1. COMMERCIAL REAL ESTATE: 2015 INVESTMENT OUTLOOK LAWRENCE YUN, PhD Chief Economist, Sr. VP National Association of REALTORS ® DONALD E. HUFFNER Managing Director, Head of Americas AIG Global Real Estate RICHARD M. GATTO Executive Vice President The Alter Group ANDREW H. TROTTER, III Chief Investment Officer Centennial Holding Company COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM

3. Commercial Real Estate Trends and Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS ® Presentation at: NAR Annual Commercial Real Estate Forum New Orleans, LA November 7, 2014

4. Commercial Investment Sales of Large Properties (Properties valued at $2.5 million and over)

5. Federal Reserve Commercial Property Price Index

6. GDP Rebound in 2014 Q2 and Q3

7. GDP Still not Robust … Below 3% for 9 straight years

8. Household Net Worth at All-Time High

9. Monetary Policy by Federal Reserve (zero rate policy for 6 years!) %

10. Federal Reserve Balance Sheet from Quantitative Easing $ million

11. 10-year Treasury Yield

12. Non-worrisome CPI Inflation – Yet COLA of 1.7% in 2015

13. Rising Renters’ and Homeowners’ Rent Growth (Above 3%)

14. Oil Price

15. REALTOR ® Rent Survey – Shows Rent Pressure

16. U.S. Dollar Strength vs Euro

17. U.S. Dollar Weakness vs Chinese Yuan

18. Monetary Policy Quantitative Easing … Finished Fed Funds Rate … hike in 2015 Q1/Q2 Earlier Move to Tighten because of Inflation Pressure Long-term Steady State Rate (2016 onwards).. 10 year Treasury at 5.0% Mortgage Rates reaching 6% by 2016

19. Jobs (8 million lost … 10 million gained) In thousands

20. Weekly New Unemployment Insurance Claims In thousands

21. Job Market Comparisons by State Fast Growing States 1-year Growth Rate North Dakota4.5 Nevada3.7 Texas3.4 Florida2.9 Utah2.9 Colorado2.8 Oregon2.7 Delaware2.6 West Virginia2.5 California2.2 Slow Moving States 1-year Growth Rate Michigan0.7 Alabama0.6 Wyoming0.6 South Dakota0.3 Virginia0.3 New Jersey0.1 Illinois0.0 Alaska0.0 New Mexico-0.1 Vermont-0.2

22. REALTOR ® Markets & Deal Size (Not $2.5 million Properties)

23. Small Banks Important to REALTORS ®

24. NAR Member Commercial Activity Survey 2nd Quarter, 2014 Sales volume rose 7% YoY Sales prices increased 3% YoY Cap rates averaged 8.3% Main market challenges: Inventory shortage Pricing gap between buyers and sellers Local economies

25. REALTORS ® Help Small Businesses

26. Credit Difficulty

27. A Typical Commercial REALTOR ® BUSINESS REVENUE AND FIRM AFFILIATION The median gross annual income of commercial members was $96,200 in 2013, an increase from $90,200 in 2012. The median gross annual income of commercial members has increased for the past four years. Eighty percent of commercial members work at least 40 hours a week. Sixty-two percent of commercial members of NAR derived 50 percent or more of their income from all commercial real estate in 2013. Fifty-seven percent of members work for a local commercial real estate firm. BUSINESS ACTIVITIES OF NAR COMMERCIAL MEMBERS Commercial members completed a median of eight transactions in 2013. The median sales transaction volume in 2013 for members who had a transaction was $2,554,700 – an increase from $2,507,700 in 2012. The median gross leasing volume was $431,600 in 2013– a decrease from the $476,400 in 2012.

28. CCIM Member Survey on Cap Rates

29. SIOR Member Survey on Activity

30. Economic Forecast 20132014 Likely 2015 Forecast 2016 Forecast GDP Growth2.2% 2.7%2.9% Job Growth+2.3 million+2.5 million +2.6 million CPI Inflation1.5%1.6%2.7%3.3% Consumer Confidence 73879598 10-year Treasury 2.5%2.6%3.2%4.3%

31. OFFICE 201420152016 Vacancy Rate 16.2%15.8%15.6% Net Absorption ('000 sq. ft.) 36,19250,67857,782 Completions ('000 sq. ft.) 26,45041,79944,862 Rent Growth 2.6%3.2%3.6% INDUSTRIAL 201420152016 Vacancy Rate 8.9%8.5%8.1% Net Absorption ('000 sq. ft.) 107,580104,948105,044 Completions ('000 sq. ft.) 83,42468,75561,720 Inventory ('000,000 sq. ft.) 8,4688,5378,598 Rent Growth 2.4%2.8%2.9% RETAIL 201420152016 Vacancy Rate 9.8%9.7%9.4% Net Absorption ('000 sq. ft.) 11,21419,31424,313 Completions ('000 sq. ft.) 7,27512,19616,342 Rent Growth 2.0%2.4%3.0% MULTI-FAMILY 201420152016 Vacancy Rate 4.0% 4.2% Net Absorption (Units) 223,421170,065140,128 Completions (Units) 191,481146,461122,381 Rent Growth 4.0%3.9%3.5% Sources: National Association of REALTORS® / Reis, Inc. Commercial Real Estate Forecast

32. Washington Policy Watch on Commercial Real Estate Facilitate Covered Bonds to help credit flow Raise cap on holding of commercial RE loans by credit unions Preserve Like-Kind Exchanges Preserve Terrorism Insurance Preserve capital gains status on carried interest Depreciation Rules should match economic life Oppose lease-accounting changes

34. Richard M. Gatto Executive Vice President The Alter Group

35. Donald E. Huffner Managing Director, Head of the Americas AIG Global Real Estate

36. Andrew H. Trotter, III Chief Investment Officer Centennial Holding Company

37. COMMERCIAL REAL ESTATE: 2015 INVESTMENT OUTLOOK LAWRENCE YUN, PhD Chief Economist, Sr. VP National Association of REALTORS ® DONALD E. HUFFNER Managing Director, Head of Americas AIG Global Real Estate RICHARD M. GATTO Executive Vice President The Alter Group ANDREW H. TROTTER, III Chief Investment Officer Centennial Holding Company COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM