Beyond the Media Stories: What’s Happening in the USA?

1. Beyond the Media Stories: What’s Happening in the USA? John Thomas Global Real Estate Practice Group Leader

2. State of the U.S. Market • The market is fluid • No consistent answer to the question of how is the market • Strengths • Multifamily Housing • Super prime commercial • Health care related real estate

3. State of the Market • Weak spots • Home Building • Suburban Office • Unanchored Retail • Hospitality

4. Lender Preferences Source: NREI Lender Survey

5. State of the Market • Commercial rental growth is generally slow • Commercial vacancy rates remain high – 16.2% • 60bps below recessionary peak • 380bps below prerecession low • Week employment growth hurts office fundamentals. Growth follows employment.

6. Net Job Gains over Next 5 Years

7. State of the Market • Interest Rates are low • Capital is tight, but there are signs of progress • In 2Q 2011, net commercial and multifamily debt increased for the first time in 18 months

8. Outlook • The Good • Corporate profits are up • Prime office markets are holding up • Stock market at 4 year high • Unemployment is creeping down • Strong holiday retail season • Overseas Investors • Tourism increasing • Signs of life in the lending market

9. Lender and Borrower Optimism Source: NREI Survey

10. Outlook • The Bad • Forecasted GDB revised downward

11. Revised U.S. GDP

12. Outlook • The Bad • Fear of second global slow down • Federal Reserve retrenchment • Possible meltdown in Eurozone • Fear of credit crunch

13. Libor Spread over U.S. Treasuries

14. Outlook • The Bad (continued) • Political Stalemate • High energy and commodity prices • Stubbornly high unemployment

15. Slow Growth in Jobs

16. Outlook • The Bad (continued) • High consumer and government debt levels • Fiscal Drag

17. Outlook • Real estate concerns • Will bubble burst on top tier commercial • Lease renewals from 2007 top of market • Loan maturities from 2007 top of market • Credit crunch

18. The Cause • The impact of the housing crisis has been under reported • Home construction is a major economic driver • 55% of construction • Durable goods

19. The American Dream - Homeownership

20. The Cause • Aggressive lending practices supported by the Government • Low teaser rates • No amortization • Little or no underwriting • Home ownership increases • Wall street makes money • Construction Booms • Prices go up – owners feel wealthier

21. The Cause But then the bubble pops

22. Housing Prices . S&P/Case Shiller

23. The Cause Prices dropped in 18 of 20 largest markets 3.6 million mortgages are 90 days or more late Housing markets are out of balance S&P estimates 45 months to clear the market

24. National Association of Home Builders

25. Conclusions • Large debt levels suggest a slow recovery • Paying off debt will reduce consumer and government spending • Real estate implications • Wealth preservers go to quality • Long term investors look at: • Multifamily • Day to day retail • Mezzanine Debt • Higher return investors go for growth or distressed assets

26. Conclusions • How to move forward • Debt forgiveness in the home mortgage market • Political resolution

27. Lessons Learned Housing matters Political decisions have significant impacts. Despite challenges, savvy players thrive.