EDR Insight Webinar: Quarterly ScoreKeeper Market Update for 1Q2015 Presented by Dianne Crocker, Principal Analyst, EDR Insight April 2, 2015 Join us for a complimentary web event on the state of the market in the first quarter of 2015—and a look at the sectors driving growth in the new year. Attendees of this 60-minute webinar will learn: • The status of commercial property transactions and the asset classes attracting the most attention • This quarter’s regional, state and metro market hot spots • Key players in the deal-making and lending worlds • Where to focus business development efforts for 2015 • EDR Insight’s near-term forecast for environmental due diligence

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Dianne P. Crocker
Principal Analyst, EDR Insight
April 2, 2015
SCOREKEEPER Quarterly
Market Update: 1Q2015
Smart Data. Smarter Workflow

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• MARKET DEVELOPMENTS IN COMMERCIAL REAL ESTATE AND
LENDING
• SCOREKEEPER SNAPSHOT
• THE 2015 FORECAST
• Q&A
TODAY’S 1Q2015 UPDATE

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MARKET BAROMETERS

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ALL THE KEY DRIVERS FOR PROPERTY DEMAND ARE TRENDING IN
THE RIGHT DIRECTION:
• HOUSING MARKETS RECOVERING NICELY.
• JOBS ARE BACK PAST PRIOR PEAK LEVELS AND GROWING
SHARPLY.
• INTEREST RATES STILL EXTREMELY LOW.
• PROPERTY INVESTMENT CONTINUES ITS SLOW CLIMB
• MORE NEW CONSTRUCTION/DEVELOPMENT
• UNPRECEDENTED INFLUX OF FOREIGN CAPITAL IN PRIMARY
METROS
• NEW ACTIVITY IN A NUMBER OF SECONDARY MARKETS
THOUGHTS ON REAL ESTATE IN 2015

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Small cap property sales:
+22% in 2014- a 7-year high.
Large property sales:
+17% in 2014, rivaling 2006 levels.
+38% in Jan-Feb 2015 YonY.
PROPERTY TRANSACTIONS GROWTH

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EXPANDING UNIVERSE OF U.S. BUYERS
• NUMBER OF ACTIVE BUYERS IS 24% HIGHER THAN PRE-CRISIS.
• 2014: 18,574 UNIQUE BUYERS, MORE THAN THREE TIMES AS
MANY BUYERS WHO WERE ACTIVE IN 2009 IN THE DEPTHS OF
THE CRISIS.

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• SMALLER SECONDARY MARKETS WITH STRONG GROWTH
PROFILES ARE SEEING INVESTOR INTEREST.
• COMMON DENOMINATORS:
• Strong job growth
• Growing technology sectors, healthcare and financial services
industries
BEYOND NYC AND SF: MIGRATION TO SMALLER
METROS

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• 2015 FINANCING MARKET IS INCREASINGLY
COMPETITIVE.
• REGIONAL/LOCAL BANKS ARE GAINING MARKET
SHARE.
• LENDING STANDARDS HAVE NOT CHANGED MUCH IN
THE LAST YEAR.
• UPTICKS IN LENDING VOLUMES SUPPORT POSITIVE
INVESTMENT TRENDS…
THE 2015 STORY IN LENDING

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• A POSITIVE TRAJECTORY IN LENDING.
• 6.5% GROWTH IN 2014 (FDIC)
• ORIGINATIONS IN 2014 ABOUT 25% PERCENT
BELOW 2007 PEAK.
• Multifamily 25% higher than those 2007 volumes.
• Absolute levels of multifamily lending should remain
strong.
LENDING: SLOW PACE OF GROWTH IN
ORIGINATIONS

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• WIDE VARIATION IN LENDING BY BANK SIZE.
• STRONGEST GROWTH AT THE LARGEST REGIONAL BANKS AND
MID-SIZED BANKS.
• SIGNIFICANT PULLBACK BY COMMUNITY BANKS.
• GROWTH ESPECIALLY STRONG IN
CONSTRUCTION/DEVELOPMENT AND MULTIFAMILY
CATEGORIES.
LENDING BY BANK SIZE
Growth in CRE
Loan Portfolios
(2014 vs. 2013)
All banks 6.5%
Assets >$50B 4.1%
$10B-$50B 16.8%
$1B-$10B 10.5%
<$1B -1%

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• SBA FY 1Q15 LOAN APPROVALS SPIKED
• LOAN APPROVALS UNDER 7(A) WERE UP A SIGNIFICANT 32% IN
THE OCT-DEC QUARTER VERSUS PRIOR YEAR
• NEARLY 14,000 LOANS WERE APPROVED UNDER THE 7(A)
PROGRAM IN THE OCT.-DEC. TIMEFRAME.
• EXPECTED TO CONTINUE
U.S. SBA LENDING

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• HEADING INTO NEW ROUND OF REFINANCING, PEAKING IN 2017
• LENDERS VIEW THIS WAVE OF MATURITIES AS OPPORTUNITY TO
INCREASE VOLUMES.
• EXCESS CAPITAL LOOKING TO FINANCE SOLID REAL ESTATE
DEALS.
• EXPECTED TO FUEL A SURGE IN REFINANCING ACTIVITY FROM
NOW THROUGH 2017.
NEW ROUND OF REFI’S

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• VYING FOR A PIECE OF THE REFI MARKET:
• Traditional lenders
• Life companies
• Conduits
• Private equity (non-bank lenders, new this refi cycle)
NEW REFI PLAYERS

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• SLOW START IN JAN, HALF OF JAN 2014 ISSUANCE
• GAINING MOMENTUM IN FEB/MAR
“CONDITIONS REMAIN FAVORABLE FOR ELEVATED ISSUANCE
ACTIVITY,” THEY WROTE IN A JANUARY NOTE. “PLENTY OF 2015
LOANS WILL NEED TO BE REFINANCED, THE 10-YEAR TREASURY
YIELD KEEPS DECREASING AND SPREAD VOLATILITY HAS BEEN
MODEST. ALL OF THIS MEANS INVESTORS AND ISSUERS SHOULD
STAY BUSY FOR THE FORESEEABLE FUTURE.”
~TREPP LLC, EDR SISTER COMPANY
CMBS: SLOW START, STRONG 2015

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• 2014 ISSUANCE FELL SHORT OF HEADY 30% GROWTH
PREDICTIONS
• $94B, UP 12% YEAR ON YEAR, STILL HIGHEST SINCE 2007
• 2015 FORECAST:
• $124B or 15 to 25% growth
• Driven partly by a growing investment market and partly by loan
maturities
-ALERT: There are early signs that risk aversion is waning and that
underwriting standards will only get worse in 2015.
CMBS: THE NUMBERS

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TOP DOMESTIC, PRIVATE LABEL CMBS BOOKRUNNERS, 2014:
DEUTSCHE BANK (26.25% MARKET SHARE)
JP MORGAN SECURITIES (15.38%)
WELLS FARGO SECURITIES (13.7%)
GOLDMAN SACHS (8.83%)
CITIGROUP (8.42%)
BOFA MERRILL LYNCH (6.87%)
MORGAN STANLEY (6.75%)
BARCLAYS CAPITAL (4.48%)
UBS (3.85%)
CREDIT SUISSE (2.64%)
TOP CMBS PLAYERS

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• TOTAL CONSTRUCTION SPENDING IN
2014 HIGHEST SINCE DOWNTURN.
• CONSTRUCTION AND DEVELOPMENT
LENDING WAS THE FASTEST
GROWING CATEGORY OF CRE
LOANS ACROSS BANKS OF ALL
ASSET SIZES.
• BEYOND KEY METROS (NY, SAN
FRAN, BOSTON)
• POINTS TO MARKED INCREASE IN
U.S. DEVELOPMENT IN 2015:
DENVER, RALEIGH-DURHAM,
SUBURBAN VIRGINIA, OAKLAND, LAS
VEGAS, AUSTIN AND SAN JOSE.
2015: THE YEAR FOR NEW DEVELOPMENT
MOST ACTIVE GROUPS
ACQUIRING SITES FOR
DEVELOPMENT
HFZ Capital Group
Greenland Group
Tishman Speyer
Carmel Partners
Oceanwide Real Estate Group
Crown Resorts
Oaktree
Mitsui Fudosan
Fortis Property Group

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• MULTIFAMILY STILL POPULAR BUT PEAKING
• OFFICE IS IMPROVING ESPECIALLY IN STRONG 2NDARY METROS
• RETAIL
• 40,923 new stores this year
• INDUSTRIAL DEMAND GROWING, PARTICULARLY IN GATEWAY
MARKETS.
TOP PROPERTY TYPES

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SCOREKEEPER BENCHMARKS

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Region 1Q on 1Q Growth
Northeast 2%
West 14%
MidAtlantic -4%
South 1%
Midwest 1%
California 6%
North Atlantic 8%
South Atlantic -1%
U.S. Average 4%
SCOREKEEPER: REGIONAL GROWTH 1Q

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1Q2015 (YonY Growth)
Nevada 47%
Oregon 25%
Washington 15%
New Jersey 13%
Utah 11%
South Carolina 10%
Missouri 8%
Wisconsin 8%
New York 7%
Texas 6%
SCOREKEEPER: STATE HOT SPOTS, 1Q2015

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TOP 10 METROS, 2014 AND 1Q2015
TOP 10 HIGH-GROWTH
METROS, 1Q2015
Las Vegas, NV 52%
Columbia, SC 42%
San Antonio, TX 38%
Charleston, SC 26%
Milwaukee, WI 22%
San Francisco, CA 19%
Sacramento, CA 19%
Stamford, CT 16%
Portland, OR 14%
Raleigh, NC 13%

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SCOREKEEPER EDR25 INDEX, 1Q2015
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Dec -
2013
Jan -
2014
Feb -
2014
Mar -
2014
Apr -
2014
May -
2014
Jun -
2014
Jul -
2014
Aug -
2014
Sep -
2014
Oct -
2014
Nov -
2014
Dec -
2014
Jan -
2015
Feb -
2015
Mar -
2015
- 11% growth in
1Q2015
- Approximately 1/3
of US market

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1. SEATTLE: A TOP 10 MARKET IN 2014, STILL DOUBLE-DIGIT
GROWTH
2. DENVER: 9% 1Q GROWTH BUT IMPROVING, HIGH
CONSTRUCTION
3. CHARLOTTE: HIGH-PROFILE TRANSACTIONS DRIVING INTEREST
4. AUSTIN: STRONG DRIVER OF INVESTMENT, CONSTRUCTION
5. RALEIGH/DURHAM: BROKE INTO LIST 1Q, HIGH LEVELS OF
DEVELOPMENT
TOP 5 METROS TO WATCH

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THE 2015 FORECAST

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• ALL THE DRIVERS FIRING IN THE RIGHT DIRECTION AND RISKS
RELATIVELY TAME, THERE'S STILL A LOT OF ROAD TO RUN IN
THIS RECOVERY.
• TRANSACTION VOLUME REMAINING ON THE MEND.
• MODERATE GROWTH IN NEW ORIGINATIONS.
• CONTINUED MIGRATION TO SECONDARY AND TERTIARY
MARKETS.
• FAVORABLE LOW INTEREST RATE ENVIRONMENT (WITH HIGH
PROBABILITY OF INCREASE IN 2ND HALF OF 2015/EARLY 2016).
“2015 WILL BE ONE OF THE STRONGEST YEARS WE’VE SEEN IN
COMMERCIAL REAL ESTATE SINCE THE CREDIT CRISIS AND IT’S
FOR ALL THE RIGHT REASONS.” KEN RIGGS, RERC
“OPTIMISM IS HIGHEST IT’S BEEN SINCE THE DOWNTURN.” RYAN
SEVERINO, REIS
2015 FORECAST

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NEAR-TERM FORECAST
SCOREKEEPER:
PHASE I ESA ACTIVITY, 2015
2015 growth
Low end 4-6%
Mid-range 6-8%
High end 8-10%

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COMING SOON: NEW FORECASTING TOOL
“TO UNDERSTAND THE FUTURE, WE HAVE TO GO BACK IN TIME.”
• DEVELOPING A NEW FORECASTING TOOL FOR THE PHASE I
MARKET
• HISTORICAL ANALYSIS TO IDENTIFY WHICH MARKET
INDICATORS MOST CLOSELY ALIGN WITH PHASE I ACTIVITY
• OPENS AVENUE FOR FORECAST BASED ON MORE THAN $-
BASED TRANSACTION/LENDING PREDICTIONS

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• US ARCHITECTURAL BILLINGS INDEX
• US PRIVATE COMMERCIAL BLDGS CONSTRUCTION
• US INDUSTRIAL PRODUCTION
• RETAIL SALES
• HOUSING STARTS
• MULTI-RETAIL BLDGS CONSTRUCTION
• EMPLOYMENT, ETC.
QUANTITATIVE FORECAST
FOR PHASE I ACTIVITY
FORECAST BASED ON MARKET INDICATORS

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WWW.EDRNET.COM/SCOREKEEPER
Watch for
late Spring
2015
launch!

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“OUR COMPANY HAD A SLOW QUARTER. WAS IT US, OR IS
EVERYONE DOWN?”
“WE ARE THINKING OF OPENING AN OFFICE IN CINCINNATI, BUT
DOES THE MARKET TREND LINE SUPPORT THIS DECISION?”
“I MANAGE OUR TEXAS OFFICE AND NEED DATA TO HELP SET
REASONABLE GROWTH GOALS FOR THE COMING YEAR.”
“WHAT DOES OUR VOLUME NEED TO BE TO RANK AS AN EDR25
FIRM? HOW ABOUT IN GEORGIA? CALIFORNIA? TEXAS?”
“HOW ARE WE TRENDING COMPETITIVELY IN MAJOR METROS?”
“ARE ANY OF OUR OFFICES UNDER-PERFORMING THE MARKET?”
“WHAT ARE THE TOP MARKETS FOR PHASE I ESA ACTIVITY?”
“HOW IS OUR CHICAGO OFFICE PERFORMING RELATIVE TO
INDUSTRY BENCHMARKS?”
SCOREKEEPER CAN ANSWER:

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WWW.EDRNET.COM/SCOREKEEPER
Watch for
late Spring
2015
launch!

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Q&A