market sizing segmentation report final redacted vs

CRE Software Due Diligence Report to GI Partners 1CONFIDENTIAL AND PROPRIETARY

Commercial Real Estate Software Market –

Sizing and Segmentation Report

May 5, 2015

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CRE Software Due Diligence Report to GI Partners 2CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 2CONFIDENTIAL AND PROPRIETARYCRE Software Market Sizing & Segmentation Report 2CONFIDENTIAL AND PROPRIETARY

Table of Contents

CRE Software Market Sizing & Segmentation (Top Down Approach) 3

CRE Software Market Sizing (Bottom Up Approach)

Reconciliation with other CRE Market Sizing Estimates14

CRE Software Market Sizing and Segmentation Report

CRE Software Due Diligence Report to GI Partners 3CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 3CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 3CONFIDENTIAL AND PROPRIETARY 3Summary of RE Fund Manager Market Validation Interviews CONFIDENTIAL &PROPRIETARYCRE Software Due Diligence Report to GI Partners 3CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 3CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 3CONFIDENTIAL AND PROPRIETARY

CRE Software Market Sizing and Segmentation Analysis

(Top Down Approach)


Real Estate Market Segmentation

ResidentialDevelopment/Construction

Owner/Operators

PropertyServices

InstitutionalInvestment

CorporateReal Estate

Homebuilders

Multi-Family Housing

Senior Housing

Student Housing

Military Housing

Master Plan Communities

Land Development

Commercial Construction

Multi-Family Construction

Specialty

Office

Retail

Industrial

Hospitality

Healthcare

Mixed Use

Property Management

Facility Management

Energy

Telco

Brokerage

Equity Investment

Opportunity Funds

Pension Funds

Debt Investment

Lenders / Banks

I-Banks

Insurance

Retail Users

Large Block

Industrial

Health

Higher Education

Government

Land Owners

Markets

Real Estate Market SegmentationSix key market segments define the real estate industry


Real Estate Market Segmentation

ResidentialDevelopment/Construction

Owner/Operators

PropertyServices


CorporateReal Estate

Homebuilders

Multi-Family Housing

Senior Housing

Student Housing

Military Housing

Master Plan Communities

Land Development

Commercial Construction

Multi-Family Construction

Specialty

Office

Retail

Industrial

Hospitality

Healthcare

Mixed Use

Property Management

Facility Management

Energy

Telco

Brokerage

Equity Investment

Opportunity Funds

Pension Funds

Debt Investment

Lenders / Banks

I-Banks

Insurance

Retail Users

Large Block

Industrial

Health

Higher Education

Government

Land Owners

Markets

Real Estate Market SegmentationWe are predominantly focusing on three key sub-segments: Owner/Operator - Residential (excluding homebuilding), Owner-Operator - Commercial; Institutional Investment – Equity (funds / institutional investors)

Focus of our Report is on these three segments (excluding homebuilding / CRE Lending / Servicing)


CRE Real Estate Market SizingNorth America and Europe represent 80 percent of the market expenditure with strong spend in residential, owner/operator, and institutional investment

Global Distribution of Real Estate Expenditure

Market Expenditure (as a percent)

by Geographic Region

Market Expenditure (as a percent)

by Geographic Region and Market Segment

North

America Europe

Asia/

Pacific

Latin

America

Owner Operator - Residential 30% 27% 35% 30%

Owner Operator - Commercial 25% 30% 25% 25%

Investment Management 20% 15% 12% 10%

Corporate 12% 10% 10% 15%

Development/Construction 6% 10% 13% 15%

Property Services 7% 8% 5% 5%

Total 100% 100% 100% 100%

North America

48%

Europe

32%

Asia/Pacific

17%

Latin America

3%


CRE Software Market Sizing / US Spend PotentialIn 2015, an estimated $19.9 billion was spent on software and services in the real estate market with slightly more than half of that spend ($11.1B) occurring in the U.S.

North America

48%

Europe

32%

Asia/Pacific

17%

Latin America

3%

Global Real Estate Technology Expenditure

North America 0.8%

Europe 0.6%

Asia/Pacific 0.5%

Latin America 0.2%

Real Estate Technology Spend

as a Percentage of RevenueReal Estate US Technology Spend

as a Percentage of Revenue

Real Estate Technology Spend

By Geographic Region

Market Segment

2015 TechnologyExpenditure ($,BN)

ExpenditurePropensity (1)

OwnerOperator

(Commercial)$3.18

Institutional Investment(Equity)-(2)

$3.82

Leading Buyer

Leading Buyer

Property Services

$0.81On-timeBuyer

Corporate

Owner Operator

(Residential)

$1.35LaggingBuyer

Development/Construction

$1.39On-Time

Buyer

$0.56LaggingBuyer

(1) Expenditure Propensity used to slope relative technology spend by segment,

(2) Institutional Investment allocated 65% - Equity, 35% Debt/Bonds


Customer Market SegmentationSelect sub-segments of the institutional investment, owner/operator, and corporate real estate markets are most attracted to real estate ownership, management and investment solution set (s)

Real Estate Market Segmentation Drilldown

Owner/Operator(Resi/Commercial)

Private Public

Corporate

Retail Users Large Block Industrial Health Higher Ed Government Land Owners

Institutional Investment

Lender/Servicer Investor

Debt Derivatives MezzanineFixed Income or Equity Securities

Real Estate

Primary Market

SecondaryMarket

Mortgages BondsLines of Credit

Direct Indirect

CommercialNon-

Commercial

OfficeMulti-FamilyRetail Hospitality Industrial

Residential

Owner/operator


Market Segmentation DescriptionEach player in the market segment provides unique services to the market place

Market Segmentation Key Functional Description

Primary Market Segmentation

Corporate Real Estate

Owner/ Operator


SecondarySegmentation

Lender/ Servicer(Debt)

Investor (Equity)

Private

Public

Build, occupy, and manage buildings to meet specific business requirements

Key Real Estate Market Description

Originate and lends money to real estate investors and developers. Some lenders service

and other sell that right.Invest direct / pooled capital into real estate

through funds or JVs. The capital comes from pension funds, institutional, and private investors.

Invest pooled capital into real estate through the purchase of assets. The capital comes from

private equity and institutional investors.

Invest pooled capital into real estate through the purchase of assets. The capital comes from

public markets and institutional investors.


Segmentation Trends AnalysisWith the increase in available capital and market recovery, many players are positioning to take advantage of the market recovery / upswing and investors need for alternative investments.

Market SegmentationTrends Analysis



Owner/ Operator



Lender/ Servicer(Debt)

Investor –Direct/ Funds

(Equity)

Private

Public

Large real estate holders becoming targets for acquisition to release capital tied up in

asset base

KeyTrends

Creating more flexible finance vehicles

Dramatic growth in institutional real estate, and fund managers, seeking geographic expansion / cross-border investments

Moving towards a funds management model and getting closer to institutional investors

Mergers of public REITs, geographic expansion, usage of

joint venture funding with institutional investors

NominalGrowth

Growth Trend

NominalGrowth

High Growth

High Growth

Nominal Growth


Examples of Market PlayersDue to fund / JV ownership structures, a number of large institutional investors (in form of investment

managers / funds, or via direct investments) also play a critical role in the asset and investment/ fund

management functions for the ownership of commercial real estate.

Market Player - Segmentation and Size



Owner/ Operator

Investment Management


InstitutionalInvestor (Equity)

Private

Public

Wal-Mart, Kroger, Washington Mutual, Safeway, Bank of

America, US Postal Service

Tier 1 Market Player Players

ING, Prudential, TIAA-CREF, Principal Real Estate

Hines REIT, Inc.Behringer Harvard REIT I,

Inc.

Simon Property, ProLogis, Public Storage, General

Growth, Boston Properties, Ventas

Universities, School Districts, State

Government Departments


AEW Capital, Colony Capital, Apollo Real Estate, Starwood

Capital, Beacon Capital

Dividend Capital Trust, Inc.G REIT, Inc.

St Joe, Camden Property, Essex, BRE Properties,

Brandywine

1000’s of Corporations


Hart Realty Group, Campbell Group, Rothschild Realty,

TimberVest

Desert Capital REIT, Inc., DiamondRock Hospitality ,

Company

Winthrop, Lodgian, Associated Estates, RedLion Hotels, American Land Lease

Lender / Servicer (Debt)

Wachova, Wells Fargo, Prudential

Guggenheim, Northwestern Mutual, TIAA-CREF

NorthMarq Capital, NCB, PPM Finance


Opportunity Market Size – US Market IT Spend Potential43% of the total US technology expenditure for CRE software in targeted segments comes from public

REITs, while institutional investment equity investors and private owner/operators collectively comprise an

additional 43% of Target Market in the U.S.

Market Segmentation Sizing – US Applied Example


Retail Users, Large Block, Industrial, Health, Higher Education, Government,

Land Owners


Owner/ Operator



Lender /Servicer (Debt)

Investor (Equity)

Private

Public

Market Players and Magic Targets

Banks, Life Insurance, Finance, CMBS/CDO Issuers, REITS

Opportunity Funds, I-BanksInsurance, Pension Funds

Private REITS, Private Equity, REOCs

Public (Listed) REITS

Percentage of Market

35%

65%

35%

65%

100%

US Market IT Spend Potential

$0.73BN

$1.35BN

$2.45BN

$4.55BN

$1.38BN

$295 $812 $177 ($,BN) 2015 US Market Size

$2.08 $7.00 $1.38 ($,BN) 2015 US IT Spend

Note: Owner Operators include Residential / Commercial;

Broken out as follows:

Residential: $443.1B US Market Size, $3.82B US IT Spend

Commercial: $369.3B US Market Size, $3.19B US IT Spend


U.S. Market Player Segmentation and SizeThe US markets are relatively concentrated at top two tiers, which accounts for more than 75 percent of the total technology potential spend.

U.S. Market Player - Segmentation and Size

Note: (1) The opportunity fit represents the high value functions for each market player which represents more than 90 percent of the overall functional value, so the technology spend has not been adjusted or weighted.




Investor –Direct/ Fund

(Equity) -65%

Private – 35%

Public – 65%

Sq FT >10M

Tier 1 Market Player Attributes

>$50BN Invested in Real Estate Assets

>$2BN Invested in Real Estate Assets

Market Cap >$5BN

Sq FT 1M - <10M


$5BN - <$50BN Invested in Real

Estate Assets

$0.5BN - <$2BN Invested in Real Estate

Assets

Market Cap $0.50BN - <$5BN

Sq FT < 1M


< $5BN Invested in Real Estate Assets

< $2BN Invested in Real Estate Assets

Market Cap < $0.50BN

Lender/Servicing (Debt)-35%

Annual Originations> than $5BN

Annual Originations$1BN - > $5BN

Annual Originations< $1BN

Owner/ Operator


Primary / Secondary Spend Potential

TIER 1 TOTAL $3.60 BN TIER 2 TOTAL $2.72BN TIER 3 TOTAL $2.03BN

50%

$690

% of Mark’t($MM)

10%

$135

40%

$980

20%

$910

10%

$73

30%

$414

% of Market ($MM)

53%

$715

25%

$613

50%

$2,275

70%

$511

20%

$276

% of Market($MM)

37%

$500

35%

$857

30%

$1,365

20%

$146

CRE Software Due Diligence Report to GI Partners 14CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 14CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 14CONFIDENTIAL AND PROPRIETARY 14Summary of RE Fund Manager Market Validation Interviews CONFIDENTIAL &PROPRIETARYCRE Software Due Diligence Report to GI Partners 14CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 14CONFIDENTIAL AND PROPRIETARYCRE Software Due Diligence Report to GI Partners 14CONFIDENTIAL AND PROPRIETARY

CRE Software Market Sizing and Segmentation Analysis

(Bottoms Up Approach)

• US Commercial Real Estate Inventory – driven off CoStar US inventory


Market Sizing / Segmentation - US National Office

Breakout by building class (1)

Class A 17,090 3,266,252,671 191,120 12.3% $28.68

Class B 193,114 4,867,596,268 25,206 11.5% $20.26

Class C 293,448 2,333,491,683 7,952 8.0% $16.55

Grand Totals 503,652 10,467,540,622 20,783 10.5% $22.65

Market Segment # Bldgs.Total RBA

(SF)Avg. Bldg. Size

(SF)Vacancy Rate

(%)Avg. Rent/SF/YR

CBD 42,188 2,427,769,004 57,546 10.2% $29.03

Suburban 461,464 8,039,591,618 17,422 11.2% $21.22

Grand Totals 503,652 10,467,340,622 20,783 10.9% $22.65

Market Segment # Bldgs.Total RBA

(SF)Avg. Bldg. Size

(SF)Vacancy Rate

(%)Avg. Rent/SF/YR

US National Office Market – Breakout by CBD vs Suburban

(1) Source: Co Star Group National Office Report – Year End 2014


Market Sizing and Segmentation - US National Retail Market

Breakout by product type (1)

General Retail 873,991 6,290,193,298 7,197 4.2% $15.83

Mall 1,353 1,092,392,766 807,386 5.7% $16.20

Power Center 1,981 875,333,303 441,864 4.7% $16.48

Shopping Center 93,733 4,225,532,816 45,080 9.3% $14.19

Market Segment #Bldgs.Total RBA

(SF)Avg. Bldg. Size

(SF)Vacancy Rate

(%)Avg. Rent/SF/YR

Specialty Center 426 93,191,643 218,760 6.2% $15.63

Grand Totals 971,484 12,576,643,826 12,946 6.1% $14.90

(1) Source: Costar Group National Retail Report – Year End 2014


Market Sizing and Segmentation - US National Industrial Market

Flex 90,389 2,268,784,744 25,100 9.9% $11.05

Warehouse 532,757 18,877,445,127 35,433 6.9% $4.80

Grand Totals 623,146 21,146,229,871 33,934 7.2% $5.50

Market Segment #Bldgs.Total RBA

(SF)Avg. Bldg. Size

(SF)Vacancy Rate

(%)Avg. Rent/SF/YR

(1) Source: Costar Group National Industry Report - Year End 2014

Breakout by product type (1)


IT Spend Potential – US Commercial Real Estate Estimate

Office

Retail

Industry

Total

Market Segment

503,652

971,484

623,146

3,098,282

#Bldgs.

1,467,340,622

12,576,643,826

21,146,229,871

44,190,214,319

Total RBA(SF)

$22.65

$14.90

$5.50

$12.24

Avg Rent/SF/YR

$237,085

$187,392

$116,304

$540,781

Gross Potential Annual Revenues

($MM)

Adjustments (Conservative Reductions)

100% Class C Office 293,448 2,333,491,683 $16.55

100% General Retail 873,991 6,290,193,298 $15.53

Net Potential / Addressable Market - US Commercial Real Estate

< 38,619>

< 99,574>

$ 402,588

Assumed IT Spend (Software Only – US Market) – 0.8% of Revenues $ 3.221 B

Calculated IT Spend (Software Only – US Market) – 0.8% of Revenues

Nominal Difference between two FrontLine approaches (Top Down,

Bottom Up)

$ 3.180 B

market sizing segmentation report final redacted vs

Documents

diligence report

gi partners

cre market sizing estimates

segmentation analysis

real estate industry

key market segments

approach reconciliation