Bob Bach National Director, Market Analytics

Outlook for Commercial RE

2 Client Logo

State of the Economy

3 Client Logo

-4%

-2%

0%

2%

4%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F '13-F

Historic

Wells Fargo

PNC

Moody's

Gross Domestic Product, Historic & Forecast Annualized Percent Change

Source: NGKF, BEA, Moody’s, PNC, Wells Fargo

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Global GDP Growth Selected Countries & Regions, 2012 & 2013

3.3%

2.2%

-0.2%

5.3%

3.2%

7.8%

4.9%

3.6%

2.1%

0.5%

3.6%

3.9%

8.2%

6.0%

-1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

World

US

EU

Middle East

Latin America

China

India

2012 2013

Source: NGKF, IMF

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-2%

0%

2%

4%

6%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F '13-F

Historic

Wells Fargo

PNC

Moody's

Source: NGKF, Moody’s, PNC, Wells Fargo

Inflation, Historic & Forecast CPI-All Urban Consumers, % Change Year/Year

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0%

2%

4%

6%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F '13-F

Historic

Wells Fargo

PNC

Moody's

10 Year Treasury Yield, Historic & Forecast Annual Average

Source: NGKF, Moody’s, PNC, Wells Fargo

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-6

-5

-4

-3

-2

-1

0

1

2

3

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-F '13-F

Mill

ions

Historic

Wells Fargo

PNC

Moody's

Source: NGKF, BLS, Moody’s, PNC, Wells Fargo

Payroll Job Change Annual

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-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

0 5 10 15 20 25 30 35 40 45 50 55

Months After Start of Downturn

Source: NGKF, BLS

2008-09

2001

1981-82

Job Losses Related to Post-War Recessions

1990-91

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-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

0 5 10 15 20 25 30 35 40 45 50 55

Months After Start of Downturn

U.S. Elkhart S.B. Indy

Source: NGKF, BLS

Job Losses Since Start of Great Recession U.S., Elkhart-Goshen, South Bend-Mishawaka, Indianapolis-Carmel

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Recovery Status by Metro Area

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60%

62%

64%

66%

68%

70%

'90 '95 '00 '05 '10

Homeownership Rate By Quarter, Seasonally Adjusted

Source: NGKF Census Bureau, Reis

Apartment Market

4%

5%

6%

7%

8%

9%

'07 '08 '09 '10 '11 '12

Apartment Vacancy Rate

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90

95

100

105

110

115

120

'07 '08 '09 '10 '11 '12

DOT Freight Index 2000 = 100

Source: NGKF, DOT

Industrial Market

6%

7%

7%

8%

8%

9%

9%

10%

10%

11%

'07 '08 '09 '10 '11 '12

Industrial Vacancy Rate

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-15%

-10%

-5%

0%

5%

10%

15%

'07 '08 '09 '10 '11 '12

Monthly Retail Sales % Change Year Over Year, SA

Total Core

Source: NGKF, Census Bureau, CoStar

Retail Market

5%

6%

7%

8%

'07 '08 '09 '10 '11 '12

Retail Vacancy Rate

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10%

12%

14%

16%

18%

'07 '08 '09 '10 '11 '12

Office Vacancy Rate

Source: NGKF, BLS

Office Market

-1,000

-800

-600

-400

-200

0

200

400

600

'07 '08 '09 '10 '11 '12

Payroll Employment Monthly Change (thousands)

Private Public

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5%

6%

7%

8%

9%

10%

'01 '03 '05 '07 '09 '11

Avg. Quarterly Cap Rates

Apt Ind Off Ret

$0

$100

$200

$300

$400

$500

$600

'01 '03 '05 '07 '09 '11

CRE Investment by Quarter +60% in 2011, +4% in 2012-Q1

Q1 Q2 Q3 Q4

Investment Market

Source: NGKF, Real Capital Analytics

Billions

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Cap Rates by Property Type 2012-Q2 vs. 2011-Q2

6.4%

7.8%

7.5% 7.6%

6.1%

7.7%

7.2% 7.3%

5%

6%

7%

8%

Apartment Industrial Office Retail

2011-Q2

2012-Q2

Source: NGKF, Real Capital Analytics

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0

100

200

300

400

500

600

0%

2%

4%

6%

8%

10%

12%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Spre

ad (b

asis

poi

nts)

Cap

Rat

e &

10-

year

Yie

ld

10-yr. Yield Cap Rate Spread

Avg. Cap Rate vs. 10-year Treasury Yield Quarterly

Source: NGKF, Real Capital Analytics

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0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

'96 '99 '02 '05 '08 '11

Delinquency Rates Thru 2012-Q2

CMBS Life Fannie Freddie Banks

Commercial Mortgage Conditions

Source: NGKF, Real Capital Analytics, Mortgage Bankers Assoc.

0%

5%

10%

15%

20%

25%

$0

$20

$40

$60

$80

$100

2008 2009 2010 2011 2012

Distressed Sales

Total % of All Sales

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Source: NGKF, NCREIF

Annualized Returns by Asset Class 1 & 10-Year Periods Ending 2012-Q2

12.0%

5.5%

8.3%

0.0%

12.5%

8.3%

5.3% 5.4%

1.8%

10.3%

0%

2%

4%

6%

8%

10%

12%

14%

NCREIF S&P 500 Barclay's Bond T-Bills (90 Day) NAREIT REIT Index

1 Year 10 Year

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Political Implications

20

Bob Bach National Director, Market Analytics

Outlook for Commercial RE