The document summarizes indicators that the commercial real estate market recovery is continuing. Transaction volumes and property investment are increasing. Job growth and low interest rates are supporting demand for housing and commercial property. Smaller metro areas are seeing growing investor interest due to strong economic fundamentals. Lending volumes are rising moderately as financing remains competitive. The near-term forecast is for moderate growth over the next few years, supported by an expanding universe of buyers and sellers across property types and geographic markets.

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1. MARKET INDICATORS POINT TO CONTINUED RECOVERY.
2. OPPORTUNITIES ARE BEING CREATED FOR ALL OF US.
3. FORECAST FOR MODERATE GROWTH OVER NEAR TERM.
TODAY’S THEMES

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MARKET BAROMETERS

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DRIVERS FOR PROPERTY DEMAND TRENDING IN THE RIGHT
DIRECTION:
• PROPERTY INVESTMENT CONTINUES ITS SLOW CLIMB.
• HOUSING MARKETS RECOVERING NICELY.
• JOB GROWTH BACK TO PRIOR PEAK LEVELS.
• INTEREST RATES STILL EXTREMELY LOW.
• RECORD-HIGH NEW CONSTRUCTION/DEVELOPMENT.
• SECONDARY METROS RALLYING BACK.
PATIENT’S VITAL STATS

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SMALL CAP SALES:
• Up 22% in 2014
• A 7-year high
LARGE CAP SALES:
• Up 45% in 1Q15
THE HIGHLIGHT OF THIS RECOVERY:
PROPERTY TRANSACTIONS GROWTH

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• MAJOR BUYING CLASSES
• Real estate investment trusts (REITs)
• Foreign investors**
• Private equity funds
• Hedge funds
• Traditional developer/owner/operators
DEAL MAKING: WHO’S INVESTING?
2014 TOP BUYERS
ARCP
Blackstone
JP Morgan
Norges Bank Investment Mgt
Hines
OMERS
Starwood Capital Group
MetLife
Essex Property Trust
David Werner Real Estate

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EXPANDING UNIVERSE OF U.S. BUYERS
THREE TIMES AS MANY BUYERS TODAY THAN IN DEPTHS OF DOWNTURN

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• SMALLER SECONDARY METROS WITH STRONG GROWTH
PROFILES ARE SEEING INVESTOR INTEREST:
• Portland, Seattle, Denver, Austin, Nashville, Atlanta, Las Vegas, etc.
• COMMON DENOMINATORS:
• Strong job growth
• Growing technology sectors, healthcare and financial services
industries
EXPANDING UNIVERSE OF METROS:
SMALLER MARKETS HEATING UP

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THE STORY IN LENDING

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• FINANCING MARKET IS INCREASINGLY COMPETITIVE.
• BANKS HAVE $ TO LEND, UNDERWRITING STILL VERY CAUTIOUS.
• UPTICKS IN LENDING VOLUMES SUPPORT POSITIVE INVESTMENT
TRENDS.
• REGIONAL/MID-SIZED BANKS ARE GAINING MARKET SHARE...
LENDING TRENDS IN 2015

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• A POSITIVE TRAJECTORY IN LENDING
• 2014 VOLUMES:
• 6.5% ANNUAL GROWTH (FDIC)
• STILL 25% BELOW 2007 PEAK, EXCEPT MULTI-
FAMILY LENDING
• WIDE VARIABILITY IN GROWTH BY BANK SIZE…
PROPERTY LENDING:
SLOW PACE OF GROWTH IN ORIGINATIONS

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• U.S. AVERAGE GROWTH IN LOAN PORTFOLIOS: 6.5%
• STRONGEST GROWTH:
• LARGEST REGIONAL BANKS
• MID-SIZED BANKS
• PARTICULARLY STRONG GROWTH IN:
• CONSTRUCTION/DEVELOPMENT LOANS GROWING THE
FASTEST
• MULTIFAMILY STILL STRONG
VARIANCE IN GROWTH 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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• HEADING INTO NEW ROUND OF REFINANCING, PEAKING IN 2017
• LENDERS VIEW AS OPPORTUNITY TO INCREASE VOLUMES.
• EXCESS CAPITAL LOOKING TO FINANCE SOLID REAL ESTATE.
• SURGE IN REFINANCING ACTIVITY FROM NOW THROUGH 2017.
LENDING OPPORTUNITY:
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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• CONSTRUCTION SPENDING
• 2014: HIGHEST LEVEL SINCE
DOWNTURN
• APRIL: FASTEST MONTHLY
PACE IN MORE THAN 6 YEARS
• POINTS TO MARKED INCREASE
IN U.S. DEVELOPMENT IN 2015
• EXPANDING TO SMALLER
METROS…
2015: THE YEAR FOR NEW DEVELOPMENT

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METRO MAGNETS:
1. Denver
2. Raleigh-Durham
3. Suburban VA
4. Oakland
5. Las Vegas
6. Austin
7. San Jose
8. Miami
9. Seattle
10.Portland
THE CONSTRUCTION/DEVELOPMENT OPPORTUNITY
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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SCOREKEEPER BENCHMARKS:
ORANGE COUNTY

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Region 1Q Growth YonY
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 1Q2015

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SCOREKEEPER: GROUND-TRUTHING THE
MIGRATION TO SECONDARY METROS
TOP 10 HIGH-GROWTH METROS
FOR PHASE I ESA GROWTH:
1Q2015 (YonY)
Las Vegas, NV 52%
Columbia, SC 42%
San Antonio, TX 38%
Charleston, SC 26%
Milwaukee, WI 22%
San Francisco, CA 20%
Sacramento, CA 19%
Stamford, CT 16%
Portland, OR 14%
Raleigh, NC 13%

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SCOREKEEPER: STATE TREND LINE
Up 6%
YonY

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SCOREKEEPER: METRO FOCUS
CALIFORNIA IN THE CONTEXT OF U.S. TOP 50 METROS:

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REAL ESTATE OUTLOOK: CALIFORNIA METROS
Source: ULI/PwC, Emerging Trends in Real Estate 2015.
• Orange County:
• 2nd in U.S. for INDUSTRIAL
• 8th for OFFICE
• 9th for RETAIL

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CURRENT INVESTMENT CLIMATE:
ORANGE COUNTY
“This area has bounced back from
being the epicenter of the mortgage
collapse. The recovery in financial
services, tech-related employment and
strong foreign trade have led the
recovery in the Orange County
economy.”

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NEAR-TERM FORECAST

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• STILL A LOT OF ROAD TO RUN IN THIS RECOVERY.
• TRANSACTION VOLUME REMAINS ON THE MEND.
• MODERATE GROWTH IN NEW ORIGINATIONS.
• CONTINUED MIGRATION TO SECONDARY AND TERTIARY METROS.
• FAVORABLE LOW INTEREST RATE ENVIRONMENT.
• PHASE I ESA FORECAST: 4 TO 8% RANGE NEXT 2 YEARS.
“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 THE HIGHEST IT’S BEEN SINCE THE DOWNTURN.”
~RYAN SEVERINO, REIS
THE NEAR-TERM MARKET FORECAST

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• RISK MANAGEMENT IS NOW EVERYONE’S BUSINESS.
• PAST “DEAL KILLERS” ARE NOW BEING MANAGED.
• FAILED PROPERTIES/PROJECTS ARE MOVING BACK INTO PLAY.
• EFFICIENCY IN DUE DILIGENCE IS PARAMOUNT.
THE FORECAST FOR RISK MANAGEMENT

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