The State of the Florida Economy

The State of The Florida Economy!and Real Estate Market! !Tuesday July 17 2012 • Sperry Van Ness Florida!!Sam Chandan PhD FRICS!President & Chief Economist Chandan Economics!Adjunct Professor of Real Estate The Wharton School!

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THE GLOBAL ECONOMY !

CHANDAN 4 EUROPEAN CRISIS AND GLOBAL SPILLOVERS•  Sovereign Bond Crisis Impacting Financing Capacity of European Economies•  Piecemeal Response to Crisis –  Undermining to Private Investment and Hiring•  As Servicing Costs Rise, Deeper Austerity Cuts are Required•  Tipping Point Requires Debt Mutualization to Lower the Weighted Average Cost of Sovereign Financing

CHANDAN 5 EUROPEAN CRISIS AND US PROPERTY MARKETS•  Increase in Risk Aversion in Financial Markets and in Real Economic Activity –  Temporary Pullback from Investment Spillovers into Secondary Markets and Non-Core Assets•  Wider Spread in Outcomes Across Risky and Lower Risk Investments –  Agency Financing Costs Fall –  CMBS Market Costs Rise –  Latter’s Inability to Compete for Apartment Lending Constrains Diversiﬁcation

CHANDAN 6 SOVEREIGN BOND MARKETS UNDERMINE AUSTERITY3000 European Bond Spreads2500 10-Year Bond Spread to German Bund In Basis Points • Through July 13 2012 Source: Bloomberg Greece200015001000 Portugal Ireland 500 Spain Italy France 0 UK 01/10 07/10 01/11 07/11 01/12 07/12

CHANDAN 7 GERMAN AND US SAFE HAVENS Long Term 4.5% 4.5% – 5.4% US 10-Year Treasury vs 4.0% Germany 10-Year Bund Through July 13 2012 • Source: Bloomberg, Federal Reserve Forecast 3.5% Ranges 3.0% 2.5% 2.0% Q4 2012 1.0% – 2.6% 1.5% 1.0% 1/1/10 5/1/10 9/1/10 1/1/11 5/1/11 9/1/11 1/1/12 5/1/12

THE US ECONOMY !

CHANDAN 9 NATIONAL GROWTH TRENDS What to Watch: 6% European Fiscal and Existential Crisis Change in Real GDP Opaque Slowdown in China Existing Data Through 2011 Fiscal Cliff and Budgetary Policy in the US Source: Bureau of Economic Analysis Hesitant US Businesses and Consumers 4% 3.0% 2.9% 2.5% 1.9% 1.7% 2.0% 2% 0% -0.3%-2% FORECAST-4% -3.5% 2007 2008 2009 2010 2011 2012 2013 2014

CHANDAN 10 CORPORATE PROFITS OFFER STRONG FOUNDATION $1.7 After Tax Corporate Proﬁts $1.6 In Trillions • Through Q1 2012 $1.5 Source: Bureau of Economic Analysis $1.4 Q1 2012 $1.64 $1.3 $1.2 $1.1 $1.0 $0.9 $0.8 $0.7 $0.6 $0.5 2006 2007 2008 2009 2010 2011 2012

CHANDAN 11 CONFIDENCE IS LACKING 102 1 Small Business 100 Optimism Index 0 98 Three-Month Moving Average Through June 2012 -0.45 96 Source: National Federation of -1 Independent Business 94 93.4 -2 92 Chicago Fed 90 National -3 Activity Index 88 Through May 2012 86 -4 Source: Chicago FED 84 -5 82 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012

CHANDAN 12 LABOR MARKETS STRUGGLE TO RECOVER 0 4 8 12 16 20 24 28 32 36 40 44 48 52 1% Months Following Peak in Employment 0%Loss Relative to Employment Peak 1990/1991 -1% Recession 2001 Recession -2% -3% -4% 2008/2009 -5% Recession Through June 2012 -6% Source: Bureau of Labor Statistics; Chandan -7%

THE FLORIDA ECONOMY

CHANDAN 14 FLORIDA JOB MARKET FACES LONGER ADJUSTMENT 2% 0% -2% -4% Year-Over-Year Change in -6% Non-Farm Employment Florida | National • Through May 2012 Source: Bureau of Labor Statistics -8% 2007 2008 2009 2010 2011 2012

CHANDAN 15 UNEVEN RECOVERY IN JOBS 110 Florida Employment by Industry Education/Health Through May 2012 Source: Bureau of Labor Statistics 105 Public 100 Hospitality 95 Professional Retail 90 Finance 85 2008 2009 2010 2011 2012

CHANDAN 16 UNEVEN RECOVERY IN JOBS Gainesville Tampa Miami Sarasota Orlando West Palm Jacksonville Fort Myers Florida Employment Ocala by Market Through May 2012 Ft Lauderdale Source: Bureau of Labor Statistics Tallahassee Florida -3% -2% -1% 0% 1% 2% 3%

CHANDAN 17 FLORIDA ECONOMY SLIPS 2% Florida Leading Index 1% Through May 2012 Source: Philadelphia Fed 0% 0.12% -1% -2% -3% -4% -5% 2007 2008 2009 2010 2011 2012

CHANDAN 18 SOURCES OF GROWTH Thousands Thousands 0 100 200 300 400 500 -100 -50 0 50 100 150 Texas Texas California California Cross- Border Florida Florida Georgia Domestic Georgia North Carolina North CarolinaWashington Washington Virginia Virginia New York The Fastest Growing States New York 2010 / 2011 Arizona Population Change Arizona

PROPERTY INVESTMENT TRENDS

CHANDAN 20 NATIONAL INVESTMENT BIFURCATION7.5% 8.5% Apartment Cap Rates Ofﬁce Cap Rates7.0% 8.0%6.5% National National 7.5%6.0% 7.0%5.5% 6.5%5.0% Cardinal 6.0%4.5% Source: Chandan Cardinal4.0% 5.5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 2010 2011 2012

CHANDAN 21 NATIONAL LENDING TRENDS15.5% 7.5% National Debt Yields Interest Rates on 14.5% Source: Chandan Long-Term Loans 7.0%13.5% 6.5% Retail12.5% 6.0% Ofﬁce11.5% 5.5% Retail Ofﬁce10.5% 5.0% Apartment 9.5% Apartment 4.5% 8.5% 4.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 2010 2011 2012

CHANDAN 22 CMBS CORRELATION WITH BROADER MARKET CMBS Spreads (10-Year AAA; Morgan Stanley)12 Aaa v Baa Corporates 4.0 14 In Percentage Points 3.5 1210 3.0 CMBS in 2011 10 8 2.5 and 2012 8 6 2.0 6 1.5 4 4 1.0 2 0.5 2 0 0.0 0 08/08 08/09 08/10 08/11 08/08 08/09 08/10 08/11

CHANDANCROWDING OUT NON-AGENCY APARTMENT LENDINGDeal Pricing Date Apartment Ofﬁce Retail HotelJPMCC 2012-C6 April 18 < 1% 38% 41% 10%UBS 2012-C1 April 24 9% 29% 29% 14%COMM 2012-CR1 May 18 8% 23% 44% 8%GSMS 2012-GCJ7 May 18 11% 23% 22% 8%WFRBS 2012-C7 June 7 8% 13% 57% 11%JPMCC 2012-CIBX June 22 21% 18% 37% 18% Average 10% 24% 38% 12% Median 9% 23% 39% 11%Distress DealsRialto 2012-LT1 April 5 8% 9% 21% 29% Source: Chandan, SEC Filings

CHANDAN 24 AN PRELIMINARY LOOK AT FLORIDA IN Q2 2012 Note: All Data Points Median Median Median are Preliminary Cap Rate Debt Yields Interest Rate Ofﬁce 8.5% 11.0% 4.99% Retail Anchored 7.4% 11.3% 5.32% Retail Unanchored 7.5% 13.2% 5.50% Apartments 6.1% 9.9% 3.92% Industrial 7.7% 10.6% 5.60% Self Storage 6.9% 10.2% 4.92% Source: Chandan; Unweighted Averages; Fixed Rate Across Durations; July 17, 2012

CHANDAN 25 FLORIDA LENDING TRENDS 6% 5% 4% Interest Rate 3% 2% Florida Apartment Lending Rates v Corresponding 10-Year Treasury Yield Treasury Yield Amortizing Mortgages • Source: Chandan 1% Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112

CHANDAN 26 FLORIDA DEFAULT RATES INHIBIT BANK LENDING 14% 7% Multifamily Default Rates Commercial Default Rates Florida | National • Through Q1 2012 12% Source: Bank Call Reports, Chandan 6% 10% 8% 5% 6% 4% 4% 3% 2% 0% 2% 2009 2010 2011 2012 2009 2010 2011 2012

CHANDAN 27 THE ECONOMY AND PROPERTY MARKETS•  No Economic Model for Political Decision-Making Framework in Europe (or Washington)•  Europe Holds Timely Lessons for the US on Approach to Fiscal Cliff•  Major Economic Concern is Potential for Contagion Through Credit Market Channels•  Immediate Impact on US Property Lending is Undercutting of CRE Securitization; Reinforcement of Apartment Lending Imbalance; Investor Pullback from Liquidity-Constrained Markets

CHANDAN 28 THE FLORIDA ECONOMY AND PROPERTY MARKETS•  Florida’s Weaker Trends Reﬂect a More Difﬁcult Pattern of Adjustment•  Slow Shift From Single-Family Real Estate and Construction-Dependent Growth•  Risk-Aversion Supporting Strong Current Returns on Recent Core Asset Purchases –  Expect this trend to continue; spillovers are in their early stages•  In-Migration, Freight, and Tourism are Key Supports for Growth; Pro-Business Tax Policies•  Room to Invest Further in Skill Retention, Entrepreneurial Infrastructure as in Tampa, Orlando

The State of The Florida Economy!and Real Estate Market! !Tuesday July 17 2012 • Sperry Van Ness Florida!!Sam Chandan PhD FRICS!888 650 8650 • dsc@chandan.com • www.chandan.com C O M M E RC I A L R E A L E S TAT E DEBT MARKETS RESEARCH D A T A • T R E N D S • A N A LY T I C S

The State of the Florida Economy

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