QUARTERLY MARKET UPDATE DECEMBER 31, 2016

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1 QUARTERLY MARKET UPDATE DECEMBER 31, 2016 New York Life Real Estate Investors ( Real Estate Investors ) is a division of NYL Investors LLC ( NYL Investors ).

2 Real Estate Markets In 4Q2016, investments in U.S. commercial real estate produced a 1.7% total return, consisting of 1.1% income and 0.6% appreciation. 1 Commercial real estate has continued to provide investors with an attractive return on their investments, even though the rate of appreciation for the approximately 7,400 properties in the NCREIF All-Properties Index has slowed for seven consecutive quarters (see Chart 1) % -8% Chart 1. Commercial Real Estate Appreciation Returns -1 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 Source: NCREIF NPI-All Properties Index, 4Q16 The unexpected election of President Trump and the resulting material rise in long-term interest rates have caused real estate investors to pause and cautiously evaluate the changes in the market. In 4Q2016, commercial real estate transactions fell considerably, with many buyers and sellers taking a wait and see approach as they evaluated the new political uncertainty and the material change in the cost of capital. Fourth quarter transaction volume was down 36% year-overyear as measured by count, and 33% year-over-year as measured by dollar volume, the first such fourth-quarter decline since 2008 (see Chart 2). 2 This hesitation has carried over into 2017, as buyers and sellers await both the new administration s policies and evidence of Federal Reserve policy intentions. Anecdotally, since the November election, the New York Life acquisitions team has experienced smaller bidding pools and fewer new assets coming to market. Volume $160 $140 $120 $100 $80 $60 $40 $20 Chart 2. Commercial Real Estate Transaction Volume $0 0 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 Total Volume ($ billions) Number of Transactions Source: PPR/Costar, 4Q16 Number 16,000 Yet, U.S. commercial real estate fundamentals remain strong, and the healthy yields offered by the asset class should continue to tempt investors both domestic and foreign. The team expects that any investor hesitation will dissipate in 2017 thanks to strong property fundamentals, and demand for top-quality assets with strong rent rolls in desirable submarkets will prove resilient. In addition, the consensus investor perception seems to be: economic growth will rise if the new administration s policies are implemented effectively; 14,000 12,000 10,000 8,000 6,000 4,000 2,000 expansionary fiscal policy, such as increased infrastructure spending, will further increase aggregate demand and therefore inflation, making investments in real assets relatively more attractive; and finally, a strong U.S. economy, coupled with a scarcity of enticing risk-adjusted returns elsewhere, will make U.S. investments relatively attractive. In aggregate, these perceptions should continue to drive investor demand for U.S. commercial real estate. Much of capital markets participants focus in 4Q2016 was on the rising interest rate environment and its potential effect on commercial property values. The NCREIF National Market Value Index (MVI), which is not adjusted for inflation, indicates that commercial property values through 4Q2016 continued to rise albeit at a slower pace and now stand 16% above their early-2008 peak (see Chart 3). 3 As a result, property income yields (i.e., cap rates ) have fallen to record lows: NCREIF s 4Q2016 cap rate of 5.05% down from 3Q2016 s value of 5.09% is now the lowest on record Q00 4Q02 4Q04 4Q06 4Q08 4Q10 4Q12 4Q14 4Q16 Source: NCREIF, 4Q16 Chart 3. Comparison of NCREIF MVI Indices (through 4Q16, 4Q00=100) All Properties Apartment Industrial Office Retail The 10-year U.S. Treasury yield rose sharply during the quarter to 2.49% up 85 basis points from its pre-election level yet remains low by historical standards. The spread between commercial real estate yields and U.S. Treasury yields now stands at 2.6 percentage points (see Chart 4 on the following page), slightly below the 20-year average of 2.9 (importantly, the increase in Treasury yields was absorbed almost entirely through a tightening of the yield spread rather than through an increase in cap rates). Although this yield premium is slightly below the long-term average, the team does not believe this necessarily indicates mispricing. For example, a belowaverage spread may be justified as most commercial buildings have in-place rents that are below current market levels, providing builtin income upside when expiring spaces are re-leased at market. Nationwide, warehouse in-place rents are 3% below market, retail in-place rents are 4-6% below market, and office in-place rents are 1 below market. 5 Still, if long-term Treasury yields were to rise significantly, it is likely that at least some of that increase would be matched by an increase in cap rates. 2

3 Real Estate Markets (continued) 5% 3% 1% Chart 4. Spread of U.S. Cap Rates Over 10-Year Treasury 4Q96 4Q98 4Q00 4Q02 4Q04 4Q06 4Q08 4Q10 4Q12 4Q14 4Q16 Source: NCREIF and Board of Governors of the Federal Reserve, 4Q16 With cap rate spreads having little room to compress further, and investors taking a breather due to policy uncertainty, it is doubtful that market value appreciation will be the driving factor behind investor returns as it has been since the end of the downturn. Instead, property fundamentals and net operating income growth will take center stage. Property fundamentals remain very strong, as evidenced by 2016 s healthy net operating income growth of 3.6% (versus the 10-year average of 2.5%), driven in large part by high occupancy levels. 6 In 4Q2016, occupancy rates rose in three of the four major property types, with retail and industrial leading the way and office approaching, but still lagging, its prior peak (see Table 1). Broadly speaking, while leasing activity and rent growth remain strong, the extent of the cyclical recoveries has varied significantly across property types and across various U.S. markets. Table 1. Occupancy by Property Type Property Type Prior Peak* 1Q16 2Q16 3Q16 4Q16 Apartments 93.9% 94.9% 94.8% 94.6% 94.3% Industrial 92.6% 94.5% 94.7% 94.8% 94.9% Office 89.8% 89.3% % 89.6% Retail % % 94.7% *During the period. Source: CoStar Portfolio Strategy, 4Q16 The industrial sector is coming off its strongest year in a decade with record high occupancy rates and solid year-over-year rent growth. In 4Q2016, industrial s occupancy rose to 94.9%, and industrial rents increased 6.8% year-over-year after increasing by 6.1% and 4. in 2015 and 2014, respectively. Historically low vacancy rates and the continued growth of e-commerce should provide tailwinds for the future. The new administration s potential protectionist trade policies remain the largest risk to warehouse-using locations with intensive import or export activities. In 4Q2016, industrial properties produced an unlevered total return of 3. the highest of the four major property types and over the past two years, industrial has been the best performing property type by a wide margin, with an average annual total return of 13.7%. Conditions in the apartment sector generally remain favorable. Despite modest recent declines in occupancy rates signaling a mature cycle, the apartment market s occupancy of 94.3% still reflects a relatively tight leasing environment. To put this 94.3% figure into perspective, during the last cycle, apartment occupancy peaked at 93.9%. Year-over-year apartment rent growth in 4Q2016 was healthy at 2.5%, but down from 4.7% and 3.6% in 2015 and 2014, respectively. Nationwide, apartment occupancy has now declined for five consecutive quarters, and 2017 is projected to have the largest nominal year-over-year supply change since Across CoStar s 54 major markets, units under construction now represent 4.3% of total inventory. New construction levels vary considerably from market to market; for example, as of 4Q2016, construction in Nashville and Miami represents 9. and 9. of total inventory, respectively, while construction in Los Angeles and Phoenix is 2.8% and 3. of total inventory, respectively. Most new product during this cycle has been class A luxury units focused in urban core areas, and it is unsurprising that this segment is now showing signs of weakness in some markets. In 4Q2016, apartments were the second best performing property type with an unlevered total return of 1.7%. Over the past two years, apartments have produced an average annual total return of 8.7%. Retail has continued to perform steadily. In 4Q2016, occupancy ticked up slightly to 94.7%, and retail rents increased 2.6% year-over-year, in line with 2.7% rent growth in 2015 and 2.6% in In general, a growing economy supports both retailers and landlords, and not surprisingly, markets such as San Francisco, Nashville, and Austin that have seen large employment and income growth have also seen some of the largest rental rate increases in the last 10 years. Looking forward, according to CBRE Research, e-commerce sales are projected to grow by 15.5% in 2017, making up 9. of total retail sales by year end. 7 Continued growth in consumer spending should benefit brickand-mortar retail, especially if the new administration implements tax cuts that boost consumers after-tax incomes, but the challenge of competing with consumers shift to e-commerce remains. In 4Q2016, retail was the third best performing property type with an unlevered total return of 1.6%. Retail, particularly malls, was the top performer of the property types between 2012 and 2014, and has produced an average annual total return of 11. over the past two years. Finally, in 4Q2016, office rents increased 3. year-over-year, versus 4. in 2015 and 3.8% in Office occupancy, at 89.6% just slightly below its prior occupancy peak, has benefited from limited deliveries during this economic cycle. That will change in 2017, particularly in select markets such as San Francisco and San Jose, which have substantial deliveries scheduled for Despite this new supply, office occupancy rates could still have room to improve if the U.S. economy picks up steam. Relaxed banking rules under President Trump, and a steeper yield curve (which would favor office-using financial firms) also could provide the sector a boost. Potential headwinds in the office sector include the availability of labor; based on current unemployment figures and the record level of job openings, the economy is approaching full employment. This fact, combined with plateauing working-age population growth (see Chart 5 on the following page), suggests there will likely be intense competition for labor among office-using employers. Markets with higher concentrations of educated and young residents will be better positioned to fuel office demand growth. In addition, any President Trump policies that reduce the number of highly skilled immigrant employees could hinder firm expansion and lead to slowing demand for office space. In particular, metro areas with heavy concentrations of technology firms could be negatively impacted if the supply of highly skilled immigrant employees is threatened. In 4Q2016, office properties produced an unlevered total return of 1., and have produced a 9.7% total return over the past two years. 3

4 Real Estate Markets (continued) Chart 5. Natural Growth in Working-Age Population 2. YoY Change In Working Age Population Share Of Labor Force 8 1.8% 1.6% % 76% % 0.6% % % Working Age (20-64) Population Growth Working Age (20-64) Share Of Labor Force Source: BLS, Moody s Analytics, CoStar Portfolio Strategy, 4Q16 Overall, the borrowing environment for commercial real estate investors remains sound, with widespread availability of loans to qualified borrowers. The team expects this to continue in However, worth watching is that lenders are slowly tightening lending standards: the most recent U.S. Federal Reserve survey on bank lending practices revealed that while the majority of banks kept lending standards unchanged in 4Q2016, there has been an overall net tightening trend underway for six or seven quarters, depending on loan type (see Table 2). 8 Table 2. Trends in Commercial Real Estate Bank Lending Standards Type of Loan % of Banks Easing vs. Prior Quarter % of Banks Unchanged vs. Prior Quarter % of Banks Tightening vs. Prior Quarter Net Tightening Trend?* 1) Commercial 3% 81% 16% 2) Apartments 67% 33% 6 quarters in a row 6 quarters in a row 3) Construction and Land Development 7 26% 7 quarters in a row *Measured by percentage of lenders tightening standards minus percentage of lenders easing standards. Over the near term, the team believes property income returns should remain in the 5%-6% per year range with unlevered appreciation returns moving toward the 1%- range, typical of the long-term average. Sumner North Sumner, WA 1. NCREIF NPI-All Properties Index, unlevered property-level returns. 2. Custom data provided by CoStar Portfolio Strategy through 4Q2016 measuring transactions across the five major property types. 3. The NCREIF MVI indices are designed to measure the change in same store property values over time for those properties in the NCREIF NPI-All Properties universe. The indices are calculated by summing net capital appreciation and routine capital expenditures (i.e., the typical recurring expenses related to changing tenancy and ordinary repairs ) while excluding major non-routine capital expenditures (i.e., those which alter the physical, functional, or economic condition of a property ). 4. NCREIF NPI-All Properties Index National Equal-Weighted Current Value Cap Rate through 4Q2016. Data is available back to Due to the rising rent environment, cap rates are based on in-place rents that are, on average, below market and below peak. 5. Custom data provided by Altus DataBridge through 4Q2016 representing national figures by property type 6. Net operating income growth is on a same property basis. NCREIF NPI-All Properties Index Operational Benchmarks Report through 4Q Real Estate Market Outlook United States 2017, CBRE Research. 8. January 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices, Board of Governors of the Federal Reserve System. The survey results are based on responses from 70 domestic banks. For purposes of the exhibit, the authors have renamed nonfarm nonresidential as commercial and multifamily as apartments. 4

5 The Economy* 2016 was a year full of surprising developments and volatility. Over just the year s first seven weeks, the U.S. stock market declined approximately 1, fixed income spreads widened considerably, and oil prices nosedived to a multi-year low of $26 per barrel. These developments reflected concerns over slowing global economic growth and the perceived threat to U.S. growth of the Federal Reserve switching its monetary policy from accommodating to tightening. The months that followed were no less eventful: the U.S. stock market regained its early-year losses as U.S. economic growth proved solid if unspectacular, and the results of the United Kingdom s June Brexit referendum elicited an investor flight to safety across the globe, which helped drive U.S. long-term interest rates to an all-time low by early July (the 10-Year Treasury yield touched 1.37%). Not to be outdone, the second half of the year produced a number of surprises first and foremost, the election of President Trump. By the end of the year, the U.S. stock market had rallied to finish up approximately 1, the U.S. 10-year Treasury yield had jumped more than 100 basis points to 2.45%, and the price of oil had doubled to $52 per barrel. Investors seem buoyed by the promise of fiscal and regulatory policies thought by many to be pro-growth, and also by the measured pace of Federal Reserve short-term interest rate target hikes (the year s singular hike occurred in December). Meanwhile, investors seemed willing to ignore the risks around new, potentially damaging protectionist and immigration policies. The U.S. economy grew at an inflation-adjusted pace of 1.9% in 4Q2016 (see Chart 1) and 1.6% for 2016 as a whole, down from 2.6% in 2015 and 2. in However, in light of the economic struggles of most developed countries around the world, the overall performance of the U.S. economy in 2016 was a relative bright spot. Job growth averaged 190,000 net new jobs per month in 2016 (see Chart 2) unimpressive by historical standards but sufficient to lower the unemployment rate. The unemployment rate hit a cyclical low of 4.6% in November down from its late 2009 high of 10. and stands at 4.8% today (see Chart 3). Two key measures of inflation that are watched by policy makers have shown signs of sustained increases (see Chart 4), as has inflation-adjusted wage growth. Gains in the stock market and the housing market continue to fuel the wealth effect, providing consumers with a growing sense of financial well-being. Accordingly, consumer confidence has reached its highest level since mid % % -8% Chart 1. Real GDP Growth (qtr/qtr, annualized, through 4Q16) -1 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 Source: Gross Domestic Product: Fourth Quarter 2016 (Second Estimate), Bureau of Economic Analysis 600, , , , , , ,000 Chart 2. Job Creation: Nonfarm Payrolls (net change in jobs from previous month, through Jan-17) -1,000,000 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: The Employment Situation January 2017, Bureau of Labor Statistics Chart 3. Unemployment Rate Measures (through Jan-17) 18% 16% 1 1 Adjusted Unemployment Rate* 1 8% 9. 6% Unemployment Rate 4.8% Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: The Employment Situation January 2017, Bureau of Labor Statistics *U-6 unemployment rate (official unemployment rate broadened to include all persons marginally attached to the labor force plus total employed part time for economic reasons.) 6% Chart 4. Consumer Price Index and Core PCE Deflator (yr/yr, through Jul-17 ) Consumer Price Index Core PCE Deflator - Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: Personal Income and Outlays, January 2017, Bureau of Economic Analysis; Consumer Price Index January 2017, Bureau of Labor Statistics Uncertainty still abounds, however, with the uncertainty surrounding the November 2016 election having been replaced by uncertainty over all things Trump. In 2017, a wider range of potential outcomes is possible due to the elevated uncertainty created by the new administration. It appears that the new year will get off to a weak start: the Federal Reserve Bank of Atlanta produces a real-time GDPNow forecast of the current quarter s growth. 1 This forecast is initially based on an econometric forecast but as the quarter progresses, the forecast takes into account the impact of relevant economic data as that data is released. Their first quarter real GDP forecast currently stands at a 1.8%, due primarily to early indications of weak consumer spending. Additionally, investment in business equipment, one of the larger and more volatile components of GDP, has continued to sputter when 5

6 The Economy (continued) uncertainty about the future is high, businesses typically choose to delay placing large bets on the future in the form of new investment. Looking ahead, the team expects the U.S. economy to show improvement in If Trump s policies result in increased spending, lower taxes and less regulation, we would expect to see a positive impact on growth materialize towards the end of 2017 and, more significantly, from 2018 onwards. However, there is considerable risk that some of Trump s pro-growth policies won t get passed into law or will be watered down, or more draconian anti-immigration or protectionist policies will be implemented that have a larger than expected negative impact. All factors considered, our base case for 2017 is for inflation-adjusted GDP growth in the % range. Rising inflation, and a tight labor market that is leading to wage growth, will spur the Fed to attempt to raise short-term interest rates (and, indirectly, long-term interest rates) toward more historically normal levels. Our base case going forward is for two additional shortterm interest rate hikes in 2017, which would leave the Fed funds target rate at 1.25% by the end of the year. Even if the pace of rate hikes picks up in 2018, the U.S. economy would still enjoy interest rates that are below long-term historical averages. This interest rate hike trajectory is consistent with our view that the U.S. remains in a lower for longer interest rate environment. Modest global growth and stimulative central bank policies outside the U.S. should continue to produce strong demand for U.S. fixed income investments, which may offset the factors that are pushing interest rates higher. Outside the U.S., there are signs of a fragile recovery taking place in Europe. Aided by accommodative monetary policy, growth has picked up slightly in key markets like Germany and the U.K. While Britain s pending exit from the E.U. has introduced uncertainty, in the near term a material impact to economic growth is not expected. In Asia, China continues to exhibit signs of stabilization with growth coming in at 6.7% for the year. This is lower growth than in recent years but it is a rate that the Chinese government appears comfortable with as it navigates the transition to a more consumption-led economy. A couple of areas that bear watching in China are rising debt levels on the government s balance sheet and the weakening of the currency the Chinese government continues to sell foreign currency reserves in an effort to defend the currency from further weakening. Primary risks to the U.S. economic outlook include: 1) higher-thannormal domestic policy risk under President Trump while the Fed simultaneously attempts to continue to tighten monetary policy; 2) Brexit s complex, longer-term impacts coming to fruition; and 3) movements across the globe to introduce barriers to international trade and attempts to slow or reverse globalization. Hawthorne Commons Salem, MA *The views and opinions expressed are subject to change. There is no guarantee of future results, which will vary. Statistics and internal calculations are based on data from the following sources: GDP Report, Bureau of Economic Analysis; The Employment Situation Report, Bureau of Labor Statistics; Consumer Price Index report, Bureau of Labor Statistics; NIPA Table 2.3.4, Bureau of Economic Analysis. The information presented is current only as of the date hereof, and is subject to change without notice as market and economic conditions change. Any forward-looking statements are based on a number of assumptions concerning future events and although we believe that the sources used are reliable, the information contained in these materials has not been independently verified and its accuracy is not guaranteed. The charts and graphs provided herein are for illustrative purposes only to assist readers in understanding economic trends and conditions but must not be used, or relied upon, to make investment decisions. Third-party information providers make no representation or warranty as to the appropriateness, accuracy, completeness, or applicability of such information nor are they responsible for the results obtained there from. In addition, there is no guarantee that market expectations will be achieved. Past performance is not indicative of future results. 1. Atlanta Fed GDPNow Forecast for 2017: Q1. Federal Reserve Bank of Atlanta, March 1,