There is a Difference'

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There is a Difference.
Wading Through Deep Water Turmoil in the
Economy and Capital Markets Western States
Commercial Real Estate Finance Mary K. Ludgin,
PhD September, 2008
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Real Estate Values Being Pulled Multiple Ways
Market Conditions

• Sources of Downward Pressure
• Economy in recession, job losses mounting,
  consumer and business sentiment plunging and
  outlook is weak
• Decline in tenant space demand in primary sectors
• Capital markets repricing risk
• Credit crunch restricting debt capital
  availability
• Mitigating Factors
• Low vacancy rates for onset of recession
• Low construction for onset of recession
• Enormous fiscal and monetary stimulus

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Equity Real Estate Prospects2008 vs Early 1990s
Market Conditions
Outcome
Value decline 32
Value Decline 15-20
Source NCREIF Moodys Economy.com Heitman
Research
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U.S. Economy in Recession
Market Conditions
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Market Conditions
Sparked by Declining Home Values
Monthly 20-City Composite -15.9 Monthly 10-City
Composite -17.0
As of June 30, 2008
Mountain
West North Central
East North Central
Northeast
Seattle, WA -7.1
Minneapolis, MN -13.9
Portland, OR -5.8
Detroit, MI -16.3
Boston, MA -5.2
Chicago, IL -9.5
New York, NY -7.3
Cleveland, OH -7.3
Denver, CO -4.7
San Francisco, CA -23.7
Washington, DC -15.7
Las Vegas, NV -28.6
Charlotte, NC -1.0
Los Angeles, CA -25.3
Phoenix, AZ -27.9
Pacific
Mideast
Dallas, TX -3.2
Atlanta, GA -8.1
San Diego, CA -24.2
Tampa, FL -20.1
Southeast
Southwest
Miami, FL -28.3
Source SP/Case-Shiller
4
6
Job Losses Expected into 4th Quarter
Market Conditions
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Giving No Near-Term Lift for Housing Market
Market Conditions
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Conditions Vary Widely by Market
Market Conditions
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And Could Improve Over Next Four Quarters
Market Conditions
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Consumers Encumbered by Mountain of Debt
Market Conditions
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Inflation has Added to Consumer WoesBut Picture
May Be Brightening Some
Market Conditions
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Inflation Helped Restrain Development
Market Overview
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Loss of Debt Capital Causing Ripple Effect
Capital Markets
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Showing Up in Huge Pull Back in Transactions
Capital Markets

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Putting Pressure on Cap Rates
Capital Markets
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National Apartment Market Weakening
Apartment Overview

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Fewer Markets Seeing Above-Inflation Rent Growth
Market Overview

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Apartments Helped by Lack of Construction
Market Overview

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Pullback in Imports Affecting Industrial
Industrial Overview
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Multiple Healthy Markets
Market Overview
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But Western Markets Under Greater Pressure
Market Overview
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And Real Rent Growth Disappearing
Market Overview
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Drivers of East Coast Container Growth
Market Overview
Suez Canal all-water route
Port facility expansion
High transcon intermodal rail fees
Panama Canal expansion
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Initial Signs of Softer Office Market
Office Overview
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Downtowns Much Healthier than Suburbs
Market Overview

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Great Variability at Metro Level
Market Overview
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Great Variability Within Suburban Markets
Market Overview
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And Within Downtown Markets
Market Overview
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Market at Position Where Rent Growth Stopped in
2001
Market Overview
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Retail Helped by Strong Starting Position
Market Overview
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But Retail Sales Trending Down
Market Overview
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That Trend will Continue as Savings Grow
Market Overview
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Retail Vacancy Will Rise Off Historical Lows
Market Overview
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Vacancy Concentrated in Newest Centers
Market Overview
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There is a Difference.
Wading Through Deep Water Turmoil in the
Economy and Capital Markets Western States
Commercial Real Estate Finance Mary K. Ludgin,
PhD September, 2008