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Discover Leadership / Discover Excellence / Discover Success
Joe StettiniusPresident | Cassidy Turley
Highlights – Industrial
WRIT Washington DC Portfolio
Client: WRITSF: 3.1 millionPrice: $350 million
Discover The State of Real Estate / 2012
Highlights – Multifamily
JLL CBRE Cushman &
2011 DC Multifamily Development Finance Market Share
HFF30%
JLL8% 0% Wakefield
0%
Cassidy Turley62%62%
Discover The State of Real Estate / 2012
2011 Recognition
Discover The State of Real Estate / 2012
Kevin ThorpeChief Economist | Cassidy Turley
World GDP Grows by 2.5% in 2012Russia China
GDP, 2012, Year-over-year % change
2.5
Canada
1 7
UK Japan
3.6
Russia
7 5
India9.1
China
1.7
-0.3
Eurozone2.0
7.5
3.8
Brazil
Discover The State of Real Estate / 2012
Source: Cassidy/Turley Research
U.S. Bank Exposure to the Euro-Zone% of Tier 1 Capital
90
76 7%
Exposure to entireEuro-zone
60
70
80 76.7%
Private
30
40
50
BanksExposure to
Peripheral Countries
0
10
20
Portugal, Ireland, Italy, Greece, Spain All Claims(Entire Eurozone)
Public
16.8%
Discover The State of Real Estate / 2012
Source: Capital Economic, BIS
Portugal, Ireland, Italy, Greece, Spain All Claims(Entire Eurozone)
Still DeleveragingHouse Debt-to-GDP
100%
60%
80% Historical Average
0%
20%
40%
0%
Discover The State of Real Estate / 2012
Source: Federal Reserve Board
2011 F t 2012 F t
NABE’s Consensus ForecastAnnual Forecast Made November 2011
2011 Forecast 2012 Forecast
Median FiveLowest
Five Highest Median Five
LowestFive
Highest
Real GDP, % change, Q4/Q4 1.7 1.2 2.0 2.4 0.9 3.8
CPI % change Q4/Q4 3 4 1 3 3 9 2 0 0 7 3 9
“While we still expect that economic activity and labor market conditions will improve gradually over time the pace of progress isCPI, % change, Q4/Q4 3.4 1.3 3.9 2.0 0.7 3.9
Personal Consumption Expenditures Price Index less food energy, % chg, Q4/Q4 1.9 1.4 2.3 1.8 0.9 2.8
Civilian Unemployment Rate, % annual average 9.0 9.0 9.1 8.9 8.1 9.5
gradually over time, the pace of progress is likely to be frustratingly slow.”
-Chairman Bernanke
"If the economy is growing only 1.5 percent to average
Federal Funds Target, % year-end 0.125 0.103 0.126 0.125 0.103 0.341
10-Yr Treasury Note Yield, % year-end 2.73 2.15 3.53 2.70 2.18 4.03
Foreign Exchange Rate, US$ per Euro, December Average 1.37 1.22 1.43 1.37 1.11 1.47
2 percent and you get a fiscal drag of 1.3 percent — that's the difference between a growth recession and effectively zero growth.”
-Nouriel Roubini, NYU
g
Housing Starts, millions of units 0.60 0.57 0.74 0.66 0.60 0.96
Home Prices, FHFA, % change, Q4/Q4 -2.5 -6.2 1.8 0.9 -3.6 4.8
Oil Prices, $ per barrel, December Average 92.0 78.7 97.0 94.8 79.6 110.6
"The economy is struggling to avoid recession…There are a number of things coming together with regards to fiscal policy that makes early next year look very iffy .”
-Mark Zandi, Moody’s Analytics
Discover The State of Real Estate / 2012
S&P 500 Index, December 31 1294.4 1178.0 1391.2 1380.0 1202.6 1604.8
Reasons for OptimismHH Debt is Affordable Debt
15
Historical Average: 12.113
14
11
12
10
Discover The State of Real Estate / 2012
Source: Federal Reserve Board HH Debt-Service Ratio
Couldn’t Catch a Break in 2011
Di t i
Consumer Confidence Index
Gas prices spike $4
Disaster inJapan
Debt ceilingdebate begins
US GDP nearly
S&PDowngrade
ycontracts in Q1
European Debt Crisis Worsens
Discover The State of Real Estate / 2012
Source: Cassidy/Turley, The Conference BoardCCI
Reasons for OptimismCorporate Profits, $Tril
• Corporate profits up$2.0
• Job growth hits 200K
• Auto sales rebounding$1.2
$1.6
• Confidence is rebounding
• Exports strong$0.4
$0.8
• ISM Index back up$0.0
Discover The State of Real Estate / 2012
Source: Federal Reserve BoardCorporate Profits
What to Watch: Italian Bonds10-Yr Sovereign Debt Yields, %
Discover The State of Real Estate / 2012
Source: Moody’sGermany Portugal Italy Ireland Greece Spain UK
What To Watch: CopperCopper Prices
Discover The State of Real Estate / 2012
Source: DOW Jones, AIG, NSA Future Price Index: Dow Jones AIG - Copper(NSA)
DC MetroDC Metro
Discover The State of Real Estate / 2012
The Budget Control Act of 2011Total of $4 trillion needed for long-run sustainability, 2012-2021
Specified spending cuts ($0.7 tril.)
Interest savings ($0 4 tril )Interest savings ($0.4 tril.)
Supercommittee/trigger ($1.3 tril.)
To be determined ($1.6 tril.)
Discover The State of Real Estate / 2012
Source: CBO, Moody’s
Specific Spending “Cuts”
$ Billions$ Billions
Discover The State of Real Estate / 2012
Source: CBO, Moody’s
Too Many Questions
?Tax revenue?
Entitlement reform?
Cuts in DC or elsewhere?
Discover The State of Real Estate / 2012
Source: CBO, Moody’s
DC Metro Becoming More RelevantDC Metro Share of U.S. GDP
3.4%
2.8%
3.0%
3.2%
2.2%
2.4%
2.6%
2.0%
Discover The State of Real Estate / 2012
Source: BEA
People Drive DemandDC Metro Population, 000’s
POPULATION GROWTH
Discover The State of Real Estate / 2012
Source: Census Bureau, Moody’s
Short Term: SluggishDC Metro Job Growth: Year-Over-Year, 000’s
150
50
100
Historical Average: 35,000
17.4
-50
0
-100
Discover The State of Real Estate / 2012
Source: BLS, Cassidy/Turley ResearchTotal Nonfarm Forecast
Not Terrible Relative to the CountryOffice Sector: Net Absorption 2011
1.2 MSF
Discover The State of Real Estate / 2012
Source: Cassidy/Turley Research
But It Feels Terrible
7
Office Sector: Net Absorption
4
5
6
illio
ns)
MD
VADC
2
3
4
quar
e Fe
et (m
0
1
2
Sq
Discover The State of Real Estate / 2012
2010 2011Source: Cassidy/Turley Research
Short-Term: SluggishNet Effective Rents: 2012 Forecast
Key Trends:The District
Key Trends:
• Tenant’s market returns
Downtown Submarkets
Emerging Submarkets
Northern VA
• Federal Gov’t contracts
• Private sector sluggish
Inside the Beltway
Outside the Beltway
Suburban MD
-1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
• Depleted deal activityMontgomery County
Prince Georges County
Discover The State of Real Estate / 2012
Source: Cassidy/Turley Research
Long-Term: What’s the Concern? Job Growth Since 2000, 000’s
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Source: BLS
Forecast Comparison: 2011-2014DC Metro Annual Job Growth
Discover The State of Real Estate / 2012
Source: Bureau of Labor Statistics, George Mason University, Moody’s, Cassidy TurleyCassidy Turley George Mason University Moody’s Average
Supply Remains ConstrainedOffice Deliveries DC-VA-MD
MDVADC
20 Yr Average: 7.3M SF 12’- 13’ Avg:0 e age 3 S 12 13 Avg: 2.7M SF
Discover The State of Real Estate / 2012
Source: Cassidy Turley
Apartment Demand SurgingDC Metro, Net Absorption
MD DCNoVA
29 500 units of29,500 units of future demand
Discover The State of Real Estate / 2012
Source: Cassidy Turley, Reis
A l F
DC Metro Forecast TableActual Forecast
2009 2010 2011 2012 2013
D.C. Region EconomyReal GMP (%) 0.0 3.3 2.1 2.7 3.0
Employment Annual (000s) -36.5 11.1 18.9 17.4 33.1
Unemployment Rate (%) 6.2 6.0 6.0 5.8 5.7
Population (000s) 4,308.5 4, 401.1 4,460.9 4,516.1 4,569.1
Personal Income Growth (%) 1.0 2.6 3.8 5.2 6.1
Existing Home Price ($000s) 308.6 325.3 327.0 335.1 344.5
Housing Permits (000s) 10.6 10.2 13.6 18.6 25.6
2 8 68 8U.S. Consumer Confidence 45.2 54.5 58 68 85
U.S. CPI Inflation (%) -0.3 1.6 3.2 2.2 3.0
U.S. 10-Yr Treasuries (%) 3.3 3.2 2.8 2.7 3.2
Fed Funds Rate 0.2 0.2 0.1 0.1 0.1
D.C. Region Office Sector(%) 13 9 13 0 13 1 12 8 12 3Vacancy (%) 13.9 13.0 13.1 12.8 12.3
Net Absorption -2.3 5.7 1.2 2.8 3.5
Asking Rents $35.70 $34.90 $35.45 $37.09 $37.86
New Space Deliveries 9.9 4.6 1.3 2.7 2.6
Investment SalesS l V l ($billi ) $2 3 $4 3 $7 2 $5 4 $6 8
Discover The State of Real Estate / 2012
Sales Volume ($billions) $2.3 $4.3 $7.2 $5.4 $6.8
Year-ago %chg -32% 87% 67% -25% 26%
Bill CollinsExecutive Managing Director | Cassidy Turley
2011 Office Investment Sales MarketShare by Transactions – Washington Region
Grubb &CBRE,
8%Other,
7%
Transwestern,7%
Grubb & Ellis, 3%
JLL, 4% 44%
Eastdil
HFF, 13%
Discover The State of Real Estate / 2012
Eastdil, 14%
2011 Construction Equity/Debt Finance Market
Share by Transactions – Washington RegionWalker & Dunlop,
Cushman & Wakefield,
HFF,23%
JLL, 5%
Dunlop,0% CBRE,
0%
Wakefield, 0%
73%73%
Discover The State of Real Estate / 2012
Office Investment SalesOffice Investment Sales
Discover The State of Real Estate / 2012
Office – Washington Metro Area
Office 2009 2010 2011
Total Volume $2.3 Billion $4.0 Billion $7.2 Billion
# of Transactions 32 52 73
Average of Price/SF $301 $345 $400Average of Price/SF $301 $345 $400
Average Cap Rate 7.5% 6.75% 6.84%
DC 6.75% 6.0% 6.01%
Inside the Beltway 7.5% 6.75% 6.04%
Outside the Beltway +8.0% 7.0% 7.43%
Discover The State of Real Estate / 2012
Office Investment SalesWashington, DC Metro Area
$14.1$14
$16
$10.2
$12.5
$8
$10
$12
$14
ons
Historical Average = $5 4 B $7 2
$1 1$2.0
$2.8
$4.9
$2.7$3.7 $4.0 $3.9
$6.4$7.3
$3.4$2.3
$4.3 $5.4
$2
$4
$6
$8
$ B
illi Historical Average = $5.4 B $7.2
$1.1
$0
$2
Suburban MD Northern Virginia DC
Discover The State of Real Estate / 2012
Suburban MD2011 Total $507K
Northern Virginia2011 Total $3.1B
DC2011 $3.6B
Buildings on the MarketWashington, DC Metro Area
90
100Office Listings
60
70
80
90
Historical Average = 55
20
30
40
50
0
10
Discover The State of Real Estate / 2012
Source: Cassidy Turley
Office PricesDC Metro
$370
$411 $400$400
$450
$201$223
$240$264
$315$341
$370
$301
$345
$250
$300
$350
$400
quar
e Fo
ot
$127 $127 $140$165 $169
$187 $201
$
$100
$150
$200
Pric
e Pe
r Sq
$0
$50
Discover The State of Real Estate / 2012
Office PricesDistrict of Columbia
$544$503
$600
$267 $277$323
$363
$423$461 $451
$403
$491 $503
$300
$400
$500
quar
e Fo
ot
$186 $190 $190 $209 $210$245
$267 $277
$100
$200
$300
Pric
e Pe
r Sq
$0
Discover The State of Real Estate / 2012
Office PricesNorthern VA
$356 $345$3 0
$400
$191$221 $229
$282$299
$316
$231 $236
$
$200
$250
$300
$350
quar
e Fo
ot
$114 $116 $129
$165 $167 $171 $165$ 9
$50
$100
$150
$200
Pric
e Pe
r Sq
$0
$50
Discover The State of Real Estate / 2012
Office PricesSuburban MD
$251
$283 $275$300
$$147
$165$142
$182
$239$227
$251
$185$171
$150
$200
$250
quar
e Fo
ot
$82 $76$102
$122 $131$113
$142
$50
$100
$150
Pric
e Pe
r Sq
$0
Discover The State of Real Estate / 2012
Primary Markets Dominate SalesOffice Sales Volume, Year-to-Date, November 2011
$600
$9 000
$10,000
$300
$400
$500
$5 000
$6,000
$7,000
$8,000
$9,000
PU(mill
ions
)
2011 District = $503/SF
$100
$200
$300
$2,000
$3,000
$4,000
$5,000 PP
$ Vo
lum
e (
$0 $0
$1,000
Discover The State of Real Estate / 2012
*As of December 31,2011Source: Cassidy Turley, Real Capital Analytics
$ Volume Avg PPU
Office Cap RatesWashington, DC Metro Area, all classes
9 0%
10.0%
9 0%
10.0%
6.0%
7.6%
6.9%
5 0%
6.0%
7.0%
8.0%
9.0%
5 0%
6.0%
7.0%
8.0%
9.0%
7.6%6.9%6.0%
2.0%2.0%
3.0%
4.0%
5.0%
2.0%
3.0%
4.0%
5.0%
2.0%
0.0%
1.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
DC MD VA 10 Yr Treasury
0.0%
1.0%
Discover The State of Real Estate / 2012
yDC MD VA -10 Yr Treasury
Source: Moody’s Economy.com, Cassidy Turley
Office Cap RatesDistrict of Columbia
10.0%10.0%
6.2%7.0%
8.0%
9.0%
6.2%7.0%
8.0%
9.0%
6.0%
3 0%
4.0%
5.0%
6.0% 6.0%
4.0%
5.0%
6.0%
2.0%
3.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Class A Class B/C 10 Yr Treasury
2.0%
3.0%
2.0%
Discover The State of Real Estate / 2012
Class A Class B/C 10 Yr TreasuryClass A Class B/C -10 Yr Treasury
Percent of Class A Office SalesDC Metro, % of Office Sales Volume Class A
95%
85%
90%
75%
80%
65%
70%
Discover The State of Real Estate / 2012
Office Capital FlowsDC Metro United States
35%
19%
22%
46% 47% 36% Institutional
Cross-Border
12%
20%22%
17%
12%
12%
17%
16%
Public Listed/REITs
Private
Users/Other
8%
14%16%
32% 38%
5%
17%
12%
25%
12%
23%
12%
12%
5% 7%
Discover The State of Real Estate / 2012
2008 2009 2010 2011 (YTD) 2011 (YTD)Source: Real Capital Analytics
Multifamily Investment SalesMultifamily Investment Sales
Discover The State of Real Estate / 2012
Multifamily
Office 2009 2010 2011
$1 2 $3 6 $4 0Total Volume $1.2Billion
$3.6 Billion
$4.0Billion
# of Transactions 29 51 84
Average of Price/SF $141 232 $180 793 $182 116Average of Price/SF $141,232 $180,793 $182,116
Average Cap Rate 6.9% 6.4% 6.0%
Class A 6.0% 4.5-5.5% 4.5%
Class B 7.0% 6.0-6.5% 6.0%
Class C 8.0% 7.0% 6.5%
Discover The State of Real Estate / 2012
Sales Volume
$600
$3 5
$4.0
Multifamily Sales Volume, Year-to-Date, November 2011$600
$300
$400
$500
$2 0
$2.5
$3.0
$3.5
(bill
ions
)
$300
$400
$500
usan
ds)
$100
$200
$300
$0 5
$1.0
$1.5
$2.0
$ Vo
lum
e
$100
$200
$300
PPU
(tho
$0 $-
$0.5
$0
Discover The State of Real Estate / 2012
$ Volume Avg PPUSource: Real Capital Analytics
Sales VolumeMultifamily Sales Volume, Year-to-Date, November 2011
9 0%
10.0%9 0%
10.0%
5.6%6.1%6.0%
5 0%
6.0%
7.0%
8.0%
9.0%
6.1%6.0%
5 0%
6.0%
7.0%
8.0%
9.0%
2.0%2.0%
3.0%
4.0%
5.0% 5.6%
2.0%2.0%
3.0%
4.0%
5.0%
0.0%
1.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
DC MD VA 10 Yr Treasury
0.0%
1.0%
Discover The State of Real Estate / 2012
Source: Moody’s Economy.com, Real Capital Analytics
yDC MD VA -10 Yr Treasury
Multifamily Capital Flows
11%
DC Metro United States
30%11%
11%42% 51% 32% Institutional
Cross-Border
31%20%
31%7%
6%
14%
Public Listed/REITs
Private
Users/Other
37% 53%
5%
31%
25% 17%
22%45%
Discover The State of Real Estate / 2012
5%2008 2009 2010 2011 (YTD) 2011 (YTD)
Source: Real Capital AnalyticsRounded figures may not add up to 100%
Forecast 2012: DebtForecast 2012: Debt
Discover The State of Real Estate / 2012
U.S. Real Estate Capital$3.9 trillion
Public PublicDebt
Private Equity
EquityDebt
Private Debt
Discover The State of Real Estate / 2012
Debt
Debt Capital$2.8 trillion Commercial
Mortage Securities
Government Credit
AgenciesMortgage
REITsREIT
Unsecured Debt
Pension Funds
Public
Life Insurance Companies Public Debt
Untraded FundsPrivate Debt
Banks, S&Ls, Mutal Savings
Discover The State of Real Estate / 2012
gBanks
CMBS Mortgage Maturities
$130 $130 $150
$100
$ $
$90
$120
atur
ing
fDol
lars
)
$28
$58 $50
$57
$20 $10
$20 $25 $30
$60
Loan
s M
a(B
illio
ns o
f
$10
$0
Discover The State of Real Estate / 2012
Source: Trepp, LLC. Note: For the public conduit universe, including multifamily-directed, non-multifamily-directed, and full deceased loans, as of September 2011
U.S. CMBS Issuance
$250
$150
$200
al fDol
lars
)
$50
$100Tota
(Bill
ions
of
$0
Discover The State of Real Estate / 2012
Source: Commercial Mortgage Alert. *Issuance projected through December 31, 2011
Forecast 2012• Debt
• Interest Rates
• Inflation
E• Economy
• Euroburb
• New Development
• Future of Office Space
Discover The State of Real Estate / 2012
p
Discover Leadership / Discover Excellence / Discover Success
Discover Leadership / Discover Excellence / Discover Success