (BANKS)

50.0% 60.0% 65.0% 70.0%

5 Year Floating Spread 2.00% 2.50% 2.75% 3.25%

5 Year Swapped to Fixed 3.05% 3.55% 3.80% 4.30%Treasury/Swaps: 5 year at 0.80%/1.05%; 10 year at 1.95%/2.05%, 1 Mo. LIBOR at 0.30%

Current Loan Pricing Class A Office; 85%+ Leased;Top 10 Market


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Current Themes in the Equity Capital Markets

Activity is accelerating again as confidence

returned in January. Cap rates are stable after some pressure last

quarter.

Economically sensitive deals - hotels & majorlease up situations have been impacted most inthe 4th quarter, but are improving in 2012.

Core plus with a story under some pressure.


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Well leased deals have held very well &

opportunities with an attractive basis/foot haveheld well.

Some REITs stepped back to assess the market

given stock price volatility in 4th quarter; but arenow focused again as market has stabilized.

Current Themes in the Equity Capital Markets


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$121

$68

$23$51 $62

$118

$160

$184

$279

$68

$35

(23%)

$48

(24%)

$61

(25%)

$102

(27%)

$32

(20%)

$0

$50

$100

$150

$200

$250

$300

$350

$400

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

B

illions

Al l Other US West Coast & AZ

$66 $80

$153

$208

$245

$381

$86

$153

$31

$87

US Sales VolumeTransactions >$25 Million

Source: Real Capital Analytics

2011 Volume Equaled 2004

Pricing is approaching2005/2006 levels

West Coast less activethan East


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West Coast & ArizonaTransactions >$25 Million by Property Type

Source: Real Capital Analytics

$0

$20

$40

$60

$80

$100

$120

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

B

illions

Apartment Hotel Retail Office Industrial

$15 $18

$35$48

$61

$102

$18

$7

$19

$31

Office 28%

of Volume

Office 43%of Volume


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30

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Jan . 2007

(Pre EOP)

May 2010 Jan. 2011 Jan. 2012

billio

ns

200

220

240

260

280

300

320

#o

fD

ea

ls

Prop Sales Financings

Loan Sales JV/Private Equity

# of Deals

$82.0

$24.2

$34.6

$47.7

Source: Bloomberg

Eastdil Secured Active TransactionsIn Process: Sales, Financings, Loan Sales & JVs(Private Market Only)

37% YOYIncrease


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-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Pu

blicV

alueas

%o

fNAV

31

Source: Green Street Advisors, As of 1-20-12

13.1%(1)

(1) Current premium to asset value is 9.5% on an unlevered basis.

4.6% avg.

REITs vs. Private Market Real EstateREITs Are Back to a Premium


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$8.1

$15.3$12.3

$18.0$13.7 $11.6

$24.2 $25.6$5.2

$5.9

$3.1

$4.2

$4.2

$1.2

$2.6

$12.3

$17.3

$22.1

$26.8

$18.2

$5.2

$10.4

$19.2

$13.8

$33.4

$4.1

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2003 2004 2005 2006 2007 2008 2009 2010 2011

Billions

Common Shares Preferred Equity Unsecured Notes

$25.6

$38.5

$49.0

$36.0

$18.0

$34.6

$47.5

$37.5

$51.3

Source: NAREIT

REIT Balance Sheets are in Good ShapeWith $80 Billion of Purchasing Capacity

Total Equity$89.9 Bil lion


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Upcoming Maturities

Source: Trepp (Foresight Analytics)

$166 $188 $205

$214 $210$185

$156

$20$21

$22 $23 $24

$23

$22

$76 $55

$54 $54 $62

$67$102

$59 $62

$66 $71 $72

$69 $59

$0

$50

$100

$150

$200

$250

$300

$350

$400

2009 2010 2011 2012 2013 2014 2015

billions

Banks Insurance Co's CMBS Other

$347 $362 $368 $344 $340

$243$242


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$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

$180.0

$200.0

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

billions

Non Construction, Standing CRE Loans Commercial Construction & Land Dev. Loans REO

Commercial Banks & S&Ls30+ Day Past Due & Nonaccrual

Commercial, Construction & Land Development Loans

Source: FDIC Insured Institutions

$105.2

$189.6

$143.2

Future Supply - Banks


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In Foreclosure

$18.36B

22%

90+ Days

$12.68B

15%

60 Days

$2.26B

3%

30 Days

$2.64B3%

REO$15.57B

19%

NonPerf/Mat

Balloon

$7.04B

8%

Performing

$24.7B

30%

Special Servicing Delinquent Loans by CategoryTotal: $83.3 Billion

Source: Trepp

56% ($47B) are90+ Days, in

Foreclosure or

REO

$18.1 Billion ofloans > $25 mm

and > 90+ Days inForeclosure or

REO


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9.0-10% unlevered IRR & 1.75-2x EquityDiscount to replacement costExit in 3 to 5 years @ 10-20% discount to 2007 levels

8.5 9.0% unlevered IRR, levered IRR 12.0% to 14.0%;Focus on stabilized yields (ballpark 7.0-7.5% range)

7.5 - 8.5% unlevered IRR, levered IRR 9.0 - 10.0%Underwriting modest rent growth 2014-2016 to 2007 levelsby 2016

7.0 - 7.5% unlevered IRR, levered IRR 8.0 - 9.0%Sub 5% cap if occupancy sub 85%. As high as 6.0% if

stabilized.

Return Metrics

CORE

CORE-PLUS

VALUE-ADD

TROPHY

Asset ProfileCurrent Investment Climate / West Los Angeles


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10% unlevered IRR 15% or higher levered IRR; Focus on exit pricing below

replacement cost 1.75-2x equity multiple ideally

7.5% to 8.5% unlevered IRR 6.5% to 7.5 stabilized cash on cash yield

7- 8% unlevered IRR, 10% to12% levered IRR Underwriting rent growth of 20-30% over 3-4 year period,

with a year of 10% growth trending down

6.5 -7.5% unlevered IRR, levered IRR 9.0-10.0% 5 - 5.5% cap rate

Focused on price psf relative to replacement cost andpeak 2007

Return Metrics

VALUE-ADD

TROPHY

Asset Profile

Current Investment Climate / San Francisco

CORE

CORE-PLUS


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OBSERVATIONS


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Observations European debt issues seem under control at this

time but can create material volatility until resolved.

None off us should be complacent given theEuropean situation & job issues.

The transaction market was remarkably resilient.

Sustained low interest rates will make capital veryitchy to find homes.

Investors will see limited opportunities in fixedincome investments pushing them towards real

estate debt.

Lingering fears of inflation will further push capitalinto real estate.


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Observations Activity will continue to increase with 2007 debt

maturities & global deleveraging.

Lending standards have tightened and spreads willcontinue to be relatively tight.

Growth rate & absorption assumptions have been

reduced, but exit cap rates & debt cost assumptionshave fallen to offset much of that change.

Economically sensitive deals are more challenging andpriced case by case depending on basis per foot.

Investors will pay up for lower risk. Pricing will increasefor core, well leased product, but definition will narrow.


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CAPITAL MARKETS PRESENTATION

JANUARY 31, 2012

Documents

VK Shutters Client Presentation (1!31!12) _final