Washington, DC Metro Region 2014

Washington, DC Metro Region 2014

Washington, DC Metro Region 2014

John Benziger Regional Managing Principal I Cassidy Turley

Overview of Program Agenda Company Update Washington Market Overview Capital Markets Overview Keynote Speaker: Stephen Dubner Q&A Reception to follow The State of Real Estate Washington, DC 2014

Joe Stettinius Chief Executive Officer, Cassidy Turley Joe provides leadership for the 3,800 employees at Cassidy Turley, a leading full-service commercial real estate firm in the U.S. The State of Real Estate Washington, DC 2014

Kevin Thorpe Chief Economist, Cassidy Turley Kevin oversees the Research Department in our major regional offices, as well as focusing on national trends and forecasts in the commercial real estate industry. The State of Real Estate Washington, DC 2014

Bill Collins Vice Chairman, Cassidy Turley Bill has more than 30 years of commercial real estate experience focused primarily in the sale of office buildings and land in the DC Metro Region. The State of Real Estate Washington, DC 2014

Keynote Speaker Stephen Dubner Award-winning author, journalist, radio and TV personality and co-author of international bestsellers Freakonomics and SuperFreakonomics, and the soon-to-be released Think Like a Freak. The State of Real Estate Washington, DC 2014

Joe Stettinius Chief Executive Officer I Cassidy Turley

Kevin Thorpe Chief Economist I Cassidy Turley

DC Metro Market Overview & Forecast

NABE s Consensus Forecast 2013 Forecast 2014 Forecast Median Five Lowest Five Highest Median Five Lowest Real GDP, % change, Q4/Q4 1.9 1.5 2.5 3.0 2.2 4.0 CPI, % change, Q4/Q4 1.6 1.1 2.2 2.1 1.0 2.9 Five Highest Personal Consumption Expenditures Price Index less food energy, % chg, Q4/Q4 2.0 1.1 1.7 1.7 1.2 2.4 Civilian Unemployment Rate, % annual average 7.5 7.4 7.6 7.0 6.7 7.3 Federal Funds Target, % year-end 0.125 0.125 0.147 0.125 0.125 0.750 10-Yr Treasury Note Yield, % year-end 2.76 2.43 3.12 3.29 2.50 3.80 Housing Starts, millions of units 0.95 0.90 1.01 1.16 0.95 1.41 Home Prices, FHFA, % change, Q4/Q4 6.0 2.7 9.7 4.8 2.0 7.5 Oil Prices, $ per barrel, December Average 100 93 107 100 89 112 S&P 500 Index, December 31 1700 1500 1754 1764 1590 1912

Fundamentals Are Healthy Key Economic Indicators HH balance sheets look fantastic Consumer spending accelerating Business confidence surging Housing re-emerges as economic engine Tech cycle driving growth Energy boom keeping gas prices low Corporate profits at record levels Industrial production is soaring

December Jobs Report Ignore It Net Change In U.S. Nonfarm Payrolls, 000 s Source: BLS

Cassidy Turley s Baseline Forecast 2013 2014 Annual Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013E 2014F US Economy Real GDP, % 1.2 2.5 4.1 3.5 3.5 4.4 3.8 2.8 2.8 4.0 Nonfarm Employment, ths. 645 579 479 581 520 686 592 2,237 2,190 2,400 Unemployment Rate, % 7.7 7.5 7.2 7.0 6.8 6.5 6.4 8.1 7.4 6.5 CPI Inflation, % 1.4 0.0 2.6 0.9 1.5 2.5 2.7 2.1 1.5 2.4 CCI 63 75 81 74 78 85 88 67 73 85 10-year Gov't Bond 2.0 2.0 2.7 2.8 3.1 3.3 3.5 1.8 2.4 3.4 Office Sector Vacancy Rate 15.5% 15.2% 15.3% 15.1% 14.9% 14.5% 14.3% 15.8% 15.3% 14.5% Asking Rents $21.73 $21.82 $21.90 $22.00 $22.16 $22.27 $22.35 $21.75 $21.86 $22.31 Industrial Sector Vacancy Rate 8.6% 8.5% 8.4% 8.2% 8.1% 8.0% 7.9% 9.0% 8.4% 8.0% Asking Rents $5.06 $5.07 $5.14 $5.20 $5.26 $5.31 $5.39 $5.05 $5.12 $5.35 Retail Sector Vacancy 10.6% 10.5% 10.5% 10.4% 10.2% 10.1% 10.1% 10.7% 10.4% 10.1% Asking Rents $19.13 $19.19 $19.25 $19.34 $19.39 $19.43 $19.50 $19.08 $19.23 $19.47 Apartment Sector Vacancy 4.3% 4.3% 4.2% 4.1% 4.2% 4.3% 4.5% 4.8% 4.2% 4.1% Asking Rents $1,103 $1,111 $1,122 $1,131 $1,041 $1,049 1,055 $1,085 $1,116 $1,051

DC Metro The last 120 Years

We re #1, We re #1, We re #1... DC Has The Worst Traffic In The United States Annual hours of delay per commuter in U.S. metropolitan areas with more than 500,000 resident (2012) Metro Rank Washington DC Metro 67 Los Angeles 61 San Francisco 61 New York 59 Source: Statista; Bloomberg;Texas A&M Transportation Institute

Ascension To Greatness Annual Hours Of Delay Rank 3rd Rank 1st Rank 10th Source: Texas A&M Transportation Institute

Employment Growth By Decade Washington MSA, 1900 2020, 000 s 500 400 300 200 100 0 New Deal (FDIC, FHA, SEC) Air-conditioning Great Society Dot.com Boom 12 Recessions and 10 Wars Great Recession Source: Census, BLS, Cassidy Turley Research Note: No MSA data available prior to 1990; applied DC Metro % of statewide totals to estimate DC Metro for years prior to 1990

DC Metro Today Competitive Advantage 4 th largest economy in the U.S. 2 nd in job growth since 2000 4 th in lowest unemployment of major metros 2 nd in labor force participation rate 1 st in education, % with bachelor s degree or higher 2 nd in median household income 4 th in net migration since 2000 5 th in population growth of major metros 2 nd in office rent growth since 2000 2 nd in job openings per unemployed person

Recent Trends

ULI Rankings: Top CRE Markets Rank City 2011 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Washington, DC New York San Francisco Austin Boston Seattle San Jose Houston Los Angeles San Diego Denver Dallas/Fort Worth Northern NJ Orange County, CA San Antonio Portland, OR Raleigh/Durham Westchester/Fairfield Chicago Salt Lake City Baltimore Minneapolis/St. Paul Rank City 2013 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 San Francisco Houston San Jose New York City Dallas/Fort Worth Seattle Austin Miami Boston Orange County, CA Denver Nashville Los Angeles San Antonio San Diego Charlotte Raleigh/Durham Salt Lake City Portland, OR Minneapolis/St. Paul Chicago Washington, DC Source: PWC/Urban Land Institute

Job Growth Washington MSA Historical Average Since 1990 = 35,000 Since 2001 = 30,000 Source: U.S. Bureau of Labor Statistics (BLS) *Through November 2013

Job Growth/Decline by Industry DC Metro, 2013 vs. 2012 Leisure & Hospitality (292,000) 12,700 Education & Health (385,000) Prof. & Bus. Services (709,000) Financial Activities (154,000) 6,900 6,100 7,400 Retail Trade (265,000) 2,800 Goods Producing (192,000) Information (76,000) Other Services (186,000) -470-642 -883 Federal Government (372,000) -5,900 (Industry Total Employment Level) Source: Bureau of Labor Statistics -10,000-5,000 0 5,000 10,000 15,000 # of Jobs

Multifamily Is Healthy DC Metro Net Absorption # of Units 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: Cassidy Turley Research, Reis 3,800 Historical Average 8,219 7,215 5,911 2011 2012 2013

Retail Sector Is Healthy Vacancy As Of 2013 Q4, % 10 8 6 4 2 0 4 6.5 9 Submarkets 2.6 3 3.2 3.3 3.4 3.8 Source: Cassidy Turley Research, Costar

Industrial Sector Is Healthy Warehouse Vacancy, % 14 13 12 11 10 9 8 7 6 Source: Cassidy Turley Research, Reis Sub MD NoVa

Office Sector It ain t pretty, but it is available

DC Metro: Office Sector Flat Deliveries Net Absorption Vacancy 12 10 8 2013 Stats: Deliveries: 4.6 msf Net absorption 630k sf Vacancy: 14.9% 16% 14% 12% msf 6 4 2 10% 8% 6% Vacancy 0-2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 4% 2% -4 Source: Cassidy Turley Research New Deliveries Net Absorption Vacancy Rate 0%

Office Leasing Tied To The Gov t Federal Spending Declining Gov t & Contractors Shrinking 170 169 168 167 166 165 164 163 162 161 160 159 $169 $168 $166 $163 2010 2011 2012 2013 84 82 80 78 76 74 72 70 68 66 64 62 0-200 -400-600 -800-1,000-1,200-1,400 Square Feet Given Back, 000's Federal Spending, $bil. Procurement, $bil. -1,600 2011 2012 2013 2014E Source: Center For Regional Analysis, September 2013 Source: Cassidy Turley Research

Law Firms STILL Shrinking DC Metro, Legal Services Employment, 000 s Source: BLS

Tenant s Market Abounds Difference Between Current Office Vacancy & Historical Average 86% of the DC Metro is still Oversupplied Source: Cassidy Turley Research

When Will Office Rents Rise In The DC Region? Absorption vs. Available Office Space Net Absorption Rate = 3.0 MSF/YR Equilibrium Area Source: Cassidy Turley Research 2017 2016

Office Sector Nuances DC Metro: Flight To Quality Is Real 10 5 0-5 Source: Cassidy Turley Research New, High Quality New, High Quality Old, Low Quality Old, Low Quality

The Market Wants This! Natural Light New Space Glass Partition Walls Collaborative Space Creative Designs Benching

Not This Commodity Space Large Offices Dark Unused Conference Rooms Tall Dividing Walls

Office Sector Nuance GSA Lease Expirations Millions 11 10 9 8 7 6 5 4 3 2 1 0 5.2 9.9 9.4 8.3 8.1 4.9 3.9 The Next 3 Years: 27msf of possibilities 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 DC MD VA Source: Cassidy Turley, GSA 9/2013 4.6 2.7 3.4 4.2 3.1 1.8 2.5 0.8 1.7 0.7

The Next 5 Years

Largest Downside Risk Monetary Policy & Interest Rates Forecast Source: Cassidy Turley Research; Moody s Analytics

Bipartisan Budget Act of 2013 Caps On Discretionary Spending, Trillions Fiscal clarity funds gov t thru 2015 Removes 67% of the near-term sequester cuts Does nothing to solve the long-term deficit problem Source: CBO, HBO

Job Growth Forecast DC Metro Annual Job Growth 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: Cassidy Turley Research 37,900a 28,000f 44,667 53,167 53,267 43,167 2013f 2014 2015 2016 2017 Cassidy Turley George Mason University Moody's Average

Takeaway Points DC Metro Period of fiscal uncertainty is coming to an end Interest rates will continue to move upwards The DC metro will create 200,000 net new jobs over the next 4 years Fear of overbuilding in the apartment sector is overstated Office sector will remain a tenants market, with opportunities in the nuances New, high quality space will outperform Significant renovations will pay huge dividends With patience, GSA will eventually deliver

Bill Collins Vice Chairman I Cassidy Turley

Capital Markets Overview

Capital Markets Team Purnima Barua Paul Collins Colin Hartley Phil Mudd Jayne Shister John Campanella Chris Doerr Will Harvey Andrew Pence Paul Spellman Claire Campbell Drew Flood Kia-Charmaine Hunt Kim Pendleton Lauren Szurley James Cassidy Thomas Forrester Kerry McNamara Jud Ryan Anne Vinh Bill Collins Brad Geiger Bob Mills Amber Schofer Shaun Weinberg

Cassidy Turley Capital Markets 2013 Volume DC Metro Office $3.8 billion $2.1 billion $1.2 billion $510 million 62 transactions 14 million sq. ft. of office 3,500 multifamily units Investment Sales Finance Structured Finance Source: Cassidy Turley

2013 Broker Market Share By Total Office Sales Volume DC Metro Office 3.7% 5.8% 14.0% 37.9% 16.6% 22.0% #1 Cassidy Turley Eastdil HFF CBRE Transwestern All Others Source: Cassidy Turley

Office Sales Washington Metro Area OFFICE 2007 2008 2009 2010 2011 2012 2013 Total Volume $12.5 BB $3.4 BB $2.3 BB $4.3 BB $7.2 BB $5.4 BB $6.76 BB # of Transactions 106 44 32 55 73 74 77 Average of Price/SF $370 $411 $301 $338 $400 $339 $349 Cap Rates DC 5.60% 6.00% 6.75% 6.10% 6.01% 5.76% 5.63% Inside the Beltway 6.60% 6.80% 7.50% 6.75% 6.04% 7.06% 6.36% Outside the Beltway 6.80% 7.00% +8.0% 7.0% 7.43% 7.45% 7.85% Source: Cassidy Turley Research

Office Sales Volume Among Major Metros $25 $20 D.C. Metro accounts for 7.1% of total U.S. office sales volume in 2013 $600 $500 Billions $15 $10 $400 $300 $200 Price/SF $5 $100 $0 Source: Cassidy Turley, RCA NYC Metro LA MetroSF Metro DC Metro Chicago Houston Boston Atlanta Dallas Seattle Denver Philly Metro Sales Volume Price Per SF $0

$ Billions Transaction Composition Downtown DC vs. Suburbs $8 $7 $6 $5 $4 $3 $2 $1 $0 2007 2008 2009 2010 2011 2012 2013 Volume Outside Beltway Volume Inside Beltway Volume DC Price per Square Foot $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Source: Cassidy Turley

Office Transaction Volume and $/PSF DC Metro $4.0 $3.41 $600 $3.0 $544 $500 $400 Billions $2.0 $1.0 $1.93 $251 $1.42 $261 $300 $200 $100 Source: Cassidy Turley $0.0 District of Columbia Northern Virginia Suburban Maryland $0

Office Cap Rates Washington, DC Metro Area, all classes 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Source: Cassidy Turley 7.61% 5.63% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 10 Yr Treasury DC MD VA 7.32% 3.04%

Office Buyers Source: Cassidy Turley, RCA 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 21% 48% 48% 41% 28% 24% 33% 11% 15% 11% 16% 25% 16% 39% 17% 11% 13% 9% 12% 9% 26% 26% 29% 5% 11% 31% 2009 2010 4% 4% 5% 2011 2012 2013 8% 2013 Institutional Cross-Border Public Listed/REITs Private User/Other

Cross Border Investment By Country, DC Metro 2012-2013 1000 $996 Millions 800 600 400 200 0 $506 $437 $373 Germany Japan Israel Korea Qatar Norway UK The Netherlands $296 $156 $98 $22 Source: Cassidy Turley, RCA 2012 2013

Multifamily Capital Markets Overview

Multifamily Washington Metro Area 2010 2011 2012 2013 Total Volume $1.63 Billion $2.78 Billion $2.91 Billion $7.93 Billion* # of Transactions 31 52 43 58 Average of Price/Unit $223k $190k $193k $277k Average Cap Rate 5.66% 5.54% 5.24% DC 4.50% 4.77% 4.76% Nova 5.57% 5.60% 5.12% Maryland 6.15% 6.23% 5.83% *Inclusive of the Archstone Portfolio sale totaling $4.33 Billion Source: Cassidy Turley Research

Multifamily 2013 Transaction Volume and $/Unit DC Metro $5.0 $4.42 336,000 $350,000 Billions Source: Cassidy Turley $4.0 $3.0 $2.0 $1.0 $0.0 306,000 $2.09 $1.41 179,000 Northern Virginia District of Columbia Suburban Maryland $300,000 $250,000 $200,000 $150,000

Multifamily Year-To-Date Transaction Volume and $/Unit Major Metros Sale Volume (Billions) $16 $14 $12 $10 $8 $6 $4 $2 $0 $14.9 $252 $9.4 $176 $279 $7.9 $230 $5.6 $5.2 $83 D.C. accounts for 7.8% of total U.S. apartment sales volume in 2013 $4.5 $96 $3.7 $72 $2.8 $2.7 $87 $180 $115 $2.2 NYC Metro LA Metro DC Metro SF Metro Dallas Houston Atlanta Phoenix Seattle Denver $300 $250 $200 $150 $100 $50 Thousands Source: Cassidy Turley, Real Capital Analytics

Multifamily Buyers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 54% 57% 41% 8% 15% 17% 16% 21% 27% 40% 24% 4% 55% 17% 23% 5% 25% 47% Institutional Cross-Border Public Listed/REITs Private Source: Cassidy Turley, RCA 2010 2011 2012 2013 2013 (YTD)

Observations

DC Population DC population growth of 536,000 people between 2007 and 2013 is comparable to the total size of the cities below. In other words, DC added more than a downtown Atlanta to its population between 2007 and 2012. 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Source: Census Bureau Portland Oklahoma City Milwaukee Las Vegas Albuquerque Tucson Atlanta DC Population Growth 2007-2013

Federal Spending In The DC Region $180 $160 $140 $120 $37.5 billion spending $125.5 Forecast $163 Billions $100 $80 $60 $40 $20 $0 Reagan Bush I Clinton Bush II Obama Source: Cassidy Turley Republican Controlled House Democrat Controlled House Light Colored Bar = Opposite Party President

Job Growth Forecast DC Metro Annual Job Growth 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: Cassidy Turley Research 37,900 44,667 53,167 53,267 43,167 2013f 2014 2015 2016 2017 Cassidy Turley George Mason University Moody's Average

DC Metro Supply Office Deliveries by Year Millions Source: Cassidy Turley 18 16 Average 1987 2012: 7.5 msf 14 Average 2013 2017: 3.9 msf 12 10 8 6 4 2 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 DC VA MD

Housing Deliveries Single Family vs. Multifamily 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 26,711 20,088 6,623 19,023 12,069 6,953 Single Family Deliveries Multifamily Deliveries Total Residential Deliveries Source: Moody s Analytics

DC Metro Forecast Multifamily Leasing Fundamentals Number of Units 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Forecast 4.5 3.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 New Deliveries Net Absorption Vacancy Rate Source: Cassidy Turley

2014 Observations Sales Volume remains in the same historic ranges Interest rates rise but Cap Rates remain steady Increased interest from Global and Domestic Buyers Out of favor suburbs become attractive Value Add on the rise

Stephen Dubner Keynote Speaker

Q&A Stephen Dubner