Alon Solomon- C.E.O Asaf Arieli-Business Development Manager

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ANNUAL DS CONFERENCE- US REAL ESTATE
Alon Solomon- C.E.O
Asaf Arieli-Business Development Manager

2. 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?

3. 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

4. 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

5. U.S. Macro Economics Data and trends

6. Sources: Marcus & Millichap Research Services,, U.S. Census Bureau
U.S. Retail sales have recovered from dramatic drop

7. Sources: BLS
Private sector job growth, one calendar year following end of recession

8. U.S. employment change by sector 2010
Sources: Marcus & Millichap Research Services, BLS

9. Increase in Government jobs and benefits
Sources: The Economist, George Washington University, White house office if information and regulatory affairs

10. Capital spending by corporate America is key to recovery – profit trend positive
Sources: BEA

11. Companies still hesitant to add long-term jobs
Sources: BLS

12. Single-Family Housing and condo market yet to enter sustainable recovery
Sources: National association of RELATORS

13. Threat of Deflation dominating current FED agenda
Sources: U.S. Census Bureau, BLS, Federal Reserve Board

14. An Economy in transition U.S. GDP growth past, present and future
Sources: BEA, Economy.com

15. Sources: BLS
Employment growth is Expected to gain momentum in 2011 and 2012

16. Sources: REIS, BLS
Quarterly Job growth vs. Apartment units absorbed

17. Sources: BLS
20-34 year olds share of job losses/gains

18. Apartment metro forecast vacancy ranking 2011
Sources: Reis

19. US Federal Debt as Percent of GDP- near WWII levels

26. Capital Markets overview and outlook

27. Sources: Reis
Core Inflation vs. 10-Year Treasury

28. Can Mortgage Rates be as high as the 80s level?
Sources: FreddieMac

29. Mortgage Crisis Overview- Secondary Market- Competition
Home Buyer
Mortgage Bank
Home Valuation
Income Check
Home Buyer
Israel Market US Market
Repayments
Mortgage Loans
Repayments
Mortgage Loans
Brokers
Appraisers
Key
Safeguards
Bank Checks
Independent Checks
Cash Flow
Mortgage
Bank A
Mortgage
Bank B
Mortgage
Bank C
Mortgage
Bank D
Mortgage
Bank E

30. Home Buyer
Mortgage Bank
Home Valuation
Income 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
Brokers
Appraisers
Rating
Agencies
Key
Safeguards
Bank Checks
Independent Checks
Cash Flow
Mortgage Crisis Overview- Secondary Market- Securitization

31. Home Buyer
Mortgage Bank
Home Valuation
Income 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
Brokers
Appraisers
Rating
Agencies
Key
Safeguards
Bank Checks
Independent Checks
Cash Flow
Mortgage Crisis Overview- Secondary Market- Securitization what went wrong?

32. • 2/28 loans
• Below 620 Credit Score
• NINJA loans
• Financial Engineering
The rise of the sub-prime mortgage market

33. The sub-prime aftermath

34. Multi-family mortgage debt outstanding
Sources: Marcus & Millichap Research Services, MBA

35. Sources: MBA
U.S. Commercial Mortgage delinquency rates by lender type

36. Total Multi-family mortgage debt outstanding: $847B
Sources: MBA

37. Sources: Commercial Mortgage Alert
U.S. Commercial mortgage backed securities (CMBS) Issuance

38. What will be in the future....?
Hard to tell
....
We can only guess and estimate

39. ‫דיעה‬‫אחת‬:
‫פרופ‬'‫פסיג‬ ‫דוד‬,‫טכנולוגי‬ ‫בחיזוי‬ ‫המתמחה‬ ‫עתידן‬,
‫וחינוכי‬ ‫חברתי‬-"‫צעירה‬ ‫מעצמה‬ ‫היא‬ ‫אמריקה‬"
•‫ארה‬"‫הבינלאומית‬ ‫בזירה‬ ‫מאוד‬ ‫חשוב‬ ‫תפקיד‬ ‫משחקת‬ ‫ב‬.
•‫למעצמות‬-‫חיים‬ ‫תוחלת‬ ‫יש‬ ‫על‬-‫שנה‬ ‫אלף‬ ‫עד‬ ‫אפילו‬ ‫נע‬ ‫זה‬ ‫קדומים‬ ‫בימים‬,
‫בכ‬ ‫מדובר‬ ‫המודרנית‬ ‫בתקופה‬-300‫שנה‬
•.‫ארה‬"‫השנייה‬ ‫העולם‬ ‫מלחמת‬ ‫אחרי‬ ‫רק‬ ‫על‬ ‫למעצמת‬ ‫הפכה‬ ‫ב‬,‫עדיין‬ ‫היא‬
‫צעירה‬ ‫מאוד‬.‫קורסת‬ ‫שהיא‬ ‫שחושב‬ ‫מי‬-‫המפה‬ ‫את‬ ‫נכון‬ ‫קורא‬ ‫לא‬,‫נכון‬ ‫קורא‬ ‫לא‬
‫שלה‬ ‫היתרונות‬ ‫את‬.‫להבין‬ ‫צריך‬,‫כך‬ ‫כל‬ ‫עם‬ ‫על‬ ‫מעצמת‬ ‫היתה‬ ‫לא‬ ‫פעם‬ ‫אף‬
‫לארה‬ ‫שיש‬ ‫כמו‬ ‫יתרונות‬ ‫הרבה‬"‫ב‬.
‫סין‬ ‫לגבי‬,‫כמו‬ ‫גיאוגרפית‬ ‫התפשטות‬ ‫במגמת‬ ‫כרגע‬ ‫נמצאת‬ ‫לא‬ ‫היא‬ ‫כל‬ ‫קודם‬
‫רוסיה‬,‫כלכלית‬ ‫התחזקות‬ ‫במגמת‬ ‫אלא‬.‫לכך‬ ‫מעבר‬ ‫אבל‬,‫גדולות‬ ‫בעיות‬ ‫לה‬ ‫יש‬.
‫שלה‬ ‫והחסרונות‬ ‫היתרונות‬ ‫את‬ ‫כשמנתחים‬-‫מבחינה‬ ‫נכון‬ ‫לא‬ ‫כך‬ ‫כל‬ ‫בנויה‬ ‫היא‬
‫ופוליטית‬ ‫כלכלית‬,‫שיהיה‬ ‫עד‬ ‫זמן‬ ‫של‬ ‫עניין‬ ‫רק‬ ‫שזה‬ ‫טוענים‬ ‫המומחים‬ ‫שמרבית‬
‫מאוד‬ ‫גדול‬ ‫משבר‬ ‫שם‬,‫ה‬ ‫המאה‬ ‫של‬ ‫השני‬ ‫בעשור‬ ‫יקרה‬ ‫שזה‬ ‫מעריכים‬ ‫ואנו‬-21.

40. Apartment Investment Trends

41. 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

42. 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

43. Multifamily Starts – lowest levels
Sources: US census, Sequoia Research

44. Apartment Investment Trends – Transaction Volume by Price Category
Sources: CoStar Group Inc., Real Capital Analytics

45. Apartment Investment Trends – Dollar Volume by Price Category
Sources: CoStar Group Inc., Real Capital Analytics

46. National Apartment Transactions
Sources: CoStar Group Inc., Real Capital Analytics

47. Sources: CoStar Group Inc.
Estimated Distresses U.S. Apartment Investment Trends – Dollar Volume

48. National Apartment Price / Cap Rate Trends
Sources:, CoStar Group Inc.

49. Apartment Cap Rate Trends – Average Cap Rates vs. 10-Year Treasury
Sources: CoStar Group Inc. NREI, Real Capital Analytics

50. U.S Apartment Buyer Composition
Sources: Marcus & Millichap Research Services, Real Capital Analytics

51. Why the Long-Term outlook for the U.S. apartments is extremely favorable
1. Population growth: constant immigration, Echo boomers
2. Sharp decrease in new supply
3. Affordability: rent vs. own
4. Employment growth
5. Weak dollar

52. 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

53. What type of investors will eliminate uncertainty?
•Cash Flow producing assets
•Experienced local investors
•Close to the market
•Cost Savings capabilities