Capital MarketsUpdate
Brian StoffersPresidentCBRE Capital Markets
March 30, 2009
CB Richard Ellis | Page 2
This No Longer Looks Like 1990s
-600
-500
-400
-300
-200
-100
0
100
200
300
400-3
6
-32
-28
-24
-20
-16
-12 -8 -4 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56
1990s Today
Net # of Jobs Created per Month
# of Months out from Start of Job Losses
Month when negative job growth began…for 2008 this was January.
1990s
2008/09
January 2008
July 1990
Source: CBRE Econometric Advisors (formerly TWR)
CB Richard Ellis | Page 3
Historical Peak Through Recessionary Employment
Recession Period# of Months
in Recession
% Change Peak to Trough
Absolute Change Peak to Trough (Millions)
1920 Q1-1921 Q3 18 -10.5 -2.9
1929 Q3-1933 Q1 43 -24.6 -7.7
1973 Q4-1975 Q1 16 -2.8 -2.2
1980 Q1-1980 Q3 6 -1.3 -1.2
1981 Q3-1982 Q4 16 -3.1 -2.8
1990 Q3-1991 Q1 8 -1.5 -1.6
2001 Q1-2001 Q4 8 -2 -2.7
2007 Q4-? 12… -1.9 to date -2.6 to date
Source: BLS 2009
CB Richard Ellis | Page 4
This Recession is Deeper Already Except for One
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
6 12 18 24 30 36 42 48
Months
% C
ha
ng
e in
Em
plo
ym
en
t
1981 Recession 1991 Recession 2001 Recession Current Recession
Source: Bureau of Labor Statistics, Feb 2009
2001 Recession
1981 Recession
1991 Recession
Today
CB Richard Ellis | Page 5
But It Is Not the Depression!
-25
-20
-15
-10
-5
0
10 20 30 40 50 60 70 80 90 100 110 120 130
Months
% C
ha
ng
e in
Em
plo
ym
en
t
Great Depression 1981 Recession 1991 Recession 2001 Recession Current Recession
Source: Bureau of Labor Statistics, Feb 2009
CB Richard Ellis | Page 6
Business-Driven Economy: Succumbs
-5
-4
-3
-2
-1
0
1
2
3
4
5
2005 2006 2007 2008q1 2008q2 2008q3 2008q4
Consumer Driven GDP Business Driven GDP Government Driven GDP
Source: BEA and CBRE Econometric Advisors (formerly TWR)
Contribution to Headline GDP Growth (%)
CB Richard Ellis | Page 7
Layoffs and Dwindling Confidence...
-15
-10
-5
0
5
10
15
202
00
5 M
on
th1
20
05
Mo
nth
3
20
05
Mo
nth
5
20
05
Mo
nth
7
20
05
Mo
nth
9
20
05
Mo
nth
11
20
06
Mo
nth
1
20
06
Mo
nth
3
20
06
Mo
nth
5
20
06
Mo
nth
7
20
06
Mo
nth
9
20
06
Mo
nth
11
20
07
Mo
nth
1
20
07
Mo
nth
3
20
07
Mo
nth
5
20
07
Mo
nth
7
20
07
Mo
nth
9
20
07
Mo
nth
11
20
08
Mo
nth
1
20
08
Mo
nth
3
20
08
Mo
nth
5
20
08
Mo
nth
7
20
08
Mo
nth
9
20
08
Mo
nth
11
Personal Consumption Expenditure, annualized %
Source: CBRE/Econometric Advisors, BEA
...Have Led to Sharply Lower Consumer Spending
CB Richard Ellis | Page 8
…And Higher Personal Savings Rates
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.52
00
5 M
on
th1
20
05
Mo
nth
3
20
05
Mo
nth
5
20
05
Mo
nth
7
20
05
Mo
nth
9
20
05
Mo
nth
11
20
06
Mo
nth
1
20
06
Mo
nth
3
20
06
Mo
nth
5
20
06
Mo
nth
7
20
06
Mo
nth
9
20
06
Mo
nth
11
20
07
Mo
nth
1
20
07
Mo
nth
3
20
07
Mo
nth
5
20
07
Mo
nth
7
20
07
Mo
nth
9
20
07
Mo
nth
11
20
08
Mo
nth
1
20
08
Mo
nth
3
20
08
Mo
nth
5
20
08
Mo
nth
7
20
08
Mo
nth
9
20
08
Mo
nth
11
Personal Savings Rate, 3-month moving average
Source: CBRE Econometric Advisors, BEA
CB Richard Ellis | Page 9
CMBS Spreads…CMBS Spreads
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
Dec
-06
Jan
-07
Feb
-07
Ma
r-07
Ap
r-07
Ma
y-07
Jun
-07
Jul-
07
Au
g-0
7
Sep
-07
Oct
-07
No
v-0
7
Dec
-07
Jan
-08
Feb
-08
Ma
r-08
Ap
r-08
Ma
y-08
Jun
-08
Jul-
08
Au
g-0
8
Sep
-08
Oct
-08
No
v-0
8
Dec
-08
Jan
-09
Feb
-09
Ma
r-09
AAA (10-Yr.) AA A BBB 10-Year Swap Spread
Source: Citi
CB Richard Ellis | Page 10
U.S. Commercial & Multifamily Outstanding
Source: Mortgage Bankers Association March 2009
BY CAPITAL SOURCETotal $3.5 Trillion
44.3%
21.3%
9.0%
7.8%
5.5%
5.4%4.3%
Commercial Banks CMBS, CDO and other ABS issues
Life Insurance Companies Others
Savings Institutions Government-sponsored enterprises
Agency- and GSE-backed mortgage pools
CB Richard Ellis | Page 11
Source: JP Morgan, Bloomberg Mar. 25, 2009.
Bank Market Cap
CB Richard Ellis | Page 12
Annual Historical Sales by Property Type
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2001 2002 2003 2004 2005 2006 2007 2008
Billions
Multi-Housing Industrial Office Retail
Source: Real Capital Analytics
CB Richard Ellis | Page 13
Quarterly Historical Sales by Property Type
$0
$20
$40
$60
$80
$100
$120
$140
07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4
Billions
Multi-Housing Industrial Office Retail
Source: Real Capital Analytics
CB Richard Ellis | Page 14
Annual Sales Volumes All Core
$99
$149
$213$235 $227
$102
$23
$43
$59$59
$116
$28
$13
$9
$35
$95
$1
$0
$100
$200
$300
$400
$500
2003 2004 2005 2006 2007 2008
annual volume in billions
entity
portfolio
individual
Source: Real Capital Analytics
CB Richard Ellis | Page 15
Potential for Refinance Risk Begins in Earnest in 2010
Source: J.P. Morgan, Trepp.
Market looking out to 2012 refinancing capabilities; significant five-year full-term 10 exposure
10 Year Loans
0
20
40
60
80
100
120
140
2009 2010 2011 2012 2013 2014 2015 2016 2017
Am
ou
nt
to r
efin
ance
($b
n)
Amortizing Partial 10 Full-Term 10
All Loans
0
20
40
60
80
100
120
140
2009 2010 2011 2012 2013 2014 2015 2016 2017
Am
ou
nt
to r
efin
ance
($b
n)
Amortizing Partial I0 Full-Term I0
5 Year Loans
0
5
10
15
20
25
30
2009 2010 2011 2012 2013 2014 2015 2016 2017
Am
ou
nt
to r
efin
ance
($b
n)
Amortizing Partial 10 Full-Term 10
7 Year Loans
0
3
6
9
12
15
2009 2010 2011 2012 2013 2014 2015 2016 2017
Am
ou
nt
to r
efin
ance
($b
n)
Amortizing Partial 10 Full-Term 10
CB Richard Ellis | Page 16
Estimated Quarterly Mortgage Originations
Source: Mortgage Bankers Association
CB Richard Ellis | Page 17
What’s in & What’s Out
IN OUT
On-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 Interest Only
Reserves Funded in Cash No Funded Escrow
450+/- Spreads 100+/- Spreads
Floor Rates Unlimited Float
DCR’s In-Place Proforma DCR’s
Recourse Non-recourse
CB Richard Ellis | Page 18
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46
Months
All
UK
Pro
per
ty,
Mo
nth
ly C
apit
al V
alu
e In
dex
(C
um
ula
tive
%
chan
ge)
From Oct 1989 From June 2007
U.K. Property: Capital Decline is Faster This Time
-35.5%
-27%
-16.0%
Source: IPD Monthly Index (December 2008)
CB Richard Ellis | Page 19
But Not Here!
-11.5%
-32.3%
Source: NCREIF
Cumulative Change in NCREIF NPI Appreciation
-35
-30
-25
-20
-15
-10
-5
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Quarters
Cu
mu
lati
ve P
erce
nta
ge
Ch
ang
e
From 1990 Q1 From 2007 Q4
CB Richard Ellis | Page 20
How High Will Institutional Cap-Rates Go?
4
5
6
7
8
9
101
98
4.4
19
86
.2
19
87
.4
19
89
.2
19
90
.4
19
92
.2
19
93
.4
19
95
.2
19
96
.4
19
98
.2
19
99
.4
20
01
.2
20
02
.4
20
04
.2
20
05
.4
20
07
.2
20
08
.4
20
10
.2
20
11
.4
20
13
.2
20
14
.4
Spiral Base
Appraisal based Office Cap-Rate, %
Forecast
In the Financial Spiral scenario, an ineffective government response will spur further pullbacks in debt availability and push cap-rates back to levels seen in 2003 wiping out the decade’s gains for many pension funds.
Source: CBRE Econometric Advisors Investment Outlook Winter 2009, NCREIF
CB Richard Ellis | Page 21
Fundamentals Moving into the Danger Zone
*Except Multifamily and Hotels, which are preliminary
Source: CBRE Econometric Advisors Outlook XL
Vacancy and Availability Rates
2008Q4*Previous
Peak“Natural
Rate”
Office 13.9 17.0 13 to 15
Industrial 11.3 11.8 9 to 10
Retail 10.4 9.7 9 to 10
Multifamily 6.9 6.7 5 to 6
Full Service Hotels 40.1 44.2 34 to 38
CB Richard Ellis | Page 22
Where Are We?
“Too late to sell, too early to buy” …– Sellers have regret but under insufficient pressure to sell at the
moment.– Buyers in no rush
Forced sellers will come from– Balloon refinancing risk – Covenant violation that are enforced
Buyers identifying value– “Wave”, not “Wall” of equity, but only at the right price– Prices on core need to adjust to offer long term value
Return of debt market– When it happens, it won’t look like it did in 2006/7!– Most likely—insurance model
Fundamentals will perform poorly in 09/10.
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