Presented by: Dianne Crocker Principal Analyst, EDR Insight October 15, 2015 Do you know where the market for property due diligence is heading? How is your business performance this year compared to industry benchmarks? How confident are you in your business forecast for next year? The fourth quarter of 2015 is almost upon us, and that means, of course, that 2016 is just around the corner. Join us for our final ScoreKeeper webinar of the year when EDR Insight’s principal analyst Dianne Crocker will share her unique perspective on the latest state of the property due diligence market. Her presentation will provide attendees with a deep dive into the underlying economic and commercial real estate trends impacting the environmental due diligence market, and an in-depth look at the latest trends. Attendees of this 30-minute webinar will get answers to the following types of questions: • Is my business over- or under-performing the overall market? • What story does ScoreKeeper’s output tell about the regions driving the strongest 3Q growth? • Is my state among the top 10 fastest-growers this year? • Are the hottest mid-year metros still hot or cooling? And if so, who are the new entries taking their place? • What do the latest data on market indicators impacting demand for your services say about the future business climate you’ll have to contend with? • How aggressive should your business forecast be for 2016? How about 2017?

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Dianne P. Crocker
Principal Analyst, EDR Insight
October 15, 2015
SCOREKEEPER Quarterly
Market Update: 3Q2015
Smart Data. Smarter Workflow

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• SCOREKEEPER’S 3Q15 BENCHMARKS
• TOP CHALLENGES
• NEAR-TERM FORECAST
• Q&A
TODAY’S THEMES

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STATUS OF THE MARKET
RECOVERY

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• PROPERTY INVESTMENT CONTINUES ITS SLOW CLIMB.
• JOB GROWTH BACK TO PRIOR PEAK LEVELS.
• INTEREST RATES STILL EXTREMELY LOW.
• NEW CONSTRUCTION/DEVELOPMENT BREAKING GROUND.
• SECONDARY METROS SURPASSING GATEWAYS.
• NEW PLAYERS (YOUR CLIENT BASE) ARE GETTING IN THE GAME.
SOARING COMMERCIAL REAL ESTATE MARKET
IS NOW BIGGER THAN IT WAS IN 2006

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SMALL CAP SALES:
• Up by a notable
14.4% at mid-
year
• The fastest start
since at least
2005.
LARGE CAP SALES:
• Deal volume
nationwide
jumped 36% at
mid-year
• 1Q 46%
• 2Q 23%
• Jul/Aug down n
transaction
volumes
IMPRESSIVE 1ST HALF OF 2015: SUMMER
MODERATION IN GROWTH

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• MAJOR BUYING CLASSES
• Real estate investment trusts (REITs)
• Foreign investors stepping on the gas
• Private equity funds
• Hedge funds
• Traditional developer/owner/operators
DEAL MAKING: WHO’S INVESTING?
2015 TOP BUYERS
Blackstone (283 properties)
Govt of Singapore (547)
Global Logistic Properties (547)
Prologis (274)
Norges Bank (230)
Clarion Partners (95)
WP Glimcher (32)

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• 2Q15 CRE LOAN ORIGINATIONS UP 16%
• Led by government Sponsored Enterprises (GSEs)
• Commercial banks
• Insurance companies
• A COMEBACK IN LAND AND CONSTRUCTION
LENDING
• Up 24% in 1Q15
• Up 17% in 2Q15.
• 2015 VOLUME EXPECTED TO SURPASS 2014
• LENDERS OF ALL STRIPES ARE RUNNING WELL
AHEAD OF LAST YEAR'S ACTIVITY.
PROPERTY LENDING:
SLOW BUT STEADY GROWTH

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• BORROWERS ARE REFINANCING EARLY
• PERFECT STORM FOR BORROWERS WITH
MATURING LOANS:
• Low interest rates
• Rising property values
• A competitive lending environment
• FINITE WINDOW OF OPP: 2015-2017
• ¼ OF LOANS SET TO MATURE IN 2015 REFI’ED
EARL
• 2016 LIKELY TO BE THE PEAK
• A SHORT-TERM BUT STRONG OPP!
LENDING OPPORTUNITY:
THE “PERFECT STORM” FOR REFI OPP’S

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• TOLL BROTHERS MAKING BIG SPLASH ON MULTIFAM:
• Buying sites to expand its apartment-development division
• Focused on the Boston-to-Washington, D.C. corridor
• Plans to double its equity investment in the division to up to $300
million.
• RIVAL LENNAR CORP. ALSO IN ON THE ACTION:
• Created a $1.1B fund for building and holding apartment sites
• Focus on 25 major U.S. markets
• Plans to expand the fund’s equity to $2 billion within a year.
“EVERYBODY’S DEVELOPING, AND EVERYBODY THINKS
GENERATION Y IS GOING TO RENT FOREVER.”
~ECONOMIST RYAN SEVERINO, REIS
3Q15 TREND: HOMEBUILDERS BUYING BIG

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SCOREKEEPER BENCHMARKS:
3Q15 STATS

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Region
1Q
Growth
YonY
2Q
Growth
YonY
3Q
Growth
YonY
YTD vs
2014
YTD
Northeast 2% 1% 13% 5%
West 14% 11% -5% 6%
MidAtlantic -4% 4% 3% 3%
South 1% -5% -9% -6%
Midwest 1% -2% -5% -3%
California 6% 4% -3% 1%
North
Atlantic
8% 11% 3% 8%
South
Atlantic
-1% 0% 1% 0%
U.S.
AVERAGE
4% 2% -2% 1%
SCOREKEEPER: REGIONAL GROWTH

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10 FASTEST GROWING STATES 2015 YTD
YonY Growth
Oregon 24%
W. Virginia 24%
Nevada 19%
Maryland 16%
Alaska 15%
Utah 15%
Hawaii 14%
Idaho 11%
New Jersey 10%
Washington 10%

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SCOREKEEPER: STRONGEST METRO
MARKETS, 2015 YTD
TOP 10 HIGH-
GROWTH
METROS,
YonY for 3Q
Las Vegas, NV 27%
Baltimore, MD 24%
Honolulu, HI 22%
Portland, OR 19%
Sacramento, CA 15%
Philadelphia, PA 15%
Salt Lake City, UT 15%
Long Island, NY 12%
Hartford, CT 11%
Charlotte, NC 11%
“Next year, expect to see more activity
in a number of up-and-coming cities
that still offer good values. Cities like
Austin, San Antonio, Raleigh, Dallas
and Orlando.”

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TOP CHALLENGES

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THE MARKET IN YOUR WORDS:

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WHAT KEEPS YOU UP AT NIGHT?
TOP FIVE CHALLENGES TODAY:
1. Pressure for low prices
2. Intense competition
3. Pressure for fast turn around time
4. Finding new business
5. Hiring qualified staff
“FIRMS ARE CHARGING INCREDIBLY LOW PRICES
FOR THEIR PHASE I WORK AND IT CONCERNS US
THAT THE QUALITY OF THEIR WORK IS POOR AND
CLIENTS GENERALLY ONLY CARE ABOUT PRICING”
“SHORT DUE DILIGENCE TIMEFRAMES.”
“KEY EMPLOYEE RETIREMENT LOOMING.”
“CONTINUED COMMODITIZATION OF PRODUCT.”
“COST DRIVEN”

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• “M&A WAY UP”
• “BUSIER THAN LAST YEAR”
• “FAST AND FURIOUS.”
• “STRONG BUT WITH INTENSE COMPETITION
• “STRONG DUE DILIGENCE MARKET WITH CLIENTS WHO WANT
IMMEDIATE ANSWERS AND SOLUTIONS.”
• “UNFORGIVING; SMALL FIRMS ARE GETTING FORCED OUT OF
THE MARKET BY THE NATIONAL FIRMS.”
• “WE SEE THIS MARKET AS A REFLECTION OF ECONOMIC
CONDITIONS.”
ON THE MARKET:

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NEAR-TERM FORECAST

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2016 FORECAST: ARE YOU BULLS OR BEARS?

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“THE FIRST 15 MINUTES OF ANY COMMITTEE DISCUSSION IS ON
THE POTENTIAL RISK OF THE DEAL. WE DIDN’T DO THAT IN 2006.”
~SENIOR BANK EXECUTIVE
• BUYERS AREN’T LIKE THE SPECULATORS WHO WOULD
BORROW THE FULL COST OF THE PROPERTY IN HOPES OF
RISING PRICES.
• MORE CONSERVATIVE, MORE UPFRONT MONEY
• AT THIS LATER STAGE IN THE REAL ESTATE CYCLE, INVESTORS
ARE EVEN MORE SELECTIVE IN VIEW OF AN EXPECTATION OF
LOWER RETURNS IN THE FUTURE
• DEALS THAT ARE BEING DONE TODAY ARE BEING DONE WITH A
LOT MORE CAUTION.”
“BANKS ARE BEHAVING AND MANAGING IN A MORE CAREFUL WAY
THAN THEY WERE IN THE LAST CYCLE.”
WHY RISK MANAGEMENT IS DIFFERENT TODAY

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• BESIDES NEW CONSTRUCTION, INVESTORS EYEING
PROPERTIES IN NEED OF RENOVATION.
• MARKET IS CONSIDERING A WIDER RANGE OF POTENTIAL
INVESTMENTS
• MANY WERE FINANCED DURING THE MARKET'S PEAK AND
NEVER GENERATED SUFFICIENT CASH FLOW
• RISK FOR INVESTORS BUYING PROPERTIES TODAY IS THEY MAY
SELL IN 5-7 YEARS WHEN RATES ARE HIGHER.
• IMPORTANCE OF DUE DILIGENCE:
• is the underlying value there to support price?
OLD IS NEW AGAIN

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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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SOME KEY MARKET INDICATORS TIED TO PHASE I VOLUME
DASHBOARD FOR MARKET FORECAST
Correlation
to Phase I
vol
2016 2017
Current Forecast
US Indl Prod (gen eco) 77% 3.7% 2.9% Generally expanding economy over next 3 years.
Employment 81% 1.8% 2.4% Overall trend is rising but pace of growth nearing business
cycle peak.
Housing starts 86% 14.2% 7.2% Growing at a relatively steady rate through early 2016, before
accelerating sharply mid-2016, eventually slowing as borrowing
costs rise
Office bldgs constr 80% 8.3% 21.9% Recent moves in the National Architectural Billings Index
confirm the impending 2016 slowdown. Construction will
reaccelerate in 2017 to record levels.
Multi Retail Bldg Constr .83% 11.8% 1.4% Deceleration in Construction will persist in the near term, with
pace of rise quickening in 2016, deceleration will then take hold
through at least 2017.
Forecast: Phase I ESA
volume
4-7% 1-3% Accelerating in 2016, slower pace of growth in
2017.

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• ONLY SLIGHT INCREASES IN INTEREST RATES EXPECTED.
• SUSTAINED, READY ACCESS TO FINANCING
• TWO YEARS OF FAVORABLE REAL ESTATE CONDITIONS.
• CONTINUED MIGRATION TO SECONDARY AND TERTIARY
METROS.
• NO IMMINENT DOWNTURN
• DEBT AND EQUITY CAPITAL ARE PLENTIFUL AND COMPETITION
IS INTENSE FOR MOST MARKETED PROPERTIES.
• 4Q15: LOOK FOR SPIKE IN VOLUME
FORECAST: KEY TAKE-AWAYS

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THANKS TO EVERYONE WHO TOOK THE SURVEY!
3 LUCKY WINNERS ARE GETTING $25 STARBUCKS GIFT CARDS:
1. BDERENICK
2. SARA.SUVA
3. VALERIEN.MARSHALL
CONGRATULATIONS!
3Q15 SURVEY WINNERS

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Q&A