NATIONAL ASSOCIATION OF REALTORS

1
Economic and Commercial Real Estate Market
Trends and Outlook

• NATIONAL ASSOCIATION OF REALTORS

2
Economy Growing

Source BEA
3
Katrina Temporarily Cuts Jobs
Payroll job changes in thousands
Source BLS
4
Job Gains/Losses 2001 to 2005
In thousands
Source BLS
5
Job Gains/Losses in the Recent 12 months
In thousands
Source BLS
6
Resilient Consumer Spending
Source BEA
7
Corporate Profits are Strong
Source BEA
8
Stock Market at 3-year High
9
Dollar Recovering A Bit
Source Federal Reserve
10
Accumulating Risks

• Oil Prices high but dropping
• Inflation Building
• Tax Reform
• Business Spending May Decelerate

11
High Oil Prices
Source Department of Energy
12
Inflation Building
change from a year ago
Source BLS
13
Fed Nervous About Inflation Forced to Tighten
Credit
Forecast to 4.25 by Dec. 2005
14
Narrow Spreads Suggest Further Short-term Fed
Rate Hikes Pushing up Long-term Rates
15
Consumer Confidence
Source Conference Board
16
Trade Deficit Swelling
Source BEA
17
High Federal Deficit Persists
Largest Ever
Source CBO
18
Economic Outlook
19
Tax Reform Pending

• Commercial Market
• Simplified leasehold improvement no details
  (currently 39 year cost recovery for commercial
  property and 15 years for leasehold improvements)
• No Federal Deduction for State/Local Property Tax
• Capital Gains Taxed as Ordinary Income
• No info on Recapture Rate

20
Tax Reform Pendingcontinued

• Residential Market
• No Federal Deduction for State/Local Property Tax
• Limited Deduction for Mortgage Interest (2nd
  homes)
• Individual Taxes
• Alternative Minimum Tax Elimination
• Four Tax Brackets (15 to 33)
• Limited Deduction for Health Insurance

21
Commercial Real Estate Market
22
Commercial Outlook

• Moderate economic expansion
• Capital flow will continue to flow into
  commercial real estate at almost record levels
  (est. 200B)
• Moderate increase in interest rates not yet
  impacting long term investments
• Respectable job growth
• Some market risks ahead

23
Commercial Market Highlights

• Record level of commercial sales transactions in
  2005
• Office buildings (? 30)
• Industrial buildings (?70)
• Retail buildings (? 10)
• Multi-Family (? 63)
• Port and major distribution hubs leading
  industrial sector
• Commercial lending volume up, delinquencies down

Source Real Capital Analytics
24
Commercial Real Estate Loans Performing

Source Federal Reserve
25
Commercial Multi-Family Mortgage Originations
billions
Source Mortgage Bankers Association
26
Mortgage Originations Q2 2005
billions
Source Mortgage Bankers Association
27
Commercial Property Rate of Return(Total
Annualized Return net operating income
capital appreciation)
Annual
Source NCREIF
28
Commercial Property Rates of Return by Sectors
Industrial jumps to best performer
Source NCREIF
29
Office Market

• Vacancy lowest it has been since 2001
• Greatest increase in rental growth of any
  commercial sector
• Institutional investors have returned to the
  office sector
• Avg. Central Business District selling price
  223/psf _at_ 6.7 cap
• Avg. Suburban selling price 167/psf _at_ 7.4 cap

30
Office Job Creation Growth
In thousands
Source NAR/Torto-Wheaton
31
Vacancy Rate Falling

Source NAR/Torto-Wheaton
32
Office Rent - Gaining Traction

Source NAR/Torto-Wheaton
33
Whats happening in the South Florida Office
Market!
34
Palm Beach County

• Vacancy 9.3
• New Construction 115,000 sf
• Net Absorption 797,780 sf
• Avg Ask rents A 26.67 (full)
• Avg Ask rents B 22.68 (full)

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CBD Ft Lauderdale

• Vacancy 9.2
• New Construction 0 sf
• Net Absorption 171,129 sf
• Avg Ask rents A 26.19 (full)
• Avg Ask rents B 23.26 (full)

36
CBD Miami

• Vacancy 11.8
• New Construction 0 sf
• Net Absorption 79,560 sf
• Avg Ask rents A 30.70 (full)
• Avg Ask rents B 18.68 (full)

37
Industrial Market

• Trade continue to impact industrial sector
• Trade with China boom to Southern California
• Central American Free Trade Agreement positive
  impact on South Florida
• Obsolescence still artificially keeping some
  vacancy rates high
• Build-to-suit activity is prevalent
• Local investors dominate industrial acquisition
  activity
• Port markets (both traditional and inland)
  continue to outperform

38
Industrial Vacancy Rate

Source NAR/Torto-Wheaton Research
39
Industrial Rent Growth

Source NAR/Torto-Wheaton Research
40
Whats happening in the South Florida Industrial
Market!
41
Palm Beach County

• Vacancy 4.2
• New Construction 116,100 sf
• Net Absorption 639,499 sf
• Avg Rents 6.83 psf
• Avg Sales 75-120 psf

42
Broward

• Vacancy 4.8
• New Construction 434, 970 sf
• Net Absorption 1,641,450 sf
• Avg Rents psf 6.45
• Avg Sales psf 75-120

43
Central Dade

• Vacancy 1.5
• New Construction 0 sf
• Net Absorption 86,166 sf
• Avg Rents 5.90
• Avg Sales psf 75-100

44
North Dade

• Vacancy 5.3
• New Construction 163,100 sf
• Net Absorption 745,783 sf
• Avg Rents 6.96
• Avg Sales psf 70-90

45
Airport

• Vacancy 4.6
• New Construction 193,200 sf
• Net Absorption 1,990,108 sf
• Avg Rents 6.75
• Avg Sales psf 75-125

46
Retail Market

• Consumer spending holding steady despite modest
  interest rate increases and higher oil prices
• Retailing in coastal markets healthy due to
  sizable housing wealth
• Foreign investors very active - especially the
  Australians
• Merger of Federated Department Stores and The May
  Department Store Chains up to 68 stores to
  close

47
Crystal Ball - Risks

• Rent increasing faster than sales
• Fallout from Katrina/Wilma Gas Prices, Consumer
  Spending
• Retailer Pull-Back???
• Long-Term FL is Ground Zero for Growth
• Its predicted that by 2020, Florida will be one
  of the three largest states by Population in the
  country.

48
Retail Rent Growth

Source NAR/Torto-Wheaton Research
49
Palm Beach County

• Vacancy 2.6
• Ave Rent psf 16.86 NNN

50
Broward

• Vacancy 5.6
• Ave Rent psf 16.84 NNN

51
Miami

• Vacancy 5.2
• Ave Rent psf 17.77 NNN

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Multi-Family Market

• Rising mortgage rates will boost renter demand
• Local concentrated job growth raises demand for
  rental apartments
• Condo Conversions (100,000 units converted in
  first 8 months of 2005)
• Tampa and Orlando have replaced San Diego and
  Miami as top conversion markets

53
Housing Affordability Slipping
Source NAR
54
Multi-family Market Fundamentals
In number of units
Impact of conversions
Source NAR/Torto-Wheaton Research
55
Multi-family Vacancy Rate

Seasonal
Source NAR/Torto-Wheaton Research
56
Multi-family Rent Growth

Source NAR/Torto-Wheaton Research
57
Commercial Market Outlook Vacancy Rate
Source NAR Forecast
58
Commercial Market Outlook Rent Growth
Source NAR Forecast
59

• Overseas
• Real Estate InvestorsSet Sights on U.S.

60
Globalization

• The movement of countries, companies,
  organizations and people toward a single market
  environment
• The world is getting smaller and smaller

61
Immigration to U.S. By Decade
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Foreign Investment in the USA

• 1 out of 3 has foreign origin
• 1 out of 5 in residential loan
• 1 out of 10 in commercial loan
• Chinese holdings of US Treasury securities
  currently at US230 billion, second only to Japan

63
Investment Security

• Capitals safety
• Security of return on and of the initial capital
• Provides a safe, secure environment that other
  countries may lack of due to
• Governmental influences
• Government instability
• Currency fluctuations

64
Who are the Buyers?

• German Funds
• Legislative changes increase the amount Germans
  can invest outside EU
• Seek secure investments that offer stable cash
  flow with credit tenants with minimal rollover

65
Who are the Buyers?

• British Funds
• Due to the currency play dollar still cheap
  compared to the British pound, investors feel
  they are getting more for their money

66
Who are the Buyers?

• Israeli Funds
• Government recently relaxed restrictions that now
  permit Israeli funds to invest up to 20 of their
  assets overseas compared to 5 previously
• Seek value-added opportunities, particularly in
  the New York market

67
Who are the Buyers?

• Australian Funds
• Limited domestic investment opportunities
• Seek stable, annuity-style returns over time
• Prefer JV with US operating companies

68
What are Investors Interested in Buying?
(2004 AFIRE Annual Survey)
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Where are Investors Buying?
70
(No Transcript)
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Where are Investors Buying NOW ?

• Prefer 2nd Tier Markets
• Atlanta
• San Diego
• South Florida
• Texas Cities (Houston, Austin, Dallas)

72
Florida General
The state posted the nations highest job growth
last year, as baby boomers from the North poured
in to take advantage of the job market and
climate. Land scarcity will drive urban
growth KEY DEMOGRAPHIC SHIFT The 65-and-up
population will continue to swell, doubling by
2025. NEW GROWTH INDUSTRY Florida will lead
the nation in health care for the elderly
Scripps Research Institute will seed a biotech
cluster with its new research center based in
West Palm Beach.
73
Bubble????

• Occupancy High
• Demand gt Supply
• Improving Demographic
• International Influence
• No Bubble-just less inflated!!!!

74
Economic and Commercial Real Estate Market
Trends and Outlook