The document provides an overview and analysis of the commercial real estate market. It notes that while transaction volume increased in the second quarter of 2012, growth has slowed in recent months. Multifamily, office, and retail properties in major markets are driving most deal activity. Lending is increasing but remains cautious, with larger banks focusing on prime markets and lower-risk deals. Risk aversion is high industry-wide, and environmental due diligence is an important consideration in transactions. Overall, the market recovery is expected to be gradual with continued geographic and asset-type disparities.

1. EDR Insight Market Update:
Navigating In An Uncertain Market
Presented by:
Ashley Gowen, Research Analyst
Orange County
October 11, 2012
© 2012 Environmental Data Resources, Inc.

2. © 2012 Environmental Data Resources, Inc.

3. 1. STATE OF THE MARKET
Commercial
Real Estate
Due
Diligence Lending
© 2012 Environmental Data Resources, Inc.

4. Bumpy Road for CRE Transactions
• Transaction volume in
2Q12:
• Up 25% over 1Q
• Portfolio work drove
much of the gain
• Slow July and August
• Declining rate of growth

5. CRE Deals by Property Type
• Majority of gains driven by:
• Multifamily and Class A office:
• The “sweet spots”
• Largely viewed as low risk
• Retail:
• Recovering, but bifurcated
• Development:
• Accelerating
• More options to buy at cheaper prices
• Distressed asset deals bring contamination into
play
• Failed properties & projects returning to market

6. The Pulse of Lending
• Fewer troubled assets on their books compared to last
year
• The number of “problem banks” is falling (732)
• Lending up albeit moderately
• Mainly for top-quality borrowers, Class-A assets and in
primary markets.
• Assets with any sort of risk profile and borrowers
without a strong track record, however, remain more
difficult to finance.
• Refis and loan sales are strong drivers for EDD

7. Disparity in Lending
• By bank size:
• Large national banks focused on gateway markets
and institutional properties.
• Regional banks have slowly picked up their
commercial lending.
• Obstacles to lending remain for smaller banks
struggling with distressed commercial real estate
assets.
• Still not a great deals of interest—or capital—yet
available
• in secondary and tertiary metros
• for average-quality assets

8. Up 43% above market’s 2012 YTD:
Oct. 2009 low point 8% above 2011 YTD

9. Regional Phase I ESA Activity: 3Q on 3Q
-3%
7% 8%
9%
3%
7%
2%
6%

10. California & West Regions: 3Q on 3Q Growth

11. California: Quarterly Phase I ESA Growth

12. Top 10 U.S. Metros With Strongest Y-on-Y
Phase I Growth (through 9/30)
*Orange County – 22%
*Inland Empire
(Riverside) – 14%
*Los Angeles – 4%

13. Metro Activity: California

14. Why It’s Good to be in Los Angeles…
The so-called "sexy six" markets – Boston, Chicago, Los Angeles,
New York, San Francisco, and Washington, D.C. – are attracting the
most capital.

15. Why It’s Good to be in Los Angeles…
The so-called "sexy
six" markets –
Boston, Chicago, Los
Angeles, New York,
San Francisco, and
Washington, D.C. –
are attracting the
most capital.
Los Angeles: Number two on both Real Capital Analytics’ and Jones Lang LaSalle’s
ranking based on first half 2012 volume, but it has remained flat as an investment
market. Prices are almost back to pre-recession levels.

16. Market Forecast:
Where Are We Headed?
© 2012 Environmental Data Resources, Inc.

17. Lenders’ Forecast: CRE Expectations
• Majority of
lenders (88%)
expect increase
in lending
• Most (48%) only
“slightly higher”
• Yet, only 6%
expect decrease
17

18. Forecast
• Market hitting the “pause” button
• Gradual market improvements
• Spottiness will continue
• Long road to recovery, susceptible to set-backs
• Areas of uncertainty
"Ultimately, we're going to live in a world that's slower growth and
lower returns for quite awhile."
CEO, retail REIT

19. 2. ATTITUDES TOWARD PROPERTY RISK
© 2012 Environmental Data Resources, Inc.

20. “A negative, or rather extremely conservative, mindset
is prevalent with the investors in the market. Many
investors are analyzing assets based on the 'what-
could-go-wrong' view versus spending time focusing
on 'what-could-go-right' and this has had an impact
on pricing and deal velocity."
Steve Timmel, senior vice president of Colliers
International

21. RISK is the New 4-Letter Word
Feedback from EPs:
• “Banks continue to fight for no environmental
conditions at a property, regardless of the findings.”
• “Lenders are definitely more risk averse.”
• “Banks appear to be looking for reasons not to make
loans.”

22. Risk
• “My clients are demanding a more consultative approach to
ESA completion as opposed to only report delivery.”
• “In the past, Phase II equaled dead transaction. Now there is
more willingness to consider risking away issues through
Phase IIs.”
• “They want the thorough investigation but are not necessarily
allowing more time for it. The lenders are very competitive
with one another, so they don’t have the luxury of higher due
diligence fees or longer due diligence periods.”
• “Overall, price still remains king as opposed to real risk
concerns.”
Source: EDR Insight’s 2Q12 Quarterly Survey of EPs.

23. 3. AREAS OF OPPORTUNITY
© 2012 Environmental Data Resources, Inc.

24. Areas of Opportunity
1. Lending Sources
2. U.S. SBA lending
3. REITs
4. Retailers
5. Benchmarking Requirements
© 2012 Environmental Data Resources, Inc.

25. 1. Who’s Lending on Properties?
Status of CRE Lending by Source:
Commercial banks Flat/moderate growth
Government (Fannie/Freddie) Active
Credit Unions Expanding
Private Equity Expanding
Life Insurance companies Peaking
CMBS Securitizations Recovering
Watch out for shifts towards other lending sources…

26. 2. SBA Lending
• The U.S. SBA could be
one of only a handful of
federal agencies that
winds up with a bigger
budget next year than it
had this year
• Current proposal:
• As much as $16 billion
in loans through the
popular 7(a) program
• 15 percent increase
over $13.9 billion in
7(a) loans so far this
year
Page 26

27. FY13 could be the most robust year for 7(a) lending
since FY10, excluding FY11

28. Strongest SBA Lenders in the U.S.:
Are you supporting SBA lending?
If so, these top 10 lenders should point you down the right path!
Page 28

29. 3. REITs: A Win-Win
1. REITs will dominate this year’s news on property
acquisitions.
“REITs are aiming to capitalize on low interest rates
and acquire assets in prime real estate locations.”
2. This is a client sector that already recognizes the risk
that environmental issues pose to property value and
their own liability, the 7th highest risk factor they face.

30. REITs Are Raising Capital:
Notable Private Funding Raisings in 1H2012
Firm Name Capital Raised
Blackstone $6.6 billion
UBS $1.8 billion
Carlyle Group $1.4 billion
Rockpoint Group $1.3 billion
GEM Capital $1.3 billion
McMorgan & Co. $977 million
© 2012 Environmental Data Resources, Inc.

32. 4. Retail
• U.S. retailer store-
opening plans hit a
four-year high in July
• 78,000 new stores
planned over the next
24 months
• Up 11 percent from the
2-year period ended in
2011
• Very focused in specific
sectors, geographic
areas

33. 5. Benchmarking Requirements
• NYC’s 1st benchmarking report on Local Law 84 (LL84),
which requires all privately-owned properties with
individual buildings over 50,000 square feet to annually
measure and report their energy and water usage.
• Creates opportunities for environmental consultants in
contributing data and information to this and similar
reporting in growing number of metros.

34. Implications for the Market:
• “The New York LL84 benchmarking law is part of a nationwide
trend that we've seen for disclosure of energy use in buildings.
The implication will be that energy efficient buildings will continue
to become more valuable in the real estate market than their
energy glutton counterparts."
Nate Gillette, Vice President and Director of Energy Finance
Analytics
• “NYC is just the beginning. Other cities and states have similar
benchmarking regulations – like California’s AB 1103. Clearly,
building energy performance assessment due diligence is finding
its way into the commercial real estate transaction as one more
factor to evaluate.“
Brian Burstiner, Sustainable Real Estate Solutions, Inc.

35. A Look at California’s AB 1103
• Signed into law by Governor Schwarzenegger in September 2007
• Applies to certain nonresidential buildings in California and
requires benchmarking of a building’s energy consumption using
the EPA’s Portfolio Manager system and disclosure of the
building’s energy usage to potential buyers, lessees, and lenders
of the entire building
• Originally, AB 1103 required implementation on January 1, 2010.
• Thereafter, AB 531 became law and assigned the implementation
and schedule of compliance for AB 1103 to the California Energy
Commission (“CEC”).

36. A Look at California’s AB 1103
• Was belief CEC would delay implementation by 12 months to
January, 2011.
• Ended up pushing implementation to 2012
• CRE community was bracing for July 2012 implementation date
• End of March, the CEC issued proposed regulations that sets out
the following phased implementation of AB 1103 in 2013 through
2014:
• “(a) On or after January 1, 2013, for a building with total floor area
measuring more than 50,000 square feet.
• (b) On or after July 1, 2013, for a building with a total floor area
measuring more than 10,000 square feet and up to 50,000 square feet.
• (c) On or after January 1, 2014, for a building with a total floor area
measuring at least 5,000 square feet and up to 10,000 square feet.”

37. What Investors Pay Attention To:
Green buildings:
• Are easier to fill, especially with young, urban residents
who want that “lifestyle”
• Hold their value
• Are easier to sell when the time comes
• Are CHEAPER to operate
"Green building is not a curiosity anymore -- it's a huge
market," said Aditya Ranade, a senior analyst with Lux
Research in Boston. "The green building sector will be a $280
billion global industry by the end of the decade.”

38. 4. STRATEGIES TO WIN
© 2012 Environmental Data Resources, Inc.

39. Prevailing in Turbulent Markets
• Companies that perform better aren’t better at predicting.
• They have a better understanding that if you can’t predict, you
have to prepare.
Your best bet against in an uncertain market…consider…
To have on your team
NOTE: They cynics will say
companies prevailing
To go after through uncertainty in the
market are growing
because of lowered prices.
NOT NECESSARILY!
© 2012 Environmental Data Resources, Inc.

40. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

41. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

42. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

43. Education Is Key As Market Recovers
• New lending, investments are on the board for 2012.
• Banks, investment firms are replacing past layoffs with
junior staff.
• Leading to a “rustiness” in engaging Phase I ESAs.
• A learning curve as market adjusts to new risk aversion.

44. Topics for Client Education Efforts
• New E 1527 standard
• Vapor intrusion awareness
• Updates to policies like SBA and HUD
• Interesting projects
• Fannie Mae’s new scope
• Cases involving owner or lender liability for
contamination

45. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

46. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

47. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

48. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

49. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

50. The Challenges of Time Constraints
• Technology becomes avenue for improving efficiency
• Speed, efficiency are critical, especially on portfolios.
• Firms are charging a premium for fast TAT.
• Technology has helped a lot of high growth firms stay
competitive
NOTE: In some cases, being able to deliver quickly matters MORE to
clients than delivering cheaply!

51. Strategies to Win
You get out there
You think beyond Phase Is
You connect the dots for clients
You embrace a “customer first” attitude
You have an active business development function
You’re investing in people
You have a key differentiator
You’re investing in technology
You can name the last CRE conference you went to

52. Parting Thought
• Think critically about where you can compete
most effectively!
© 2012 Environmental Data Resources, Inc.

53. © 2012 Environmental Data Resources, Inc.