This document summarizes the state of the commercial real estate and property due diligence markets. It discusses the launch of a new Property Market Assessment Map to track 11 industry segments valued at $2.3 billion total. While some firms are starting to increase staffing from 2011 levels, the project flow remains uneven and unpredictable. Maturing loans are bringing more environmental issues to the surface. The forecast predicts a gradual improvement with continued spottiness as the market recovers to a low level of stabilization.

1. State of the Commercial Real Estate and
Property Due Diligence Markets
Dianne P. Crocker, Principal Analyst
EDR Insight
© 2012 Environmental Data Resources, Inc.

2. 1. Launch of Property Market Assessment Map
2. Market Update
3. Forecast

3. Property Assessment Market Map
• Demand-driven model
• Attaches a $ amount to 11 unique
industry segments
• Expands beyond Phase I ESAs and
gives the industry a way to track
changes in broader market
• Launch in late May
• Regular quarterly updates

4. Market Map Methodology: Data & Applications
How likely are they to undergo specific
What are the key drivers of
types of assessments?
assessments?
(Total Transactions/Investigations x Likelihood of Assessment%)
X
Average Market Price $
_____________________________________________
= Market Size in 11 Industry Segments

5. Then…
Phase I
ESA
Market
$450MM

6. Now…
Total U.S.
Property
Assessment
Market
$2.3B
Phase I
ESA
Market
$450MM

7. Market Update
© 2012 Environmental Data Resources, Inc.

8. • Many seeing increase in 2012 vs. 2011
• But project flow is lumpy, uneven, unpredictable
• Firms are starting to staff back up (EPs and end users)
• Moderate increase in bank lending
• Big driver is multifamily, the star performer
• No shortage of uncertainty
• Risk aversion high, residual impact of ‘11 roller coaster ride
• “There are no dumb investors out there.”
8

9. Maturities Bring Environmental Issues to
Surface
Page 9

10. Overview of CRE Playing Field
• Driving due diligence:
• Private owners continue to work though de-leveraging and
restructurings
• Loan restructurings continue, past restructurings being revisited
• Discounted loan pools continue to be offered, abundantly (loan
pools carefully chosen to mix stars with dogs and cats)
• Private equity funds, hedge funds, real estate funds:
• Are successfully raising new capital
• Putting it to work as new assets come on the selling block
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11. Overview of CRE Playing Field (cont’d)
• Debt capital is available for strong borrowers, low-risk properties
• Property transaction volume is recovering
• Investors seem to favor larger, primary markets…averse to straying
far afield.
• Refis/REO/foreclosures
• Development opportunities are selectively returning esp. for:
• new corporate real estate
• asset expansions and rehabs
• urban infill
• outlet centers
• home builders (but buy-and-hold)
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12. Page 12

13. A Look at Assets Moving Into Play
• $362 billion in maturing loans on top of $346B 2011 volume
• 20,000 large property sales expected in ’12
• Properties with vacancy rate of 60% or more:
Retail: 67,525 properties
Office: 49,240 properties
Industrial: 42,475 properties
• Banks are holding:
• $27.9 billion in foreclosed commercial real estate
• $160B in troubled commercial mortgages to resolve or dispose
• CMBS loans in special servicing at the end of January 2012: $82.3 billion.
• Another $140.8 billion of loans that CMBS loan servicers listed as having
potential credit concerns.

14. Forecast
© 2012 Environmental Data Resources, Inc.

15. EDR Insight 2012 Forecasting Contest
Page 15

16. Forecast
• Gradual market improvements
• Spottiness will continue
• CRE starting to see stabilization at a low level
• Uncertainty hangs over market after lessons of 2011
• Long road to recovery, susceptible to set-backs
Page 16

17. Things to Watch
• REITs
• Telecom
• Credit Unions
• Foreign investors
• Developers
• Multifamily, retail due diligence
• Property condition assessments
• M&A
• Federal real estate divestitures
• Pharmacies/dollar stores
• Transfer of oil/gas assets
Excerpt from EDR Insight’s 1Q12 Capsule Summary Report

18. • An uncertain market requires vigilance
• EDR Insight will continue to track:
• Factors driving demand
• Emerging markets
• Changes in market dynamics
Page 18