United States Housing Outlook When Will Markets Recover? THE CONCORD GROUP February 2009 Andrew Borsanyi (415) 397-5490 [email_address]

Executive Summary For-sale housing market conditions and forecasted recovery scenarios for U.S. and key regions History – Boom, Bubble, Bust TCG Market Outlook Strong long-term demographic demand 2010: Increased sales velocity Q2 2011: Supply/demand balance Opportunities Land/lot development precede recovery by 12 to 18 months Re-entitlement and planning immediately Submarket supply/demand conditions

For-sale housing market conditions and forecasted recovery scenarios for U.S. and key regions

History – Boom, Bubble, Bust

TCG Market Outlook

Strong long-term demographic demand

2010: Increased sales velocity

Q2 2011: Supply/demand balance

Opportunities

Land/lot development precede recovery by 12 to 18 months

Re-entitlement and planning immediately

Submarket supply/demand conditions

History 2001 to 2006: Boom, Bubble 1970 to 2003 U.S. homes appreciated 6% annually 2004 to 2005 prices appreciated 11% annually Housing Boom Factors 2.1 jobs created per building permit 1970 to 1999 Baby boom generation reach peak-buying ages Interest rates at historical lows Capital gains tax law added in 1997 Tech bust in early 2000s

2001 to 2006: Boom, Bubble

1970 to 2003 U.S. homes appreciated 6% annually

2004 to 2005 prices appreciated 11% annually

Housing Boom Factors

2.1 jobs created per building permit 1970 to 1999

Baby boom generation reach peak-buying ages

Interest rates at historical lows

Capital gains tax law added in 1997

Tech bust in early 2000s

Bust Volume – 505k last 12 months sales (Nov. 2008) 1.28MM 2005 peak – 61% drop Total volume estimated at 550k-575k including attached product Price – Same product down 21% from peak, 17% Y/Y (Dec. 2008) Certain markets worse High foreclosure volumes causing downward pressure

Volume –

505k last 12 months sales (Nov. 2008)

1.28MM 2005 peak – 61% drop

Total volume estimated at 550k-575k including attached product

Price –

Same product down 21% from peak, 17% Y/Y (Dec. 2008)

Certain markets worse

High foreclosure volumes causing downward pressure

Regional Conditions High growth markets experience sharpest declines Mix-adjusted same product pricing drop deeper than overall average

High growth markets experience sharpest declines

Mix-adjusted same product pricing drop deeper than overall average

Outlook Methodology Forecast annual new home demand Base Growth: Published employment and demographic forecasts Qualify for affordability, homeownership, turnover, obsolescence Assume 2008 sales rate for next 12-18 months Higher medium-term recovery sales rate assuming job growth Conservatively forecast demographic demand follows Assess Competitive Inventory Standing units, actively-marketed lots and recently-built foreclosures Months supply = (competitive inventory ÷ varied sales rates) x 12 Recovery Milestones Land Market: 12 months supply of competitive inventory reached Housing Market: Currently available competitive inventory eliminated Price Forecast Conservative new home buyer financing assumptions Adjustment needed for reversion to long-term affordability ratio

Forecast annual new home demand

Base Growth: Published employment and demographic forecasts

Qualify for affordability, homeownership, turnover, obsolescence

Assume 2008 sales rate for next 12-18 months

Higher medium-term recovery sales rate assuming job growth

Conservatively forecast demographic demand follows

Assess Competitive Inventory

Standing units, actively-marketed lots and recently-built foreclosures

Months supply = (competitive inventory ÷ varied sales rates) x 12

Recovery Milestones

Land Market: 12 months supply of competitive inventory reached

Housing Market: Currently available competitive inventory eliminated

Price Forecast

Conservative new home buyer financing assumptions

Adjustment needed for reversion to long-term affordability ratio

New Home Supply Standing inventory Lots in actively marketed projects Recently built foreclosures 1.975MM estimated units available 4 Years of supply at current run rates Historically 1-2 years of supply

Standing inventory

Lots in actively marketed projects

Recently built foreclosures

1.975MM estimated units available

4 Years of supply at current run rates

Historically 1-2 years of supply

New Home Demand Projections Demand Framework Household growth (1.3MM new HHs annually) Turnover and obsolescence Percent own and percent buy new Financing assumptions TCG Long-Term Demand 895K units annually Baseline demand not reached until 2011 In-line with new home sales in early 2000s

Demand Framework

Household growth (1.3MM new HHs annually)

Turnover and obsolescence

Percent own and percent buy new

Financing assumptions

TCG Long-Term Demand

895K units annually

Baseline demand not reached until 2011

In-line with new home sales in early 2000s

Price Forecast Current U.S. income to housing with 20 year average Certain regions still require additional drops to reach long-term average Likely overcorrection of additional 5-10% Distressed/REO sales High builder inventory Tougher lending standards Poor buyer sentiment

Current U.S. income to housing with 20 year average

Certain regions still require additional drops to reach long-term average

Likely overcorrection of additional 5-10%

Distressed/REO sales

High builder inventory

Tougher lending standards

Poor buyer sentiment

TCG U.S. Market Outlook New home sales volumes bottom in 2009 Peak to trough same-product price correction of 25-30% Currently same product price down 21% Pricing bottom reached by end of 2009 Minimal or zero price appreciation through 2010 Moderate, single digit price appreciation in 2011+ Recovery Milestones: Land Market: Q2 2010 Housing Market: Q2 2011

New home sales volumes bottom in 2009

Peak to trough same-product price correction of 25-30%

Currently same product price down 21%

Pricing bottom reached by end of 2009

Minimal or zero price appreciation through 2010

Moderate, single digit price appreciation in 2011+

Recovery Milestones:

Land Market: Q2 2010

Housing Market: Q2 2011

Regional Market Outlook Leaders: Proximity to employment, schools, amenities Laggards: Heavy foreclosures, edge commuter locations

Leaders: Proximity to employment, schools, amenities

Laggards: Heavy foreclosures, edge commuter locations

California San Francisco Bay Area 31% decline in same product price from peak versus 20% nationally Outlying suburbs facing largest price declines due to high foreclosure sales; downtown San Francisco has held up relatively well but is feeling downward price pressures as luxury condo market subsides Continued job losses in financial sector will weaken local economy through 2009 (contributes to ¼ of total output in the MSA) Los Angeles Three layers – urban, Santa Clarita and Antelope Valley Outlying areas such as Antelope Valley suffering most due to increased affordability of more proximate Los Angeles suburbs Effects of decline in housing and mortgage market spilling over to other areas of the economy – job losses in 2008 expected to continue through 2009 with growth returning in late 2010 Pent up demand for housing and services yields market turnaround in 2011 Inland Empire New home sales volume down 77% from peak versus national decline of 61% from peak Foreclosure sales 84% of total sales volume, 4.5 times national average of 20% Regional unemployment rate 10.2% ranks 333 rd among 369 MSAs (versus 7.6% nationally) High volume of competitive inventory homes pushing market recovery date to late 2011 West end cities such as Rancho Cucamonga and Chino Hills outperforming region due to their proximity to core employment nodes Still attractive long term as outlet for SoCal growth

San Francisco Bay Area

31% decline in same product price from peak versus 20% nationally

Outlying suburbs facing largest price declines due to high foreclosure sales; downtown San Francisco has held up relatively well but is feeling downward price pressures as luxury condo market subsides

Continued job losses in financial sector will weaken local economy through 2009 (contributes to ¼ of total output in the MSA)

Los Angeles

Three layers – urban, Santa Clarita and Antelope Valley

Outlying areas such as Antelope Valley suffering most due to increased affordability of more proximate Los Angeles suburbs

Effects of decline in housing and mortgage market spilling over to other areas of the economy – job losses in 2008 expected to continue through 2009 with growth returning in late 2010

Pent up demand for housing and services yields market turnaround in 2011

Inland Empire

New home sales volume down 77% from peak versus national decline of 61% from peak

Foreclosure sales 84% of total sales volume, 4.5 times national average of 20%

Regional unemployment rate 10.2% ranks 333 rd among 369 MSAs (versus 7.6% nationally)

High volume of competitive inventory homes pushing market recovery date to late 2011

West end cities such as Rancho Cucamonga and Chino Hills outperforming region due to their proximity to core employment nodes

Still attractive long term as outlet for SoCal growth

Mountain Phoenix 33% drop same product price Y/Y; 41% off from peak Median home price back to 2002 levels, nationally at 2004 levels Recovery projected to lag most new home markets due to significant land availability Core areas (within 20 miles of downtown) to recover first with prolonged suffering in exurban areas, specifically southeast submarket (e.g. Casa Grande) Strong underlying growth story Las Vegas 32% drop in same product price Y/Y; 39% off from peak Existing home sales up, largely due to foreclosures (65% of resales) Nevada leads U.S. in “underwater” mortgages – 47% have negative equity Overbuilding/high speculation investor buying led to oversupply 20,000-30,000 hotel room deliveries projected next 3 years Long-term outlook positive – strong population growth, land constraints due to regional location (surrounded by mountains), second home market, gaming industry, international destination Denver 4% drop in same product price Y/Y versus 17% for most MSA’s Denver county has faired better than outlying counties such as Adams and Douglas Financial-sector job losses put damper on employment growth in 2008; medium-term growth will be led by service sectors May see increased population growth as California businesses look for cheaper alternatives Ranks first among nation’s most desirable places to live - 54% of all residential moves in 2008 were inbound

Phoenix

33% drop same product price Y/Y; 41% off from peak

Median home price back to 2002 levels, nationally at 2004 levels

Recovery projected to lag most new home markets due to significant land availability

Core areas (within 20 miles of downtown) to recover first with prolonged suffering in exurban areas, specifically southeast submarket (e.g. Casa Grande)

Strong underlying growth story

Las Vegas

32% drop in same product price Y/Y; 39% off from peak

Existing home sales up, largely due to foreclosures (65% of resales)

Nevada leads U.S. in “underwater” mortgages – 47% have negative equity

Overbuilding/high speculation investor buying led to oversupply

20,000-30,000 hotel room deliveries projected next 3 years

Long-term outlook positive – strong population growth, land constraints due to regional location (surrounded by mountains), second home market, gaming industry, international destination

Denver

4% drop in same product price Y/Y versus 17% for most MSA’s

Denver county has faired better than outlying counties such as Adams and Douglas

Financial-sector job losses put damper on employment growth in 2008; medium-term growth will be led by service sectors

May see increased population growth as California businesses look for cheaper alternatives

Ranks first among nation’s most desirable places to live - 54% of all residential moves in 2008 were inbound

Florida Miami Same product home price down 29% Y/Y Service-based economy: relatively low skill level of labor pool likely to limit income growth Miami condo developers selling inventory in bulk; December 2008 bulk sales in downtown Miami closed mid-$100 per square foot range Coastal markets detached strongest; Downtown Miami has highest unsold supply Tampa Diversified economy less reliant on second home demand than other FL Services sector and Port growth catalysts for economic progress 2011-2014 Unemployment rate 8.3% versus 7.6% nationally as of January 2009 4% housing units in foreclosure versus 1.8% nationally, 122% increase since 2007 Orlando January 2009 existing sales up 37% versus last year – foreclosures 50% of sales 6.7% housing units in foreclosure versus 1.8% nationally Low second home demand coupled with high inventory Ex-urban commuter markets to the West of downtown struggling more than established areas Smallest Y/Y employment decrease among all Florida markets (-1.7% or 19,100 jobs) Key industries in Orlando – healthcare, education, defense manufacturing and tourism/hospitality – potentially weather downturn

Miami

Same product home price down 29% Y/Y

Service-based economy: relatively low skill level of labor pool likely to limit income growth

Miami condo developers selling inventory in bulk; December 2008 bulk sales in downtown Miami closed mid-$100 per square foot range

Coastal markets detached strongest; Downtown Miami has highest unsold supply

Tampa

Diversified economy less reliant on second home demand than other FL

Services sector and Port growth catalysts for economic progress 2011-2014

Unemployment rate 8.3% versus 7.6% nationally as of January 2009

4% housing units in foreclosure versus 1.8% nationally, 122% increase since 2007

Orlando

January 2009 existing sales up 37% versus last year – foreclosures 50% of sales

6.7% housing units in foreclosure versus 1.8% nationally

Low second home demand coupled with high inventory

Ex-urban commuter markets to the West of downtown struggling more than established areas

Smallest Y/Y employment decrease among all Florida markets (-1.7% or 19,100 jobs)

Key industries in Orlando – healthcare, education, defense manufacturing and tourism/hospitality – potentially weather downturn

Southeast Charlotte Lagged national downturn; among last markets to bust Significant job loss since October 2008 due to financial sector collapse (Bank of America, Wachovia headquarters) Cleveland and Gaston counties (suburban counties) reporting 11% unemployment – significantly worse than more urban Mecklenburg County (5%) Atlanta Same product home price down 11% Y/Y, 2003 price levels Outlying suburbs and urban condos drive oversupply Third highest vacancy rate for homes, condos and apartments among 75 metros Credit crisis and real estate downturn have led to major job losses in local construction and finance industries

Charlotte

Lagged national downturn; among last markets to bust

Significant job loss since October 2008 due to financial sector collapse (Bank of America, Wachovia headquarters)

Cleveland and Gaston counties (suburban counties) reporting 11% unemployment – significantly worse than more urban Mecklenburg County (5%)

Atlanta

Same product home price down 11% Y/Y, 2003 price levels

Outlying suburbs and urban condos drive oversupply

Third highest vacancy rate for homes, condos and apartments among 75 metros

Credit crisis and real estate downturn have led to major job losses in local construction and finance industries

Northeast and Mid-Atlantic Boston 7% decline in same product home price Y/Y; 15% down from peak Newly constructed suburban high-end homes suffering most, especially near western I-495 loop (e.g. Harvard, Westford, Bolton), as more desirable central suburbs become affordable Present climate making historically elite communities more accessible New York 9% decline in same product home price Y/Y; 13% down from peak Sales significantly down Financial crisis shocks felt most acutely by high-end product Many projects (approximately 27,000 units) halted or converted to rental; large luxury projects in previously non-luxury markets particularly affected – some buildings selling condos in bulk at large discounts (up to nearly 50%) DC-Baltimore 9% decline in same product home price Y/Y– biggest annual price drop in nearly a decade; 28% down from peak Metro area slightly buoyed by government activity and low unemployment; exurban markets experiencing greater stress as areas closer to city have become more affordable Obama administration’s federal expansions expected to increase wealth and number of households in region Outer coastal areas (e.g. Delaware shore, Prince George’s) struggling with decreased second home demand

Boston

7% decline in same product home price Y/Y; 15% down from peak

Newly constructed suburban high-end homes suffering most, especially near western I-495 loop (e.g. Harvard, Westford, Bolton), as more desirable central suburbs become affordable

Present climate making historically elite communities more accessible

New York

9% decline in same product home price Y/Y; 13% down from peak

Sales significantly down

Financial crisis shocks felt most acutely by high-end product

Many projects (approximately 27,000 units) halted or converted to rental; large luxury projects in previously non-luxury markets particularly affected – some buildings selling condos in bulk at large discounts (up to nearly 50%)

DC-Baltimore

9% decline in same product home price Y/Y– biggest annual price drop in nearly a decade; 28% down from peak

Metro area slightly buoyed by government activity and low unemployment; exurban markets experiencing greater stress as areas closer to city have become more affordable

Obama administration’s federal expansions expected to increase wealth and number of households in region

Outer coastal areas (e.g. Delaware shore, Prince George’s) struggling with decreased second home demand

Texas Dallas 3% drop in same product home price Y/Y; 6% off from peak Did not experience same run-up in home prices as other growth areas with peak price appreciation of approximately 9% in 2006 Continues to outperform U.S. with 1.4% employment growth in 2008 due to solid diversification Easy permitting practices allow for quick development process Houston Prices remain steady – overall median home price flat Y/Y Economic growth tied to energy sector, remains strong with 57,000 jobs added in 2008 (2.2% growth) Drops in energy prices will have negative impact on overall economy Austin Steady single-digit home price appreciation throughout 2000s Employment growth of 1.2% in 2008 outperforms U.S. but slowing Signs of weakness in high-tech employment industry Relatively low home inventory levels and limited foreclosures are highlights – region likely to be among first to recover as a result

Dallas

3% drop in same product home price Y/Y; 6% off from peak

Did not experience same run-up in home prices as other growth areas with peak price appreciation of approximately 9% in 2006

Continues to outperform U.S. with 1.4% employment growth in 2008 due to solid diversification

Easy permitting practices allow for quick development process

Houston

Prices remain steady – overall median home price flat Y/Y

Economic growth tied to energy sector, remains strong with 57,000 jobs added in 2008 (2.2% growth)

Drops in energy prices will have negative impact on overall economy

Austin

Steady single-digit home price appreciation throughout 2000s

Employment growth of 1.2% in 2008 outperforms U.S. but slowing

Signs of weakness in high-tech employment industry

Relatively low home inventory levels and limited foreclosures are highlights – region likely to be among first to recover as a result

Pacific Northwest Seattle 10% decline in same product price Y/Y versus 17% for most MSA’s Foreclosures up 80% Y/Y, limited impact overall (0.9% of housing units versus 1.8% nationally) 12% home sales were foreclosures versus 20% nationally City of Seattle resale market hit less hard than outlying areas, with smaller sales/price drops Major layoffs coming with Microsoft, Boeing and JP Morgan (as part of Washington Mutual acquisition) announcing company-wide cutbacks of 5,000, 10,000 and 9,200 respectively Short-term strength/potential liability = presence of large companies like Microsoft and Boeing that drive growth in their respective industries Long-term strength as location for West Coast business expansion; more metropolitan than OR but less expensive than CA with rich talent base, port access and low business costs Portland Same product home price down 10% Y/Y versus 17% for 20-MSA composite Foreclosures up 107% Y/Y, limited impact overall (1.2% of housing units versus 1.8% nationally) 12% home sales were foreclosures versus 20% nationally Supply-constrained market with core urban neighborhoods currently outperforming suburbs Well-educated local labor force attracts investment in research and high-tech industries, particularly well-positioned in alternative energy Construction, finance and logging/wood product manufacturing sectors hit hard by local and national housing downturn Viewed as lower cost West Coast investment option compared to Seattle and California

Seattle

10% decline in same product price Y/Y versus 17% for most MSA’s

Foreclosures up 80% Y/Y, limited impact overall (0.9% of housing units versus 1.8% nationally)

12% home sales were foreclosures versus 20% nationally

City of Seattle resale market hit less hard than outlying areas, with smaller sales/price drops

Major layoffs coming with Microsoft, Boeing and JP Morgan (as part of Washington Mutual acquisition) announcing company-wide cutbacks of 5,000, 10,000 and 9,200 respectively

Short-term strength/potential liability = presence of large companies like Microsoft and Boeing that drive growth in their respective industries

Long-term strength as location for West Coast business expansion; more metropolitan than OR but less expensive than CA with rich talent base, port access and low business costs

Portland

Same product home price down 10% Y/Y versus 17% for 20-MSA composite

Foreclosures up 107% Y/Y, limited impact overall (1.2% of housing units versus 1.8% nationally)

12% home sales were foreclosures versus 20% nationally

Supply-constrained market with core urban neighborhoods currently outperforming suburbs

Well-educated local labor force attracts investment in research and high-tech industries, particularly well-positioned in alternative energy

Construction, finance and logging/wood product manufacturing sectors hit hard by local and national housing downturn

Viewed as lower cost West Coast investment option compared to Seattle and California

Investment Opportunities TCG Bullish on Long-Term U.S. Housing Market High demographic growth Governmental support for ownership Home ownership preferences. Favorable Deal Conditions High potential for distressed assets Reduction in bid/ask spreads Overcorrection of home prices Near-Term Strategies Land/lot development precede recovery by 12-18 months Re-entitlement, planning and product development Identify regional and submarket opportunities

TCG Bullish on Long-Term U.S. Housing Market

High demographic growth

Governmental support for ownership

Home ownership preferences.

Favorable Deal Conditions

High potential for distressed assets

Reduction in bid/ask spreads

Overcorrection of home prices

Near-Term Strategies

Land/lot development precede recovery by 12-18 months

Re-entitlement, planning and product development

Identify regional and submarket opportunities

TCG Valuation Strategy Market Supply and Demand Analyses Site Assessment and Programming Valuation Approach Cash flow limited finished lot and no raw land sale prior to land market recovery Conservative liquidation and going-concern evaluation

Market Supply and Demand Analyses

Site Assessment and Programming

Valuation Approach

Cash flow limited finished lot and no raw land sale prior to land market recovery

Conservative liquidation and going-concern evaluation

About The Concord Group Leading real estate strategy firm with offices in Newport Beach, San Francisco and Boston 50 consultants complete over 350 assignments annually in the U.S., Europe, Asia and Latin America Services include market and consumer analyses, transaction due diligence and asset valuation Recent private equity assignments include multiple analyses of distressed assets of commercial banks and new acquisitions for next-cycle development Assist developer and financial clients on value maximization of assets Cover all property types (commercial, residential and land) and work under tight due diligence deadlines 130 Newport Center Drive, Suite 230, Newport Beach, California 92660 | Phone: 949.717.6450 | Fax: 949.717.6444 251 Kearny Street, 6th Floor, San Francisco, California 94108 | Phone: 415.397.5490 | Fax: 415.397.5496 77 Summer Street, 7th Floor, Boston, Massachusetts 02110 | Phone: 617.451.1100 | Fax: 617.451.1171 Newport Beach | San Francisco | Boston

Leading real estate strategy firm with offices in Newport Beach, San Francisco and Boston

50 consultants complete over 350 assignments annually in the U.S., Europe, Asia and Latin America

Services include market and consumer analyses, transaction due diligence and asset valuation

Recent private equity assignments include multiple analyses of distressed assets of commercial banks and new acquisitions for next-cycle development

Assist developer and financial clients on value maximization of assets

Cover all property types (commercial, residential and land) and work under tight due diligence deadlines

United States Housing Outlook When Will Markets Recover? THE CONCORD GROUP