Bloomberg Brief Real Estate Special

special edition 2013
real estate
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Introduction
Welcome to Bloomberg Brief’s special edition on real estate. Investors have
flocked back to the residential and commercial property markets as the
economy has showed signs of recovering. The issuance of bonds backed by
commercial properties is on track to beat last year’s supply and yield premiums
for bonds backed by commercial property loans have narrowed.
Our special edition will help shed light on where we go next. Jefferies
CMBS veteran Lisa Pendergast says she expects CMBS spreads to narrow
by year end, while Fannie Mae economists Douglas Duncan and Patrick
Simmons argue that a slowdown in the growth of the labor force suggests more
modest prospects for the demand for new housing and construction. Emile
J. Brinkmann, the chief economist of the Mortgage Bankers Association of
America, probes how state regulations will affect the pace of foreclosures and
delinquencies. Nicolas Retsinas of Harvard’s Joint Center for Housing has some
advice for lawmakers on GSE reform: Be careful that new rules and regulations
don’t raise borrowing costs. And Donald Trump offers a characteristically
confident view that the recovery in real estate is for real.
VIDEO INTRODUCTION
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at jkrautordover@habitat.org or visit www.habitat.org.
Habitat for Humanity. We build.
Habitat for Humanity believes that
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Through technical support; access
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process, stronger communities
emerge for everyone.

Real Estate By The Numbers
12.2 million Number of U.S. homeowners who owed more than their properties were
worth at the end of the second quarter 2013.
15.3 million Homeowners owed more than their properties were
worth at the end of the second quarter 2012.
4.50% Average rate for 30-year fixed rate residential mortgage loans in September 2013.
3.31% Average rate for 30-year fixed rate residential mortgages in November 2012.
5.35% Average rate for conventional mortgages between 1900 and 1909.
12.68% Average rate for conventional mortgages between 1980 and 1989.
$88.1 billion Total amount of commercial mortgage bonds sold year to date.
$117.6 billion Total CMBS sold in 2012.
$253.9 billion Amount of commercial mortgage securities sold in 2007.
1,027 Number of real estate M&A deals unveiled year to date.
$101.4 billion Value of real estate mergers unveiled year to date.
8 Number of acquisitions announced by Advance Residence Investment year to date, making
it the most acquisitive company within real estate M&A.
9% Projected decline in total residential mortgage loans underwritten in 2013 from 2012.
$619 billion Total amount of loans expected to be underwritten by lenders for residential home purchases in 2013.
$973 billion Total amount of applications expected to be processed by lenders for residential
home mortgage refinancings in 2013.
$10.5 billion Total amount of non-agency residential mortgage debt sold year-to-date.
$3.5 billion Non-agency residential mortgage debt sold in 2012.
$1.2 trillion Non-agency residential mortgage debt sold in 2006.
$1,528 Average profit earned on each loan underwritten by independent mortgage banks and mortgage
subsidiaries of chartered banks in the second quarter of 2013.
$1,772 Average profit earned on each loan underwritten by independent mortgage banks and mortgage
subsidiaries of chartered banks in the first quarter of 2013.
52% Share of all home loans processed by lenders that are used to buy homes in the second quarter of 2013.
12.1% June gain in home prices from year-earlier level.
Source: Bloomberg LP, Brean Capital, Freddie Mac, Mortgage Bankers Association, Zillow, “A History of Interest Rates”(John Wiley & Sons.)

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The Housing outlook will brighten, but for
how long?
Demographic and labor market fundamentals
point to brighter days ahead for housing, but par-
ticipants in housing and mortgage finance should
keep their umbrellas handy, say economists at
Fannie Mae. Page 1
Liquidity Returns to cmbs market
Commercial and multifamily real estate inves-
tors now look to life companies, pension funds,
the government sponsored enterprises, private
equity, and CMBS lenders to finance asset pur-
chases and loan refinancings. Page 3
interview: Goodwin procter’s gil menna
Real estate investment trust mergers might have
picked up if there hadn’t been a wave of stock
exchange listings by non-listed REITs seeking
liquidity for their shareholders. Page 5
Data
Commercial real estate foreclosures, delinquen-
cies, REO properties and CMBS spreads.
Page 6, 7, 9, 11-14
retailers stick to bricks and mortar
Despite the popularity of online shopping, brick-
and-mortar stores still command the lion’s share
of shoppers’ dollars and serve as the cornerstone
for a retailer’s strategic growth plans, says A&G’s
Jonathon Graub. Page 15
higher rates and spending
The issue of higher borrowing costs for home
buyers has already made it into earnings confer-
ence calls, with several businesses voicing
concerns about how higher rates will impact
consumer spending on goods and services, says
Bloomberg’s RichardYamarone. Page 16
data
Real estate owned properties. Page 17-19
data
Commercial real estate lenders with the most
delinquent property loans. Page 22
malls and sluggish retail sales
Mall REITs have enjoyed strong tenant-sales
growth since the credit crisis and recession, let-
ting them increase rents. Now they face difficult
comparisons to past results and limited avenues
for external expansion. Page 23-24
data
IO loans in CMBS, agency collateral, CMBS issu-
ance. Page 25-26
DatA
Florida had the most single family home loans
that are 90 days or more delinquent or are in the
process of foreclosure in the first quarter of 2013.
Page 30
A Menu for gse reform
Market distortions and higher borrowing costs
are just two factors that should be considered
by lawmakers crafting GSE reform legislation.
Page 31-32
Data
Higher rates have eroded demand for home loan
refinancings. In September 57 percent of all loan
applications were for refinancings; in December
2012 they accounted for 84 percent of all loans
processed by lenders. Page 33
delinquencies
Growth in the nation’s economy has not been
uniform and regulations vary with each state.
These are just two factors that will determine
which single family home loans will go delinquent,
according to the Mortgage Bankers Association of
America’s chief economist. Page 34
interview: Marinus’ najib Canaan
The veteran mortgage bond market participant
and co-founder of Marinus Capital looks back at
how the mortgage bond world has changed after
the credit crisis. Page 35
data
Forty NewYork businesses with Chapter 11 peti-
tions involving debt of $1 million or more identified
themselves as single asset real estate, while 29
such filings were California businesses in the first
half of 2013. Page 36
interview: prime lending’s steven la due
Consumer sentiment has improved, driving up
demand for loans to buy homes and much of the
lending is being done by large well-capitalized
firms as opposed to independent brokers. Page 37
mapping out home prices
National home price trends could be misleading
for investors, according to Clear Capital’s Dr.
Alex Villacorta. Page 38-39
interview: Donald Trump
Commercial and residential real estate mar-
kets are making a comeback but President
Obama’s healthcare legislation threatens
the U.S. recovery and has limited real estate
investments, says Trump. Page 40
Contents
Bloomberg Brief Real Estate Supplement
Newsletter Ted Merz
Executive Editor tmerz@bloomberg.net
212-617-2309
Real Estate Aleksandrs Rozens
Editor arozens@bloomberg.net
212-617-5211
CMBS/CRE Product Cheryl Lopez-Collins
Manager clopez12@bloomberg.net
415-617-7026
CMBS Analyst Mohit Malhotra
mmalhotra11@bloomberg.net
212-617-4159
Real Estate Jennifer Prince
Data Editor jprince10@bloomberg.net
212-617-4589
Art Director Lesia (Alexandra) Kuziw
akuziw@bloomberg.net
212-617-5113
Newsletter Nick Ferris
Business Manager nferris2@bloomberg.net
212-617-6975
Advertising Jeff Maniatty
jmaniatty@bloomberg.net
203-550-2446
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© 2013 Bloomberg LP. All rights reserved.

The Housing Outlook Will Brighten, But for How Long?
Over the next sev-
eral years, the two
biggest influences
on the residential
real estate market –
household formation
and job growth – are
signaling a brighter
outlook for the hous-
ing market. Longer
term, however, the
likelihood of less
immigration and the
continued retirement
of Baby Boomers
may damp demand
for housing.
In the short run
there are reasons to
be optimistic. House-
hold formation rates,
which lagged during
the economic slowdown, should recover
along with employment rates, creating
demand for new housing units. Based on
the Census Bureau’s most recent popula-
tion projections and our view that new
household formation will pick up with
continued labor market improvement, we
forecast that almost 1.4 million households
will form when housing markets return to
“normal” in 2016.
This forecast represents substantial im-
provement from recent household growth,
which bottomed at less than half a million
during the Great Recession and is still
running at a sub-million annual pace.
When combined with demand from few
vacant units, our household growth fore-
cast implies a need for more than 1.6 mil-
lion housing starts in 2016. Although well
below housing construction at the peak of
the boom, this forecast represents twice
the level of housing production recorded
last year.
Part of the reason for our optimistic
outlook is that household formation rates
should begin to recover as labor markets
improve, unlocking “pent-up” demand for
housing, particularly among young adults.
During the Great Recession, unemploy-
ment among young adults shot up: The
unemployment rate for people between 18
and 34 increased to 12.7 percent in 2010
from 6.5 percent in 2007.
Facing stormy employment prospects,
many young adults, who otherwise would
have gone to work and formed indepen-
dent households, took shelter in Mom and
Dad’s basement or in college dormitories.
Fortunately, recent data suggest some
thawing of the deep freeze in youth em-
ployment. The unemployment rate among
young adults has declined by about 3
percentage points from its peak.
Although Fannie Mae’s Economic and
Strategic Research Group doesn’t forecast
unemployment rates by age, our latest
Economic Outlook calls for the overall rate
to decline from 7.5 percent this year to 6.0
percent in 2016, steady improvement that
bodes well for the employment prospects
of young adults.
As labor market conditions continue to
improve for young adults, the boost to
household formation could be substantial.
Recent estimates suggest that the release
of pent-up demand alone could lead to a
couple of million household formations,
spread out over several years. That would
create a relatively sunny housing outlook
for the next several years.
Patrick Simmons
Doug Duncan
24
25
26
27
28
29
30
31
32
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011
(rev)
2012
18-34Year-OldsLivingatHome(percent)
Without Good Job Prospects, More Young Adults Live at Home
0
500
1,000
1,500
2,000
2,500
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
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2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total Housing Starts (000s of units) Forecast
Housing Starts Are Expected to Double Between 2012 and 2016
residential real estate
www.bloombergbriefs.com Bloomberg Brief | REAL ESTATE SPECIAL EDITION 1
continued on next page

Over the longer term, however, dark
clouds could be forming on the demo-
graphic and labor market horizons.
Specifically, as described in our recent
edition of Housing Insights, we anticipate a
long-term slowdown in labor force expan-
sion that suggests more modest prospects
for new housing demand and construction
than we have seen historically.
Underlying the workforce growth slow-
down there are two other powerful trends:
a decline in immigration and the contin-
ued retirement of Baby Boomers.
Even using optimistic assumptions about
future labor force participation rates (the
proportion of the population in a given
age and gender that is either employed
or actively looking for work), we forecast
that workforce growth, after rebounding
somewhat from recessionary lows, will be
slow next decade.
During the first half of next decade, we
project that the labor force will grow by
only 0.4 percent to 0.8 percent per year,
a substantial decline from the average
growth rate of 1.5 percent per year experi-
enced between 1948 and 2012.
The implications for housing demand
are substantial. Reviewing five decades
of historical data, we find that the number
of new housing units produced is closely
correlated with labor force growth. The
association between housing produc-
tion and labor force growth is at least as
strong as the correlation between housing
production and growth in households,
payroll employment, or population. Given
the positive correlation between housing
production and labor force growth, the
anticipated marked slowdown in work-
force expansion implies weaker housing
demand and homebuilding activity than
observed in the past.
As a result, we expect demographic
and labor market fundamentals point to
brighter days ahead for housing, but that
players in the housing and mortgage
finance industries should keep their um-
brellas handy.
— Patrick Simmons is director of the strategic
planning economic and strategic research group
at Fannie Mae. Doug Duncan is senior vice presi-
dent and chief economist of the economic and
strategic research group at Fannie Mae.
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1951
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2001
2003
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2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
ChangeinLaborForce(YoY%,3-yearaverage)
History Historical Average
Most Recent BLS Labor Force Projections ESR Base Scenario
ESR Optimistic Scenario
Labor Force Growth Is Expected to Remain Subdued For Years
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Real Estate or any other of our 18 titles contact us today.
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residential real estate…
continued from previous page

Improved Liquidity Propels Commercial Mortgage Bond Issuance To Post-Crisis High
The recovery in the
commercial mortgage
backed securities
market is evident on a
number of fronts.
Most importantly,
major commercial real
estate property markets
have seen rents and
valuations approach
and – at times – ex-
ceed pre-crisis peaks.
The better conditions in the commercial
real estate (CRE) market are also tied to
improved liquidity.
In spite of these positive factors, the
recovery remains uneven across property
markets and asset classes, with weaker
markets only recently garnering attention
as CRE investors broaden their reach
into value-added assets.
Unlike the CRE downturn in the late-
1980s and early-1990s brought on by
overbuilding, macro economic forces and
the drying up of liquidity in the capital
markets fueled the latest downturn.
The recovery in the property markets is
aided by plentiful capital from both U.S.
and non-U.S. equity and debt markets.
Commercial and multifamily real estate
investors now look to life companies,
pension funds, the government spon-
sored enterprises, private equity, and
CMBS lenders to finance asset purchas-
es and loan refinancings.
Increased conduit lending has led to
higher volumes of new-issue CMBS.
Through August 2013, CMBS supply
totals a post-crisis peak of $56.7 billion,
already surpassing 2012’s full-year tally
of $48.4 billion but well shy of the 2007
peak of $243 billion.
After a number of fits and starts, CMBS
issuance is now more consistent in terms of
structure, issuing partners, and collateral.
In 2010, the ten largest loans in a “con-
duit” pool made up over 67% of the pool
and retail loans on average made up
about 40% of a pool.
Both metrics fell in 2012 and in 2013,
making for more diverse bond pools.
CMBS post-crisis underwriting is far
more conservative than was the case in
2007, with rating agency stressed loan to
values and debt service coverage ratios,
or DSCRs, now averaging 95.3% and
1.08 times, respectively versus 111.2%
and 0.91 times in 2007.
Some slippage in underwriting is evi-
dent recently. Stressed loan to values, or
LTVs, and DSCRs are softer versus 2010
levels and the percentage of partial IO
loans has climbed to 30% versus just 6%
in 2010.
The majority of loans are still sized
based on in-place cash flows, and
loan-level disclosure is better than it
has been in the history of this market.
Importantly, credit-enhancement levels
remain substantially higher than those of
pre-crisis deals and increased in recent
years in response to the modest slippage
in underwriting.
Proposed risk-retention rules do not
provide an exemption to single-borrower/
single-asset CMBS so investors should
expect large trophy assets sprinkled pari-
passu in CMBS conduits.
The lower leverage that character-
izes these loans means that, with some
tweaking, many will make the cut as
‘qualified commercial real estate’ loans
under Dodd-Frank. This is positive for
both investors due to the improved credit
quality of the pool – all else equal – and
retainers. These loans reduce the overall
retention obligation by the proportionate
percentage of the loan principal balance
for “qualified” loans.
As for relative value, macro factors may
fan CMBS spread volatility in the coming
months as the market awaits further data
that offers clues to the pace of economic
growth, potential QE tapering, the debate
over the debt ceiling, events unfolding in
Syria, bond outflows, and the effect of all
these factors on benchmark rates.
CMBS spreads likely will widen amidst
the volatility and uncertainty, but yield pre-
miums should tighten into year-end due to
the sector’s attractive relative value versus
competing sectors, sound underwriting of
mortgage loans resold as bonds, and a
slowdown in CMBS issuance.
CMBS bonds up the credit stack will
continue to garner focus given their
heightened liquidity and almost ‘cash-
surrogate’ quality. Spreads on LCF bonds
– at about 103 basis points or more over
swaps – are well off 2013’s tights of 72
basis points over swaps and may widen
even further near term given projected
heavy conduit supply this month.
LCF spreads at 103 to 110 basis points
over swaps should prove a very attractive
entry point.
For now, multifamily directed class
sales of over $7 billion from Fannie Mae
and Freddie Mac dominate the high-
grade legacy space.
The shorter average lives and improved
convexity of these bonds make them bet-
ter relative value plays than legacy super
senior AAA securities.
Look to AAA-rated mezzanine bonds
and select legacy AAA-rated junior bonds
for added risk-adjusted yields once mar-
kets stabilize.
Finally, recently issued BBB- mezza-
nine classes in the 420 basis point over
swaps area are attractive; more conser-
vative investors should focus on better
underwritten 2012 BBB- bonds at still
attractive spreads in the 400 basis points
or more area.
—Lisa Pendergast is a debt strategist
at Jefferies Group Inc.
commercial real estate
Lisa Pendergast
follow the money
in the municipal marketmflo
<Go>

Based: Boston and New York Hometown: Fishkill, New York
Hobbies: Flying (private pilot), skiing, tennis, cycling, pickleball
Education: Syracuse University, BA, Georgetown University, JD and MLT
Books: “Crossing to Safety” and “Angle of Repose” by Wallace Stegner
Restaurant: Hakkasan in New York
Q:What do you expect from REIT M&A
in the second half of this year?
A: We’ve seen those non-exchange-trad-
ed REITs address the need for liquidity for
their shareholders by making the strategic
decision to list on the NYSE. If they’re list-
ing, they’re not selling their company. The
more listings we see in the non-exchange-
traded REIT space, especially in the last
half of the year, the more likely we are to
see less M&A.
We represented Cole Credit Property
Trust II in its sale to SRC [Spirit Realty
Capital Inc.] and that’s because Cole
Credit Property Trust II is looking for
liquidity in 2017 for its investors and Cole
wanted to demonstrate to its investors that
they could effect a liquidity event because
others in the industry, including ARC
[American Realty Capital], were putting
points on the board in providing liquidity.
That was a $7.1 billion merger, a sig-
nificant transaction, and that’s the kind
of thing I think you’ll see less of. Cole, for
example, decided to list CCPT III and re-
name it Cole Real Estate Investments Inc.
The exception to that are a couple of
non-exchange-traded REITs and a big one
called Inland American [Real Estate Trust
Inc.] that has an array of different assets
in it. Dedicated REIT investors make their
asset allocations based on what asset class
they want to go into.They don’t like diversi-
fied REITs. So Inland American is not likely
to list.That’s likely to get broken up.
The REIT industry has a lot of players in
it and you see a lot of M&A at the smaller
levels too, for example we represented
Mid-America [Apartment Communities Inc.]
its acquisition of Colonial [Properties Trust],
that was a smaller deal.
Q: So we shouldn’t conclude from
that transaction that we’ll see more
deals in apartments?
A: It was a unique transaction. Colonial is
a good example of why Inland American
couldn’t list. It was one of the first diversified
REITs. It had apartments, it had retail, it had
office, and they tried to switch their strategy
to become more of a pure apartment play.
But it really didn’t work. So it was a great op-
portunity for MAA, which is a darling on Wall
Street in the apartment sector, to buy that
company because Colonial couldn’t get out
of its own way. It always had a depressed
multiple.Why would you buy it because
it’s not just a pure apartment play? They’re
buying Colonial’s retail and office assets and
they may have to find homes for them.
Q:
The public REIT landscape isn’t espe-
cially consolidated, so why is it so hard
to compel M&A to happen?
A: It’s an excellent question — one that we
keep asking ourselves. If you look back at
the history of apartment REITs, you’ll see
that the sea changes, they come and they
go, they get absorbed. I think that’s likely
to happen, for example, in retail.Arguably,
there are too many retail REITs. Brixmor
[Property Group], for example, is buying
assets and Brixmor’s going to be coming
public now. It’s a 600-pound gorilla.When
they get out it’s going to be interesting to
see what happens to the retail sector.
Retail is a good example of one where
it would be logical. Why doesn’t that hap-
pen? It has to do with social issues. Those
that sit in the executive suite of many of
these REITs see themselves as buyers,
first and foremost, and not sellers. If every-
one sees themselves as a buyer there’s
not likely to be a seller, right?
Q: Is the CommonWealth REIT struggle
with activist investors a bellwether for
the industry in any way?
A: Clearly it’s a one-off.The REIT is spon-
sored by the Portnoy-affiliated listed com-
panies, the Portnoy family, it was externally
advised. Most equity REITs are not exter-
nally advised.When Corvex [Management
LP] and Related [Cos.] saw the opportunity
to internalize management by taking a run
at the public company, you saw an immedi-
ate pop in the stock.There’s such a drain
on the cash flow available for distribution
to shareholders from the contract with the
external manager.
It’s almost no different than the rage that’s
happening in REIT conversions, where
companies can convert to a REIT platform
and save significant corporate tax.
I believe that the activism in the case of
CommonWealth, personally, and I say this
very carefully, was not surprising.And I
might actually err on the side of saying that
it was almost justified, and highly unusual
and not likely to be repeated in the context
of the mainstream REIT industry.
Real estate investment trust mergers might
have picked up if there hadn’t been a wave of
stock exchange listings by non-listed
REITs seeking liquidity for their shareholders,
says Gil Menna, co-chair of the real
estate, REITs and real estate capital markets
group at Goodwin Procter LLP. He spoke with
Will Robinson.
Commercial Real Estate
Exchange Listings, Management Attitudes Limit REIT M&A, Says Goodwin’s Menna
Those that sit in the
executive suite of many
of these REITs
see themselves as buyers,
first and foremost.

July Commercial Mortgage Debt Foreclosure Rate at Lowest Since Oct. 2009
Foreclosures of securitized commercial real estate mortgage
loans tracked by Bloomberg fell in July to a level not seen since
Oct. 2009. The rate of commercial mortgage debt foreclosures
involving all property types in July was 0.76 percent – the lowest
since Oct. 2009 when it was at 0.72 percent.
Foreclosures of commercial mortgage debt peaked in July 2011
when they hit a rate of 1.92 percent.
The 30-day delinquency rate of commercial mortgage debt
involving all property types, which peaked in June 2009 when it
was at 1.33 percent, declined to 0.33 percent in July, according
to data compiled by Bloomberg LP. That’s a low not seen since
December 2008 when they were at 0.36 percent.
Commercial mortgage debt delinquent 60 days was at a rate of
0.21 percent in July, down from 0.22 percent in June and May. In
April it was at 0.21 percent.
Sixty-day delinquency rates were as high as 0.72 percent in
April 2010.
Ninety-day delinquencies of commercial mortgage debt were at
their highest in June 2010 when the rate was 4.06 percent. In July
they were at 1.46 percent.
— Aleksandrs Rozens
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
05/2007 03/2008 01/2009 11/2009 09/2010 07/2011 05/2012 03/2013
DelinquencyRate(Percent)
30 Day 60 Day 90 Day-plus Foreclosure
Source: Bloomberg LPSource: CRE <GO>, REDQ <GO>
MakE an IMpaCT wITh
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Commercial real estate
Hospitality Property Foreclosures Drop Below One Percent for First Time Since Jan. 2010
0
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3.5
4
5/1/2007 3/1/2008 1/1/2009 11/1/2009 9/1/2010 7/1/2011 5/1/2012 3/1/2013
Rate(Percent)
Source: Bloomberg LP
0
0.5
1
1.5
2
2.5
3
3.5
4
5/1/07 3/1/08 1/1/09 11/1/09 9/1/10 7/1/11 5/1/12 3/1/13
Rate(Percent)
0
2
4
6
8
10
12
14
16
5/1/07 1/1/08 9/1/08 5/1/09 1/1/10 9/1/10 5/1/11 1/1/12 9/1/12 5/1/13
Rate(Percent)
0
1
2
3
4
5
6
7
5/1/07 3/1/08 1/1/09 11/1/09 9/1/10 7/1/11 5/1/12 3/1/13
Rate(Percent)
Foreclosures of mortgage debt secured by hospitality proper-
ties fell in July to their lowest rate since January 2010. The
foreclosure rate of mortgages for hospitality was at 0.9 percent
in July, down from 1.06 percent in June. This is the first time
they have been below 1 percent since January 2010 when the
figure was 0.95 percent.
Foreclosure rates for other commercial real estate also fell in July.
Retail property foreclosure rates were at 1.02 percent in July,
down from 1.09 percent in June. In July mortgage debt secured
by office properties saw foreclosure rates of 1.32 percent, down
from 1.56 percent in June and a low not seen since March 2011
when they were at 1.3 percent.
Foreclosures of mortgage loans backed by industrial proper-
ties were 0.83 percent, down from 0.88 percent in June. They
peaked at 2.08 percent in July 2011.
– Aleksandrs Rozens
Retail Property Foreclosures Office Property Foreclosures
Hospitality Property Foreclosures Industrial Warehouse Property Foreclosures
LOOKUP YOUR FUND
WITH ONE CLICK FL
<GO>

23
JOIN USa t P R E A’ s
twentyt h i r d
a n n u a l
I n s t i t u t i o n a l
I n v e s t o r
R e a l E s t a t e
C o n f e r e n c e
O c t o b e r 2 8 – 3 0, 2 0 1 3
T h e F a i r m o n t C h i c a g o, C h i c a g o, I L

South Carolina Among Top States With 30-, 60- and 90-Day or More Delinquencies
South Carolina and Georgia commercial properties were among the most delinquent as of Aug. 2, according to Bloomberg LP. South
Carolina had 161 properties with debt 90 days or more delinquent accounting for 3.45 percent of the state’s securitized commercial
mortgage debt; 12 properties were 30 days delinquent and five were 60 days delinquent.
30-Day Delinquencies 60-Day Delinquencies 90-Plus-Day Deliquencies
RANK STATE
% OF
BAL
DQs
($M)
STATE
TOTAL
BAL
($B)
NO. OF
PROPS
STATE
% OF
BAL
DQs
($M)
STATE
TOTAL
BAL
($B)
NO. OF
PROPS
STATE
% OF
BAL
DQs
($M)
STATE
TOTAL
BAL
($B)
NO. OF
PROPS
1 West Virginia 7.64 111.94 1.46 4 Wyoming 2.95 12.92 0.44 1 South Carolina 3.45 278.85 8.08 161
2 South Dakota 1.83 13.63 0.74 2 Connecticut 1.33 135.43 10.17 2 New Mexico 3.45 99.51 2.89 21
3 Rhode Island 1.58 23.03 1.46 1 Tennessee 0.87 97.32 11.13 15 Virginia 3.22 1,036.83 32.18 122
4 Mississippi 1.20 34.14 2.83 9 Georgia 0.68 174.73 25.57 27 Michigan 3.00 476.96 15.91 44
5 New Hampshire 1.14 22.51 1.98 3 Ohio 0.64 125.12 19.60 14 Arizona 2.88 540.83 18.75 66
6 South Carolina 1.08 86.98 8.08 12 Massachusetts 0.49 99.87 20.53 5 Georgia 2.69 688.52 25.57 195
7 Tennessee 0.96 106.55 11.13 18 Texas 0.48 349.52 72.38 35 Delaware 2.69 87.83 3.27 4
8 Colorado 0.85 139.79 16.45 6 Michigan 0.43 68.00 15.91 9 Wyoming 2.68 11.74 0.44 3
9 Pennsylvania 0.69 168.77 24.30 12 South Carolina 0.39 31.26 8.08 5 Nevada 2.53 338.04 13.35 47
10 Indiana 0.68 76.00 11.18 6 Illinois 0.38 121.43 32.24 10 Nebraska 2.53 67.03 2.65 6
11 Michigan 0.49 77.72 15.91 10 Nevada 0.38 50.36 13.35 7 Wisconsin 2.52 193.76 7.68 150
12 Georgia 0.46 118.89 25.57 33 Alabama 0.37 28.02 7.60 9 Idaho 2.41 29.66 1.23 17
13 New Jersey 0.46 104.24 22.55 9 Pennsylvania 0.35 85.92 24.30 8 South Dakota 2.36 17.58 0.74 2
14 New Mexico 0.45 13.06 2.89 2 Wisconsin 0.35 26.52 7.68 8 Indiana 2.29 255.69 11.18 43
15 Arizona 0.42 79.20 18.75 14 Louisiana 0.30 21.30 7.07 2 Massachusetts 2.27 466.03 20.53 25
16 Wisconsin 0.37 28.40 7.68 20 Delaware 0.18 5.83 3.27 1 Mississippi 2.20 62.30 2.83 50
17 North Carolina 0.36 79.83 22.34 37 North Carolina 0.17 37.86 22.34 10 Ohio 2.19 429.23 19.60 48
18 Utah 0.35 19.50 5.52 1 Arkansas 0.16 5.09 3.10 3 Louisiana 2.18 154.15 7.07 20
19 Florida 0.34 178.96 51.95 41 Indiana 0.16 17.86 11.18 5 Florida 2.17 1,126.67 51.95 267
20 Virginia 0.31 99.58 32.18 14 New Jersey 0.14 31.56 22.55 3 Connecticut 2.10 213.63 10.17 23
21 Missouri 0.31 29.10 9.43 9 Arizona 0.14 25.49 18.75 3 Pennsylvania 2.10 510.04 24.30 55
22 California 0.30 358.15 119.37 27 Virginia 0.13 41.13 32.18 8 North Carolina 1.93 430.88 22.34 148
23 Kentucky 0.29 16.18 5.61 2 Florida 0.12 63.95 51.95 15 Oklahoma 1.81 83.93 4.64 16
24 Maine 0.29 3.52 1.20 2 Idaho 0.12 1.46 1.23 2 Missouri 1.59 150.39 9.43 39
25 Texas 0.26 187.09 72.38 134 Colorado 0.10 16.06 16.45 3 Alabama 1.50 113.86 7.60 165
* Ties in rank are broken by number of properties and total delinquent balance.

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0
200
400
600
800
1000
1200
1400
1600
1/6/06 1/6/07 1/6/08 1/6/09 1/6/10 1/6/11 1/6/12 1/6/13
SpreadsVersusSwaps(BasisPoints)
Source: Commercial Real Estate Direct
AAA five-year
CMBS spreads hit
1,500 basis points
over swaps, while
U.S. Treasury
10-year notes
fell to 2.60 percent
on Dec. 12, 2008.
Legacy AAA-rated five-year commercial
mortgage bond yield premiums over
swaps are wider from June when the
spread was at 120 basis points, accord-
ing to data compiled by Commercial Real
Estate Direct – crenews.com. In July 2012
these five-year AAA CMBS spreads were
at 185 basis points, compared with 150
basis points this summer.Yield premiums
of these securities were as high as 1,500
basis points in December 2008. To get
this data on your terminal, please type in
CMB <GO>
AAA Five-Year CMBS Wider From June, Narrower From Year-Ago
AAA five-year CMBS
spreads hit 1,500 basis
points over swaps, while
U.S. Treasury 10-year
note yields fell to 2.60%
on Dec. 12, 2008.
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Twelve Properties Make Iowa Top State for Commercial Real Estate Foreclosures
Twelve Iowa properties in foreclosure
accounted for 3.53 percent of the state’s
commercial mortgage debt as of Aug.
2, according to Bloomberg LP data. In
Nevada, 3.11 percent of the commercial
mortgage debt in the state was in fore-
closure, while 2.46 percent of the com-
mercial mortgage debt in New Jersey was
in foreclosure, as of Aug. 2. Twenty-four
Nevada properties were foreclosed on
and 41 New Jersey commercial properties
were being foreclosed on as of Aug. 2,
according to Bloomberg LP.
To access this data on your Bloomberg
terminal, please type in CRE <GO> or
REDQ <GO>
(Percentage of state’s commercial mortgage debt in foreclosure)
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Nevada Has Highest Percentage of Real Estate Owned Property in U.S.
Nevada was the state with the highest
percentage of real estate owned property
as of Aug. 2; 7.89 percent of its securi-
tized commercial mortgage debt was real
estate owned, according to Bloomberg
LP Data. Nevada had 62 properties with a
real estate owned balance of $1.05 billion.
Vermont had one property that was real
estate owned accounting for 6.64 percent
of the state’s securitized commercial mort-
gage debt and Georgia’s 122 properties
accounted for 6.08 percent of the state’s
securitized commercial real estate debt.
To get this data on your terminal, please
type in CRE <GO> or REDQ <GO>
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(Percentage of state’s securitized commercial mortgage debt that is real estate owned)

Nevada Has Highest Percentage of Real Estate Owned Hospitality Properties
rank State % of Bal REO Bal (USD) Total Bal (USD)
Number of
Properties
1 Nevada 14.82 143,217,628 966,393,864 2
2 New Mexico 13.43 58,926,129 438,786,517 3
3 Idaho 11.03 8,737,433 79,239,792 1
4 Maryland 8.34 149,782,029 1,795,100,833 2
5 Alabama 7.07 45,718,463 646,657,281 2
6 Arizona 5.31 98,152,805 1,849,334,251 7
7 Illinois 5.18 184,291,716 3,561,032,250 11
8 Wisconsin 4.55 31,691,534 695,967,486 3
9 Tennessee 4.21 62,581,243 1,485,392,700 4
10 Texas 4.19 277,007,958 6,608,532,933 11
11 South Carolina 3.98 52,197,846 1,311,796,016 7
12 Missouri 3.93 39,482,217 1,005,861,764 2
13 Utah 3.76 17,341,467 461,566,087 2
14 Florida 3.61 314,388,402 8,705,776,590 20
15 Louisiana 3.24 24,534,974 757,992,488 3
16 Nebraska 2.71 4,799,648 177,239,006 3
17 Michigan 2.46 24,626,344 1,001,801,064 8
18 Pennsylvania 2.29 56,539,643 2,472,250,095 3
19 Georgia 2.20 47,385,077 2,154,791,752 5
20 Massachusetts 2.07 51,000,000 2,457,982,932 1
21 Kentucky 1.84 12,635,508 688,345,326 1
22 California 1.83 267,182,198 14,574,149,450 14
23 Washington 1.54 31,585,246 2,047,399,066 4
24 Mississippi 1.54 5,263,158 341,264,656 1
25 Oregon 1.53 14,550,535 952,553,115 1
Two of Nevada’s commercial real estate loans backed by hospitality were real estate owned, accounting for 14 percent of all of the
state’s securitized commercial mortgage debt as of Aug. 2, according to Bloomberg. Florida, with 20 real estate owned hotels, had the
most hotel property loans that fell into the REO category.

Retailers Fend Off Online Competition by Revamping Physical Store Locations
Besieged by cost-
conscious shoppers,
stiff competition, the
proliferation of mobile
payment and Internet
shopping, U.S. retailers
are looking to extract
value from brick-and-
mortar store locations.
Video rental busi-
nesses, book sellers
and electronic equip-
ment sellers have been
hard hit and businesses such as Block-
buster Inc., Borders Group and Circuit
City Stores Inc. have been forced to seek
out bankruptcy court protection; many
eventually liquidated their assets. In spite of
their varied products and business models,
Borders, Circuit City and Blockbuster shared
one commonality: too many underperform-
ing stores that needed to be closed well
before the companies embarked on a
restructuring process.
Despite the popularity of online shopping,
brick-and-mortar stores still command the
lion’s share of shoppers’ dollars and serve
as the cornerstone for a retailer’s strate-
gic growth plans.Although it faces new
challenges the retail industry offers strong
growth opportunities for executives who are
willing to take advantage of their own real
estate and other retail properties that come
up for sale when these businesses fail.
The current response among retailers
to changing market conditions in terms of
managing their real estate could be one
of the most significant periods in the retail
industry’s history since the shopping center
concept was developed in the 1950’s.
With retail spending exhibiting little growth
at a mere 0.2 percent uptick last month
from July, based on Commerce Depart-
ment data, retail executives are looking
at how to get the most out of their brick
and mortar locations along with traditional
methods aimed at managing a downturn
in consumer spending: merchandising,
product line overhaul and better seasonal
inventory management.
Take, for example, the $2.9 billion,
$16-per-share acquisition of Saks Inc. by
Toronto’s Hudson’s Bay Company an-
nounced on July 29.The deal is predicated
in large part on unlocking the inherent value
of real estate owned by both businesses,
which operate their respective stores under
the Hudson’s Bay, Lord & Taylor and Saks
Fifth Avenue brand names.
As Hudson’s Bay pointed out in an an-
nouncement unveiling the acquisition, the
companies’ combination will create an
unrivaled coast-to-coast North American
real estate portfolio comprised of stores
located in major shopping areas within
New York, Beverly Hills, Toronto, Van-
couver and Montreal, among others. Its
store base will mushroom to 320 includ-
ing 179 full-line department stores, 72
outlet stores and 69 home stores spread
between the U.S. and Canada.
The Canadian retailer said it plans to
evaluate strategic alternatives to fully realize
the value of the combined companies’ real
estate portfolio, including the creation of a
real estate investment trust.
In addition to managing inventory, how
retailers use their physical space has come
under greater scrutiny. Some big box play-
ers are moving to use their existing store
space in creative ways, such as forming
joint ventures that allow another company to
lease its space. Best Buy, for example, has
teamed with Microsoft to allow the software
giant to establish 500 stores within its own
stores. Microsoft will be able to obtain retail
store exposure at a fraction of the cost
required to develop or open its own stand-
alone locations, while Best Buy diversifies
its revenue stream and take advantage of
excess floor space.
Others have moved to consolidate their
real estate in order to trim costs amidst
re-jiggering product lines and making price
point adjustments on merchandise. Publicly
traded Jones Group Inc., for example, has
moved to prune underperforming stores
from its portfolio.The NewYork-based com-
pany, which manages the Nine West and
Anne Klein brands, announced in April that
it would shutter 170 stores in order to save
$40 million to $60 million over 15 months.
Rationalizing store size, the number of
units in a market, and making sure whether
the stores are situated in high traffic areas
such as shopping centers should be of
paramount concern for retailers. Having the
correct store footprint is crucial to being an
efficient and successful merchant.
When store comps and margins are under
pressure due to the impact of economic
issues the ability to find alternative uses for
space, whether expanding assortments,
establishing branding departments, or other
means of utilizing space becomes more
important than ever. Downsizing, while un-
appealing as it is, or relocating a business
to another location of better size must be a
serious consideration.
If retail real estate executives are going to
be successful in the New Millennium they
must look further down the road than the
next quarter’s projected revenues or switch-
ing the line up on seasonable fashions
as apparel sellers must do.They must be
willing to adjust their thinking and strategy
for growth. For those unable to evolve
quickly enough, there looms the unattractive
prospect of having to close stores and start
restructuring its business.
Adapting is important but, so too, are long
term planning and real estate consider-
ations. Strategic decisions about managing
properties should be made at least three
years in advance to best position brick-and-
mortar stores for the future.
Significant thought and analysis must
also come into play when it becomes time
to engage in the lease renewal process.
Often, relocating a store to the proper size
is cheaper and easier than other tough
decisions, such as implementing a down-
sizing and store closure plan.
At the same time strategic market re-
views held at least once a year will help
ensure a retailer understands changing
market conditions and adjusts to devel-
oping trends more effectively. Implement-
ing efficient processes, using analytics
and formulating the right strategy can
determine how well retailers manage
their costs. Occupancy must be kept un-
der control for retailers to be successful
and grow, which in the long run, is better
for everyone.
— Jonathon Graub is a principal in the
commercial real estate,advisory and
investment group at A&G Realty Partners,
where he focuses on retail real estate.
Jonathon Graub

Richard
Yamarone
Bloomberg Economist
commercial & residential real estate
To see Orange Book postings on
the Bloomberg terminal type NI
ORANGEBOOK <go>
Boston Properties [BXP] Earnings Call,
7/31/13: “In the markets that we are in,
primarily, San Francisco, and Washing-
ton, and Boston, and Cambridge in the
Boston area – these markets are not
just the downtown areas, but markets in
general, and of course, New York have all
been performing relatively better than the
overall national economy. In fact, these
are perhaps the four best cities or among
the four best cities – these four markets
and the cities in general have done better
than the overall economy.”
Starwood Hotels [HOT] Earnings Call,
7/25/13: “We continue to see a great deal
of confidence among real estate investors
and developers in Mexico, for Mexican
markets and that’s been the source of
our pipeline for our business there. At the
same time, there’s been an overall growth
in the Latin American business, and
when you look at markets like Brazil, for
example, you see a massive growth in the
middle class, very much along the lines
of what we’ve seen in other parts of the
world, including Asia.”
Weyerhaeuser [WY] Earnings Call,
7/26/13: “In Real Estate, we expect con-
tinued improvement in our single-family
homebuilding business as a result of a
strengthening housing recovery, espe-
cially in Southern California, as well as a
seasonally stronger third quarter com-
pared to the second quarter. Sales have
continued at a brisk pace and we expect
to close over 700 homes in the third
quarter compared to the 636 closed in the
second quarter.”
Simon Property Group [SPG] Earnings
Call, 7/29/13: “There’s nothing more than
buying something cheap that excites me
and the team here. So we love to buy
things really cheap. And if that can be
done on a distressed basis, we like it as
long as – ultimately we’ve got to believe
in the real estate because we’re not, well,
I wouldn’t say we’re traders. So at the
end of the day we’ve got to have a long-
term view that we like the cash flow that’s
being generated from the real estate.”
Wynn Resorts [WYNN] Earnings Call,
7/31/13: “The amount of money that’s
been lost in Las Vegas in the last four
years, in terms of abandoned projects,
and marked down values from the Frontier
and the Stardust property to Fontaineb-
leau and Cosmopolitan and CityCenter
and places like that has been astro-
nomical. I don’t even like to think what that
number is, but Las Vegas is perking along,
because there’s tremendous choices that
are available to people of every income
level. The infrastructure in Las Vegas is
almost impossible to duplicate. And that’s
the reason why it survives California
Indian gaming and all these other jurisdic-
tions. It doesn’t get any easier, but Las
Vegas is managing to hold its head up.”
Kimco Realty [KIM] Earnings Call,
7/31/13: “Overall, our industry maintains
its quarter-by-quarter recovery. Retail-
ers continue to grow their expansion
plans and coupled with a 35-year low in
new supply, effective rents are moving
up materially. Consumer spending and
retail sales are also doing well, despite
the sequester and the beginning of rising
interest rates.”
Beazer Homes [BZH] Earnings Call,
8/1/13: “But there is an elephant in the
room, and that’s rising mortgage rates.
Ordinarily an uptick in mortgage rates acts
as a bit of an accelerant, pulling demand
forward as buyers worry about getting hurt
by future rate increases. And when the
rates started moving in May, that’s what
we anticipated. But it’s turned out a little
differently, at least in our communities.
While traffic levels are still up year-over-
year, our sales pace particularly in June
and July has been a little bit softer than
we expected.”
D.R. Horton [DHI] Earnings Call,
7/25/13: “I think everybody is just going
to have to get accustomed to the fact that
we’re in a slightly rising interest rate envi-
ronment.You’re not going to see anybody
for a while because people are frankly a
little freaked out about, well I missed the
low. And why didn’t I buy a home when
the rates were an eighth of a percent
lower? But those people come back and
they’re ultimately – most of them going
to buy.”
The issue of higher borrowing costs for home
buyers has already made it into earnings con-
ference calls, with several businesses voicing
concerns about how higher rates will impact
consumer spending on goods and services.
Other issues hanging over Corporate America
include sequestration, a soft household sector
and the need for a heavily promotional envi-
ronment. The Bloomberg Orange Book Senti-
ment Index, a measure of sentiment among
the most economically U.S. companies, has
been below 50 for 31 consecutive weeks – a
signal of economic contraction.
There is an elephant in
the room and that’s rising
mortgage rates.
where are people buying in
the municipal bond market? mFlo
<go>

Arkansas Has Highest Percentage of Real Estate Owned Retail Properties
Number of
Properties
1 Arkansas 14.28 130,967,404 917,373,551 2
2 Vermont 13.62 36,437,434 267,615,103 1
3 Colorado 8.86 304,148,666 3,431,695,484 14
4 Georgia 6.14 399,010,185 6,503,181,590 33
5 South Carolina 5.98 115,801,622 1,938,258,497 8
6 Michigan 5.35 218,992,927 4,094,773,062 17
7 Nevada 4.77 244,936,543 5,137,492,753 15
8 Indiana 4.57 127,620,594 2,794,771,079 13
9 Arizona 4.47 245,074,051 5,479,113,247 20
10 Missouri 4.28 105,934,075 2,474,641,329 5
11 Maryland 4.13 199,032,904 4,821,239,212 9
12 Illinois 4.05 251,809,290 6,218,307,124 21
13 Kansas 3.87 43,283,957 1,119,717,813 3
14 Mississippi 3.87 22,330,195 577,794,448 4
15 California 3.84 1,068,224,673 27,843,126,895 53
16 New Mexico 3.32 25,009,852 753,285,866 4
17 Massachusetts 3.14 112,130,370 3,567,967,425 5
18 Tennessee 3.01 65,447,297 2,172,421,254 15
19 Louisiana 2.99 58,820,310 1,963,432,338 4
20 Florida 2.86 397,032,373 13,868,537,428 30
21 Wisconsin 2.82 58,454,750 2,069,659,906 7
22 Washington 2.46 61,522,372 2,503,647,156 6
23 North Carolina 2.36 131,507,934 5,569,210,259 14
24 Virginia 2.33 150,778,475 6,477,111,460 9
25 Utah 2.32 28,381,355 1,222,765,588 7
Mortgages for two retail properties in Arkansas made up 14.28 percent of the state’s securitized commercial mortgage debt as of Aug.
2, according to Bloomberg LP. The REO balance of the two retail property loans is $131 million. California’s 53 real estate owned retail
properties made up 3.8 percent of the state’s securitized commercial mortgage debt.

Arizona Has Highest Percentage of Real Estate Owned Office Properties
Number of
Properties
1 Arizona 19.26 488,826,982 2,537,906,626 29
2 Minnesota 18.33 225,841,866 1,231,918,436 8
3 Georgia 17.83 741,346,358 4,157,608,649 31
4 Rhode Island 16.49 43,500,001 263,720,471 1
5 Nevada 15.44 227,182,798 1,470,937,608 19
6 Arkansas 14.59 38,304,669 262,620,543 2
7 Kansas 13.42 86,431,126 643,910,153 7
8 Michigan 12.16 271,998,735 2,236,676,095 31
9 Iowa 11.55 6,348,661 54,990,475 1
10 Alabama 11.43 106,655,345 933,319,566 8
11 New Jersey 9.83 516,338,548 5,254,180,878 16
12 Indiana 9.14 92,138,565 1,008,533,320 5
13 Missouri 8.39 120,500,349 1,436,694,464 10
14 Maryland 7.06 287,313,709 4,068,257,793 14
15 Florida 5.94 396,870,191 6,684,633,907 37
16 California 5.92 1,634,075,368 27,622,006,523 55
17 South Carolina 5.71 35,595,481 623,033,298 7
18 Ohio 5.43 126,541,727 2,328,637,968 7
19 Tennessee 5.40 77,880,054 1,441,502,480 5
20 Idaho 4.49 9,100,002 202,454,865 2
21 North Carolina 4.49 121,931,252 2,716,988,067 14
22 Hawaii 4.10 26,228,668 638,955,142 2
23 Pennsylvania 3.85 185,686,842 4,822,749,257 10
24 New Mexico 3.66 11,747,823 320,972,905 2
25 Colorado 3.11 79,487,222 2,555,930,742 8
Arizona has mortgage debt on 29 office properties that are real estate owned, which accounts for 19.26 percent of the state’s securitized commer-
cial mortgage debt as of Aug. 2. California’s 55 REO properties accounted for 5.92 percent of the state’s securitized commercial mortgage debt.

Rhode Island Has Highest Percentage of REO Warehouse Properties
Number of
Properties
1 Rhode Island 40.85 2,959,237 7,243,517 1
2 Tennessee 32.35 269,154,851 832,080,911 47
3 Colorado 14.27 49,060,384 343,838,720 8
4 North Carolina 13.17 95,209,844 722,813,312 10
5 Missouri 11.85 50,682,970 427,873,949 6
6 West Virginia 8.58 3,043,348 35,468,108 1
7 Iowa 8.27 12,464,479 150,734,157 1
8 Ohio 7.99 79,888,531 999,507,320 7
9 Minnesota 7.91 25,588,684 323,572,925 6
10 Georgia 7.74 73,878,262 954,798,412 10
11 Michigan 7.68 51,459,351 669,733,792 16
12 Pennsylvania 7.11 97,565,621 1,371,958,302 9
13 New Jersey 5.47 87,871,829 1,606,782,412 16
14 Florida 5.41 73,827,769 1,365,000,942 14
15 Texas 4.88 89,171,681 1,828,815,683 10
16 Arizona 4.68 25,177,573 538,332,130 5
17 Nevada 4.50 20,034,523 445,012,948 5
18 New Mexico 3.73 2,268,379 60,787,837 1
19 Illinois 3.04 30,698,937 1,011,398,795 3
20 Indiana 2.82 19,550,732 692,646,566 4
21 California 2.66 141,678,660 5,331,081,424 16
22 Louisiana 2.24 4,721,394 210,336,223 1
23 Wisconsin 2.21 12,727,489 575,284,921 5
24 Massachusetts 2.04 17,013,591 833,348,815 3
25 Virginia 1.03 8,410,001 812,706,519 1
A single real estate warehouse property accounted for 40.85 percent of the state’s securitized commercial mortgage debt as of Aug. 2,
according to Bloomberg LP. Real estate owned loans on 47 Tennessee warehouse properties made up 32.35 percent of the state’s com-
mercial mortgage debt as of Aug. 2.

Henderson Property andTIAA-CREF
Global Real Estate recently announced the
formation of a new $63bn global investment
management company. Here James Darkins
and Mike Sales of Henderson’s Property
team andTom Garbutt, Mark Wood and Phil
McAndrews ofTIAA-CREF speak about joining
forces to create the fourth largest real estate
investment management business.
What is the purpose of the new joint
venture (“JV”)?
Darkins:The JV will be an investment
management company that will pursue
core and value-add investments in all
major sectors of real estate, and will
focus on providing clients with increased
global access to new opportunities,
particularly in Europe and the growing
Asia Pacific region.
What was the reasoning behindTIAA-CREF
and Henderson Property coming together
to form this JV?
Garbutt: TIAA-CREF and Henderson
both recognize that meeting the needs
of today’s institutional real estate
investors requires the appropriate scale
and expertise to successfully pursue
opportunities around the globe.
Darkins: The JV will provide a platform
with significant global scale and a deep
pool of experienced regional and sector
specialists, leading to improved access
to opportunities and greater capacity to
innovate and deliver new investment
products and solutions for our clients.
Sales: It provides the optimum
opportunity to drive the growth of
both businesses. Henderson wants
to build on its expertise in providing
institutional blue-chip quality real estate
investment opportunities, and grow its
key franchises from a predominantly
European base, while TIAA-CREF has a
large pool of real estate assets, skills and
capabilities, primarily in North America,
which it is seeking to diversify.
Wood: Internationally, a major resource
that Henderson is bringing to the deal is
its local ‘feet on the ground’ presence in
markets where we see long-term potential
and value for clients, but currently have
Henderson Global Investors and TIAA-CREF to create global real estate giant
limited exposure. TIAA-CREF is looking to
regionally diversify its real estate portfolio
and product offerings, which are currently
centered in North America.We are
particularly focused on the fast-growing
Asia Pacific region, where Henderson
has already begun to establish a strong
presence and growing business.
How will the new company be structured
and who will be the leadership team?
Wood: TIAA-CREF will hold a 60 percent
interest and Henderson will hold a 40
percent interest in the new JV. The senior
management team will consist of
Tom Garbutt as Chairman, currently
TIAA-CREF’s head of global real estate;
James Darkins as CEO, currently
Henderson’s head of global property;
myself as COO, currently TIAA-CREF’s
head of European real estate; Mike Sales
as managing director for Europe, currently
Henderson’s managing director and CIO
of global property; and Phil McAndrews
as managing director for North America,
currently TIAA-CREF’s head of global real
estate transactions and JVs.
Sales:The company will be headquartered
in London and will have approximately
225 employees across Europe, Asia Pacific
and North America. International locations
will include Henderson’s existing offices in
Beijing, Frankfurt, Hamburg, Hong Kong,
London, Luxembourg, Madrid, Milan,
Paris, Singapore, Stockholm, Sydney
and Vienna, as well as additional new
representation in NewYork.
How will the JV fit with the North
American business?
McAndrews: TIAA-CREF is fully acquiring
Henderson’s existing North American real
estate business, in a separate but related
transaction to the JV.The combined North
American business, under
TIAA-CREF, will be fully aligned with
the JV and provide domestic investment
management on its behalf. Overall, there
will be approximately 150 total real estate
staff in the U.S. across seven locations:
NewYork, Newport Beach, Charlotte, San
Francisco, Boston, and, with the addition
of Henderson’s U.S. team, Chicago and
Hartford.Total U.S. real estate assets
under management, when combining
Henderson’s with TIAA-CREF’s, currently
represents approximately $43.5 billion.
Garbutt: While the JV will focus on
opportunities in Europe and Asia Pacific,
TIAA-CREF will focus on North American
investments and opportunities on behalf
of the JV.The teams will all work together
in developing, distributing and servicing
real estate investment solutions for our
clients worldwide, as one seamless
global organization.
How do the firms’ investment philosophies
compare?
Darkins: Both firms emphasize a
disciplined investment process centered
around top-down fundamental research
coupled with bottom-up local market
knowledge, and both believe in global
reach as an overall diversification strategy.
Both businesses are managed based on a
proprietary research process, disciplined
portfolio construction, and focused risk
management.
McAndrews: We believe consistent results
are built on a reliably solid investment
process involving proprietary analysis
of top-down research, a disciplined
portfolio construction methodology, and
focused risk management. Consistent
Mark Wood, James Darkins,Tom Garbutt, Phil McAndrews and Mike Sales
SPECIAL ADVERTISING SECTION

results are also dependent on bottom-up
expertise through local market presence
and maintaining active long-standing
relationships with local developers,
property management firms and real estate
brokers, as well as, of course, a rigorous
underwriting process.
Will there be a sustainability focus?
Sales: Both firms are committed to
sustainability measures. Both recognize
that sustainability underpins the embedded
value of assets and the long-term
performance delivered. Henderson’s
Responsible Property Investment (RPI)
philosophy is based on continuous,
measurable improvement, and the
property business works to a clearly
defined RPI policy designed to protect and
hopefully enhance returns to investors
over the long term. Current initiatives
range from employing renewable energy
incentives via the installation of PV panels
to encouraging biodiversity through the
installation of beehives at several retail and
office properties.
Wood:TIAA-CREF’s commitment
to sustainability measures includes
seeking ways to enhance the value and
competitiveness of our real estate assets
through portfolio-wide opportunities to
realize high returns on investments in
those measures. From mandating LEED
certification for all new development
projects to pursuing Energy Star
certification for all eligible properties,
TIAA-CREF’s activities to drive greater
energy efficiency help our real estate
assets to stand out in the market.With
sustainability being as important to our
clients as us, the JV will definitely have
a sustainability focus imbedded in its
investment philosophy.
In what other ways do the firms
complement each other?
Darkins: TIAA-CREF’s investments have
historically been concentrated in North
America, while Henderson’s biggest
presence has been in Europe, and more
recently in Asia Pacific, which, when
combined, provides a solid base on
which to build and expand the JV’s global
platform. Also, while both firms primarily
invest in the four major property types,
TIAA-CREF is more heavily weighted
toward the debt sector, while Henderson’s
assets mainly comprise private equity
investments. In addition, about 80
percent of TIAA-CREF’s investments are
in the core space with the remainder
in the value-add and opportunistic
spaces, while Henderson’s assets are
approximately 55 percent core, 45
percent value-add.These variations will
combine well to create a diversified
platform on which to further build.
Garbutt: Henderson was identified
as a firm that aligned with our global
aspirations, had a similar approach to
risk and offered an excellent cultural fit.
TIAA-CREF also brings a strong balance
sheet to the JV with available capital to be
deployed into the business. We anticipate
investing $1.5bn in real estate in Europe
and Asia over the next few years which
will be managed by the JV.The capital
will be utilised both for seed capital and
for co-investment purposes and will
help position the JV to take maximum
advantage of the opportunities in the
current market environment and boost its
assets under management.
McAndrews: Both companies are well
respected investors and are focused on
growing their core businesses and serving
their clients.We are strategically aligned in
our investment approach, using research
to identify assets that have the potential for
growth. Having greater access to capital
and expertise will enhance the JV’s ability
to build scale, to innovate and to deliver
a number of compelling new investment
opportunities to new and existing clients.
Where do you see the biggest
opportunities for the JV in Europe and Asia
Pacific today?
Sales: In Europe, the challenges faced by
banks still dealing with the repercussions
of the global financial crisis have created
an attractive lending environment as
they continue to shrink their balance
sheets, most notably to commercial real
estate. As a result, we believe there is an
opportunity for institutional investors to
enhance their investment portfolios by
widening their exposure to a broad range
of senior secured asset classes such as
real estate debt.
Wood:The new venture will offer
commercial real estate debt investment
opportunities to clients and will leverage
the resources, track record and experience
of TIAA-CREF’s U.S. real estate debt team
to augment a new dedicated team in
Europe. In many ways, this transaction is
a specific response to the evolution of the
property investment landscape; in recent
years, scale and access to capital have
become increasingly important factors to
success in real estate asset management.
We’ve seen an increasing expectation on
the part of investors for the investment
manager to demonstrate an alignment of
interest through co-investment or seeding.
Garbutt: In Europe, we see the U.K.,
Germany and France as strong
opportunities due to their high levels of
liquidity and transparency, and robust
legal structures. In Asia Pacific, we
believe Singapore and Australia offer
similar favorable characteristics along
with the added benefit of direct exposure
to Asia’s growth cycle.Top-quality, well-
located office and retail properties in
the “gateway” cities of London, Paris,
Munich, Berlin, Singapore, Sydney and
Melbourne are considered to be well
positioned to benefit from the ongoing
global economic recovery.
Darkins: In the coming year, apart from
major changes yet to come for fiscal and
sovereign debt situations in the U.S. and
Europe, a number of key socio-political
events are expected to have significant
impacts on the Asia Pacific region’s capital
and property markets.We believe China
is a particularly attractive growth market
for luxury goods retailers due to its large
population, high number of densely
populated large cities, growing affluence
and local consumers’ appetite for luxury
as well as for globally recognized brands.
Any scheme that brings like-minded
retailers together and provides the quality
of shopping experience the discerning
Chinese consumers will increasingly
demand, while offering attractive prices,
should perform very well.
For any questions relating to the JV, please
contact: Andrew Friend, Head of Investor
Relations, Property - Henderson Global Investors
T: +44 (0)20 7818 2439
E: andrew.friend@henderson.com
For questions regardingTIAA-CREF Asset
Management, please contact:
Kevin Maxwell (east coast), Managing Director
T: 212 916-4812
E: kmaxwell@tiaa-cref.org
Deborah Ulian (west coast), Senior Director
T: 415 882-3507
E: dulian@tiaa-cref.org
SPECIAL ADVERTISING SECTION

Column Financial Commercial Property Loans Most Delinquent as of Aug. 2
Rank Loan Originator Current Balance
Delinquent
Balance
Total number
of Loans
numer of
Delinquent
number of
Bankrupt
1 Column Financial 29,366,675,496 3,233,804,152 6,415 287 16
2 Wachovia Bank NA 46,465,858,224 7,833,052,008 3,486 231 9
3 LaSalle Bank National Association 17,135,605,143 2,324,031,022 5,156 216 11
4 Lehman Brothers 23,530,325,065 2,278,242,796 3,950 158 5
5 JPMorgan Chase & Co. 51,992,587,189 3,527,980,464 4,855 157 8
6 Bank of America, NA 43,011,202,850 3,410,532,832 4,155 146 3
7 Greenwich Capital 19,679,316,023 4,030,009,384 1,866 138 5
8 Merrill Lynch & Co. Inc. 14,100,565,160 3,038,100,534 2,301 102 4
9 CRF 9,506,658,567 1,329,518,433 1,293 101 10
10 CIBC 10,948,935,231 1,247,228,870 1,805 90 7
11
Morgan Stanley Mortgage Capital
Holding
18,240,019,611 1,042,089,212 1,712 89 2
12 German American Capital 25,143,967,646 1,951,012,769 1,678 86 7
13 UBS AG 22,436,757,586 2,053,776,839 2,408 83 2
14 CGM 12,225,137,579 1,277,988,375 1,057 81 2
15 PNC 11,542,619,170 778,350,868 1,768 77 5
16 Bridger Commercial Funding 2,779,294,513 439,441,887 966 72 2
17 General Electric Capital Corp. 8,601,960,168 719,135,715 2,849 69 1
18 Wells Fargo Bank, NA 34,975,724,086 684,907,343 5,399 68 3
19 Goldman Sachs 31,705,921,459 1,727,559,887 1,602 67 1
20 Washington Mutual Bank 1,725,023,265 81,645,298 2,353 66 5
21 Bear Stearns Co. Inc. 15,816,020,847 1,543,315,183 2,394 59 2
22 NCCI 5,674,999,555 587,565,507 963 43 6
22 Barclays 8,232,716,011 878,304,641 790 43 2
24 Artesia Mortgage Capital Corporation 2,861,581,774 515,409,629 937 38 1
24 Morgan Stanley 14,084,460,475 319,590,862 2,171 38 0
Among underwriters of commerical mortgage loans resold as CMBS Column Financial had the most number of delinquent mortgage
loans as of Aug. 2, according to Bloomberg LP. The underwriter had 287 delinquent loans for commercial real estate properties. Com-
mercial mortgages underwritten by Wachovia Bank and LaSalle Bank NA were also more likely to see delinquencies; Wachovia had 231
of 3,486 mortgages delinquent and LaSalle had 216 of 3,486 delinquent as of Aug. 2.

Mall owners, the best-performing
U.S. property stocks for four years,
have tumbled to the worst as sluggish
retail sales and limited opportunities to
expand drive investors to look elsewhere
for earnings growth.
Real estate investment trusts that own
regional malls reported the smallest
increase in tenant sales per square foot
in three years in the second quarter, ac-
cording to data compiled by Bloomberg.
Nordstrom Inc. cut its revenue fore-
cast for the year and Macy’s Inc. and
Aeropostale Inc. disclosed declines in
consumer purchases.
Slowing sales among retailers and
rising borrowing costs are sparking
concern that mall landlords, including
the two largest, Simon Property Group
Inc. and General Growth Properties
Inc., could be hurt too.
Mall REITs have enjoyed strong ten-
ant- sales growth since the credit crisis
and recession, letting them increase
rents. Now they face difficult compari-
sons to past results and limited avenues
for external expansion.
“REITs have had a tough year across
the board, and the mall REITs have had
a tougher year in general,” said Benja-
min Yang, an analyst at Evercore Part-
ners in San Francisco. “Fundamentals
are good but they’re slowing down.”
The Bloomberg mall REIT index has
fallen 5.2 percent this year, the worst
performing part of the industry, after
posting the biggest increases from
the start of 2009 through 2012. Even
shares of outlet-center operator Tanger
Factory Outlet Centers Inc., whose
sole business is in one of the best-per-
forming segments of the retail-property
market, are down 5.2 percent this year.
Growth in mall-tenant sales, which
rose 4.3 percent in the second quarter
from a year earlier, peaked in the three
months through June 2012 and has
slowed each quarter since, according to
Bloomberg Industries.
Simon Property and General Growth
last quarter beat analysts’ estimates for
funds from operations, a measure of
cash flow used by the REIT industry.
While results have been positive for
mall REITs overall, they’ve been over-
shadowed by the potential impact of
higher borrowing costs on property valu-
ations, said Keith Bokota, an analyst at
Principal Global Investors, part of insur-
ance and financial services company
Principal Financial Group Inc.
“When we look at the fundamentals
that these companies are delivering,
they’re strong,” said Bokota, whose
Des Moines, Iowa-based firm owned
shares of mall REITs including Simon
and Taubman Centers Inc. at the end
of July. “The rising interest rates have
impacted the way REITs have traded
recently.”
The 10-year Treasury yield has climbed
to 2.9 percent from 1.63 percent on May
2, its low for the year, while the Bloom-
berg mall REIT index has fallen 18 per-
cent since May 21, its high for 2013.
The cost of raising money from the
commercial mortgage-backed securities
market has also increased.
Top-ranked bonds linked to commer-
cial mortgages are yielding 129 basis
points more than Treasuries from 88
basis points on Jan. 14, according to
a Bank of America Merrill Lynch index.
The spread peaked at 153 basis points,
or 1.53 percentage points, on July 8.
Simon shares have fallen 18 percent
since May 21, even as the company
on July 29 reported an increase in
second-quarter funds from operations
and raised its FFO forecast for the year
as it redevelops centers domestically
and expands overseas. “Our business
is strong and our cash flow is growing,”
Chairman and Chief Executive Officer
David Simon said.
Aside from higher borrowing costs,
REITs have few chances to buy high-
quality malls because those properties
rarely come on the market, with pub-
licly traded landlords owning most of
the best-performing centers, said Rich
Moore, an analyst at RBC Capital Mar-
kets in Solon, Ohio.
“They’re so lucrative that no one gets
rid of them,” he said.
Regional-mall transactions are down
49 percent to $4.5 billion this year from
the same period in 2012, according to
Real Capital Analytics Inc., a commer-
cial-property research firm in New York.
“There continues to be robust demand
from investors for these high-quality
assets,” Bokota said. “There’s just a
scarcity characteristic.”
Slowing sales in the second quarter
were reported by retailers including tra-
ditional mall anchor Macy’s, and apparel
chains Aeropostale and Abercrombie &
Fitch Co. said traffic at stores declined.
Nordstrom, the Seattle-based depart-
ment-store chain, last month lowered
its total-sales forecast for the year to an
increase of 3 percent to 4 percent, down
from a previous estimate of 4 percent
to 6 percent. Cincinnati-based Macy’s
cut its forecast for earnings for the year
ending in January as sales at stores
open at least a year fell 0.8 percent in
the second quarter from a year earlier.
Aeropostale, a New York-based cloth-
ing store that targets young people,
said on Aug. 22 that second-quarter
net sales fell 6 percent and comparable
sales, including online sales, dropped
15 percent.
Mall owners may be cushioned from
the impact of their tenants’ slowing
sales because occupancies are high,
said Cedrik Lachance, an analyst at
Green Street Advisors Inc. in Newport
Beach, California.
At regional malls, which typically
include department stores, vacancies
fell to 8.3 percent in the second quar-
Mall Owners Go From First to Last as Spending Slows
The malls are currently
better occupied than they’e
ever been.That does pro-
vide some pricing power
to the landlords despite
some softness emerging in
retailer sales.

ter from 8.9 percent a year earlier, and
rents rose to $39.62 a square foot from
$39.12, according to data from New
York-based research firm Reis Inc.
“The malls currently are better occu-
pied than they’ve ever been,” Lachance
said. “That does provide some pricing
power to the landlords despite some
softness emerging in retailer sales and
retailer profitability.”
The struggles of J.C. Penney Co.
have led to questions about the health
of malls. While the decline in sales has
slowed under new CEO Mike Ullman,
they were down 12 percent in the second
quarter. That compared with a 23 percent
decline a year earlier, when former CEO
Ron Johnson led the company.
The company owns 429 of the 1,104
department stores it operates in the
U.S. and Puerto Rico, according to the
company’s latest annual report.
Even if J.C. Penney got into more seri-
ous trouble, the impact on mall REITs
would be minimal – and “it’s highly
unlikely” it will disappear, said Moore of
RBC Capital Markets.
“Most of the landlords would tell you
they would love to get their J.C. Pen-
ney box back,” Moore said, adding that
the stores could be rented to another
department-store chain or torn down
and replaced with smaller shops, movie
theaters or restaurants. “Most of these
guys would say, ‘Great.’”
Outlet centers, where brand-name
retailers sell goods at discounted prices,
are performing better than other retail
property types as consumers seek more-
affordable apparel and other goods,
according to Craig Guttenplan, a REIT
analyst at CreditSights Inc. in London.
“Consumers like the bargains still,” he
said. “They’re still cautious on spending.”
The popularity of outlet centers has led
some traditional-mall REITs, including
CBL & Associates Properties Inc.,
Taubman and Macerich Co., to enter
the business.
Chudi Aguanunu, who works at Street
Talk, a mobile-phone accessories kiosk
in Macerich’s Shops at North Bridge on
Chicago’s Michigan Avenue, goes to out-
let malls or online when he wants some-
thing. The Shops at North Bridge, which
caters in part to tourists, has stores
including Nordstrom and Hugo Boss.
“It’s got to be at a good price,” said
Aguanunu, 25, a former walk-on of-
fensive lineman with the University of
Illinois football team. “I’m not going to
spend $100 for a T-shirt.”
The shares of Tanger, which operates
only outlet malls, may be under pres-
sure because of increased competition
from other landlords expanding into the
business, said Yang of Evercore.
Greensboro, North Carolina-based
Tanger owned and operated 36 outlet
centers as of June 30, and held stakes
in seven other properties, including
three in Canada, according to a regula-
tory filing.
“There’s clearly an abundance of new
players in a sector that for the most part
is much healthier than the malls,”Yang
said. “During and following the recession,
consumers were clearly looking for value.”
Hoteliers and self-storage landlords
are the top-performing REIT sectors this
year. Since REIT shares peaked on May
21, lodging and storage companies have
fallen less than other groups, while the
performance of single-tenant, health-
care and mall REITs – which have
longer leases, giving them less flexibility
to raise rents – has been among the
worst as other REIT types become more
appealing to investors.
“It’s all about choices,” Yang said.
“There appear to be more-attractive,
better-accelerating core growth stories,
perhaps, in some of the other sectors.”
With few high-quality malls for sale,
landlords are focusing on sprucing up
their existing properties to boost
traffic and rents at their properties.
“The one other growth avenue that a
lot of the companies are pursuing is ac-
tive redevelopment,” Bokota said. “That’s
where they’re putting a lot of their cash
flow and new dollars to work.”
Simon, based in Indianapolis, had
$212 million in mall redevelopment proj-
ects in progress in the second quarter,
with a projected rate of return of 8 per-
cent, according to a regulatory filing.
The figure is Simon’s share of con-
struction costs at properties it owns
outright or has an ownership stake.
Chicago-based General Growth has
invested $356 million on redevelopment
and expansion with an expected return
of as much as 11 percent, according to a
regulatory filing.
General Growth said it spent $567 million
repurchasing shares at an average price of
$20, mostly from Bill Ackman’s Pershing
Square Capital Management LP.
Pershing was the second-largest in-
vestor in General Growth, holding about
68 million shares as of June 30, accord-
ing to data compiled by Bloomberg.
The New York-based hedge-fund firm
previously sold about 7 million shares
of the mall landlord in June, the data
show. “This is a discount to private-
market valuation for high-quality U.S.
retail properties,” General Growth Chief
Executive Officer Sandeep Mathrani
said in the statement.
Shares of Simon – which has 22 buy
ratings from analysts, five hold s and
no sells, according to data compiled by
Bloomberg, and is the largest U.S. out-
let-mall owner – have fallen 18 percent
since the REIT slide began in May.
That decline led Paul Adornato, an
analyst at BMO Capital Markets in New
York to upgrade Simon’s shares on Aug.
23 to outperform, the equivalent of a
buy, based on the company’s valuation.
“We like their business mix,”Adornato said
in a telephone interview.“They have the
greatest exposure to the outlet business.”
— Brian Louis (Bloomberg News)
MONITOR LIQUIDITY
FOR MULTIPLE BONDS FIW
<GO>

IO Commercial Real Estate Loans Account for 28.32 Percent of This Year’s CMBS
0
10
20
30
40
50
60
70
80
90
100
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Partial IO IO Balloon Fully Amort
Source: Bloomberg LP CMB <GO>
This year, 28.32 percent of all commer-
cial mortgage debt bundled in securities
are interest only mortgages, according
to Bloomberg LP. Balloon mortgages
account for 28 percent of commercial
property debt resold into securities and
fully amortizing commercial property
mortgages – just over 40 percent of
all commercial mortgage debt resold
as bonds in 2011 – account for 22.81
percent of all commercial property
mortgages resold in securities.
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FOR CMBS
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Use of Agency Collateral in CMBS Grows After Credit Crisis
While commercial mortgage bond
transactions have come to rely more on
conduit debt, this source of collateral
for bonds has not returned to pre-crisis
levels. At the same time, agency debt
is accounting for more collateral in the
post-crisis market.
Year to date, agency debt in CMBS is at
$38.02 billion, according to data compiled
by Bloomberg LP.
In 2012, $51.68 billion worth of agency
debt was bundled in CMBS and $32.31 bil-
lion of conduit debt was resold in CMBS.
In 2007, $157.7 billion of conduit debt
was resold into CMBS and $1.4 billion of
agency debt was resold into CMBS.
0
50
100
150
200
250
2005 2006 2007 2008 2009 2010 2011 2012 2013
DollarVolume(Billions)
Other Japanese European Large Loans/Floaters Conduit Agency
0
50
100
150
200
250
300
12/31/97 12/31/01 12/31/05 12/31/09 12/31/13
(DollarVolume(Billions)
All U.S. All Non-U.S.
CMBS Issuance on Track to Beat 2012 Levels
Year-to-date, $88.1 billion worth of
commercial mortgage bonds has been is-
sued in the U.S. and $5.8 billion worth of
CMBS have been issued in Europe.
In 2012 issuance of commercial mort-
gage backed bonds in the U.S. totaled
$117.6 billion, up from $67.8 billion, accord-
ing to data compiled by Bloomberg LP.
The issuance of bonds backed by com-
mercial real estate debt hit a historic high
of $253.9 billion in the U.S. in 2007; in Eu-
rope, the historic high was seen in 2006
when $89.1 billion worth of commercial
mortgage backed bonds was sold.
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Florida Is Busiest With Residential Home Foreclosures, Delinquencies in Q1
Florida had the most single family home
loans that are 90 days or more delinquent
or are in the process of foreclosure in the
first three months of 2013, according to
the Mortgage Bankers Association. Ac-
cording to the MBA, 14.97 percent of the
state’s one to four unit residences were 90
days or more delinquent or in the process
of foreclosure.
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(Percentage of a state’s one-to-four unit homes 90 days or more delinquent)

GSE Reform Should Factor in The Possibility of Market Distortions, Higher Mortgage Rates
Given the recent
flurry of activity
in Washington, it
looks like housing
finance reform is
finally getting out
of the legisla-
tive dugout and
into the on-deck
circle.
Following the
February release
of a reform plan
by the Bipartisan
Policy Center’s
Housing Com-
mission, Sena-
tors Bob Corker
(R-TN) and Mark
Warner (D-VA)
introduced their
own far-reaching
proposal. Con-
gressman Jeb Hensarling (R-TX) also
drafted a comprehensive plan -- the Pro-
tecting American Taxpayers and Home-
owners (PATH) Act -- that has already
been approved by the House Financial
Services Committee.
More recently, President Obama
injected a jolt of energy into the debate by
announcing his “core principles” for reform.
What is striking about these proposals
are their many common elements:
■■ A recognition that the overwhelming
government footprint in the mortgage
market is unsustainable;
■■ A desire to introduce far more risk-
bearing private capital into the mortgage
system to enhance consumer choice
and reduce taxpayer exposure;
■■ The elimination of Fannie Mae and Fred-
die Mac over a multiyear transition period;
■■ The promotion of higher levels of
transparency in the mortgage market to
encourage greater involvement by the
private sector; and
■■ A recognition of the importance of com-
munity banks and other small lenders in
meeting America’s mortgage needs.
Unlike the PATH Act, both the Obama
plan and the Corker-Warner bill also
support the idea that the government
must function as the insurer of last
resort in the secondary market for
mortgage-backed securities to preserve
widespread access to the 30-year fixed
rate mortgage.
Here, too, the details are similar:
Under both plans, the government role
is explicit, private capital must be wiped
out before the government guarantee
is triggered, and the government must
collect actuarially fair premiums for the
insurance it provides.
Both plans call for a strong indepen-
dent regulator to enforce rules consis-
tent with these objectives.
Final passage of comprehensive legisla-
tion is unlikely by year’s end. Since nego-
tiations over the federal budget are bound
to consume Congress’ attention this Fall,
the most optimistic scenario is passage of
a reform bill sometime in 2014.
This timetable provides the opportunity
for a more rigorous examination of some
fundamental questions:
1. Will Private Capital Step Up?
There is broad agreement that more pri-
vate risk-bearing capital must enter the
system, but what is the evidence that
private capital will, in fact, assume more
risk? After all, private-label mortgage-
backed securities still account for less
than one percent of the overall market.
And if risk-bearing private capital is to
play a more prominent role, what form
will it take – a capital markets struc-
ture, private mortgage insurance, or a
combination of approaches? How much
additional private capital is needed to
replace the $5 trillion in credit risk as-
sumed by Fannie and Freddie?
2. Are We Prepared for Higher Mort-
gage Rates and Tougher Underwriting
Standards?
If private capital bears more risk in a
new system, it will insist on some com-
pensation to offset this risk. This ad-
ditional cost will be passed along to con-
sumers in the form of higher mortgage
rates. These rates are likely to increase
once the Federal Reserve dials back on
its asset purchase program. Private in-
vestors may also impose more stringent
underwriting requirements for loans if
expected to assume the “first loss” on
securities comprised of these loans. Are
American consumers prepared to accept
these changes?
3. Can the Government Effectively
Price Risk?
The Corker-Warner bill calls for the
creation of a “mortgage insurance fund”
that is built up over time by charging a
fee for each mortgage-backed security
benefiting from the government guaran-
tee. The goal is for the fund to accu-
mulate enough reserves so it absorbs
all losses in a severe market downturn
before the taxpayers are ever tapped.
But is the government capable of effec-
tively pricing risk and gauging what is an
“actuarially fair” fee? Alternatively, is the
private sector any better at pricing risk
than the government?
4. How Do We Encourage Access to
Credit Without Distorting the Market?
A stated aim of the reform plans is to
ensure broad access to mortgage credit
in all communities. But the plans also
reject the “affordable housing goals” that
were imposed on Fannie and Freddie on
the grounds they distorted the market
in harmful ways. How can we have
confidence that our new housing finance
system will be inclusive and fair consis-
tent with sound risk management? In
addition, how do we ensure that access
to the government-guaranteed second-
ary market is open on equal terms to
mortgage lenders of all types and sizes?
5. Is There Anything Worth Preserving
from the Current System?
As we transition to a new system, what
parts (if any) of Fannie and Freddie
should we maintain? Over the years, the
two institutions have assembled talented
teams and developed their own securitiza-
tion platforms to which market participants
have grown accustomed. The Federal
Housing Finance Agency, their regula-
tor, has now directed them to develop a
single, common platform that will serve
as the infrastructure of a new secondary
market. Is this the right way to go?
Nicolas Retsinas
Robert M. Couch

6. What are the First Transition Steps?
Even the harshest critics of Fannie and
Freddie acknowledge they cannot be
eliminated overnight without creating
immense market turbulence. But what
precisely are those first few steps in the
transition to a new system? To reduce
taxpayer exposure to credit risk, should
Fannie and Freddie offer risk-sharing
options to mortgage lenders at the
“point of sale,” as some have sug-
gested? Should they develop a common
security in the To-Be-Announced (TBA)
market, a step some consider necessary
for a more efficient secondary market?
A thorough examination of these
issues will improve the legislation that
Congress ultimately passes. If done in
a transparent and bipartisan manner,
the American people will benefit from a
more complete understanding of what’s
at stake and will have greater confi-
dence that the judgments reached were
the right ones.
— Nicolas P. Retsinas and Robert M. Couch
are members of the Bipartisan Policy Center’s
Housing Commission. Retsinas served as FHA
Commissioner in the Clinton Administration and
Couch, counsel to Bradley Arant Boult Cum-
mings LLP, served as Ginnie Mae President in
the George W. Bush Administration.
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Unlock value

Residential real estate
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
9/1/2011 1/1/2012 5/1/2012 9/1/2012 1/1/2013 5/1/2013 9/1/2013
MortgageRefinanceIndex
30-year fixed
mortgage rates
hit 4.57 percent,
according to
Freddie Mac.
Source: Mortgage Bankers Association OMBAREFI <INDEX> <GO>
Requests for Home Loan Refinancings Fall to Lowest Since April 2011
Requests from homeowners who want to
cut borrowing costs via a home loan refi-
nancing have declined as mortgage rates
have risen from historic lows, according to
data compiled by the Mortgage Bankers
Association.
The industry group’s mortgage refinance
index - a measure of applications for
single family home loan refinancings - fell
to 1,528.5 in the week ended Sept. 6.
That’s down from a historic high reading
of 5,888 on Sept. 28, 2012. This measure
of requests for home loan refinancings
was last this low on April 15, 2011 when it
was 1,872.0.
The index’s all time high was on May 30,
2003, when it hit 9,977.
—Aleksandrs Rozens
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
20
30
40
50
60
70
80
90
9/21/2007 1/21/2009 5/21/2010 9/21/2011 1/21/2013
30-YearMortgageRate(%)
RefinancingsAsPercentageofallLoans
Refis as Percentage of All Loan Applications 30-Year Mortgage Rate
Source: Mortgage Bankers Association
For Mortgage Lenders Focus Is Now on Supplying Credit to Buy Homes
Mortgage lenders likely will focus more
on loans to buy homes now that the
pace of refinancings has slowed.
Fifty-seven percent of all home loan ap-
plications in the Sept. 6, 2013 week were
requests to refinance an existing mort-
gage loan, down from the previous week
when they were 61.3 percent of all loan
applications, according to data compiled
by the Mortgage Bankers Association.
Mortgage rates for 30-year fixed loans
in the Sept. 6 week were at 4.57 percent;
in November 2012 they were as low as
3.31 percent.
A year ago, 79.7 percent of all mort-
gage loan applications were for refinanc-
ings and they were as high as 84 in the
Dec. 7, 2012 week.
30-year fixed mort-
gage rates hit 4.57
percent, in the week
ended 9/12/13, accord-
ing to Freddie Mac.

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