© 2012 Environmental Data Resources, Inc.

Dianne P. Crocker, Principal Analyst

EDR Insight

State of the Commercial Real Estate and Property Due Diligence Markets

1. Launch of Property Market Assessment Map

2. Market Update

3. Forecast

• Demand-driven model

• Attaches a $ amount to 11 unique

industry segments

• Expands beyond Phase I ESAs and

gives the industry a way to track

changes in broader market

• Launch in late May

• Regular quarterly updates

Property Assessment Market Map

Market Map Methodology: Data & Applications

(Total Transactions/Investigations x Likelihood of Assessment%)

X

Average Market Price $

_____________________________________________

= Market Size in 11 Industry Segments

What are the key drivers of

assessments?

How likely are they to undergo specific

types of assessments?

Phase I

ESA

Market

$450MM

Then…

Total U.S.

Property

Assessment

Market

$2.3B

Phase I

ESA

Market

$450MM

Now…

© 2012 Environmental Data Resources, Inc.

Market Update

• Many seeing increase in 2012 vs. 2011

• But project flow is lumpy, uneven, unpredictable

• Firms are starting to staff back up (EPs and end users)

• Moderate increase in bank lending

• Big driver is multifamily, the star performer

• No shortage of uncertainty

• Risk aversion high, residual impact of ‘11 roller coaster ride

• “There are no dumb investors out there.”

8

Maturities Bring Environmental Issues to Surface

Page 9

Overview of CRE Playing Field

• Driving due diligence:

• Private owners continue to work though de-leveraging and

restructurings

• Loan restructurings continue, past restructurings being revisited

• Discounted loan pools continue to be offered, abundantly (loan

pools carefully chosen to mix stars with dogs and cats)

• Private equity funds, hedge funds, real estate funds:

• Are successfully raising new capital

• Putting it to work as new assets come on the selling block

10

• Debt capital is available for strong borrowers, low-risk properties

• Property transaction volume is recovering

• Investors seem to favor larger, primary markets…averse to straying

far afield.

• Refis/REO/foreclosures

• Development opportunities are selectively returning esp. for:

• new corporate real estate

• asset expansions and rehabs

• urban infill

• outlet centers

• home builders (but buy-and-hold)

11

Overview of CRE Playing Field (cont’d)

Page 12

A Look at Assets Moving Into Play

• $362 billion in maturing loans on top of $346B 2011 volume

• 20,000 large property sales expected in ’12

• Properties with vacancy rate of 60% or more:

Retail: 67,525 properties Office: 49,240 properties Industrial: 42,475 properties

• Banks are holding:

• $27.9 billion in foreclosed commercial real estate

• $160B in troubled commercial mortgages to resolve or dispose

• CMBS loans in special servicing at the end of January 2012: $82.3 billion.

• Another $140.8 billion of loans that CMBS loan servicers listed as having potential credit concerns.

© 2012 Environmental Data Resources, Inc.

Forecast

EDR Insight 2012 Forecasting Contest

Page 15

• Gradual market improvements

• Spottiness will continue

• CRE starting to see stabilization at a low level

• Uncertainty hangs over market after lessons of 2011

• Long road to recovery, susceptible to set-backs

Forecast

Page 16

• REITs

• Telecom

• Credit Unions

• Foreign investors

• Developers

• Multifamily, retail due diligence

• Property condition assessments

• M&A

• Federal real estate divestitures

• Pharmacies/dollar stores

• Transfer of oil/gas assets

Things to Watch

Excerpt from EDR Insight’s 1Q12 Capsule Summary Report

Page 18

• An uncertain market requires vigilance

• EDR Insight will continue to track:

• Factors driving demand

• Emerging markets

• Changes in market dynamics