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Ernst & Young IREM/BOMA Real Estate Forecast Breakfast

Ernst & Young IREM/BOMA Real Estate Forecast Breakfast. Commercial Real Estate Conditions and Outlook 29 January 2009. Agenda. Historical trends and effect of contracting economy on different product types

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Ernst & Young IREM/BOMA Real Estate Forecast Breakfast

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  1. Ernst & Young IREM/BOMA Real Estate Forecast Breakfast Commercial Real Estate Conditions and Outlook 29 January 2009

  2. Agenda • Historical trends and effect of contracting economy on different product types • 2008 transactions and status of commercial real estate since the collapse of the capital markets • 2009 outlook: capitalization and discount rates and real estate fundamentals

  3. Southern California Office Trends Vacancy Rates Source: REIS

  4. Southern California Office Trends Rental Rates Source: REIS

  5. Southern California Retail Trends Vacancy Rates Source: REIS

  6. Southern California Retail Trends Rental Rates Source: REIS

  7. Southern California Multifamily Trends Vacancy Rates Source: REIS

  8. Southern California Multifamily Trends Rental Rates Source: REIS

  9. Southern California Hospitality TrendsOccupancy Source: Smith Travel Research

  10. Southern California Hospitality TrendsRevenue per Available Room (“RevPAR”) Source: Smith Travel Research

  11. Southern California Industrial Trends Vacancy Rates Source: REIS

  12. Southern California Industrial Trends Rental Rates Source: REIS

  13. 2008 Transactions Leasing, Development and Finance Source: Real Estate Southern California, September 2008

  14. 2008 TransactionsAssets Source: Real Capital Analytics

  15. 2008 TransactionsAssets Source: Real Capital Analytics

  16. 2008 TransactionsAssets Source: Real Capital Analytics

  17. Private MarketsCap Rates Summary

  18. Summary • Commercial real estate will re-price by at least 20% of their 2007 peak given lack of debt and changing loan terms to percentages equal to REIT drops in value • There is no urgency in the market, as investors are motivated by distressed situations and are waiting on the side lines for non-performing debt to trade; it may be better to be late than early • Property owners who are unable to roll over their debts and are forced to sell assets will further put downward pressure on real estate values • Required yields for CRE investment are rising with a much higher real estate risk premium • Banks will continue to take losses, sell loans to borrowers at discounts and create a new distressed debt market • Declining fundamentals (occupancy and rents) due to economic conditions. • Begin Again in 2010………………

  19. How you feel today has a lot to do with your vantage point…

  20. Thank you. Troy L. Jones Ernst & Young LLPPrincipal, Transaction Real EstatePhone: + 1 213 977 3338 Email: troy.jones@ey.com

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