CRE Capital Markets Outlook: Daniel Walsh. January 10, 2008

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1 CRE Capital Markets Outlook: Daniel Walsh January 10, 2008

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3 Yesterday (cont ) 8/15/2007 Securitizations begin to stumble. Investors leave the market as contagion from subprime downgrades infect the CMBS market despite good real estate fundamentals. 1. Spreads double overnight 2. Originations sitting on Wall Street balance sheets from first half of 2007 are immediately underwater 3. CDO market closes for the foreseeable future 12/31/ CMBS originations finished at $230B ($210B in 2006) 9/1/ /1/ /1/ /1/2007 8/1/ /31/2007 9/1/ /31/2007 Financial institutions mark down their portfolios resulting in billions in losses and CEO firings Repo lines to mortgage REITs and other lenders are margined or pulled causing further liquidity crunch 3

4 Today Wall Street firms likely to have more losses - it hasn t played out yet: Reported losses on investments / assets under water by investment banks, hedge funds, SIVs and asset-backed conduits are currently around $100B - projected to go to $275B Warehouses of loans still need to be sold with losses taken by sellers - market will struggle to move forward until this happens CMBS projections for 2008 production of approximately $110B, a 52% decline YOY Lenders who have capital and who are not reliant on Wall Street (community and regional lenders, insurance companies) fill some of the liquidity void for borrowers Underwriting has returned to normal - 75% LTV, 1.20x coverage; leverage is now lower and more expensive across the capital stack 4

5 Today (cont ) Pricing CMBS: 10-Year US Treasury is below 4% Spreads double what they were in July 2007, but the all-in rate is still in the low 6% range for senior debt Agency Debt: Less expensive Mezzanine Debt: Leverage is lower and pricing is higher (low double digits to over 20%) Less development risk Equity Capital: Pricing over 20% Less development risk 5

6 Tomorrow Decent Real Estate fundamentals, but some stress with weakness in the economy for a good part of Lack of supply keeps things in check. Fewer transactions Cap rates increase overall: more in tertiary markets, less in primary markets Caused by increased cost of capital and risk of recession Debt yield underwriting approach; cushion of bps spread over market cap rates Well leased properties in primary markets more likely maintain cap rates Rent growth slows Occupancy remains strong except for retail; little new supply should keep occupancy stable going forward 6

7 Tomorrow (cont ) Real Estate Property Types Multifamily: stable Retail: declining Consumer spending Office: stable Corporate balance sheets are strong, but continued weakness in employment growth is a risk Industrial: healthy Worldwide demand and growth remain strong, global GDP growth project at 4.9% Residential / Condo Hotel 7

8 Daniel Walsh, Managing Director Mr. Walsh is the Managing Director of the Private Equity Group for KeyBank Real Estate Capital. In 1998, Mr. Walsh co-founded the real estate equity and mezzanine investment group now known as the Private Equity Group. Mr. Walsh manages a team of more than 50 professionals strategically located across the US who structure, price, negotiate, close and manage real estate investments on behalf of a variety of third party investors. The Private Equity Group has closed over $1.4 Billion of investments since inception while providing strong risk-adjusted returns and preservation of investor capital. Mr. Walsh is a member of the investment committee for the Hartford Insurance Mezzanine Fund. Prior to the Private Equity Group, Mr. Walsh was a member of KeyBank's Institutional team where he structured and underwrote new lines of credit for Real Estate Investment Trust (REIT) clients and provided development, construction and interim financing to Key's client base. Mr. Walsh is a graduate of Case Western Reserve University with a B.S. in Management and a M.B.A. in Finance, and graduated with a Juris Doctor from Chicago-Kent College of Law. Mr. Walsh is a board member with the National Multi Housing Council, the Arthritis Foundation of Northeastern Ohio, and has been a featured speaker at numerous real estate industry events across the country. 8

9 Zelman & Associates Homebuilding & Building Products Sector Review January 2008 Please refer to the end of the slide presentation for disclosure information. 1

10 18.0 Land Burden Ahead of Desired 3-5 Years NTM Years Controlled WCI TOL LEN MHO BZH DHI PHM SPF NVR CTX HOV RYL KBH MDC Median Average Source: Company data, Zelman & Associates Zelman & Associates 2

11 Percentage of Mortgage Market That Has Evaporated 100% 90% 90% 83% Median Average 80% 70% 60% 60% 50% 50% 40% 35% 38% 30% 28% 29% 20% 10% 10% 14% 0% Subprime Tightening Alt-A Tightening Prime Tightening Jumbo Tightening Total Market Tightening Source: Zelman & Associates Zelman & Associates 3

12 Percentage of Homeowners Free and Clear of Mortgage 45% 43% 44% 43% 41% 41% 40% 40% 39% 40% 38% 37% 35% 35% 30% 25% 20% Source: Census Bureau, Zelman & Associates Zelman & Associates 4

13 Mortgage Debt Outpaces Home Price Appreciation 60% 50% National Average Loan-to-Value Ratio Ignoring households that fully own their home, households with a mortgage had an estimated total loan-to-value ratio 82%, up from 54% in % 40% 30% 20% 10% 0% Source: Federal Reserve, Zelman & Associates Zelman & Associates 5

14 Delinquencies on the Rise 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% Source: Zelman & Associates Zelman & Associates 6 1Q80 1Q81 1Q82 1Q83 1Q84 1Q85 1Q86 1Q87 1Q88 1Q89 1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 Total Delinquency Rate

15 Record Foreclosure Levels Contributing to Inventory Glut 0.90% 0.80% National Foreclosures Started as % of Mortgages Outstanding 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 1Q07 1Q80 4Q80 3Q81 2Q82 1Q83 4Q83 3Q84 2Q85 1Q86 4Q86 3Q87 2Q88 1Q89 4Q89 3Q90 2Q91 1Q92 4Q92 3Q93 2Q94 1Q95 4Q95 3Q96 2Q97 1Q98 4Q98 3Q99 2Q00 1Q01 4Q01 3Q02 2Q03 1Q04 4Q04 3Q05 2Q06 Source: Zelman & Associates Zelman & Associates 7

16 The Banks Hold the Cards REO sales should further pressure home prices over the next several years. Given the significant increase in foreclosures, banks and mortgage originators are holding a substantial number of REO properties that they will have to sell to reduce the burden on their balance sheets. We estimate that foreclosures will have added 870,000 units to supply in 2007 and an estimated 1.2 million in 2008, representing approximately 30% of ending existing inventory based on our calculations. Given this record level of REOs, we expect institutions to auction these properties both at the local market level and possibly in large scale national auctions. REOs cost banks approximately 1-1.5% a month to carry per home. Therefore, these must sell units will continue to pressure existing home prices for several years. Zelman & Associates 8

17 Demographic Trend Points to Below Average Turnover 12.0% % of Households Moving Per Year 10.0% Median 8.0% 6.0% 4.0% 2.0% 0.0% E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E Source: Census Bureau, NAR, Zelman & Associates Zelman & Associates 9

18 Home Sales Expected to Trough in ,200 1, ,049-18% % % % 6,000 New Home Sale Forecast 5,708-8% 5, % 12% 4,000 17% 3,000 5,086-11% 4,098-19% 3,423-16% Existing Single-family Sale Forecast 4,417 4,147 7% 3,845 8% 12% 400 2, , E 2008E 2009E 2010E 2011E 2012E E 2008E 2009E 2010E 2011E 2012E Our new home forecast would equate to single-family housing starts of ~800,000 Source: Census Bureau, NAR, Zelman & Associates Zelman & Associates 10

19 Existing Inventory to Remain a Headwind 500 4, % 467 2% 431-8% % New Inventory Forecast % -9% 364 2% 3,700 3,200 2,700 2,200 2,920 22% 3,475 19% 3,704 7% 3,794 2% Existing Single-family Inventory 3,303-13% 2,827 2,683-14% -5% 300 1,700 1, E 2008E 2009E 2010E 2011E 2012E E 2008E 2009E 2010E 2011E 2012E Source: Census Bureau, NAR, Zelman & Associates Zelman & Associates 11

20 Home Price Bubble Points to Tough Times Ahead 80% 70% Aggregate Change in Home Prices in Real Terms 66% 60% 50% 40% 30% 20% 21% 20% 10% 0% -10% -20% -2% -12% -14% ?? Source: Zelman & Associates Zelman & Associates 12

21 Affordability Ratios Likely to Return to Normal Levels 40% 35% 30% 37% 34% 32% 29% 32% 30% 30% Monthly Principal & Interest as % of Income (assumes 20% down payment) 27% 27% 29% 33% 30% 31% 29% 31% 33% 36% 34% 36% 33% 25% 20% 15% 10% 5% 0% E Average Median Source: MBA, FHFB, NAR, Zelman & Associates Zelman & Associates 13

22 Lending Criteria Suggest ~20% Decline in New Prices 30-Year Fixed Interest Rate Allowable Mortgage Debt to Gross Income Ratio -22% 25% 26% 27% 28% 29% 30% 31% 32% 33% 6.0% -25% -22% -19% -16% -13% -10% -7% -4% -1% 6.1% -26% -23% -20% -17% -14% -11% -8% -5% -2% 6.2% -26% -24% -21% -18% -15% -12% -9% -6% -3% 6.3% -27% -24% -21% -18% -16% -13% -10% -7% -4% 6.4% -28% -25% -22% -19% -16% -14% -11% -8% -5% 6.5% -29% -26% -23% -20% -17% -14% -12% -9% -6% 6.6% -29% -27% -24% -21% -18% -15% -13% -10% -7% 6.7% -30% -27% -25% -22% -19% -16% -13% -11% -8% 6.8% -31% -28% -25% -23% -20% -17% -14% -12% -9% 6.9% -32% -29% -26% -23% -21% -18% -15% -12% -10% Source: MBA, FHFB, NAR, Zelman & Associates Zelman & Associates 14

23 4.5 Existing Home Prices Have Far Outpaced Incomes Median Existing Home Price Divided by Median Family Income Jan- 82 Jan- 83 Jan- 84 Jan- 85 Jan- 86 Jan- 87 Jan- 88 Jan- 89 Jan- 90 Jan- 91 Jan- 92 Jan- 93 Jan- 94 Jan- 95 Jan- 96 Jan- 97 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 Jan- 05 Jan- 06 Jan- 07 Source: NAR, Zelman & Associates Zelman & Associates 15

24 Summary of Home Price Expectations Current Nominal Change in Price Based on Duration Method Overvaluation 1 Year 2 Years 3 Years 4 Years 5 Years % of Aggregate Growth Reversed -25% -23% -20% -17% -15% -12% New Home Affordability -19% -17% -14% -11% -9% -6% National Existing Home Price to Income -25% -23% -20% -17% -15% -12% Regional Existing Home Price to Income -28% -26% -23% -20% -18% -15% National Existing Home Price to Rent -30% -28% -25% -22% -20% -17% Median -25% -23% -20% -17% -15% -12% Average -25% -23% -20% -18% -15% -12% Inflation Assumption 2.5% We expect home prices to decline through 2010 or 2011 Source: Zelman & Associates Zelman & Associates 16

25 Impairments as % Equity Likely to Exceed Prior Cycles 50% 45% 40% 36% 37% 40% 40% 42% 46% 35% 33% 32% 34% 34% 30% 29% 30% 31% 30% 25% 23% 20% 15% 10% 5% 0% BZH CTX DHI HOV KBH LEN MDC MHO NVR PHM RYL SPF TOL WCI Total Source: Company data, Zelman & Associates Zelman & Associates 17

26 Residential Investment as % of GDP 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% Source: BEA, Zelman & Associates Zelman & Associates 18 1Q50 3Q51 1Q53 3Q54 1Q56 3Q57 1Q59 3Q60 1Q62 3Q63 1Q65 3Q66 1Q68 3Q69 1Q71 3Q72 1Q74 3Q75 1Q77 3Q78 1Q80 3Q81 1Q83 3Q84 1Q86 3Q87 1Q89 3Q90 3Q93 1Q95 3Q96 1Q98 3Q99 1Q01 3Q02 1Q04 3Q05 1Q07 1Q92

27 Can The Consumer Keep on Ticking? 80% 60% LTM Change in Total Starts Correlation = 0.74 Change in Real Consumer Expenditures 10% 8% 40% 6% 4% 20% 2% 0% 0% -20% -2% -40% -4% -60% -6% 1Q70 3Q70 1Q71 3Q71 1Q72 3Q72 1Q73 3Q73 1Q74 3Q74 1Q75 3Q75 1Q76 3Q76 1Q77 3Q77 1Q78 3Q78 1Q79 3Q79 1Q80 3Q80 1Q81 3Q81 1Q82 3Q82 1Q83 3Q83 1Q84 3Q84 1Q85 3Q85 1Q86 3Q86 1Q87 3Q87 1Q88 3Q88 1Q89 3Q89 1Q90 3Q90 1Q91 3Q91 1Q92 3Q92 1Q93 3Q93 1Q94 3Q94 1Q95 3Q95 1Q96 3Q96 1Q97 3Q97 1Q98 3Q98 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 Source: BEA, Census Bureau, Zelman & Associates Zelman & Associates 19

28 Is Housing the Chicken or the Egg? ( ) 8.0% 30% Unemployment Starts 7.5% 20% 7.0% 10% 6.5% 0% 6.0% -10% 5.5% 5.0% -20% 4.5% -30% 4.0% -40% Jan-86 Apr-86 Jul-86 Oct-86 Jan-87 Apr-87 Jul-87 Oct-87 Jan-88 Apr-88 Jul-88 Oct-88 Jan-89 Apr-89 Jul-89 Oct-89 Jan-90 Apr-90 Jul-90 Oct-90 Jan-91 Apr-91 Jul-91 Oct-91 Jan-92 Apr-92 Jul-92 Oct-92 Source: BLS, Census Bureau, Zelman & Associates Zelman & Associates 20

29 Home Price Declines Impact Confidence and Spending $4, Home Improvement Spending Per Household Real Home Price Index $3, $3, $2, $2, $1,750 We expect home improvement spending per household to decrease 6% in 2007 to $3,550 and decrease 9% in 2008 to $3,240. Forecast 80 $1, E 2008E 2009E 2010E 2011E Source: Census Bureau, HIRI, Zelman & Associates Zelman & Associates 21

30 Improvement Spending to Decline 22% Per Household Peak-to- Peak-to-Trough Nominal Peakto-Trough Cycle Peak Turnover Peak Spending Trough Turnover Trough Spending Real Peak-to-Trough Decline Per Household Trough Inflation Household Growth Change % 26.6% 6.4% 1.5% % 11.6% 4.0% -4.1% E % 9.3% 2.3% -12.1% Source: Census Bureau, HIRI, BLS, Zelman & Associates Zelman & Associates 22

31 The Economy Benefited from Home ATM $1,000 $900 $ % $820 $800 $ % 9.4% $700 $600 % of PCE $ % $ % $500 $488 $400 $300 Home Equity Extraction ($ in billions) $286 $ % $ % 6.6% $ % $200 $100 $ % $124 $ % 2.6% $ % $ % $172 $ % 3.2% 3.7% $ E Source: Federal Reserve, Zelman & Associates Zelman & Associates 23

32 Use of Cash-Out and Home Equity Borrowing Proceeds Financial Investments 12% Non-mortgage Debt Reduction 31% Other Personal Consumption 20% Home Improvements 37% Source: Federal Reserve, Zelman & Associates Zelman & Associates 24

33 Added Leverage Implies Junk Credit 7.0X 6.0X 5.0X 4.0X 3.0X 2.0X 1.0X.0X Source: Federal Reserve, BEA, Zelman & Associates Zelman & Associates 25 Q1-60 Q3-61 Q1-63 Q3-64 Q1-66 Q3-67 Q1-69 Q3-70 Q1-72 Q3-73 Q1-75 Q3-76 Q1-78 Q3-79 Q1-81 Q3-82 Q1-84 Q3-85 Q1-87 Q3-88 Q1-90 Q3-91 Q1-93 Q3-94 Q1-96 Q3-97 Q1-99 Q3-00 Q1-02 Q3-03 Q1-05 Q3-06 Consumer Debt / EBITDA Ratio

34 Interest Coverage Hovering at Trough Level 7.0X Consumer Interest Coverage Ratio 6.0X 5.0X 4.0X 3.0X 2.0X 1.0X.0X Q1-60 Q3-61 Q1-63 Q3-64 Q1-66 Q3-67 Q1-69 Q3-70 Q1-72 Q3-73 Q1-75 Q3-76 Q1-78 Q3-79 Q1-81 Q3-82 Q1-84 Q3-85 Q1-87 Q3-88 Q1-90 Q3-91 Q1-93 Q3-94 Q1-96 Q3-97 Q1-99 Q3-00 Q1-02 Q3-03 Q1-05 Q3-06 Source: Federal Reserve, BEA, Zelman & Associates Zelman & Associates 26

35 Many Moving Parts in Non-Residential Construction Amusement & Recreation 5.2% Lodging 8.5% Public Safety 2.5% Religious 1.7% Educational 24.9% Manufacturing 9.1% Healthcare 11.1% Commercial 20.2% Office 16.6% Source: Census Bureau, Zelman & Associates Zelman & Associates 27

36 Hotel Demand Has Been Most Robust 80% 70% 67% Trailing 3-Month Growth in Non-residential Construction 60% 50% 40% 30% 29% 20% 20% 18% 17% 14% 17% 10% 10% 8% 0% -10% -5% Lodging Public Safety Office Amusement & Recreation Educational Healthcare Manufacturing Commercial Religious Total Source: Census Bureau, Zelman & Associates Zelman & Associates 28

37 Non-Residential Construction Declines Set to Catch Up? 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Residential Investment Non-residential Investment - (lagged 16 months) -25% Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Source: Census Bureau, Zelman & Associates Zelman & Associates 29

38 Prior Cycles Point Toward Double-Digit Decrease $450,000 $400,000 Non-residential Building Construction, 2007 Dollars in Thousands November 2007 = $420 billion $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Jan-70 Jan-72 Jan-74 Jan-76 Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Source: Census Bureau, Zelman & Associates Zelman & Associates 30

39 Disclosures Zelman & Associates Ratings System: BUY: The security is deemed under-priced by at least 10-15% relative to fair value. HOLD: The security is priced within approximately 10% of fair value. SELL: The security is deemed over-priced by at least 10-15% relative to fair value. Zelman & Associates Distribution of Investment Ratings as of 12/31/2007: BUY: (33.3%; 0% Investment Banking Clients) HOLD: (47.6%; 0% Investment Banking Clients) SELL: (19.1%; 0% Investment Banking Clients) Zelman & Associates Research Disclosures as of January 4, 2008 Beazer Homes (BZH) None Centex (CTX) None D.R. Horton (DHI) None Hovnanian Enterprises (HOV) None KB Home (KBH) None Lennar (LEN) None M.D.C. Holdings (MDC) None M/I Homes (MHO) None NVR Inc (NVR) None Pulte Homes (PHM) None Ryland Group (RYL) None Standard Pacific (SPF) None Toll Brothers (TOL) None WCI Communities (WCI) None Zelman & Associates 31

40 Disclosures Research Disclosure Legend 1.In the past 12 months, Zelman & Associates or its affiliates have received compensation for investment banking services from the subject company. 2.In the past 12 months, Zelman & Associates, its partners, affiliates, officers or directors, or any analyst involved in the preparation of this report has provided services to the subject company for remuneration. 3.Zelman & Associates and/or its affiliates expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months. 4.The research analyst, a member of the research analyst s household, any associate of the research analyst, or any individual directly involved in the preparation of this report, has a long position in the shares or derivatives of the subject company. 5.The research analyst, a member of the research analyst s household, any associate of the research analyst, or any individual directly involved in the preparation of this report, has a short position in the shares or derivatives of the subject company. 6.A member of the research analyst s household serves as an officer, director or advisory board member of the subject company. 7.As of the month end immediately preceding the date of publication of this report, or the prior month end if publication is within 10 days following a month end, Zelman & Associates and its affiliates, in the aggregate, beneficially owned 1% or more of any class of equity securities of the subject company. 8.A partner, director, officer, employee or agent of Zelman & Associates, or a member of his/her household, is an officer, director or advisor, board member of the subject company and/or one of its subsidiaries, and such person s name is disclosed below. 9.Other: Analyst Certification Each analyst of Zelman & Associates whose name appears on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst s personal views about any and all of the securities or issuers discussed herein that are within such analyst s coverage universe and (ii) no part of the research analyst s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst in the research report. Copyright Zelman & Associates All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under copyright to Zelman & Associates. None of the material, nor its content, nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the prior express written permission of Zelman & Associates. Zelman & Associates 32

41 David Zelman Mr. Zelman is a Managing Director, President, and the Director of Sales of the Firm. He was born in He received a BS in Marketing from Ohio State University (1984) and earned an MBA from New York University (1991). In connection with his responsibilities at ZP, Mr. Zelman has obtained the following registrations: Series 7, 24 and 63. Mr. Zelman began his career in 1984 in office equipment sales with Ohio Business Machines. He then was a Financial Consultant with Merrill Lynch from 1985 to 1986, where he participated in the company s training program. From 1986 to 1987, Mr. Zelman was an institutional equity sales trader with Bear Stearns, and from 1987 to 1989 an institutional equity salesman with McDonald & Company. From 1991 to 1997, Mr. Zelman was a Senior Vice President in institutional equity sales with Salomon Brothers where he served as a Team Captain coordinating and supervising Salomon s relationship with large institutional investors, including managing and developing new salespeople. From 1997 to 1998, Mr. Zelman was the Director of institutional equity sales with Toronto Dominion Securities where he managed the firm s U.S. sales effort. Mr. Zelman also was a member of the senior management team developing and implementing the firm s entry into the U.S. equity business. From 1999 to 2000, Mr. Zelman was a Director in institutional equity sales with Lehman Brothers, where he coordinated and supervised Lehman s relationship with a major institutional investor, including managing and developing new salespeople. In the various securities industry roles outlined above, Mr. Zelman acquired extensive knowledge of, and experience with, regulations concerning the marketing of investment research as well as the syndication process of primary and secondary equity offerings to institutional investors. Moreover, beyond his own responsibilities in institutional equity sales, Mr. Zelman oversaw the training of new salespeople and ensured that all firm compliance procedures relating to the interface with institutional clients were rigorously adhered to. Mr. Zelman is also presently engaged in extensive community service work, including serving as the Chairman of the Cleveland Federation Public Education Initiative where he is responsible for overseeing approximately 200 volunteers tutoring children in the Cleveland city school system and supervises the professional staff implementing this program. Zelman & Associates 32

42 Going Green in 2008 How to Make Green in a Changing Market Place Economic and Real Estate Outlook

43 Top Google Searches in China in 2007

44 Top 2007 China Searches QQ Instant Messaging Company-Car Name China Merchant Bank 股票 性 STOCK SEX

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47 Time Bomb Loans

48 Fed Funds & 10-Year T-Bond Rates Percent Correlation Since '00 '01 '02 '03 '04 '05 '06 '07 Fed Funds 10-Year T-Bonds

49 Oil Prices & 30-Year Residential Mortgage Interest Rates August 2007 Dollars Oil Prices $120 Interest Rates % 20 $100 $80 $60 $40 $20 $ '02 ' Source: Stewart Title Guaranty Company

50 Oil Prices & Exchange Rates $US Per Euro Oil in August 2007 Dollars Oil Prices Oil Price $80 $70 $60 What Caused This? Dollars Per Euro $1.60 $1.40 $50 $40 $30 $20 '02 '03 '04 '05 '06 '07 $1.20 $1.00 $0.80

51 Weakened Dollar Causes Killer D s

52 Which is greater the trade deficit or the Federal deficit?

53 US Balance of Trade Inflation Adjusted April 2007 $ Dollars $ Billions, Prior 12 Months $0 -$200 -$400 -$600 -$800 -$1, '01 '03 '05 '07

54 What was the last year that there was at least one month that the US Gov t ran a surplus? Jan 2007

55 Federal Budget Surplus (Deficit) $ Billions $250.0 $150.0 $50.0 -$50.0 -$ '00 '01 '02 '03 '04 '05 '06 '07 -$ $ $ Forecast Based on Current Trend

56 Up 50 to 100 Basis Points By Jan 09 Ted s 2008 Forecast

57 US Job Growth Rates December Comparison CAGR 1 Year 0.92% 2 Years 3 Years 5 Years 10 Years 1.32% 1.52% 1.24% 1.07% 0.00% 0.50% 1.00% 1.50%

58 US Job Growth Percent Change from Same Month Prior Year 2.0% 0.0% '00 '01 '02 '03 '04 '05 '06 '07-2.0% Million Net New Jobs in Past 12 Months

59 US Unemployment Rate Not Seasonally Adjusted 16 Years and Older Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

60 Cleveland Employment Growth November Comparison CAGR 1 Year 2 Years 3 Years 5 Years -0.28% 0.17% 0.06% 0.06% 0.00% 10 Years -1.00% 0.00% 1.00% 2.00% 3.00% 4.00%

61 Cleveland Job Growth Percent Change from Same Month Prior Year 4.0% 2.0% 0.0% -2.0% '00 '01 '02 '03 '04 '05 '06 '07-4.0% US Cleveland 1,800 Net New Additional Jobs in the Past 12 Months

62 Residential Building Permits Cleveland-Lorain-Elyria Single Multi Year Family Family Total 97 5,733 1,123 6, ,290 1,168 7, ,841 1,077 7, ,184 1,219 7, , , , , , , , , , , , ,421 07p 3, ,181

63 Jobs Per Dwelling Normal markets typically create 1.25 to 1.5 net new jobs per new dwelling unit. Cleveland Last 12 Months New Jobs 1,800 Residential Permits 4,181 New Jobs Per Dwelling 0.43 OVER BUILDING

64 US Population Outlook Year Population , , , , , ,854 Thousands

65 Cleveland Population Change Q to Q Percent 38 th Worst in the Country

66 Cleveland Industrial Space

67 Cleveland Suburban Office Space

68 Cleveland Downtown Office Space

69 2008 Economic Concerns Some Bubbles Do Exist Housing Sales Time Bomb Loans Continued Stagnant Cold War II Terrorists Inflation (and Cap Rates) Pandemic (bird flu..) Tax Cut Clock Ticking. Energy: US Imports 63 Percent of Oil Election Year With Blood in the Water

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72 California