Q QD C Q DB Q OMMERCIAL / MUL 1 1 B TIFAMILY QUARTERLY DATABOOK Q mba.org/research

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1 QDB QD Q 1 B COMMERCIAL / MULTIFAMILY QUARTERLY DATABOOK Q mba.org/research

2 2015 Mortgage Bankers Association (MBA). All rights reserved, except as explicitly granted M Street NW, 5th Floor, Washington, DC (202) This data is provided by MBA solely for use as a reference. No part of the survey or data may be reproduced, stored in a retrieval system, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without MBA s prior written consent. Disclaimer Although the MBA takes great care in producing this and all related data products, the MBA does not guarantee that the information is accurate, current or suitable for any particular purpose. The referenced data are provided on an as is basis, with no warranties of any kind whatsoever, either express or implied, including, but not limited to, any warranties of title or accuracy or any implied warranties of merchantability or fitness for a particular purpose. Use of the data is at the user s sole risk. In no event will MBA be liable for any damages whatsoever arising out of or related to the data, including, but not limited to direct, indirect, incidental, special, consequential or punitive damages, whether under a contract, tort or any other theory of liability, even if MBA is aware of the possibility of such damages

3 COMMERCIAL / MULTIFAMILY QUARTERLY DATABOOK Q1 2015

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5 First Quarter 2015 Selected Charts Month-over-month Change in At-Place Employment Thousands of jobs Treasury Yield Curve Percent Source: Bureau of Labor Statistics Source: Federal Reserve Board Ten-year Treasury and 10-year Swaps Percent Multifamily Permits, Starts and Completions Thousands, Seasonally adjusted annual rate Source: Federal Reserve Board Source: Census Bureau

6 Commercial/Multifamily Mortgage Bankers Originations Index 2001 quarterly average = 100 Source: MBA The Commercial Real Estate/ Multifamily Finance Quarterly Data Book is a quarterly compendium of the latest MBA research on the commercial/multifamily finance markets. The latest version of the Data Book can be downloaded from the MBA website at: mba.org/crefresearch Commercial/Multifamily Property Sales $Billions Price Indices December 2000 = 100 Source: Real Capital Analytics Value of Construction Put-In-Place Source: MBA, Moody's Investors Services, National Council of Real Estate Investment Fiduciaries, and Green Street Advisors Average Vacancy Rates By Property Type Source: U.S. Census Bureau Source: REIS

7 MBA Commercial Real Estate/ Multifamily Finance Quarterly Data Book First Quarter 2015 June 30, 2015 SELECTED CHARTS... 5 TABLE OF CONTENTS Introduction... 9 Economic Commentary MBA Economic Forecast Treasury Yields and Bank Rates Employees on Non-farm Payrolls Monthly Retail Sales Owner- and Renter-Occupied Housing Units COMMERCIAL/MULTIFAMILY FINANCE Extract of Commercial Real Estate Comments from The Federal Reserve Board s Beige Book New Inventory Change Less Net Absorption for Commercial/Multifamily Properties Average Rents and Vacancy Rates at Commercial/Multifamily Properties Multifamily Building Permits, Starts and Completions Value of Construction Put-In-Place Commercial/Multifamily Property Sales Volume Commercial/Multifamily Prices and Capitalization Rates Commercial/Multifamily Property Price Indices Quarterly Mortgage Banker Originations Survey Commercial Mortgage Backed Securities (CMBS) and Commercial Real Estate Collateralized Debt Obligation (CRE CDO) Issuance American Council of Life Insurers (ACLI) Commitment Volumes COMMERCIAL MORTGAGE DEBT & REAL ESTATE SECURITIES Commercial/Multifamily Mortgage Debt Outstanding Commercial/Multifamily Mortgage Delinquencies by Investor Group Commercial Mortgage-Backed Securities (CMBS) Outstanding Commercial Mortgage Backed Securities (CMBS) Spreads Commercial/Multifamily Mortgage Servicers, Year-End RECENT MBA COMMERCIAL/MULTIFAMILY RESEARCH... 98

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9 1. Outlook Introduction THE ECONOMY The United States gross domestic product - the measure of the value goods and services produced - shrank at a real, seasonally adjusted annual rate of 0.2 percent in the first quarter. Most economists chalk the decline up to a series of temporary factors including the rapid appreciation of the US dollar, lower exports, bad weather as well as trade and inventory disruptions on the West Coast. (There is also evidence that Q1 GDP figures have systematically been pushed downward by reporting problems.) Data on retail sales, factory orders, payroll growth, and unemployment claims appear to paint a stronger picture of growth. During the first quarter interest rates mirrored the low GDP numbers, with the ten-year Treasury averaging 1.88 percent in January, 1.98 percent in February and 2.04 percent in March. Rates have tipped upward more recently, averaging 2.20 percent in May and most observers expect the Federal Reserve to begin raising short-term rates later this year. PROPERTY MARKETS With relatively little new commercial real estate space coming online, economic growth has continued to filter through and tighten fundamentals for most property types. Vacancy rates for office properties fell from 16.9 percent in Q to 16.6 percent in Q1 2015, and retail vacancy rates fell from 10.4 percent to 10.1 percent. Multifamily vacancy rates, which have been extremely low, rose slightly from 4.1 percent to 4.2 percent. The tight and tightening markets have supported rents. On a year-over-year basis, average asking rents rose 1.9 percent for retail properties, 3.2 percent for office properties and 3.3 percent for apartment properties. In response to the tightening markets, new commercial and multifamily construction activity has picked up, but for most property types remains at relatively low levels. The value of new office construction put-in-place in April doubled from its recession-low, but remains 25 percent lower than its prerecession levels. Construction of "commercial" properties, which includes retail and warehouse, is 78 percent higher than recession lows, but still 32 percent below prerecession levels. Construction of manufacturing properties has regained prerecession levels. Multifamily construction has also surged. The value of multifamily construction put-in-place in April was three times its recession-lows and just 7 percent below pre-recession levels. Multifamily starts are at a pace that should easily exceed 300,000 units this year, and in May, the pace of multifamily permitting surged to an annual pace of 557,000 units. Except for three months during the mid- 1980s, the number of multifamily units under construction is at its highest level since the mid-1970s. Supply is clearly reacting to tight market conditions. SALES ACTIVITY Property sales activity was brisk in the first quarter, with $111 billion of transactions among the major property types, 45 percent more than traded in the first quarter of Property transactions rose 5 percent for retail properties, 43 percent for office properties, 68 percent for apartment properties and 97 percent for industrial properties. With strong investor demand, price per square foot increased and cap rates decreased for every major property type. Average cap rates for apartments fell from 6.1 percent in the fourth quarter to 5.9 percent in the first quarter, for retail fell from 6.6 percent to 6.4 percent, for office fell from 6.8 percent to 6.5 percent and for industrial fell from 7.0 percent to 6.9 percent. 9

10 Property prices have now, on average, more than regained the losses from the recession. During the first quarter, the Moody's/Real Capital Analytics commercial property price index rose 4.7 percent and the NCREIF index rose 0.2 percent. ORIGINATIONS In terms of mortgage originations, the yearend momentum from 2014 carried into the first quarter of 2015, with year-over-year growth in lending for every major property type. Multifamily lending was a key driver of first quarter originations and the GSEs drove multifamily. The GSEs' multifamily originations increased by 306 percent compared to Q1 2014, marking their second highest quarter on record, while multifamily originations for other capital sources appear to have remained flat or declined. First quarter 2015 commercial and multifamily mortgage loan originations were 49 percent higher than during the same period last year. Following the usual seasonal pattern, first quarter 2015 originations saw a 26 percent decrease from the fourth quarter of Increases in originations for industrial and multifamily properties led the overall increase in commercial/multifamily lending volumes when compared to the first quarter of The increase included a 269 percent increase in the dollar volume of loans for industrial properties, a 71 percent increase for multifamily properties, a 53 percent increase for office properties, a 51 percent increase for hotel properties, and a five percent increase in retail property loans. Health care property loans were essentially unchanged year-overyear. Among investor types, the dollar volume of loans originated for Government Sponsored Enterprises (GSEs - Fannie Mae and Freddie Mac) increased by 306 percent from last year's first quarter. There was a 113 percent increase for Commercial Mortgage Backed Securities (CMBS) loans, a 51 percent increase for life insurance company loans, and a one percent decrease in dollar volume for commercial bank portfolio loans. MORTGAGE DEBT Strong first quarter mortgage originations boosted the level of commercial and multifamily mortgage debt outstanding. Commercial/multifamily mortgage debt outstanding increased by $40.4 billion (1.5 percent) in the first quarter of 2015, as all four major investor groups increased their holdings, bringing total debt to $2.68 trillion. Multifamily mortgage debt outstanding rose to $989 billion, an increase of $20.6 billion, or 2.1 percent, from the fourth quarter of Commercial banks continue to hold the largest share, $985 billion, or 37 percent of the total. CMBS, CDO and other ABS issues are the second largest holders, with $534 billion, or 20 percent of the total. Agency and GSE portfolios and MBS hold $422 billion, or 16 percent of the total, and life insurance companies hold $363 billion, or 14 percent of the total. In the first quarter of 2015, banks and thrifts saw the largest increase in dollar terms in their holdings -- an increase of $18.4 billion, or 1.9 percent. Agency and GSE portfolios and MBS increased their holdings by $10.0 billion, or 2.4 percent, and life insurance companies increased their holdings by $5.2 billion, or 1.4 percent. Private pension funds saw the largest decrease at $728 million, or down 4.0 percent. The $20.6 billion increase in multifamily mortgage debt outstanding between the fourth quarter of 2014 and the first quarter of 2015 represents a 2.1 percent increase. In dollar terms, agency and GSE portfolios and MBS saw the largest increase, $10.0 billion, or 2.4 percent. Commercial banks increased their holdings of multifamily mortgage debt by $8.0 billion, or 2.7 percent. State and local government increased by $3.9 billion, or 4.4 percent. CMBS, CDO and other ABS issues saw the largest decline in their holdings of multifamily mortgage debt, by $2.1 billion, or down 2.8 percent. DELINQUENCIES Commercial and multifamily mortgage performance continues to improve. Increasing property incomes, rising property values and a strong finance market are 10

11 working together to push delinquency rates lower. Based on the unpaid principal balance (UPB) of loans, delinquency rates for each group at the end of the first quarter were as follows: Life company portfolios (60 or more days delinquent): 0.06 percent, a decrease of 0.02 percentage points from the fourth quarter of 2014; Freddie Mac (60 or more days delinquent): 0.03 percent, a decrease of 0.01 percentage points from the fourth quarter of 2014; Banks and thrifts (90 or more days delinquent or in non-accrual): 1.03 percent, a decrease of 0.11 percentage points from the fourth quarter of 2014; CMBS (30 or more days delinquent or in REO): 5.17 percent, a decrease of 0.19 percentage points from the fourth quarter of 2014; Fannie Mae (60 or more days delinquent): 0.09 percent, an increase of 0.04 percentage points from the fourth quarter of

12 Economic Commentary Still Optimistic About Growth for 2015 June 2015 The BEA s second estimate of GDP growth for the first quarter showed a contraction of 0.7 percent, a significant downward revision from the advance estimate of 0.2 percent growth. However, data on retail sales, factory orders, payroll growth, and unemployment claims seem to paint a stronger picture of growth. Even if the US economy did contract in the first quarter, we are not expecting that weakness to persist through the rest of The first quarter was impacted most significantly by the rapid appreciation of the US dollar, lower exports, as well as trade and inventory disruptions on the West Coast. These are likely temporary hurdles to growth that will dissipate over the course of While weak retail sales did provide some cause for concern from December through February, the data indicated encouraging increases in both March and May. This was positive sign for overall growth as 60 to 70 percent of GDP consists of consumer spending on goods and services. Additionally, continued strength in the job market will support consumer spending through increased job prospects and upward pressure on wages and compensation. Our forecast is that growth in consumer spending will continue to outpace and drive broader US growth through Interest rates have been low for some time, mainly on concerns about economic growth abroad and aggressive monetary policy moves by the European Central Bank and the Bank of Japan. However, the 10-year Treasury yield jumped up over the last few weeks in part because German bond yields have improved, due to signs of growth and increasing inflation in Europe. We expect rates to increase through the course of the 2015, with the 10-year Treasury yield reaching around 3 percent by the middle of Rates are likely to be quite volatile through the remainder of the year given the uncertainty regarding the Fed s path going forward. The FOMC is still awaiting more decisive signs of an economic recovery, according to the most recent FOMC statement following the committee s June meeting and Chairwoman Yellen s press conference remarks. While we still expect a September 2015 lift off in the fed funds rate, Chairwoman Yellen communicated that any rate increases will be gradual in nature, and that the committee remains data dependent and will not pursue a rate increase schedule that is mechanical in nature. Our forecast for mortgage originations remains the same as last month. Refinances are expected to be $551 billion in 2015, compared to $484 billion in Purchase originations are expected to increase to $730 billion in 2015 from $638 billion in The total is expected to be $1.28 trillion in mortgage originations, compared to $1.12 trillion in As more data have been released, it appears that the weakness in payrolls that we saw in March was an anomaly. Payroll growth in April and May averaged 250,000 jobs per month, and in the JOLTS data, job openings continue to trend upward, reaching the highest number of openings in the survey s history. US nonfarm payrolls increased by 280,000 jobs in May and the unemployment rate ticked up to 5.5 percent as the labor force participation increased a little as well. Potentially better and more job opportunities likely brought some workers back into the labor force, which caused the increase in participation. We expect job growth at a pace above 200,000 jobs per month for 2015, and that the unemployment rate will decrease slowly to around 5.2 percent by the end of the year. Similar improvements in 2016 are expected to bring the unemployment rate below 5.0 percent in The manufacturing sector, as measured by the ISM s series of diffusion indexes, is still 12

13 showing growth, but at levels lower than at the same point a year ago. New orders have picked up over the last two months, but the production and employment components remain weak, with the employment index dipping into contractionary territory in April. Similarly, the Federal Reserve s industrial production index has been on a declining trend since December, primarily driven by a slide in mining production. Capacity utilization has also fallen, declining from a recent high of 79.8 percent in November 2014 to 78.1 percent in May 2015, the lowest level since January Shipments of nondefense capital goods excluding aircraft, which are a proxy of current business fixed investment in the GDP calculations, increased in the Mach and April, a sign that businesses have resumed some capital investment after a slow start to the year. However, new orders for these core capital goods remain somewhat muted, a sign that businesses remain cautious about their outlook for the coming months. Overall inflation continues to be held down by low fuel prices. Although fuel prices began to firm slightly over the past two months, they are still 25 percent lower than the same month a year ago. Core inflation, which excludes food and energy, increased 1.7 percent from a year ago in May, signaling that prices are not quite as weak as the headline number suggests. Growth in the shelter component has leveled off a little in recent months, but is still high in terms of its year over year growth. We expect overall prices to stabilize over the next year and edge back up to the 2 percent mark during Our projection for overall US economic growth is 1.8 percent in 2015, mostly held down by the weak first quarter, and 2.5 percent in 2016, which will be driven mainly by strong consumer spending as wages increase. Housing will also likely provide a cushion for growth if we see new household formation, but business fixed investment is likely to remain fairly restrained. Net exports will remain a drag to growth as the US dollar maintains its current strength and we see more divergence from other currencies, especially those of European countries. Housing starts in May dipped after a strong showing in April, however, permits picked up for both single and multifamily units, another sign that more potential growth is around the corner. At 680,000 units (SAAR) in May, single family housing starts continue to run at a pace well below the historical average of just over 1 million units. Multifamily starts dropped to a pace of 356,000 units, which is also below the historical average of 417,000 units. Single family starts and housing in general should begin to pick up again as economic growth continues at its current pace and as wage pressures increase, leading to increased household formation. Household formation, especially owner households, is one of the most significant drivers of purchase activity in the housing market. We saw an increase in total households toward the end of 2014 and expect to see increasing growth in owner households during the balance of 2015 and into In the mortgage market, recent rate volatility has produced similar swings in mortgage application activity. Following a period of low rates earlier in 2015, refinance applications have predominantly fallen since rates have started to increase in recent months. Even though mortgages rates, at 4.22 percent in the most recent week s survey, are still low by historical standards, they have increased by almost 40 basis points in the last two months. This has resulted in a 30 percent drop in refinance applications over the same period of time. With fewer borrowers who are in the money with an incentive to refinance, and a portion of borrowers still repairing credit and home equity, we expect refinance activity will continue to decline. Purchase application growth has not been spectacular, but continues to increase on a year over year basis, increasing at an average rate of 14 percent compared to the same week last year for the past two months. Importantly, purchase applications for loan sizes between $150,000 and $417,000 (the conforming loan limit) have increased sharply relative to last year. We still see contraction in the bottom tier of purchase loan amounts (less than $150,000), however, which historically accounts for around 35 percent of all purchase activity. 13

14 We estimate a total of $1.28 trillion in mortgage originations for 2015, compared to $1.12 trillion in Purchase originations will drive the increase, increasing to $730 billion in 2015 from $638 billion in Refinances are expected to be to $551 billion in For 2016, we expect $791 billion in purchase originations. However, rates will likely continue to rise and cause refinances to decline to $379 billion for a total of $1.17 trillion in origination volume in The chart below shows historical mortgage originations estimates as well as our forecast, and also reveals 2014 as the first purchase dominated market since the mid-2000s, with that trend likely to continue through 2015 and

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16 TREASURY YIELDS AND BANK RATES Federal Reserve Statistical Release H-15 Treasury Yield Curve Month 1-Year 3-Year 5-Year 7-Year 10-Year May-15 Dec-14 Dec-13 Dec-12 Dec-11 Dec-10 Ten Year Treasury and Ten Year Swaps Jul-00 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-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan Year Treasury 10 Year Swaps Source: Federal Reserve Board H-15 Report Yields on actively traded issues adjusted to constant maturities. 16

17 TREASURY YIELDS AND BANK RATES Federal Reserve Statistical Release H-15 3-Month 1-Year 3-Year 5-Year 7-Year 10-Year 10-Year Treasury Treasury Treasury Treasury Treasury Treasury Swap Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Change in Rate May-14 to May-15 (0.01) (0.05) (0.19) (0.36) (0.39) Source: Federal Reserve Board H-15 Report Yields on actively traded issues adjusted to constant maturities. 17

18 EMPLOYEES ON NONFARM PAYROLLS Number of Employees on Nonfarm Payrolls Seasonally Adjusted, Thousands of Employees Year-over-year Change 6,000 4,000 2,000 - (2,000) (4,000) (6,000) (8,000) Total Non-Farm Service Producing Goods Producing Government Month-over-month Change (200) (400) (600) (800) (1,000) Service Producing Goods Producing Government Source: Bureau of Labor Statistics 18

19 EMPLOYEES ON NONFARM PAYROLLS Number of Employees on Nonfarm Payrolls Seasonally Adjusted, Thousands of Employees Private Private Service Goods Government Total Producing Producing Nonfarm Dec ,998 21,976 22, ,350 Dec ,895 20,322 22, ,773 Dec ,411 17,792 22, ,685 Dec ,689 17,796 22, ,751 Dec ,638 18,243 21, ,831 Dec ,659 18,537 21, ,088 Dec ,754 18,894 21, ,476 Dec ,201 19,489 21, ,592 May ,624 19,156 21, ,621 Jun ,862 19,190 21, ,907 Jul ,052 19,243 21, ,156 Aug ,227 19,277 21, ,369 Sep ,424 19,315 21, ,619 Oct ,608 19,349 21, ,840 Nov ,946 19,425 21, ,263 Dec ,201 19,489 21, ,592 Jan ,352 19,540 21, ,793 Feb ,593 19,560 21, ,059 Mar ,730 19,540 21, ,178 Apr ,915 19,561 21, ,399 May ,171 19,567 21, ,679 Percent change May 2014 to May % 2.1% 0.5% 2.2% Change Year-over-year Dec ,280 (429) 288 1,139 Dec 2008 (2,103) (1,654) 180 (3,577) Dec 2009 (2,484) (2,530) (74) (5,088) Dec ,278 4 (216) 1,066 Dec , (316) 2,080 Dec , (58) 2,257 Dec , (64) 2,388 Dec , ,116 Month-over-month May (2) 236 Jun Jul Aug Sep Oct Nov Dec Jan (1) 201 Feb Mar (20) Apr May Source: Bureau of Labor Statistics 19

20 MONTHLY RETAIL SALES Seasonally Adjusted By Kind of Business, $millions 350, , , , , ,000 50,000 0 Retail Sales, Excluding Motor Vehicles and Parts Dealers 60,000 50,000 40,000 30,000 20,000 10,000 0 General Merchandise Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Building Materials 60,000 50,000 40,000 30,000 20,000 10,000 Food and Beverage Stores Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Clothing & Accessories 30,000 25,000 25,000 20,000 15,000 10,000 5,000 20,000 15,000 10,000 5, Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Health and Personal Care Stores Source: U.S. Census Bureau 20

21 MONTHLY RETAIL SALES Seasonally Adjusted By Kind of Business, $millions Total excludes motor vehicle and parts dealers Selected Businesses General Food & Building Health & Clothing & Total % Change Merchandise Beverage Materials Personal Accessories Year- Over- Year , , , , ,417 2,420, % , , , , ,393 2,596, % , , , , ,190 2,799, % , , , , ,978 2,974, % , , , , ,601 3,086, % , , , , ,909 3,146, % , , , , ,506 2,943, % , , , , ,655 3,076, % , , , , ,310 3,290, % , , , , ,053 3,413, % , , , , ,642 3,506, % , , , , ,682 3,594, % Month- over- Month Apr 55,907 54,856 26,498 24,757 20, , % May 55,799 54,779 26,538 25,047 20, , % Jun 55,778 55,381 26,843 25,380 20, , % Jul 55,890 55,297 26,691 25,357 20, , % Aug 56,127 55,505 26,859 25,515 20, , % Sep 55,868 55,714 26,763 25,589 20, , % Oct 55,875 55,848 26,897 25,587 20, , % Nov 56,135 56,030 27,292 25,700 21, , % Dec 55,843 56,322 27,104 25,900 20, , % Jan 56,055 56,228 27,444 25,813 20, , % Feb 54,709 56,217 26,902 25,805 20, , % Mar 55,480 56,078 27,513 25,870 21, , % Apr 55,180 56,003 27,595 26,069 21, , % Percent change Apr to Apr -1.3% 2.1% 4.1% 5.3% 1.2% -1.4% Source: U.S. Census Bureau 21

22 Change in Owner- and Renter-Occupied Housing Units Thousands of Units Year-over-year Change 2,500 2,000 1,500 1, (500) (1,000) (1,500) Change in Renter-occupied Units Change in Owner-occupied Units Quarter-over-quarter Change 1,500 1, (500) (1,000) Change in Renter-occupied Units Change in Owner-occupied Units Source: MBA, U.S. Census Bureau and Haver Analytics 22

23 Owner- and Renter-Occupied Housing Units Thousands of Units at End-of-period Number of Occupied Units Year-over-year Change Total Owner Renter Total Owner Renter ,691 59,491 33, ,980 60,552 33,428 1,289 1, ,717 61,415 34,302 1, ,797 62,152 34,645 1, ,545 63,520 34, ,368 (620) ,421 64,416 34, (20) ,743 65,531 34,212 1,322 1, ,115 67,158 33,957 1,372 1,626 (254) ,330 68,477 33,853 1,215 1,319 (104) ,646 70,010 33,635 1,315 1,533 (218) ,698 71,230 33,468 1,053 1,220 (167) ,759 72,187 33,572 1, ,505 73,091 33, (158) ,735 75,233 33,502 2,230 2, ,281 76,119 34,162 1, ,096 76,544 34, ,724 75,720 36, (824) 1, ,823 75,465 36, (255) ,485 75,537 36, ,331 75,342 37, (195) 1, ,801 75,126 38, (216) ,636 74,950 39, (176) 1, ,992 74,960 40, ,647 74,606 42,041 1,654 (354) 2,008 Quarter-over-quarter Change Q1 113,803 74,392 39,411 2 (734) Q2 113,845 74,600 39, (165) Q3 114,298 74,815 39, Q4 114,636 74,950 39, Q1 114,248 74,255 39,992 (388) (695) Q2 114,669 74,534 40, Q3 114,769 74,897 39, (263) Q4 114,992 74,960 40, Q1 114,762 74,404 40,357 (230) (556) Q2 115,127 74,458 40, Q3 115,310 74,240 41, (218) Q4 116,647 74,606 42,041 1, Q1 116,240 74,018 42,222 (407) (588) 181 Source: MBA, U.S. Census Bureau and Haver Analytics 23

24 2. Commercial/Multifamily Finance Environment Extract of Commercial Real Estate Comments from the Federal Reserve Board s Beige Book June 3, 2015 Prepared at the Federal Reserve Bank of Dallas based on information collected on or before May 22, This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials. NATIONAL SUMMARY Apartment demand was strong in the Dallas District, and held steady in the Richmond District. Tight inventories and strong sales continued to push up prices, except for at the high end of the Manhattan market, according to New York's report. Condo sales rose in the Richmond District, but declined in the Boston District. Rents and prices increased in districts that commented on them, and one San Francisco District contact said that high apartment prices have led young buyers to consider single-family homes. Strength in multifamily construction was reported in the Cleveland, Atlanta, and San Francisco Districts, and the Richmond District continued to experience steady apartment building activity. Commercial real estate leasing and construction activity improved in most districts, and outlooks were optimistic. The New York District reported a strengthening industrial market and steady office and retail leasing demand. In the Boston District, demand for office space held steady at a decent to solid pace, except for in Hartford where demand was slow. The Dallas District continued to see active industrial, retail, and office leasing activity, with the exception of the Houston office market. Both commercial real estate development and leasing activity increased across the San Francisco District, mostly fueled by growth in the technology industry. Contacts in the St. Louis District noted a tight office market for Class A space, and continued commercial and industrial construction. Commercial building increased in the Chicago District driven by demand for industrial and office space, and new hotel and office development in downtown Chicago was compelling retailers to relocate. The Cleveland and Atlanta Districts noted increased construction backlogs, and shortages of skilled labor remained a constraint on construction activity in some districts, such as Boston, Cleveland, and San Francisco. FIRST DISTRICT BOSTON Reports from commercial real estate contacts in the First District are mixed. A Hartford contact had expected leasing activity to improve with the arrival of spring, but he reports that the improvement failed to materialize and leasing activity remains slow in each of the office, retail, and industrial sectors. However, Greater Hartford's investment sales market is experiencing robust demand and steady transaction volume. In Greater Boston, office leasing activity is holding steady at a solid pace and fundamentals are roughly unchanged. Also in Greater Boston, construction activity is steady at a brisk pace and the outlook calls for increased construction activity in the health care sector. Boston's office construction activity consists mostly of buildto-suit projects rather than speculative structures. In Portland, the vacancy rate is declining in the class A office market amid brisk leasing activity, and rents are expected to rise (if slowly) in each of Portland's office, retail, and industrial sectors in the coming year. In Providence, office leasing volume is described as decent and business sentiment is improving. According to one contact, scarcities of skilled construction labor relative to demand for such labor in the region--and associated wage increases--are starting to hinder additional construction activity. 24

25 SECOND DISTRICT NEW YORK Commercial real estate markets across the District have been mixed, with industrial markets continuing to strengthen but office and retail markets generally steady. Office availability rates have edged down in upstate New York and northern New Jersey, though they remain quite elevated in the latter. Rates remain steady across Manhattan but have risen to multi-year highs in Westchester and Fairfield counties. The market for retail space has also been generally stable, with rents rising modestly in most areas. Industrial markets, however, have generally strengthened: industrial vacancy rates have declined across upstate New York, northern New Jersey, and New York City and are at or near multi-year lows across most of the District. Industrial rents have been rising steadily across most of the District. While industrial construction has been subdued, office construction has picked up across northern New Jersey, upstate New York and particularly in Manhattan. THIRD DISTRICT PHILADELPHIA Nonresidential real estate contacts reported that construction and leasing activity continued at a modest pace. New construction continued to be driven by projects in downtown Allentown and Philadelphia that include office, retail, and residential components. Throughout the Third District, industrial/warehouse projects and suburban office renovations remain active and in demand. Contacts attributed a little continued rent pressure on office space to some emerging employment growth. Demand and rent pressures are greatest in downtown Philadelphia and have been spilling over into suburban areas, especially for Class A or better office space. Contacts remained optimistic for the ongoing growth of both new construction and leasing activity in FOURTH DISTRICT CLEVELAND Nonresidential contractors reported a strong boost in activity over the period, with a bias toward private work. On balance, the number of inquiries has increased. General contractors reported that their margins are increasing. Labor capacity was frequently mentioned as a factor that will restrain growth going forward. Backlogs were characterized as strong or strengthening. Demand is greatest for office space, industrial structures, multifamily housing, and university construction. Financing is more readily available to successful developers than it has been in the recent past. FIFTH DISTRICT RICHMOND Commercial real estate market activity increased modestly since the previous report. Several Realtors reported that rental rates firmed up since our previous report. Vacancy rates decreased modestly in Washington D.C., Richmond, Baltimore, Charlotte, Hampton Roads, and Charleston, South Carolina. However, vacancy rates were mostly unchanged in Charleston, West Virginia and in Virginia Beach. Sales of retail space improved in Virginia Beach, weakened in Baltimore, and were unchanged in Washington D.C., with most of the activity in smaller spaces. A broker in Richmond reported that sales activity increased. Additionally, a contact in Charlotte stated that sales and sale prices rose since our previous report. A commercial real estate contact in Baltimore said that the market there has picked up; he noted that sales of office buildings increased downtown and that the medical office sector remained strong. A broker in Hampton Roads reported that condo construction and commercial sales have increased. SIXTH DISTRICT ATLANTA District commercial real estate brokers indicated that demand continued to improve, but they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Commercial contractors indicated that nonresidential construction activity increased from the yearago level across the District and noted the strength in apartment construction persisted. On balance, most contacts reported a backlog that was greater than their year earlier level. The outlook among District commercial real estate contacts remained positive. SEVENTH DISTRICT CHICAGO Nonresidential construction activity was somewhat higher, driven by demand for 25

26 industrial buildings and offices. Commercial real estate activity grew at a strong pace, particularly in urban centers and select suburbs. Contacts reported that new hotel and office developments in downtown Chicago were forcing retailers to relocate, and that in the best locations retail rents and occupancy rates were at all-time highs. EIGHTH DISTRICT ST. LOUIS Commercial and industrial real estate market conditions were positive throughout most of the District. Contacts across the District noted tight office market conditions in class A space. Contacts in Louisville noted that many firms have outgrown their current office space and expect rent growth to accelerate in the second half of Commercial and industrial construction activity continues to be positive throughout most of the District. Contacts across the District reported an increase in speculative industrial space. A survey of District banks showed moderate improvement in overall lending activity over the past three months. For commercial and industrial loans, credit standards eased somewhat, creditworthiness of applicants improved, demand was slightly stronger, and delinquencies were lower. NINTH DISTRICT MINNEAPOLIS Activity in commercial real estate markets was steady since the previous report. A commercial real estate analytics firm noted that first-quarter 2015 industrial and retail vacancy rates in Minneapolis-St. Paul dropped slightly from the end of Residential real estate activity increased at a brisk pace from a year ago. Compared to a year ago, western Wisconsin home sales increased 25 percent in April, and the median sales price rose 12 percent. Also, Minnesota home sales were up 20 percent in April, the inventory of homes for sale was flat, and the median sales price rose 12 percent. In the Sioux Falls area, April home sales were up 4 percent, inventory decreased 14 percent, and the median sales price increased 1 percent relative to a year earlier. rates, completions, construction underway, sales and prices increased. The commercial real estate market was expected to strengthen at a modest pace over the coming months. ELEVENTH DISTRICT DALLAS Commercial real estate activity was generally strong, and outlooks were cautiously optimistic. Demand for office space was fairly solid, except for in Houston where leasing activity slowed and contacts noted an uptick in the level of sublease space. A few energy firms in Fort Worth are also seeking to sublease office space. Industrial and retail leasing and construction remained active, with industrial demand in Dallas-Fort Worth shifting from large to small and mid-sized tenants. TWELFTH DISTRICT SAN FRANCISCO Commercial real estate construction and leasing activity grew overall, with growth concentrated in a few areas with vibrant technology sectors. Shortages of skilled labor remained a constraint on construction activity in some fast-growth areas. Expanded construction activity spurred additional equipment purchases by construction companies, including some aimed at enhancing productivity. TENTH DISTRICT KANSAS CITY Commercial real estate activity continued to increase modestly in April and May as vacancy rates decreased and absorption 26

27 NET INVENTORY CHANGE/NET ABSORPTION COMMERCIAL/MULTIFAMILY PROPERTIES Net Absorption (Thousands of Square Feet) 100,000 80,000 60,000 40,000 20, ,000-40,000-60, Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 Office Retail Apartment Net Inventory Change (Thousands of Square Feet) 100,000 80,000 60,000 40,000 20, ,000-40,000-60, Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 Office Retail Apartment Source: REIS 27

28 COMMERCIAL/MULTIFAMILY PROPERTIES NET INVENTORY CHANGE LESS NET ABSORPTION THOUSANDS OF SQUARE FEET Calendar Year Q1 Q2 Q3 Q4 Year YTD Q1 APARTMENT ,224 (24,225) (20,472) 3,337 (14,136) 27, (6,228) (20,131) (57,423) (12,080) (95,862) (6,228) ,123 (23,851) (13,943) 38,538 11,867 11, ,335 (19,332) (14,686) 9,830 (4,853) 19, ,525 15,695 9,298 50,108 99,626 24, ,891 35,244 17,487 20, ,454 64, ,982 (16,777) (71,264) (44,687) (130,746) 1, (38,062) (30,859) (26,128) (37,629) (132,678) (38,062) 2012 (25,960) (15,738) (5,272) (13,767) (60,737) (25,960) 2013 (20,756) (5,392) (1,534) 731 (26,951) (20,756) 2014 (11,965) 3,089 11,565 1,207 3,896 (11,965) 2015 (7,815) (7,815) OFFICE 2004 (201) (1,996) (5,895) (12,298) (20,390) (201) 2005 (11,483) (21,652) (15,582) (16,844) (65,561) (11,483) 2006 (19,558) (13,917) (13,385) (5,483) (52,343) (19,558) 2007 (10,008) (11,669) (9,309) 5,429 (25,557) (10,008) ,244 13,636 24,037 31,506 80,423 11, ,508 32,255 24,983 17, ,205 30, ,439 4,982 7,301 (316) 26,406 14, (1,125) (1,450) (2,391) (1,886) (6,852) (1,125) 2012 (3,803) (1,579) (1,381) (3,344) (10,107) (3,803) 2013 (2,477) (157) (1,368) 40 (3,962) (2,477) 2014 (1,947) 982 (2,190) (3,617) (6,773) (1,947) 2015 (2,737) (2,737) RETAIL ,007 (1,368) (1,383) (205) (1,949) 1, (3,892) 1,390 1,448 (952) , ,660 2,267 7,519 2, ,486 2,644 1,564 3,825 9,519 1, ,331 9,094 6,474 10,395 31,294 5, ,788 11,282 6,048 5,590 34,708 11, ,543 2,585 1, ,748 3, (397) 1,646 1,146 (1,132) 1,263 (397) 2012 (1,430) (1,150) (548) (1,293) (4,421) (1,430) 2013 (1,669) (1,655) (797) (1,964) (6,085) (1,669) (824) (1,037) (1,914) (3,593) (1,554) (1,554) Source: REIS 28

29 AVERAGE RENTS AND VACANCY RATES AT COMMERCIAL/MULTIFAMILY PROPERTIES Average Rents $/Sq Ft $35 $30 $25 $20 $15 $10 $5 $/Month $0 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 0 Office Retail Apartment (Right Scale) Average Vacancy Rates percent Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 Source: REIS Office Retail Apartment 29

30 AVERAGE RENTS AND VACANCY RATES AT COMMERCIAL/MULTIFAMILY PROPERTIES Q1 Year- Year Q1 Q2 Q3 Q4 over- year % change Q1 Q2 Q3 Q4 Q1 Yearover-year change APARTMENT (per month) 2005 $ 925 $ 930 $ 938 $ % $ 952 $ 962 $ 975 $ % $ 991 $ 1,002 $ 1,015 $ 1, % $ 1,035 $ 1,046 $ 1,052 $ 1, % $ 1,045 $ 1,039 $ 1,033 $ 1, % $ 1,028 $ 1,033 $ 1,038 $ 1, % $ 1,048 $ 1,054 $ 1,060 $ 1, % $ 1,071 $ 1,082 $ 1,092 $ 1, % $ 1,104 $ 1,112 $ 1,123 $ 1, % $ 1,141 $ 1,153 $ 1,166 $ 1, % $ 1, % OFFICE (per sq. ft) 2005 $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ % RETAIL (per sq. ft) 2005 $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ % Source: REIS Average Asking Rents Average Vacancy Rates (percent) 30

31 MULTIFAMILY BUILDING PERMITS, STARTS AND COMPLETIONS Thousands of Units Permitted, Started and Completed in Structures with 5 or More Units, Seasonally Adjusted Annual Rate 1968 to present Completions 5+ Permits 5+ Starts 5+ Median Starts (300.5) 1996 to present Completions 5+ Permits 5+ Starts 5+ Median Starts (300.5) Source: U.S. Census Bureau 31

32 MULTIFAMILY BUILDING PERMITS, STARTS AND COMPLETIONS Number of Units Permitted, Started and Completed in Structures with 5 or More Units, Seasonally Adjusted Annual Rate Thousands of Units Percent Change Permits Starts Completions Permits Starts Completions Year-over-year % -2.4% 1.8% % -2.1% -7.8% % 5.2% 2.6% % 2.4% -9.5% % -3.9% 10.0% % 2.8% -10.1% % -6.0% 10.2% % -5.3% -11.0% % -4.1% 9.6% % -63.4% -6.3% % 7.2% -43.6% % 60.4% -11.3% % 39.8% 21.3% % 25.6% 18.1% % 16.3% 37.3% Month-over-month May % -13.0% 17.3% Jun % -9.7% -21.6% Jul % 37.5% 8.2% Aug % -27.5% 25.9% Sep % 15.4% 11.3% Oct % 1.1% -4.8% Nov % -8.1% -18.4% Dec % 2.4% 9.8% Jan % 9.5% 9.0% Feb % -20.7% -16.1% Mar % 6.5% -18.8% Apr % 37.6% 53.8% May % -18.5% 28.1% Percent change May 2014 to May % 2.6% 48.5% Source: U.S. Census Bureau 32

33 NEW PRIVATELY OWNED HOUSING UNITS STARTED, BY PURPOSE Thousands of Units Units in Buildings with 2 or More Units Quarter TOTAL 1-Family Units Total For Rent For Sale Percent for Rent 2008Q % 2008Q % 2008Q % 2008Q % 2009Q % 2009Q % 2009Q % 2009Q % 2010Q % 2010Q % 2010Q % 2010Q % 2011Q % 2011Q % 2011Q % 2011Q % 2012Q % 2012Q % 2012Q % 2012Q % 2013Q % 2013Q % 2013Q % 2013Q % 2014Q % 2014Q % 2014Q % 2014Q % 2015Q % 120 Thousands of units unit for sale 2+ unit for rent Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 Source: U.S. Census Bureau 33

34 Value of Commercial Real Estate Construction Put-In- Place April 2015 Data The value of selected commercial real estate (CRE)-related private construction put-inplace increased in the month of April, and was higher than the pace of construction in April The $281.4 billion seasonally adjusted annual rate in April was 3.2 percent higher than the March rate, and 27 percent higher than the April 2014 pace. The pace of construction in April was 76 percent higher than its recession low and 18 percent below its pre-recession high. Private MULTIFAMILY new construction activity continued to increase in April. April s seasonally adjusted annual pace of $51.4 billion was three percent higher than March s $49.9 billion and 25 percent higher than last April s rate. The pace of construction in April was 293 percent higher than its recession low and seven percent below its pre-recession high. than its recession low and 32 percent below its pre-recession high. The value of LODGING construction put-inplace increased six percent in April. April s seasonally adjusted annual pace of $18.3 billion was 20 percent higher than last April s rate. The pace of construction in April was 132 percent higher than its recession low and 51 percent below its pre-recession high. The value of MANUFACTURING construction put-in-place increased three percent in April. April s seasonally adjusted annual pace of $76.2 billion was 54 percent higher than last April s rate. The pace of construction in April was 156 percent higher than its recession low. The value of private OFFICE construction put-in-place increased in April. April s seasonally adjusted annual pace of $43.9 billion was 23 percent higher than last April s rate. The pace of construction in April was 101 percent higher than its recession low and 25 percent below its pre-recession high. The value of private HEALTH CARE construction put-in-place increased three percent in April. April s seasonally adjusted annual pace of $30.5 billion was eight percent higher than last April s rate. The pace of construction in April was 11 percent higher than its recession low and 24 percent below its pre-recession high. The value of private RETAIL, WHOLESALE AND SELECTED SERVICES (referred to as COMMERCIAL by the Census Bureau) construction put-in-place increased three percent in April. April s seasonally adjusted annual pace of $61.0 billion was 18 percent higher than last April s rate. The pace of construction in April was 78 percent higher 34

35 VALUE OF CONSTRUCTION PUT-IN-PLACE Seasonally Adjusted Annual Rate Value of Selected Private CRE-Related Construction Put-In-Place, $millions 350, , , , , ,000 50, Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Year-Over-Year % Change in Trailing Three Month Selected Private CRE-Related Construction 40% 30% 20% 10% 0% -10% -20% -30% -40% Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Source: MBA, U.S. Census Bureau 35

36 VALUE OF CONSTRUCTION PUT-IN-PLACE Seasonally Adjusted Annual Rate Value of Selected Private CRE-Related Construction Put-In-Place, $millions Multifamily Commercial (e.g. retail & warehouse) 60, ,000 50,000 80,000 40,000 30,000 20,000 60,000 40,000 10,000 20, Office Manufacturing 70,000 60,000 50, ,000 80,000 40,000 30,000 20,000 60,000 40,000 10, ,000 0 Lodging Health Care 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan 50,000 40,000 30,000 20,000 10, Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Source: MBA, U.S. Census Bureau 36

37 VALUE OF CONSTRUCTION PUT-IN-PLACE Seasonally Adjusted Annual Rate Value of Selected Private CRE-Related Construction Put-In-Place, $millions Selected Private CRE-Related Types of Construction Multifamily Commercial Office Lodging Health Care Manufacturing Total % Change Month-over- Month Apr 30,672 46,487 27,063 12,408 30,102 45, , % May 30,957 48,180 28,064 12,983 30,545 45, , % Jun 31,384 47,366 28,435 12,436 29,365 45, , % Jul 30,708 48,005 29,493 12,917 30,214 46, , % Aug 32,539 47,894 29,892 13,697 29,758 49, , % Sep 34,445 49,638 31,378 13,951 30,185 46, , % Oct 35,640 51,307 31,951 14,543 30,733 46, , % Nov 37,349 53,307 33,059 15,350 30,434 48, , % Dec 36,729 53,101 33,669 14,324 29,357 51, , % Jan 37,557 50,279 33,646 14,089 29,014 52, , % Feb 38,671 50,895 33,259 14,803 28,684 49, , % Mar 39,865 51,263 33,467 14,062 28,393 46, , % Apr 41,262 51,889 35,808 15,295 28,401 49, , % May 42,247 52,632 36,535 15,414 29,030 54, , % Jun 43,857 53,874 36,135 14,633 29,084 53, , % Jul 43,644 54,941 36,133 14,729 28,597 53, , % Aug 44,602 56,034 37,344 15,532 28,633 56, , % Sep 46,604 58,560 39,483 16,729 29,017 57, , % Oct 46,971 59,117 39,941 17,040 28,899 59, , % Nov 47,287 60,079 39,298 17,496 29,468 60, , % Dec 48,882 61,006 40,097 17,426 29,518 63, , % Jan 48,409 59,796 40,369 15,457 29,445 63, , % Feb 50,738 58,745 41,281 16,453 29,768 68, , % Mar 49,857 59,164 42,485 17,323 29,679 74, , % Apr 51,415 61,033 43,888 18,348 30,537 76, , % Mar - Apr 3.1% 3.2% 3.3% 5.9% 2.9% 2.7% 3.2% Apr - Apr 24.6% 17.6% 22.6% 20.0% 7.5% 53.5% 26.6% Trough to current 293% 78% 101% 132% 11% 156% 76% Peak to current -7% -32% -25% -51% -24% 0% -18% Source: MBA, U.S. Census Bureau 37

38 QUARTERLY SALES OF LARGER ($2.5 MILLION+) COMMERCIAL/MULTIFAMILY PROPERTIES Billions of dollars, Properties and portfolios $2.5 million and greater $160 $140 $120 $100 $80 $60 $40 $20 $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Apartment Retail Industrial Office Source: Real Capital Analytics. 38

39 QUARTERLY SALES OF LARGER ($2.5 MILLION+) COMMERCIAL/MULTIFAMILY PROPERTIES Billions of dollars, Properties and portfolios $2.5 million and greater Total Percent Year Q1 Q2 Q3 Q4 Sales change YTD Q1 Percent Sales change APARTMENT 2010 $ 5.49 $ 6.15 $ $ $ % $ % 2011 $ 9.60 $ $ $ $ % $ % 2012 $ $ $ $ $ % $ % 2013 $ $ $ $ $ % $ % 2014 $ $ $ $ $ % $ % 2015 $ $ % INDUSTRIAL 2010 $ 3.09 $ 3.90 $ 5.32 $ 8.61 $ % $ % 2011 $ 4.38 $ $ 7.48 $ 9.10 $ % $ % 2012 $ 5.87 $ 9.21 $ 8.38 $ $ % $ % 2013 $ 7.81 $ $ $ $ % $ % 2014 $ $ $ $ $ % $ % 2015 $ $ % OFFICE 2010 $ 5.23 $ 9.91 $ $ $ % $ % 2011 $ $ $ $ $ % $ % 2012 $ $ $ $ $ % $ % 2013 $ $ $ $ $ % $ % 2014 $ $ $ $ $ % $ % 2015 $ $ % RETAIL 2010 $ 3.77 $ 4.30 $ 6.64 $ 8.41 $ % $ % 2011 $ 6.74 $ $ 9.22 $ $ % $ % 2012 $ $ $ $ $ % $ % 2013 $ 9.50 $ $ $ $ % $ % 2014 $ $ $ $ $ % $ % 2015 $ $ % TOTAL 2010 $ $ $ $ $ % $ % 2011 $ $ $ $ $ % $ % 2012 $ $ $ $ $ % $ % 2013 $ $ $ $ $ % $ % 2014 $ $ $ $ $ % $ % 2015 $ $ % Source: Real Capital Analytics. 39

40 QUARTERLY SALES PRICES OF LARGER ($2.5 MILLION+) COMMERCIAL/MULTIFAMILY PROPERTIES Properties and portfolios $2.5 million and greater Sales price per unit or sq. ft. ($/sq. ft, or $1000/unit for apartment) $350 $300 $250 $200 $150 $100 $50 $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Apartment Industrial Office Retail Total Capitalization rate 12% 10% 8% 6% 4% 2% 0% 2001 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Source: Real Capital Analytics. Apartment Industrial Office Retail 40

41 QUARTERLY SALES PRICES OF LARGER ($2.5 MILLION+) COMMERCIAL/MULTIFAMILY PROPERTIES Properties and portfolios $2.5 million and greater Price per unit or sq. ft. Capitalization Rate Year Q1 Q2 Q3 Q4 Q1 Yearover-year % change Q1 Q2 Q3 Q4 Q1 Yearover-year % change APARTMENT ($1000/unit) 2010 $ 103 $ 86 $ 105 $ % 6.8% 6.9% 6.6% 6.5% 3% 2011 $ 97 $ 93 $ 107 $ 104-6% 6.4% 6.5% 6.3% 6.3% -6% 2012 $ 107 $ 101 $ 104 $ % 6.3% 6.2% 6.2% 6.1% -1% 2013 $ 117 $ 108 $ 105 $ 116 9% 6.3% 6.3% 6.3% 6.2% -1% 2014 $ 109 $ 114 $ 129 $ 133-7% 6.2% 6.2% 6.0% 6.1% -1% 2015 $ % 5.9% -5% INDUSTRIAL ($/sq. ft) 2010 $ 49 $ 54 $ 63 $ 52-26% 8.1% 8.4% 8.4% 8.4% 2% 2011 $ 53 $ 57 $ 52 $ 61 9% 8.0% 7.8% 7.7% 7.8% -2% 2012 $ 63 $ 55 $ 63 $ 63 19% 7.7% 7.4% 7.5% 7.6% -4% 2013 $ 63 $ 64 $ 66 $ 67 0% 7.6% 7.6% 7.5% 7.5% -1% 2014 $ 66 $ 67 $ 77 $ 73 5% 7.3% 7.2% 7.2% 7.0% -5% 2015 $ 81 22% 6.9% -5% OFFICE ($/sq. ft) 2010 $ 129 $ 197 $ 206 $ % 8.4% 8.0% 7.6% 7.4% 10% 2011 $ 209 $ 213 $ 218 $ % 7.6% 7.5% 7.3% 7.3% -10% 2012 $ 198 $ 208 $ 210 $ 231-5% 7.2% 7.2% 7.2% 7.1% -5% 2013 $ 206 $ 216 $ 231 $ 235 4% 7.1% 6.7% 7.0% 6.9% -1% 2014 $ 227 $ 244 $ 250 $ % 6.8% 6.9% 6.8% 6.8% -4% 2015 $ % 6.5% -5% RETAIL ($/sq. ft) 2010 $ 137 $ 129 $ 142 $ 154-8% 8.1% 7.8% 7.8% 7.6% 12% 2011 $ 172 $ 147 $ 192 $ % 7.6% 7.6% 7.4% 7.4% -6% 2012 $ 159 $ 191 $ 163 $ 229-8% 7.3% 7.3% 7.2% 7.2% -4% 2013 $ 151 $ 177 $ 171 $ 180-5% 7.1% 7.0% 7.1% 7.0% -3% 2014 $ 201 $ 202 $ 207 $ % 6.8% 6.9% 6.8% 6.6% -4% 2015 $ % 6.4% -5% TOTAL ($1000/unit or $/sq. ft)* 2010 $ 95 $ 107 $ 117 $ % 7.8% 7.7% 7.5% 7.4% 6% 2011 $ 116 $ 103 $ 118 $ % 7.3% 7.4% 7.1% 7.1% -7% 2012 $ 125 $ 114 $ 118 $ 135 8% 7.0% 6.9% 6.8% 6.9% -3% 2013 $ 122 $ 126 $ 125 $ 136-2% 6.8% 6.8% 6.9% 6.8% -4% 2014 $ 137 $ 135 $ 151 $ % 6.7% 6.7% 6.6% 6.6% -1% 2015 $ % 6.4% -5% Source: Real Capital Analytics. 41

42 COMMERCIAL/MULTIFAMILY PROPERTY PRICES AS REFLECTED IN SELECTED INDICES Re-Indexed Values of the Moody's/RCA CPPI, NCREIF Transaction Based Index, and Green Street Advisors CPPI December 2000 = Dec 2000 Jun 2001 Dec 2001 Jun 2002 Dec 2002 Jun 2003 Dec 2003 Jun 2004 Dec 2004 Jun 2005 Dec 2005 Jun 2006 Dec 2006 Jun 2007 Dec 2007 Jun 2008 Dec 2008 Jun 2009 Dec 2009 Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012 Jun 2013 Dec 2013 Jun 2014 Dec 2014 Moodys/RCA CPPI NCREIF TBI GSA CPPI January 2007 = Jan 2007 May 2007 Sep 2007 Jan 2008 May 2008 Sep 2008 Jan 2009 May 2009 Sep 2009 Jan 2010 May 2010 Sep 2010 Jan 2011 May 2011 Sep 2011 Jan 2012 May 2012 Sep 2012 Jan 2013 May 2013 Sep 2013 Jan 2014 May 2014 Sep 2014 Jan 2015 Moody's/RCA CPPI NCREIF TBI GSA CPPI Source: Mortgage Bankers Association, Real Capital Analytics, Moody's Investors Services, National Council of Real Estate Investment Fiduciaries, and Green Street Advisors 42

43 COMMERCIAL/MULTIFAMILY PROPERTY PRICES AS REFLECTED IN SELECTED INDICES Changes in the Moody's/RCA CPPI, NCREIF Transaction Based Index and Green Street Advisors CPPI Moody's/ RCA CPPI Year-over-year Change Green Street Advisors NCREIF TBI CPPI December 7.2% 2.8% 9.9% December 13.3% 8.6% 15.3% December 18.2% 22.6% 13.0% December 6.9% 18.9% 10.8% December 9.9% 4.5% 7.0% December -19.1% -14.7% -29.8% December -26.1% -20.0% -2.6% December 10.0% 17.5% 20.9% December 8.9% 4.7% 11.7% December 9.4% 3.7% 5.7% December 16.1% 9.5% 7.3% December 13.9% 10.0% 10.0% Quarter-over-quarter Month-over month Month-over month Green Street Advisors Moody's/RCA CPPI NCREIF TBI CPPI Moody's/RCA CPPI March 2.2% 1.8% 1.5% 0.7% April 0.8% 1.1% May 2.8% 2.7% June 5.1% 6.6% 0.0% 1.2% July -0.6% 1.5% August 0.6% 1.4% September 4.5% 3.4% 0.0% 1.6% October 0.0% 0.9% November 1.0% 1.2% December 3.4% -2.4% 0.2% 1.4% January 0.0% 0.8% February 1.0% 1.0% March 2.9% -0.8% 0.0% 1.0% April 0.6% 1.4% May 2.2% 1.6% June 4.6% 5.8% 0.3% 1.6% July 0.0% 0.9% August 2.1% 1.1% September 2.6% -0.5% 1.0% 0.6% October 0.3% 2.0% November 2.1% 0.9% December 3.1% 5.3% 0.0% 0.3% January 1.0% 1.9% February 1.0% 1.4% March 4.7% 0.2% 0.1% 1.4% Current price relative to 2007 peak 102% 114% 108% Source: Mortgage Bankers Association, Real Capital Analytics, Moody's Investors Services, National Council of Real Estate Investment Fiduciaries, and Green Street Advisors 43

44 3. Production Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations May 4, 2015 According to the Mortgage Bankers Association s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, first quarter 2015 commercial and multifamily mortgage loan originations were 49 percent higher than during the same period last year. Following the usual seasonal pattern, first quarter 2015 originations saw a 26 percent decrease in originations from the fourth quarter of The year-end momentum from 2014 carried into the first quarter of 2015, with year-overyear growth in lending for every major property type, said Jamie Woodwell, MBA s Vice President of Commercial Real Estate Research. Multifamily lending was a key driver of first quarter originations and the GSEs drove multifamily. The GSEs multifamily originations increased by 306 percent compared to Q1 2014, marking their second highest quarter on record, while multifamily originations for other capital sources appear to have remained flat or declined. FIRST QUARTER 2015 ORIGINATIONS 49 PERCENT HIGHER THAN FIRST QUARTER 2014 Commercial/Multifamily Mortgage Bankers Originations Index 2001 quarterly average = Increases in originations for industrial and multifamily properties led the overall increase in commercial/multifamily lending volumes when compared to the first quarter of The increase included a 269 percent increase in the dollar volume of loans for industrial properties, a 71 percent increase for multifamily properties, a 53 percent increase for office properties, a 51 percent increase for hotel properties, and a five percent increase in retail property loans. Health care property loans were essentially unchanged year-overyear. Among investor types, the dollar volume of loans originated for Government Sponsored Enterprises (GSEs Fannie Mae and Freddie Mac) increased by 306 percent from last year s first quarter. There was a 113 percent increase for Commercial Mortgage Backed Securities (CMBS) loans, a 51 percent increase for life insurance company loans, and a one percent decrease in dollar volume for commercial bank portfolio loans. FIRST QUARTER 2015 ORIGINATIONS DOWN 26 PERCENT FROM FOURTH QUARTER Q1 2002Q2 2002Q3 2002Q4 2003Q1 2003Q2 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 44

45 First quarter 2015 originations for health care properties decreased 62 percent compared to the fourth quarter There was a 57 percent decrease in originations for retail properties, a 33 percent decrease for hotel properties, a 31 percent decrease for multifamily properties, a 25 percent decrease for office properties, and a 127 percent increase for industrial properties from the fourth quarter Among investor types, between the fourth quarter of 2014 and first quarter of 2015, the dollar volume of loans for commercial bank portfolios decreased 23 percent, loans for life insurance companies decreased 18 percent, originations for CMBS decreased 14 percent, and loans for GSEs decreased by 13 percent. To view the report, please visit the following Web link: files/research/commercialoriginations/1q1 5%20Quarterly%20Origination.pdf Detailed statistics on the size and scope of the commercial/multifamily origination market are available from these MBA commercial/multifamily research reports. Commercial Real Estate/Multifamily Finance: Annual Origination Volume Summation, 2014 Commercial Real Estate/Multifamily Finance Firms: Annual Origination Volumes, 2014 Annual Report on Multifamily Lending, 2013 Commercial/Multifamily Database Subscription 45

46 Commercial/Multifamily Mortgage Bankers Originations Index By Investor Group Origination Volume Index (2001 Avg Qtr = 100) Q1 Q2 Q3 Q4 Yearoveryear Q1 Percent Change, Q4-to- Q1 YTD-YTD TOTAL % -26% 12% % -27% 84% % -12% 36% % -36% 9% % -45% -1% % -26% 49% CMBS/Conduits % 430% 657% % -58% 389% % -25% -10% % -38% 170% % -57% -21% % -14% 113% Commercial Banks % -48% -4% % 21% 73% % 11% 104% % -29% 8% % -28% 55% % -23% -1% Life Insurance Companies % 1% 131% % -20% 114% % 2% 10% % -31% -21% % -42% 18% % -18% 51% Fannie Mae/Freddie Mac % -43% -49% % -45% 59% % -33% 40% % -40% 36% % -53% -55% % -13% 306% 46

47 Commercial/Multifamily Mortgage Bankers Originations Index By Property Type Q1 Q2 Q3 Q4 Q4-to- Q1 YTD-YTD Multifamily % -37% -5% % -29% 102% % -22% 45% % -32% 30% % -44% -17% % -31% 71% Office Retail % 20% 29% % -19% 83% % 4% -9% % -45% -6% % -50% 15% % -25% 53% % -11% 98% % -49% 11% % 17% 109% % -17% -25% % -53% -19% % -57% 5% Industrial % -24% -28% % 4% 172% % -50% -32% % -65% 2% % -24% 52% % 127% 269% Hotel Origination Volume Index (2001 Avg Qtr = 100) Yearoveryear Q1 Percent Change, % -73% -46% % -40% 506% % -1% -7% % -69% 35% % -51% 44% % -33% 51% Health Care % -91% -68% % -83% 91% % -53% 118% % -45% -15% % -65% 10% % -62% 0% 47

48 QUARTERLY ISSUANCE OF COMMERCIAL MORTGAGE BACKED SECURITIES (CMBS) and COMMERCIAL REAL ESTATE COLLATERALIZED DEBT OBLIGATIONS (CDOs) Billions of Dollars $80 $70 $60 $50 $40 $30 $20 $10 $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 CMBS CRE CDO/Re-Remics Source: Commercial Real Estate Direct 48

49 QUARTERLY ISSUANCE OF COMMERCIAL MORTGAGE BACKED SECURITIES (CMBS) and COMMERCIAL REAL ESTATE COLLATERALIZED DEBT OBLIGATIONS (CRE CDOs)/RE-REMICS Billions of Dollars Annual Percent Year Q1 Q2 Q3 Q4 Total change YTD Q1 Percent Total change U.S. CMBS ISSUANCE 2005 $ $ $ $ $ % $ % 2006 $ $ $ $ $ % $ % 2007 $ $ $ $ $ % $ % 2008 $ 5.91 $ 6.24 $ - $ - $ % $ % 2009 $ - $ 1.79 $ - $ 3.18 $ % $ % 2010 $ - $ 2.91 $ 1.93 $ 6.18 $ % $ - N/A 2011 $ 8.24 $ 7.66 $ 9.62 $ 4.46 $ % $ 8.24 N/A 2012 $ 5.19 $ $ $ $ % $ % 2013 $ $ $ $ $ % $ % 2014 $ $ $ $ $ % $ % 2015 $ $ % CRE CDO/RE-REMICS ISSUANCE 2005 $ 4.29 $ 4.42 $ 6.72 $ 5.90 $ % $ % 2006 $ 6.43 $ 7.18 $ $ $ % $ % 2007 $ 6.61 $ $ 5.09 $ 3.40 $ % $ % 2008 $ - $ - $ - $ - $ % $ % 2009 $ - $ 0.71 $ 0.32 $ - $ 1.03 N/A $ - N/A 2010 $ - $ 0.15 $ 0.32 $ 0.94 $ % $ - N/A 2011 $ - $ - $ - $ - $ % $ - N/A 2012 $ - $ - $ - $ - $ - N/A $ - N/A 2013 $ - $ - $ - $ - $ - N/A $ - N/A 2014 $ - $ - $ - $ - N/A $ - N/A 2015 $ - $ - N/A TOTAL 2005 $ $ $ $ $ % $ % 2006 $ $ $ $ $ % $ % 2007 $ $ $ $ $ % $ % 2008 $ 5.91 $ 6.24 $ - $ - $ % $ % 2009 $ - $ 2.51 $ 0.32 $ 3.18 $ % $ % 2010 $ - $ 3.05 $ 2.25 $ 7.11 $ % $ - N/A 2011 $ 8.24 $ 7.66 $ 9.62 $ 4.46 $ % $ 8.24 N/A 2012 $ 5.19 $ $ $ $ % $ % 2013 $ $ $ $ $ % $ % 2014 $ $ $ $ $ % $ % 2015 $ $ % Source: Commercial Real Estate Direct 49

50 QUARTERLY COMMERCIAL MORTGAGE COMMITMENTS BY LIFE INSURANCE COMPANIES Billions of Dollars $18 $16 $14 $12 $10 $8 $6 $4 $2 $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Source: American Council of Life Insurance Companies (ACLI) a. Annual figures may not equal the sum of quarterly figures due to change in reporting. 50

51 QUARTERLY COMMERCIAL MORTGAGE COMMITMENTS BY LIFE INSURANCE COMPANIES Billions of Dollars Annual (a) Percent Year Q1 Q2 Q3 Q4 Total change YTD Q1 Percent Total change 2001 $ 5.95 $ 7.56 $ 7.33 $ 6.08 $ $ $ 5.69 $ 6.34 $ 7.12 $ 9.17 $ % $ % 2003 $ 7.22 $ 7.88 $ 9.28 $ 8.30 $ % $ % 2004 $ 7.46 $ $ $ 8.91 $ % $ % 2005 $ 7.33 $ $ $ $ % $ % 2006 $ 9.76 $ $ $ $ % $ % 2007 $ 9.29 $ $ $ $ % $ % 2008 $ 9.59 $ 6.03 $ 7.03 $ 4.02 $ % $ % 2009 $ 2.62 $ 4.63 $ 4.30 $ 4.83 $ % $ % 2010 $ 4.90 $ 5.94 $ 9.47 $ $ % $ % 2011 $ 7.83 $ $ $ $ % $ % 2012 $ 9.18 $ $ $ $ % $ % 2013 $ 8.15 $ $ $ $ % $ % 2014 $ $ $ $ $ % $ % 2015 $ $ % Source: American Council of Life Insurance Companies (ACLI) a. Annual figures may not equal the sum of quarterly figures due to changes in reporting. 51

52 4. Commercial/Multifamily Mortgage Debt Outstanding June 16, 2015 The level of commercial/multifamily mortgage debt outstanding increased by $40.4 billion in the first quarter of 2015, as all four major investor groups increased their holdings. That is a 1.5 percent increase over the fourth quarter of Total commercial/multifamily debt outstanding stood at $2.68 trillion at the end of the first quarter. Multifamily mortgage debt outstanding rose to $989 billion, an increase of $20.6 billion, or 2.1 percent, from the fourth quarter of Strong first quarter mortgage originations boosted the level of commercial and multifamily mortgage debt outstanding, said Jamie Woodwell, MBA s Vice President of Commercial Real Estate Research. Multifamily mortgages continued to grow even more quickly than the market as a whole, with banks increasing their portfolios by $8 billion and agency and GSE portfolios and MBS increasing their holdings by $10 billion. The four major investor groups are: bank and thrift; commercial mortgage backed securities (CMBS), collateralized debt obligation (CDO) and other asset backed securities (ABS) issues; federal agency and government sponsored enterprise (GSE) portfolios and mortgage backed securities (MBS); and life Insurance companies. Commercial Multifamily Mortgage Debt Outstanding By Investor Group, First Quarter