Risk Management Association\'s CRE Panel

Risk Management AssociationApril 29, 2010

Los Angeles Athletic Club

By:Ted Simpson, MCRExecutive Director

Cushman & Wakefield of California, Inc.

State Of The CRE MarketsState Of The CRE MarketsLos Angeles County Los Angeles County

TODAY’S AGENDA

I. Community Bank CRE vs. Institutional CRE

II. Industrial

III. Retail

IV. Office

V. Forecast

Last Three Years

2007 – Forecasting end of party

2008 – Forecasting how ugly

2009 – “We’ve seen this movie before”

2010 – Recovery is the next story

INDUSTRY: A big bounce

Source: Beacon Economics

PROFITS

Source: Beacon Economics

JOBS, JOBS, JOBS

Source: Beacon Economics

STIMULUS LEFT IN THE SYSTEM

Spent $210 billionIn process $151 billionLeft to spend $219 billionTax cuts issued $119 billionTax cuts remaining $93 billion

Stimulus Package to April

Income Avg. tax savings

Drop in tax bite

Under $19K $476 -95.0%$19K-$38K $652 -22.0%$38K-$66K $781 -9.0%$66K-$112K $1,301 -7.5%$112K-$161K $2,549 -8.3%$161K-$227K $3,883 -8.3%$227K-$603K $5,133 -5.7%$2.8M plus $39,350 -1.4%

Tax Breaks by Income

Source: Beacon Economics

CALIFORNIA: A widespread hit

Jan-10

Bakersfield 224,800 -5.5%

Salinas 121,300 -5.7%

San Diego 1,212,700 -7.3%

Santa Barbara 161,200 -7.4%

San Francisco 922,200 -7.7%

Stockton 191,500 -8.0%

Los Angeles 3,761,900 -8.2%

Ventura 270,100 -8.3%

San Jose 841,700 -8.5%

Modesto 143,900 -9.6%

Oakland 945,700 -9.6%

Santa Ana 1,351,500 -10.6%

Santa Rosa 168,000 -11.7%

Riverside 1,102,400 -12.2%

Source: Beacon Economics

Greater Los Angeles Industrial MarketOverall Rental Rate vs. Vacancy Rate

$0.49$0.52 $0.50 $0.49 $0.49 $0.50

$0.54

$0.60

$0.66$0.63

$0.53 $0.51

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q101%

2%

3%

4%

5%

6%

7%

Average Asking NNN Rate Vacancy

$65.

66

$66.

65

$84.

37

$91.

04

$110

.42

$137

.56

$130

.57

$89.

18

$65.

21

$0

$20

$40

$60

$80

$100

$120

$140

$160

2002 2003 2004 2005 2006 2007 2008 2009 1Q10

Los Angeles County Industrial SalesAverage Price per Square Foot

Source: Real Estate Capital Analytics, Inc. Based on transactions over $5 million

INDUSTRIAL CASE STUDY

■ 27 Offers

■ A lot of money chasing very few industrial deals

■ CAP rates have compressed about 100 basis points in the past 6 months

$75/SFPRICE PER SF:

$21MPRICE:

281,548 / 11 acresSQ. FT.:

4633 La Palma AveADDRESS:

$1.31 $1.36$1.47

$1.71 $1.78 $1.86$2.04

$2.19

$2.53 $2.43 $2.33 $2.33

$0.00$0.20$0.40$0.60$0.80$1.00$1.20$1.40$1.60$1.80$2.00$2.20$2.40$2.60$2.80$3.00

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q101%

2%

3%

4%

5%

6%

7%

Average Asking NNN Rate Vacancy

Greater Los Angeles Retail MarketOverall Rental Rate vs. Vacancy Rate

$179

.00 $219

.00

$221

.00

$245

.00 $286

.00

$385

.00

$355

.00

$295

.00

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2002 2003 2004 2005 2006 2007 2008 2009

Los Angeles County Retail SalesAverage Price per Square Foot

Source: Real Estate Capital Analytics, Inc. Based on transactions over $5 million

U.S. UNEMPLOYMENT RATES

U.S. Unemployment RatesMarch 2010

(U.S. Rate = 9.7%)

Source: U.S. Bureau of Labor Statistics, Cushman & Wakefield Research Services.

0.0% to 5.0%

5.1% to 7.3%

7.4% to 9.0%

9.1% to 10.7%

10.7% to 14.1%

7.3%

5.0%

7.9%

4.0%

4.8%

6.8%

7.2%

7.0%

8.8%6.6%

6.9%

6.5%

7.1%

9.5%

6.9%8.2%

7.8%

7.4%

7.7%

9.4%

6.5%

9.6%

9.2%

9.2%

9.0%

8.8% 9.3%8.6%

8.6%

8.2%

7.4%

9.8%

9.5%

11.0%

9.5%

11.5%

11.5%

10.6%

10.7%

10.6%

12.3%

9.9%11.0%13.4%

12.6%

11.1%

12.6%

10.6%

12.2%

14.1%

U.S. Unemployment RatesMarch 2010

(U.S. Rate = 9.7%)

Source: U.S. Bureau of Labor Statistics, Cushman & Wakefield Research Services.

0.0% to 5.0%

5.1% to 7.3%

7.4% to 9.0%

9.1% to 10.7%

10.7% to 14.1%

7.3%

5.0%

7.9%

4.0%

4.8%

6.8%

7.2%

7.0%

8.8%6.6%

6.9%

6.5%

7.1%

9.5%

6.9%8.2%

7.8%

7.4%

7.7%

9.4%

6.5%

9.6%

9.2%

9.2%

9.0%

8.8% 9.3%8.6%

8.6%

8.2%

7.4%

9.8%

9.5%

11.0%

9.5%

11.5%

11.5%

10.6%

10.7%

10.6%

12.3%

9.9%11.0%13.4%

12.6%

11.1%

12.6%

10.6%

12.2%

14.1%

SOUTHERN CALIFORNIA OVERALL VACANCY ANALYSIS

14.8%

16.6%

12.1%

16.1%17.6%

19.2%

17.2%

19.4%

12.7%

19.5%

16.7%

20.6%

16.9%16.6%

26.0% 25.6%

17.8% 17.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

LA CBD LA West LA North LA SouthBay

Tri Cities OrangeCounty

San GabrielValley

InlandEmpire

San Diego

1st Quarter 2009 1st Quarter 2010

LOS ANGELES OFFICE HISTORICAL

Source: C&W Research Services

Year Total Inventory DirectVacancies

DirectVacancy %

OverallVacancies

Overall Vacancy %

Direct Average Rental Rate $

YTD Direct Absorption

YTD ConstructionCompletions

1991 163,417,235 31,405,413 19.2% 37,216,760 22.8% $1.67 4,997,8891992 166,562,180 32,495,516 19.5% 38,391,913 23.0% $1.63 1,729,084 388,9761993 165,849,906 31,241,165 18.8% 37,394,411 22.5% $1.43 (581,657) 01994 166,055,491 31,350,874 18.9% 37,679,239 22.7% $1.40 321,611 48,0001995 167,427,474 30,023,036 17.9% 35,693,395 21.3% $1.64 (50,285) 169,7001996 168,348,948 29,624,594 17.6% 33,833,734 20.1% $1.58 1,895,447 83,0001997 169,800,024 28,095,810 16.5% 31,745,963 18.7% $1.61 1,039,910 125,6321998 169,447,067 26,037,156 15.4% 29,479,838 17.4% $1.78 2,618,922 790,4601999 171,847,191 21,996,440 12.8% 24,917,843 14.5% $1.86 6,859,583 2,431,3152000 174,335,088 19,699,865 11.3% 22,140,556 12.7% $1.95 4,245,140 2,674,7942001 175,468,677 23,337,334 13.3% 29,478,738 16.8% $2.15 (2,289,216) 3,403,7932002 182,166,240 27,926,391 15.3% 34,292,187 18.8% $2.16 (453,037) 2,238,6762003 183,446,813 27,780,860 15.1% 31,919,745 17.4% $2.12 453,775 1,114,3362004 183,863,378 24,086,103 13.1% 27,211,780 14.8% $2.10 2,496,952 332,9972005 184,607,106 20,675,996 11.2% 22,706,674 12.3% $2.14 3,517,407 791,3572006 185,404,908 18,169,681 9.8% 19,467,515 10.5% $2.30 2,533,648 653,5312007 186,621,198 15,912,812 8.5% 17,661,568 9.5% $2.81 3,336,945 838,0002008 190,099,755 20,631,316 10.9% 23,747,598 12.5% $2.86 (4,499,437) 1,040,8922009 193,096,545 28,732,185 14.9% 33,026,180 17.1% $2.65 (5,111,556) 2,249,0451Q10 193,043,845 29,936,779 15.5% 33,896,692 17.6% $2.64 (1,174,494) 0

■ Though overall vacancy is nowhere near the highs of the last recession, occupancy loss is the highest in history with nine consecutive quarters of negative absorption.

■ Construction completions ground to a halt for the first time since 1993.

LOS ANGELES COUNTY METRO SUPPLY & DEMAND

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

msf

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Overall Abs. Cnst. Overall Vac

Source: C&W Research Services

■ Negative direct absorption continued to accelerate, finishing first quarter 2010 with negative 1.1 msf of absorption.

■ New construction is nonexistent and will help cap rising vacancies until sustained job growth returns.