Vital Signs: 2015 Market Update (Bay Area)

1

2

1. MARKET INDICATORS POINT TO CONTINUED RECOVERY.

2. OPPORTUNITIES ARE BEING CREATED FOR ALL OF US.

3. FORECAST FOR MODERATE GROWTH OVER NEAR TERM.

TODAY’S THEMES

3

MARKET BAROMETERS

4

DRIVERS FOR PROPERTY DEMAND TRENDING IN THE RIGHT DIRECTION: • PROPERTY INVESTMENT CONTINUES ITS SLOW CLIMB.• HOUSING MARKETS RECOVERING NICELY. • JOB GROWTH BACK TO PRIOR PEAK LEVELS.• INTEREST RATES STILL EXTREMELY LOW.• RECORD-HIGH NEW CONSTRUCTION/DEVELOPMENT.• SECONDARY METROS RALLYING BACK.

PATIENT’S VITAL STATS

5

SMALL CAP SALES:• Up 22% in 2014• A 7-year high

LARGE CAP SALES: • Up 45% in 1Q15

THE HIGHLIGHT OF THIS RECOVERY: PROPERTY TRANSACTIONS GROWTH

6

• MAJOR BUYING CLASSES• Real estate investment trusts (REITs)• Foreign investors** • Private equity funds• Hedge funds• Traditional developer/owner/operators

DEAL MAKING: WHO’S INVESTING?

2014 TOP BUYERSARCP

Blackstone

JP Morgan

Norges Bank Investment Mgt

Hines

OMERS

Starwood Capital Group

MetLife

Essex Property Trust

David Werner Real Estate

7

EXPANDING UNIVERSE OF U.S. BUYERS

THREE TIMES AS MANY BUYERS TODAY THAN IN DEPTHS OF DOWNTURN

8

• SMALLER SECONDARY METROS WITH STRONG GROWTH PROFILES ARE SEEING INVESTOR INTEREST:• Portland, Seattle, Denver, Austin, Nashville, Atlanta, Las Vegas, etc.

• COMMON DENOMINATORS:• Strong job growth• Growing technology sectors, healthcare and financial services

industries

EXPANDING UNIVERSE OF METROS: SMALLER MARKETS HEATING UP

9

THE STORY IN LENDING

10

• FINANCING MARKET IS INCREASINGLY COMPETITIVE.

• BANKS HAVE $ TO LEND, UNDERWRITING STILL VERY CAUTIOUS.

• UPTICKS IN LENDING VOLUMES SUPPORT POSITIVE INVESTMENT TRENDS.

• REGIONAL/MID-SIZED BANKS ARE GAINING MARKET SHARE...

LENDING TRENDS IN 2015

11

• A POSITIVE TRAJECTORY IN LENDING• 2014 VOLUMES:

• 6.5% ANNUAL GROWTH (FDIC)• STILL 25% BELOW 2007 PEAK, EXCEPT MULTI-

FAMILY LENDING• WIDE VARIABILITY IN GROWTH BY BANK SIZE…

PROPERTY LENDING:SLOW PACE OF GROWTH IN ORIGINATIONS

12

• U.S. AVERAGE GROWTH IN LOAN PORTFOLIOS: 6.5% • STRONGEST GROWTH:

• Largest regional banks • Mid-sized banks

• PARTICULARLY STRONG GROWTH IN:• Construction/development loans fastest-growing category• Multifamily loans still strong

VARIANCE IN GROWTH BY BANK SIZE

Growth in CRE Loan Portfolios (2014 vs. 2013)

All banks 6.5%Assets >$50B 4.1%$10B-$50B 16.8%$1B-$10B 10.5%<$1B -1%

13

• HEADING INTO NEW ROUND OF REFINANCING, PEAKING IN 2017 • LENDERS VIEW AS OPPORTUNITY TO INCREASE VOLUMES.• EXCESS CAPITAL LOOKING TO FINANCE SOLID REAL ESTATE.• SURGE IN REFINANCING ACTIVITY FROM NOW THROUGH 2017.

LENDING OPPORTUNITY:NEW ROUND OF REFI’S

14

• CONSTRUCTION SPENDING• 2014: HIGHEST LEVEL SINCE

DOWNTURN• APRIL: FASTEST MONTHLY

PACE IN MORE THAN 6 YEARS • POINTS TO MARKED INCREASE

IN U.S. DEVELOPMENT IN 2015• EXPANDING TO SMALLER

METROS…

2015: THE YEAR FOR NEW DEVELOPMENT

15

METRO MAGNETS: 1. Denver2. Raleigh-Durham3. Suburban VA4. Oakland5. Las Vegas6. Austin7. San Jose8. Miami9. Seattle10.Portland

THE CONSTRUCTION/DEVELOPMENT OPPORTUNITY

MOST ACTIVE GROUPS ACQUIRING SITES FOR DEVELOPMENTHFZ Capital Group

Greenland Group

Tishman Speyer

Carmel Partners

Oceanwide Real Estate Group

Crown Resorts

Oaktree

Mitsui Fudosan

Fortis Property Group

16

SCOREKEEPER BENCHMARKS: OAKLAND/SAN FRAN

17

Region 1Q Growth YonYNortheast 2%West 14%MidAtlantic -4%South 1%Midwest 1%California 6%North Atlantic 8%South Atlantic -1%U.S. AVERAGE 4%

SCOREKEEPER: REGIONAL GROWTH 1Q2015

18

SCOREKEEPER: GROUND-TRUTHING THE MIGRATION TO SECONDARY METROS

TOP 10 HIGH-GROWTH METROS FOR PHASE I ESA GROWTH:

1Q2015 (YonY)

Las Vegas, NV 52%

Columbia, SC 42%

San Antonio, TX 38%

Charleston, SC 26%

Milwaukee, WI 22%

San Francisco, CA 20%

Sacramento, CA 19%

Stamford, CT 16%

Portland, OR 14%

Raleigh, NC 13%

19

SCOREKEEPER: STATE TREND LINE

Up 6% YonY

20

SCOREKEEPER: METRO FOCUS

CALIFORNIA IN THE CONTEXT OF U.S. TOP 50 METROS:

21

REAL ESTATE OUTLOOK: CALIFORNIA METROS

Source: ULI/PwC, Emerging Trends in Real Estate 2015.

22

OAKLAND’S CURRENT INVESTMENT CLIMATE

23

NEAR-TERM FORECAST

24

25

• STILL A LOT OF ROAD TO RUN IN THIS RECOVERY.• TRANSACTION VOLUME REMAINS ON THE MEND.• MODERATE GROWTH IN NEW ORIGINATIONS. • CONTINUED MIGRATION TO SECONDARY AND TERTIARY METROS.• FAVORABLE LOW INTEREST RATE ENVIRONMENT. • PHASE I ESA FORECAST: 4 TO 8% RANGE NEXT 2 YEARS.

“2015 WILL BE ONE OF THE STRONGEST YEARS WE’VE SEEN IN COMMERCIAL REAL ESTATE SINCE THE CREDIT CRISIS AND IT’S FOR

ALL THE RIGHT REASONS.” ~KEN RIGGS, RERC

“OPTIMISM IS THE HIGHEST IT’S BEEN SINCE THE DOWNTURN.” ~RYAN SEVERINO, REIS

THE NEAR-TERM MARKET FORECAST

26

• RISK MANAGEMENT IS NOW EVERYONE’S BUSINESS.

• PAST “DEAL KILLERS” ARE NOW BEING MANAGED.

• FAILED PROPERTIES/PROJECTS ARE MOVING BACK INTO PLAY.

• EFFICIENCY IN DUE DILIGENCE IS PARAMOUNT.

THE FORECAST FOR RISK MANAGEMENT

27