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© AlixPartners, LLP, 2010

Commercial Real Estate: The Next Tsunami ApproachesAmerican Bankruptcy Institute 22nd Annual Winter Leadership ConferenceDecember 10, 2010

Dennis P. YeskeySenior Advisor

[email protected]

This report was prepared by AlixPartners LLP (“AlixPartners”) for general information and distribution on a strictly non-reliance basis. No one in possession of this report may rely on any portion of this report. The recipients of the report accept that they will make their own investigation, analysis and decision relating to any possible transactions and/or matter related to such and will not use or rely upon this report to form the basis of any such decisions.

This report may be based, in whole or in part, on projections or forecasts of future events. A forecast, by its nature, is speculative and includes estimates and assumptions which may prove to be wrong. Actual results may, and frequently do, differ from those projected or forecast. Those differences may be material. Items which could impact actual results include, but are not limited to, unforeseen micro or macro economic developments and/or business or industry events.

This report may contain certain statements which are or could be considered to be forward-looking statements. Such statements are not guarantees of future performance and involve risks and uncertainties which are not possible to predict. Actual results and trends may differ materially from those described in such statements.

The information in this report reflects conditions and our views as of this date, all of which are subject to change. We undertake no obligation to update or provide any revisions to the report to reflect events, circumstances or changes that occur after the date the report was prepared. In preparing this report, AlixPartners has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise provided to us. AlixPartners has not audited or verified the data reviewed in connection with the preparation of this report.

AlixPartners makes no representation or warranty regarding any actions the Company may take in reliance on or in reference to matters presented in this report. To the extent that it is lawfully able to do so, no liability or responsibility whatsoever is accepted by AlixPartners for any loss howsoever arising from any use of, or in connection with, the Report.

Neither this report nor any of its contents may be copied, reproduced, disseminated, quoted or referred to in any presentation, agreement or document with attribution to AlixPartners, at any time or in any manner other than for the internal use of the Company, without the express, prior written consent of AlixPartners.

Disclaimer – Important Information Regarding This Report

2www.alixpartners.com


Overview

•Commercial Real Estate

•Debt & Equity

• Debt

• Equity

Outline

3

Fundamentals attempting to stabilize, declining rents/cash flows creating disconnect as Capital Markets drive values up ahead of space markets

Banks minimizing writeoffs. Search for higher yields/ relative value driving money back into CRE (and REITs)

Fear is giving way to greed, as winners and losers are finally beginning to emerge

Worsening Fundamentals; Declining Values; Approaching Debt Tsunami

Massive write-offs coming; CRE too risky

Fear of “next shoe” to drop

Overview CRE

www.alixpartners.com 4

Conventional Wisdom The Real Story

Much longer recovery than normal required

– This “Great Recession” requires increasingly longer recovery to create job backlog

2009 bottom? 2010 bottom? Think 2012; longer for hardest hit markets

True for CRE, especially REITs

Confused optimism blended with nervousness and skepticism

− GDP driven by “consumer spending”

Improving Residential

Improving Capital Markets

The Economy?



Relatively unsuccessful (so far, with exceptions – Fall 2008/Winter 2009)

– Less is more

– Next act?

Will happen, but Wall Street ready!

– New Congress dilutes

– Rules are still “TBD”

Inflation (LT), higher interest rates (ST)

Bad/Scary/Too Political

Financial reform? Regulatory/Tax reforms?

QE 2 effectiveness?

Government Intervention?



Stabilizing, early stages of CRE recovery

− “Bottoming” of many fundamentals including rent decreases

Some values increasing– Growing: Apartments and

CBD office (NYC/DC)

– Attractive: Hotels, Retail, some Industrial

– Unattractive; Suburban Office, Land, Residential

Disastrous!

Low and dropping property values!

CRE Fundamentals?



False – CRE liquidity returning selectively at historically low interest rates (5% to 6%)

– Tier 1: Core properties – 65% LTV, Apartments (F/F), Trophy Properties

– Tier 2: Specials (?)

– Tier 3: All other

Getting resolved slowly− New CMBS expected in 2011

($25B-$50B)

Expected to be amended and extended, with a new major exception – “Bye Bye”

Nonexistent/Expensive

CMBS time bomb

Approaching Debt Tsunami

Debt Markets?



Charge-offs increasing at selective pace, especially among healthy/quasi-healthy banks

− “Bye-Bye” for some

Bid-ask spread is narrowing; increasing sales (2H 2010)

– More equity continues to flow into CRE (increasing “bids”)

– Charge-offs create lower sales prices (decreasing “asks”)

Need new loans!– $1 trillion Bank Excess Reserves

– Improving Bank (and corporate) profitability

Amend – Extend – Pretend − A gift from government (the “Great BYE”)

Few sales (debt/equity)

Not lending

Banks?



Plentiful (if debt is restructured!)− Good operators only

− “Slow” deal flow increases in 2011

Overvalued? More IPO’s? Public interest high as REIT stocks trade 20% over NAV

CRE values selectively increasing (as rates decreasing!)

− NCREIF 3Q 2010 = 5% (?)− Attractive risk adjusted returns− Bottom of underwriting cycle

normally creates best new CRE loans and equity returns

Scarce

Booming REITs (?)

Poor CRE returns

Equity?



Fewer distressed sales than expected – some more in 2H 2010, 2011/2012

Many CRE buyers especially for “core” apartments, hotels, and CBD office, early retail. New buyers including foreign investors, as yield search intensifies!

Distressed bargains

Few new buyers

Targeted Investments?



“Real” workouts increasing (new equity / write-offs required). More foreclosures, debt sales and bankruptcies result in 2011-2012.

Few bankruptcies or foreclosures

Operators?




•Overview

Commercial Real Estate

•Debt & Equity

• Debt

• Equity

Outline

13

U.S. Economy Had Been Heavily Dependent On Consumer – Not Business Spending…Until Recently (Rebuilding Inventories)

Source: U.S. Bureau of Economic Analysis

14

-8

-6

-4

-2

0

2

4

6

1.4

0.1

3.0

0.9

3.2

2.32.9

-0.7

0.6

-4.0

-6.8

-4.9

-0.7

1.6

5.0

3.7

1.7

2.5

Gross Domestic Product% Change @ Annual Rate

2006

:Q2

2006

:Q3

2006

:Q4

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

2008

:Q4

2009

:Q1

2009

:Q2

2009

:Q3

2009

:Q4

2010

:Q1

2010

:Q2

2010

:Q3

-10

-8

-6

-4

-2

0

2

4

6

8Contribution to % Change in GDP

% Change @ Annual Rate

Govt consumption exp and gross investment

Net exports of goods and services

Gross private domestic investment

Personal consumption expenditures


Q1-07

Q2-07

Q3-07

Q4-07

Q1-08

Q2-08

Q3-08

Q4-08

Q1-09

Q2-09

Q3-09

Q4-09

Q1-10

Q2-10

Q3-10

Q4-10F

Q1-11F

Q2-11F

Q3-11F

Q4-11F

-8

-6

-4

-2

0

2

4

6

0.9

3.22.3

2.9

-0.7

0.6

-4.0

-6.8

-4.9

-0.7

1.6

5.0

3.7

1.72.5 2.3 2.5

3.0 3.0 3.2

U.S. GDP Growth

Qu

art

erl

y A

nn

ua

l Gro

wth

(%

)U.S. Economy Is Expected to Grow, Albeit Slowly; Double Dip Not Expected but Unemployment Remains High (Above 8% to 9%) for Several Years


Recession

Source: The Blue Chip Economist Consensus Forecast, Federal Reserve Board

Forecast

Unfortunately, Employment Gains Will Take Significantly Longer Than Hoped – Each Recession Has Taken Progressively Longer To Recover Jobs!


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Non-Farm Employment Trends1960-2010

All

Non F

arm

Em

plo

yees (

000s)

19 months to previ-ous peak

27 months to pre-vious peak

32 months to pre-vious peak

48 months to pre-vious peak ???

Source: U.S. Bureau of Labor Statistics

As a Result, Businesses and Individuals Struggle to Keep Their Heads Above Water

2005 2006 2007 2008 2009 2010

2,244 2,321

3,203

4,244

5,903

2,214

3,098

4,073

5,711

4,438

Bankruptcy FilingsAll Companies

Bankruptcy Filings (full year) Bankruptcy Filings (YTD)

Source: The Deal Pipeline, as of 12/14/10 Source: Federal Reserve Board

0

1

2

3

4

5

6

7

Consumer LoansLoan Delinquency & Charge Off Rate

Consumer Loan Delinquencies

Consumer Loan Charge Offs

Del

inqu

ency

Rat

e %


Business Bankruptcy Filings Have Been Below Projected Levels


Q1-94

Q1-95

Q1-96

Q1-97

Q1-98

Q1-99

Q1-00

Q1-01

Q1-02

Q1-03

Q1-04

Q1-05

Q1-06

Q1-07

Q1-08

Q1-09

Q1-10

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Bankruptcy Filings

Source: ABI

1994

1996

1998

2000

2002

2004

2006

2008

2010

(YTD)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Bankruptcy Filings(annual)

Both Residential Loan Delinquencies and US Housing Starts Appear to Be Leveling at Historic Levels

Q4-07

Q1-08

Q2-08

Q3-08

Q4-08

Q1-09

Q2-09

Q3-09

Q4-09

Q1-10

Q2-10

0%

5%

10%

15%

20%

25%

Seriously Delinquent Mortgages

Prime Alt-A Subprime Overall

Source: Office of the Comptroller of the Currency (www.occ.treas.gov) Source: U.S. Census Bureau, 3-month moving avg., SAAR

Jun-

01

Jan-

02

Aug-0

2

Mar

-03

Oct-03

May

-04

Dec-0

4

Jul-0

5

Feb-

06

Sep-0

6

Apr-0

7

Nov-0

7

Jun-

08

Jan-

09

Aug-0

9

Mar

-10

0

500

1,000

1,500

2,000

2,500

U.S. Housing Starts and Building Permits

Housing Starts Building Permits


http://www.occ.treas.gov/

Consumers Lost Confidence, and Billions In Retail Sales Came “Off the Table” and Will Also Take Longer to Recover

Aug-0

7

Sep-0

7

Oct

-07

Nov-0

7

Dec-0

7

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct

-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

May

-09

Jun-

09

Jul-0

9

Aug-0

9

Sep-0

9

Oct

-09

Nov-0

9

Dec-0

9

Jan-

10

Feb-1

0

Mar

-10

Apr-1

0

May

-10

Jun-

10

Jul-1

0

Aug-1

0

Sep-1

0

Oct

-10

$310,000

$320,000

$330,000

$340,000

$350,000

$360,000

$370,000

$380,000

$390,000

Total Monthly Retail Sales U.S. Census Bureau

$ m

illi

on

s


2010 AlixPartners Holiday Spending Outlook Survey

• 85% of consumers say they are spending “the same or less” this year on retail purchases

• 86% of consumers say they plan to spend “the same or less” on holiday gifts in 2010

• Holiday gift spending could decrease by more than 8% this year as consumers continue to show caution due to the uncertain economic climate

Americans Have Become Even More Pessimistic About a Quick Recovery, with 76% Now Saying 2012 at the Earliest (vs. 63% in May)


2010 2011 2012 2013 or later

Not sure Never

20

%

27

%

18

%

19

%

13

%

3%

8%

21

%

18

%

23

%

23

%

5%

5%

12

%

23

%

34

%

19

%

6%

1%

9%

26

%

46

%

14

%

4%

Expectations Regarding Timing of Recovery

Feb-09 Nov-09 May-10 Sep-10

When do you expect the U.S. economy to recover to what you consider “normal times”?

Source: AlixPartners consumer research

21

Although Retail Sales Have Been Holding Up In Spite of Pessimism

Source: AlixPartners analysis

Retail Comp Sales Index is a weighted index comprised of retailers reporting monthly sales in Specialty & Discount Apparel, Club, Department, Mass Merchandise, Pharmacy segments


Nov-0

7

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov-0

8

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov-0

9

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-1

0

Nov-1

0

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

5.9%

-1.9%

0.2%

1.2%

-2.3%

2.5%

0.7%1.1%

0.0%0.1%

-1.2%

-3.3%

-6.3%

-3.1%-2.8%-2.6%-2.9%

-0.9%

-2.8%-3.3%-3.4%

-1.8%

1.5%2.0%

-0.1%

1.9%1.4%

2.5%

7.6%

-0.5%

1.8%

2.5%2.3%2.4%2.1%

1.1%

5.0%

Wtd. Retail Comp Store Sales Index

Feb

-01

May

-01

Aug

-01

Nov

-01

Feb

-02

May

-02

Aug

-02

Nov

-02

Feb

-03

May

-03

Aug

-03

Nov

-03

Feb

-04

May

-04

Aug

-04

Nov

-04

Feb

-05

May

-05

Aug

-05

Nov

-05

Feb

-06

May

-06

Aug

-06

Nov

-06

Feb

-07

May

-07

Aug

-07

Nov

-07

Feb

-08

May

-08

Aug

-08

Nov

-08

Feb

-09

May

-09

Aug

-09

Nov

-09

Feb

-10

May

-10

Aug

-10

-

50

100

150

200

250

Moody's REAL CPPI & Schiller 20-City Index

National All Properties Schiller 20-City Index

Commercial Property values still over 40% below Oct 2007 high

Source: © Real Capital Analytics www.rcanalytics.com

23

Commercial and Residential Real Estate Values Have Declined to Pre-2004 Levels


Residential values still over 25% below 2005 highs

However, CRE Values Are Recovering Quickly for Selected Properties and Markets Such as CBD Offices in New York City and Washington, DC


Since October 2007:

CPPI down 41%

Non-Distressed down 33%

Distressed down 54%

24

And REITs Appear to Be Leading the Way (for CRE and the Economy)

Asset Class 2005 2006 2007 2008 2009 2010 YTD

Equity REITS 12.16% 35.06% -15.69% -37.73% 27.99% 24.70%

All REITS 8.29% 34.35% -17.83% -37.34% 27.24% 23.90%

Gold 35.56% 24.01% 29.09% -27.80% 44.72% 20.50%

Private Equity -13.67% -65.96% 30.20% 16.65%

Russell 2000 4.55% 17.00% -2.75% -34.80% 25.22% 12.78%

NASDAQ 1.37% 9.52% 9.81% -40.54% 43.89% 8.84%

Hedge Funds 7.85% 11.40% 11.23% -19.83% 24.85% 6.75%

Dow Jones Industrial Average -0.61% 16.29% 6.43% -33.84% 18.82% 5.71%

S&P 500 4.91% 15.79% 5.49% -37.00% 23.45% 5.67%

Barclays Aggregate Bond 2.20% 4.50% 6.90% 5.70% -0.97% 3.87%

Commodities 17.55% -2.71% 11.08% -36.61% 18.72% 2.85%

U.S. Dollar 11.02% -8.25% -8.98% 5.94% -3.29% -3.20%

iShares S&P GSCI Commodity-Indexed Trust -18.64% 31.62% -45.75% 11.22% -3.49%


Source: AlixPartners analysis, public financial reports, thru 9/8/2010

25


•Overview


Debt & Equity

• Debt

• Equity

Outline

26


Commercial Real Estate 2010: Sources of Capital

Banks, S&Ls, Mu-tual Sav-

ings Banks;

$1,735.4

Life In-surance;

$240.1

REIT Un-secured

Debt; $160.6

Pension Funds; $17.6

Comm Mortgage

Securities; $614.6

Govt Credit Agencies; $150.9

Mortgage REITs; $23.7

Debt Capital $2,994 Billion

Private Investors;

$454.2

Pension Funds; $184.0

Foreign Investors;

$95.2Life In-surance

Cos; $25.1

Priv Finan-

cial (REO); $46.3

REITs; $290.8 Public Untraded

Funds; $19.3

Equity Capital$1,114.9 Billion

Source: Emerging Trends in Real Estate 2011, PWC/Urban Land Institute, October 2010

27




28

Banks$1.7T

Life Insurance$240.1

REIT Unsecured Debt

$160.6

Pension Funds$17.6

CMBS$600B

Govt Credit Agencies$150.9

Mortgage REITs$23.7



Private Investors

$454.2

Pension Funds$184.0

Foreign Investors

$95.2

Life Insurance Cos

$25.1

Priv Financial (REO)$46.3

REITs$290.8

Public Untraded Funds$19.3

Equity Capital$1,114.9 Billion

Source: Emerging Trends in Real Estate 2011, PWC/Urban Land Institute, October 2010 29

Industry Estimates Are Expecting More Sales Transactions in 2011



2011 Forecast

30

Sell

2004 2005 2006 2007 2008 2009 2010 20111

2

3

4

5

6

7

8

9

Emerging Trends Survey PWC/ULI

Buy Hold Sell


•Overview


•Debt & Equity

Debt

• Equity

Outline

31

Estimated Total Commercial Mortgage Maturities Are “Spiking” Over the Next Three Years, with Significant Amounts of “Amended and Extended” Loans Also Coming Due Again!

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200

50

100

150

200

250

300

350

Est. Comm. Mortgage Maturities CMBS

$ B

n

Source: Duetsche Bank, Trepp, Intex, Federal Reserve


Q1-00

Q3-00

Q1-01

Q3-01

Q1-02

Q3-02

Q1-03

Q3-03

Q1-04

Q3-04

Q1-05

Q3-05

Q1-06

Q3-06

Q1-07

Q3-07

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

0

1

2

3

4

5

6

7

8

9

10

Commercial Real Estate Loans (All Banks) Loan Delinquency & Charge Off Rate

Delinquency %

% o

f lo

ans

CRE Bank Loan Delinquencies and Charge Offs Continue To Rise.

Source: Federal Reserve Board


Commercial real estate loans include construction and land development loans, loans secured by multifamily residences, and loans secured by nonfarm, nonresidential real estate, booked in domestic offices only

33

CMBS Loan Delinquencies Also Have Been Rising (Until Recently)


Sep-0

8

Nov-0

8

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov-0

9

Jan-

10

Mar

-10

May

-10

Jul-1

0$0

$10

$20

$30

$40

$50

$60

$70Monthly CMBS Delinquencies

($B)

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

f

2011

f$0

$50

$100

$150

$200

$250

CMBS Securitization Vol. ($B)

Source: Realpoint Source: ING Clarion Research, Comm Mortgage Alerts

General Forecasts for 2011

range from $25 - $ 50

billion

Some Good News – CMBS Spreads Continue to Narrow and New Issuance is Trickling Back, in Spite Of All the Capital Market Issues Discussed


Nov-0

9

Feb-1

0

May

-10

Aug-1

0

Nov-1

00

100

200

300

400

500

600

70010YR, AAA Spread Over Swaps

Nov-0

8

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov-0

9

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-1

0

Nov-1

00

2

4

6

8

10

12

Monthly Issuance ($B)

35

Source: Trepp, CMAlert.com

Some More Good News – Fed Loan Officers See Loosening Standards and Spreads; Demand Has Started to Move Up


98-Q

3

99-Q

1

99-Q

3

00-Q

1

00-Q

3

01-Q

1

01-Q

3

02-Q

1

02-Q

3

03-Q

1

03-Q

3

04-Q

1

04-Q

3

05-Q

1

05-Q

3

06-Q

1

06-Q

3

07-Q

1

07-Q

3

08-Q

1

08-Q

3

09-Q

1

09-Q

3

10-Q

1

10-Q

3-80

-60

-40

-20

0

20

40

60

80

100

120

Tightening Standards Increasing Spreads Stronger Demand

Fed Quarterly Survey of Senior Loan Officers

Source: Federal Reserve Board

36

As a Result, the Preferred Strategy for Lenders on Maturing Loans is Shifting!


Extend with Mortgage Modification

63%

Extend w/o Mortgage Modification

7%

Sell to 3rd Party13%

Foreclose and Dispose16%

Emerging Trends Survey PWC/ULI – 2011


37

Check 2010 survey?


•Overview


•Debt & Equity

• Debt

Equity

Outline

38


U.S. Real Estate Returns (CRE) and Economic Growth (GDP) Are Highly Correlated!

Q1-97

Q3-97

Q1-98

Q3-98

Q1-99

Q3-99

Q1-00

Q3-00

Q1-01

Q3-01

Q1-02

Q3-02

Q1-03

Q3-03

Q1-04

Q3-04

Q1-05

Q3-05

Q1-06

Q3-06

Q1-07

Q3-07

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

Q3-10

-15%

-10%

-5%

0%

5%

10%

15%

NCREIF Index Returns vs. GDP Growth

NCREIF Index GDP

Source: NCREIF, Federal Reserve Board

39


So Are REIT Returns – Less Correlated But Often a Leading Indicator!

Q1-97

Q3-97

Q1-98

Q3-98

Q1-99

Q3-99

Q1-00

Q3-00

Q1-01

Q3-01

Q1-02

Q3-02

Q1-03

Q3-03

Q1-04

Q3-04

Q1-05

Q3-05

Q1-06

Q3-06

Q1-07

Q3-07

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

-15%

-10%

-5%

0%

5%

10%

15%

NAREIT Index Returns vs. GDP Growth

NAREIT Index GDP

Update chek numbers for avg compared to next slide

Source: Federal Reserve Board, NAREIT

40

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD

-80

-60

-40

-20

0

20

40

60Investment Performance by Property Sector and Subsector

Office Industrial Retail Residential

REITs Are One of the Better Stock Market Performers – In 2010 and Over the Last 15 Years

Source: REIT.com


Update check numbers for avg compared to next slide

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

$3.90

$4.00

$4.10

$4.20

$4.30

$4.40

$4.50

$4.60

$4.70

$4.80 National Industrial Market Forecast

Vac

ancy

Rat

e

Effe

ctiv

e R

ent

2000

2002

2004

2006

2008

2010

2012

2014

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

$-

$200

$400

$600

$800

$1,000

$1,200 National Apt Market Forecast

Vac

ancy

Rat

e

Effe

ctiv

e R

ent

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

$13.50

$14.00

$14.50

$15.00

$15.50

$16.00

$16.50

$17.00

$17.50

$18.00 National Retail Market Forecast

Effective Rent Vacancy Rate

Vac

ancy

Rat

e

Effe

ctiv

e R

ent

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

4%

6%

8%

10%

12%

14%

16%

18%

20%

$-

$5

$10

$15

$20

$25

$30 National Office Market Forecast

Effective Rent Vacancy Rate

Vac

ancy

Rat

e

Effe

ctiv

e R

ent

CRE Basic Fundamentals are Stabilizing, and Most are Expected to Improve Into Late 2011/2012

Source: REIS

ForecastForecast

ForecastForecast


Q3-91

Q1-92

Q3-92

Q1-93

Q3-93

Q1-94

Q3-94

Q1-95

Q3-95

Q1-96

Q3-96

Q1-97

Q3-97

Q1-98

Q3-98

Q1-99

Q3-99

Q1-00

Q3-00

Q1-01

Q3-01

Q1-02

Q3-02

Q1-03

Q3-03

Q1-04

Q3-04

Q1-05

Q3-05

Q1-06

Q3-06

Q1-07

Q3-07

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

Q3-10

0

50

100

150

200

250

300

350

400

450

500

Red Zone

Average Cap Rate Spreads to 10-year Treasury Yields – By Q2-09 All Sectors Had Escaped the “Red Zone”, Although…


Source: NCREIF

43 P/M

Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-100

100

200

300

400

500

600

700

Apt Industrial Office CBD Office (Sub) Strip All Core

Red Zone

Average Cap Rate Spreads to 10-year Treasury Yields – By Q2-09 All Sectors Had Escaped the “Red Zone”


Source: © Real Capital Analytics www.rcanalytics.com

Cap rate increases have flattened and selectively decreased in 2010


Q1

-80

Q2

-81

Q3

-82

Q4

-83

Q1

-85

Q2

-86

Q3

-87

Q4

-88

Q1

-90

Q2

-91

Q3

-92

Q4

-93

Q1

-95

Q2

-96

Q3

-97

Q4

-98

Q1

-00

Q2

-01

Q3

-02

Q4

-03

Q1

-05

Q2

-06

Q3

-07

Q4

-08

Q1

-10

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Cap Rate HistorySource: NCREIF

Eq Wtd Cap Rate 10-year Treasury

Q1-80

Q4-81

Q3-83

Q2-85

Q1-87

Q4-88

Q3-90

Q2-92

Q1-94

Q4-95

Q3-97

Q2-99

Q1-01

Q4-02

Q3-04

Q2-06

Q1-08

Q4-09

-1,000

-800

-600

-400

-200

0

200

400

600

Cap Rate HistorySource: NCREIF

Spread

U.S. Quarterly Property Sales are Attempting (and Projected) to Improve


Q1-05

Q3-05

Q1-06

Q3-06

Q1-07

Q3-07

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

Q3-10

0

1000

2000

3000

4000

5000

6000

Total Transactions

Source: REIS

46

Q1-05

Q3-05

Q1-06

Q3-06

Q1-07

Q3-07

Q1-08

Q3-08

Q1-09

Q3-09

Q1-10

Q3-10

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Total Transaction $ Vol.

$ m

illio

ns

Private Equity Real Estate Funding Is Also Attempting to Rise


Q1-07 Q1-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 -

200

400

600

800

1,000

1,200

1,400

1,600

1,800

918

1,304

1,624 1,673

1,622 1,574 1,582 1,562

1,510

396

705

889 887

807 754

691 636

557

Funds on the Road - Historical

# of Funds Raising Aggregate Target ($bn)

Real E

state

Buyou

t

Ventu

re

Infra

struc

ture

Fund

s of F

unds

Distre

ssed

PE

Mez

zani

ne

Secon

darie

s

Nat R

esou

rces

Other

0

50

100

150

200

250

300

350

400

450

500Value & Number of Funds

# Funds on Road

Aggregate Target ($bn)

Source: Preqin

47

Early Indicators Are That PERE Capital Inflows Will Increase for the First Time Since 2007


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f0

10

20

30

40

50

60

70

80

$31$28

$34

$44

$51

$59

$71

$42

$18

$34

Annual Inflows – US Private Equity Real Estate

Ne

w C

ap

ita

l Allo

ca

tio

n (

$B

)

Source: Institutional Real Estate, Kingsley Assoc., ING Clarion

Pension Funds Are Moving Back to Real Estate Investments in 2010


Other

Private Equity (Core/Core-Plus)

Private Equity (Opportunistic)

Private Equity (Value-Added)

$8.8

$12.5

$7.0

$6.0

$3.2

$2.8

$6.0

$6.0

Capital Flows to Real Estate($ billions)

2009 2010 ProjectedSource: Institutional Real Estate, Kingsley

49

And Estimated Strategic Investment Allocation Preferences for 2011 Are Also Attractive for CRE


Core Investments27%

Opportunistic In-vestments

25%

Value-Added In-vestments

22%

Core -Plus Investments16%

Development11%

Emerging Trends Survey PWC/ULI – 2011


50

Dallas2101 Cedar Springs Road

Suite 1100 Dallas, TX 75201

214.647.7500

Global Locations

London20 North Audley Street

London W1K 6WEUnited Kingdom

+44.20.7098.7400

Chicago300 N. LaSalle Street

Suite 1900Chicago, IL 60654

312.346.2500

Detroit2000 Town Center

Suite 2400Southfield, MI 48075

248. 358.4420

Los Angeles515 S. Flower Street

Suite 3050Los Angeles, CA 90071

213.437.7100

New York40 West 57th Street

New York, NY 10019212.490.2500

MilanCorso Matteotti 9

20121 MilanItaly

+39.02.360.12000

MunichMauerkircherstr. 1 a

81679 MunchenGermany

+49.89.20.30.40.00

DüsseldorfKönigsallee 59 a40215 Düsseldorf

Germany+49.211.97.55.10.00

TokyoMarunouchi Building 33F

2-4-1 MarunouchiChiyoda-ku

Tokyo 100-6333 Japan+81.3.5533.4800

ShanghaiSuite 6111

Plaza 66 Building I1266 Nan Jing West RoadShanghai, 200040 China

+8621.6171.7555

Paris49/51 Avenue George V

75008 ParisFrance

+33.1.76.74.72.00

San Francisco4 Embarcadero Center31st Floor, Suite 3110

San Francisco, CA 94111415.848.0283

Washington, DC1602 L Street, NW

Suite 300Washington, DC 20036

202.756.9000

AlixPartners is ready to field a team of relevant experts whenever

and wherever they are needed. Our professionals work from 15

global offices in more than a dozen different countries. They speak

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of the world. Call us, we’ll be there when it really matters.

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