1. Portland State University’s Center for Real Estate 0 Property & Portfolio Research, Inc. Trends, Opportunities, and Risks in Commercial Real Estate www.ppr.info

2. Portland State University’s Center for Real Estate 1 The U.S. Economy

3. Portland State University’s Center for Real Estate 2 Job Growth is Increasingly Weak Month-to-Month (000s) Year-over-Year Growth (%) U.S. Job Growth12-month moving averageYear-over-Year Growth Source: U.S. Bureau of Labor Statistics (150) (100) (50) 0 50 100 150 200 250 300 350 400 Apr-05Jul-05Oct-05Jan-06Apr-06Jul-06Oct-06Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

4. Portland State University’s Center for Real Estate 3 Percent Job Growth Year-over-Year as of March WestSouthEastMidwest Job Losses Concentrated in Housing Bust Markets Sources: Moody’s Economy.com; Bureau of Labor Statistics (3%) (2%) (1%) 0% 1% 2% 3% 4% Houston Raleigh Austin San Antonio San Francisco Seattle Salt Lake City Dallas - Fort Worth New Orleans Charlotte Denver Nashville Hartford Atlanta Columbus New York Norfolk Baltimore Portland Long Island Minneapolis San Jose Kansas City Washington - NoVA - MD Pittsburgh Indianapolis Honolulu Orlando PPR54 Philadelphia Richmond Boston Oklahoma City Chicago Memphis North - Central New Jersey Cincinnati Stamford Milwaukee Sacramento Miami San Diego Jacksonville Phoenix Las Vegas Los Angeles St. Louis Cleveland East Bay Fort Lauderdale Tampa Palm Beach County Orange County Inland Empire Detroit

5. Portland State University’s Center for Real Estate 4 The Severity of Market Employment Cycles Will Be Quite Different Tampa Stamford Seattle San Jose San Francisco San Diego San Antonio Salt Lake City Sacramento Richmond Raleigh Portland Pittsburgh Phoenix Philadelphia Palm Beach County Orlando Orange County Oklahoma City New York New Orleans Nashville Minneapolis Milwaukee Miami Los Angeles Long Island Las Vegas Kansas City Jacksonville Inland Empire Indianapolis Houston Honolulu Hartford Fort Lauderdale East Bay Denver Dallas - Fort Worth Columbus Cleveland Cincinnati Chicago Charlotte Boston Baltimore Austin Atlanta 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% (0.02) (0.01) 0.000.01 0.02 0.03 2008 Employment Growth 2009 Employment Growth EastWestSouth MidWest Sources: Moody’s Economy.com; PPR

6. Portland State University’s Center for Real Estate 5 CPI (U.S. Consumer)PPI (U.S. Producer) Year-over-Year Change Sources: BLS; Moody’s Economy.com; PPR *As of April 2008 Inflation is a Serious Concern

7. Portland State University’s Center for Real Estate 6 Is CPI Still a Good Measure of Inflation?

8. Portland State University’s Center for Real Estate 7 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 7172737475767778798081828384858687888990919293949596979899000102030405060708 10-Year Treasury RateCPI Inflation What Happens When Investors Demand a Real Rate of Return? Sources: Federal Reserve; U.S. Census Bureau

9. Portland State University’s Center for Real Estate 8 Forecast for the Economy is Not Pretty 2008 will be tale of two halves Much like liquidity in 2007 Contracting GDP growth in first half to begin recovering in second Policy stimulus will prevent prolonged downturn But recovery contingent on global financial market stability by summer 2007 was not a great year and 2008 likely to be worse 2008 GDP will fall under 2% for the year Housing and credit crunch will continue to weigh on broader economic growth Only a couple hundred thousand job gains in 2008 Risks are mainly on the downside Housing has had limited impact on broader consumption to date, but is impacting retail sales growth Foreclosures and resets will continue to be an issue Inflation

10. Portland State University’s Center for Real Estate 9 Capital and Debt Markets

11. Portland State University’s Center for Real Estate 10 Fears are Easing 0 50 100 150 200 250 300 4/4/2007 5/4/2007 6/4/2007 7/4/2007 8/4/2007 9/4/2007 10/4/2007 11/4/2007 12/4/2007 1/4/2008 2/4/2008 3/4/2008 4/4/2008 5/4/2008 Basis Points TED Spread Sources: Federal Reserve Board; Daily Press

12. Portland State University’s Center for Real Estate 11 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 010203040506070 200220032004200520062007 Loans ARE Still Performing Well (Including foreclosure and REO) Delinquency 60+ Days Percentage Deal Age Source: Trepp

13. Portland State University’s Center for Real Estate 12 Private Lenders Have Some Free Time Number of LoansDollar Volume ($ Millions) Source: Giliberto-Levy

14. Portland State University’s Center for Real Estate 13 $ Billions Sources: RCA; Trepp; PPR Few Deals Getting Done Monthly Transaction Volume WarehouseRetailOfficeApartmentCMBS Issuance 0 10 20 30 40 50 60 70 Apr-05Jul-05Oct-05Jan-06Apr-06Jul-06Oct-06Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08

15. Portland State University’s Center for Real Estate 14 NCREIF Spreads over 10-Year Treasury (1993Q1–2008Q1) 0 50 100 150 200 250 300 350 400 450 500 93949596979899000102030405060708 Basis Points Mean Plus 1 Std. Dev. Mean Plus 2 Std. Devs. Sources: NCREIF; PPR

16. Portland State University’s Center for Real Estate 15 Value Growth Source: PPR Values Will Take Their Biggest Hit This Year ApartmentOfficeRetailWarehouse (10%) (5%) 0% 5% 10% 15% 20% 2003 200420052006200720082009201020112012

17. Portland State University’s Center for Real Estate 16 Housing

18. Portland State University’s Center for Real Estate 17 Housing Affordability Looks More Promising For Buyers 80 90 100 110 120 130 140 90919293949596979899000102030405060708 Afford. Index 5 6 7 8 9 10 11 30-year Mort. Rate (%) Affordability Index30-year Mortgage Rate Source: Moody’s Economy.com

19. Portland State University’s Center for Real Estate 18 Net % of Banks With Tighter Prime Mortgage Loan Standards Net % of Banks With Tighter Subprime/Non-Traditional Loan Standards New Home Sales (‘000 SAAR) The Credit Spigot Continues To Tighten For Housing Sources: Federal Reserve; Census Bureau; PPR (40) (20) 0 20 40 60 80 100 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 0 200 400 600 800 1,000 1,200 1,400

20. Portland State University’s Center for Real Estate 19 Decline in Home Sales is Accelerating (50) (40) (30) (20) (10) 0 10 20 30 Jan-00Aug-00Mar-01Oct-01May-02Dec-02Jul-03Feb-04Sep-04Apr-05Nov-05Jun-06Jan-07Aug-07Mar-08 Year-over-Year Change (%) Existing SFExisting CondoNew SF Sources: NAR; U.S. Census Bureau *As of April 2008

21. Portland State University’s Center for Real Estate 20 Unprecedented Foreclosure Activity Further Adding to Inventory Homeownership Rate (%)Percent of Loans Entering Foreclosure Source: MBA; U.S. Census Bureau (Thru 07Q4) 60 61 62 63 64 65 66 67 68 69 70 19871989199119931995199719992001200320052007 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90

22. Portland State University’s Center for Real Estate 21 Year-over-Year % Change in Existing SF Median PricesNet Apartment Absorption (PPR54) Falling Home Prices ≠ Dramatic Spike In Apartment Demand Source: NAR; PPR (10) (5) 0 5 10 15 20 1984Q11986Q11988Q11990Q11992Q11994Q11996Q11998Q12000Q12002Q12004Q12006Q12008Q1 (20,000) (10,000) 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000

23. Portland State University’s Center for Real Estate 22 Quarterly Change in DemandQuarterly Change in SupplyVacancy Rate Apartment Market Under Some Pressure Source: PPR (08Q1) Demand & Supply (Units)Percentage Vacant (20,000) (10,000) 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 9091929394959697989900010203040506070809101112 0 2 4 6 8 10 12 14 16 18 20

24. Portland State University’s Center for Real Estate 23 U.S. Homeowner Vacancy Rate 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 565860626466687072747678808284868890929496980002040608 Vacancy Rate (%) Source: U.S. Census Bureau

25. Portland State University’s Center for Real Estate 24 PPR54 Apartment Spreads vs. Rent Growth Sources: PPR; Moody's Economy.com 10-Year Treasury Rate Spread Quarterly Rent Growth Falling Treasuries Helping to Keep Cap Rates Low Despite Rising Spreads Forecast 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% Mar-03Mar-04Mar-05Mar-06Mar-07Mar-08Mar-09Mar-10Mar-11Mar-12 (1.0%) 0.5% 0% 0.5% 1.0% 1.5% 2.0%

26. Portland State University’s Center for Real Estate 25 Retail

27. Portland State University’s Center for Real Estate 26 The Good News About Retail This Page Intentionally Left Blank

28. Portland State University’s Center for Real Estate 27 Demand & Supply (000 SF)Percentage Vacant Quarterly Change in DemandQuarterly Change in SupplyVacancy Rate PPR54 Retail Market Fundamentals (40,000) (20,000) 0 20,000 40,000 60,000 80,000 100,000 9091929394959697989900010203040506070809101112 0 5 10 15 20 25 Source: PPR (08Q1)

29. Portland State University’s Center for Real Estate 28 Office

30. Portland State University’s Center for Real Estate 29 Quarterly Change in DemandQuarterly Change in SupplyVacancy Rate The Market Is Weakening Demand & Supply (000 SF)Percentage Vacant (60,000) (40,000) (20,000) 0 20,000 40,000 60,000 9091929394959697989900010203040506070809101112 0 5 10 15 20 25 30 Source: PPR

31. Portland State University’s Center for Real Estate 30 Some Important Markets Are Seeing Weak Growth Percent Office-Using Job Growth Year-over-Year as of March 08 Sources: Moody’s Economy.com; BLS Houston Raleigh Austin San Francisco Kansas City Dallas - Fort Worth Columbus Charlotte New Orleans St. Louis Indianapolis Denver Memphis Jacksonville SeattleAtlanta Salt Lake City Miami Stamford Chicago New York Washington - NoVA - MD San Jose San Antonio Pittsburgh Philadelphia Orlando Cincinnati Norfolk San Diego Palm Beach County Sacramento Oklahoma City Boston Nashville Cleveland Richmond Honolulu Phoenix Inland Empire Minneapolis Long Island Portland Hartford Milwaukee North - Central New Jersey Tampa Los Angeles Fort Lauderdale East Bay Baltimore Detroit Las Vegas Orange County WestSouthEastMidwest

32. Portland State University’s Center for Real Estate 31 (16%) (14%) (12%) (10%) (8%) (6%) (4%) (2%) 0% 2% 4% New York Washington - NoVA -MD Los Angeles Chicago Boston San Francisco Seattle Dallas - Fort Worth Houston Atlanta Philadelphia Orange County San Diego North - Central New Jersey Phoenix 2001 Recession Peak To Trough Employment 3/31/2001–9/30/2002 Forecasted/Current Peak To Trough Employment 12/31/2007–9/30/2008 Source: Moody's Economy.com, PPR *Top 15 U.S. Office Markets But Definitely Not the Dot-Com Bust

33. Portland State University’s Center for Real Estate 32 Two Years of Flat Rents Source: PPR PPR54 Recent History and Forecast - Office Rent Change (10%) (8%) (6%) (4%) (2%) 0% 2% 4% 6% 8% 10% 2003200420052006200720082009201020112012 Rent Growth

34. Portland State University’s Center for Real Estate 33 11.1% (6%) (4%) (2%) 0% 2% 4% 6% 8% Houston San Francisco Seattle San Jose Salt Lake City Portland Boston Denver Honolulu East Bay Chicago San Antonio Minneapolis New Orleans Dallas - Fort Worth North - Central New Oklahoma City St. Louis Charlotte Indianapolis Raleigh Orlando PPR54 Sacramento Washington - NoVA - MD Atlanta Richmond Jacksonville Cincinnati Baltimore Columbus Memphis Philadelphia Tampa Pittsburgh Stamford Fort Lauderdale Milwaukee Nashville Los Angeles Norfolk Long Island New York Kansas City Inland Empire Miami Hartford Austin Cleveland San Diego Palm Beach County Las Vegas Detroit Orange County Phoenix 2008 Rent Growth by Metro Source: PPR WestSouth East Midwest

35. Portland State University’s Center for Real Estate 34 Cap Rates Rising Across the Board PrimarySecondaryTertiary Sources: PPR; Real Capital Analytics Median Cap Rate By Quarter

36. Portland State University’s Center for Real Estate 35 Overview of the U.S. Warehouse Market

37. Portland State University’s Center for Real Estate 36 Demand & Supply (000 SF)Percentage Vacant Quarterly Change in DemandQuarterly Change in SupplyVacancy Rate PPR54 Warehouse Market Fundamentals (5,000) 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 9091929394959697989900010203040506070809101112 0 5 10 15 20 25 Source: PPR (08Q1)

38. Portland State University’s Center for Real Estate 37 (15%) (10%) (5%) 0% 5% 10% 15% 20% 1994199519961997199819992000200120022003200420052006200720082009201020112012 Year-Over Growth (%) (60) (40) (20) 0 20 40 60 80 Net Absorption (million SF) Warehouse Net Absorption Wholesale Trade Inventory Growth Wholesale Trade Sales Growth Total Import/Export Growth 0 Sources: U.S. Census Bureau; Moody’s Economy.com; PPR The Demand Forecast Has Some Upside

39. Portland State University’s Center for Real Estate 38 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 88899091929394959697989900010203040506070809101112 Annual Warehouse Supply as % of Inventory

40. Portland State University’s Center for Real Estate 39 National Distribution Hubs Are More Volatile Source: PPR (6%) (4%) (2%) 0% 2% 4% 6% 8% 19891990199119931994199619971999200020022003200520062008200920112012 Local Rent GrowthRegional Rent GrowthNational Rent Growth Forecast

41. Portland State University’s Center for Real Estate 40 Warehouse NOI Growth vs. Cap Rate Increase (%) Annual NOI GrowthAnnual Cap Rate Change (%)Value Appreciation (3%) (2%) (1%) 0% 1% 2% 3% 4% 5% 20082009201020112012Average

42. Portland State University’s Center for Real Estate 41 Atlanta Austin Baltimore Boston Charlotte Chicago Cincinnati Cleveland Columbus Dallas - Fort Worth Denver Detroit East Bay Fort Lauderdale Hartford Honolulu Houston Indianapolis Inland Empire Jacksonville Kansas City Las Vegas Los Angeles Memphis Miami Milwaukee Minneapolis Nashville New Orleans New York Norfolk North - Central New Jersey Oklahoma City Orange County Orlando Palm Beach County Philadelphia Phoenix Pittsburgh Portland Raleigh Richmond Sacramento Salt Lake City San Antonio San Diego San Francisco San Jose Seattle Stamford St. Louis Tampa Washington - NoVA - MD (5.0%) 0% 5% 10% 15% 20% 25% 30% (1.5%)(1.0%)(0.5%)0.0%0.5%1.0%1.5%2.0% 08Q2 Going-in Cap Rate Relative to Average Forecast Cumulative NOI Growth (08Q2–12Q4) RegionalNationalLocal Cheap, relatively speaking, and a strong NOI growth forecast! Strong NOI growth forecast, but expensive. Low NOI growth and too expensive! Cheap, but not a lot of upside in NOI. Warehouse Markets Are Inefficiently Priced

43. Portland State University’s Center for Real Estate 42 What to Do?

44. Portland State University’s Center for Real Estate 43 Conclusions Short-term Keys to Success (2008) Market selection and asset/risk management Investor communication Patience Mid-term (2009) Be a buyer of risk and a provider of liquidity Have faith in the U.S. economy Look for signs of improvement and be ready to move quickly Longer-term (2010-12) Participate in early development opportunities But be wary of next supply wave