2 3

A Brief History of CMBS

6048

3427

943756865123322

72

48

33

12416

228

198

167

93

78

51

68

4757

74

3726

16

-

50

100

150

200

250

Issu

an

ce ($BB)

Agency and Private-Label CMBS New Issue Volumes

Private-Label CMBS Agency CMBS

Source: Jefferies & Co., Commercial Mortgage Alert *Projected

CMBS Spread Projections in 2013

CMBS spreads will continue to decline in 2013, although at a

slower pace than in 2012, due to:

– Historically low rates

– Technicals:

Reduced securitized products

Run off in CMBS

– Improving CRE fundamentals

– Relative value vs. competing sectors

– More readily available leverage

– Continued tame spread volatility

3 3

CMBS Conduit Lender Competitiveness Growing

Wider/volatile CMBS spreads and ineffective loan pipeline hedging tools drove up conduit loan rates during 2H11

– Only effective hedge was building in cushion via a higher rate to absorb the spread volatility

– Reduced volatility and strong demand for high-grade risk assets yielded tighter CMBS spreads and sharply lower mortgage rates in 2012

Conduit mortgage rates closing in on portfolio lender rates, but can‟t touch the GSEs

– Conduit rates of 3.90% to 4.50%

– Life Co. rates of 3.50% to 4.50%

– Regional bank rates of around 5.00%

4 3

4.00

5.00

6.00

7.00

8.00

9.00

-

50

100

150

200

250

Am

ou

nt

Co

mm

itte

d (

$B

)

Life Company Vs. CMBS Commercial/ Multifamily

Mortgage Commitments and Contract Interest Rates

(2000-2012)

Life Co. Amt. ($B) CMBS Amt. ($B)

Life Company Rate (%) CMBS Mortgage Rate (%)

Source. ACLI, Jefferies & Co. Note: No CMBS data in late-08 through YE09. *Annualized 2012

5 3

2007: $228 Billion Total Issuance

64 Fixed-rate Conduit CMBS – $192b

2 Single-borrower CMBS – $11b

13 Floating-rate CMBS - $20.8b

-----------------------------------------------------------------------------------------

2009: $2.74 Billion Total Issuance

3 Single-Borrower CMBS – 144(a)

2 Private Freddie K CMBS

-----------------------------------------------------------------------------------------

2010: $11.6 Billion Total Issuance

7 Conduit CMBS – 144(a)

4 Single-borrower /Other CMBS – 144(a)

5 Private Freddie K CMBS

-----------------------------------------------------------------------------------------

2011: $32.2 Billion Total Issuance

18 Fixed-rate Conduit CMBS – Public, 144(a)

8 Single-borrower /CMBS – Private 144(a)

11 Private Freddie K CMBS

-----------------------------------------------------------------------------------------

YTD 2012: $48.0 Billion Total Issuance

27 Fixed-rate Conduit CMBS – Public, 144(a) - $32b

21 Single-borrower /CMBS – Private 144(a) - $10.1b

16 Private Freddie K CMBS - $3.3b

3 Non-Performing CMBS – Private 144(a) - $486mm

CMBS Issuance Volumes Show Slow But Consistent Annual Growth

0

10

20

30

40

50

60

Issu

an

ce ($B)

New Issue CMBS by Deal Type

Other

Floaters

Single Borrower

Conduit/Fusion

Source: Jefferies & Co., CM Alert

CMBS Volume Projections in 2013

CMBS Volume will exceed $70mm in 2013, due to:

More competitive CMBS spreads relative to bank and life

company lenders

High levels of debt and equity capital

Increasing property transactions

Growing pool of refinanceable loans, particularly given

outlook for historically low mortgage rates

Increasingly aggressive first mortgage underwriting

Expanding subordinate debt markets

6 3

Rising Debt and Equity Capital for CRE: Transaction Volume Up from the Trough

7

79102

122

207

308354

513

139

60

123

180

300

0

100

200

300

400

500

600S

ale

s V

olu

me

($

B)

CRE Property Transaction Volume

Source. RCA *Est.

CMBS 3.0 – Increasing Leverage As Per the Rating Agencies

8

60

80

100

120Fixed-Rate Conduit/Fusion CMBS Stressed LTV (%)

Source: Jefferies & Co. *YTD 2012 Data

0.80

1.00

1.20

1.40Fixed-Rate Conduit/Fusion Stressed DSCRs

Source: Jefferies & Co. *YTD 2012 Data

CMBS Maturities Level Off in 2013 and 2014 Before Heading Into the Wall

9

0

20

40

60

80

100

120

140

-

2,500

5,000

7,500

10,000

Loan

Cu

rr. Bal. ($

B)

Loan

Cou

nt

Fixed-Rate Conduit/Fusion Maturity Schedule

(Excludes Defeased Loans)

Outstanding

Balance ($B)

Loan Count

Source: Jefferies & Co. Excluding Defeased Loans. *as of 11/12

Ability to Refinance Depends on Vintage/Seasoning

Majority of loans maturing in „13 originated in „03 and ‟04

„03 loans are structurally more sound, but adverse selection issues weigh on outlook

– Amortizing

– Higher loan coupons at origination than today

– Higher cap rates at origination and thus equity build-up as cap rates lower today

$18B of fixed rate 10-year „03 vintage loans to mature in ‟13

$6.2B of fixed rate 9/10-year „04 vintage loans to mature in „13

10 3

Vintage

Avg.

Coupon

(%)

Avg. Cap

Rate (%)

Avg. Loan

Spread

(BPs)

Avg. Pool

LTV (%)

Avg. 10

Swap Rate

(%)

1998 8.25 8.56 300 69.3 5.25

1999 7.99 8.45 234 69.2 5.64

2000 9.48 8.64 233 69.4 7.15

2001 8.20 8.41 238 68.7 5.82

2002 7.19 7.98 202 68.9 5.17

2003 6.14 7.67 173 66.8 4.41

2004 6.18 7.25 149 68.9 4.69

2005 6.03 6.79 130 68.7 4.73

2006 6.67 6.36 135 68.0 5.32

2007 8.51 5.74 328 69.1 5.24

2008 8.62 5.36 438 66.8 4.24

2009 NA 6.72 NA - 3.44

2010 5.83 6.20 258 57.9 3.25

2011 6.36 5.82 246 63.9 3.90

2012 5.77 4.26 272 62.1 3.05

Sources: Jefferies, Trepp, NCREIF. *Across all property types.

Fixed Rate Coupons and Capitalization Rates by Vintage

CRE Values Remain Depressed Nationally, But Many MSAs in Recovery Mode

Commercial Property Prices (as of 10/12)

– Lower by 22% from 10/07 peak

– Declines vary by asset

type/quality/location

By Property (peak thru 10/12)

– Retail: -35%

– Office: -25%

– Industrial: -23%

– Multifamily: -12%

But Recovery Well Underway

– National all-property composite has

regained 43% of its peak-to-trough loss

Core MSAs in Full Recovery, Non Major

MSAs Lag

– Non-major markets recovered 27% of

peak-to-trough loss

– Major markets recovered 65% of loss

11 3

75

100

125

150

175

200

Commercial Real Estate Values Past the Trough (as of 10/12)

National CPPI

Source. Moody's Investors Service, S&P

159.02 162.27154.72

161.24164.19

123.51131.83

141.97

0.00

40.00

80.00

120.00

160.00

200.00

CPPI by Property Type: 2008 vs. 2012

10/31/08 10/31/12

Source: Moody' s/REAL CPPI

Improving Commercial Real Estate Valuations– An Uneven Recovery

12

75

100

125

150

175

200

225

Moody' s/REAL CPPI by Major/Non-Major Markets vs.

National

Major Mkts.

Non-Major

Mkts.

National

Source. Moody's Investors Service

Source. Moody' s, *as of 10/12.

75

100

125

150

175

200

225

Moody' s/REAL CPPI by Property Type

Office

Industrial

Retail

Apartment

Source. Moody's Investors Service

Source. Moody' s, *as of 10/12.

CRE Supply Technicals Bode Well for Valuations

Retail: Completion taking further dip

Office: Completion dip surpassed the previous lows of 1994 and 2004

Industrial: Showing similar trend to office with triple dips at 1993, 2003 and now 2012

Hotels: Showing a great pick-up in completions, at the peak currently

Apartments: lowest completions since 1994

13

-

50,000

100,000

150,000

200,000

250,000

300,000

Net C

om

ple

tion (SF

x 1000)

National Net Completion (SF) for Retail, Office and

Industrial Propert ies

RT

OF

IN

Source. CB Richard Ellis

-

100

200

300

1,950

2,000

2,050

2,100

2,150

2,200

Un

its (x1000)

Room

s (x

100

0)

National Net Completion Data for Mult ifamily and

Hotels

HT

M F

Source. CB Richard Ellis

Important Disclosures

14 3

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