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ANNUAL DS CONFERENCE- US REAL ESTATE

Alon Solomon- C.E.OAsaf Arieli-Business Development Manager

Just saw recruiting billboard (by AOL) on 101 for the first time in years. Great sign that 2011 will be prosperous for many.January 1 at 1:56am via Twitter · Like · Comment · @paglo on Twitter

Are things getting better?

Real Estate Market in the US

• Macro economics conditions

• Capital Markets

• Real estate Market conditions

• What the does the future holds for the US economy?

• What should you invest in?

• Global Paragon

The Good, the Bad and the Ugly

The Good• U.S. GDP back to 2007 levels• S&P 500 is up for straight two years• Retail Sales excluding auto & gas up $12.6B from pre-recession levels• Bush Tax cuts are extended• The Private Sector added 1.3M jobs in 2010• Corporate Profits up $48B from previous peak in 3Q 2006• ISM manufacturing index is up 17% from pre-recession levels

The Bad• Unemployment Rate at 9.4% or double 2007 levels• Consumer Confidence remains 42% below pre-recession levels• Net Exports down 10% from pre-recession levels• Single-Family home sales 35% below 2005 peak• Single-Family home prices down 23% from the 2006 peak

The Ugly• Household Debt remains elevated at 91% GDP• Public Debt, at 92% of GDP, is the highest level since WW2• Creation of Government job vs. Free market jobs• Political Uncertainty: New health care costs, new taxes, what will Obama do next?

Sources: BLS, BEA, ISM, U.S. Census Bureau

U.S. Macro Economics Data and trends

Sources: Marcus & Millichap Research Services,, U.S. Census Bureau

U.S. Retail sales have recovered from dramatic drop

Sources: BLS

Private sector job growth, one calendar year following end of recession

U.S. employment change by sector 2010

Sources: Marcus & Millichap Research Services, BLS

Increase in Government jobs and benefits

Sources: The Economist, George Washington University, White house office if information and regulatory affairs

Capital spending by corporate America is key to recovery – profit trend positive

Sources: BEA

Companies still hesitant to add long-term jobs

Sources: BLS

Single-Family Housing and condo market yet to enter sustainable recovery

Sources: National association of RELATORS

Threat of Deflation dominating current FED agenda

Sources: U.S. Census Bureau, BLS, Federal Reserve Board

An Economy in transition U.S. GDP growth past, present and future

Sources: BEA, Economy.com

Sources: BLS

Employment growth is Expected to gain momentum in 2011 and 2012

Sources: REIS, BLS

Quarterly Job growth vs. Apartment units absorbed

Sources: BLS

20-34 year olds share of job losses/gains

Apartment metro forecast vacancy ranking 2011

Sources: Reis

US Federal Debt as Percent of GDP- near WWII levels

Capital Markets overview and outlook

Sources: Reis

Core Inflation vs. 10-Year Treasury

Can Mortgage Rates be as high as the 80s level?

Sources: FreddieMac

Mortgage Crisis Overview- Secondary Market- Competition

Home Buyer

Mortgage Bank

Home ValuationIncome Check

Home Buyer

Israel Market US Market

Repayments

Mortgage Loans

Repayments

Mortgage LoansBrokersAppraisers

Key

SafeguardsBank ChecksIndependent Checks

Cash Flow

Mortgage Bank A

Mortgage Bank B

Mortgage Bank C

Mortgage Bank D

Mortgage Bank E

Home Buyer

Mortgage Bank

Home ValuationIncome Check

Mortgage Bond Market

Mortgage Bank

Home Buyer

Israel Market US Market

Repayments

Mortgage Loans

Repayments

Mortgage Loans

Acquisition of Mortgage Pool

Mortgage Pool Cash Flow

BrokersAppraisers

Rating Agencies

Key

SafeguardsBank ChecksIndependent Checks

Cash Flow

Mortgage Crisis Overview- Secondary Market- Securitization

Home Buyer

Mortgage Bank

Home ValuationIncome Check

Mortgage Bond Market

Mortgage Bank

Home Buyer

Israel Market US Market

Repayments

Mortgage Loans

Repayments

Mortgage Loans

Acquisition of Mortgage Pool

Mortgage Pool Cash Flow

BrokersAppraisers

Rating Agencies

Key

SafeguardsBank ChecksIndependent Checks

Cash Flow

Mortgage Crisis Overview- Secondary Market- Securitization what went wrong?

• 2/28 loans• Below 620 Credit Score• NINJA loans• Financial Engineering

The rise of the sub-prime mortgage market

The sub-prime aftermath

Multi-family mortgage debt outstanding

Sources: Marcus & Millichap Research Services, MBA

Sources: MBA

U.S. Commercial Mortgage delinquency rates by lender type

Total Multi-family mortgage debt outstanding: $847B

Sources: MBA

Sources: Commercial Mortgage Alert

U.S. Commercial mortgage backed securities (CMBS) Issuance

What will be in the future....?

Hard to tell

....We can only guess and estimate

: אחת דיעה , , טכנולוגי' בחיזוי המתמחה עתידן פסיג דוד פרופ

" " - צעירה מעצמה היא אמריקה וחינוכי חברתי

•. הבינלאומית" בזירה מאוד חשוב תפקיד משחקת ב ארה

• - - עד אפילו נע זה קדומים בימים חיים תוחלת יש על למעצמות- , בכ מדובר המודרנית בתקופה שנה שנה 300אלף

• , " היא. השנייה העולם מלחמת אחרי רק על למעצמת הפכה ב ארה - . את נכון קורא לא קורסת שהיא שחושב מי צעירה מאוד עדיין

, . לא, פעם אף להבין צריך שלה היתרונות את נכון קורא לא המפה. " ב לארה שיש כמו יתרונות הרבה כך כל עם על מעצמת היתה

, גיאוגרפית התפשטות במגמת כרגע נמצאת לא היא כל קודם סין לגבי , . , לה יש לכך מעבר אבל כלכלית התחזקות במגמת אלא רוסיה כמו

- . בנויה היא שלה והחסרונות היתרונות את כשמנתחים גדולות בעיות , טוענים המומחים שמרבית ופוליטית כלכלית מבחינה נכון לא כך כל , מעריכים ואנו מאוד גדול משבר שם שיהיה עד זמן של עניין רק שזה

- ה המאה של השני בעשור יקרה .21שזה

Apartment Investment Trends

Market has firmed up for class “A” and “B+” larger assets in better markets

• Market is efficient and organizes

• Substantial amounts of equity raised: what are the other alternatives?

• CAP rates decreasing

• Increase of Real prices

Market Divergence between quality of assets

Market Divergence between quality of assets

Class “C” and smaller assets

• Market inefficient and disorganized

• Agency loans not focused on smaller assets

• Collection issues challenge cash flows

• Continued pressure from distressed assets

• Investment opportunities to experienced investors

Multifamily Starts – lowest levels

Sources: US census, Sequoia Research

Apartment Investment Trends – Transaction Volume by Price Category

Sources: CoStar Group Inc., Real Capital Analytics

Apartment Investment Trends – Dollar Volume by Price Category

Sources: CoStar Group Inc., Real Capital Analytics

National Apartment Transactions

Sources: CoStar Group Inc., Real Capital Analytics

Sources: CoStar Group Inc.

Estimated Distresses U.S. Apartment Investment Trends – Dollar Volume

National Apartment Price / Cap Rate Trends

Sources:, CoStar Group Inc.

Apartment Cap Rate Trends – Average Cap Rates vs. 10-Year Treasury

Sources: CoStar Group Inc. NREI, Real Capital Analytics

U.S Apartment Buyer Composition

Sources: Marcus & Millichap Research Services, Real Capital Analytics

Why the Long-Term outlook for the U.S. apartments is extremely favorable1. Population growth: constant immigration, Echo boomers

2. Sharp decrease in new supply

3. Affordability: rent vs. own

4. Employment growth

5. Weak dollar

Short term growth – Uncertainty

Job growth is hampered by psychology and uncertainty

• Corporations are sitting on cash

• Productivity is at all time highs

• Temporary employment is up 25%

• Small businesses are concerned about health care costs and tax increases

• Record deficits and national debt

• Extremely hard to qualify for any loan, both private and business loans

• Conservatism is slowing the rate of recovery

What type of investors will eliminate uncertainty?

• Cash Flow producing assets

• Experienced local investors

• Close to the market

• Cost Savings capabilities