© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater.

The State of the Office MarketGreenPearl Office Summit | New York | June 2010

Sam Chandan PhD FRICS

Global Chief Economist and Executive Vice PresidentReal Capital Analytics

Adjunct Professor of Real EstateThe Wharton School of the University of Pennsylvania

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 2

The State of the Office Market

• The Economy and the Office Sector

• Office Sector Fundamentals

• Construction Activity

• Office Investment and Credit Trends

• Policy, Regulation, and Real Estate

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 3

200020002000200020002000200020002000200020002000200120012001200120012001200120012001200120012001200220022002200220022002200220022002200220022002200320032003200320032003200320032003200320032003200420042004200420042004200420042004200420042004200520052005200520052005200520052005200520052005200620062006200620062006200620062006200620062006200720072007200720072007200720072007200720072007200820082008200820082008200820082008200820082008200920092009200920092009200920092009200920092009201020102010-6%

-4%

-2%

0%

2%

4%

6%

8%

National

District of Columbia

Boston

Baltimore

New York

Philadelphia

Employment Losses Moderate

Year-to-Year Percent Change in Nonfarm EmploymentSource: Bureau of Labor Statistics

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 4

Office Fundamentals TrendsSources: Mortgage Bankers Association Quarterly Data Book

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

-3%

-2%

-1%

0%

1%

2%

3%

5%

7%

9%

11%

13%

15%

17%

19%

21%

Vaca

ncy

Rate

Ask

ing R

ent

Change

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 5

Office Construction and New InventoryYear-to-Year Change in Private Office Construction SpendingSource: Census Bureau

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater.

Economic Headwinds and Tailwinds

Source: Bureau of Economic Analysis

Contributions to Percent Change in Real GDPFirst Quarter 2010 (Advance Estimate)

6

Fe

de

ra

l

Sta

te a

nd

Lo

ca

l

Re

sid

en

tia

l

No

n-R

esid

en

tia

l S

tru

ctu

re

s

Se

rv

ice

s

No

n-D

ura

ble

Go

od

s

Du

ra

ble

Go

od

s

Government Expenditures Net Exports Gross Private Domestic In-vestment

Personal Consumption Expenditures

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

0.11%

-0.48%

-0.61%

-0.29%

-0.44%

1.15%

0.61%

0.79%

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 7

Office Sector Investment Trends

Office Transaction Volume and Average Office Cap RateSource: Real Capital Analytics

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 12001 2002 2003 2004 2005 2006 2007 2008 2009 10

$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$70,000,000,000

$80,000,000,000

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

Avera

ge C

ap R

ate

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 8

Office Sector Investment Trends

Office Transaction Volume, Prices, and Cap Rates Through April 2010Source: Real Capital Analytics

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 9

Where the Stress Falls

Percentage of Transaction Volume Related to DistressSource: Real Capital Analytics

Apartment Development Hotel Industrial Office Retail0%

5%

10%

15%

20%

25%

11.4%

16.3%

13.6%

4.3%

7.7%

22.3%

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 10

Asset Prices, Credit, and Policy Guidance

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 12001 2002 2003 2004 2005 2006 2007 2008 2009 10

$0

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

$140,000,000,000

$160,000,000,000

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2.2

Transaction Volume

Moody's / REAL CPPI for All Property Types

Apartment

Industrial

Office

Retail

Final ConcentrationGuidance Released

Loan WorkoutGuidance Released

For Comment ConcentrationGuidance Released

CMBS TALF

Moody's / REAL Commercial Property Price Index by Sector Source: Real Capital Analytics, REAL2000 Q4 = 1

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 11

Emerging Sources of Credit

© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater.

The State of the Office MarketGreenPearl Office Summit | New York | June 2010

Sam Chandan PhD FRICS

Global Chief Economist and Executive Vice PresidentReal Capital Analytics

Adjunct Professor of Real EstateThe Wharton School of the University of Pennsylvania