Southern California Investor Symposium
Economic and Market OutlookOctober 30, 2007
Housing Market Cycle Has Not Bottomed Months’ Supply of Inventory
0
6
12
18
24
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Num
ber o
f mon
ths
Los Angeles Orange County
San Diego Riverside/San Bernardino
Sources: Marcus & Millichap Research Services, California Association of Realtors
Cash From Home Refinancing No Longer Shielding Retail Sales From High Energy Prices
0%
2%
4%
6%
8%
10%
2000
2001
2002
2003
2004
2005
2006
2007
*
$0
$20
$40
$60
$80
$100Retail Sales Oil Prices
Crude O
il (price per barrel)Y-
o-Y
Perc
ent C
hang
e in
Ret
ail S
ales
Sources: MMCR, Economy.com
*Retail Sales Forecast, Oil Prices as of September 25th
Falling Dollar Boosting Exports, Corporate Sector Remains Healthy, Low Unemployment Supporting the Consumer
-10%
0%
10%
20%
19971998199920002001200220032004200520062007*2008*
0%
2%
4%
6%
8%Fixed Nonresidential Investment Unemployment Rate
Sources: Marcus & Millichap Research Services, Economy.com**Estimates
80
90
100
110
120
2000
2001
2002
2003
2004
2005
2006
2007
Val
ue o
f Dol
lar (
Mar
'73=
100)
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Exports (YOY %
chg)
Dollar Value Exports
Fixe
d N
onre
s. In
vest
men
t (A
nnua
l % c
hg)
Annual U
nemploym
ent Rate
Subprime Home Mortgages’ Impact Significant
0%
25%
50%
75%
100%
2001
2002
2003
2004
2005
2006
Prime Subprime Alt-A Home Equity FHA/VA
Shar
e of
Tot
al V
olum
e
2001 = 11% 2006 = 34%
Sources: MMCR, Joint Center for Housing Studies (Harvard)
Subprime Spillover Affecting Commercial: CMBS Spreads Have Risen Dramatically…
Despite Healthy Fundamentals
Sources: MMCR, Wachovia, ACLI
0%
2%
4%
6%
8%
1988Q21989Q21990Q21991Q21992Q21993Q21994Q21995Q21996Q21997Q21998Q21999Q22000Q22001Q22002Q22003Q22004Q22005Q22006Q22007Q2
Com
mer
cial
Del
inqu
ency
Rat
e (A
CLI
)
THEN
CRE Supply/Demand Imbalance
Credit Crunch Due to Rising Delinquencies
NOW
Credit Concerns Rooted in Subprime Residential
CRE Market Fundamentals Healthy
Commercial Delinquencies < 1%
0
100
200
300
400
500
9/15 /200610/13 /200611/10 /2006
12/8 /20061 /5/20072 /2/20073/2/2007
3 /30 /20074/27/20075 /25 /20076 /22 /20077 /20 /20078 /17 /20079 /14 /2007
10/12/2007
CM
BS
Spre
ad to
Sw
ap
AAA AA A BBB+ BBB BBB-
Inflation Moving in the Right Direction, Giving the Fed More Flexibility
0%
2%
4%
6%
8%
00 01 02 03 04 05 06 07*0%
2%
4%
6%
8%
Fed Funds Rate 10-Year Treasury Core Inflation
Sources: Marcus & Millichap Research Services, BLS, Economy.com, Federal Reserve*Through September
10-Y
ear T
reas
ury
and
Fed
Fund
s R
ate
Core Inflation Y-O
-Y Change
-100
0
100
200
300
0%
2%
4%
6%
8%
05 06 2Q07*
Gross Domestic Product
Jobs
in T
hous
ands
Ann
ualiz
ed G
row
th
Monthly Job Growth
*YE ForecastSources: Marcus & Millichap Research Services, Economy.com
Economy Expected to Slow -Risk Levels Higher (Housing, Energy, Credit Conditions)
21,000Jan-06 Jan-07
Avg. 07
Avg. 08
Sept-07
2005: 3.1%2006: 2.9%
2007: 2.3%2008: 2.3%
$0
$200,000
$400,000
$600,000
$800,000
Los Angeles OrangeCounty
Inland Empire San Diego U.S.
1992-2006 2007*
Med
ian
Hom
e Pr
ice
97%
63%
104%
55%
25%
Data points = % growth from 2002-2007*
Home Prices To Follow Sales Decline –Recent Appreciation Somewhat of a Cushion
Sources: Marcus & Millichap Research Services, California Association of Realtors, Economy.com
*Through September 2007
Sources: Marcus & Millichap Research Services, Economy.com
(60)
(20)
20
60
100
Los Angeles Orange County Inland Empire San Diego
2000-2006 2007* 2008* 2009*
Ann
ual C
hang
e in
Job
s (th
ousa
nds)
*Forecast – Non-farm employment
Southern California Employment Will Remain in Transition Through 2008
Apartment Price Trends Beginning To Vary By Quality, Sub-Market
$0
$50
$100
$150
$200
Los Angeles Orange County Inland Empire San Diego
2002-2006 2007*
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
06 U.S. Median Price
Med
ian
Pric
e pe
r Uni
t (00
0s)
Sales $1 million and above
* 12 month trailing period from August 2007
So. Cal Multi-Tenant Retail Properties Still Attracting Buyers Due to Scarcity of Product
$0
$100
$200
$300
$400
Los Angeles Orange County Inland Empire San Diego
2002-2006 2007*
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
06 U.S. Median Price
Med
ian
Pric
e pe
r Squ
are
Foot
Sales $1 million and above
* 12 month trailing period from August 2007
Southern California Office Prices Remain Firm Due to Favorable Long-Term Outlook
$0
$100
$200
$300
$400
Los Angeles Orange County Inland Empire San Diego
2002-2006 2007*
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
06 U.S. Median Price
Med
ian
Pric
e pe
r Squ
are
Foot
Sales $1 million and above
* 12 month trailing period from August 2007
Lowest Vacancy Markets by Property Type
Sources: Marcus & Millichap Research Services, Reis
Office 3Q07*
New York 6.2%
Miami 8.6%
Seattle 8.9%
Washington, DC 9.0%
Los Angeles 9.0%
Orange County 9.0%
Philadelphia 11.1%
West Palm Beach 11.1%
Boston 11.5%
Portland 11.5%
Fort Lauderdale 9.3%
San Francisco 9.6%
Tucson 10.0%
Orlando 10.2%
Riverside/San Bernardino 11.6%
Shopping Centers 3Q07*
Los Angeles 2.6%
Orange County 2.6%
San Jose 2.6%
San Diego 3.1%
San Francisco 3.3%
N. New Jersey 3.5%
Boston 4.9%
Miami 5.0%
Riverside/SB 5.1%
Portland 5.3%
Seattle 3.5%
Oakland 4.0%
New York 4.2%
Washington, DC 4.4%
Las Vegas 5.4%
Apartment 3Q07*New York 2.2%
Orange County 3.2%
Los Angeles 3.5%
N. New Jersey 3.5%
San Jose 3.6%
Miami 3.7%
Minneapolis 4.2%
Portland 4.4%
Seattle 4.4%
Chicago 4.6%
Milwaukee 4.0%
Philadelphia 4.0%
San Diego 4.0%
San Francisco 4.1%
Washington, DC 4.6%
New Supply Has Become More Constrained, Less Volatile -Construction as a Percentage of Inventory
0%
2%
4%
6%
8%
Apartment Shopping Centers Office Industrial
Ave
rage
Ann
ual P
erce
nt o
f Inv
ento
ry
1980-89 1990-99 2000-06 2007-10*
Sources: Marcus & Millichap Research Services, Reis*Forecast
Long-Term Capital Flows Favor Real EstatePension Funds’ Real Estate Allocation and Targets
0%
3%
6%
9%
12%
15%
Japa
n
France UK US
Austra
lia
German
y
Netherl
ands
% o
f Rea
l Est
ate
Allo
catio
ns
REITs Direct Real Estate
Sources: Marcus & Millichap Research Services, RREEF
Target
So. Cal Apartment Vacancies Among the Lowest Nationally
Source: Marcus & Millichap Research Services, Reis
0%
2%
4%
6%
8%
Los Angeles Orange County Inland Empire San Diego
1990-2006 2007** 2008**
Vaca
ncy
Rat
e
2007 U.S. Vacancy
* Preliminary Estimate **Forecast
2007 = 3.5%
2008 = 3.7%
2007 = 3.5%
2008 = 4.5%
2007 = 5.4%
2008 = 5.4%
2007 = 4.0%
2008 = 4.3%
Shopping Center Vacancies Remain Low Due to High Retail Tenant Demand
Source: Marcus & Millichap Research Services, Reis
0%
3%
6%
9%
12%
Los Angeles Orange County Inland Empire San Diego
1990-2006 2007** 2008**
Vaca
ncy
Rat
e
2007 U.S. Vacancy
* Preliminary estimate ** Forecast
2007 = 3.0%
2008 = 3.3%
2007 = 3.3%
2008 = 3.6%
2007 = 5.6%
2008 = 5.9%
2007 = 3.4%
2008 = 3.6%
Office Vacancies Softening Moderately – Still Remain Below U.S. Average
Source: Marcus & Millichap Research Services, Reis
0%
10%
20%
30%
Los Angeles Orange County Inland Empire San Diego
1990-2006 2007** 2008**
Vaca
ncy
Rat
e
2007 U.S. Vacancy
* Preliminary estimate **Forecast
2007 = 9.2%
2008 = 9.7%
2007 = 9.2%
2008 = 10.5%
2007 = 11.6%
2008 = 11%
2007 = 12.2%
2008 = 12.5%
$0
$200,000
$400,000
$600,000
$800,000
Los Angeles OrangeCounty
Inland Empire San Diego U.S.
1992-2006 2007*
Med
ian
Hom
e Pr
ice
97%
63%
104%
55%
25%
Data points = % growth from 2002-2007*
Home Prices Decline Will Follow Declining Sales, Degree of Recent Appreciation A Safety Net
Sources: Marcus & Millichap Research Services, California Association of Realtors, Economy.com
*Through September 2007
$200
$600
$1,000
$1,400
$1,800
Los Angeles Orange County Inland Empire San Diego
1990-2005 2006 2007 2008*
Avg
. Ask
ing
Ren
tApartment Rents Remain Strong Despites
Slowing Growth Rate
Sources: Marcus & Millichap Research Services, Reis
07 U.S. Asking Rent
* Forecast
$0
$10
$20
$30
$40
Los Angeles Orange County Inland Empire San Diego
1990-2006 2007* 2008*
Avg
. Ask
ing
Ren
t per
Squ
are
Foot
Core, Primary Area Shopping Center Rents
Still Rising
Sources: Marcus & Millichap Research Services, Reis
07 U.S. Asking Rent
* Forecast
$0
$10
$20
$30
$40
Los Angeles Orange County Inland Empire San Diego
1990-2006 2007* 2008*
Avg
. Ask
ing
Ren
t per
Squ
are
Foot
Office Rent Growth Beginning to Level Off After Significant Rise
Sources: Marcus & Millichap Research Services, Reis
07 U.S. Asking Rent
* Forecast
Southern California Apartment SubmarketsLargest Vacancy Improvement
Sources: Marcus & Millichap Research Services, Reis
Submarket Metro 2Q 2006 2Q 2007 Bps ChangeFullerton Orange County
Inland EmpireInland EmpireSan DiegoInland EmpireLos AngelesInland EmpireLos AngelesLos AngelesOrange CountyLos AngelesInland EmpireLos AngelesSan DiegoLos Angeles
5.7% 3.7% -200
Tustin 3.6% 3.0% -60North Long Beach 2.4% 1.8% -60Indio/La Quinta 6.3% 5.7% -60Santa Monica 3.6% 3.1%
Riverside City 5.4% 3.9% -150
-50
4.1%0.9%6.0%9.9%2.3%
Mid-City/West Adams 3.6% 2.9% -70Marina Del Rey 5.7% 5.0% -70
El Segundo 2.7% 2.3% -40SD/East of I-15 5.2% 4.7% -50
Rancho Cucamonga 5.6% -150Ocean Beach/Point Loma 2.3% -140Perris 7.3% -130Downtown 11.2% -130Colton/Loma Linda 3.3% -100
Southern California Retail Shopping Center Submarkets
Largest Vacancy Improvement
Sources: Marcus & Millichap Research Services, Reis
Submarket Metro 2Q 2007 2Q 2007 Bps ChangeVictorville Inland Empire
Los AngelesLos AngelesLos AngelesInland EmpireLos AngelesOrange CountyLos AngelesSan DiegoInland EmpireSan DiegoLos AngelesOrange CountyInland EmpireLos Angeles
5.5% 2.6% -290
Moreno Valley/Riverside 6.3% 6.0% -30Northwest County 3.5% 3.3% -20Central L.A. 1.3% 1.3% 0West 2.3% 2.6%
Westside/Downtown 3.9% 2.7% -120
30
1.7%3.6%4.6%1.9%1.9%
South Bay/Torrance 1.8% 1.4% -40West San Diego Beach 2.4% 2.0% -40
San Fernando Valley West 2.0% 2.4% 40Rancho Cucamonga/Chino 4.9% 5.3% 40
San Gabriel Valley West 2.8% -110San Gabriel Valley East 4.6% -100South Riverside County 5.4% -80Culver City/Inglewood 2.6% -70North 2.5% -60
Southern California Office SubmarketsLargest Vacancy Improvement
Sources: Marcus & Millichap Research Services, Reis
Submarket Metro 2Q 2006 2Q 2007 Bps ChangeBeverly Hills Los Angeles
Los AngelesLos AngelesLos AngelesLos AngelesOrange CountyLos AngelesLos AngelesLos AngelesLos AngelesSan DiegoSan DiegoLos AngelesLos AngelesInland Empire
10.4% 4.3% -610
West L.A. 6.6% 4.7% -190East County 8.5% 6.8% -170Central San Diego 6.9% 5.3% -160LAX/El Segundo 19.6% 18.1%
Santa Clarita Valley 14.0% 8.8% -520
-150
8.4%8.0%5.2%5.4%4.4%
South Bay 13.4% 11.1% -230Marina/Culver City 6.7% 4.5% -220
Colton/Redlands 9.4% 8.7% -70Mid-Wilshire 8.3% 7.6% -70
Long Beach 12.8% -440Hollywood/Sunset 11.5% -350Burbank 8.3% -310West 8.3% -290San Fernando Valley East 7.2% -280
Southern California Investor Symposium
Economic and Market OutlookOctober 30, 2007