1. Elliott D. Pollack & Company Outlook 2012: A Grind of a Recovery September 30, 2011 By: Elliott D. Pollack CEO, Elliott D. Pollack & Company

2. Elliott D. Pollack & Company U.S. Economy

3. Elliott D. Pollack & Company United States Real Gross Domestic Product* Annual Growth 1970 - 2012** Source: U.S. Bureau of Economic Analysis & Blue Chip Economic Indicators * Based on chained 2005 dollars. ** 2011 - 2012 are forecasts from the Blue Chip Economic Indicators, September 2011 Recession Periods

4. Elliott D. Pollack & Company Recession End v. 8 Quarters Later Sources: NAHB; Census, BEA, BLS

5. Elliott D. Pollack & Company Economy is likely to continue to grow, but growth will remain weak because of the following : Consumer spending weak. Excess industrial capacity. No immediate housing recovery. Limited commercial construction. Continued pressure on state and local government. Limited policy options on part of Federal government.

6. Elliott D. Pollack & Company Comments on Debt & Jobs

7. Elliott D. Pollack & Company The Federal government is… ….Forcibly impoverishing future generations with a colossal debt incurred on behalf of current beneficiaries. ~Mark R. Levin The Intellectual Approach

8. Elliott D. Pollack & Company The Redneck Approach

9. Elliott D. Pollack & Company “I’ll gladly pay you Tuesday for. a hamburger today” 1.3 million jobs Wimpy (Friend of Popeye) The Real Approach

10. Elliott D. Pollack & Company Obama’s Job Plan PLANCOST Payroll tax cuts from 6.2% to 3.1% for workers in 2012, down further from a 2% reduction this year. $175 BILLION Payroll tax cut from 6.2% to 3.1% for employers and eliminated for qualifying new hires in 2012, plus 100% expensing for new investments. $70 BILLION Infrastructure investments, including modernizing schools and rehabbing vacant homes, and funding states to rehire teachers and first responders. $140 BILLION Extending unemployment insurance and new programs for the jobless. $62 BILLION TOTAL $447 BILLION

11. Elliott D. Pollack & Company $447 billion 1.3 – 1.9 million jobs = $235,000 to $345,000 per job *Job estimates from Mark Zandi Moody’s Economy.com and MacroEconomics

12. Elliott D. Pollack & Company American Recovery and Reinvestment Act of 2009 = $1,000,000 per job* *Source: Environmental Protection Agency

13. Elliott D. Pollack & Company National Outlook

14. Elliott D. Pollack & Company ARIZONA

15. Elliott D. Pollack & Company Arizona & US Move Together (Nonfarm Employment Percent Change 1980 – Aug 2011) Recession Periods

16. Elliott D. Pollack & Company Think of Arizona in 2 parts: Export Domestic

17. Elliott D. Pollack & Company Export – function of the U.S. economy (and, the U.S. economy is weak)

18. Elliott D. Pollack & Company The health of an economy is a function of its export, or “base” industries.

19. Elliott D. Pollack & Company Arizona Economic Drivers (Base Industries): Base IndustryCurrent Health Manufacturing + Tourism + Advanced Business Services + Federal government - Retirement and second homes - Others ?

20. Elliott D. Pollack & Company Flow of a Region’s Economy Base Industries Manufacturing, Tourism, Export-Related Business Services, Retirement, Etc. Local Market Industries Retail, Construction, Local Business Services, Banks, Local Government Spending by Base Industries

21. Elliott D. Pollack & Company Arizona Domestic Industry Examples General merchandise storesHome Improvement Stores Restaurants & barsGas Stations RealtorsMortgage brokers Title companiesLawyers BanksEducation ConstructionLandscapers

22. Elliott D. Pollack & Company Domestic – ripple effects of the export sector (Direct  indirect  induced)

23. Elliott D. Pollack & Company A new suit at Dillard’s A Slurpee at 7-11 Gas for their car Dinner at a nice restaurant. Employee of Intel spends their wages on….

24. Elliott D. Pollack & Company Right now the ripple effects won’t be as strong as normal because… 1) Consumers are still paying down debt. 2) Demand for new construction is currently being met by existing inventory (so no need for new construction). 3) It is difficult for people to sell their homes in other states and move to Arizona.

25. Elliott D. Pollack & Company Because all of these problems are cyclical and/or transitory. You can pull your head out…

26. Elliott D. Pollack & Company When consumers finish restructuring their balance sheets. When home prices and wealth levels stabilize across the U.S. When those that postponed retirement, retire and absorb Arizona housing. When local job creation accelerates and people move here for a new job. When people reverse the doubling up process. When will things accelerate?

27. Elliott D. Pollack & Company Now through about 2015 will still be slower than normal; but 2015 through 2020 should be strong. When will things accelerate?

28. Elliott D. Pollack & Company One of the differences this time is the population slowdown.

29. Elliott D. Pollack & Company Greater Phoenix Net Migration 1975–2011 Source: University of Arizona Recession Periods *Forecasts from UofA 2011 Q3

30. Elliott D. Pollack & Company SRP Residential Utility Hookup Percentage Growth Greater Phoenix 2003 – 2011* Source: SRP *Data through June 2011.

31. Elliott D. Pollack & Company APS Residential Utility Hookup Percentage Growth Greater Phoenix 1955 – 2011* Source: APS *Data through Quarter 2 2011.

32. Elliott D. Pollack & Company School Enrollment Growth 2001-2011 Source: Arizona Department of Education N/A *Collection methodology changed in 2009, rendering 2009/2008 comparisons null.

33. Elliott D. Pollack & Company We are optimistic about the long term and cautious about the short term.

34. Elliott D. Pollack & Company It’s all about the basics: jobs and population growth.

35. Elliott D. Pollack & Company Greater Phoenix Population Annual Percent Change 1976–2012* Source: Arizona State University & Department of Commerce, Research Administration. * 2011 & 2012 forecast is from Elliott D. Pollack & Co. Recession Periods

36. Elliott D. Pollack & Company Greater Phoenix Employment* Annual Percent Change 1975–2012** Source: Department of Commerce, Research Administration *Non-agricultural wage & salary employment. Changed from SIC to NAICS reporting in 1990. ** 2011& 2012 forecast is from Elliott D. Pollack & Co. Recession Periods

37. Elliott D. Pollack & Company Arizona was one of the only two states to be in the top 5 growth states in terms of population, employment and personal income every decade since WWII. Pre 2007

38. Elliott D. Pollack & Company

39. Below average performance in many economic categories, but… Post 2007

40. Elliott D. Pollack & Company How Arizona Ranks Among the States in Percentage Growth Source: U.S. Bureau of Census; Bureau of Labor Statistics; Bureau of Economic Analysis PERSONAL DECADE POPULATION EMPLOYMENT INCOME 1950 - 19604 TH 3 RD 4 TH 1960 - 19703 RD 3 RD 4 TH 1970 - 19802 ND 3 RD 3 RD 1980 - 19903 RD 3 RD 5 TH 1990 - 20002 ND 2 ND 3 RD 2000 – 20063 RD 2 ND 3 RD 2007—2010 44 TH 49 TH 46 TH

41. Elliott D. Pollack & Company …this is a temporary condition and is already improving. Post 2007

42. Elliott D. Pollack & Company The recovery has already started.

43. Elliott D. Pollack & Company Signs of Recovery Jobs Retail Sales Jobs rebound in other cities Fewer excess homes Population growth

44. Elliott D. Pollack & Company Greater Phoenix - Jobs Finally in the Black Over last 12 months: 31,300 12 months before that: (15,000) 12 months before that: (169,600) 12 months before that: (61,800) 12 months before that: 31,600 * As of August 2011

45. Elliott D. Pollack & Company Greater Phoenix Employment* Source: Bureau of Labor Statistics Sectors in Decline Net Change Federal Government-1,000 Prof. & Bus. Services-4,200 *August 2011/August 2010 Sectors Improving Net Change Education & Health Services14,700 Leisure & Hospitality7,100 Transp, Trade, & Utilities4,900 Construction2,300 Financial Activities2,300 Manufacturing1,900 Other services1,800 State Government600 Local Government400 Mining300 Information200

46. Elliott D. Pollack & Company Employment Levels: Greater Phoenix back to Peak in 2015? Source: ADOC Recession Periods Peak

47. Elliott D. Pollack & Company YearRank# MSA’s 2000826 2001628 2002528 2003329 2004429 2005130 2006131 20071032 20082932 20093132 20103132 2011ytd1732 YearRank# MSA’s 1991420 1992520 1993220 1994120 1995121 1996123 1997223 1998124 1999326 Phoenix-Mesa Employment Growth (Ranking among all metro areas greater than 1,000,000) Source: Arizona State University, U.S. Bureau of Labor Statistics *YTD through August

48. Elliott D. Pollack & Company Maricopa County Retail Sales* Percent Change Year Ago 1990 to 2011** Source: Arizona Department of Revenue *3-month moving average **Data through June 2011. Recession Periods

49. Elliott D. Pollack & Company “No strong recovery without a recovery in construction.”

50. Elliott D. Pollack & Company Spec commercial construction approaching 0. New single family residential construction 89% off peak.

51. Elliott D. Pollack & Company For Housing - This is NOT a multi decade recovery… Think 2015 or so for a full recovery, but growth before then.

52. Elliott D. Pollack & Company Single Family Permits (Forecast) Greater Phoenix 1975–2015* Source: RL BROWN # Permits (000) * 2011 - 2015 forecast is from Elliott D. Pollack & Co.

53. Elliott D. Pollack & Company Across the US, little new building has been occurring. This helps reduce the oversupply.

54. Elliott D. Pollack & Company U.S. Single-Family Starts 1978–2011* Source: Census Bureau (Millions) *YTD through August 2011 Recession Periods Over- supply Under- supply LTA: 1.2

55. Elliott D. Pollack & Company Excess supply in Greater Phoenix is about 50-55k units as of today, down from about 80k units. SUPPLY demand

56. Elliott D. Pollack & Company Think of what the housing market is going through as the same as any manufacturer that finds themselves with excess inventory… Prices are cut until the excess is sold. Then prices rise.

57. Elliott D. Pollack & Company As excess is absorbed, prices will increase. This is Economics 101

58. Elliott D. Pollack & Company Single-Family Vacant Units Maricopa County 1993–2011 Source: Phoenix Metro Housing Study

59. Elliott D. Pollack & Company Single-Family Vacancy Rate Maricopa County 1993–2011 Source: PMHS

60. Elliott D. Pollack & Company US Total Vacant Housing Units 1965-2011* Source: US Census Bureau *Data through 2011 Q2 Recession Periods Excess inventory is about 800k homes Longer term trend

61. Elliott D. Pollack & Company Household Formations Lower during recessions (doubling up, living at home with mom & dad, etc)

62. Elliott D. Pollack & Company Percent of 25-34 Year Olds Living With Parents vs. Homeownership Rate, Under 35 Years Old U.S.: 1983 – 2010 Source: US Census Bureau

63. Elliott D. Pollack & Company Why are households not forming? 1.Lack of jobs, 2.Lack of jobs, 3.Lack of jobs, 4.Lack of jobs 5.Inability to sell home elsewhere and move to Greater Phoenix.

64. Elliott D. Pollack & Company Historically, there is a one-to-one relationship between population growth and household growth (meaning a 1% increase in population growth leads to a 1% increase in household growth). Source: Linneman Letter

65. Elliott D. Pollack & Company When unemployment exceeds 7%, a 1% increase in population leads to a 0.3% increase in households. When unemployment falls below 7%, each 1% increase in population leads to a 1.9% increase in households. Source: Linneman Letter

66. Elliott D. Pollack & Company Thus, in a weak economy, population growth fails to translate into household growth, but when the economy begins to strengthen, there is pent-up demand for housing. Source: Linneman Letter

67. Elliott D. Pollack & Company In Arizona, the same basic trend has occurred.

68. Elliott D. Pollack & Company A Credit Score of less than 650 is considered Subprime Source: FICO % of population

69. Elliott D. Pollack & Company Homeownership Rate 1994-2011* Source: Census Bureau *Data through 2011 Q2 Recession Periods %

70. Elliott D. Pollack & Company Foreclosures at an all time high 1979-2011* Source: MBA % *Data through 2011 Q1 mln

71. Elliott D. Pollack & Company How Investors Impact the Market: Investors temporarily create demand. They are creating rental units for people who are losing their homes and do not want to live in apartments.

72. Elliott D. Pollack & Company Investors: 40% Market? Percent of Non-Owner Occupied Sales of Total Sales Greater Phoenix Source: DataQuick

73. Elliott D. Pollack & Company Greater Phoenix Median Price of Single Family Homes - Resale 2002 – 2011* Source: MLS *Data through August 2011.

74. Elliott D. Pollack & Company Greater Phoenix S&P/Case-Schiller Home Price Index** Percent Change Month Ago 1990 – 2011* Source: Macro Markets, LLC Recession Periods *Data through June2011 **Measures changes in existing single family home prices given a constant level of quality.

75. Elliott D. Pollack & Company Median Price of New Homes as a Percent of the Median Price of Resale Homes Maricopa County 1985–2011* Source: ASU Realty Studies *YTD through second quarter 2011

76. Elliott D. Pollack & Company Balance between supply and demand will not be fully achieved until about 2015. But building will get progressively better between now and then. Balance = when you have to build for net in-migration

77. Elliott D. Pollack & Company Home Price Indices 2000 – 2011 Source: Macro Markets, LLC; AMLS Recession Periods ?

78. Elliott D. Pollack & Company The Real Problem: Too many vacant homes (but amount of excess is declining). Not enough new households (but this will change as jobs increase).

79. Elliott D. Pollack & Company What about the future?

80. Elliott D. Pollack & Company Various Population Forecasts Greater Phoenix Source201020202030 ADOC4,192,8875,385,9446,460,836 Annual Growth 2.6%2.5%1.8% U of A4,192,8875,044,1306,088,575 Annual Growth 2.6%1.9% Global Insights4,192,8875,111,1066,291,762 Annual Growth 2.6%2.0%2.1% Census4,192,8875,432,6126,970,080 Annual Growth 2.6% 2.5%

81. Elliott D. Pollack & Company Single Family Forecasts Greater Phoenix Source2000-20102010-20202020-2030 Person / HH2.52.6 % Single family85%70% Projected Permits per Year ADOC31,90032,10028,900 U of A31,90022,90028,100 Global Insights31,90024,70031,800 Census31,90033,40041,400

82. Elliott D. Pollack & Company Commercial Markets…

83. Elliott D. Pollack & Company APARTMENTS

84. Elliott D. Pollack & Company Multi-Family Year-End Vacancy Rates Maricopa County 1986–2012* Source: ASU Realty Studies *2011 -2012 are forecasts from the Greater Phoenix Blue Chip Recession Periods

85. Elliott D. Pollack & Company Absorption Chg in Inventory* 2006 (4,653) (3,828) 2007 (5,846) 4,979 2008 (4,466) 3,234 2009 (5,319) 6,831 2010 20,743 8,493 2011q2 (1,737) 463 Multi-Family Construction Activity Source: PMHS *There were 19,949 condo conversion in the Greater Phoenix area from q1 2005 through q4 2009.

86. Elliott D. Pollack & Company There are currently 191 multi-family units under construction (Q2 11).

87. Elliott D. Pollack & Company OFFICE

88. Elliott D. Pollack & Company Office Space Year-End Vacancy Rates Maricopa County 1986–2012* Source: CB Richard Ellis *2011 -2012 are forecasts from CB Richard Ellis Recession Periods

89. Elliott D. Pollack & Company Greater Phoenix Office Market Construction Activity Source: CB Richard Ellis YearAbsorption (sf)Chg in Inventory (sf) 20053,119,2937,987 20063,245,888**2,320,302 20071,500,7044,905,374 2008(603,112)3,402,646 2009(677,329)1,798,415 2010233,6702,011,404 2011q2960,477***2,408,630 *Only includes multi-tenant space greater than 10,000 SF ** A number of buildings in downtown and mid-town are being converted to office condos. ***The 2.4 million square feet in 2011 are build-to-suit FBI building and Univ. of Phoenix building

90. Elliott D. Pollack & Company There is currently NO spec multi-tenant office space under construction (q2 11). *Greater than 10,000 sf

91. Elliott D. Pollack & Company There will be no significant spec office construction in Greater Phoenix* for next 3-5 years.

92. Elliott D. Pollack & Company Under any reasonable employment growth scenario, we believe it will be 2016 before any significant office construction occurs (although some sub-markets will be sooner).

93. Elliott D. Pollack & Company INDUSTRIAL

94. Elliott D. Pollack & Company Greater Phoenix Industrial Market Construction Activity Source: CB Richard Ellis YearAbsorption (sf)Chg in Inventory (sf) 200512,339,5917,072,477 20066,032,1757,829,959 20078,359,83513,914,181 2008629,83813,467,215 2009(4,649,352)4,753,218 2010 2011q2 4,455,097 2,931,634 2,451,202 580,554

95. Elliott D. Pollack & Company There are currently 3.9 million square feet* of industrial space under construction (q2 11). *2.4 million sf major users (Intel and First Solar)

96. Elliott D. Pollack & Company Industrial Space Vacancy Rates Maricopa County 1980 – 2012* Source: CB Richard Ellis * 2011 - 2012 are forecasts from CB Richard Ellis Recession Periods

97. Elliott D. Pollack & Company RETAIL

98. Elliott D. Pollack & Company Greater Phoenix Retail Market Construction Activity Source: CB Richard Ellis YearAbsorption (sf)Chg in Inventory (sf) 20056,708,1556,248,789 20065,244,5974,582,618 20079,424,36211,104,865 20083,395,9866,229,205 2009(1,117,100)4,405,985 2010 2011q2 (75,352) (648,697) 902,380 (181,048) NOTE: 325,000 sf were deleted from inventory during 2011 due to market data updates and demolitions.

99. Elliott D. Pollack & Company Retail Space Vacancy Rates Maricopa County 1985–2012* Source: CB Richard Ellis** * 2011-2012 are forecasts from CB Richard Ellis ** Data prior to 1992 is from Grubb & Ellis Recession Periods

100. Elliott D. Pollack & Company Back to Normal Vacancy? Office = 2015 – 2016 Industrial = 2014 – 2016 Retail = 2015 – 2016

101. Elliott D. Pollack & Company How will it all turn out?

102. Elliott D. Pollack & Company There is a BOOM for Arizona out there somewhere.

103. Elliott D. Pollack & Company But not in 2011, 2012 or 2013.

104. Elliott D. Pollack & Company Patience, my ass! I am going to kill something!!

105. Elliott D. Pollack & Company The long term economic outlook remains favorable. The near term outlook calls for modest growth. Arizona will once again be a national growth leader by mid-decade.

106. Elliott D. Pollack & Company ELLIOTT D. POLLACK & Company 7505 East Sixth Avenue, Suite 100 Scottsdale, Arizona 85251 480-423-9200 P / 480-423-5942 F / www.arizonaeconomy.com / info@edpco.com Economic and Fiscal Impact Analysis/Modeling Real Estate Market and Feasibility Studies Litigation Support Revenue Forecasting Keynote Speaking Public Finance and Policy Development Land Use Economics Economic Development